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Bachoco Performs Well in 08 Despite Difficult Market

by 5m Editor
13 February 2009, at 9:28am

MEXICO - Industrias Bachoco has announced its fourth quarter and 2008 full year results. Although overall operating margin was slightly negative, sales were up in all sectors (poultry meat, eggs, turkeys, feed and pigs).

Industrias Bachoco S.A.B. de C.V., Mexico's leading producer and processor of poultry products, has announced its unaudited results corresponding to the fourth quarter and full year ended 31 December 2008. All figures have been prepared in accordance with Mexican GAAP. In line with the Mexican Accounting Principles, data for 2008 is presented in nominal pesos while that of 2007 is presented in constant pesos as of 31 December 2007.

Highlights

  • Total sales in the fourth quarter (Q4) 2008 increased 23.3 per cent compared with the same period of 2007; recording the highest sales level in a quarter in the Company's history, and increasing 10.4 per cent for the full year.
  • Chicken sales volume increased of 7.1 per cent in the period, traditionally the best quarter of a year, and a 4.9 per cent during 2008.
  • The Company recorded a negative operating margin of 1.4 per cent during Q4 2008 but a positive EBITDA margin of 1.4 per cent.
  • Net loss per share in Q4 2008 was 1.46 pesos (MXN), or US$1.26 per ADR, compared to a net income per share of MXN 0.30, or US$0.26, per ADR reported in the same 2007 period.

CEO's Comments

Cristobal Mondragon, Bachoco's CEO, stated, "During the quarter, the Company had to tackle several adverse conditions that again affected our results: inventory on hand at higher cost, currently being consumed, affected our cost of sales, and the Mexican economy slowed down following global trends, which led us to post negative results in terms of operating margin. In addition, the abrupt depreciation of the Mexican peso against the US dollar also affected our operating results, but mainly affected our net margins for the quarter.

"Despite this adverse environment, and oversupply conditions in the chicken market at the beginning of the quarter, which were later reversed in the end, we were able to record encouraging results. We recorded the highest sales level for a quarter in the Company's history; particularly robust was the volume of chicken sold, our main product line, while reporting strong results in table eggs, our second main business line.

"In terms of EBITDA, we achieved positive results and by the end of the quarter we also registered positive operating levels that have spilled over to the beginning of 2009.

"As we have reported during the quarter, our comprehensive financial cost was strongly affected by the abrupt depreciation of the Mexican peso against the US dollar given our hedging position; however, our strong financial position will allow us to face the conditions ahead.

"The Company has successfully implemented several measures to wane the impact of such a challenging scenario, like: the restructuring of the derivatives portfolio, the optimization of the product mix, better services for customers, and productivity improvements, among others. We trust that such strategies will contribute with positive results to the Company's performance and will allow us to obtain better results in the near future," concluded Mr Mondragon.

Fourth Quarter 2008 Results

Net sales

Net sales for the quarter were MXN 5,674.3 million, 23.3 per cent above the MXN 4,602.6 million reported in Q4 2007. This increase was mainly driven by higher sales in the main business lines: chicken sales rose 26.6 per cent, while table eggs sales increased 15.8 per cent and swine sales increased 46.2 per cent.

Net sales for fourth quarter 2008 and 2007
Q4 2008 (%) Q4 2007 (%)
Chicken 77.7 75.7
Eggs 10.0 10.6
Balanced feed 6.4 7.7
Swine 1.1 0.9
Other lines 4.8 5.1
Total 100.0 100.0

Operating Results

Bachoco's fourth quarter gross margin was 9.8 per cent, below the 17.0 per cent reached in the same 2007 quarter. Said decrease is attributed to a 34.0 per cent increase in the cost of sales. During this quarter cost of sales remained affected by the high costs of raw materials, basically corn and soy bean meal.

The Company had an operating loss of MXN 79.1 million, compared to an operating profit of MXN 200.6 million in the same 2007 quarter. Even when operating expenses increased 9.3 per cent during the quarter, the operating expenses as a percentage of sales decreased when compared to the same period of 2007.

The EBITDA result was positive and amounted to MXN 76.8 million, compared with MXN 347.6 million reached in the same period of 2007.

Taxes

During the fourth quarter, the Company recognized a positive provision for income tax and deferred income taxes amounting to MXN 247.0 million.

Comprehensive Financial Income (Cost)

The depreciation of the Mexican exchange rate during fourth quarter strongly impacted our hedging structure, which, added to the mark-to-market valuations, affected our financial comprehensive cost. The Company's financial comprehensive cost amounted to MXN 1,056.0 million during the quarter, compared to a financial comprehensive cost of MXN 10.2 million reported in the same quarter last year.

