Alicorp S.A.A. (ALICORC1) Earnings Call Transcript & Summary

Good morning, and welcome to Alicorp's conference call. [Operator Instructions] It is now my pleasure to turn the call over to Rafael Borja of i-advize Corporate Communications. Sir, you may begin.

Thank you, and good morning, everyone. We're very pleased that you could join us today. From Alicorp, we have Mr. Alfredo Perez, Chief Executive Officer; Mr. Juan Moreyra, Chief Financial Officer; and other members of the management team. Today, they will be discussing the third quarter 2020 results after the press release issued by the company yesterday. If you have not yet received a copy of the earnings report, please visit www.alicorp.com.pe, where there is also a webcast presentation to accompany discussion during this call. If you need any assistance, please contact i-advize in New York at (212) 406-3693. Please be advised that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. If you're a member of the media and wish to direct any question to the company, please contact the company directly after the call. Before we begin, I would like to remind you that forward-looking statements may be made during this conference call, and they do not account for economic circumstances, industry conditions, the company's performance or financial results. As such, these forward-looking statements are based in several assumptions and factors that could change, causing actual results to materially differ from the current expectations. Thus, we ask that you refer to the disclaimer located in the earnings release prior to making any investment decision. It is now my pleasure to turn the call over to Mr. Alfredo Perez, Chief Executive Officer of Alicorp, who will begin the presentation. Alfredo, please go ahead.

