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Fitch affirms Coca-Cola European Partners on stable operating performance

Fitch Ratings on Dec. 6 affirmed Coca-Cola European Partners PLC's long-term issuer default rating at BBB+ with a stable outlook, citing the British Coca-Cola Co. bottler's stable operating performance in 2019-2022, among other factors.

The rating agency said Coca-Cola European Partners has a low-to-mid single-digit revenue growth and resilient profitability, which translates to healthy operating cash flows.

Fitch said the company's ratings are supported by its strong positions in western Europe's soft drinks markets and its position as the largest Coca-Cola bottler worldwide on a revenue basis.

Despite the impending sugar tax implementation in the U.K. and France, Fitch said Coca-Cola European Partners PLC will likely see modest pressure on volume in 2019 and limited impact starting 2020.

The company "was able to limit the negative impact from sugar taxes on its volumes in 2018-2019 with the expansion of its diet and zero-sugar portfolio through reformulation, and introduction of the smaller/differentiated packaging size," Fitch said.

The agency expects Coca-Cola European Partners' revenue to grow 3.9% and EBITDA margin to rise modestly to 18.3% in 2019. Dividends are expected to grow 17% during the year and capital expenditure to make up about 5% of revenues in 2019-2022.

Fitch said it could upgrade the ratings if the company's funds from operations-adjusted net leverage stay below 3.0x or if the bottler sees significant additional geographic diversification without impairing profitability.

Meanwhile, the agency said it could downgrade Coca-Cola European Partners if it sees persistent declines in volumes, if funds from operations-adjusted net leverage stay above 4x or if the company implements a change in financial policy that results in material debt-financed share repurchases or special dividends.

Fitch added that it could also downgrade the group's rating if it significantly reduced its strategic or operational ties with Coca-Cola.