Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported its results for the three months ended March 31, 2018. «We entered 2018 well positioned to deliver growth and profitability, coming off a transformational year in 2017. This was already evidenced in our performance this quarter, with strong profitability performance», says Daniel Servitje, Chairman and CEO, in the statement.
Highlights for the quarter
- Net sales increased almost 2 percent, primarily reflecting strong volume performance in Mexico and acquisitions completed in the last twelve months.
- Adjusted Ebitda increased 12.2 percent with a margin expansion of 90 basis points, reflecting strong sales performance, as well as lower general expenses.
- Net income increased almost 30 percent with a margin expansion of 40 basis points on the back of strong operational performance and a lower effective tax rate.
- Total debt/Adjusted Ebitda ratio ended up in 3.2 times, in line with the Company’s commitment to deleverage.
Recent developments in short
- The Company signed an agreement to acquire Mankattan, a leading producer of baked products for modern, traditional and QSR clients in China.
- The Company acquired International Bakery, a producer of packaged bread, buns, turron and panettone, among other baking products in Peru Grupo Bimbo issued USD 500 million in perpetual notes at par to yield 5.95 percent.
- BBU, a subsidiary of Grupo Bimbo, initiated a Voluntary Separation Program, effectively implementing a lean organizational design to improve efficiency and better position the company for profitable and sustainable growth.
- The Company signed an agreement with Invenergy Santa Rita East wind farm, this will help Grupo Bimbo become 75 percent renewable globally.
Net Sales
First quarter net sales rose 1.6 percent, primarily reflecting sales growth in Mexico and acquisitions completed in the last twelve months; however, FX translation affected sales by 4.5 percent.
Mexico
Net sales in Mexico rose 10.8 percent driven by continued volume gains in every channel, notably the convenience, as well as price increases in line with inflation. The cookies, cakes, snacks and confectionery categories outperformed, supported by increased client reach, good performance of the Cracker cookie brand and Bubulubu, as well as new product launches such as Rye Bimbo bread, Pingüinos Cookies and Cream and Takis Zombie.
North America
Net sales decreased 5.9 percent due to exchange rate pressure, as sales in US Dollar terms increased 2 percent. The improvement in Dollar terms reflected price increases, good performance in the snacks category, strategic brands in the U.S. and the bread category in Canada, and to a lesser extent, the contribution from the integration of the US operation of Bimbo QSR. Nonetheless, continued pressure in the private label, premium and frozen categories continued to weigh on sales.
Latin America
Net sales declined 8.4 percent, negatively affected by the change in accounting method for the Venezuelan operation implemented on June 1, 2017. Sales grew in local currencies in every region, mainly in Argentina arising from strong results in the bread category, as well a in other regions due to solid performance in snacks and global brands.
Europe, Asia and Africa
Sales increased 43.7 percent, driven by acquisitions completed during the last twelve months, including Bimbo QSR, India, Morocco and Donuts Iberia, as well as good performance in the bread category in Iberia and croissants in the U.K. However, organic growth was affected by integration-related delays in Iberia.
Gross Profit
Consolidated gross profit slightly increased 0.2 percent, while the margin contracted 80 basis points to 52.9 percent. This was due to the unfavorable impact from commodities, the aforementioned slower sales growth in EAA and a different business mix due to the incorporation of Bimbo QSR. These effects where slightly offset by a stronger Mexican Peso.
Operating Income
Operating income increased 15.7 percent from the prior year, with a 80 basis point expansion in the margin to 6.2 percent, due to lower general expenses in all regions reflecting cost reduction initiatives, such as zero based budgeting in Mexico and North America and increased client reach in Latin America, which enhanced efficiencies across the distribution network in the region.
Comprehensive Financial Result
Comprehensive financial result totaled MXN 1,617 million in the period, compared to MXN 1,470 million in the last year, an increase of MXN 147 million, which reflects a higher indebtedness level of around MXN 12,000 million, coming mainly from the acquisitions completed during the last twelve months.
Net Majority Income
Net majority income increased 27.7 percent, with a 40 basis point expansion in the net margin to 1.9 percent, attributable to strong operating performance and a lower effective tax rate of 40.3 percent compared to 42.9 percent in the same period of last year; this was partially offset by higher financing costs.
Adjusted Ebitda
Adjusted Ebitda increased 12.2 percent, with a margin expansion of 90 basis points to 9.7 percent. For the third consecutive quarter, the Latin South division reached positive Ebitda, which more than offset the effect of the change of accounting method in Venezuela, which had positively contributed in 1Q17.
Financial Structure
Total debt at March 31, 2018 was MXN 89.5 billion, compared to the MXN 94.3 billion on December 31, 2017. Average debt maturity was 11.1 years with an average cost of 5.2 percent. Long-term debt comprised 97 percent of the total. The total debt to adjusted Ebitda ratio was 3.2 times compared to 3.5 times at December 31, 2017. The net debt to adjusted Ebitda ratio was 3.0 times compared to 3.2 times at December 31, 2017.
Recent developments in detail
- The Company signed an agreement to acquire Mankattan Group, a key player in the baking industry in China. Mankattan produces and supplies sliced bread, cakes, buns and Yudane (a Japanese-style sandwich bread), among other baked products to modern, traditional and QSR clients in China. Mankattan employs 1,900 associates and operates four plants that serve the thriving urban markets of Beijing, Shanghai, Sichuan, and Guangdong, along with their surrounding areas. This transaction is still subject to the satisfaction of customary closing conditions, including regulatory approvals.
- The Company acquired International Bakery, a producer of packaged bread, buns, turron and panettone, among other baking products in Peru. This acquisition strengthens its presence in the modern and QSR channels and its footprint in the country.
- Grupo Bimbo issued USD 500 million in Perpetual Subordinated Notes offering at par to yield 5.95 percent. The Company used the proceeds from this offering for the refinancing of existing indebtedness and the financing of acquisitions and capital expenditures, as well as for other general corporate purposes.
«This is a new instrument for Grupo Bimbo making it the first hybrid bond issued by a Mexican consumer Company, aligned with our financial policies. As it supports to preserve a healthy financial position, enhances the strength, stability and flexibility of our capital structure, reinforces our commitment to deleverage and maintain our investment grade rating and bolsters liquidity.
Moreover, our market leadership coupled with our diversified revenue base, geographic presence, category and distribution channels, largely contributed to attract the attention of more than 200 international investors, evidencing our growing international profile and commitment to expand our stakeholder base», said Diego Gaxiola, CFO of Grupo Bimbo.
- Bimbo Bakeries USA, Inc. (BBU), a subsidiary of Grupo Bimbo, initiated a Voluntary Separation Program (VSP), effectively implementing a lean organizational design to improve efficiency and better position the company for profitable and sustainable growth.
The program, which will be offered to certain salaried associates based on their ages and years of service with BBU and/or its legacy companies, will provide eligible associates the option to separate from the company with an enhanced severance and healthcare benefits package with clear objectives to reinvigorate the business, reduce complexity and design the company to deliver longterm value creation aligned with shareholders’ interests, as well as to better serve more consumers and customers.
«Over the past few years, we have been transforming our business to drive growth and improve productivity to enhance profitability. We truly value and respect our associates and, as we redesign our business, want to provide them the ability to explore other opportunities as we continue to look for improvements to strengthen our market leadership», said Fred Penny, BBU President. «Moreover, this program is completely aligned with our purpose of being a sustainable, highly productive and deeply humane Company». The VSP is expected to be completed by the end of the second quarter of 2018.
