bimbo final-presentation
TRANSCRIPT
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Emerging Giant?
Irem GuneySam KishoreJebb RickettsWill RiveraAlec Rubin
Or Giant Failure?
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Today’s Agenda
1. Grupo Bimbo Today2. The Bakery Industry3. Institutional Voids4. Success in Mexico5. Challenges Facing Grupo Bimbo6. Our Recommended Strategy
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Grupo Bimbo at a Glance
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Early History and Company Growth
• By 1940s, bakery workers in Mexico had started carrying out frequent strikes over labor conditions
• Deplorable hygiene• Bolillos (traditional artisanal bread) were sold only in bakeries• Bimbo saw opportunity in selling prepackaged bread as
alternative• Longer-lasting, convenient, and “sophisticated” bread made
with modern technology• Ads that featured an American, modern household
• Liberated women from demanding cooking chores• First modeled after Wonder Bread then purchased it• Extended from cities to the most inaccessible villages in Mexico
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Grupo Bimbo Today
• Mexican multinational bakery
• Largest in the world• 4% global market share• Operations in Mexico,
US, Europe, & Latin America
• Known for over 100 bread and snack brands
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Is Grupo Bimbo an Emerging Giant?
Emerging Giants: Strategies/organizations of firms in emerging markets differ from developed markets, as adapted to institutional voids (Khanna & Palepu, “Emerging Giants”)
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The Baking Industry
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Market Shares: Industry
The Baking Industry is divided into four major categories:
• Fresh and Frozen Breads• Cookies and Pretzels • Fresh and Frozen Cakes,
Pies, and Pastries • Tortillas
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Market Shares: Company
• Grupo Bimbo’s main competitors are:
2. The Kellogg Company 3. Mondelez International 4. Yamazaki Baking Company
• Conclusion: Market is highly fragmented where local artisanal bakeries dominate (especially in emerging markets)
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Institutional Voids & Success in Mexico
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Institutional Voids in Mexico & GB’s Response
• Void #1: Lack of enforcement of anti-trust laws• GB’s response: Able to integrate backwards into their
logistics network and gain 90% market share for the bread market
• Void #2: Unstable currency• GB’s response: Long-term debt comprised 74% of US$, 25%
CAN$, 1% Mexican pesos
• Void #3: Payment security• GB’s response: Creation of Red Qiubo, a digital transaction
platform, to further develop “mom and pop” retail channels through which GB products are sold
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Success Factors in Mexico
• Late 1980s: Becomes exclusive producer and supplier of hamburger buns for McDonald’s
• 1990s: Introduced computers that modernized distribution systems to provide “just-in-time” delivery
• 1993: Buys 40% stake in Mexican-based Grupo Quan, the ice cream market leader in Mexico
• Becomes Mexico’s #2 flour producer by end of 1990s
• 2003: Acquires exclusive rights to distribute Wrigley gum in Mexico
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Current Financial Situation
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Overview of Financial Situation
• EPS: Downward trend (from 1.15 in 2010 to 0.75 in 2014)• Decreasing profitability
• Operating Margin: Downward trend (from 9.74 in 2010 to 5.51 in 2014) • Earning less and less each year per $ of sales
• ROE: Downward trend (from 12.68 in 2010 to 7.5 in 2014) • Becoming less efficient at generating revenue through equity
• ROA: Downward trend (from 5.51 in 2010 to 1.98 in 2014) • Becoming less efficient at generating revenue through assets
• D/E Ratio: Upward trend (from 0.78 in 2010 to 1.22 in 2014) • Increased financial leverage → relying more on debt to finance
operations • Current Ratio: Downward trend (from 1.25 in 2010 to 0.86 in 2014)
• Becoming less liquid and able to cover short-term debt with current assets
Summary Overall dismal financial outlook
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Net Sales (By Region)/ Plants (By Region)
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EBITDA Margins By Region
Region 2014 2013
Mexico 16.7% 15.7%
U.S. 6.1% 7.2%
Latin America 3.9% 0.6%
Europe -0.9% -3.8%
Firm-wide 9.85% 9.84%
Conclusion Mexico is the only region with strong operational performance
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Destroying Economic Value
Grupo Bimbo’s Beta = .96Mexico’s Risk Free Rate = 7.2%Mexico’s Equity Market Risk Premium = 15%COE = .96 x .15 + .072 = .216 = 21.6%2014 ROE = 7.5%
U.S. Risk Free Rate = 4.2%U.S. Equity Risk Premium = 5.3%Mondelez COE = .7703 x .053 + .042 = 8.2% Mondelez ROE 2014 = 7.9%Kellogg COE = .5139 x .053 + .042 = 6.9%Kellogg ROE 2014 = 22.7%
