Grupo Bimbo: 4th Quarter and Full Year 2011 Results

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Grupo Bimbo  S.A.B. de C.V. reported results for the fourth quarter and full year ended December 31, 2011. Sales in the fourth quarter reflected three key factors: i) double-digit organic growth; ii) the integration of the Sara Lee operations in the United States and Spain and Fargo in Argentina; and iii) the consolidation of independent operators (IOs) in the United States, as per below. Net sales rose 36,8 percent over the year ago quarter to 41,6 billion MXN, with increases of 14,5 percent in Mexico, 59,5 percent in the United States and 44,6 percent in Latin America.

Organic growth was 14,9 percent. Higher raw material costs on a comparative basis combined with the impact of the Peso (MXN) devaluation on the Mexico operation resulted in a 90 basis point contraction in the consolidated gross margin. At the operating level, gross margin pressure, integration costs and the expected dilution in the US following the Sara Lee integration were further exacerbated by a goodwill impairment charge in Brazil resulting from longer than expected ROI time-frames for certain investments. As a result, there was a 1,8 and 2,2 percentage point decline in the operating and Ebitda margins, respectively.

As of Q4/2011, the Company´s results reflect the consolidation of the IOs in the United States acting as legal entities, which are subject to the Variable Interest Entity (VIE) accounting rules under US GAAP, Mexican GAAP and IFRS. Consolidation was not required prior to 2011 because the impact was deemed immaterial; however, a growing number of IOs have converted to legal entities from sole proprietorships and the Sara Lee acquisition has significantly increased the number of IOs acting as legal entities. It should be noted that Sara Lee had consolidated their IO VIEs for many years. This consolidation is reflected across the entire P+L. However, it has no impact on the net majority income, as the IO effect is offset in the non-controlling interest line. While the current period reporting shows the impact of a full year of IO consolidation, going forward it will be reported on a quarterly basis.

Net majority income of 1,0 billion MXN reflected performance at the operating level and a higher effective tax rate. Net margin contracted by 2,1 percentage points to 2,4 percent.


Net sales in the fourth quarter totalled 17,3 billion MXN, a 14,5 percent increase from the year ago period. Growth was driven equally by healthy volume gains across the portfolio, with out-performance in the bread, cookies, sweet baked goods and salted snacks categories, as well as by pricing initiatives taken over the course of the year. All channels registered good sales growth over the year ago period and in particular the modern channel. Sales for the full year rose 11,2 percent to 64,4 billion MXN.

United States

Net sales totalled 19,3 billion MXN in the quarter. Contributing to the 59,5 percent rise over the year ago period was i) the Sara Lee acquisition (32,0 percent); ii) the annual contribution from IOs (14,3 percent); and iii) organic performance driven by favourable FX rates and a limited decline in volume that was fully offset by pricing initiatives over the course of the year (13,2 percent, with 9,9 percent attributable to FX). It should be noted that volume decline was lower than in previous quarters. On a cumulative basis, sales rose 12,4 percent to 53,8 billion MXN, driven by the acquisition (8,1 percent), IOs (3,6 percent) and organic growth (0,7 percent).

Latin America

Net sales rose a strong 44,6 percent from the same quarter of last year, to 5,8 billion MXN, reflecting higher volumes across the region as a result of the Company´s ongoing market penetration efforts combined with better prices in each country (28,5 percent) and the integration of Fargo in Argentina (16,1 percent). On a cumulative basis, sales in the year totalled 18,6 billion MXN, a 30,7 percent rise over 2010 driven primarily by organic growth (25,6 percent), with the contribution from Fargo in the final months of the year (5,1 percent).


Results reflected 28 days of consolidated sales.

Gross Profit

Consolidated gross profit in the quarter rose 34,3 percent from the year ago period; however, gross margin contracted by 90 basis points to 51,0 percent as a result of commodity pressures and the impact of the Peso (MXN) devaluation in Mexico. This was somewhat offset by continued improvement in the United States and good performance in Latin America that more than offset start-up costs at the new Brasilia plant. For the full year, the consolidated gross margin fell by 1,6 percentage points as a result of higher commodity costs in all regions, although in the United States this was fully offset by performance in the fourth quarter, reflecting pricing initiatives in the first half of the year.

Operating Expenses

Operating expenses as a percentage of sales increased 90 basis points in the quarter to 44,0 percent. This was primarily due to: i) investments related to expansion and market penetration efforts in the United States and Latin America; ii) the integration of Sara Lee operations in the United States and Spain, which have higher expense structures; and iii) a non-cash goodwill impairment charge of 268 million MXN in Brazil. Nonetheless, operating expenses in Latin America, as a percentage of sales, were lower than in the year ago period due to an extraordinary expense in 2010 for legal contingencies in Brazil. On a cumulative basis, operating expenses comprised 43,1 percent of sales, unchanged from 2010.

Operating Income

Operating income in the fourth quarter of the year rose 8,4 percent, while operating margin declined 1,8 percentage points as a result of gross margin pressure, the aforementioned goodwill impairment charge and the integration of new operations. On a cumulative basis, consolidated operating income for 2011 declined 4,8 percent, with a 1,6 percentage point contraction in the margin to 8,1 percent.

