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 4Q 2020 Results Conference Call on the 16th of February 2024. [Operator Instructions] The format of the call today will be presentation by the management and IR team, followed by a question-and-answer session. So without further ado, I would now like to pass the line to Mr. Misael Alvarez. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome, and thanks for joining us today. Speaking to you is Misael Alvarez, Director of Strategic Portfolio and Investor Relations. As presenters today, we will have Mr. Manuel Romero, Deputy CEO and Chief Financial Officer; Mr. Álvaro 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 section. Today, we will be discussing the fourth quarter 2023 results after the financial results and earnings reports were issued on Thursday. If you have not received a copy of the earnings report, please visit us at www.alicorp.com.pe, where you will also find the 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 the media will not be taken. If you are a member of the media and wish to direct any question 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 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. Manuel Romero, Deputy CEO and CFO of Alicorp. Manuel, please go ahead.

Thank you, Misael. Good morning, everyone. Thank you for joining Alicorp's Fourth Quarter 2023 Earnings Call today. I would like to start by introducing you the 3 new members of our top management team, followed by our consolidated and business units financial results, and then we will go through our leverage indicators. At the end, before the Q&A section, I will take the floor again for an update on our guidance for 2024. Let's discuss the top management incorporation on Slide #5. In December, we announced a corporation of 3 new members of our top management team. Álvaro Correa has been appointed as the new CEO of Alicorp and will join the company on March 1. With over 30 years of professional experience, he has served as Deputy CEO of Credicorp, CEO of Pacífico Seguros, CEO of Atlantic Security Bank and CFO of Credicorp and Banco de Crédito del Perú; and more recently as Chairman of Prima AFP and COSAPI and as member of CONFIEP Executive Committee. Álvaro is an industrial engineer and holds an MBA from Harvard Business School. Additionally, Vinicius Barbosa joined Alicorp's Executive Committee as Vice President of Supply Chain. Vinicius is an industrial engineer with more than 30 years of professional experience, including a long career at AB InBev and lately at Brazilian Foods. Furthermore, Fabricio Vargas been appointed as Vitapro's General Manager starting February 1. Fabricio holds a Bachelor's degree in Zootechnics and has more than 16 years of professional experience with animal nutrition business and has been leading our shrimp business in Ecuador since 2014. I would like to especially thank Álvaro Correa for all the years of work and dedication to Alicorp and Vitapro and wish him the best in his new chapter of his life. Now, let's review our consolidated adjusted gross profit on Slide #7. Before going through our financial results, we would like to advise that the following figures are being presented on a pro forma basis. These adjusted figures exclude nonrecurring impacts incurred during the respective periods and for the Crushing business, given that FX arbitrage opportunities in Bolivia are becoming recurrent given the gap between the official and spot FX. We are presenting these FX gains as part of our Crush margin. We believe that these adjusted figures represent the performance of our businesses in a more accurate way. You can find a summary of all the adjustments in the footnotes and in the appendix for your reference. Our consolidated adjusted gross profit amounted to PEN 714 million, increasing 7% year-over-year. This was mainly explained by the performance of our Consumer Goods Peru, International businesses, B2B and Crushing units. This was partially offset by Aquafeed. Excluding the Crushing business, adjusted gross profit amounted to PEN 640 million and gross profit per metric ton reached PEN 1,260, increasing 11% and 27%, respectively. We are delivering a second consecutive quarter with relevant growth rates in terms of adjusted gross profit, excluding Crushing as a result of the changes in our -- the changes in our strategy implemented back in the second quarter of last year. Let's now review our consolidated adjusted EBITDA on Slide #8. Consolidated adjusted EBITDA reached PEN 403 million, a 10% year-over-year increase explained by the performance of Consumer Goods Peru, international businesses, B2B and Crushing. Excluding the Crushing business, adjusted EBITDA amounted to PEN 357 million, and adjusted EBITDA per metric ton reached PEN 702, increasing 23% and 41% year-over-year respectively. Similarly, this is the second consecutive quarter with more than 20% year-over-year growth in terms of adjusted EBITDA excluding Crushing, in which our Consumer Goods Peru and B2B businesses grew more than PEN 100 million year-over-year, and our international businesses grew almost PEN 35 million. Now let me pass the floor over to Álvaro, who will discuss in greater detail the operating results for our Consumer Goods Peru business.

