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

Good morning, everyone, and welcome to Alicorp's Second Quarter 2025 Earnings Call. Speaking to you is Cesar Miranda, Head of Investor Relations. We are pleased to have you with us today. Presenting today will be Mr. Alvaro Correa, Chief Executive Officer; and Luis Banchero, Vice President of Finance and Strategy. Other members of the management team will join us during the Q&A session. Today, we will review the company's results for the second quarter of 2025, following the release of our financial statements and earnings reports published yesterday. If you haven't had the chance to access these documents, please invite you to visit our corporate website at www.alicorp.com.pe, where you can also find the presentation accompanying today's call. Please note that this conference is intended explicitly for investors and analysts. Therefore, we will not be taking questions from the media. If any members of the press are on the line and wish to follow up, please kindly ask that you contact our team after the call. Before we begin, I would like to remind everyone that some of the statements made today may be forward-looking. These statements are based on assumptions and factors that may change, and actual results could differ materially from current expectations. We encourage you to review the disclaimer included in the earnings report before making any investment decision. Now I'm pleased to turn the call over to Mr. Alvaro Correa, CEO of Alicorp to begin the presentation. Alvaro, please go ahead.

Thank you, Cesar, and good morning, and welcome, everyone. To start the presentation, please turn to Slide 5, where we will review the key highlights of the quarter. First, as announced earlier this month, Dionisio Romero Paoletti has decided to conclude his tenure as Chairman of the Board of Alicorp, remaining in the role until December 31 of this year. For more than 2 decades of leadership, he has played a key role in consolidating Alicorp as one of the leading consumer goods companies in the region. In line with the planned transition process, the Board has agreed that Manuel Romero Valdez, currently Vice Chairman, will assume the role of Chairman effective January 1, 2026. Many of you know Manuel through his prior roles at Alicorp and he has been a member of the Board since March 2025 and his deep understanding of the company will be a great asset as we enter this new chapter. All the best to Dionisio and Manuel. Another important highlight from the quarter is the progress we made in our financial management. On June 16, we successfully completed the issuance of a PEN 1,530 million international bond under the 144A/Reg S format with a 7-year tenure amortizations in the last 3 years and a 7.40% coupon. The issuance received total demand equivalent to 1.6x the allocated amount with participation from local, European, U.S. and regional investors. This operation did not present any increase in our debt as the proceeds were used to refinance the USD 200 million loan associated with the acquisition of Refinería del Espino and to prepay 77% of the bonds due in 2027. The success of this transaction reflects the market's confidence in the strength of our financial position, the diversification of our portfolio and our standing as a leading company in Peru. The issuance received investment-grade ratings, BBB by Fitch and BBB- by S&P. Lastly, and in line with our sound financial position, we would like to provide an update on our last share buyback program. As of June 2025, we have repurchased 44.6 million shares, representing 7.23% of our total issued common shares. This initiative reflects our continued commitment to delivering value to our shareholders and optimizing capital allocation. Now I will hand over the call to Luis Banchero who will walk you through the operational results of the quarter and share our outlook for 2025.