Thank you, Rafael. And good morning, everyone, and welcome to Alicorp's Third Quarter 2020 Earnings Call. Let me start today's call by extending our sincere wishes that you and your families are all doing well and staying safe. Once again, I want to thank our colleagues on the frontline, without whom, it would not be possible for us to fulfill the purpose of seeing a better tomorrow. During this call, you will see some changes to our presentation. These changes were made to improve the quality and effectiveness of our message. We'd like to underline that all the explanations about the key P&L items in the detail that you are used to are available on the earnings report that we published yesterday together with our financial statements. In addition, from now on, you will also find the transcript of our call in our Investor Relations website. Today, I will start off by giving you an overview of key events that occurred during the quarter, followed by an update on some of our strategic initiatives. After that, Patricio and Juan will cover our financial results by business units. At the end and before the Q&A section, I will take the floor, again, for an update on guidance and some closing remarks. Let's now begin on Slide 5. Some of [indiscernible] third quarter. Well, let me share that -- with you, that during the last quarter, our production capacity in Peru was fully restored, after all the disruptions that we experienced last quarter due to the pandemic. Also, in our other geographies, production continued running smoothly during the whole quarter. Even though we cannot rule out the possibility of future eruptions, we see the probability of this event significantly lower than in the previous quarter. In addition, we're glad to announce that with increased production, market shares are in the process of recovering rapidly, demonstrating our customers' loyalty to Alicorp's brand. Our second [indiscernible] Digital Forum was conducted virtual due to the current circumstances. We were able to give access to our employees and the general public, which allowed us to have more than 11,000 attendees from 8 different countries. Similarly, we continue organizing digital days, in which we share with many Latin American companies, our experiences in the journey towards digital transformation. We share and we learn as part of our purpose. Moving on to our most ambitious successful project, we'll like to share with you that after a successful migration to SAP's S/4HANA in 2 Peruvian subsidiaries, impacting 2 plants and approximately 600 employees, we expect to go live in all our Peruvian operations during the first quarter of 2021. Finally, we were recognized with important awards in the third quarter. For the 13th consecutive year, we're part of the Lima Stock Exchange Good Corporate Governance Index, which recognizes companies with the best corporate governance practices. Furthermore, Alicorp led Merco's ranking of companies with the Best Corporate Reputation, while Patricio Jaramillo, our VP of Consumer Goods Peru, and Innovation; and myself, as Alicorp's CEO, were included the ranking of the most valued corporate leaders. Now let's move on to Slide 6 to tell you about our Crecemos Juntos program. At Alicorp, we're completely aware that the COVID crisis has put many of our clients in a very difficult situation, and we're committed to walking the path to recovery with them. We're convinced that the best way to overcome these ever-challenging circumstances is by working together. Therefore, we have created the Crecemos Juntos, or we grow together program, which consolidates all our initiatives to help more than 24,000 businesses. In the B2B business, these initiatives span from advisory on safety protocols, new regulations and liquidity management to a partnership with MiBanco, a Peruvian microfinance institution to facilitate access to credit for our clients. Regarding Consumer Goods business, we have reignited our loyalty and merchandising programs with a focus on facilitating the implementation of safety measures, particularly by our traditional channel clients. We also contributed to the installation of 129 handwashing stations in market through our partnership with the Ministry of Health. Next I would like to share with you a brief update on our strategy. As many of you know, for the last few years, our corporate strategic efforts have been, and continue to be, based on 3 pillars: growth, efficiency and people. In addition, we also identified 2 enablers that will help us achieve our goal: digital and analytics and innovation. We maintain our focus on ensuring the health and safety of our people, maximizing the availability of essential goods and helping communities to reduce contagious. We have thoroughly thought about the strategic implications of the crisis on our company. We believe that now is the time to leverage on our newly created capabilities, rethinking our strategic efforts, prioritizing and accelerating our most important initiatives, as this will continue -- I'm sorry, will determine our future relationships with our clients and consumers and, obviously, our competitiveness. It will be impossible to cover all our strategic fronts. So let me focus today on our digital transformation initiatives. Let's move on to Slide 8, please. We see technology as a means to transform our business and make it more efficient. In this context, our digital strategy has 3 main goals: first, to accelerate the efficiency of our business; second, to seek the transformation of our business; and third, to protect Alicorp from potential disruptions. We have set 2 clear paths to achieve these goals. First, we realized that in order to improve processes and performance and to fully maximize the impact of our digital and analytics initiatives, we needed to have a world-class ERP system and modern infrastructure. As a result, we embarked on our Fenix project, our migration journey to SAP's S/4HANA. Second, the digital and analytics front allows us to constantly transform our businesses, while also launching new businesses that strengthen our competitive advantages. I'll now focus on the strategy on the digital and analytics front on Slide 9. We seek to leverage on digital