Thank you, Manuel. Let's move on to the performance of our Consumer Goods Peru unit on Slide 10. Volume in the fourth quarter decreased 10% compared to 2022, impacted by macro contractions due to Peru's economic context and by the successful execution of the company's new business strategy, which is focused on our core brands and the traditional channel, intentionally reducing our share in loan profit price tiers. Regarding market dynamics, we observed several contractions between 2022 and 2023 in categories such as pasta, down 4%, Edible Oils down 5%, Cookies down 10% and mayonnaise down 5%. Regarding our new business strategy, and as mentioned in previous calls, we are now focused on driving growth spearheaded by our 6 implemented brands and captured volume that contributes greater value to the company. Moreover, we have strengthened our efforts and investments in the traditional channel where we are seeing strong results as our core brands have grown 7% in the fourth quarter of 2023 versus the period before we implemented this new strategy. This has led us to improve our sales mix in this channel by 1 percentage point and reached a 77% mix in core volume, up 7 percentage points, both in quarter 4, 2023, compared to the same period of 2022. Although the fourth quarter 2023, delivers a 10% volume reduction compared to fourth quarter 2022, focusing on our improvised brand has enabled us to achieve a remarkable increase of 29% in adjusted gross profit compared to the same period of 2022. Moreover, our adjusted gross profit per metric ton has increased 44% over the same period. Additionally, now that we have stabilized our volume platform, our plan is to accelerate growth in volume and market share in these already identified higher-value segments. Finally, adjusted EBITDA increased 78% year-over-year in the fourth quarter of 2023, mainly driven by higher gross profit despite an increase in SG&A expenses compared to last year, which is explained by marketing investments in our core brands to generate tiering up and administrative expenses reallocation. Now, I'll pass the floor over to Manuel, who will cover the B2B International businesses Crushing and Aquafeed units as well as our liquidity and debt metrics.

Thank you, Álvaro. Moving on to B2B. Despite the continuous market challenges as a result of the economic situation, reducing out-of-home consumption for the second consecutive quarter, we increased our volumes sold when compared to 2022, achieving 1.3% increase. This was mainly driven by a recovery in market share in core categories such as Edible Oils, Flour and Shorterings. We remain focused on sustaining healthy gross margins with a year-over-year increase of 5.8 percentage points in the fourth quarter of 2023, mainly explained by lower cost pressures due to lower international commodity prices. As a result, adjusted gross profit per metric ton reached PEN 795, which represents a strong increase of 21% year-over-year despite lower revenue. Adjusted EBITDA in the fourth quarter amounted to PEN 82 million, a year-over-year increase of 42% compared to the fourth quarter of 2022. On a full year basis, adjusted EBITDA reached PEN 301 million, a 20% increase compared to 2022. Let's move on to the performance of international businesses and Crushing on Slide 11. Adjusted EBITDA in international businesses registered another positive performance in the fourth quarter, reaching PEN 24 million, a year-over-year increase of PLN 34 million. This result is mainly explained by Bolivia, which registered a PEN 30 million increase mainly due to the performance of edible oils as we are experiencing less cost pressure from commodities and prioritizing higher value volume. Moreover, in Bolivia, our home care platform and categories such as shortenings and margarines continued to contribute positively to the generation of EBITDA. Other geographies registered a PEN 5 million year-over-year increase in adjusted EBITDA in the fourth quarter, mainly explained by higher gross profit. While in Ecuador, we managed to improve gross margin in 5.7 percentage points and adjusted gross profit per metric ton in 16% as we are now prioritizing core categories. Moving on to Crushing. During the fourth quarter, we achieved a record in volume sold of soybean meal. As a result, volumes sold to third parties increased by 18% compared to last year. As a reminder, we are including exchange rate arbitrages in our pro forma figures. During the fourth quarter, we registered USD 6 million due to these arbitrage's opportunities, positively impacting our cash flow generation. On a full year basis, we generated USD 22 million. Going forward, we expect these gains to continue putting pressure on accounting operating margins as competitors are also included in these FX gains as part of the Crush margins. Regarding adjusted EBITDA, including the aforementioned FX gains amounted to USD 11 million in the fourth quarter, USD 9 million less than the same period of 2022. This was mainly explained by the impacts of the drop of soybean oil international prices. It is important to mention that in early 2023, we had impacts due to the blockages in the [indiscernible], which negatively impacted our EBITDA by roughly USD 18 million of which USD 10 million were related to hedging rollovers, which were strictly related to those blockages. Although this was a onetime event, it has not been considered as nonrecurring, and therefore, as an adjustment to our results. Let's move on to Slide 12 for an update on the Aquafeed business. The global shrimp industry continues to be challenged with low prices throughout the fourth quarter. Worldwide shrimp hit its lowest price towards the end of the fourth quarter, causing many farmers to sell below cost. The impact of the global crisis is reflected in the negative trend we see in the value of Ecuadorian shrimp exports which decreased 7% in 2023 versus 2022. In this context, farmers are shifting to lower tier feed aiming for large discounts and lenient commercial terms. In terms of business performance, adjusted gross profit in the fourth quarter decreased 43% year-over-year, explained by our reduced business units. The tiering down of our portfolio and price reductions due to the aggressive competitive dynamic. Adjusted EBITDA in the fourth quarter decreased 45% year-over-year, mainly as a result of lower gross profit, partially offset by reductions in SG&A expenses. We expect shrimp prices and farming densities to recover during the second half of 2024. Moving on to Slide 14 to comment on our leverage, debt and liquidity metrics. Regarding our debt metrics, as our volumes stabilize and our profitability... [Audio Gap] our net debt to adjusted EBITDA ratio posted a relevant decrease. [Technical Difficulty]

