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

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to Alicorp's Second Quarter 2023 Results Conference Call on the 1st of August 2023. [Operator Instructions] So without further ado, I would now like to pass the line to Mr. Manuel. Please go ahead, sir.

Good morning, everyone. Welcome, and thanks for joining us today. I would like to start this call introducing Misael Alvarez who has recently been appointed as Director of Strategy, Portfolio and IRO at Alicorp. Misael has a notable professional career with 10 years of experience in M&A and approximately 4 years with us, in which it has led the mergers and acquisitions and portfolio management in our finance and transformation by his presence. Misael, please go ahead.

Thank you, Manuel, and good morning, everyone. We are pleased that you could join us today. As presenters today, we will have Mr. Alfredo Perez, Chief Executive Officer; Mr. Manuel Romero, Chief Financial Officer; Mr. Alvaro Rojas, Vice President of Marketing, Consumer Goods Peru and COE of Marketing Consumer Goods Peru and other members of the senior management team, who will join us during the Q&A session. Today, we will be discussing the second quarter 2023 results after the financial results and earnings reports were issued on Monday. If you have not received a copy of the earnings report, please visit us at www.alicorp.com.pe, where you will also find our webcast presentation to accompany our discussion during this call. Please be advised that today's call is for investors and analysts only. Therefore, questions from media will not be taken. If you are a member of the media and wish to direct any questions to accompany, please contact our team directly after the call. Before we begin, I would like to remind you that forward-looking statements may be made during this conference call. These forward-looking statements are based on several assumptions and factors that could change, causing actual report to materially differ from current expectations. We ask that you refer to a disclaimer located in the earnings release prior to making 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.