and analytics to tackle business questions that consolidate our competitive advantages. In that sense, we ask ourselves: first, how can we use technology to achieve growth in our core business; second, how do we optimize our end-to-end operations to let our talent focus on creating value to our clients and consumers; and finally, how do we understand our clients and consumers' need to create solutions that solve their pain points and generate future revenue streams for us. In order to answer these questions, we realized we needed to develop 3 main capabilities for ourselves. These capabilities are: first, data-driven decision making, to capture information, generate insights and take actions based on those insights; second, customer centricity, to develop memorable products and services by listening to what our clients and customers' need; and third, an agile mindset, working in multidisciplinary teams and developing minimum viable products and then improve such products through an integrated process in order to give a timely and more effective solution to our customers. On Slide 10, we'll talk briefly about our [indiscernible] results on this journey that we started more than 2 years ago. Since the inception of our digital transformation in 2018, we have made great progress, building digital tools that create value for our business, even beyond our initial plan. Over 50 initiatives have been launched to date, and we have managed to recruit over 40 people with technical profiles and trained 20 product managers in the necessary skills to lead digital projects. Some examples for our most emblematic digital initiatives are: First, our microsegmentation. We are using more than 400 internal and external variables to segment our clients in Peru and Bolivia. We use this information to build our pedido sugerido, or suggested order algorithm, that give our clients tailor-made suggestions to improve their business. In the last quarter, the stores that used pedido sugerido had a 10% higher performance than the ones that did not. Second, our B2B marketplace, or, what we call it, Ali Soluciones, has been a huge success in the last few months. 80% of our direct Bakery clients are using it. And as I said before, we launched our financing effort through an alliance with MiBanco. Third example, our digital product for sales force, clients. We have deployed [indiscernible], a mobile app for our exclusive distributor sales force that has [indiscernible] and includes functionalities to improve speed and important features, such as pedido sugerido. We're also piloting [ Ali market ], a self-service mobile app where our clients come buy directly. Fourth, a digital ecosystem for our Aquafeed business, which includes a salmon feed business model, using machine learning and Nicovita, IoT and analytics task force. These solutions strengthen our relationship with our clients by delivering additional services that have made them more efficient and more productive. Fifth, our automation initiatives in finance and administration. We generate savings through digital robots who automate repetitive tasks. And finally, our direct-to-consumer initiatives, not only by increasing our relevance in established marketplaces, such as Juntoz, Glovo and Lumingo, but also accelerating our development, such as Diariamente Ali, which combines online DTC sales with a relevant content for our consumers. Let's now discuss our consolidated operating results for the third quarter of 2020, starting with the main highlights of our consolidated revenue on Slide #12. Consolidated revenue increased 1.1% year-over-year in the third quarter of 2020. This was a result of mixed impacts across our businesses and geographies. First, as COVID-19 cases in Peru have been falling for over 9 consecutive weeks, the economy has been able to gradually resume activities, and we've been able to restore production to full capacity during the third quarter. In this context, our Consumer Goods unit had a solid performance, growing 12% in Peru and 15% in the rest of geographies in terms of revenue. As for our B2B [ unit ], although revenue decreased 5% year-over-year, we see a solid recovery compared to last quarter due to the gradual reopening of our clients. Our Aquafeed business continues to be severely impacted by the effects of COVID-19 on the global shrimp and salmon industries. Lower demand, historically low prices have resulted in an aggressive competitive environment and tiering down. Clients seek more economic formulas. Despite the production problems we faced in the second quarter and the impacts of COVID-19, our top line has remained stable compared to last year. Let's now review our consolidated EBITDA for the third quarter of 2020 on Slide #13. Consolidated EBITDA decreased 5% year-over-year, mainly due to product and platform mix in our B2B unit and adverse industry conditions that impacted our Aquafeed business. On a year-to-date basis, EBITDA decreased 2%, and EBITDA margin remained relatively stable when excluding the effect of the impairment of our Brazilian operations during the first quarter of the year. It is worth mentioning that [indiscernible] COVID-related COGS and expenses this quarter reached PEN 39 million, as we continue to incur certain costs and expenses mainly related to transportation, additional plant workers, COVID tests and safety protocols for our plant workers. Let's now review our consolidated net income for the second quarter of 2020 on Slide 14. Net income remained stable year-over-year as lower operating profit was offset by a foreign exchange gain and low hedging expenses as well as a lower effective tax rate. Year-to-date net income decreased 16%, excluding the effect of the impairment of our Brazilian operations during the first quarter of the year, due to lower operating income registered in the first half of the year as a result of COVID-19. Let's move on to the next section to discuss the operating results from our various businesses as well as how the market dynamics of each have changed in the context of COVID-19. Patricio Jaramillo, our VP for Consumer Products Peru and Corporate Innovation, will begin with Consumer Goods Peru on Slide 16. Patricio, please go ahead.

