MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of Gruma, S.A.B. de C.V. (Gruma) as follows:
--Long-term Foreign Currency Issuer Default Rating (IDR) at 'BB';
--Long-term Local Currency IDR at 'BB';
--USD300 million perpetual bonds at 'BB'.
The Rating Outlook remains Positive.
Gruma's ratings are supported by its solid business profile as one of the largest producer of corn flour and tortillas in the world, strong brand equity, good operating performance and improved financial position after reducing significantly its debt levels and concluding its refinancing process in 2011. The ratings also incorporate the company's geographic diversification and hard currency revenue with nearly 46% of its total sales generated by Gruma Corporation. The company's ratings reflect its exposure to the volatility in prices of its main raw materials, corn and wheat, and the uncertainty derived from the nationalization of the Venezuelan operations.
The Positive Outlook reflects Fitch's expectation that Gruma will maintain its total debt to EBITDA ratio within the 2.0 times (x) to 2.5x range over the next 12 to 18 months. If Gruma's results fall within this range combined with the expectation that will remain there it is likely to result in a rating upgrade. Conversely, a revision of the Outlook to Stable would occur if leverage fall within the 2.5x to 3.0x range due to various reasons including operational factors or adverse market conditions.
Gruma's operating performance has recently benefited from higher volume and price increases. In 2011, consolidated net sales increased 24% when compared to 2010, mainly as a result of a 5% overall volume increase and 19% better pricing and mix. In terms of profitability, EBITDA margins improved to 8.8% from 7.7% despite higher commodity prices. Fitch anticipates that in 2012 net sales growth will be supported by volume growth and price initiatives; however the potential disincorporation of Venezuelan operations could have a negative impact on consolidated sales. Fitch estimates that operating margins in 2012 would remain relatively stable as higher pricing, hedging of corn and wheat by Gruma Corporation and productivity initiatives would largely offset higher input costs.
Fitch considers that Gruma's geographically diversified portfolio of revenues and products lowers business risk and cash flow volatility. In 2011, Gruma generated around 64% of its total sales and 57% of its EBITDA outside Mexico. Additionally, the company weaker operating result in Gruma Corporation during 2011 was fully offset by better profitability in Grupo Industrial Maseca, S.A.B. (GIMSA) and Gruma Venezuela.
Gruma increased its financial flexibility by reducing and refinancing its total debt. During 2011, Gruma reduced its total debt by USD533 million using the proceeds of the sale of its equity stake in Banorte. Total debt at Dec. 31, 2011 was USD958 million, which compares favorably with USD1.491 billion at year end 2010. In addition, the company refinanced the rest of its outstanding debt obtaining better terms and conditions on debt service and maturity profile. Gruma's total debt was composed of the following: USD300 million of perpetual bonds and USD658 million of different bank credit facilities. Also, the distribution of debt by currency at year-end 2011 was around 83% U.S. dollar, 14% Mexican peso and 2% Venezuelan bolivares. The exposure to U.S. dollar denominated debt is mainly hedged with cash flow generation from operations in Gruma Corporation.
Fitch expects for 2012 that the company's gross debt leverage ratio should stay below 2.5x, while on a pro forma basis excluding Venezuelan at around 3.0x. As of Dec. 31, 2011 Gruma had total debt to EBITDA ratio of 2.6x, significantly lower than 5.1x at year end 2010. Fitch considers that an additional reduction in the leverage ratio would be associated to the EBITDA growth as debt levels are expected to have only a slight decrease of approximately USD50 million. Additionally, eliminating the operations of Venezuela, Fitch estimates on a pro forma basis at Dec. 31, 2011 a total debt to EBITDA of around 3.1x.
Gruma's liquidity position is adequate supported by its positive funds from operations (FFO) generation and access to credit lines. Cash and marketable securities were MXN1.2 billion at Dec. 31, 2011, that combined with an annual FFO generation of MXN3.9 billion are sufficient to cover its short-term debt obligations of MXN1.6 billion and capital expenditures requirements of approximately MXN2.6 billion in 2012. In addition, the company maintained at Dec. 31, 2011 USD67 million of available committed credit lines mainly to cover its working capital requirements.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology'(Aug. 12, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
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