S&P: Kimberly-Clark de Mexico 'A-' Global Scale And 'mxAAA/mxA-1+' National Scale Ratings Affirmed; Outlook Remains Stable
The ratings affirmation on KCM reflects our expectation it will maintain a moderate use of debt despite higher investments for 2016 and 2017, likely totaling about $400 million to support capacity expansions of several products, a new tissue manufacturing facility, as well as modest acquisitions including Escudo, which already occured, and 50% of 4E, which is likely to be completed this year. This would result from the company's strong cash balance and robust operating cash flows, stemming from high-single digit and double-digit top line growth, as well as stable operating margins on the back of an effective commercial and procurement strategy despite pressures from a strong dollar.
KCM's leading market position and the strength of its brands have supported double digit top-line growth of its core categories and profitability. Additionally, we expect KCM to maintain EBITDA margins close to 28% due to cyclical price adjustments, an effective commercial strategy, as well as MXN500 million in savings year to date from its cost-reduction program, offsetting cost pressures stemming from the steep depreciation of the Mexican peso, given that about two-thirds of the company's costs are dollar denominated.
Our financial risk profile assessment incorporates our expectation that KCM's cash flow generation will continue funding its working capital needs and capex. Nonetheless, due to the aggressive investment plan, coupled with our expectations that the company will continue to distribute most of its free operating cash flows through dividend payments to shareholders, we now forecast a lower cash balance.