Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported results for the fourth quarter and full year ended December 31, 2012. All figures, including those for prior periods, are expressed in accordance with International Financial Reporting Standards (IFRS).
Performance in the period was largely in line with the trends noted during previous quarters of the year. Underlying improvements across multiple markets, most notably volume recovery in the United States, were somewhat offset by the lower than expected performance in Brazil where a soft consumption environment was compounded by expenses incurred in adjusting the Company´s business model in that operation, primarily in the distribution strategy.
Sales in the fourth quarter of 2012 rose 8,9 percent from the year ago period to 45,3 billion MXN, reflecting organic growth of 3,1 percent driven by Mexico and Latin America and 5,8 percent from the integration of the Sara Lee operations in the United States and Iberia, as well as Fargo in Argentina.
The consolidated gross margin expanded 70 basis points from the year ago period to 51,3 percent, driven by lower raw material prices and the benefit of F/X rates in Mexico.
Profit margin before other income + expenses in the fourth quarter expanded 20 basis points to 6,8 percent, benefited by gross margin expansion but partially offset by: i) a higher cost structure from Sara Lee operations; ii) investments in expansion in Latin America and the United States; and iii) non-cash charges in Brazil related to a restructuring process in that operation.
The operating margin was 4,9 percent; a 1,5 percentage point contraction from last year, due to integration-related expenses.
Net majority income declined 1,8 percentage points to 0,4 percent, reflecting performance at the operating level and a notably higher effective tax rate.
Mexico
Net sales in the fourth quarter rose 5,5 percent to 18,2 billion MXN, reflecting stable volume growth across all channels and categories that was supported by ongoing sales execution initiatives to improve volume at the point of sale. Sales rose 9,5 percent in the full year.
United States
Net sales totalled 20,4 billion MXN in the quarter, a 6,2 percent rise over the year ago period that reflected the benefit of one additional month of Sara Lee operations in 2012 compared to 2011, pricing actions taken in late November and volume growth at the end of the period due to new opportunities in the marketplace. These gains were partially offset by a less favourable Dollar-Peso exchange rate; sales in Dollar terms would have risen 11,1 percent. Sequential volume growth continued to trend positively, with the sweet baked goods and breakfast categories outperforming in the period.
The high basis of comparison from last year should be noted, whereby in the fourth quarter of 2011 the full year contribution from independent distributors (IOs) was recorded, whereas the fourth quarter of 2012 only reflected the contribution corresponding to the quarter. Net sales in the full year rose 46,7 percent.
Latin America
Net sales rose 4,9 percent over the same quarter of last year, to 6,0 billion MXN. While markets such as Chile and Colombia outperformed in the period, a weaker consumption environment in Brazil put pressure on regional volume performance. Cumulative net sales in 2012 rose 23,5 percent.
Iberia
With a full fourth quarter of sales in 2012 and only one month in 2011, sales performance is not comparable, although in line with expectations.
Gross Profit
Consolidated gross profit in the quarter rose 10,4 percent from the year ago period, while gross margin expanded 70 basis points to 51,3 percent, reflecting lower input costs across every region in the quarter, combined with the benefit of FX rates in Mexico. This was not sufficient to offset performance in the first nine months of the year, thus consolidated gross margin for the full year 2012 declined 30 basis points to 50,7 percent.
Operating Expenses
Operating expenses in the fourth quarter as a percentage of sales increased 50 basis points in comparison to the prior year, to 44,5 percent. This reflected a combination of: i) the higher expense structure of the Sara Lee operations in the US, particularly in the distribution network; ii) higher distribution in Mexico; and iii) in Brazil, one time non-cash charges related to the restructuring process, most notably in distribution and IT.
These effects were partially offset by the benefits obtained from synergies and waste reduction initiatives in the United States totalling approximately 44 million USD and credited to operating expenses. For the full year, synergies and waste reduction initiatives generated approximately 120 million USD in savings.
