ANDINA BOTTLING CO INC annual report, Q4 FY2023

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Embotelladora Andina S.A. (Andina Bottling Company) — FY2023 Form 20-F

Filing and period: Annual report filed March 27, 2024, for the fiscal year ended December 31, 2023. Andina is a Chilean Coca-Cola bottler and beverage distributor operating in Chile, Brazil, Argentina and Paraguay. Financial statements are prepared under IFRS and presented in Chilean pesos. Figures below are consolidated; Ch$ amounts are millions unless stated otherwise. This is an annual filing, not a standalone Q4 report.

Financial and operating performance

  • Revenue and volume: Net sales were Ch$2,618,437, down 1.4% from 2022. Sales volume rose 1.0% to 882.6 million unit cases. Soft drinks represented 62.2% of net sales, versus 64.0% in 2022.
  • Profit and margins: Gross profit was Ch$1,016,440, down 1.1%; gross margin increased to 38.8% from 38.7%. Net income rose 35.8% to Ch$174,511, or 6.7% of sales, compared with 4.8% in 2022. The improvement included lower inflation-indexation losses and lower income tax expense; it did not reflect revenue growth.
  • Operating costs: Cost of sales declined 1.6%, to Ch$1,601,997, and was 61.2% of sales. Distribution and administrative expenses fell 3.5% to Ch$659,103, or 25.2% of sales, partly reflecting currency translation effects. Financial expenses rose to Ch$65,288 from Ch$59,548.
  • Cash flow and investment: Operating cash flow was Ch$366,830, down from Ch$397,452. Investing activities used Ch$158,289, versus Ch$85,168 used in 2022; cash purchases of property, plant and equipment were Ch$192,707. The separate country-level capital expenditure disclosure reports Ch$222,620 for 2023, up from Ch$173,675 in 2022.
  • Liquidity: Cash and cash equivalents were Ch$303,684 at year-end. Current assets were Ch$981,771 and current liabilities Ch$692,871. The company reported Ch$115,016 of unused short-term credit lines and said available cash, operating cash generation and debt-market access should meet requirements for the next 12 months and beyond.
  • Debt: Other financial liabilities on the balance sheet totaled Ch$1,097,323, including Ch$52,997 current and Ch$1,044,326 non-current. The debt disclosures show Ch$989,893 of bond face value and Ch$14,904 of bank debt; lease obligations were Ch$34,738. The company reported covenant net financial debt of Ch$647,365, average net financial debt over four quarters of Ch$671,538 and LTM EBITDA of Ch$443,667, with a leverage ratio of 1.51x. It stated that it complied with all debt covenants.
  • Balance sheet: Total assets were Ch$2,921,521, down from Ch$3,010,701; total equity rose to Ch$920,985 from Ch$883,403. Intangible assets other than goodwill were Ch$695,927, including Ch$664,877 of indefinite-life distribution rights.

Material changes versus 2022

  • Brazil was the principal growth contributor: volume increased 8.2% and net sales rose 17.0% to Ch$745,383. Chile volume declined 3.1%, while net sales grew 6.1% to Ch$1,191,974, primarily on higher average prices.
  • Argentina’s reported net sales fell 33.2% to Ch$460,338, mainly from translation of results into Chilean pesos, as well as lower volume and price controls. In local currency, sales declined 4.0% in real terms; volume fell 3.5%.
  • Paraguay volume increased 4.3% and net sales rose 5.4% to Ch$223,841. Consolidated volume growth was partly offset by declines in Chile and Argentina.
  • Cost of sales per unit case decreased 2.6% overall, but cost pressures persisted, including higher sugar costs across all four countries and higher concentrate costs in Chile and Paraguay. Lower PET resin costs partly offset these pressures.
  • Current liabilities fell 27.0%, mainly following repayment at maturity of the 144A bond. In September 2023, Andina issued CHF170 million of five-year bonds at a 2.7175% coupon, principally to refinance the maturing US$365 million Senior Notes and fund Brazilian investment.
  • Other expenses included a Ch$25,530 loss from assigning a receivable originally related to Argentine-peso subsidiary dividends to a financial institution at a discount. Cash dividends paid by the company in 2023 were Ch$165,877.

