Grupo Bimbo: 4th Quarter and Full Year 2013 Results

Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported results for the fourth quarter and year ended December 31, 2013. Fourth quarter sales rose 2,7 percent to 46,5 billion MXN with good performance in Mexico and the United States; in Latin American, the unfavourable impact of FX fully offset solid results in local currencies. Excluding FX impact, growth would have been 4,5 percent. Consolidated gross margin expanded 160 basis points from the year ago period to 52,9 percent, reflecting lower average raw materials costs in Mexico and Iberia, which fully offset higher input costs in the United States and Latin America. Profit margin before other income and expenses increased 90 basis points to 7,8 percent as a result of performance at the gross margin level, the benefit of synergies and efficiencies in the United States and improvements in Latin America and Iberia operations; this was somewhat offset by higher expenses in the United States and Mexico, as well as a non-cash charge in Mexico. Consolidated operating margin increased 60 basis points to 5,6 percent, reflecting the aforementioned factors, which more than offset integration costs in the United States and non-cash charges in the United States and Iberia. Net majority margin increased 230 basis points to 2,7 percent, reflecting operating improvements and a lower effective tax rate.

Mexico

Net sales in the fourth quarter rose 4,2 percent, with pricing actions taken in certain categories during the period that had a negative impact on volumes. On a cumulative basis, sales rose 3,8 percent.

United States

Net sales in Dollar terms rose 2,8 percent, reflecting positive performance across all channels and increased market penetration in the sweet baked goods category partially offset by the impact of the California divestiture. For the full year, Dollar sales rose 4,2 percent. Growth in pesos was 3,5 percent and 1,1 percent for the quarter and full year, respectively.

Latin America

Every operation in the region generated positive growth in local currencies during the period, with Costa Rica, Chile and Honduras outperforming. Sales in pesos declined 1,8 percent compared to the year ago quarter and 3,8 percent on a cumulative basis, reflecting the unfavorable impact of FX.

Iberia

Sales rose two percent in Euro terms reflecting good volume performance mainly in sweet baked goods and new product launches, despite the still challenging economic environment that put downward pressure on prices. The 6,9 percent decline in pesos for the quarter was due to the implementation of the ERP system in 2012, which resulted in an extraordinary high basis of comparison. Notwithstanding, Peso sales for the full year rose 2,7 percent and in Euro terms 3,7 percent.

Gross Profit

Consolidated gross profit in the fourth quarter rose 5,8 percent, with a 160 basis points expansion in the gross margin to 52,9 percent. This reflected lower average raw materials costs in Mexico and Iberia, which fully mitigated higher raw material costs in the United States and Latin America. On a cumulative basis, consolidated gross margin expanded 1,6 percentage points to 52,3 percent.

Operating Expenses

Operating expenses as a percentage of sales in the fourth quarter increased 70 basis points to 45,1 percent. This primarily reflected: i) higher marketing expenses in Mexico and the United States; ii) a low basis of comparison as the operating expenses in Q4/2012 benefited from a reclassification of the annual financial cost related to pension plans, in Mexico and the United States, to the interest expenses line; and iii) a non-cash impairment charge, 403 MXN/USD in Mexico and the United States. These factors were partially offset by: i) synergies and waste reduction initiatives in the United States (20 million USD); ii) operating improvements and no extraordinary charges in Latin America; and iii) a more efficient cost structure in Iberia. For the full year, operating expenses as a percentage of sales were almost unchanged at 44,7 percent, compared to 44,6 percent in 2012.

Profit before Other Income + Expenses

Profit before other income + expenses reflected performance at the gross profit level and the aforementioned effect of operating expenses, rising 16,4 percent in the period and 27,5 percent cumulatively. The margin expanded 0,9 and 1,5 percentage points respectively.

Operating Income

Operating income in the fourth quarter rose 15,8 percent while the margin expanded 60 basis points to 5,6 percent. This reflected the charges on the «Other Income + Expenses» line that included: i) 451 MXN for integration costs in the United States (34 million USD); ii) 368 MXN for a non-cash charge related to adjusting the current provision for MEPPs; iii) 211 MXN for a non-cash reserve for an account receivable of tax credits registered in Iberia, reflecting a more conservative approach towards the recovery of this benefit; and iv) 43 MXN for integration costs in Latin America. On a cumulative basis, operating income for the full year totalled 10,5 billion MXN, 41,7 percent higher than in 2012, with a 1,6 percentage point expansion in the margin to 5,9 percent.

Comprehensive Financing Result

Comprehensive financing resulted in a 811 million MXN cost in the fourth quarter compared to a 875 million MXN cost in the same period of last year. This reflected the benefit of a favorable comparison as explained by the aforementioned reclassification in Q4/2012 of the annual financial cost of pension plans in Mexico and the United States, which was partially offset by an exchange loss of 59 million MXN compared to a 13 million MXN exchange gain in the prior year.

Net Majority Income

Net majority income increased substantially in the quarter, reflecting performance at the operating level and the lower effective tax rate of 27,0 percent compared to 82,2 percent in the year ago period. This reflects the benefit of the elimination of the deferred IETU tax (Impuesto Empresarial a Tasa Única) under Mexico´s new fiscal reforms. In addition, the year ago tax rate registered a tax charge to partially cancel deferred income tax benefits of previous fiscal losses in Brazil. On a cumulative basis, net majority income more than doubled, to 4,4 billion MXN, while the net margin expanded 1,3 percentage points to 2,5 percent, reflecting performance at the operating level and the lower effective tax rate of 37,9 percent compared to 47,5 percent in 2012 for the aforementioned factors.

Operating Income plus Depreciation and Amortization (Ebitda)

Ebitda rose 22,7 percent to 4,9 billion MXN in the quarter, while the margin expanded 1,7 percentage points to 10,7 percent, reflecting performance at the operating level as well as non-cash items. Ebitda for the full year increased 23,1 percent to 17,3 billion MXN, with a 1,7 percentage point expansion in the margin to 9,8 percent.

Financial Structure

The Company´s cash position as of December 31, 2013 totalled 2,5 billion MXN, compared to 4,3 billion MXN at the end of 2012. Total debt at December 31, 2013 was 40,3 billion MXN, compared to 42,0 billion MXN at December 2012. This reflected payments of 1,1 billion MXN during the year. The average maturity of debt is five years with an average cost of debt of 4,6 percent. The total debt to Ebitda ratio was 2,3 times compared to 3,0 times at December 2012, reflecting the Company´s disciplined cash management and debt reduction strategy. Long-term debt comprised 80 percent of the total; separately, 95 percent of the debt was denominated in US Dollars, maintaining a natural economic and accounting hedge on total debt and in line with the Company´s strong cash flow in Dollars.

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