Thank you, Alvaro. The figures we will discuss exclude nonrecurring impacts for each respective period. For further details on these nonrecurring items, please refer to our earnings release and the footnotes throughout this presentation. Let's move to Slide 7 to review our consolidated results for the second quarter of 2025. During the quarter, adjusted gross profit reached PEN 782 million a 13% increase compared to the same quarter last year. This growth was primarily driven by the performance of our Aquafeed business, which contributed PEN 88 million to the year-over-year improvement. This result was largely supported by a 36% increase in sales volume for that business. Additionally, our Alicorp Soluciones B2B unit made a positive contribution to the quarter's growth, mainly due to the incorporation of Refinería del Espino. It is worth noting that these gains were partially offset by the performance of our Consumer Goods Peru unit, which continues to face challenges in the categories such as detergents and edible oils. Moving on to Slide 8. We can see how the increase in adjusted gross profit is reflecting in our adjusted EBITDA. Adjusted EBITDA for the quarter reached PEN 450 million, representing a 22% year-over-year increase. This result is mainly attributable to the growth in adjusted gross profit previously mentioned. The Aquafeed unit was the largest contributor to the increase in adjusted EBITDA this quarter. However, this result was partially offset by Consumer Goods Peru, which recorded a PEN 38 million decline compared to the same quarter in 2024. This decrease is due to the challenging competitive environment mentioned earlier. Our adjusted EBITDA margin improved by 0.4 percentage points to 15.1% in the quarter, primarily due to the significant recovery of our Aquafeed business, partially offset by the Consumer Goods Peru. Now please turn to Slide 10 to review the operational performance of our business units, starting with Consumer Goods Peru and International business. During the second quarter of this year, our Consumer Goods Peru business recorded a 13% year-over-year increase in sales volume, supported by the strength of our brands, solid customer coverage and the contribution of Refinería del Espino. Excluding the latter, volume grew 4% year-over-year, while gross profit per ton remained 14% above the average of the last 3 years. This performance allow us to maintain a strong market share position. Alacena remains a benchmark in the sauce category with a 0.5 point increase in market share during the March, April 2025 by monthly period compared to the same period last year. Meanwhile, our pasta and cookies categories reached their highest market share levels in the last 8 bimonthly periods. However, we have been facing intense competitive dynamics in the detergents category. We have stepped up the efforts to protect this business, prioritizing the long term and assuming short-term impacts. These efforts include adjustments to our commercial strategy and increased investments in channels and marketing across both core and value segments. These initiatives continue to yield positive results reflected in 20% year-over-year volume growth for the category during the quarter. Additionally, the edible oils category experienced greater pressure due to rising raw material costs and more competitive environment with the entry of new players. These factors reflect the challenges of the current landscape to which we continue responding with initiatives aimed at preserving competitiveness and market share. Despite these headwinds, our emblematic brand Primor delivered double-digit volume growth in the traditional channel and is regaining market share in the short term. It is worth noting that this performance was partially offset by strong results in categories such as pasta and sauces. The latter, in particular, posted notable year-over-year volume growth of 19%. As a result, adjusted EBITDA for the business declined 18% in the quarter compared to the same period in 2024 totaling PEN 170 million. Turning to our international business, Bolivia continues to face a challenging economic environment further exacerbated by rising social tensions in the run-up to the general election scheduled for August. In this context, adjusted EBITDA for the quarter reached PEN 41 million, representing a 13% year-over-year increase. This result was mainly driven by the performance in other geographies and to a lesser extent by Bolivia, where broad-based price adjustments continue to help mitigate the impact of higher financial costs associated with the currency volatility. Although June saw a contraction in sales volume it was largely due to roadblocks that disrupted logistics operations amid an increasing tense preelection outlook. In Ecuador, adjusted EBITDA declined by PEN 4 million year-over-year, primarily due to lower volumes resulting from the progressive reduction in the contract manufacturing of detergents for third parties, an operation, we expect to conclude this year. Nevertheless, gross profit per ton as of June rose 25% compared to the same period in 2024, reflecting our focus on profitable volume, particularly in categories such as pastas and sauces. Finally, in other geographies, adjusted EBITDA increased by PEN 8 million year-over-year, driven by higher sales volume and improvement in gross profit per ton. This performance was accompanied by progress in our hot sauces project in the U.S., where our Tari brand is now available in more than 2,500 strategic points of sale and is outperforming average velocity metrics across the board. Despite a challenging environment, we will maintain strict operational discipline, focusing on growth in key geographies through a defined expert portfolio that enable us to continue generating value for the company. Now please turn to Slide 11 to review the performance of our B2B and Aquafeed business. In our Alicorp Soluciones B2B business, we posted a 27% year-over-year increase in volume during the quarter, driven primarily by