Additionally, as a result of IFRS compliance, operating expenses benefited from the reclassification of the annual financial expense relating to pension funds in the US and Mexico. The 513 million MXN reclassified from operating expenses to financial expenses (thus impacting the Comprehensive Financing Result in the period) compares to the 265 million MXN similarly reclassified in the fourth quarter of 2011.
Operating expenses represented 44,6 percent of net sales in 2012, compared to 43,5 percent in the 2011.
Profit before Other Income + Expenses
The consolidated profit before other income + expenses in the fourth quarter rose 13,5 percent to 3,1 billion MXN, while the margin expanded 20 basis points to 6,8 percent, as operating expenses partially offset the gross margin expansion. For the full year, profit before other income + expenses rose 3,8 percent to 10,5 billion MXN.
Operating Income
Operating income in the fourth quarter reflected the aforementioned performance, combined with Other Income + Expenses resulting primarily from integration expenses in the United States (56 million USD), Iberia (eight million USD) and Latin America (nine million USD). This led to a 16,9 percent decline in operating income to 2,2 billion MXN and a 1,5 percentage point reduction in the margin to 4,9 percent. For the full year, operating income fell 26,1 percent, while the margin contracted 3,1 percentage points.
Comprehensive Financing Result
Comprehensive financing resulted in a 869 million MXN cost in the fourth quarter, compared to a 830 million MXN cost in the same period of last year. This reflected a combination of: i) an increase in interest expense from the rise in interest rates related to the extended average life of debt; ii) the aforementioned reclassification of pension fund expenses in Mexico and the United States, which had previously been expensed as an operating item; and iii) a lower exchange gain, 13 million MXN compared to 46 million MXN in the prior year.
On a cumulative basis, the comprehensive financing result totalled a 2’804 million MXN cost in 2012, compared to a 1’596 million MXN cost in the same period of last year, due to the aforementioned factors and a 91 million MXN exchange loss compared to a 652 million MXN gain in the previous period, arising mainly from Dollar-denominated cash holdings used to pay for the Sara Lee North American Fresh Bakery business.
Effective Tax Rate
The effective tax rate for the fourth quarter 2012 increased notably to 82,0 percent compared to 40,3 percent last year. This reflects mainly a more conservative approach towards the expected recovery of previous fiscal losses in Brazil, in accordance with IFRS. This new approach suggests that the amortization of previously registered losses may take longer than initially expected. To reflect the aforementioned, a tax charge was registered during the period to partially cancel deferred income tax benefits. Notwithstanding, the Company retains its legal right to amortize any losses in that market indefinitely.
The effective tax rate for 2012 increased 11,7 percentage points to 47,3 percent, mainly on the tax charge in the fourth quarter.
Net Majority Income
Net majority income in the fourth quarter fell 80,7 percent compared to the fourth quarter of last year, to 176 million MXN, while the net majority margin contracted 1,8 percentage points to 0,4 percent. Along with operating performance and higher financing costs, the company was subject to a higher effective tax rate.
Operating Income plus Depreciation and Amortization (Ebitda)
Ebitda declined 7,3 percent to 4,1 billion MXN in the quarter, while the margin contracted 160 basis points to 9,0 percent. This reflects performance at the operating level.
Consolidated Ebitda for the year declined 1,5 percent to 14,1 billion MXN, while the margin contracted 2,7 percentage points to 8,1 percent.
Financial Structure
The Company´s cash position as of December 31, 2012 totalled 4,3 billion MXN, compared to 4,0 billion MXN in December 2011. Total debt at December 31, 2012 was 42,3 billion MXN, compared to 47,1 billion MXN in December 2011. This reflected payments of 2,9 billion MXN during the course of the year. The average maturity is 5,9 years with an average cost of debt of 4,5 percent.
The total debt to Ebitda ratio was 3,0 times compared to 3,3 times at December 2011.
Long-term debt comprised 96 percent of the total; separately, 95 percent of the debt was denominated in U.S. dollars, maintaining a natural economic and accounting hedge on total debt and in alignment with the Company´s strong cash flow in Dollars.