Good morning, everyone. Thank you for joining Alicorp's Second Quarter 2023 Earnings Call today. In today's call, we will discuss the second quarter of 2023 results. I would like to start by giving you an overview of the most important events that have taken place over the last months, followed by an update on key performance indicators. Then we will cover the potential related party transaction of Refinería del Espino. Moving on, we'll go through our consolidated results. Alvaro and Manuel will afterwards cover our financial results by business units. And at the end, before the Q&A session, I will take the floor again for an update on our guidance for this year. Now let's begin on Slide 5 to fill you in some recent events. First, on Friday, July 7, we were notified by BTG's Peru stock broker that Inversiones Piuranas, our current shareholder and one of the investment arms of the Romero Group launched a public tender offer for 9.5% of Alicorp's outstanding voting shares. The tender offer started on July 10 and will run until August 7. It is important to mention that according to local regulation, treasury stock bought during the buyback program last year cannot be traded in the tender offer. Following the announcement, our stock price value reaching an 11% increase. As issuers and given the nature of the operation, we are maintaining a neutral growth. Second, Peru's annual general inflation rate reached 6.7% as of June 2023, its lowest levels in March 2022, while the food and beverage component reached 12.9%. Despite the relative improvement, consumer confidence remains under a pessimistic threshold as the purchasing power of consumers continue to be heavily affected. Third, although we're seeing that inflation rates are decreasing, household disposal income has not increased at the same pace of inflation, causing families to prioritize their expenses. Since 2019, driver real income has experienced a decrease of 5.3% with a larger impact for less fortunate families that spend proportionally more in food and beverages, where inflation has been higher. Additionally, Peruvian economy is still facing strong headwinds as accumulated GDP growth reached a negative 0.49% as of May 2023. As a result, we're seeing volume market contractions in several key categories where we are leaders. Overall, the current environment presents not only economic and market challenges, but high chances of climate-related events such as El Nino phenomenon in the second half of this year and the first half of 2024. We're carefully addressing the risk through a company-wide project with a centralized governance model. We're evaluating the potential impact and deciding action plans for each strategic front. Finally, it is worth mentioning that transit restrictions at Desaguadero were progressively lifted since late March, allowing normalized international trade between Peru and Bolivia. Let's move on to Slide 6 to discuss the key performance indicators. Despite the challenging outlook that we have been facing over the last few years, we continue implementing corporate initiatives that are helping us to address this context. Over the past 6 months, we have begun an in-depth review of our consumer goods business aligned with our strategic focus within our categories, peers and channels. As a result, we are reviewing our gross to net investments, strengthening our revenue growth management capabilities, rebalancing our profitability of value products and optimizing demand planning and manufacturing processes to reduce inefficiencies in our supply chain. Some of these value levers are already showing positive results in terms of profitability for the first time since the pandemic hit. Our gross net profit per metric ton has outperformed pre-pandemic level. This is a result of more disciplined pricing and gross to net, ensuring that our profitability levels across all categories, peers and channels is sufficient to generate healthy returns on invested capital. The strategic process is helping us out get resources more effectively and deprioritized SKUs or volume that was destroying value. Regarding our SKUs management were still above pre-pandemic levels. Since 2021, our depreciation has increased significantly following our S/4HANA implementation. Nevertheless, we continue working on our PCG programs hoping to moderate our expense growth in order to recover past ratios. It is also important to mention that our SG&A to gross profit ratio was impacted by one-off expenses in the second quarter of 2023, such as the optimization of production facilities and the organizational restructuring that hole. Now let's move on to Slide 7 to discuss the rationale of the potential related party transaction with Refinería del Espino. In addition to the announcement of the tender offer made by Inversiones Piuranas, it was also that Alicorp is evaluating the purchase of Refinería del Espino, dedicated to a production and distribution of edible oils, shortenings, loan results and other fat-related products. The potential acquisition will strengthen our leadership in the edible oils and shortening categories, especially in the eastern region of Peru as well as capturing relevant tenderers for our value portfolio via an increase in the use of home in our value products, enhancing our competitiveness and increasing our profitability in this segment that continues getting relevance due to the economic situation in Peru. It is important to mention that the potential acquisition mainly includes the downstream business, leaving the agribusiness operations under the Romero Group Management. Alicorp will sign a supply agreement that ensures access to raw materials to operate the refinery located in the eastern region. Lastly, since Alicorp and Refinería del Espino are part of the Romero Group, a special nonrelated committee has been established, composed by 4 Board members of Alicorp, who will be responsible for the evaluation and the event approval of the transaction. The Special Committee has chosen JPMorgan as the external entity that will advise them as well as prepare the evaluation and analysis reported. It is worth mentioning that the deal structure is quite similar to 2018's acquisition of FINO by Alicorp, which was also a related company. Now let's discuss our consolidated results for the second quarter of 2023 on Slide 9. Consolidated revenue reached PEN 3.4 billion, exceeding a 4% year-over-year decrease, which is mainly explained by a 41% contraction of our crushing business. Excluding this business, revenue decreased 6% year-over-year, mainly explained by consumer goods Peru and B2B. This is mainly due to the market contractions given with the current economic environment and our portfolio optimization strategy. In the case of consumer good Peru, most of the value loss is in the value segment. However, when analyzing our revenue per metric ton, we see a 3% increase, which we see as positive early results of the initiatives we are implementing, which include strategic focus on core tier products and brands and price action executing during the quarter. Now let's review our consolidated gross profit for the second quarter of 2023 on Slide #10. Consolidated gross profit increased 11% year-over-year due to the performance of our crushing business, which experienced lower volume and crush margins. However, excluding the crushing business, gross profit increased 2%, driven by Consumer Goods Peru, B2B and aquafeed businesses, partially offset by Consumer Goods International. It is important to mention that excluding the crushing business, both gross profit per ton and gross margin increased 11% and 1.5 percentage points year-over-year, respectively, reflecting our efforts of portfolio optimization and focus on recovering volumes and market share of our Tier 1 brands. Let's now review our consolidated EBITDA for the second quarter 2023 on Slide 11. We Consolidated EBITDA reached PEN 297 million, a 30% year-over-year decrease explained by the results of our crushing business and higher SG&A expenses in the consumer segments. The increasing SG&As mainly explained by restructuring expenses, optimization of production facilities and advertising initiatives to fuel future growth. The crushing business accounts for 70% -- 76%, I'm sorry, of the total decrease in consolidated EBITDA for the quarter. Excluding the business, EBITDA decreased 9% year-over-year. Let's now review our consolidated net income for the second quarter 2023 on Slide #12. Consolidated net income decreased 38%, dropping from PEN 142 million in the second quarter of 2022 to PEN 89 million in the same period of 2023. The decline is mainly attributed to our lower operating profit, driven by the performance of our crushing business. This was partially offset by the positive effects effect of FX. Year-to-date, net income reached PEN 95 million, a 69% decrease compared to the same period of 2022. Now let me pass the floor over to Alvaro, who will discuss the operating results of our Consumers Goods Peru business.

I think Alvaro is having trouble connecting. So I'm going to cover him until he can join. Thank you, Alfredo. Let's begin with an update on CGP market dynamics on Slide 14. Now we will discuss the recent economic developments in Peru and the performance of our company with industry. Despite the improvement -- did Alvaro joined?