Grupo Bimbo ROE < COE (greatly)Mondelez ROE < COE (barely)Kellogg COE < ROE
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Bimbo Financial Performance: Regional ROE
2012 2013 2014
-0.8
-0.7
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
ROE
Mexico
USA
Europe
Latin America
Consolidated
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Bimbo Financial Performance: Regional ROA
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Bimbo’s Financial Performance Relative to Competitors
2012 2013 20140
0.1
0.2
0.3
0.4
0.5
0.6
Competitors' ROE
Mondelez InternationalYamakazi Baking CompanyThe Kellogg CompanyGrupo Bimbo
2012 2013 20140
0.02
0.04
0.06
0.08
0.1
0.12
0.14
Competitors' ROA
Mondelez InternationalYamakazi Baking CompanyThe Kellogg CompanyGrupo Bimbo
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Recent Business Activities
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Acquisition Hungry in the Past 10 Years
1945
2011
2014
2009
00s
90s
60s 70s80s
50s
2015
Canada Bread – Leader of the Canadian Market and Leader in Frozen Goods
Vachon – Leader in Snack Cakes in Canada
Supan – Leader in Ecuador
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But… Acquisitions Provide No Utilization Benefits
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Highly Leveraged Funding Acquisitions Through Debt
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Family Empire (Not the Primetime TV Show)
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Bimbo’s Current Plans Going Forward
Panrico’s Brands• More acquisitions (Panrico in Spain)
• Increased market penetration for packaged bread
• CEO Servitje: "From my perspective, if you want to be in any business today, you have to be close to what's happening in China. If we have global aspirations, we have to be in China“
• “In globalization, you can’t be a spectator. You either participate or you become a victim.”
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Bimbo Trying to Change Eating Habits Delusional
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Ironically…
Bimbo 10-Year Share Price Performance vs. IPC(1)
(%, Indexed to 100)
IPC
Source: Bloomberg1. Market data as of September 17, 2015. IPC: Index of the Mexican Stock Exchange
-100%
0%
100%
200%
300%
400%
500%
sep-05 sep-06 sep-07 sep-08 sep-09 sep-10 sep-11 sep-12 sep-13 sep-14 sep-15
407%
200%
28
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And….
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Conclusion
• Grupo Bimbo is a textbook example of a family-run company with a focus on empire building.• This leads to actions that are misaligned with
shareholder interests
• Strong performance in home market as well as large amounts of debt funds acquisitions
• Foreign acquisitions are not valuable; they are simply family assets in other currencies
• Stock value is based upon growth, but growth is unsustainable
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Recommendations
• Scale down the firm and exit most global markets• Exit Iberia
• GB is currently acquiring Panrico in Iberia, and this is the exact opposite of what we recommend
• Exit Latin America • Further penetration in packaged bread markets is
highly unlikely• Sell off unprofitable brands• Utilize existing capacity and eliminate plants that are
not productive• Retain/expand operations in Mexico
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Your Turn to Vote!
?2012 2013 2014
-0.8
-0.7
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
ROE
MexicoUSAEuropeLatin AmericaConsol-idated
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Thank you!
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Appendix- 3 Year Balance Sheet Figures
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Appendix- Grupo Bimbo Board Members
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Appendix- Global Brands
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Appendix-Financial Information
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Appendix- Currency Voids
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Appendix-Local Notes Payable
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Appendix- Institutional Voids: Unreliable Product Channels
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Appendix- Institutional Voids: Intellectual Property Rights
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Appendix- Market Penetration
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Appendix- Net Sales
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Appendix- Bimbo’s Global Operations
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Appendix- Current Strategy
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Appendix- Global Tax Rates
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Appendix- Total Equity
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Appendix- Total Liabilities
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Appendix- Competitive Landscape