Coca-Cola Femsa S.A.B. de C.V.

The negative outlook on the global scale rating on KOF currently reflects a potential one-notch downgrade if we were to lower our sovereign rating on Mexico (foreign currency: BBB/Negative/A-2), which would in turn lower our weighted average rating on the sovereign ceiling (Mexico and Brazil). Although very unlikely in the next 12 to 24 months, we could revise downward KOF's SACP if the company's key credit metrics don't remain in line with its existing financial risk profile, with adjusted net debt to EBITDA consistently above 2.0x. This could occur if the company's top-line growth and EBITDA margins significantly worsen due to lower-than-expected consumption trends and higher operating costs, or if exchange rate volatility increases beyond our expectations. This could also

...KOF's revenues should approach pre-pandemic levels by the end of 2021. The vaccination progress, greater consumer mobility, and ongoing economic recovery are lifting consumption in Latin America and Coca-Cola Femsa S.A.B. de C.V.'s (KOF's) on-premise sales (about 15% of its consolidated sales), while at-home consumption remains strong this year. We expect KOF to continue leveraging its affordable portfolio across its key markets and channels, accelerating its presence in digital and direct-to-home channels, and maintaining its effective pricing strategy. Thus, we anticipate KOF's revenues in Mexican pesos to approach pre-pandemic levels (about MXN194 billion) by year-end 2021, despite exchange rate volatility. Despite rising costs of raw materials and exchange rate volatility, we expect KOF's EBITDA margins to be near 20% in the next two years. Strict cost controls, effective price adjustments at inflation or above, and an active hedging strategy to cover a large part of raw material and...

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