Yes. Sorry about that, technical difficulties. Thank you, Alfredo, and thank you, Manuel. So let's begin with an update on our CGP market dynamics on Slide 14. We will discuss the recent economic developments in Peru and the performance of our company within this context. Despite the improvements observed during the second quarter, it is crucial to emphasize that Peru's economic landscape continues to face significant challenges, notably compounded by the reduction in consumer purchasing power throughout 2023. The GDP, which contracted by 0.4% in the first quarter of 2023 compared to the same period last year is expected to decline by 0.1% in the second quarter. Although this estimation shows a lower decrease, we are still facing a contraction in the Peruvian economy. Regarding private consumption, it's estimated to grow 0.7% in the first quarter of 2023 to 1% in the second quarter. This economic situation is also reflected in the market declines we have seen in the year-to-date 2023 and the same period of 2022 in several key categories such as edible oils, which increased 7.1%, pastas decrease 5.1%, detergents, 2.3%, among others. Despite these difficulties, our growth in revenue per metric ton has outperformed the GDP and private consumption growth rates. This result is due to our strategic focus on increasing the sales of our powerhouse and core brands in our revenue mix, where we have differentiation capabilities. Additionally, we have actively encouraged sales in our traditional channel, where we have competitive advantages due to our go-to-market capabilities. In May, we designed and started to implement a new business plan that shows encouraging early results. In the second quarter of 2023, we can already see that our sales mix in the core segment increased from 70% in the first quarter of 2023 to 73%. The presence of our core products in the traditional channel increased 1 percentage point compared to the first quarter of 2023, an effect that should continue to evolve more significantly in the upcoming months. Furthermore, we have a carryover effect due to the pricing actions taken earlier this year. It is important to highlight that, although these price actions led to lower volumes sold, we have managed to increase our gross profit compared to last year. Our priority is to focus on the market segments that generate more value and in those segments drive our core brand share growth. We see early results, promising results in categories like edible oils, cookies and detergents with 0.7%, 0.8% and 3.9 percentage points growth, respectively, in the core brand market segment. Let's move over to the financial performance of our Consumer Goods Peru unit on Slide 15. On a year-to-date basis, our sales experienced a 4% decrease compared to 2022. This decline is mainly explained by volume contractions in the Peruvian consumer markets and are conscious and strategic focus on core brands. We prioritizing resources away from lower tier brands. [Technical Difficulty]

