Grupo Bimbo: reports Q4 and FY 2009 results

Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported its results for the fourth quarter and full year ended December 31, 2009. It was an outstanding year for Grupo Bimbo, marked by the successful integration of the largest acquisition in its history that along with a more beneficial commodity environment, helped propel the Company´s results.

Net sales in the fourth quarter rose 35,7 percent to 30,1 billion MXN, primarily reflecting the incorporation of the acquisition in the United States, as well as a 19,7 percent increase in Latin America.

The consolidated gross margin expanded 3,1 percentage points over the same quarter of last year, to 53,5 percent, reflecting significant expansion in Mexico and the U.S. mainly as a result of lower commodity costs in both regions. In addition, at BBU, margin improvement was driven by the incorporation of BBU East and ongoing gains in manufacturing productivity in the West, while in Mexico, lower indirect production costs also contributed to the expansion.

Exchange rate on February 26th, 2010 (Interbank):
1’000’000 Euro (EUR) = 17’407’955,740 Mexican Pesos (MXN)
1’000’000 Mexican Pesos (MXN) = 57’444,999 Euro (EUR)

Operating and Ebitda margins for the quarter expanded by 1,3 and 2,2 percentage points, respectively, to 12,6 percent and 16,7 percent, mainly attributable to strong results in the U.S. and gross margin improvement in Mexico.

Net majority income totaled 1,8 billion MXN in the quarter, an increase of 38,1 percent compared to the same period of 2008, while the margin expanded ten basis points to 5,8 percent, despite increases in other expenses, comprehensive financing costs and taxes.

Net Sales

4Q09 4Q08 % Change Net Sales 12M09 12M08 % Change
14’311 14’371 (0,4) Mexico 55’388 54’845 1,0
12’571 5’193 > 100 United States 49’977 18’049 > 100
3’842 3’211 19,7 Latin America 13’606 11’346 19,9
30’084 22’178 35,7 Consolidated 116’479 82’317 41,5

Note: Figures expressed in millions of New Mexican Pesos (MXN). Consolidated results exclude inter-company transactions.

Mexico

Net sales in the quarter totaled 14,3 billion MXN, virtually unchanged from the year ago period. New product launches and volume gains driven by seasonal promotional activity helped to partially offset the ongoing challenging economic environment that prevailed during the year. By category, snack foods outperformed, as did sales in the modern channels, extending the trend experienced throughout the year. Similarly, on a cumulative basis, sales registered a 1,0 percent increase to 55,4 billion MXN.

United States

Net sales more than doubled on a quarterly basis, when compared to the same period of 2008, to 12,6 billion MXN. Growth reflected the incorporation of BBU East and higher volumes in both regions. New products, such as Sandwich Thins which were pioneered by BBU, as well as promotions helped drive volume growth in a highly competitive environment. For the full year, sales almost tripled to 50,0 billion MXN, also as a result of the incorporation of BBU East and healthy volume performance.

Latin America

The Company continued to register strong net sales growth of 19,7 percent and 19,9 percent in the quarter and year, respectively. This is attributable to volume growth as a result of the continued penetration of the market, with 30’000 new customers added in the quarter and 76’700 in 2009 as a whole, primarily in the traditional channel. Results were strongest in Brazil and Colombia.

Gross Profit

The consolidated gross margin expanded by 3,1 percentage points over the year ago quarter, to 53,5 percent, driven by the continued easing of raw material cost pressures derived from lower commodity costs compared to peak prices in 2008, as well as a more stable FX rate. For the year, the gross margin expanded by 1,7 percentage points, to 52,8 percent.

In Mexico, the strong 4,7 percentage point improvement in the gross margin for the quarter primarily reflected lower commodity costs, along with a more stable FX rate, and lower indirect production costs. The latter was primarily the result of the cost savings programs implemented over the year. On a cumulative basis, gross margin expanded 1,7 percentage points, to 55,1 percent.

In the United States, the operation registered a significant expansion in the gross margin for the quarter and year, of 6,3 and 6,6 percentage points respectively, to 49,7 percent and 50,6 percent. This was the combined result of:
lower commodity and energy prices from the year ago periods;
greater manufacturing productivity in the West, including the benefit of a plant closure in Texas during the second quarter; and
better absorption of fixed costs resulting from higher sales volumes.
The gross margin in Latin America remained flat in both the quarter and year, at 40,4 percent and 40,2 percent, respectively. The more favorable raw material cost environment was offset by an increase in labor costs in some of the Company´s operations in the region such as Chile and Venezuela.