the integration of Refinería del Espino operations. Excluding this effect, volume grew 4%, sustaining the growth trend observed in the first quarter of 2025. In addition, the continued recovery in restaurant consumption during the second quarter positively impacted categories such as sauces and edible oils. However, we continue to observe heightened competitive activity in the category such as flour, edible oils, shortenings and detergents driven by the growing presence of new competitors in the market. In response, we have executed targeted commercial initiatives across our portfolio to maintain competitiveness in this environment. As a result, adjusted EBITDA for the quarter reached PEN 105 million, a 22% increase compared to the prior year primarily driven by higher sales volume. Going forward, we remain focused on protecting our leadership position and advancing our strategic priorities to strengthen our portfolio. Turning to Aquafeed. During the second quarter of 2025, global shrimp and salmon markets remained relatively stable despite a slight decline in prices across both segments compared to the first quarter of the year. However, Ecuador's shrimp export volumes continue to rise, reaching record monthly highs supported by productivity gains from favorable weather conditions and increasing market diversification. In this context, we maintain our focus on value creation. In Ecuador, we strengthened partnerships with key producers through high-performance solutions. In Central America, we continue to build our presence with improvements in commercial execution and customer service. And in Chile, we made progress of new supplier agreements reaffirming our commitment to the region expansion. Adjusted EBITDA reached $40 million, a threefold increase year-over-year. This solid performance was driven primarily by a significant increase in sales volume alongside margin improvements and continued evolution to our portfolio towards higher value-added products. Let's turn to Slide 13, please, where we'll review the key leverages, debt and liquidity indicators. We continue generating stable cash flow, mainly driven by this quarter's operational performance. This contributed significantly to the reduction in our leverage ratio which improved from 2.8x in June 2024 to 1.9x in June 2025. It is worth noting that this improvement was achieved despite the dividend distribution made in May 2025 which amounted to PEN 219 million. Excluding this effect, the leverage ratio would have been approximately 1.8x. In terms of liquidity, as of June 2025, our available cash position reached PEN 1,521 million representing an increase of roughly PEN 494 million compared to the same period last year. This increase was mainly driven by sustained cash flow generation as well as greater funding needs related to management of intercompany liabilities. Our cash position covers 1.2x our debt maturities over the next 12 months. And if we include committed credit lines that coverage increases to 1.6x. Looking ahead to the coming months, we will continue focusing on effectively managing working capital through organic initiatives. These allow us to sustain stable cash generation and maintain healthy leverage levels, providing greater financial flexibility. It would also help us reduce refinancing needs in 2026 and enable access to more favorable funding conditions. To close, let's move to Slide 15 to show our expectations for full year 2025 results. The results of the first half of this year reflects a solid performance of our company despite increased competitive dynamics in our Peruvian businesses and macroeconomic environment in Bolivia. This performance was supported in particular by the continued recovery of our Aquafeed business. In this context, our strategy remains focused on value creation through our brand portfolio, which clearly -- with clearly defined roles, allowing us to address short-term challenges without losing sight of our long-term goals. It is important to note that the strong growth in adjusted EBITDA during the first quarter of 2025 is partially explained by the fact that Refinería del Espino was not yet consolidated in the same period of 2024. The integration took place in September of that year. As such, the year-over-year comparison includes a favorable incremental effect from the inclusion of this operation. Additionally, in the second half of 2025, we will be comparing against a period that already included Refinería del Espino in the last 4 months. This partially explains the moderation we anticipate in the second half of the year. Additionally, regarding Bolivia, we operate under a supply model that enable us to efficiently meet local production needs. However, the country continues to face a challenging foreign exchange environment characterized by persistent volatility and regulatory constraints. In response, we have been actively implementing alternative strategies to help mitigate these pressures and reinforce the resilience of our operations but we do foresee this will present some challenges on our EBITDA growth expectations in the second half of the year. In line with these results and the current environment, we are maintaining the guidance communicated last quarter. Revenue growth between 10% and 12% and mid- to high single-digit growth in adjusted EBITDA for full year 2025. We also reaffirm our expectations of strong cash flow generation, which will allow us to sustain a net debt to adjusted EBITDA ratio within our target of 2 to 2.5x. Regarding CapEx, we're maintaining our full year projection of $70 million. We're confident that despite the complex environment, we remain well positioned to continue execution -- executing our strategy with determination, the strength of our business model, the quality of our brands and the commitment of our team provide a solid foundation to adapt to challenges, seize new opportunities and continue creating sustainable value to our share and stakeholders. With that, we will now open the floor to any questions you may have.

