Roberto Servitje sees no letup in Bimbo expansion
BakingBusiness.com, June 9, 2011
by Josh Sosland

MEXICO CITY — Expansion of Grupo Bimbo S.A.V. de C.V. into new geographies will be sought in coming years, even as the company has emerged as the leader in baking worldwide. The company’s commitment to growth was emphasized by Roberto Servitje, Bimbo’s chairman, in the company’s 2010 annual report.

“Despite having reached our goal of being the largest bakery company in the world and No. 1 in almost every country where we operate, we have ambitious growth plans for other latitudes, and the financial strength needed to pursue them,” Mr. Servitje said in a letter to share holders.

This ambition should be viewed as an extension of the company’s practices dating back for the last 65 years, he said.

“We have never considered the possibility of slowing our pace, or simply making do with what we already have,” he said.

Looking back on results achieved by Grupo Bimbo in 2010, Mr. Servitje expressed a degree of satisfaction while acknowledging “we cannot say the results were impressive, due to special circumstances.”

As previously reported, net majority income for the year at Grupo Bimbo was 5,395 million pesos ($445.2 million), down 9% from 5,956 million pesos during 2009. Sales for the year were 117,163 million pesos ($9,669.1 million), up 1% from 116,353 million pesos in 2009.

Operating profit in the United States in 2010 was 3,739 million pesos ($308.4 million), down 12% from 4,261 million pesos during 2009. Sales were 47,875 million pesos ($3,949.9 million), down 4% from 49,852 million pesos in 2009.

Extraordinary events indentified by Mr. Servitje in his letter included the effects of exchange rate changes, “a substantial adjustment to the labor contingency fund in Brazil,” and expenses associated with the planned acquisition of the fresh baking business of Sara Lee Corp. in the United States.

“In times we all recognize as difficult, because of the global crisis, commodity prices, exchange rate fluctuations, weather-related phenomena and other negative influences, we were able to turn a profit, grow and maintain our solid financial and competitive stance,” he said.

Recapping acquisitions completed during the year, Mr. Servitje mentioned Duces Vero in Jalisco, Mexico; Jin Hong Wei in China and Bimar Foods in the United States.

In a separate letter in the report, Daniel Servitje, Bimbo’s chief executive officer, emphasized nearer-term challenges more than long-term plans for growth.

“A key priority will be the disciplined integration of the Sara Lee bakery division in the United States once the transaction is approved and closed,” he said. “In growth markets such as Brazil and China we are investing in strong organic expansion, while throughout Latin America we will continue to add customers, improve route productivity and focus on execution at the point of sale. In every region we will focus on delivering value to consumers and supporting brand development through innovation.”

Mr. Servitje predicted the transaction would close before the end of June.

Innovations in 2010 highlighted in the annual report included recognition by the Whole Grains Council for introducing to the market the most number of whole grain products; ongoing reduction of sodium content in products like bread and snacks, in numerous brands and countries, as part of a long-term plan; and cuts in saturated fats after eliminating trans fats in most of the company’s categories.

“For sustainable packaging we are working on a 5-year plan to implement thinner, oxo-degradable polyethylene and polypropylene bags for categories like white and wheat bread, buns, tortillas, cookies and cakes,” the company said. “This packaging will be introduced starting in 2011 and will reduce material used by potentially more than 500 tons per year.

In addition to the challenges in 2010 cited by Roberto Servitje, Daniel Servitje noted the impact from a hurricane in southeastern Mexico that had an impact on more than 2,000 Bimbo customers, shut down a major plant for three weeks and also adversely affected distribution centers. Earthquakes in Chile and Mexicali (Baja) damaged plants and had a negative impact on operations.

Despite the problems, the decline in profits from 2009 still left earnings at the second highest level ever for the company, he said.

“Along with a family of iconic brands, Sara Lee represents a significant opportunity to strengthen our U.S. operations, which will now generate approximately half of the Group’s sales,” he said. “The combined businesses are highly complementary in terms of product lines and geographic footprint, and will provide us with a true nationwide manufacturing and distribution platform. Furthermore, the combined operation will allow us to serve customers more efficiently. We are especially proud that only two years after acquiring B.B.U. East we are now ready to advance to this next stage of growth.

“The immediate focus will be on the integration process. We expect to see synergies starting in 2013 and a gradual but important improvement in operating results thereafter. We intend to invest more than $1 billion over the next five years to create a highly efficient manufacturing and service platform, including new bakeries and the modernization and upgrades of existing facilities.”

Expanding on the 12% decline in operating profit in the United States in 2010 from the year before, Grupo Bimbo said a narrowing of gross margins to 49.5% from 50.5% was triggered by higher commodity prices and lower average sales prices. Higher sales volume did not fully offset the declines.

Operating margin in the United States in 2010 was 7.8%, down from 8.5% the year before.

“This (decline) was due to the aforementioned pressure on the gross margin combined with the planned increase in distribution to enhance the penetration of the company’s brands; these factors were somewhat offset by administrative efficiencies in the operation,” Bimbo said.