Sorry, I think we lost Alvaro again. So I’m going to cover. Despite the decrease in sales volume and the market challenges, our year-to-date gross profit in 2023 increased PEN 14 million compared to last year. This is explained mainly due to the 20% increase in our gross profit per ton. Our focus on our core brands and the traditional channel has been crucial in achieving this profitability growth given our clear differentiation and competitive advantages. But by maintaining our focus on these areas, we have been able to overcome market difficulties and continue to generate positive results in terms of gross profit. However, it is important to mention that in the second quarter of 2023, our EBITDA decreased PEN 9 million compared to last year. This reduction is mainly explained by higher SG&A expenses, which include PEN 15 million of one-offs related to production site improvements and organizational restructuring. I'm going to continue with Consumer Goods International market dynamics on Slide 16. In Bolivia, we continue to expand our home care platform to partially compensate for the reduced profitability in edible oils, subject to price controls. This strategy has allowed us to diversify our revenue and mitigate some of the risks in this geography. In our Home Care segment, we continue to experience steady growth driven by volume increase, 5% year-over-year, and our pricing initiatives despite the overall market decline, minus 1.2% in detergents, minus 13.2% in bleaches and minus 5.1% in surface cleaners, leading us to achieve the market leadership within that detergent category. In our pasta category, we have experienced a 1.1% decrease on our value market share due to a reduction in the Tier 1 segment. However, in that segment, our Don Vittorio brand has managed to increase its market share. Finally, we noticed that existing consumer concerns regarding inflation, especially due to the lack of U.S. dollars in the economy. In this regard, it is relevant to mention that the 2023 expected inflation rate is 3%. In Ecuador, we continue implementing our go-to-market strategies to accelerate growth. We have developed new distributors with nationwide reach, allowing us to efficiently attend mom and pulp and establish a direct structure for our key wholesale customers. This has led us to achieve significant growth, increasing our customer base from 5,000 to 50,000 and expanded our presence in 80% of the modern trade channel. On the political front, general elections will be held in August 20. In this regard, we are closely monitoring political and economic developments to capitalize on new opportunities and overcome challenges. Let's move on to Slide 17 for an update on the performance of Consumer Goods Bolivia. First of all, our year-to-date revenue experienced a 5% increase compared to the previous year. This growth is mainly explained by the excellent performance of our Home Care segment, which has seen a 26% increase in sales. However, despite the growth in sales, it is important to mention that our year-to-date gross profit is 5% lower than 2022. This decrease is mainly explained by a net effect between our Home Care platform, which has increased its gross profit by PEN 7 million and edible oils, which had a negative impact of PEN 10 million primarily due to price regulations. Regarding EBITDA, we have experienced an accumulated reduction of PEN 15 million. This result mainly is explained by the impact on our edible oil segment, which has suffered a negative impact of PEN 9 million due to price control and by mandatory payable increases due to local regulation and advertising expenses to boost growth in our home care platform. Let's move on to the performance of Consumer Goods Ecuador on Slide 18. Regarding Ecuador performance, our year-to-date revenue experienced a significant increase of 19% compared to the same period in 2022. This growth has been largely achieved, thanks to our go-to-market and brand development strategies. Although we have experienced a 6%-point decline in our year-to-date gross margin, it is important to highlight that we have managed to deliver improvements in our prioritized categories, deterrents, pastas and sources. However, it is important to mention that our year-to-date EBITDA is negative PEN 12 million. This result is mainly explained by our efforts in advertising campaigns and higher selling expenses within our prioritized categories, which are allowing us to reach the expected growth and market share gains. Let's move on to Slide 19 for an update on our B2B market dynamics. Out-of-home consumption continues to be challenged, and it is still below pre-pandemic levels. We expect a slow recovery, which will be probably hindered by the El Niño climate phenomenon in the second half of 2023. Depending on the strength of El Nino, out-of-home consumption for the next year will remain flat or reached a maximum 4% year-over-year growth. We are currently focusing our efforts on building solid margins and improving returns despite the impact on volume, market shares on oils and shortenings are in line with last year. Given the market contractions, we have decided to prioritize top-tier volumes in order to maintain strong parametric ton margins. We are already implementing clearing up related initiatives such as strengthening marketing efforts towards our Nicolini brand and promoting pastry production at bakeries, aiming at recovering our market share. Let's move on to Slide 20 for an update on our financial performance of B2B. Despite market contractions, we stayed focused on healthy gross margins, delivering a year-over-year increase of 2.9 percentage points in the second quarter of 2023. As a result, our gross profit per metric ton reached PEN 818 million, which represents a solid year-over-year increase of 18% despite lower volume and revenue. EBITDA for the second quarter amounted to PEN 74 million, slightly lower compared to the second quarter of 2022. Despite the aforementioned impact on consumption and volumes, second quarter and year-to-date gross margin and EBITDA margin are considerably higher than pre-pandemic levels. Next, we will cover the aquafeed market dynamics on Slide 21. In Ecuador, exports grew 14% year-over-year, mainly due to the continuous increase in farm yields driven by new farming technologies and higher production due to better and expanded industrial processing capacity. These higher volumes were mostly exported to China as year-to-date Ecuadorian exports to the U.S. and Europe dropped more than 10%. However, shrink international prices are at its lowest level since to'18, due to higher inventories. Going forward, we expect production volumes to slightly decrease as farmers close less efficient production areas and decrease their sowing densities. Additionally, farmers have faced higher costs mainly due to fuel prices and higher operational expenses, leading them to be cautious with their production programs and preparing low-cost fees. Global stream market is expected to recover by the end of 2023. Regarding the El Nino phenomenon, we are starting to see higher seasonal temperatures and increased rain levels in different production areas. The industry is preparing properly, and we are constantly monitoring our clients' operations to anticipate any potential risks. Regarding the salon business, the consumption of feed has been stable. In the first half of this year, pricing for salmon has dropped compared to the last half of 2022. However, it remains at healthy levels for the industry. Both European and U.S. markets have built a solid demand for salmon, thanks to a strong presence in the retail channel. In this context, Vitapro will continue to improve its value proposition to meet and exceed expectations under challenging market and environmental conditions. Let's move on to Slide 22 for an update on ACOF performance. In terms of business performance in the second quarter of 2023, Vitapro reached a 6% revenue growth, mainly explained by price initiatives executed to compensate the increase in raw material prices and an increase in volume mainly in Nepal. Gross profit per ton slightly improved mainly due to price actions to partially offset higher prices in raw materials. EBITDA increased 6% year-over-year, mainly due to higher gross profit and a reduction in SG&A. Next, we will cover the crushing business financial performance on Slide 23. During the second quarter, our gross profit decreased mainly due to lower gross margins related to a reduction in international commodity prices. Soybean oil decreased 21% during April and May and soybean meal decreased 8% during the quarter. In addition to structural lower margins, EBITDA was impacted by extra costs associated by the Peruvian and Bolivian border blockages occurred in the first 4 months of the year. These restrictions were completely lifted, and we are back on our full operation. It is worth mentioning that some of the negative impacts in our gross margin and EBITDA have been offset by a positive exchange rate effect of USD 13 million during the quarter, directly impacting our cash flow generation. This effect is generated by the exchange arbitrage opportunities, which allow us to require fewer U.S. dollars to supply the business with raw materials sourced locally. Although this effect is generated as part of the business operations and directly reflects on our crush margins, it is not considered as operating results and therefore, as EBITDA due to accounting policies. Moving on to Slide 25 to comment on our leverage debt and liquidity metrics. Regarding our debt metrics, the second quarter of 2023 has been a challenging one, exhibiting a lower EBITDA than expected. As a result, our net debt-to-EBITDA ratio increased from 2.8x in the first quarter of 2023 to 3.9x in the second quarter of 2023. This increase is mainly explained by the need to finance the soybean campaign for our crushing business as well as the payment of our ordinary annual dividend in the second quarter. Regarding our liquidity levels, as of June 2023, we exhibited a cash position, which amounted to PEN 537 million, PEN 403 million less than as of December 2022. The decrease is mainly explained by prefunding the working capital needs for our crushing business. In the second quarter, we successfully closed a 5-year senior syndicated loan for USD 150 million. The proceeds will be used mainly for capital expenditures related to the expansion of our shrimp productive facility in Ecuador and also for general corporate purposes. As of June 2023, we have disbursed USD 10 million and the remaining will be available for disbursement until May 2024. Additionally, despite a challenging environment in Bolivia, we issued a promissory note in local currencies for the equivalent of USD 24.9 million through the Bolivian Capital Markets. The proceeds were used for working capital requirements in our crushing business. As of June 2023, our cash position covers 0.36x our current debt if our committed credit line for USD 120 million and the remaining USD 140 million of our syndicated loans were included, Surat would be 0.99x. Finally, let me circle back to Alvaro to wrap up today's presentation with a view of what we expect for 2023.