[Operator Instructions] Our first question is from Gonzalo Picatoste from Profuturo. First of all, congratulations on the results. We've noticed that the only business unit showing a slight lag compared to the others is Consumer Goods Peru. According to your comments, this is due to a strategic decision to protect your competitive position in the detergents and cooking oil markets. What is the current outlook? And how do you expect both markets to evolve?

Gonzalo, thank you for the question. Maybe I should start by explaining a little bit of what happened. First is increase in -- the increasing sales from mainly Chinese imported detergents. That's something that we had to react on and we did -- what we did starting last year, by the end of last year and this first quarter of 2025 was to reprice some of our more value brands, the lower-tier brands. We did some improvements in quality and in formats as well in order to face that competition. But then we saw that there was a gap also that was being probably too large with the core brands that we hold. So what we did by the second quarter of the year was to reprice some of our core brands because the risk of tiering down was already there. So what we're seeing today is a very positive reaction to that value -- volumes are increasing, has started to react. Market share, both in lower tier as well as the core brands have started to go up. Bulk detergent sales, also that's another challenge that we were facing is coming down. We wanted to attack that as well. And what we foresee for the next quarter -- for this quarter actually is a better dynamic for the -- especially for the core brands. So we have a positive outlook. We think we have done what we had to do in order to protect the category for the future, and we expect better results in the short run.

[Operator Instructions] We'll wait a few moments for any new questions to come in.

Yes. Sorry, I thought I was waiting for the question. There's a second one, it says congratulations on the results. Thank you for taking the question. Considering that the company is expected to continue generating strong cash flows, should we expect an increase in the dividend payout for the next year? Could you share any updates or guidance regarding the dividend policy going forward? As we've mentioned several times what the objective here is to remain strong financially and to have a leverage of -- within a range. So whatever we do we have that in mind, considering that, and we can have several options if we run -- we have better results in terms of cash. One is, for sure, paying more dividends, but we have to always continue looking for growth opportunities. So if there are potential investments in the company as well as regarding targets for growth for inorganic growth, we will continue considering them. Remember that we have still to take control of Refinería Wilson -- sorry, Jabonería Wilson in Ecuador. That's in the process of receiving regulatory approval, that should be concluded by the fourth quarter of this year. So we have to reserve cash for that. Besides that, we have always some targets in place. And after that, we should always propose something regarding the dividends. We want to keep our current dividend policy, but there is always this open discussion or -- that is paying additional dividends. But for the time being, we consider that the current policy is what we should be keeping in mind.

Our next question is from Santiago Petri from Franklin Templeton. Can you provide your views about the consumer health in Peru? And what is the macro situation in Bolivia?

Consumer -- can you repeat that, please, the consumer?

Can you provide your views about the consumer health in Peru? And what is your macro -- and what is the macro situation in Bolivia?

Okay. Consumer health. We see -- I mean we have seen over the last 2 quarters, 3 quarters, a positive behavior in terms of consumption in the country. We -- that has been helped by the result of the political decision of allowing people to withdraw funds from the pension fund system that cash is probably not -- no longer there for additional consumption. However, we see economic activity there. We see employment stable in general. So what we're seeing is that consumption activity remains strong, not at the levels that we had 5, 7 years ago, but we see some growth there. The country, the economy is growing at around 3%, 3.5%. That's the expectation. So that's basically what we're seeing today. In Bolivia, the situation is quite complicated. We have elections this next month. There is tremendous challenges in the foreign exchange and liquidity in the country. So there, we do not have a clear view on what or who is going to win the elections and how strong the reforms will be there -- they will be taking regardless of it's someone from the government or someone from the right side of the spectrum. I see in both cases, we expect some reforms, but we do not have a clear view on what that's going to be like. We -- as Alicorp, we continue to have a very stringent liquidity management, foreign exchange management, we have to continue to generate dollars in order to import products for our business there. And we have to keep a close eye on the oil business in Ecuador -- in Bolivia since it's a very politically exposed business in the country, so we have to be very cautious on the way we manage the business. But we're expecting at the end of the day, somewhat positive results after the elections on the new path that the country should be taken.

[Operator Instructions] So our next question is from Gerard Fort from AFP Integra. Could you elaborate on what has triggered the high-end competition in the oils segment in Consumer Goods Peru. Is it also due to new entrants, possibly Chinese? Or are there other dynamics at play?

Yes. Thank you for the question, Gerald. There are several elements here. One is that the imports from smaller producers, imports of crude oil to local smaller refineries has increased. That's because there are other sources of crude oil. There are other traders bringing oil, crude oil to the country. There is oil coming from Bolivia as well. With these distortions in Bolivia, there are some opportunities that are being taken by some of the competitors. But we also have the growth of the oil, the edible oil imported by discounters. That's a new competitor that over the last year, 1.5 years has appeared. So there are several sources of competition here. So when -- in a context where the raw material is going up, that puts some pressure on margins, and that's what we have to manage. We have to take some opportunities as well in that context. For instance, we do produce refined oil in Bolivia. So there is opportunities to increase the imports of that capacity, especially for the southern part of the country. So we have to continue working in facing all those challenges.