Thank you, Alfredo. Let's begin with an update on Consumer Goods Peru market dynamics on Slide 16. In Peru, COVID-19 cases are currently showing a downward trend, with cases reducing continually for more than 9 consecutive weeks. This has allowed the government to move on with reopening and for stabilization of economic activity. Even though the short-term future is uncertain and difficult to predict at this moment, [indiscernible] fewer restrictions and less fear among the population. We expect this to translate into months of economic recovery, but there is still a long way to go until the crisis is overcome. And as Alfredo mentioned, our goal is to go hand-in-hand with our clients through the recovery path. Regarding consumer habits, many of the trends that we have seen since the beginning of the pandemic remain. The shift from a out-of-home to at-home consumption coupled with heightened consumer cleaning and hygiene needs have led to higher demand for food staples and home care products. According to Kantar figures, the total consumer basket posted an 11% volume growth year-on-year in the latest July-Aug period. Foods and home care are up 13% and 21%, respectively. As mentioned previously, we are very happy to share with you that our production capacity in Peru has been completely restored during the third quarter, and we were able to begin a rapid recovery in market share, with more than 70% of our categories gaining share in the July-August period. This demonstrated the loyalty of our consumers, who recognize the superior quality and competitiveness of Alicorp brands. None of this would have been possible without the great effort of our plant workers and the agile mindset of our supply chain team and product development, whose capabilities were needed more than ever in order to supply the products to meet the changed consumer needs and adapt production in these challenging circumstances. Regarding our channel mix. We continue to see higher modern trade share compared to pre-pandemic levels. However, the traditional channel has recovered compared to the second quarter as many mom-and-pop stores have reopened, and we even have seen some commercial spaces, such as restaurants, turn into mom and pop. Finally, even though the share of each product continues being relatively small, we keep accelerating a set of initiatives as we intend to consolidate our position in this growing channel. Let's move on to the performance of Consumer Goods Peru on Slide #17. With production capacity restored, we were able to serve the increased demand for consumer goods. Additionally, by combining valuable research into consumer behavior and product development, we have been able to adapt our portfolio, especially in our home care platform. These efforts translated into a 12% year-over-year revenue growth. Furthermore, volume increased 8%, with September reaching record high sales of more than 72,000 metric tons. Gross margin fell 3.1 percentage points, mainly explained by a reclassification of COVID-related expenses for previous quarters to our cost line as well as some pressures for prior -- from higher soybean and palm oil costs. Despite gross margin contraction, EBITDA margin grew 0.6 percentage points due to lower marketing and advertising expenses as well as savings in travel and consulting expenses. All in all, EBITDA grew by a remarkable 15.7%. Year-to-date revenue increased 5.2% year-over-year as the good performance in the first and third quarter more than offset the impact from production shortages in the short -- in the second quarter. We would like to highlight the remarkable 54% growth of our personal care platform, providing [ us a special ] strategy of portfolio optimization and new product launches according to the new consumer habits. Year-to-date EBITDA increased 70% -- 7%. Adjusting for COVID-19-related costs and expenses, year-to-date EBITDA would have been 4% higher and EBITDA margin would have reached 23.8%. Finally, Intradevco continues to post results up 17% in volume, 13% in revenue and a very strong 48% in EBITDA year-over-year. Now let me pass the floor over to Juan, who will discuss the operating results of the rest of our businesses.

