Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported its 2015 results ended December 31, 2015. Highlights: The Company celebrated its 70th anniversary during the period. Net sales rose 17.2 percent, reflecting organic growth in Mexico and Latin America, FX rate benefit and acquisitions made in prior periods. Gross margin expansion of 50 basis points was driven by lower average raw material costs in most regions. Operating income increased 36.9 percent, with a 90 basis point expansion in the margin due to lower restructuring expenses in the US, a non-cash charge in 2014 and distribution efficiencies in Mexico. Adjusted Ebitda rose 26.9 percent with a margin expansion of 210 basis points in North America and a record margin registered in Mexico. Net majority income grew 47.0 percent, with a 50 basis point expansion in the margin; Q4 net majority income jumped 231.4 percent.
Net Sales Mexico
Cumulative net sales in Mexico rose 5.8 percent over 2014, primarily driven by higher volumes reflecting a better consumption environment, product innovation such as Levisimo snacks and Lime Chip’s, cross market products like Artesano and Nature’s Harvest breads and expanded distribution. Although performance in the sweet baked goods and confectionary categories was soft during the period, sales rose in every channel and across most categories, with outperformance in cookies, bread, cakes and salty snacks.
Net Sales North America
Net sales grew 28.8 percent in the year, largely as the result of an exchange rate benefit of 17.3 percent and acquisitions made in previous periods. Notwithstanding notable growth in the sweet baked goods, snacks and breakfast categories, successful introductions of Sara Lee Artesano and Thomas’ Swirl Breads in the US and Campagnard in Canada, volumes in the bread category were under pressure due to pricing initiatives implemented in the first half of the year. In the fourth quarter, results reflected an additional week of sales.
Net Sales Latin America
The 10.7 percent rise in net sales in 2015 reflected positive volume performance in several countries, notably Brazil and most of Central American countries, as well as the benefit of translating certain currencies to Mexican pesos. Sales of premium bread and tortillas continued to rise despite challenging economic conditions in some countries.
Net Sales Europe
The UK operation acquired as part of the Canada Bread transaction and an FX rate benefit of 2.4 percent contributed to the 9.6 percent improvement in annual net sales in the region. In Iberia, sales in the second half of the year were affected by a competitive environment in the bread category due to pricing dynamics among private label players.
Gross Profit
Consolidated gross profit for the year increased 18.2 percent, with a 50 basis point expansion in the margin to 53.3 percent, driven by lower average raw material costs in most regions. During the fourth quarter, higher indirect production costs and a stronger US Dollar that impacted average raw material costs in Mexico resulted in a 210 basis point contraction in the margin. Conversely, lower average raw material costs in North America and Latin America led to a significant margin improvement of 290 and 160 basis points, respectively.
Profit before other income and expenses
Profit before other income + expenses increased 16.2 percent during the year with a slight 10 basis point contraction in the margin to 8.3 percent. The 70 basis point contraction in the margin during the fourth quarter reflects higher operating expenses as a percentage of net sales, arising from the following increases: general expenses in Iberia due to soft top line performance, distribution and administrative expenses in Latin America coming from IT investments across the region, indirect production costs in Mexico, and marketing expenses in the UK and Canada; the impact of the latter on North American performance was more than offset by the benefit of a non-recurring pension cash out in the US.
Operating Income
Operating income in 2015 rose 36.9 percent over the prior year, with a 90 basis point expansion in the margin to 6.4 percent. This primarily reflected lower restructuring expenses in the US (2015: 1’007 million MXN; 2014: 2’259 million MXN). This factor was somewhat offset by integration-related costs in Canada, Europe and Latin America, specifically the migration to new enterprise software in Canada, the acquisition of Supan in Ecuador and the construction of a new plant in Latin America.
Comprehensive Financial Result
Comprehensive financing resulted in a 4’190 million MXN cost in the year, compared to 3’264 million MXN in 2014, or 925 million MXN higher. This reflects the incremental interest expense related to the Canada Bread acquisition, as well as a change in the Mexican peso/US Dollar FX rate, which increased the Mexican peso value of US Dollar-denominated interest expenses. The Company remains firm with its disciplined paydown schedule on track despite a lot of FX volatility during the year.
Net Majority Income
On a cumulative basis, net majority income rose 47.0 percent, with a 50 basis point expansion in the margin to 2.4 percent, attributable to operating performance and a lower effective tax rate of 40.7 percent vs. 42.3 percent in the same period of last year. During the fourth quarter, net majority income rose a significant 231.4 percent primarily as a result of the 2’022 million MXN non-cash charge in 2014 related to the Multi-Employer Pension Plans in the US. Earnings per share for the full year totaled 1.10 MXN, compared to 0.75 MXN in the prior year.
Adjusted Ebitda
Adjusted Ebitda increased 26.9 percent, while the margin expanded 90 basis points to 10.7 percent, resulting in a 210 basis point expansion in the North American margin and a record annual adjusted Ebitda margin in Mexico of 17.6 percent. During the period, the Company registered non-cash charges of 2’196 million MXN due primarily to impairment costs and goodwill charges mainly in Brazil, the US, Argentina and China.
Financial Structure
Total debt at December 31, 2015 was 67.8 billion MXN, compared to 62.2 billion MXN at December 31, 2014. The increase was primarily due to a 17 percent US Dollar revaluation that increased the Mexican peso value of US Dollar-denominated debt, although the Company has continued to pay down debt in line with its commitment to de-lever. Average debt maturity was 8.4 years with an average cost of 4.5 percent. Long-term debt comprised 88 percent of the total; 77 percent of the debt was denominated in US Dollars and 23 percent in Canadian Dollars. The total debt to adjusted Ebitda ratio was 2.9 times compared to 3.2 times pro forma Canada Bread at December 31, 2014. The net debt to adjusted Ebitda ratio was 2.7 times.
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