OREANDA-NEWS. Fitch Ratings has affirmed the 'A' foreign currency and local currency Issuer Default Ratings (IDR) of Kimberly-Clark de Mexico, S.A.B. de C.V. (KCM). The Rating Outlook is Stable.

The ratings reflect KCM's leading market position, strong cash flow generation, solid capital structure and liquidity position, proven debt-payment track record, and partial ownership by Kimberly-Clark Corporation (KMB), which is rated 'A' by Fitch with a Stable Outlook. KMB owns 47.9% of KCM.

KEY RATING DRIVERS

STRONG BUSINESS PROFILE
KCM's solid business profile is supported by its brand portfolio, low cost structure, extensive distribution network, and access to Kimberly-Clark Corp.'s (KMB) technology and research and development capabilities. The ratings reflect KCM's ability to withstand competitive pressures and soft consumer demand, undertake pricing initiatives and offset input cost volatility, all of which is based on its leading business position in Mexico's consumer product market. The company is the market leader in most of the product categories in which it participates, with market share positions that are usually substantially higher than those of the nearest competitor.

KCM's ratings reflect the company's strong credit profile and partial ownership by KMB, which maintains an equity stake of 47.9% in KCM. The company is a strategic investment for KMB, as its largest affiliate worldwide. KMB has four seats on KCM's 12-person board of directors. Because of this, KCM has access to KMB's recognized global brands, common processes and product technology, consistent financial reporting and controls, and worldwide purchasing and sourcing.

OPERATING RESULTS TO IMPROVE IN 2015
Revenue growth and margins are expected to improve in 2015 towards historical levels. Additionally, the ratings are supported by KCM's historical good track record of successfully managing through Mexico's business cycle while maintaining healthy operating margins and a conservative financial profile. The company's EBITDA margin has been, on average, about 29.8% during the last 10 years, and Fitch expects EBITDA margins in the high 20%s over the next few years.

For the last 12 months (LTM) ended March. 31, 2015, KCM's EBITDA margin narrowed about 33 basis points compared to 1Q'14 to 25.7%. This was the result of an intense competitive environment, coupled with tentative Mexican consumer confidence throughout 2014, and an increase in USD-denominated raw materials in 4Q'14, due to the Mexican peso's devaluation versus the U.S. dollar. Revenue was up 0.8% for 1Q'15 on an LTM basis, but up 6.9% on a quarterly basis. The latter was a result of a 4.9% improvement in volume and 2% improvement in price and mix.

STRONG CASH FLOW GENERATION
KCM has a long record of sizeable levels of EBITDA and operating cash flow generation, as well as positive pre-dividend free cash flow (FCF). Fitch expects cash flow from operations (CFO), main source supporting the company's liquidity, and leverage to remain ample over the medium term. During 1Q15 LTM CFO was MXN6.2 billion, resulting in a CFO margin of 20.8% which is in line with the 10-year average of 20.5%. The ratings incorporate the company's medium-term ability to internally fund its Capex and dividend payouts. For 1Q15 LTM, KCM's FCF was MXN345 million. FCF is expected to be neutral-to-positive in the medium term and pre-dividend FCF should approximate to MXN5 billion, consistent with historical levels.

LOW LEVERAGE EXPECTED
Fitch expects in the medium term that KCM's total debt to EBITDA should be around 1.5 times(x) and net debt to EBITDA should be close to 1.3x. As of 1Q15 LTM, total debt to EBITDA was 2.3x, due to a recent USD 250 million issuance whose main purpose is to refinance 2015 and 2016 maturities. Conversely, net debt to EBITDA was 1.2x. This was the result of MXN18.5 billion in total debt and a cash position of about MXN9.7 billion. Although debt has also increased due to the Mexican peso's devaluation versus the U.S. dollar, hedging is in place that keeps debt and interest payments constant in peso terms.

KEY ASSUMPTIONS:

Fitch's key assumptions within the rating case for the issuer include:

--Net debt to EBITDA around 1.3x in the medium term;
--EBITDA margins in the mid-20s and above;
--CFO generation above MXN5 billion;
--Consolidated EBITDA above MXN7 billion;
--Dividend payments growing about the Mexican inflation rate.

RATING SENSITIVITIES
With a highly stable business, considerable cash flow, low leverage, and strong liquidity, changes in KCM's ratings are likely to be dependent on management's actions. Since KCM is not expected to change its financial policies in the near future, Fitch does not foresee any positive action at this time.

Any change in the company's financial policies that results in sustained higher leverage above 2.0x debt to EBITDA or 1.5x net debt to EBITDA, in conjunction with sustained lower profitability and negative FCF generation, could derive in negative rating actions. Also, any significant deterioration in KMB's brands, financial profile, or operational support to its Mexican affiliate could also pressure KCM's ratings. In addition, a downgrade in Mexico's sovereign rating and country ceiling could also stress KCM's ratings.

LIQUIDITY
The company's liquidity position as solid. KCM's longstanding ability to steadily generate significant amounts of operating cash flow underpins its considerable liquidity and significant access to capital markets. For March 31, 2015 on an LTM basis, KCM's CFO and cash position combined (approximately MXN15.9 billion) cover about 85% of the company's MXN18.5 billion debt, which maturities are spread out between 2015 and 2025. KCM maintains ample access to capital markets, both domestic and international, and the ratings incorporate expectations that KCM's debt maturity schedule will remain manageable.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Kimberly-Clark de Mexico, S.A.B. de C.V.
--Foreign Currency Long-Term IDR at 'A' with Stable Outlook
--Local Currency Long-Term IDR at 'A' with Stable Outlook
--Long-term national rating at 'AAA(mex)' with Stable Outlook;
--USD 250 million notes due 2024 at 'A';
--USD 250 million notes due 2025 at 'A';
--MXN1.5 billion unsecured CBs due 2015 at 'AAA(mex)';
--MXN800 million unsecured CBs due 2016 at 'AAA(mex)';
--MXN2.5 billion unsecured CBs due 2017 at 'AAA(mex)';
--MXN1.5 billion unsecured CBs due 2018 at 'AAA(mex)';
--MXN400 million unsecured CBs due 2019 at 'AAA(mex)';
--MXN2.5 billion unsecured CBs due 2020 at 'AAA(mex)';
--MXN1.75 billion unsecured CBs due 2023 at 'AAA(mex)'.