Fitch Affirms Grupo Bimbo's Ratings at 'BBB'; Outlook Stable

MONTERREY, Mexico--()--Fitch Ratings has affirmed Grupo Bimbo, S.A.B. de C.V.'s (Bimbo) Foreign and Local Currency Issuer Default Ratings (IDR) at 'BBB'. The Rating Outlook is Stable. A full list of ratings follows at the end of this release.

KEY RATING DRIVERS

Strong Business Position

Bimbo's ratings incorporate its solid business position as a global leader producer of baked goods with operations in Mexico, the U.S., Canada, Latin America, Europe and Asia. The company has a product portfolio of well-known brands with leading positions in many of its categories across the markets it participates. Its portfolio includes five USD1 billion brands in terms of annual revenues and four over USD500 million, which supports its business position in the long term. Bimbo has maintained relatively stable market positions across its territories despite a stronger competitive environment in the U.S., Canada and Iberia. The company's competitive advantages include its position as a low cost producer and an extensive distribution network among its main markets.

Good Geographic Diversification

The ratings incorporate Bimbo's good geographic diversification outside Mexico. Its acquisitions in the U.S., Canada and Europe in the recent years have provided access to hard currency revenue and EBITDA generation contributing to counterbalance the exposure between mature and emerging economies. While challenges remain in Spain and Latin America for improvement in margins, Mexico and North America have had a positive path. Fitch expects that Bimbo will continue expanding its operations in the territories where it operates by incorporating strong brands into its product portfolio and capturing access to strategic distribution channels. Its recent announcement of the acquisition of Panrico S.A.U. (Panrico) in Spain and Portugal is expected to be closed in the second half of 2016.

Positive Performance Trends

Bimbo's revenues and profitability are expected to improve in 2016-2017 due to organic growth, positive effect of foreign currency exchange and operating efficiencies. Revenues in Mexico should continue growing as a result of a better consumer environment, whereas in the U.S. and Canada, revenues should increase by volume growth in certain categories and the positive effect of translating foreign currency revenues to MXN. Challenges will continue in Europe due to a highly competitive environment and in Latin America to weak economic conditions in the region. Fitch projects a consolidated revenues growth in MXN of around 9% in 2016 and 5% in 2017.

Fitch also expects a slight improvement in Bimbo's profitability despite its exposure to raw materials costs denominated in USD. Fitch forecasts an EBITDA margin of 10% for 2016-2017 as pressures from raw materials in USD, should be compensated by internal efficiencies, moderate pricing actions and lower restructuring expenses from its operations in U.S. and Canada.

Stable Leverage

Fitch expects Bimbo to maintain its total debt/EBITDA relatively stable around 3.0x in 2016 and then gradually decline to 2.7x by 2017. For 2016, Bimbo's total debt is projected to increase by approximately MXN4 billion, mainly to finance the acquisition of Panrico. Deleverage in 2017 is projected to come from debt repayment and higher EBTIDA. For the latest 12 months (LTM) ended March 31, 2016, Bimbo's total debt/EBITDA and net debt/EBITDA estimated by Fitch were 3.0x and 2.8x, respectively. Adjusting for operating leases related to the production, distribution and sale of its products, Bimbo's total adjusted debt/EBITDA plus rents (EBITDAR) for the same period was 3.7x and total adjusted net debt/EBITDAR was 3.4x.

Solid Free Cash Flow (FCF)

Bimbo's ratings reflect its consistent positive free cash flow (FCF) generation capacity. Fitch forecasts for 2016 that the company's FCF will be around MXN2 billion after higher capex levels of MXN10.9 billion and the return of dividends payments of MXN1.1 billion. In 2015, the company's FCF was strong at MXN4.8 billion. Fitch also estimates that annual capacity of cash flow from operations (CFFO) generation, before capex and dividends, will remain solid at around MXN15 billion in 2016-2017. For the LTM as of March 31, 2016, Bimbo's CFFO was MXN17.6 billion.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Bimbo include:

--Consolidate revenue increase in MXN of 9% in 2016 and 5% in 2017;

--EBITDA margin of around 10% for 2016-2017;

--Average annual FCF capacity of approximately MXN3 billion in 2016-2017;

--Total debt/EBITDA and net debt/EBITDA of 2.7x and 2.5x by 2017.

RATING SENSITIVITIES

Bimbo's ratings are likely to be downgraded if the company maintains on a sustained basis a total net debt/EBITDA above 3.0x as a result of a decline in its operating performance or cash flow generation associated to adverse market conditions or acquisitions.

Fitch does not anticipate positive rating actions in the short term, but would view as positive to credit quality a combination of debt reduction, higher operating income, and cash flow generation leading to a sustained improvement in total net debt/EBITDA at or below to 2.0x.

LIQUIDITY

Bimbo's liquidity position is adequate with a cash balance of MXN6.4 billion and short-term debt of MXN8.4 billion as of March 31, 2016. In addition, liquidity is supported by committed revolver credit facilities of USD2 billion (95% available) that expires in 2019 and EUR300 million (93% available) due in 2021. Next significant debt maturities are in 2018 for MXN5.4 billion, MXN2.5 billion in 2019 and MXN16.1 billion in 2020. Fitch views the company's debt profile as manageable given its cash flow generation, committed credit lines, and access to bank loans and capital markets.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Grupo Bimbo, S.A.B. de C.V.

--Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BBB';

--Long-Term Local Currency IDR at 'BBB';

--National Long-term Rating at 'AA+(mex)';

--USD800 million senior notes due 2020 at 'BBB';

--USD800 million senior notes due 2022 at 'BBB';

--USD800 million senior notes due 2024 at 'BBB';

--USD500 million senior notes due 2044 at 'BBB';

--Local Certificados Bursatiles Issuances at 'AA+(mex)'.

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

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https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004689

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004689

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Contacts

Fitch Ratings
Primary Analyst
Rogelio Gonzalez
Director
+52 81 8399 9100
Fitch Mexico S.A. de C.V.,
Prol. Alfonso Reyes 2612, Monterrey, N.L., Mexico
or
Secondary Analyst
Johnny Da Silva
Director
+1-212-908-0367
or
Committee Chairperson
Joseph Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.comp

Contacts

Fitch Ratings
Primary Analyst
Rogelio Gonzalez
Director
+52 81 8399 9100
Fitch Mexico S.A. de C.V.,
Prol. Alfonso Reyes 2612, Monterrey, N.L., Mexico
or
Secondary Analyst
Johnny Da Silva
Director
+1-212-908-0367
or
Committee Chairperson
Joseph Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.comp