Grupo Nutresa S. A. (NUTRESA) Earnings Call Transcript & Summary

Thank you, Carlos Ignacio. Good morning, everyone. Starting on Slide #8, we'll look at the profitability of financial statements and the position of current debt in the group. We'll also speak about cash and CapEx. So in this, Slide #8, we see the EBITDA for the quarter, which is COP 398,000 million with a growth of 5.7% and a margin on sales of 14%. This is a quarter that reflects, first of all, price pressure on raw materials. This is in most business units. We also have a higher expense due to the intensive strict measures for cleaning protection for biodiversity, which are necessary to operate in this pandemic. And this is an additional cost of about COP 18,000 million and would be -- or I'll call it to 70 basis points margins. They're not giants, but they are necessary costs. And because we are responsible and we have to encourage them to operate, this is the first chapter. This, as I said earlier, this applies to most, if not, all business units. And although it sounds a little repetitious, the consistency in our production plans and the administration where we have more effective expenses, this consistency is key to get back to a profit balance. This administration and sales expenses help a lot to return to the balance that we showed earlier. We'll see that in more detail, but this is part of the performance of the EBITDA by business units. And speaking about the units, let me describe to you the characteristics of the profitability of each one. Starting with biscuits, this is -- this decrease in sales is offset -- have a significant challenge. And we also have pressure from the raw materials. We have some good hedge levels. But the items, the savings or the productivity in those lines, both in Colombia and internationally, help camp this margin in 11.5%. Biscuits is a favorable reflection of the description that I said at the beginning. Then we have the cold cuts, we have significant pressures on raw materials. We have the proteins such as beef and pork. They both grew at double-digit rates, and this has an impact on the margin compared to what was -- what we took place in the previous year. Chocolate, we have good performance. Very good performance, significant growth of the EBITDA for almost 20% double-digit or high digit. And this is the result of a good business performance. And as part of that, we have a better product mix, more portable products, better performance. And this has helped us a lot with this significant margin for the Chocolate business unit. Now the productivity in sales and expenses, especially marketing and distribution, which was a good quarter for the chocolate. And this applies for both in Colombia but also and especially for the operations overseas. I mean Mexico and Peru had some challenges. We've said that in previous -- for instance, this quarter, they have better performance and helps a lot with this business unit. Let's go to the coffee business unit. As we said, good performance. Double-digit growth in the first quarter. And we have significant pressure on -- from raw materials. Coffee has a very significant part of the expenses or cost of this business, and it has a high double-digit cost. So this has a pressure on the margin compared to the previous margin in the previous year. But we keep a good level compared -- and it keeps a good business margin in the business coffee. And as much just to continue, high, it grows 1.3% with the EBITDA. And we still have the cost pressure. This is diversifying in itself, the business unit. And in general, it has been impacted by all the categories due to the cost. It also -- you see a little more impact on our profits. This is an interesting chapter all the retail food and pastas all have improved. This is a significant, obviously, improvement. It has a business performance opening although we have certain closures in some cases or 4 weeks, consecutive weeks in operations in Colombia and in the other geographies. We have good business performance, and this is immediately reflected on the EBITDA. This is 22%, very close to its structural EBITDA with a good mix, a good balance between sales at the critical points on the sales points. And the sales or revenue that we get through home deliveries and various platforms. Then the pasta and ice cream, we had a margin of 20% higher than 300 basis points compared to what happened in previous semester last year. And in serious successes, very sustained efficient operating efficiencies in marketing and expenses, all expenses, including logistics, had a very good profit for this ice cream business. And lastly, in pasta, 16.6% margin, very similar to the effect we had in ice cream 300 -- 210 basis points higher compared to the same period last year. And compare that to the peak last year, we can see that more because of the expenses operating efficiencies. So this is a general description by business unit. And this helps us understand up to the middle line of the P&L. And now let's go to Slide #9, where we show the statement of results for the first quarter. Once again, and as a general comment, we -- this is a quarter with on and off measures in terms of quarantine. So these measures are agile and flexible to ensure supply of the products in our different channels. This is reflected in higher expenses and costs and somewhat changes in the mix of the channels. So one of the most significant figures we have revenue, which is COP 2.8 billion, a 6.6% growth, good dynamics in Colombia and overseas. And Carlos Ignacio mentioned the different laws of the dynamics. But in general, a balanced geographic performance. Gross profits of COP 1.2 billion. Growth is -- in the profits is less than sales. We still have pressure from costs. In this case, we have a contraction of 70 basis points in gross margin. And as I said earlier, that profit equation is affected by the expenses. Production are very much associated with COVID or that had the effect of COVID. This entire chapter in operating expenses, in administration and production grew 3.4%. We grew 3.4% in this area, and this reports 600 basis points to this cost. So we believe that consistency is key as long as we have this [ comps] pressure of having flexibility and expenses to be able to manage our profit and equation. This is so far the gross profit, the high part or the upper part of the P&L, some effects due to the difference of rate of exchange in operating expense -- assets and liabilities. This is due mainly to the impact of the rate of exchange in our capital -- working capital accounts for this period between the end of the year. And at the end of this first quarter, we have a devaluation of 8.9%. But if we evaluate the close at March 30, the previous year compared to this year, what we have is a re-evaluation of a very similar amount due to the volatility of the rate of exchange. We have been very active in this chapter of hedging our rate of exchange. And all the commodities, this explains the operating profits during the first quarter. The value is COP 291,000 million with a growth of 13.4% and the EBITDA at COP 10,197 with a growth of 5.7% in the margin on sales. This is the midline of the P&L. Post operating, both financial revenue and expenses, we have a decrease mostly due to the benefit of lower debt rate but also the replacement of our investments, temporary cash surpluses. The positive effect is seen in the financial expenses, a significant 24% difference. This is [ COP 18,600 million ], very similar to the pressure we had due to the COVID, COP 3,000 more expensive, but we have COP 18,000 more in expenses and financial expenses during the period. Let's talk about the debt, but the rates, all cost of debt continues to be competitive, and we're moving to fine-tune our rates of interest. We also have to lower material -- materiality expenses, COP 5,600 million. The results of our associates in this case, we have the operations from Malaysia, et cetera, but mainly small operations. We have a very good revenue. And we can say that the effect on taxes, although we have a decrease in current income taxes because of the lower tax deductions during the first quarter, and we have compensated by the difference of exchange, the most significant part is the effective tax rate, which doesn't change significantly. And we ended the effective rate of exchange at 24%. If we compare that to our rate for the same previous 2020 was 26%. So we can see here that there was no material change compared -- or in taxes. All these effects allow us to report net profits of COP 229 million, in this case, with a growth of good double digits at 20% compared to the same quarter last year. And finally, as usual, in Slide #10, we have our debt position and several issues to highlight. Our net debt is COP 2.6 billion. The coverage indicator is 1.98x, although it rose compared to December last year, but we can evaluate that the statistics that the first quarter is more seasonal in terms of cash flow. We have more intensive activities like taxes, labor expenses. Then we have higher CapEx because of a project that we mentioned a lot, and that has a significant investment during this quarter in this year. So we have 1.98x the net debt-to-EBITDA rate. The conditions of our debt, the -- all expense rate is 3.63% for this period. And we're very active in determining or fixing interest rates, and we're levering our average. This rate reflects a slightly higher cost, but we're working a lot on that average of the current cost, which we believe is competitive. And in many cases, what we've seen is to maintain our rates or slightly higher but with longer terms. So the life of -- the average life of the debt is longer. So over -- or close to 20% of our debt. We have fixed rate model for most of that. We also mentioned CapEx here in the first quarter, the COP 57,000 million. The budget is COP 430,000 million for the organic growth. This doesn't include inorganic movements. We have 9.7%. This is rate for our full chapter compared to 9.6% that we ended with last year. And this summarizes, in general, this is the entire section about results. I'll give the floor to Carlos Ignacio who's going to share our outlook for 2021, and then we'll start our Q&A.