Thank you, Patricio. Let's move to Slide 18. B2B, update on market dynamics. As mentioned in the previous quarter, the B2B industry has been significantly impacted by restrictions related to COVID-19. However, in the past few months following the gradual reopening phases of economic activity, some of these restrictions have been lifted, allowing a slow recovery. In this context, Alicorp's Food Service revenue has outperformed the reported restaurant GDP and improved substantially, showing a decline of 8% year-over-year in terms of revenue in September compared to the lowest point of minus 68% (sic) [ minus 66.3% ] in April. This is a reflection of the customer-centric approach of our B2B unit as well as our successful client [ invitation ] approach. Our client base is gradually reopening, with 73% of our pre-COVID customers already active as of September from its low point of 26%. We expect this recovery to continue, but at a slow pace. Our market shares remain healthy, and our marketplace digital sales continue to grow at a fast pace. We reached 3,500 customers in September, with over 50% of them having purchased more than once. Continuing with our strategy to expand our portfolio, we launched in July, our cleaning portfolio, Sapolio Professional with detergents. And in September, we added the cleaners and dishwashers categories. Let's move on to Slide 19. B2B third quarter 2020 performance. Revenue decreased 5% this quarter compared to last year, due to the impact of restrictions on our Bakery and Food Service platforms and fear from customers to attend restaurants due to COVID-19, partially offset by a 12% increase in our industrial client platform. However, it is important to mention that the B2B unit showed a recovery of 35% in the top line compared to the second quarter of 2020 on the back of the reopening of most our clients and our digital initiatives. Regarding profitability. First, the impact of COVID-19 on the Food Service sector; second, COVID-related cost of goods sold; third, the higher prices of soybean and palm oil; and fourth, changes in our total mix resulted in a gross margin decline of 5 percentage points compared to last year. However, it increased 1.6 percentage points compared to last quarter. As a result of a lower gross profit, we continued to see a sharp year-over-year decline in EBITDA this quarter, although it grew 3x quarter-on-quarter, resulting in an 8% EBITDA margin. Now let's move to Slide 20. Consumer Goods International Q3 performance, in order to give you a snapshot of our business. Our CGI business continued to show strong results explained by our successful growth initiatives, particularly in our growth-focused Andean operations and broad-based efficiency programs. Revenue increased 16.2% year-over-year in the quarter, accumulating double-digit growth year-to-date compared to 2019. All our main geographies showed healthy growth, demonstrating the resilience of our international product portfolio. Only Brazil's revenue declined in soles, due to a 27% year-over-year depreciation of the local currency. However, revenue increased double-digit in reais, with high single-digit volume growth and price increases that partially offset the devaluation. CGI's gross margin contracted by 120 basis points in the quarter but is still up on an aggregated year-to-date basis. The contraction is mainly explained by restrictions in Argentina to transfer cost increases to prices, since the COVID-related price controls have not yet [ relieved ]. On the other hand, both Bolivia and Ecuador show gross margin expansions in the quarter. Despite gross margin dilution, CGI's EBITDA margin expanded 30 basis points on the back of continuous SG&A efficiency. Moreover, EBITDA increased by a noteworthy 25.5%, mainly explained by revenue growth and our transformational efforts in Bolivia and Argentina. Let's move to Slide 21 to cover the highlights of our main international geographies. Bolivia's top line grew almost 15% year-on-year, boosted by the gradual incorporation of Intradevco products to our portfolio and increased demand for domestic oils. Year-to-date, Bolivia accumulated a remarkable 16.9% revenue growth. We are also very satisfied with our growth trend showing in Ecuador, which has accumulated a 16.8% of revenue increase year-to-date. In this geography, our pasta value brand Nutregal, which complements our multi-tier strategy for the pasta category, is already being distributed to more than 20,000 points of sale. In Brazil, as mentioned before, we are encouraged by volume growth of 9.8% for the quarter and 8.7% year-to-date, behind the successful launch of our [ special Granoro ] Tier 1 pasta and the relaunch of our premixes, making both, pasta and premixes, to grow double digit. Gross margin declined 370 basis points in the quarter, due to a 20% quarter-on-quarter price increase in wheat prices, which was not fully offset by the pricing actions we made. However, EBITDA margin increased 310 basis points year-on-year, behind continued progress in our transformation initiatives, which resulted in significant savings on SG&A. Finally, in Argentina, the successful implementation of our transformation program continues to provide a remarkable revenue and EBITDA growth year-on-year. However, price controls based on EBITDA margin contractions versus our record highs from previous quarters remains a downside risk for the following quarters. Let's move to -- on to Slide 22, Aquafeed market dynamics. In Ecuador, shrimp exports fell sharply in the third quarter after reaching double-digit growth in volumes in the first half of 2020. This trend is expected to continue at least until year-end. Moreover, even though restrictions in China have been lifted, shrimp consumption remains below expectations and inventories are still high in that market. In this context, exports have been partially reoriented toward the U.S. and Europe. Regarding shrimp production, farmers continue limiting their planting with lower densities and more control over their feed consumption. Hence, volumes in the feed market grow at slightly weaker levels than the shrimp market. Moreover, feed prices continue at a 10-year low, putting Ecuadorian feed