On a regional basis, operational efficiencies in Mexico, mainly in distribution, combined with volume gains helped to absorb fixed costs and partially offset gross margin pressure, driving operating income up 10,5 percent in the quarter and limiting the decline in margin to 60 basis points or 16,4 percent. Similarly, the aforementioned efficiencies over the course of the year contributed to the 2,3 percent rise in full year operating income and minimized contraction in the margin, which declined 1,1 percentage points to 12,7 percent.

In the United States, operating income rose 6,4 percent with the integration of the Sara Lee operation and stronger performance at the gross margin level. However, as expected, there was some dilution in the margin due to the integration and ongoing investments in expanding the distribution network. The operating margin was 3,3 percent, compared to 5,0 percent in the year ago period. On a cumulative basis, gross margin pressure in the first half of the year, investments in distribution, the start-up of a new production plant and the integration of the Sara Lee operation contributed to the 4,5 percent decline in operating income and 120 basis point reduction in the margin, to 6,6 percent.

In Latin America, strong sales growth and healthy gross margin performance contributed to the 3,5 percentage point improvement in the quarterly operating margin. It should be noted that the comparative figures include a non-cash provision in both years attributable to the Brazil operation, of 346 million MXN in 2010 for legal contingencies and 268 million MXN in the current quarter as a goodwill impairment charge. This led to a 480 million MXN operating loss in the current quarter despite strong performance at the gross profit level. For the full year, continued pressure from higher raw material prices, ongoing investment in market penetration and the aforementioned goodwill impairment charge led to a 805 million Peso (MXN) operating loss in 2011 compared to a 345 million MXN loss in 2010.

In Iberia, integration costs and the restructuring of the operations led to a 99 million MXN operating loss for the one month of the quarter in which results were consolidated.

Comprehensive Financing Result

Comprehensive financing resulted in a 570 million MXN cost in the fourth quarter, compared to a 674 million MXN cost in the same period of last year. This decrease is due to lower interest expense, with an average financing cost of 3,6 percent compared to a 6,2 percent in the same period of 2010. On a cumulative basis, comprehensive financing resulted in a 1’313 million MXN cost in 2011, compared to a 2’623 million MXN cost in the same period of last year. This decrease was attributable to: i) lower interest expense due to the refinancing of the Company´s debt and conversion to nearly all Dollar-denominated debt, resulting in an average 4,2 percent financing cost in 2011 compared to 6,7 percent in 2010; and ii) an exchange gain of 629 million MXN, compared to a 94 million MXN exchange loss on the previous year, mainly as a result of the Dollar-denominated cash holdings from 3Q2011 used to acquire the Sara Lee North American Fresh Bakery business.

Net Majority Income

Despite lower financing costs in the period, net majority income in the fourth quarter declined 26,2 percent compared to the fourth quarter of last year, to 1,0 billion MXN, while the margin contracted 2,1 percentage points to 2,4 percent. This reflected operating performance and the higher effective tax rate on a comparative basis, with a deferred tax benefit registered in 2010. For the full year, net majority income declined 1,2 percent, while the margin contracted by 60 basis points to 4,0 percent.

Operating Income plus Depreciation and Amortization (Ebitda)

Ebitda in the quarter rose 14,8 percent to 4,6 billion MXN, while the margin contracted 2,2 percentage points to 11,0 percent. On a cumulative basis, Ebitda declined 1,9 percent for the year and the margin declined by 1,9 percentage points. Results in both periods largely mirrored performance at the operating level.

Financial Structure

As of December 31, 2011, the Company´s cash position totalled 3,9 billion MXN, compared to 3,3 billion MXN in 2010.

Total debt at December 31, 2011 was 47,1 billion MXN, compared to 33,2 billion MXN in the year ago period. The 2011 figure includes: i) the debt secured to fund the Sara Lee acquisitions in the United States and Spain; ii) the depreciation of the Mexican Peso (MXN) and iii) the 688 million MXN of debt attributable to IOs, with the aforementioned effect. The total debt to Ebitda ratio was 3,1 times compared to 2,2 times at December 2010.

It should be noted that the pro forma ratio for December 31, 2011 would be approximately 2,8 times if the prepayment of debt made in early 2012 and a full one year of non-synergized Ebitda of the recent acquisitions were factored in.

Long-term debt comprised 91 percent of the total; separately, 90 percent of the debt was denominated in U.S. Dollars, maintaining a natural economic and accounting hedge and in alignment with the Company´s strong cash flow in Dollars. Average maturity was 4,5 years.

After the close of the quarter the Company issued 800’000’000 USD of 4,50 percent notes due 2022 under the 144A Reg-S Rule and 5’000 million MXN Certificados Bursátiles (domestic bonds) in the local debt market with a 6,5-year tenor and a fixed rate of 6,83 percent. These issues increased the average maturity to 6,5 years with an average cost of debt of 4,5 percent. The Company used the proceeds from both offerings to refinance existing indebtedness.

Source: Bakenet:eu