Outlook, risks and contingencies

  • Investment outlook: Andina budgeted approximately US$250 million in 2024 capital expenditures, focused on Brazilian production capacity, Argentine returnable beverages, Chilean logistics and water efficiency, wastewater treatment, fleet renewal and technology. It expects internally generated funds to finance a large portion; plans may change with market and economic conditions. No specific 2024 revenue or earnings guidance is provided.
  • Management commentary: Management said COVID-19 had no significant operational effect in 2023 and channel mix had returned to pre-pandemic levels. It cited volume growth in Brazil and Paraguay, pricing in Chile, and Argentine translation, price-control and demand challenges.
  • Argentina and currency exposure: Argentina remained hyperinflationary under IAS 29; reported results use closing exchange rates for translation. The filing reports 2023 Argentine CPI inflation of 211.4% and peso depreciation of 356% against the U.S. dollar. Exchange controls may restrict dividend remittances. Foreign exchange movements can also affect translated results and the cost of dollar-denominated inputs across the group.
  • Material tax proceedings in Brazil: Rio de Janeiro Refrescos is disputing IPI claims of approximately R$3.445 billion and corporate income tax claims of approximately R$960 million. The company contests the claims; external counsel characterizes the likelihood of loss in these matters as possible or remote. These amounts are not the same as the company’s recorded provisions.
  • Recorded provisions and other litigation: Provisions for probable litigation losses totaled Ch$54,802, up from Ch$48,695, mainly relating to Brazil. The company also reported substantial Brazilian court deposits and guarantees. It said it was not aware of pending material regulatory proceedings other than those disclosed.
  • Franchise dependence: Coca-Cola bottler agreements are central to the business and renewable at The Coca-Cola Company’s discretion. The filing gives different Chile agreement expiry information: the business section says December 2024, while the financial-statement note says December 2023 and describes renewal as in process. The exhibit list also identifies a March 6, 2024 amendment to the Chile agreement. Brazil, Argentina and Paraguay agreements are stated to expire in October 2027, September 2027 and March 2028, respectively.
  • Other risks: Key exposures include competition and pricing, sugar and packaging costs, foreign exchange, inflation and interest rates, water availability, climate and environmental regulation, labor relations, political and regulatory uncertainty, and cybersecurity. Management reported no known material cybersecurity incident. Annual impairment testing found no impairment of the principal cash-generating units, but the company recorded a Ch$1,627 impairment for AdeS-related rights in Chile.
  • Audit and controls: The auditors issued an unmodified opinion on the IFRS financial statements and concluded internal control over financial reporting was effective as of December 31, 2023. The audit identified impairment testing of indefinite-life distribution rights and goodwill as a critical audit matter.

Important facts for investors to verify

  • Reconcile the filing’s debt disclosures: it reports Ch$906,223 of aggregate note principal in one section, while the financial-statement bond table reports Ch$989,893 of bond face value. Confirm definitions, measurement basis and treatment of hedges before comparing leverage.
  • Confirm the effective renewal term and territory coverage of the Chile Coca-Cola bottler agreement, given the inconsistent expiry dates and the listed March 2024 amendment.
  • Track the Brazilian IPI and corporate-income-tax proceedings, associated guarantees and court deposits, and whether any change in legal assessment requires a provision.
  • Assess the impact of Argentine inflation, exchange controls and the official exchange rate used in consolidation on reported revenue, earnings, cash conversion and dividend remittances.
  • Compare the Ch$222,620 country-level capital expenditure disclosure with Ch$192,707 of cash purchases of property, plant and equipment, including timing and scope differences; monitor execution of the approximately US$250 million 2024 plan.
  • Review the sensitivity of the Ch$664,877 distribution-rights balance and Ch$122,104 goodwill to assumptions about discount rates, growth and operating margins, as well as the AdeS Chile impairment.