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

MONTERREY, Mexico--()--Fitch Ratings has affirmed Grupo Bimbo, S.A.B. de C.V.'s (Bimbo) ratings as follows:

--Long-term Issuer Default Rating (IDR) at 'BBB';

--Local currency long-term 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.

KEY RATING DRIVERS

Bimbo's ratings continue to reflect its 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 which provides a key competitive advantage. The ratings also consider the company's stable operations with historically low volatility in revenues and margins, diversified revenue base and positive free cash flow (FCF) generation. Bimbo's ratings are constrained by higher debt levels associated to its acquisition strategy, exposure to raw material and foreign exchange volatility of its USD dollar denominated costs and changes in regulation associated to a further increase in taxes on high-calorie food products.

Strong Business Position

Bimbo's ratings incorporate its solid business position as the largest producer of baked goods in the world with operations in Mexico, the U.S., Canada, Latin America, Europe and Asia. The company has solid leading positions in each of the markets where it operates with a recognized portfolio of brands and a permanent strategy towards product innovation. Although the competitive environment in the U.S. and Canada is stronger than in Mexico, the company has maintained relatively stable its market positions in those territories. Bimbo's competitive advantages include its position as a low cost producer and an extensive distribution network among its main markets.

Broader Geographic Diversification

Bimbo continues consolidating its position as global player in the bakery industry and the recent acquisitions of Canada Bread Company, Ltd. in 2014 and Saputo Bakery Inc. in 2015 improve the company's geographic foot print in North America and cash flow generation in hard currency. Fitch expects that Bimbo continues expanding its operations in the territories where it operates by incorporating strong brands into its product portfolio and capturing access to strategic distribution channels. On a pro forma basis including the recent acquisitions, the company will generate around 50% of its total revenues and 32% of its total EBITDA from its operations in the U.S. and Canada.

Improvement in Operations

Fitch expects an improvement in Bimbo's consolidated revenues and profitability for 2015 as a result of its recent acquisitions and organic growth, in combination with internal operating efficiencies and lower restructuring expenses in the U.S. The revenues in Mexico should benefit of an increase in volumes due to a better consumer environment, while the U.S., Canada, Latin America and Europe will reflect mainly the effect of previous acquisitions. For 2015, Fitch conservatively projects an 11% overall increase in Bimbo's revenues. The company's consolidated EBITDA margin in 2015 is expected to remain around 10% as a result of a favorable outlook of raw materials (wheat), lower restructuring charges, internal efficiencies and pricing actions. For the latest 12 months (LTM) as of March 31, 2015, Bimbo's EBITDA margin estimated by Fitch was 10%, excluding MXN2 billion of the non-cash charge from Multiemployer Pension Plans (MEPPs) recorded in the fourth quarter of 2014.

Declining Leverage

Fitch estimates that Bimbo's gross leverage measured as total debt-to-EBITDA will gradually decrease below 3.0x in the next 12 to 18 months. The projection considers that Bimbo will reduce in this period its total debt by USD200 million-USD250 million and will have an EBITDA margin around 10%. Fitch incorporates in the ratings the company's good track record of deleveraging after acquisitions given the stable cash flow generation capacity of its business. For the LTM ended March 31, 2015, excluding the MXN2 billion non-cash from MEPPS, Bimbo's total debt to EBITDA estimated by Fitch was 3.3x, with a total debt of MXN64.8 billion. Adjusting for operating leases related to the production, distribution and sale of its products, Bimbo's total adjusted debt-to-EBITDA plus rents (EBITDAR) for the same period was around 3.9x.

Solid FCF

Fitch anticipates that Bimbo will maintain solid FCF generation and projects for 2015 that its FCF will reach close to MXN3 billion after covering capex of around MXN8.5 billion and no dividends payments. The company's annual capacity of FCF is strong through the business cycle with an estimated average for the last five year of approximately MXN4 billion. For the LTM as of March 31, 2015, Bimbo's FCF was MXN4.2 billion.

Adequate Liquidity

Bimbo's liquidity position is adequate with a cash balance of MXN2.2 billion and short-term debt of MXN3.3 billion as of March 31, 2015. The short-term debt includes MXN1.9 billion related to the acquisition of Saputo Bakery Inc. in February 2015, while the rest corresponds to working capital debt in some of its subsidiaries. The liquidity requirements of the company are also supported by a USD2 billion committed revolver credit facility that expires in 2019, of which USD1.5 billion is available. Bimbo's next significant debt amortizations are in 2016 and 2018 for USD330 million each year.

KEY ASSUMPTIONS

--Consolidate revenue increase of 11% for 2015 due to acquisitions and organic growth and low single digit growth range in 2016;

--Stable EBITDA margin of around 10% for 2015-2016;

--Average annual FCF capacity of around MXN4 billion;

--Total debt-to-EBITDA below 3.0x in the next 12 to 18 months.

RATING SENSITIVITIES

Bimbo's ratings are likely to be downgraded if the company maintains on a sustained basis a total net debt-to-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-to-EBITDA at or below to 2.0x.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985049

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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
Alberto Moreno
Senior Director
+52 81 8399 9100
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

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
Alberto Moreno
Senior Director
+52 81 8399 9100
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com