farmers temporarily below breakeven until demand and shrimp prices recover. Under these circumstances, farmers keep favoring low-cost feed brands and obtaining longer credit terms with no collateral to the supplier. Our competitors' aggressiveness has increased the offering of premium products at mainstream prices in addition to tiering down trends in the shrimp feed market as clients seek more economic formula. Faced with this environment, Vitapro's strategy has been to focus on keeping a financially healthy client portfolio. We have been able to limit our collection risk by not matching other aggressive credit terms currently offered in the market. However, we have designed a set of actions that aims to better position us ahead of the market turnaround. Examples are new product launches and the implementation of digital tools, including the financing of automatic feeders to our clients. Regarding the salmon feed business, salmon harvest in Chile are expected to grow at around 3% in volume in 2020 despite lower consumption in the U.S. and Brazil, the main destination market for the Chilean salmon. The greatest impact on the salmon industry has been the contraction of up to 30% in salmon prices. In this context, salmon farmers are limiting their feed consumption and have reduced small planting. Tenders for future purchases of feeds have been reactivated. However, they are expected to be gained at reduced prices. We are deploying a countercyclical strategy with the relaunch of our Salmofood brand based on product quality supported by the experimental center, additional manufacturing capacity, [ HVAC ] services and the launching of PatagonIA, our advanced analytics tool. Let's move on to Slide 23, Aquafeed performance. In terms of business performance, the 25% revenue drop is mainly explained by a reduction in volume in both of our business units and by price reductions in the shrimp feed unit due to an aggressive competitive environment combined with shrimp prices received by our clients bid at a 10-year low. Gross margin decreased 2.9 percentage points due to price reductions and our client demand shift towards low-cost feed products in Ecuador. In Chile, we also saw a deterioration in the conversion cost due to the reduction in volumes. EBITDA saw a sharp decline mainly due to lower gross profit and a negative base effect from a bad debt provision reversal made last year. The time required for the aquaculture industry to recover is still uncertain, but specialists predict a recovery during 2021, reaching pre-pandemic growth conditions by 2022. In the short term, volatility in volume and prices are expected to remain depending on the specific behavior of each of the consumer regions: China, the U.S. and Europe. Now let's discuss the performance of our Crushing business for the quarter on Slide 24. Even though reported volumes sold for our Crushing business decreased 4% year-over-year, it is important to highlight that this refers exclusively to volumes sold to third parties. When including internal consumption, volume increased 1%. Similarly, reported revenue decreased 8% year-over-year, while total revenue including internal consumption increased 2%. This demonstrates a [ relatively ] greater vertical integration of our Crushing business into our Consumer Goods Bolivia and Aquafeed businesses as nearly half of our production is consumed internally. Regarding EBITDA, although it decreased 11% in the quarter due to the base effect of [ ag reclassification ] last year, year-to-date, we have seen a remarkable growth from minus PEN 2 million (sic) [ $2 million ] in 2019 to PEN 13 million (sic) [ $13 million ] year-to-date in 2020 supported by our different profitability initiatives. Let's move to Slide 26 to discuss liquidity and our strong balance sheet. Regarding Alicorp's debt metrics, as of the third quarter of 2020, our net to EBITDA (sic) [ net debt to EBITDA ] ratio increased to 2.3x from 2.2x by the end of quarter -- the second quarter of 2020. This increase is mainly explained by a lower EBITDA over the last 12 months as a consequence of the COVID pandemic effect. Towards the end of the year, we expect a slight increase in the same ratio mainly due to the decrease in the expected 12-month EBITDA as well as higher CapEx plan versus 2019. However, we aim to continue deleveraging the company throughout 2021. Let's move on to Slide 27, please. Regarding our liquidity levels, as of September 2020, we have repaid approximately PEN 668 million on short-term debt in order to return to our cash position to levels similar to the [ one tier ] at the beginning of the pandemic. As a result, as of September 2020, we have PEN 953 million in cash, which represented a debt coverage of the principal of debt maturity over the next 12 months of 1.36x. Additionally, we maintained uncommitted credit lines available for $1.3 billion and have looked to issue debt securities in the Peruvian market for PEN 1.6 billion. Our active working capital management continued delivering improvements. The average last 12-month cash conversion cycle reached 19 days as of the third quarter of 2020, 4 days better than the last quarter and about 18 days better when compared to the same period in 2019. Our cash conversion cycle has been supported by the quality of our receivables portfolio as our collection cycle showed an improvement versus the second quarter of 2020 even in the current context. This is an indication that we have maintained a healthy receivables inventory despite the provisions we took in the first quarter of 2020. This improvement also relies on the increase in accounts payable base as we negotiated longer tenors with our suppliers. All the information actions and metrics are a result of our comprehensive and prudent financial strategy that allow us to have a solid liquidity position that has been recognized not only by local rating agencies that maintained us in the highest rating possible in Peru, but also by all the 3 global rating agencies who have maintained our investment-grade rating with a stable outlook. Finally, let me circle back to Alfredo to wrap up today's presentation with a glimpse of what we expect for the rest of the year.

