MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A' foreign currency and local currency Issuer Default Ratings (IDR) of Kimberly-Clark de Mexico, S.A.B. de C.V. (KCM).
Fitch has also affirmed KCM's other ratings as follows:
--Long-term national rating at 'AAA(mex)';
--MXN2.3 billion unsecured CBs due 2014 at 'AAA(mex)';
--MXN1.5 billion unsecured CBs due 2015 at 'AAA(mex)';
--MXN800 million unsecured CBs due 2016 at 'AAA(mex)';
--MXN2.5 billion unsecured CBs due 2017 at 'AAA(mex)';
--MXN400 million unsecured CBs due 2019 at 'AAA(mex)';
--MXN2.5 billion unsecured CBs due 2020 at 'AAA(mex)'.
The Rating Outlook is Stable.
The ratings reflect KCM's leading market position, strong cash flow generation, solid capital structure and liquidity position, proven debt-payment track record, and partial ownership by Kimberly-Clark Corporation (KMB), which is rated 'A' by Fitch with a Stable Outlook. KMB owns 47.9% of KCM.
STRONG BUSINESS PROFILE
KCM's solid business profile is supported by its brand portfolio, low cost structure, extensive distribution network, and access to Kimberly-Clark Corporation's technology and research and development capabilities. The ratings reflect KCM's ability to withstand competitive pressure, manage pricing and offset input cost pressure, all of this based on its leading business position in Mexico's consumer product market. The company is the market leader in most of the product categories in which it participates, with market share positions that are usually two to four times those of the nearest competitor.
KCM's ratings are supported on the company's strong credit profile and partial ownership by Kimberly-Clark Corporation (KMB), which maintains an equity stake of 47.9% in KCM. The company is a strategic investment for KMB, as its largest affiliate worldwide. KMB has five seats on KCM's 12-person board of directors. In addition, KCM benefits from its strong relationship with KMB, which provides the company with recognized global brands, common processes and product technology, consistent financial reporting and controls, and worldwide purchasing & sourcing.
EBITDA MARGIN TO IMPROVE
The ratings reflect KCM's historical good track record of successfully managing through Mexico's economic cycles while maintaining high operating margins. The company's EBITDA margin has been consistently around 30% during the last 10 years. However, during recent years consolidated EBITDA margins had been below 30% due to the company's strategy to penetrate the value segment and to a lesser extent the incorporation of profit sharing as expense above EBIT with the adoption of IFRS. For the last 12 months ended June 30, 2013, the company has seen the EBITDA margin widen around 175 basis points over the same period the previous year. The revenue growth rate was 6.9% for this same period, helped by higher volumes and mid-2012 price increases.
STRONG CASH FLOW GENERATION
KCM has a long record of sizeable levels of EBITDA and operating cash flow generation, as well as positive pre-dividend free cash flow. Fitch expects cash flow from operations (CFO), main source supporting the company's liquidity and leverage, to remain ample over the medium term. For the 12 months ended June 30, 2013; CFO was MXN6.5 billion resulting in a CFO margin of 21.7% which is higher than the 10 year average of 19.7%. The ratings incorporate the company's medium-term ability to internally fund its Capex levels and dividend payouts. For 12 months ended June30, 2013, the company's free cash flow (FCF) was MXN1.6 billion. The company's FCF is expected to be negative during the next 18 months, due to increased Capex, but positive afterwards, as it returns to historical levels.
LEVERAGE LOW; LIQUIDITY SOLID
The ratings include expectations that KCM's debt to EBITDA leverage could be around 1.5 times (x) in the short to medium term. For the 12 months ended June 30, 2013 total debt to EBITDA was 1.2x, while net debt to EBITDA was 0.8x. This was the result of MXN10 billion in debt and a cash position of about MXN3 billion. The company maintains ample access to capital markets as evidenced with several issuances during the last few years. Furthermore, KCM currently has a manageable debt maturity profile, with debt maturities of MXN2.3 billion and MXN1.5 billion during October 2014 and November 2015, respectively. Ratings incorporate expectations that KCM's debt maturity schedule will remain manageable. Fitch views the liquidity position as solid. KCM's longstanding ability to steadily generate significant amounts of operating cash flow underpins its considerable liquidity and significant access to capital markets. By the end of June 2013, KCM's LTM CFO and cash position combined (approximately MXN9.5 billion) covers almost all of the company's MXN10 billion debt, due between 2014 and 2020.
RATING SENSITIVITIES
With a highly stable business, considerable cash flow, low leverage, and strong liquidity changes in KCM's ratings are likely to be dependent on management's actions. Since KCM is not expected to change its financial policies in the near future, Fitch does not foresee any significant upgrade potential at this time.
Conversely, KCM's foreign currency IDR of 'A' incorporates partial ownership by Kimberly-Clark Corporation (KMB). Changes in KMB's ratings could result in similar rating actions on KCM's ratings. Furthermore, any change in the company's financial policies that resulted in sustained higher leverage would likely result in negative rating actions.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013).
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=715139
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=800071
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