Net Income

During the fourth quarter the Company reported a negative net majority income result of MXN 873.5 million, or MXN 1.46 per share (US$1.26 per ADR), compared to a net majority income of MXN 180.3 million, or MXN 0.30 per share (US$0.26 per ADR) reported in the same 2007 period.

Results by Business Segment

Chicken
The results recorded for the chicken business line were strong during the fourth quarter; sales increased 26.6 per cent as chicken prices rose 18.1 per cent, and volume increased 7.1 per cent from the previous year. The Company was able to transfer part of its cost increases to chicken prices. It is also worth noting that this result is also attributed to seasonality factors.

Table Eggs
The table egg business line also remained strong; sales increased by 15.8 per cent during the quarter as egg prices rose 20.9 per cent, which was partially offset by a 4.2 per cent decrease in volume.

Balanced Feed
Sales of balanced feed increased 2.0 per cent during the fourth quarter, as balanced feed prices jumped by 29.2 per cent, but the positive impact was offset by the significant decline in volume of 21.1 per cent when compared to the previous year. This business line is directly affected by the ongoing increases of raw materials prices that occurred during 2008.

Swine
Demand and supply remained stable during this quarter, swine sales significantly increased by 46.6 per cent from Q4 2007, driven by a 35.2 per cent increase in swine prices and 8.1 per cent in volume sold.

Other Lines
Sales of other lines increased 18.7 per cent mainly due to higher turkey sales.

Year 2008 Results

Net Sales

Net sales for 2008 amounted to MXN 20,109.6 million, 10.4 per cent above the MXN 18,208.8 million reported in 2007. The increase was driven by the growth in all the business lines: a 9.5 per cent increase in chicken sales, 20.4 per cent in table eggs sales, 35.3 per cent in swine sales, and 0.9 per cent increases in sales of balanced feed and 18.0 per cent in other lines.

Net sales for 2008 and 2007
2008 (%) 2007 (%)
Chicken 76.9 77.6
Eggs 10.5 9.6
Balanced feed 7.3 8.0
Swine 1.1 0.9
Other lines 4.2 3.9
Total 100.0 100.0

Operating Results

The Company's gross margin for year was 13.1 per cent, lower than the 20.5 per cent reported in 2007, reflecting the steady raw materials price increases during the whole year, as well as increase in the exchange rate between peso-USD. Operating profit was MXN 233.2 million, lower than the MXN 1,487.8 million reached during the year 2007. EBITDA amounted to MXN 837.8 million, below the MXN 2,059.2 million of the same 2007 period. EBITDA margin was 4.2 per cent during the year.

Taxes

The Company recognized a positive provision for income taxes and deferred income taxes amounting to MXN 543.1 million.

Comprehensive Financial Income (Cost)

The Company had a financial comprehensive cost for the year amounting to MXN 1,308.4 million, which compares to a financial comprehensive income of MXN 98.2 millions reported in 2007. As the Company previously announced, the negative effect of its hedging instruments resulted from the high cost of its raw materials and the volatility of the exchange rate (peso-USD). The main effect was a realized loss in its hedging instruments registered as interest expenses and financing cost, and mark-to-market valuations registered as interest income.

Net Income

The Company recorded a net loss for 2008 of MXN 548.5 million, or MXN 0.91 per share (US$0.79 per ADR), compared to net income of MXN 1,278.3 million, or MXN 2.13 per share (US$1.85 per ADS) reported in 2007.

Balance Sheet

Despite the adverse conditions, the Company's financial structure remained healthy, and allowed the Company to face all its commitments. Cash and cash equivalents totaled MXN 1,972.2 million as of 31 December 2008, below the MXN 3,040.0 million reported in 2007. Said decrease was mainly driven by larger inventory and higher CAPEX, which accounted for MXN 1,052.7 million during 2008. The total debt outstanding as of 31 December 2008 amounted to MXN 625.9 million.

Outlook

  • The Company expects the peso-USD exchange rate to remain volatile.
  • The worldwide decrease in the costs of raw material will benefit the Company's cost of sales at the beginning of 2009.
  • The Company expects a strong demand and good level of chicken prices during the first quarter of 2009.

Industrias Bachoco S.A.B. de C.V. is the largest poultry company in Mexico, with over 700 production and distribution facilities currently organized in nine complexes throughout the country. Bachoco's main business lines are chicken, egg and balanced feed, among others. The Company is also present in other businesses like swine, beef, margarine and turkey in Mexico. The Company's headquarters are in Celaya, Guanajuato, located in Mexico's central region.