Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported its results for the six months ended June 30, 2016. Financial highlights for the first half 2016 include:
- Net sales rose 13.4 percent due to an FX rate benefit in North America and Europe and solid organic growth in Mexico
- Gross margin expansion of 100 basis points was driven by lower raw material costs in North America and Europe
- Operating income increased 32.8 percent, with a 100 basis point expansion in the margin, due to the aforementioned raw material benefit and, to a lesser extent, lower restructuring expenses
- Adjusted Ebitda2 margin expanded 110 basis points, reflecting margin improvement in most regions
- Net majority income grew 22.7 percent, with a 20 basis point expansion in the margin
Mexico
Net sales in Mexico rose 6.5 percent over the same period of 2015, driven by stronger volumes in all sales channels, most notably the modern. Outperforming brands in the period included Oroweat, Tia Rosa, Barcel and Marinela, and almost every category posted solid growth. Of particular note, the sweet baked goods category reversed its past trend and generated sales and volume growth in the second quarter, as a result of focused promotions and in-store execution.
North America
Net sales in Peso terms grew 19.8 percent in the first half of the year largely as a result of the exchange rate benefit, while Dollar-denominated sales increased a slight 1 percent. Volume pressure in the private label bread category in the US and competitive pressure in the bread category in Canada more than offset sales growth in strategic brands, the frozen business and the snacks category in the US, and solid performance of the buns category in Canada.
Latin America
The 6.9 percent rise in net sales reflected volume increases in several countries, particularly Brazil, despite a deceleration in the pace of growth in that country, as well as Peru and most of the Central America region. Challenging economic conditions and currency volatility in some markets such as Argentina and Uruguay put downward pressure in sales. Nonetheless, highlights in the period include a reduction in returns and new product launches such as «Line Zero» and Coconut bread in Brazil.
Europe
Net sales rose 13.6 percent as a result of FX rate benefits, as volumes in Iberia remained soft due to competitive pressure and weak performance of the bread category, which more than offset healthy growth of new product launches.
Gross Profit
Consolidated gross profit in the first six months increased 15.7 percent, with a 100 basis point expansion in the margin to 53.9 percent. This expansion was on the back of lower raw material costs in North America and Europe. The margin contraction in Mexico and Latin America during the quarter reflected the impact of a stronger US Dollar, as well as higher prices for certain commodities.
Profit Before Other Income And Expenses
Profit before other income and expenses increased 26.6 percent in the period, with a 90 basis point expansion in the margin to 8.2 percent. This increase reflected lower distribution expenses in Mexico, arising from ongoing operating efficiencies, as well as a reduction in marketing expenses in Mexico and Europe. These factors were partially offset by higher distribution and the aforementioned increase in costs in Latin America, fundamentally the South American region, and an increase in marketing expenses in North America.
Operating Income
Operating income rose 32.8 percent over the prior year, with a 100 basis point expansion in the margin to 7.4 percent, mainly reflecting the abovementioned gross margin benefit as well as lower restructuring expenses in the US and Europe. These factors were partially offset by: i) higher integration and restructuring expenses in Canada due to the enterprise software migration process and investments in manufacturing efficiency; and ii) higher expenses in Latin America related to the retirement of fixed assets in Brazil, as well as integration-related expenses in Argentina arising from the frozen business acquisition.
Comprehensive Financial Result
Comprehensive financing resulted in a 2’478 million MXN cost in the period, compared to 1’983 million MXN in the first half of 2015, or 495 million MXN higher. The increase reflects the incremental interest expense related to the change in the Mexican Peso/US Dollar FX rate, which increased the Mexican Peso value of US Dollar-denominated interest expenses.
Net Majority Income
Net majority income rose 22.7 percent, with a 20 basis point expansion in the margin to 2.7 percent, attributable to solid operating performance, partially offset by a higher effective tax rate of 41.5 percent. This increase in the tax rate primarily reflected better earnings in the US, subject to a higher rate, as well as the cancellation of deferred income taxes due to losses in Brazil. It is expected that these factors will remain present for the rest of the year. Earnings per share for the period totaled 0.68 MXN, compared to 0.55 MXN in the prior year.
Adjusted Ebitda
Adjusted Ebitda increased 27.0 percent, while the margin improved by 110 basis points to 10.7 percent. This was primarily due to the aforementioned improvements in operating performance in most regions.
Financial Structure
Total debt at June 30, 2016 was 74.0 billion MXN, compared to 67.8 billion MXN at December 31, 2015. The increase was primarily due to a 10 percent US Dollar revaluation that increased the Mexican Peso value of US Dollar-denominated debt. Average debt maturity was 8.1 years with an average cost of 3.9 percent. Long-term debt comprised 96 percent of the total; 75 percent of the debt was denominated in US Dollars, 24 percent in Canadian Dollars and 1 percent in Euros. The total debt to adjusted Ebitda ratio was 2.8 times compared to 2.9 times at December 31, 2015. The net debt to adjusted Ebitda ratio was 2.7 times.