Thanks, Juan. Let's turn to Slide 29 to give you some guidelines about our expectations for 2020. Regarding consolidated revenue which were flat to low single-digit growth for the full year, we expect the high levels of at-home consumption to continue for the rest of the year coupled with a slow recovery of the B2B unit. In terms of EBITDA margin, we estimate a range between 10% and 11% due to the effect of COVID-19 and the profitability of both our B2B and Aquafeed businesses. Finally, we expect CapEx for approximately PEN 375 million as we reprioritize our investments in some projects have been delayed for the next year. Finally, I would like to highlight that this crisis has reaffirmed to us the importance of constant evolution, to take agile decisions and to see challenging circumstances as an opportunity to learn. I am entirely confident that the capacity of our people, our competitive advantages and the resilience of our businesses and brands will get us through these difficult times. Thank you for joining us today, and now we welcome our questions -- all the questions you may have.

And your first question comes from the line of Felipe Ucros with Scotiabank.

I hope everyone is in good health. Congrats for the improvement on the report and the presentation, by the way. Just a quick one on Aquafeed for me. Any visibility or signs from this last month that things might be slowly improving now that you've gotten an eye into October?

Felipe, this is Alfredo. I [ will deal with ] your question. I will direct it to the right person on the team or I will take it myself. In this case, I'll very, very quickly turn it on to Hugo, who leads our Aquafeed business. Hugo, please go ahead.

Felipe, thank you for the question. In the case of the Aquafeed business, we have -- we are afraid about the fundamentals of the business. But at this moment, we see that we are impacted in Ecuador, our most important region. The reason why is about as we explained that in Ecuador, the farmers today are [ in relation ] to low-cost products, and we have aggressive competition there. We believe that there may be a recovery of the shrimp prices, and then we could return to sell higher-priced feed with better productivity there. So we are working on a plan that includes different initiatives to increase our market share and increase our margin as operational efficiency, reducing costs. And we are working, very important, with the deploy of digital tools that [ too help make ] the operations more efficient. So we are looking -- we are very optimistic about the future in the industry.

Thank you, Hugo. Let me just make a quick comment as well to Felipe's question. I think on the very short term, meaning the information that we are having as we speak and the signs that we're getting from our local teams and our local operations, is that are we seeing a pickup? Yes, meaning we're seeing our clients gradually increase their activity in their own operations. Also, we're seeing some, I would say, some improvement on prices as well. It is small, but it's there. So we're seeing a small recovery, Felipe. What will have to be seen is what the speed of that recovery. On our side, as Hugo was mentioning, we are very getting ready to really to push the envelope on -- using all the different tools that we have at our disposal as we believe the fundamentals of the industry, and of Ecuador specifically, are extremely strong. But this is a global crisis on many countries around the world and specifically on a sector such as the foodservice. But again, to your question, yes, we're seeing some pickup of activity in prices included.

That's great to hear. And maybe if I can do a small follow-up. In Bolivia, obviously, you guys have been doing very well. And I think this is the second call in a row where you mentioned how you've been introducing more Intradevco products. I wanted to ask you how that has changed the makeup of the COGS and SG&A at the Bolivia consumption business because obviously, as I understand the business from its original acquisition, it was very focused on very commoditized, low value-add products. And now you're adding a lot more value-add. So I'm just wondering how that changes the exposures to commodities and even a potential devaluation in the future.