Thank you, Jose Domingo. With respect to the outlook, I'd like to speak first about what we think would probably happen in terms of the business. As you know, we've been working for several years on developing channels, in strengthening our brands, on having Nutresa have a good portfolio of categories in geographies. In addition, we've made some efforts to try to ensure accessibility. This means being able to play in different currencies. And the availability, which has a lot to do with our channel strategy that I mentioned earlier, the presence where clients, our consumers and buyers need to have our products. In another area, innovation has helped a lot with the growth. And lastly, the sustainability capabilities enable us to identify risks and opportunities and work on them. What we see coming for the near future is turbulence. We're going to continue to have some confinements in some countries because we're facing the pandemic, which has not been resolved. And although there are some vaccination efforts, there's a lot to be done yet. And we can see alternating closings and confinements, but the combination of capabilities, channels, brands. Our presence in various geographies, innovations and sustainability will allow us to have good growth. And this is what we see coming, and that's what we've seen in April. With respect to the profits, we're also going to be seeing pressures from the cost of commodities, volatility in the rates of exchange. And we're going to have expenses to care for people, health, life, and this is going to be our priority. These are not new expenses because last year, more than COP 10,000 million in peak caring for people. And during this first quarter, we invested more than COP 18,000 million. And we're continuing to do so. I mentioned the coverage, both physical and financial hedges. We mentioned our productivity plans for costs and expenses that we have going on. And we have the pricing strategies also combined with the hedges and the productivity efforts will allow us to mitigate the impact and to continue with new adequate returns. In summary, the first quarter has been challenging, but we believe that the capabilities of Nutresa will enable the company to grow and maintain good returns. That is my outlook for the future. This is a company that has, in this turbulent environments, moves and acts and learns quickly. We are very open to reviewing what else we can do. The year is a challenge, but we have very different capabilities than we had last year. Now Catherine, let's go to the Q&A.