Thanks, Manuel. Let's turn to Slide 27 to wrap up today's presentation with a glimpse of what we expect for our full year 2023 results. Although the second quarter of 2020 was not conditioned in social political events and inflation rates are progressively increasing, other economic factors played an important role of household disposable income continues to be effective and as a consequence, consumer markets exhibited important contraction. This situation, coupled with a strategic focus on boosting our core portfolio as well as optimizing production processes led us to update our expectations for the rest of the year. Taking these factors into account, we expect for our revenue a flat to low single-digit decrease for the full year, mainly due to still challenging volume consumer markets in our main geographies. We on EBITDA, we expect approximately 15% decrease for the full year, mainly explain the significant increase in profitability in our crushing business. Despite this, and a challenging context, we strive to continue improving our profitability in the rest of our businesses, focusing our Tier 1 brands and optimizing gross profit and gross profit per metric ton to compensate lower volumes. As for our investments for the year, CapEx will reach USD 145 million, including aquafeed. Excluding aquafeed CapEx estimated at USD 76 million. Finally, for leverage, we expect a 2.8x net debt-to-EBITDA ratio by the end of 2023. In case a potential transaction with Refine success, the ratio would range between 3.1% and 3.3x. Similar to previous successful transactions, we would proceed with a gradual deleveraging plan. We're confident that our strategy reflected in the aforementioned key initiatives and efficient capital allocation will continue to lead us to deliver first quality products to our clients and customers as well as attractive returns to our shareholders. This concludes our presentation, and we welcome any questions you may have.

[Operator Instructions] Our first question comes from Mr. Felipe Ucros from Scotiabank.

Let me start first with consumer goods though-- Just wanted to see if you could give us a little more details around the kind of restructuring that we're doing in the business to reduce the weight of value categories. Obviously, that should improve the health of the portfolio in the long term. But can you talk a little bit about what kind of timing you expect for these changes to take place?

Let me just turn over to Alvaro who will actually expand on that specific point. As you correctly point out, it's key on our strategy for our Consumer Products business in Peru.

