Grupo Bimbo: Reports Results for Q2/2012

Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported results for the second quarter ended June 30, 2012. All figures, including those for prior periods, are expressed in accordance with International Financial Reporting Standards (IFRS). The principal effects on the profit and loss statement are: i) the line items «Employee Profit Sharing» and «Other Income + Expenses» are registered above the operating line; ii) higher depreciation costs reflecting updated asset valuations; and iii) different accounting treatment for employee benefits.

As of this quarter, results will reflect details by region for the following line items: i) Profit Before Other Income + Expenses and ii) Operating Income, which under IFRS includes «Other Income + Expenses» as an operating item in which non-recurring items are registered such as integration expenses for new acquisitions.

Sales in the second quarter of 2012 rose 43,4 percent from the year ago period to 43,3 billion MXN, with solid organic growth of 12,9 percent driven by good performance in Mexico and Latin America. The integration of the Sara Lee operations in the United States and Iberia, as well as Fargo in Argentina, represented 30,5 percent of growth in the quarter. Sales performance also benefited from foreign exchange rates.

The consolidated gross margin was unchanged from the year ago period at 51,1 percent. Pressure from higher raw material costs was offset by production efficiencies, primarily in the US and strong growth in Latin America and Mexico as a result of healthy volume performance as well as higher prices.

The operating margin contracted 1,6 percentage points to 4,8 percent due to: i) expected dilution from the Sara Lee operations; ii) investments in expansion in Latin American and the US; and iii) integration-related expenses.

Net majority income declined 0,9 percentage points to 2,1 percent, reflecting performance at the operating level and higher financing costs that were somewhat offset by a lower effective tax rate.

Mexico

Net sales in the second quarter totalled 17,1 billion MXN, a 11,5 percent increase from the year ago period reflecting stable volume growth across all channels and categories, as well as pricing initiatives taken over the past twelve months. On a cumulative basis, sales rose 12,6 percent.

United States

Net sales totalled 20,7 billion MXN in the quarter, an 80,2 percent rise over the year ago period despite continued weakness in consumption. These results reflect the integration of Sara Lee operations (65,0 percent) and favourable Dollar-Peso rates, which more than offset the slight decline in overall volumes. Strong core growth was delivered from the sweet baked goods an breakfast categories while the Mrs Bairds and Bimbo brands continue to outperformed in the quarter. In the first half of 2012, net sales rose 71,3 percent.

Latin America

Net sales rose 33,0 percent over the same quarter of last year, to 5,5 billion MXN, reflecting strong organic growth (18,5 percent) resulting from penetration efforts across the region, particularly in the mom + pop channel, as well as the acquisition of Fargo in Argentina (14,5 percent). Brazil, Chile and Colombia outperformed in the period. Net sales in the first six months of the year grew 36,5 percent.

Iberia

Sales were in line with expectations.

Gross Profit

Consolidated gross profit in the quarter rose 43,4 percent from the year ago period, while gross margin was unchanged at 51,1 percent. On a regional basis, better pricing and cost absorption benefited operations in Mexico and Latin America, with the latter reporting a strong 3,6 percentage point improvement in the gross margin; in the US, certain efficiencies including waste reduction initiatives undertaken in the production chain since the start of the year, almost fully offset higher raw material costs and lower average prices. Performance in Iberia was in line with expectations. On a cumulative basis, gross margin declined 50 basis points to 50,5 percent.

Operating Expenses

Operating expenses as a percentage of sales increased 80 basis points compared to the year ago period, to 45,2 percent. This primarily reflected the higher expense structure of the Sara Lee operations in the United States and Iberia, particularly the supply chain. In the first six months of 2012, operating expenses represented 45,2 percent of net sales, compared to 43,8 percent in the same period of 2011.

Profit before Other Income + Expenses

On a consolidated basis, second quarter profit before other income + expenses rose 25,8 percent to 2,5 billion MXN, while the margin contracted 80 basis points to 5,9 percent, as a result of the aforementioned dilution effect of the Sara Lee acquisitions in the United States and Iberia. For the first six months of the year, profit before other income + expenses rose 4,1 percent to 4,4 billion MXN.

On a regional basis, better absorption of operating expenses in Mexico contributed to the 60 basis point expansion in the margin.

In the United States, the 2,6 percentage point contraction in margin reflected the expected dilution from the Sara Lee operations, ongoing investments in modernizing the production platform and enhancing market penetration.

In Latin America, strong performance at the gross profit level was slightly offset by ongoing investments in market penetration.

In Iberia, the restructuring of the distribution platform from company- owned to third party contributed to the expected loss in the period.

Operating Income

Operating income in the second quarter rose 7,2 percent to 2,1 billion MXN while the margin contracted 1,6 percentage points, reflecting performance at the profit before other income + expenses level as well as the 474 million MXN expense in other income + expenses line, including: i) integration related expenses in the US (25 million USD) and Iberia and ii) in Latin America, expenses related to the sale of assets and purchase of manufacturing supplies. On a cumulative basis, operating income in the first half of the year totalled 3,8 billion MXN, 7,9 percent lower than in the same period of 2011.

Comprehensive Financing Result

Comprehensive financing resulted in a 606 million MXN cost in the second quarter, compared to a 477 million MXN cost in the same period of last year. This reflected a combination of: i) higher interest expense due to a higher level of debt; and ii) a 94 million MXN exchange gain compared to a 24 million MXN loss in the previous period.

Net Majority Income

Net majority income in the second quarter fell a slight 0,8 percent compared to the second quarter of last year, to 888 million MXN, while the net majority margin contract 90 basis points to 2,1 percent. Operating performance and higher financing costs were somewhat offset by a lower effective tax rate in the period. On a cumulative basis, net majority income declined 26,7 percent while the margin contracted 1,6 percentage points to 1,8 percent.

Operating Income plus Depreciation and Amortization (Ebitda)

Ebitda in the quarter increased 17,3 percent to 3,4 billion MXN, while the margin contracted 1,7 percentage points to 7,8 percent, reflecting performance at the operating level.

Financial Structure

The Company´s cash position as of June 30, 2012 totalled 3,3 billion MXN, compared to 3,9 billion MXN in December, 2011.

Total debt at June 30, 2012 was 43,6 billion MXN, compared to 47,2 billion MXN in December, 2011. This reflected prepayments over the first half of the year of 2,9 billion MXN and the effect of a stronger Peso. The average maturity is 6,4 years with an average cost of debt of 4,5 percent.

The total debt to Ebitda ratio was 2,9 times compared to 3,1 times at December 2011.

Long-term debt comprised 96 percent of the total; separately, 95 percent of the debt was denominated in U.S. Dollars, maintaining a natural economic and accounting hedge on total debt and in alignment with the Company´s strong cash flow in Dollars.

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