Fitch Upgrades Sigma Alimentos Ratings to 'BBB'; Outlook Stable

MONTERREY, Mexico--(BUSINESS WIRE)-- Fitch Ratings has upgraded Sigma Alimentos, S.A. de C.V.'s (Sigma) ratings as follows:

--Long-term foreign currency Issuer Default Rating (IDR) to 'BBB' from 'BBB-';

--Long-term local currency IDR to 'BBB' from 'BBB-';

--National scale long-term rating to 'AA+(mex)' from 'AA(mex)';

--USD450 million senior notes due 2018 to 'BBB' from 'BBB-';

--USD250 million senior notes due 2019 to 'BBB' from 'BBB-';

--Local Certificados Bursatiles Issuances to 'AA+(mex)' from 'AA(mex)'.

The Rating Outlook is Stable.

The rating upgrade reflects the strengthening of Sigma's credit profile due to increased geographic and product diversification following its acquisition of Campofrio. The upgrade also reflects the subsequent reduction in leverage associated with the Campofrio transaction. The Stable Outlook reflects the company's strong free cash flow generation capacity and stable operating cash flow generation. The ratings build in an expectation that the company will continue to acquire brands and that its net debt/EBITDA ratio will remain around 2.5x or lower and could reach up to 3.0x following an acquisition.

KEY RATING DRIVERS

Strong Business Position

Sigma's ratings reflects its solid business position as a leading producer of refrigerated foods such as processed meats, dry meats, cheese, yogurt and others meals and beverages in Mexico, Europe, U.S. and Latin America. The company has leading positions in many of its products segments and possesses a strong and diversified portfolio of brands. In combination with its extensive distribution network, these brands provide Sigma with a competitive advantage in the markets it participates.

Geographical and Product Diversification

The ratings incorporate Sigma's geographically diversified revenue stream, cash flow generation and product portfolio. The company continued strengthening its portfolio of brands and geographic footprint during 2014 after closing the acquisitions of Campofrio in Spain and Fabricas Juris in Ecuador. Fitch estimates Sigma will generate in 2015 approximately 55% and 45% of its total revenues and EBITDA, respectively, from its operations outside of Mexico. Also, around 55% of Sigma's total revenues will come from chilled processed meats, 20% from dry meats, 20% from dairy products and 5% from others.

Stable Profitability

Fitch expects Sigma to maintain a positive growth trend in its operating performance with stable profitability despite the volatility of raw materials and exchange rates. Sigma's sales volume and revenues in 2015 will benefit from the full year consolidation of Campofrio combined with solid economic growth in the U.S. and a better consumer environment in Mexico. Fitch estimates the company's revenues to increase around 25% in Mexican pesos during 2015. In terms of profitability, Sigma's EBITDA margin should remain relatively stable at about 11% - 12% as pressures from its main dollar denominated costs will be offset by lower prices of raw materials, pricing actions and synergies from Campofrio.

Declining Leverage

The ratings incorporate a decrease in Sigma's total debt/EBITDA and net debt/EBITDA close to 2.5x and 2.0x, respectively, in the next 18 to 24 months through a combination of debt reduction and EBTIDA growth. After the acquisition of Campofrio, the company's net debt to EBITDA has been gradually decreasing from its peak of 3.0x. For the last 12 months as of March 31, 2015, including full year results from Campofrio, Fitch estimates that Sigma's total debt to EBITDA was approximately 3.0x, while net debt to EBITDA was 2.4x.

Solid FCF

Fitch incorporates in Sigma's ratings the company's consistent free cash flow (FCF) generation capacity through the cycle. During 2014 the company had approximately MXN4 billion of FCF estimated by Fitch after consolidating Campofrio's operations. Fitch believes that Sigma's last five year average FCF of MXN1.8 billion provides financial flexibility to manage its capital structure. For 2015, Fitch projects Sigma's FCF will be constrained as a result of expected higher capital expenditures of MXN3.7 billion and MXN1.8 billion of dividends payments, but should resume to average levels in 2016.

Strong Liquidity

Sigma's liquidity position is strong. As of March 31, 2015, the company had a cash balance of MXN13.5 billion of which around MXN9 billion were proceeds from the EUR500 million bonds issued in March 2015 by Campofrio, which were used in April 2015 to pay a EUR500 million bond due in 2016. In addition, Sigma has committed credit facilities of USD100 million at the holding level and EUR284 million in its Campofrio subsidiary. The company's consolidated debt profile after refinancing EUR500 million bond at Campofrio is manageable for 2015 and 2016, and its next significant debt amortizations are in 2017, 2018 and 2019 for USD313 million, USD872 million and USD250 million, respectively.

KEY ASSUMPTIONS

--Stronger economic conditions and lower raw material prices should offset pressures related to the depreciation of the MXN and Euro versus the U.S. dollar;

--Consolidated revenue growth of around 25% in MXN and EBITDA margins between 11% to 12%;

--FCF of approximately MXN300 million in 2015 and higher than MXN2 billion in 2016;

--Net debt to EBITDA at or below 2.5x.

RATING SENSITIVITIES

Fitch will view as positive to credit quality a combination of debt reduction or higher operating income and free cash flow generation that will decrease on a sustained basis total net debt to EBITDA at or below 2.0x.

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 total net debt to EBITDA above 3.0x.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014).

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=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=984427

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Fitch Ratings
Primary Analyst
Rogelio Gonzalez
Director
+52-81-8399-9100
Prol. Alfonso Reyes 2612
Monterrey, N.L., Mexico
or
Secondary Analyst
Miguel Guzman
Associate Director
+52-81-8399-9100
or
Committee Chairperson
Joseph Bormann, CFA
Managing Director
+1-312-368-3349
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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