Grupo Bimbo: reports Q4 2016 results

Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported its results for the twelve months ended December 31, 2016. Financial highlights for the twelve months 2016 include:

  • Net sales rose 15.0 percent on FX rate benefit in North America2 , Latin America and Europe, organic growth in Mexico, and the acquisition of Donuts Iberia last July
  • The 70 basis point expansion in the gross margin was primarily driven by lower raw material costs in North America, Latin America and Europe
  • Operating income rose 28.1 percent, with an 80 basis point expansion in the margin, mainly due to gross margin performance and lower restructuring expenses in the US and Europe
  • Adjusted Ebitda3 margin expanded 90 basis points to 11.6 percent, reflecting operating improvements in Mexico, North America and Europe
  • Net majority margin contracted 10 basis points mainly on the back of a higher effective tax rate and non-cash charges

Net Sales

Q4/2016 Q4/2015 Change Net Sales 2016 2015 Change
21’670 mio. MXN 19’692 mio. MXN 10.0% Mexico 82’386 mio. MXN 76’295 mio. MXN 8.0%
36’965 mio. MXN 32’796 mio. MXN 12.7% North America 135’219 mio. MXN 116’399 mio. MXN 16.2%
8’020 mio. MXN 6’406 mio. MXN 25.2% Latin America 29’100 mio. MXN 24’272 mio. MXN 19.9%
3’884 mio. MXN 1’926 mio. MXN >100% Europe 11’676 mio. MXN 7’560 mio. MXN 54.4%
68’862 mio. MXN 59’519 mio. MXN 15.7% Consolidated 252’141 mio. MXN 219’186 mio. MXN 15.0%

Consolidated results exclude inter-company transactions.

Cumulative net sales rose 15.0 percent reflecting an FX rate benefit in North America, Latin America and Europe, as well as organic growth in Mexico and the acquisition of Donuts Iberia.

Mexico

Net sales rose 8.0 percent over 2015, mainly driven by solid volume performance in most categories and every channel. Of particular note, the positive trend and volume recovery in sweet baked goods continued, in part driven by promotional strategy. Higher volumes were also supported by portfolio innovations such as Latte snack cake.

North America

Net sales in Peso terms grew 16.2 percent, primarily reflecting the exchange rate benefit, while Dollardenominated sales declined 1.1 percent and volumes remained unchanged. Performance in the frozen, snacks and sweet baked goods categories, as well as growth in strategic brands, helped offset the overall challenges in bread consumption. Artisanal products performed well in Canada, as did bread alternatives such as bagels, english muffins and tortillas.

Latin America

The 19.9 percent rise in net sales was primarily due to the revaluation of almost all currencies versus the Mexican Peso, as well as solid volume progress in most countries, notably Peru, Chile and the Latin Centro division, reflecting more efficient routes and broader distribution. However, Brazil and Argentina faced a difficult economic environment that put pressure on consumption and volumes.

Europe

Net sales rose a strong 54.4 percent during the year, mainly as a result of the Donuts Iberia acquisition, FX rate benefit, and healthy sequential volume growth in Iberia, in part due to good performance in the traditional channel, the Oroweat and The Rustik Bakery bread brands, as well as snack brands.

Gross Profit

Lower raw material costs in North America, Latin America and Europe helped drive the 16.6 percent increase in the consolidated gross profit, and the 70 basis point margin expansion, to 54.0 percent. In Mexico, the effect of a stronger US Dollar on raw material costs put pressure on the margin, in both the quarter and year, notwithstanding underlying efficiency improvements and cost control initiatives. In Latin America, the fourth quarter margin contraction reflected soft volume performance in some markets and higher indirect costs arising from the inflationary environment.

Profit Before Other Income And Expenses

Profit before other income and expenses increased 23.1 percent in the period, with a 60 basis point expansion in the margin to 8.9 percent. This reflected the positive benefit coming from supply chain efficiencies and cost control initiatives on marketing and distribution expenses in Mexico, as well as lower distribution expenses in North America and Europe. The above mentioned was offset by higher administrative expenses and increased marketing to drive growth in strategic brands in North America and higher general expenses in Latin America, in part due to the opening of the Cordoba plant in Argentina.

Operating Income

Operating income rose 28.1 percent over the prior year, with an 80 basis point expansion in the margin to 7.2 percent, mainly reflecting the abovementioned gross margin benefit, lower restructuring expenses in the US and Europe, and lower «other expenses» in Mexico, North America and Europe. These factors were partially offset by:

  1. Higher integration and restructuring expenses in:
    • Canada and the frozen business, related to the ERP migration and investments in manufacturing efficiency;
    • Argentina, primarily arising from the above mentioned new plant and the frozen business acquisition; and
    • Europe, following the Donuts Iberia acquisition.
  2. The following non- cash charges:
    • around 1.7 billion MXN in Latin America due to certain brand impairments, goodwill, fiscal provisions and the disposal of assets, among others; and
    • a net 473 million MXN (21 million USD) charge for multi-employer pension plans (MEPPs) liabilities in North America, which included the actual or expected restructuring of three plans, partially offset by the impact of higher discount rates.

Comprehensive Financial Result

Comprehensive financing resulted in a 4’591 million MXN cost in the period, compared to 4’190 million MXN in 2015, 401 million MXN higher. This increase is the reflection of the incremental interest expense related to the change in the Mexican Peso/US Dollar FX rate. It should be noted that because of the Company’s strict and effective hedging policy, no significant FX loss was recorded in the period.

Net Majority Income

Net majority income rose 14.1 percent, while the margin declined a slight 10 basis points to 2.3 percent; this was due to the aforementioned non-cash charges and a higher effective tax rate of 50.3 percent compared to 40.7 percent in the prior year. This increase was mainly a result of: i) the cancellation of deferred income taxes due to accumulated losses in Brazil and no longer carrying deferred income tax benefit in some countries; ii) better earnings in the US, naturally subject to a higher rate; iii) a higher taxable base due to inflationary gains related to the financial debt; and iv) the partial deductibility of certain fringe benefits in Mexico. Earnings per share for the period totalled 1.25 MXN, compared to 1.10 MXN in the prior year.

Adjusted Ebitda

Adjusted Ebitda increased 25.4 percent, while the margin improved by 90 basis points to 11.6 percent. This was primarily due to good operating performance in most regions, including a swing to profitability in Europe and underlying sales growth and cost control initiatives in Mexico.

Financial Structure

Total debt at December 31, 2016 was 82.5 billion MXN, compared to 67.8 billion MXN at December 31, 2015. The 22 percent increase was primarily due to a 20 percent US Dollar revaluation that increased the Mexican Peso value of US Dollar-denominated debt. Average debt maturity was 8.3 years with an average cost of 4.5 percent. Long-term debt comprised 97 percent of the total; 63 percent of the debt was denominated in US Dollars, 23 percent in Canadian Dollars, 10 percent in Mexican Pesos and 4 percent in Euros. Notwithstanding the FX rate impact, leverage ratios improved in the year; total debt to adjusted Ebitda was 2.8 times compared to 2.9 times at December 31, 2015, and net debt to adjusted Ebitda was 2.6 times.

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