just On Call - Arca Continental open to investing in further M&A
Given Arca Continental's small amount of debt, the company is in a strong financial position to invest
Arca Continental has said that it is in a "strong financial position" to invest in further mergers or acquisitions, should the opportunity present itself.
Once separate firms, Embotelladoras Arca and Grupo Continental merged in January to create the second largest bottler of Coca-Cola Co drinks in Latin America. Speaking on the company's earnings call yesterday (26 October), chief executive Francisco Garza told analysts that the merged entity has a war chest of around MXN3bn (US$223m) for any future potential purchases.
"We are fully prepared to continue moving ahead," Garza said. "We have M&A people dedicated to looking for opportunities and people in the financing area. We are in a very healthy position financially speaking."
Garza added that the company's small amount of debt is an advantage.
"If it's an acquisition, we can leverage easily and I don't want to say that we are going to do that, but it depends on the opportunity," Garza said. "The company can get financing for US$1bn or so. So the issue of financing is not there. The market likes the company ... and if it's an acquisition it's an acquisition, if it's a merger, it's a merger, if it's a combination ... we are flexible and this company was created in that way originally. If our foundation is coming from that, then we are flexible to be in that process again."
The Mexican soft drinks bottler yesterday reported an increase in pro-forma profits for the first nine months of 2011, driven by higher sales. Net profits increased by 4.6% on a pro-forma basis to MXN2.94bn, and sales jumped by 14.8% to MXN30.84bn.
Arca has been gaining market share across all categories in its main market, Mexico, Garza told analysts. However, like most companies, it is facing challenges from rising raw material costs.
The company's cost of goods sold increased by 15.8% in the third quarter, compared to last year, as a result of higher PET and sugar prices.
However, Garza said the company expects to cover all of its sugar needs in Mexico from its own sugar mill, while it has also negotiated corn prices for its high-fructose corn syrup next year.
Arca Continental's share price was up 1.71% to US$4.49 at close of trading yesterday.
Companies: The Coca-Cola Company
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