2011-06-10 20:14:00 -
Fitch Ratings has affirmed the following ratings of Grupo Bimbo, S.A.B.
de C.V. (Bimbo).
-- Long-term Issuer Default Rating (IDR) at 'BBB';
-- Long-term Local Currency IDR at 'BBB';
-- National Scale Long Term Rating at 'AA+mex)';
-- Local Certificados Bursatiles Issuances BIMBO 02-2, BIMBO 09, BIMBO 09U and BIMBO 09-2 at 'AA+(mex)';
-- US$800 million senior unsecured notes due 2020 at 'BBB'
The Rating Outlook is Stable.
The rating actions reflect Bimbo's important size and scale within the global bakery industry, its strong brand recognition and positioning in the markets where it operates, and its extensive distribution network that provides a key competitive advantage. The ratings also incorporate the company's geographic diversification, with
around 52% of sales and 38% of EBITDA generated outside Mexico, as well as a broad brand product portfolio that covers a wide consumer base. In addition, Fitch considers that Bimbo participates in a relatively stable industry which is less exposed to economic downturns, which has historically led to low volatility in Bimbo's revenues and margins.
Bimbo continued generating sales growth during the last 12 months (LTM) despite challenging market conditions. For the LTM ended March 31, 2011 net sales grew 1% when compared to year end 2010, reaching MX$118.2 billion. The growth in net sales was primarily driven by higher revenues in Mexico and Latin America which partially offset the decline in the U.S. derived from the appreciation of the Mexican peso against the American dollar. In 2010, Bimbo's overall volume increase was supported by the good performance of snacks, sweet baked goods and packaged bread in Mexico, the national launch of Bimbo bread in the U.S., as well as the expansion of its distribution network in Latin America that allowed it to reach new customers and introduce new products. During the first quarter of 2011 (1Q'11), Mexico and Latin America have maintained their volume growth, whereas U.S. volume has slightly decreased in response to higher competition from local and regional brands due to additional pricing initiatives. Fitch expects that volume growth in Mexico and Latin America will continue at stable rates, as a result of Bimbo's strong execution in the points of sale, while in the U.S. the company may experience certain pressures in the near term as consumers remain value conscious to price increases.
Bimbo's profitability margins have been pressured after the second half of 2010 by higher commodity costs and operating expenses. LTM EBITDA margin as of March 31, 2011 was 12.8%, which represented a slight decline from 13.2% at year end 2010. This decrease was explained mainly by increasing commodity prices and higher marketing and distribution expenses to support volume growth. In addition, during the 4Q'10 the company registered extraordinary one-time charges associated with the acquisition of the Sara Lee North America Fresh Bakery Division (Sara Lee NAFB). The rise in commodity prices has been driven in part by crop shortfalls in certain regions of the world as well as higher oil prices.
On the other hand, the weak recovery in volumes has forced food companies to increase their promotions and advertising expenses to compete for consumers. Fitch does not expect an improvement in operating margins for the rest of the year as commodities are likely to remain at higher levels than previous years in conjunction with the expected integration of Sara Lee NAFB operations in the second half of 2011.
The ratings also consider the expected effects on Bimbo's financial position derived from the acquisition of Sara Lee NAFB, which is expected to close during the 3Q'11. The acquisition of Sara Lee NAFB was valued at US$959 million and was planned to be funded by US$700 million from bank term loans and the rest using existing cash holdings. Bimbo's total debt as of March 31, 2011 was MX$33 billion and leverage measured as total debt to LTM EBITDA was 2.2 times (x). On a pro forma basis for the same period, including 12 months of operations of Sara Lee NAFB as well as the US$700 million of additional debt used to complete the acquisition, Fitch calculates a total debt to LTM EBITDA of 2.5x, which is within the range previously estimated.
Fitch expects that Bimbo will maintain an important consolidated cash flow generation which in turn will be used for debt reduction, strengthening its financial position. Assuming that the acquisition of Sara Lee NAFB is concluded during 3Q'11, Fitch estimates by year end 2011 a pro forma total debt to EBITDA ratio of around 2.4x, including 12 months of operations of Sara Lee NAFB.
Bimbo's liquidity is strong, supported by positive free cash flow generation and access to credit lines. For the LTM as of March 31, 2011 free cash flow (FCF) generation (after capital expenditures and dividends) remained strong reaching around MX$3 billion while cash and marketable securities were MX$3.8 billion and short-term debt was only MX$1.8 billion. In addition, in April 2011, the company obtained a five-year syndicated loan for US$1.3 billion that will be used to refinance approximately US$890 million of its current indebtedness maturities in 2012, 2013 and 2014, and to fund around US$400 million of the Sara Lee NAFB acquisition. These actions will improve the debt maturity profile of the company and reduce its liquidity risk. In the next few months Bimbo expects to access a revolving credit facility to finance the remaining balance of the Sara Lee NAFB transaction. Fitch considers Bimbo's ample access to diverse funding sources and strong cash flow generation as sufficient to face any maturities in the upcoming years.
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Applicable Criteria and Related Research.
--'Corporate Rating Methodology' (Aug. 16, 2010).
Applicable Criteria and Related Research.
Corporate Rating Methodology
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Fitch Mexico S.A. de C.V., Prol. Alfonso Reyes 2612, Monterrey, N.L.,
MexicoPrimary AnalystRogelio Gonzalez, +52 81 8399 9100Associate
DirectororSecondary AnalystViktoria Krane,
+1-212-908-0367DirectororCommittee ChairpersonDaniel
R. Kastholm, CFA, +1-312-368-2070Managing DirectororMedia
RelationsCindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com
