MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of Sigma Alimentos, S.A. de C.V. (Sigma) as follows:
--Foreign currency Issuer Default Rating (IDR) at 'BBB-';
--Local
currency IDR at 'BBB-';
--USD450 million senior unsecured notes due
2018 at 'BBB-';
--USD250 million senior unsecured notes due 2019 at
'BBB-';
--National scale long-term rating at 'AA-(mex)';
--Local
Certificados Bursatiles issuances SIGMA 07, SIGMA 07-2, SIGMA 08 and
SIGMA 08U at 'AA-(mex)'.
The Rating Outlook is Stable.
Strong Business Profile:
Sigma's ratings continue to reflect the company's leading market positions in most of its categories in the Mexican processed food industry, its strong brand recognition in the markets where it operates, and its extensive refrigerated distribution network that provides a key competitive advantage. The ratings also incorporate Sigma's stable operating performance and free cash flow generation.
Sigma is the leading producer of processed foods in Mexico that includes processed meats, cheese, yogurt and refrigerated meals where it possesses important market share positions in those categories. Additionally, in the U.S. Sigma is the leading producer of package meats in the value segment under the brand of Bar-S, which is highly recognized among consumers.
Sigma benefits from a geographically diversified revenue stream and broad portfolio of brands. In 2011, sales from its operations outside Mexico represented 33% of consolidated revenue being the U.S. operations the highest contributor with around 25% of total revenues. Furthermore, in terms of product portfolio, 67% of Sigma's total revenues came from processed meats, while dairy products (cheese and yogurt, among others) and other processed foods contributed with 29% and 4%, respectively. Fitch believes that geographic diversification of revenues and a broad product portfolio of brands lowers business risk and cash flow volatility.
Stable Profitability:
Fitch estimates that Sigma's EBTIDA margin will remain above 12% range for the rest of the year despite the volatility of raw materials and exchange rate. Historically, EBITDA margins have stayed stable across economic cycles. Sigma's product portfolio of recognized brands of processed food products has allowed it to implement price increases to partially compensate the pressure from higher costs of raw materials and depreciation of the Mexican peso against U.S. dollar. In addition, continuous cost savings initiatives and the remaining synergies expected from Bar-S will contribute to mitigate these negative effects on Sigma's operating margins. For the last 12 months (LTM) ended June 30, 2012, the company's EBITDA margin was approximately 13% with an EBITDA of MXN5.6 billion.
Leverage Declining:
The ratings incorporate Fitch's previous expectation of lower leverage ratios by 2012. For the LTM ended in June 30, 2012, total debt to EBITDA and net debt to EBITDA were 2.5 times (x) and 2.3x, respectively. These ratios compare favorably with last year same figures of 2.9x and 2.6x. Leverage improvement has come mainly by better operating results and modest debt reduction. Total debt as of June 30, 2012 was MXN14.1 billion. Fitch does not expect any material increases in debt and estimates that total debt to EBITDA should gradually decline over the medium term.
Sustained Free Cash Flow Generation:
Free cash flow generation (FCF; cash flow from operations less capital expenditures and dividends) gives Sigma financial flexibility to manage its capital structure. Over the cycle the company's internal cash flow generation has been sufficient to cover its working capital requirements, capex and dividends and Fitch expects Sigma to maintain this trend in the long term. Sigma's funds from operations generation (FFO) and FCF have averaged annually in the last five years around MXN2.5 billion and MXN700 million, respectively.
Liquidity and Debt Profile Manageable:
Sigma has ample liquidity. At June 30, 2012, the company had MXN1 billion of cash and marketable securities and MXN222 million of short-term debt. Additionally, Sigma's liquidity is supported by USD100 million of available committed credit lines that expires until April 2016. The company does not have any significant debt due in 2012 and 2013. Significant upcoming debt maturities are due in 2014 and include MXN1.6 billion of local issuances and USD90 million in bank loans. Fitch believes that Sigma has sufficient financial flexibility to face these debt amortizations in the following years.
Key Rating Drivers:
Fitch will view as positive to credit quality a combination of debt reductions or higher operating income and cash flow generation that will approximate gross leverage, measured as total debt to EBITDA, to around 2.0x. Conversely, Sigma's ratings could come under pressure by a deterioration of its financial performance and cash flow generation or by a large debt acquisition that results in a sustained increase in gross leverage above 3.0x.
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;
--'National Ratings Criteria', Jan.
19, 2011;
--'Rating Packaged Food Companies - Sector Credits
Factors', May 11, 2010.
Applicable Criteria and Related Research:
Corporate Rating
Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
National
Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Rating
Packaged Food Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=526525
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