I can go into that with more granularity. As you know, our core brands generate more profits and also bring more value to our consumers. So we're focused on the growth of those brands. That means budget reallocation, that means correct incentives for our sales force. We strongly believe that those are the brands that we can generate competitive advantages. We are restructuring our marketing process to make sure that we have the correct insights to leverage that -- those strengths even in a strong or in an adverse economic environment. So just to summarize, we're going to go double down on those strong brands, what we call our emblematic brands, and that should help us be in a better position moving forward.

Any details you can give us more or less on timing when we could expect the normalization of the segment?

Yes. Gaining market share in those segments is not something that happens overnight. We have to have discipline and resilience to grow in an adverse environment as the one we are facing. It would be very difficult to give you an exact time frame, but we are seeing already some early results, as I was mentioning in the call. Sorry, for the technical difficulties, by the way. We are already seeing growth in some key brands, and we expect that to continue in the next few months, and hopefully, we can give more detail in the next conference call.

One on SG&A, there was -- what seems to be one-offs related to the restructuring process. Just wondering if this quarter showed the bulk of it or whether there should be a little more pain on the SG&A line on the next couple of quarters while the full restructuring takes place.

No, the bulk of the impact was in this quarter. We had some restructuring costs and also some changes in our production facilities for our -- one of our most important businesses, our cookie business. That was done this quarter. We shouldn't see any more impact related to those 2 items in the next 2 months.

Then my last one, obviously, on leverage, which I think was the big question mark of the quarter. So you've outlined a more or less what the leverage would look like after the Palmas acquisitions. We also have some pretty significant maturities coming ahead of us, but it seems that EBITDA might be suffering a little more for the next couple of quarters. So just having a little bit of trouble tying in the forecasted reduction in leverage, which what seems like not an immediate recovery. Just wondering if you could kind of bridge the gap between those 2.

Let me take it very quickly to Manuel, who very quickly can elaborate on that.

In terms of leverage, obviously, the most significant impact that we're facing this year is a significant decline in EBITDA for our grossing business even though the profitability for that business as a significant decrease. The businesses still require relevant investments in working capital. So that is the main explanation for the increase in net leverage between December of 2022 and the current results that we are showing in this presentation. Moving forward, we expect that working capital requirements to significantly decline as we crush the grains. So that should help our leverage. And we are also projecting a continuous recovery in our CPG business. If you remember, in 2022, the second half was in a very strong numbers for CPD. And if you look at the continuous improvement month-to-month in the past couple of months, we believe that we are entering the second half of 2023 in a more solid situation, right? So if you take into account the reduction in working capital needs for our crushing business in the second half of 2023 and continuous recovery in the CPG business, especially when compared to last year, we feel comfortable -- we're relatively comfortable that we can end the year at 2.8 level -- 2.8x net debt to EBITDA, as Alfredo mentioned in this guidance.

[Operator Instructions] Our next question comes from Julio Torres, Inteligo SAB.

Well, I have more question about the Consumer Goods Peru. It's well known that tenet with low income are bigger impacted by inflation. So we do disaggregated decrease in sales for traditional and modern cane for these units.

If I understand correctly, what the question is under our Consumer Products Peru businesses. Given the lower income that is fairly especially the less Porta ones are facing, how are the dynamics that we have in terms of our traditional versus modern trade distribution channels. We elaborate a little bit on that. Let me just get it over to Alvaro who will very quickly give some color.

Yes, the pressure that our consumers are facing regarding inflation is making them take some decisions regarding on where they buy their products and what type of categories they purchase. We're seeing the traditional channel, strengthening its capability of receiving the shoppers and these consumers. We're also seeing some shifting towards lower tier priced brands. We're also seeing some shifting towards smaller-sized products that require less purchasing power from consumers. We expect that to continue moving forward. But as we were mentioning prior in the call, that works toward our competitive advantage since we have great distribution capabilities in the traditional channel. So we expect that to continue in the next few months.

How much did sales decrease for these canes?

You mean how much is sales decrease in each specific channel?

In traditional and kind of yes.

So our volume sales in traditional channel decreased around 4%, 5%. And I would say similarly in modern trade. So we haven't seen significant variation in that in the short term, but we'll see how that moves over the next few months.

We'll give another 20 seconds or so for any additional questions to come in. So it looks like the call was comprehensive enough. I'll pass the line back to the management team for the concluding remarks. No further questions.

Great. Thanks, again, Michael. And thank you, everybody, for participating on this second quarter 2023 conference call. And as always, if you have any further questions or comments, please do not hesitate to contact us and obviously stay safe and have a great day.

Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and have a great day. Goodbye.