4Q09 4Q08 Change pp Gross Margin (%) 12M09 12M08 Change pp
57,8 53,1 4,7 Mexico 55,1 53,4 1,7
49,7 43,4 6,3 United States 50,6 44,0 6,6
40,4 40,4 Latin America 42,2 42,2
53,5 50,4 3,1 Consolidated 52,8 51,1 1,7

Note: Consolidated results exclude inter-company transactions.

Operating Expenses

Operating expenses, as a percentage of sales, increased 1,8 percentage points in the quarter to 40,9 percent, primarily due to higher distribution expenses in Latin America resulting from the Company´s efforts to increase the penetration in that region, and an extraordinary non-cash charge of approximately 20 million USD registered in the U.S. for the amortization of certain intangible assets included in the acquisition of BBU East. This charge is considered extraordinary for the quarter as the full amount was registered in December 2009; going forward, charges for this regular amortization will be taken throughout the year and registered as ordinary non-cash charges. On the other hand, in Mexico, route consolidation helped counteract lower absorption of fixed expenses resulting from weak volume performance.

On a cumulative basis, operating expenses as a percentage of sales increased 40 basis points, rising from 42,1 percent to 42,5 percent. Along with the rise registered in Latin America explained previously, this increase is related to lower absorption of fixed expenses in Mexico and the aforementioned amortization registered in the U.S. The above more than offset the benefit of a more efficient distribution structure in Mexico and better results in the U.S., related to:
the integration of BBU East and its more efficient expense structure,
ongoing initiatives at BBU West such as route consolidation, and
better expense absorption derived from higher sales volume.

Operating Income

Operating income for the fourth quarter and year rose 50,9 percent and 64,5 percent, respectively, while the consolidated margin expanded 1,3 and 1,4 percentage points to 12,6 percent and 10,3 percent.

4Q09 4Q08 % Change Operating Income 12M09 12M08 % Change
2’878 2’384 20,7 Mexico 7’500 6’854 9,4
787 80 > 100 United States 4’261 125 > 100
43 101 (57,7) Latin America 301 431 (30,2)
3’779 2’504 50,9 Consolidated 12’054 7’328 64,5

Note: Figures expressed in millions of New Mexican Pesos (MXN). Consolidated results exclude inter-company transactions.

On a regional basis, operating income in Mexico for the quarter rose 20,7 percent over 2008, and the margin improved by 3,5 percentage points to 20,1 percent. This reflects gross margin expansion and tight control over spending in the quarter, as well as optimizing and streamlining distribution capacity that combined, more than offset the negative impact of lower absorption of fixed costs and expenses, as explained previously. On a cumulative basis, operating income rose 9,4 percent over 2008, while the margin expanded by 1,0 percentage point to 13,5 percent.

In the United States, operating income in the quarter was almost ten times higher than in the year ago period, while the margin expanded 4,8 percentage points to 6,3 percent when compared to 2008. This was driven by:
the aforementioned expansion of the gross margin;
a more efficient cost and expense structure derived from the incorporation of BBU East;
results from ongoing productivity initiatives at BBU West, such as the optimization of assets, routes and administrative expenses; and
shared best practices between regions.
All the above benefits were partially offset by the amortization charge explained previously.

On a cumulative basis, the U.S. operation went from a 0,7 percent operating margin in 2008 to 8,5 percent in the current year, with almost 4,3 billion MXN of operating income.

In Latin America, the operating margin for the quarter contracted 2,1 percentage points to 1,1 percent, mainly due to higher sales and distribution expenses associated with the efforts to increase penetration, as well as higher labor costs. Similarly, on a cumulative basis, the margin declined 1,6 percentage points, to 2,2 percent. While operating performance in several countries generated positive results, most notably in Brazil, it is important to note that the improvements were offset by the significant deterioration of the results in the operation in Venezuela, in both the quarter and the year.

4Q09 4Q08 Change pp Operating Margin (%) 12M09 12M08 Change pp
20,1 16,6 3,5 Mexico 13,5 12,5 1,0
6,3 1,5 4,8 United States 8,5 0,7 7,8
1,1 3,2 (2,1) Latin America 2,2 3,8 (1,6)
12,6 11,3 1,3 Consolidated 10,3 8,9 1,4

Note: Consolidated results exclude inter-company transactions.

Comprehensive Financing Result

Comprehensive financing resulted in a 452 million MXN cost in the fourth quarter, compared to 267 million MXN in the same period of last year, due to a higher interest expense associated with the new debt contracted in January of 2009. Similarly, on a cumulative basis, the comprehensive financing cost increased from 539 million MXN to 2,0 billion MXN. It is worth noting that the comprehensive financing cost resulted lower than expected.

Other Expenses

Other expenses for the quarter and year were 370 million MXN and 613 million MXN, respectively. The above resulted mainly from: (a) the write-off of certain fixed assets in Mexico, Central and South America, and (b) a charge related to the recognition of certain labor cost liabilities from previous years in Central and South America, as per Bulletin D-3 of Mexican Financial Reporting Standards.