Felipe. I'll switch it over to Jose, but before, I'll make a very quick comment. As you've correctly mentioned, when we acquired the business, we have 2 clearly defined areas, one being on the consumer products and the other one being on the crushing side. On the consumer side, it was a portfolio heavily related to, I would say, edible oils, margarines and that type of product and some home care as well, small. So it was not purely commodity. It was commodity based, yes, as well as a branded consumer product business for sure with a very significant leadership position in all the different market segments they are currently in. With Intradevco, we're pushing hard, obviously, on introducing a portfolio of products that is even more powerful. But then let me turn it over to Jose, so he can actually complement the answer as well. Jose?

Yes, thank you, Alfredo. As you mentioned, we are doing really well with the introduction of our Intradevco products. They are still -- they still have small market share. So we see very good potential over the next few months and years. We still have a lot to grow. Now particularly to your question on COGS and SG&A, from a gross margin standpoint, the Intradevco business is not necessarily better than our current edible oil and other food products business. They have pretty similar margins. But obviously, from an EBITDA margin standpoint, we benefit from scale. We're going to have very, very good scale opportunities on the distribution, on the logistics side, which will definitely help and is helping to see significantly better EBITDA margins. And I think that's what we've seen consistently over the last quarters with gross margins expanding somewhat, but EBITDA margins expanding actually at a higher rate than gross margins because of the scale point.

And your next question comes from the line of Alonso Aramburú with BTG.

Yes. I have 2 questions on my end. The first one on the guidance on the EBITDA margin specifically. It seems to be very conservative, 10% to 11% for this year. It sort of implies double-digit EBITDA decline in the fourth quarter, which seems a little bit surprising given the improvement we're seeing in Consumer Goods and some improvement in B2B. So I guess that would imply a very negative EBITDA contraction in Aquafeed, potentially also in Crushing. So that's my first question. And my second question regarding commodity prices. We've seen both wheat and soybean prices increasing already putting some pressure, I believe, in your gross margins. How are you looking at the potential pressure you have on margins because of commodity prices into 2021?

Alonso, on the first question on EBITDA margin, let me just turn it over to Juan. Juan, please go ahead.

Yes, I got the connection [indiscernible]. Can you repeat the question regarding the EBITDA margin? Sorry about that.

Juan, very simply, the question was that our EBITDA margins, our guidance, it seems to imply that the fourth quarter will have a contraction on the margins. And potentially, what Alonso was saying, it could be explained by Aquafeed. So any comments on the EBITDA margin guidance?

Yes. The guidance that Alfredo mentioned was the EBITDA margin of between 10% and 11%, which is pretty much where we are right now. We don't see major changes in that respect. You will see maybe margins in some of our businesses increasing, such as Consumer Goods Peru, while the margins in the international business may be decreasing a bit as a result of Argentina specifically because we will not be able to increase prices due to some of the price controls that we have in the country. And regarding the other businesses, they're going to be pretty much the same as in the third quarter. We don't see major changes there, other than the 2 that I just mentioned. But overall, the margins were -- I mean, the consolidated margin is what we discussed when we talked about the guidance.

Now on the [ second ] question -- go ahead, Alonso.

Sorry. If I can follow up on that because the EBITDA margin in the fourth quarter of last year was close to 14%, right? So we're talking about 11% margins in the fourth quarter of this year, which is -- I mean, roughly, EBITDA will have to decline like more than 20% or even 30% for you to get to that number. So I mean, I don't know. I just want to make sure you guys have the right number. Maybe there's a different...

Yes, remember, Alonso, that in this year, all the COVID-19 related costs are also included in there, and they are not small. And also, it also incorporates the impairment as well. So -- that we took early in the year. So that's the reason why the margins are less than what we had last year.

Okay. Okay. Yes, I was referring specifically to the fourth quarter, okay? So I mean, we can discuss this after the call maybe, but I was referring specifically to the fourth quarter where the margin was 14% last year or close to 14%, and now you're implying a significant contraction, which hasn't happened even this year with the cost that you had related to COVID. But we can talk about this later. Yes, Alfredo, on the commodity cost?