Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported its results for the three months ended March 31. Highlights for Q1/2017 include:
- Net sales increased 16.5 percent primarily reflecting FX rate benefit, solid organic growth in Mexico and the acquisition of Donuts Iberia in Europe
- Gross profit rose 16.5 percent, while the margin remained flat at 53.7 percent
- Adjusted Ebitda margin contracted 120 basis points, primarily due to higher integration and restructuring expenses in North America, Iberia and Argentina
- Net majority margin contracted 100 basis points, as a result of a higher effective tax rate, in addition to the aforementioned reasons
- The Company made two minor acquisitions:
- Stonemill Bakehouse, a producer of slow crafted baked bread in Toronto, Canada, generating sales of CAD 18 million
- Grupo Adghal in Morocco, specialized in baked goods, with estimated annual sales of 11 million USD
- Diego Gaxiola to assume role of Global Chief Financial Officer upon the retirement of Guillermo Quiroz on August 01, 2017
Mexico
Net sales rose 12.0 percent over the same period of 2016, as increased client penetration and promotional activity helped drive volume growth in every channel, particularly the modern, and in almost every category, notably sweet baked goods, bread + buns, salty snacks and confectionery. This was supported by the outperformance of the Sanissimo, Oroweat, Bimbo, Barcel, and Ricolino brands, as well as successful product launches, such as Canelitas Tentación, Gansito Doble Chocolate and Takis Cobra.
North America
Net sales grew 12.7 percent, primarily due to the exchange rate benefit. Sales in strategic brands continued to rise, while the total branded business remained flat but trended favorably, supported by the mainstream category. Notwithstanding these favorable developments, overall volumes declined as a result of continued pressure on the industry, soft performance in the non-branded business in the US, the frozen business in the region, and the premium category due to a more aggressive competitive environment.
Latin America
The 25.3 percent rise in net sales is attributable to an FX rate benefit along with positive volume performance in most countries across the region, most notably in the Latin Centro division, with the sweet baked goods category outperforming. Successful product launches in the period included Artesano Pullman in Brazil and Chocotost in Colombia. Nonetheless, a challenging economic environment in the region continued to weigh on overall organic growth.
Europe
The 95.6 percent improvement in net sales in the region was primarily due to the Donuts Iberia acquisition, around 2 percent organic growth, and to a lesser extent, an FX rate benefit. The introduction of Donuts Pantera Rosa, which unites two iconic brands in Spain, as well as positive performance of the packaged bread category, the New York Bakery brand and the modern channel contributed to growth in the period.
Gross Profit
Consolidated gross profit for the first quarter increased 16.5 percent, while the margin remained flat at 53.7 percent. While raw material costs were lower in most regions, it was fully offset by the impact of a stronger US Dollar on raw material costs in Mexico, higher indirect costs in Latin America and higher labor costs in Europe.
Profit Before Other Income And Expenses
Profit before other income + expenses increased 4.6 percent in the period, while the margin contracted by 70 basis points due to higher general expenses, increased marketing expenses in North America aimed at growing strategic brands, and higher distribution expenses in Latin America corresponding to route restructuring efforts, primarily in Chile.
Operating Income
Operating income declined 6.2 percent from the prior year, with a 130 basis point contraction in the margin to 5.5 percent, mainly as a result of higher integration and restructuring expenses, which are in line with the Company’s plan, in the following markets:
- Europe, due to the integration of Donuts Iberia;
- Canada, related to the ERP migration process and manufacturing efficiencies, such as the closure of two sales centers;
- United States, for the closure of two facilities; and
- Argentina, primarily due to the integration of the frozen business and start up costs at the new Cordoba plant.
Comprehensive Financial Result
Comprehensive financing resulted in a MXN 1’508 million cost in the period, compared to MXN 1’221 million in the first quarter of last year, or MXN 287 million 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, as well as the negative impact of higher monetary assets in Venezuela and a high inflation.
Net Majority Income
Net majority income declined 31 percent, with a 100 basis point contraction in the margin to 1.5 percent, attributable to the above mentioned operating reasons and a higher effective tax rate of 43.0 percent. This increase primarily reflected a higher taxable base due to inflationary gains in Mexico arising from financial debt, better earnings in the US, naturally subject to a higher rate, and the effect of no longer carrying deferred income tax benefit in some countries. Earnings per share for the period totaled MXN 0.21, compared to MXN 0.30 in the prior year.
Adjusted Ebitda
Adjusted Ebitda increased 2.7 percent, while the margin contracted 120 basis points, due to the aforementioned increase in expenses in most regions.
Financial Structure
Total debt at March 31, 2017 was MXN 77.4 billion, compared to MXN 82.5 billion at December 31, 2016. The 6 percent decrease was primarily due to a 10 percent depreciation of the US Dollar that reduced the Mexican Peso value of US Dollar- denominated debt.
Average debt maturity was 8 years with an average cost of 4.5 percent. Long-term debt comprised 96 percent of the total; 61 percent of the debt was denominated in US Dollars, 24 percent in Canadian Dollars, 11 percent in Mexican Pesos and 4 percent in Euro.
The total debt to adjusted Ebitda ratio was 2.6 times compared to 2.8 times at December 31, 2016. The net debt to adjusted Ebitda ratio was 2.4 times.
