Wednesday, August 09, 2017

After buying Force, Lala wants to accelerate improvement of margins

The ceo of mexicana Lala Foods, Scot Rank, said on Friday (4/8), in a teleconference with analysts, the company''s strategy to generate value after the acquisition of the Force is to accelerate the growth in value-added products.
On Thursday (3/8), the Mexican company''s Board of Directors approved the purchase of up to 100% of the shares of the Force food and, directly or indirectly, up to 100% of the shares of Itambé food, for a value of R $5.725 billion, including debt.
Considering the Net Sales Force in 2017, estimated at R $5.024 billion and a profit before interest, taxes, depreciation and amortization (Ebitda) of R $329 million, the multiple of 1.1 in transaction time and sales at 17.4 times Ebitda, according to Lala.
The purchase and sale agreement signed by Lala, JBS and the J&F, controller of the Force, predicts that the Mexican company will acquire 91.99% of the shares of Force. The Arla Foods International has an interest of 8% in the Force, but still is not defined if sell your slice. In addition, the business comprises the direct or indirect acquisition of up to 100% of the shares of Itambé.
The CCPR (Central Cooperative of Farmers of Minas Gerais Ltda) has 50% of the Itambé and have 45 days, according to the shareholders '' agreement, to decide whether it will continue in society, if you will sell your slice, or even if you have interest in repurchase the shares sold to the Force.
Remembering that the Itambé has a connection with the CCPR, Rank hinted, in the Conference call, that Lala would like to keep the partnership with cooperatives. "We''d like to keep that relationship with the CCPR. Is a good cooperative, with high-quality milk. (...) We are very interested in maintaining the relationship with the cooperative for many, many years ".
Plans to Force according to him, the plan for the Force is to make the thread of value-added products grow more quickly than the commodity business. "[Force] has demonstrated the potential of doing that in recent years, and the idea is to continue this model, with accelerated growth in yogurts, cheeses and specialty milks".
According to Rank, in addition, the strategy is to expand the sale to selected channels in the regions where the Force already has presence or are under-represented. Lala will get even the geographical expansion of the Force, "it was in the template, but very conservative," he said. For Lala, there are growth opportunities in the South and North of the country in the coming years. Today, Force and Itambé mainly in the Southeast are present.
He stated that to expand gross margin of Force, Lala will invest in improving the product mix. "They have proved to be very successful in obtaining growth via innovation and brand. The intention is to continue to do that and continue to improve the mix every year. This will help the expansion of the Bank, "he said, adding that the synergies will also help.
Traffic rank gave no details on potential synergies because said that depend on the final configuration of the business with the Force, which should be known in 60 days.
Although the earnings before interest, taxes, depreciation and amortization (Ebitda) of Force has retreated significantly last year, the CEO of Lala sees "a business with strong potential for generating Ebitda". In 2016, Vigor and Itambé had a net consolidated revenues of $4.928 billion and Ebitda R R $243 million. The previous year, Ebitda was $456 million, for R a net revenue of R $5.220 billion.
Scot Rank noted that the Ebitda margin stood at 8% to 9% in 2013 and 2014, but "difficulties with milk prices" tore down the margin. Asked about the evolution of the Ebitda of the Force, said Lala''s "on the way" to reach the R estimated $329 million this year.
Asked about the financing of the acquisition, Scot Rank reaffirmed that this also will depend on the final structure of the business. That''s because the value of R $5.725 100% of the Force considers billions and also 100% of the shares of Itambé and still Lala will buy the remaining 50%.
But the Executive said the Mexican company has "very good partner" for the bridge loan "and competitive rates. According to the CFO of Lala, Alberto Arellano García, the debt will be made with a combination of rates and currencies, mainly Mexican peso and real.
According to the CFO of Lala, the acquisition of Force will leverage level of 2.3 times (ratio between debt and Ebitda). Asked by an analyst, Scot Rank admitted that the level is lower than 3 times normally seen in the market because the Lala wants to "be in a position to take advantage of other opportunities" in the procurement market. Lala''s CEO said the company will begin the process of deleveraging within six months after the closing of the purchase of the Force.
Supermercado Moderno - 07/08/2017 News Item translated automatically
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