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Bachoco Experiences Increases in Production Costs

by 5m Editor
9 February 2012, at 10:09am

MEXICO - Bachoco and the poultry industry in general continued experiencing large increases in production costs, driven by global increases in prices of corn, soybean meal, among other components of the production cost.

This, combined with challenging economic conditions and high depreciation of the Mexican peso at the end of the year, lead Bachoco to post negative profit for the fourth quarter and weak results for the year 2011.

Rodolfo Ramos, CEO, commented: "During the fourth quarter we observed a strong demand for chicken meat, particularly towards the end of the quarter. We had increases in sales across all our business lines; as a result we reached record sales figures. Total sales rose 34.4 per cent during the fourth quarter and 11.8 per cent in 2011 over the previous year.

We were not able to fully transfer increases in our production costs to our customers, mainly due to: a strong supply of chicken coupled with weak demand for chicken during most of the year, and a 13.0 per cent depreciation of the peso in 2011, resulting in a 2.9 per cent negative operating margin for the quarter and 0.2 per cent negative operating margin for year 2011.

Nonetheless, we were able to reach a positive EBITDA result for the quarter and for the year, as well as posting a net profit in year 2011.

We ended the year with a positive outlook for the Company, with positive results in both our Mexican and US operations registered in December."

Bachoco continues to experience significant growth. In the fourth quarter the Bachoco acquired OK Industries, an important American Poultry Company headquartered in Fort Smith, Arkansas. This was a very important step for the Company, as it represented its first incursion into the US poultry industry.

This acquisition consisted of buying 100 per cent of the Company including; two broiler processing plants, two further process plants, among other facilities. OK currently processes around 2.5 million chickens per week; adding approximately 25.0 per cent to Bachoco's total production

Bachoco paid USD$ 93.4 million for OK Industries, paid with cash and debt. Under USGAAP and IFRS principles, Bachoco determines that this acquisition has generated a profit of around USD$ 100.0 million, which will be recognized on it's Balance Sheet as of 31 March 2012, when the company reports it's results in accordance with IFRS.

Bachoco is reaching new domestic customers by opening two distribution centers located in Baja California, with which an increase in market share is expected in that region.

The company's solid financial structure allows facing of adverse external conditions and take advantage of business opportunities that the industry offers. 2011 was a clear example of this successful strategy. Bachoco was able to grow within a challenging scenario and still maintain a solid financial structure. The company's performance, in general, is one of the best in the poultry industry world-wide.

Bachoco seeks to continue growing its business by seizing upon the opportunities present in the industry.