Grupo Bimbo: Reports Nine Months 2016 Results

Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported its results for the nine months ended September 30, 2016. Financial highlights for the first nine months 2016 include:

• Net sales rose 14.1 percent due to consistent organic growth in Mexico, FX rate benefit in North America and Europe, and the acquisition now known as Donuts Iberia
• Gross margin expansion of 60 basis points was primarily driven by lower raw material costs in North America and Europe
• Operating income increased 27.8 percent, with an 80 basis point expansion in the margin, primarily due to a decline in distribution and restructuring expenses in most regions
• Adjusted Ebitda margin expanded 90 basis points, reflecting substantial operating improvements in North America (150 basis points) and Europe (350 basis points)
• The Company closed the acquisition of Donuts Iberia in Spain last July
• The company issued a 10-year, 7.56 percent local bond in September with a notional value of 8’000 million MXN; proceeds were used to refinance an existing committed revolver credit facility

Net Sales

Q3/2016	Q3/2015	Change	Net Sales	9M-2016	9M-2015	Change
20’810 mio. MXN	19’148 mio. MXN	8.7%	Mexico	60’716 mio. MXN	56’603 mio. MXN	7.3%
34’459 mio. MXN	30’361 mio. MXN	13.5%	North America	98’254 mio. MXN	83’603 mio. MXN	17.5%
7’349 mio. MXN	6’229 mio. MXN	18.0%	Latin America	19’930 mio. MXN	17’866 mio. MXN	11.6%
3’653 mio. MXN	1’992 mio. MXN	83.4%	Europe	7’792 mio. MXN	5’635 mio. MXN	38.3%
64’785 mio. MXN	56’352 mio. MXN	15.0%	Consolidated	182’130 mio. MXN	159’667 mio. MXN	14.1%

Consolidated results exclude inter-company transactions. Cumulative net sales rose 14.1 percent reflecting consistent organic growth in Mexico, FX rate benefit in North America and Europe, and the integration of Donuts Iberia.

Mexico

Net sales in Mexico rose 7.3 percent over the same period of 2015, driven by solid volume growth in key categories like sweet baked goods and cakes, healthy channel performance, most notably the convenience channel, and a better sales mix. Furthermore, premium breads such as Oroweat outperformed, and overall results were supported by increased market penetration, as well as product innovations such as Latte snack cake, Suavicremas cookies and Chips Chipotle Limón snacks.

North America

Net sales in Peso terms grew 17.5 percent in the first nine months of the year, reflecting the exchange rate benefit, while Dollardenominated sales remained flat. Strategic brands and the sweet baked goods, snacks and frozen categories in the US registered volume growth and increased market share, and there was solid performance in pastries and English muffins in Canada; however, overall North American consumption trends for packaged bread continued to weigh on industrywide performance.

Latin America

The 11.6 percent rise in net sales reflected FX rate benefit and solid growth in local currencies across most countries in the region, notably the Latin Centro division, Chile and Peru, despite pressure from challenging economic conditions in some countries. This reflects the Company’s focus on expanding its scale, along with ongoing market penetration and improved route efficiency.

Europe

Net sales rose a strong 38.3 percent primarily as a result of the Donuts Iberia acquisition, FX rate benefit and improved volume trends in Iberia, partially offset by continued pressure in the packaged bread category. The Eagle snack brand and Oroweat, Artesano and Rustik bread brands outperformed.

Gross Profit

Consolidated gross profit in the first nine months increased 15.5 percent, with a 60 basis point expansion in the margin to 54.0 percent. This expansion was on the back of lower raw material costs in North America and Europe, as well as lower indirect costs in Europe reflecting greater efficiencies across the supply chain. The margin contraction in Mexico, during the quarter and on a cumulative basis, reflected the impact of a stronger US Dollar, despite underlying efficiency improvements and cost control initiatives.

Profit Before Other Income And Expenses

Profit before other income and expenses increased 23.2 percent in the period, with a 60 basis point expansion in the margin to 8.7 percent. The increase reflected lower distribution expenses in Mexico and North America. These factors were partially offset by higher distribution expenses in Latin America, as well as higher marketing expenses in North America and Europe.

Operating Income

Operating income rose 27.8 percent over the prior year, with an 80 basis point expansion in the margin to 7.9 percent, mainly reflecting the abovementioned gross margin and distribution expenses benefits, as well as lower restructuring expenses in almost every region and a lower figure in the «other income and expenses» line in Latin America and Europe. These factors were partially offset by: i) higher integration and restructuring expenses in Canada due to the enterprise software migration process and investments in manufacturing efficiency, such as the North Bay plant closure; ii) integration and restructuring expenses in Argentina arising from the frozen business acquisition, as well as start-up costs related to the construction of a new plant in Cordoba; and iii) integration-related expenses in Iberia following the recent Donuts Iberia acquisition.

Comprehensive Financial Result

Comprehensive financing resulted in a 3’471 million MXN cost in the period, compared to 2’984 million MXN in the first nine months of 2015, or 488 million MXN higher. This increase reflects exclusively the incremental interest expense related to the change in the Mexican Peso/US Dollar FX rate. It is important to mention that the Company didn’t register any FX loss, the latter reflecting its strict and responsible hedging policy.

Net Majority Income

Net majority income rose 17.2 percent, while the margin remained flat at 3.1 percent, attributable to solid operating performance, fully offset by a higher effective tax rate of 41.8 percent. This increase in the tax rate primarily reflected better earnings in the US, naturally subject to a higher rate, as well as the cancellation of deferred income taxes due to losses in Brazil. These factors are expected to persist for the remainder of the year. Earnings per share for the period totalled 1.21 MXN, compared to 1.04 MXN in the prior year.

Adjusted Ebitda

Adjusted Ebitda increased 24.7 percent, while the margin improved by 90 basis points to 11.2 percent. This was primarily due to the aforementioned improvements in operating performance in most regions. As a particular note on Mexico, cumulative adjusted Ebitda margin expanded 10 basis points, despite the gross margin pressure.

Financial Structure

Total debt at September 30, 2016 was 81.5 billion MXN, compared to 67.8 billion MXN at December 31, 2015. This 20 percent increase was primarily due to a 13 percent US Dollar revaluation that increased the Mexican Peso value of US Dollar-denominated debt and the financing for the Donuts Iberia acquisition. Average debt maturity was 8.4 years with an average cost of 4.4 percent. Long-term debt comprised 96 percent of the total; 60 percent of the debt was denominated in US Dollars, 23 percent in Canadian Dollars, 10 percent in Mexican Pesos and 7 percent in Euro. The total debt to adjusted Ebitda ratio was 3.0 times compared to 2.9 times at December 31, 2015. The net debt to adjusted Ebitda ratio was 2.6 times. During the third quarter, the Company issued 8’000 million MXN in domestic bonds at a 7.56 percent fixed rate due 2026. Proceeds from the transaction were used to repay a committed long-term revolving credit facility.