Ladies and gentlemen, please stand by. We're reconnecting with the hosts.

Let's turn to Slide 16 to wrap up today's presentation with a glimpse of what we expect for full year 2024 results. First, I would like to share with you our main assumptions behind our guidance. In 2024, we will continue to consolidate our strategy for our Consumer Goods Peru unit with special focus on our emblematic brands and the traditional channel as well as continuing our efforts for revenue management and optimization of categories and brands. Regarding international businesses, the focus in Bolivia will be on optimizing our profitability levels. And in Ecuador, we will focus on 4 key categories alongside the consolidation of our go-to-market strategy to continue developing our presence within the country. B2B, as mentioned earlier, will seek to gain market share in some categories while maintaining healthy profitability levels. For our Aquafeed business in Ecuador, we expect a cautious market growth as we anticipate conditions for shrimp to recover mainly during the second half of the year. We also expect to continue improving productivity in our supply chain, consolidating production and storage in larger, more efficient plants and warehouses. Over the past 6 months, we have seen relevant improvements that should also help our profitability and service levels across all businesses. Taking these factors into account, we expect a low single-digit year-over-year growth for our consolidated revenue. Regarding consolidated adjusted EBITDA, excluding Crushing, we expect that 13% to 18% increase after a challenging 2023. Including the Crushing business, we expect our adjusted EBITDA will increase between 17% to 22% as Crush margins start recovering. As for our investment, for 2024, CapEx is estimated in approximately USD 76 million excluding our expansion project in Aquafeed would amount to USD 62 million, in line with 2023 levels. For leverage, we estimate a 2.5x net debt to adjusted EBITDA ratio by year-end 2024, on the back of the improvements on our cash flow generation. This concludes our presentation, and we welcome any questions you may have.

[Operator Instructions] A question from Mr. Juan Jose Guzmán from Scotiabank.

Do you hear me? Sorry.

Yes. We can hear you. Please go ahead.

Sorry, I didn't have any question.

[Operator Instructions] We have a question from Mr. Juan Jose Guzmán from Scotiabank.

Sorry if you already mentioned this in your remarks, I'd just like to understand how much of the gross margin gains came from your portfolio optimization process. And how much of it came from lower commodity costs during the quarter? And what are you expecting on this front for 2024?

Thank you for your question. I'll pass that question to Álvaro. Basically, what part of the gross margin improvement comes from commodity price reductions versus the portfolio optimization.

Okay. Thanks for the question. I would say that around 50% of the better gross margins come from lower commodity prices and 50% come from portfolio optimization and focusing on our core brands, and also the traditional channel. We have managed to significantly improve our sales mix towards brands with higher gross profit. And in a very complex context, generates tiering up. So we see that sustainable in the next few months, even though challenges will be -- we are very confident in the strength of our brands and our marketing plans to help us deliver that -- those results.

We have a text question from [indiscernible], if I can read that out to the team. Can you please give us some color on the outlook for the Crushing business?

Yes. For the Crushing business, I'll pass the question to Luis Estrada.

Thank you for the question. As Manuel explained on the call, we're expecting Crush margins to recover as commodity prices stabilize a little bit for the year. And we are, as always, working extremely close to the farmers, and we expect to be slight improve versus previous year.

[Operator Instructions].

I think we missed the question from Moody's that we were unable to hear. Could you please repeat the questions so we can answer it?

I think that question was a mistake. We opened the line, but there was no question.

Okay. Okay.

[Operator Instructions].

Okay. Since there are no further questions, I think we're good to end the call. Thank you very much, everyone, for joining.

Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you, and goodbye.

Thanks.