We will just give a few more moments for any further questions.

There is a question from Jose Block, regarding the gap between the official exchange rate in Bolivia. And if we should expect any kind of impairment on the value of the assets the company holds in the country. We do not expect that. But we really expect that the government will sooner than later probably not necessarily open the exchange rate because it has been fixed for several years, but at least start adjusting it to a more reasonable level. And that will make the conversion of the values that we have there will probably be affected but not through an impairment but through a different value. However, what we're doing in Bolivia as of today is reflecting that market exchange rate in the prices that we apply to the products that we -- especially the products that we import, for instance, detergents. So that's the way we're managing to maintain value, to keep value by the right pricing strategy and not waiting for official rates to adjust.

Our next question is from Felipe Ucros from Scotiabank.

A very short question on hedging and the strategy that you approach now. A few years ago, I think Alicorp tried to hedge at a very short duration. I think it was most of the times close to between 3 and 6 months because your competitors typically didn't hedge. So that kind of gave you an advantage of our competitors, but it really didn't buy you a lot of time to price a lot -- to price slowly if there was a jump in commodities. So I'm wondering how you guys approach that the hedging of raw materials nowadays. And whether you have hedged taking advantage that prices are relatively low in your main commodities and volatility is low, so it's somewhat cheaper to hedge right now than a couple of years ago.

This is Luis Banchero. Thank you for your question. So we continue to have a similar policy today than in the past. We do have longer term since 3 to 6 months. And we -- and that depends on the commodity and what we use the commodity for. So in some cases, it will go up to a year, but that's very like special situation. Normally, we go between 3 and 9 months of hedging, and we do an escalated process where we hedge more the shorter term than the longer term. And our view is that even though some of our competitors are trying -- are gaining that expertise of hedging, we -- our view is that we -- first of all, we were able to -- we have a competitive advantage to a cheaper and better. And second of all, we try to mitigate the volatility of the commodity prices in most of our categories rather than trying to gain on a view on the commodity prices. I don't know if that responds to your question.

No, that was exactly what I was looking for. So it sounds like you're hedging a little bit longer than we used to and not betting on the commodity, just to have a rolling strategy. So that's music to our ears.

Thank you very much. We would like to thank everyone for the participation today. I will now be handing the line back to the Alicorp team for the closing remarks.

There is one final question from Carlos Rojas regarding the Aquafeed business. He's asking if the margins that were up in the Aquafeed business in the first half of the year will be sustainable in the future. And if we plan to invest in increasing production for that in that front. That -- as you know, that business is quite volatile. It's very closely related not only to international prices of shrimp but also -- or demand for shrimp, but also it has lot to do with the weather, weather conditions, what happened in the first -- especially in the second quarter of 2025 was very favorable weather conditions. So shrimp production went up, demand for food was up and the raw materials and our production costs were controlled and down. So we took advantage of higher margins given that context. However, weather is changing. There's a cold front today, so that will definitely reflect on volume, on production of shrimp and therefore, demand for food. We do not see any pressure on the raw material front, but we do expect probably some pressure on margins and especially volumes in this third quarter. We expect that to improve by the end of the year. So there's always a matter of following and the name of the game here is keeping strong relationship with main clients and also have the best quality, the best production, the more productive food for them. So that's a formula to stay ahead and to be better and have higher margins than competition. With regards to production increase, we have -- as you know, we have invested in new production lines. We still have some spare capacity. We do expect shrimp production to go up going forward. So demand will be there. And depending on that and how fast our capacity is still, we would definitely consider investing in additional capacity. But for the time being, we're expecting for the next year, 1.5 years to probably make some additional marginal increases, but not huge investments in that front. I don't know, Carlos, if that answers the question?

Thank you very much. Yes, I'll now be handing it back to the Alicorp team for the closing remarks.

Okay. Thank you, everyone, for listening and for your questions. I would like to close the session by acknowledging again the commitment and dedication of our team by thanking our shareholders, our stakeholders for the trust. As we mentioned, while the environment remains challenging, we, however, see opportunities in many areas of our business. And we're confident that the way we are navigating this period with responsibility, long-term vision and a strong focus on execution will allow us to continue moving forward towards a more sustainable future for the company. Thank you, once again, for your time and attention. And if you have any further questions, please do not hesitate to reach out to us and have a great day.

That concludes the call for today. Thank you, and have a nice day.