Taxes

The effective income tax rate for 2009 was 31,7 percent. It should be noted that as a result of the Company´s decision to proceed with a tax deconsolidation in Mexico, as announced on January 08, 2010, fourth quarter results had a net tax impact of 168 million MXN.

Net Majority Income

Net majority income in the fourth quarter rose 38,1 percent from the year ago period to 1,8 billion MXN, while the margin expanded ten basis points to 5,8 percent. For the full year, net income rose 37,9 percent to 6,0 billion MXN, while the margin declined ten basis points to 5,1 percent. This is explained by the aforementioned components of other expenses, comprehensive financing cost and taxes that, in combination, offset the significant expansion of the operating margin.

4Q09 4Q08 Change pp Net Majority Income 12M09 12M08 Change pp
1’760 1’274 38,1 Consolidated 5’956 4’320 37,9

4Q09 4Q08 Change pp Net Majority Margin (%) 12M09 12M08 Change pp
5,8 5,7 0,1 Consolidated 5,1 5,2 (0,1)

Operating Income plus Depreciation and Amortization (Ebitda)

Ebitda in the quarter rose 55,6 percent to 5,0 billion MXN, while the margin expanded 2,2 percentage points to 16,7 percent. It should be noted that the difference between the above and the 1,3 percentage points expansion of the operating margin are explained by the amortization charge taken in the U.S. and added back in to Ebitda. In the particular case of BBU, the above difference represented 1,7 percentage points, with which Ebitda margin reached 11,2 percent, 6,5 percentage points higher when compared to the same period of last year.

For the year, Ebitda totaled 15,8 billion MXN, an increase of 61,1 percent when compared to 2008, which represented a margin of 13,6 percent – 1,7 percentage points higher than in 2008.

4Q09 4Q08 % Change Ebitda 12M09 12M08 % Change
3’300 2’804 17,7 Mexico 9’168 8’503 7,8
1’407 244 > 100 United States 5’727 540 > 100
236 235 0,1 Latin America 951 867 9,7
5’014 3’222 55,6 Consolidated 15’837 9’829 61,1

Note: Figures expressed in millions of New Mexican Pesos (MXN). Consolidated results exclude inter-company transactions.

4Q09 4Q08 Change pp Ebitda Margin (%) 12M09 12M08 Change pp
23,1 19,5 3,6 Mexico 16,6 15,5 1,1
11,2 4,7 6,5 United States 11,5 3,0 8,5
6,1 7,3 (1,2) Latin America 7,0 7,6 (0,6)
16,7 14,5 2,2 Consolidated 13,6 11,9 1,7

Note: Consolidated results exclude inter-company transactions.

Financial Structure

As of December 31, 2009, the Company´s cash position totaled 5,1 billion MXN, compared to 7,3 billion MXN in 2008. This decrease is mainly explained by the Company´s prepayment of 300 million USD in the fourth quarter of 2009 reflecting the strong and healthy cash generation of the U.S. operation, as well as the continued strength of the Mexican operation.

As a result of the Company´s refinancing in the local bond market in June 2009 along with its solid cash generation, at year end, debt totaled 36,7 billion MXN with an average maturity of 3,2 years; short-term debt comprised only 13 percent of the total and the remaining 87 percent was long-term. The currency mix was 62 percent in Mexican Pesos, with the remaining 38 percent in US-Dollars.

As a result, net debt at the end of the fourth quarter was 31,7 billion MXN, compared to 3,8 billion MXN registered in December of 2008. This increase is due to the credit facilities secured to finance the BBU East acquisition in the United States in January 2009, which structurally modified the Company´s balance sheet. On a sequential basis, however, net debt declined 878 million MXN from the third quarter of 2009 due to the Company´s strong cash generation.

Similarly, the net debt to Ebitda ratio declined from 2,3 times at the end of the third quarter of this year to 2,0 times at year end. The ratio of net debt to majority stockholders´ equity remained unchanged at 0,8 times. Grupo Bimbo´s decision to undertake a tax deconsolidation, as announced on January 08, 2010, had no material effect on the Company´s financial position.

About: Grupo Bimbo is one of the largest baking companies in the world in terms of production and sales volume. As the market leader in the Americas, Grupo Bimbo has 99 plants and 600 distribution centers strategically located in 18 countries throughout the Americas, Europe and Asia. Its main product lines include sliced bread, buns, cookies, snack cakes, English muffins, bagels, pre-packaged foods, tortillas, salted snacks and confectionery products, among others. Grupo Bimbo produces over 5’000 products and has one of the most extensive direct distribution networks in the world, with more than 39’000 routes and 102’000 employees.
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