Thank you, Carlos Ignacio. Now we'll start our question-and-answer session. We'll go with Hilda to see what questions we have through the audio.

[Operator Instructions] We have Mr. Julian Ausique from Corredores.

Could you tell us a little bit about the repurchase plan? Can we have information about the dynamics? How are you going to do this repurchase? Because in the report, you had that possibility.

Thank you, Julian, for being with us. And I'll be glad to answer your question. First, I want to remind you that the assembly -- shareholder's assembly of last year approved a project to repurchase shares for up to COP 300,000 million to be implemented over 3 years. The previous conference, we mentioned that due to the uncertainty during this year, The Board of Directors had prioritized maintaining our liquidity levels in an environment where we weren't sure of what was going to happen and didn't use that possibility. This is an option. It is not an obligation that the Board of Directors can decide who aim to do or to not use it. There was a change in the regulations we had -- we're waiting for a response from the financial superintendency about the mechanics to implement these process of repurchasing shares. The reply from the superintendents in resolution that I will be glad to share you through -- from the Investor Relations office indicates 2 [indiscernible] One is many note with a very similar conditions to -- and another one with the company's repurchases this year does repurchasing through the transactional systems of the stock exchange. What happened Friday is that the Board of Directors of Grupo Nutresa approved the rules, which will be used to repurchase the shares. We reported to the market as we should. And the information is sent to the Colombian Stock Exchange. And after the stock exchange reviews and finds that this is adequate, we place the orders through a commission firm. For example, we will limit the possibility of repurchasing between 15 days before we disclose the results of the market, the amount of repurchase depends on the average transacted over the last 90 days, entered the price at which you will repurchase the shares cannot be higher than the maximum closing value of the market. So with this quarter, superintendency, as said, is that both the amounts to be repurchased and the prices are what they indicate. So the companies can not speculate in the market, but rather all this takes place according to the conditions established by the superintendency as the most adequate. We are doing that. What we're doing is sending the information to the stock exchange. And according to that regulation, we will begin to do the repurchase, which is at the most COP 300,000 million to be implemented with 2 years. We have 2 years now. It will be over 2 years now. This is the mechanism. And this is according to the regulations issued by the financial superintendency. Thank you, Julian. Is that clear? Or do you have anything else to ask about it?

No. That is fine. So far, so good.

With that, we have another question through the audio from Johanna Castro from Itaú.

My question was about the part that didn't go through the reform, the closures about plastics and single-use plastics and the impact that this would have on a company that -- we have public information about how much the packaging costs. So it's difficult to estimate from the outside what the impact would be. When you have a tax on single-use plastics, this is going to be part of the reforms. Can you give us an idea of an analysis? I know you're very, very diligent with that, but could you give us a little idea?

Yes. Johanna. And first of all, thank you for that opinion that you have us. So yes, the product in Nutresa, we've been working very significantly on packaging, reducing our footprint with the impact on the environment. Our company is one of the companies that have been leading the 2030 Vision project, which between here in 2020 to reduce by 30% the impact of packaging on the environment in Colombia, where we have more than 200 Colombian companies working on it, and we are part of similar initiatives in other countries, so especially in Chile. In the circular economy, like you mentioned, It's not just simply an initiative of recycling. This is another way of looking at the material flow in the company's value chain. We have to find out what materials we use and how we can close the cycle and work with very specific objectives. So going now to the regulations that we had in the reform, let me answer that. First of all, the way which it was worded, we had a problem that the proposal was apparently disconnected from the work that the Ministry of the Environment was carrying out with respect to circular economy. So we believe that it's really like in the region, there are some initiatives like what we had in the previous reform. But we insisted that hopefully, that effort will be coordinated between the environmental authorities and the tax authorities. So there is not just simply of paying a tax or -- and continue to contaminate. But let's do a real effort, make a real effort so that the environment is less impacted by the operations. First of all, we're convinced that we have some regulations coming, but one of them would be coordinated or between the economic and the environmental aspects. Secondly, you mentioned the thought of single-use plastics. However, the reform project, that wasn't -- that wasn't very clear. It was some materials which were not single used materials. So it's very important that when we have projects that impact the economic area, they should recognize the characteristics of the materials. Our plan for 2030 hopes that by 2030, 100% of the packaging will be recyclable, reusable or biodegradable. And we're working is -- towards 100%, not just percentage. We did the economic estimates and what we had submitted thought some extra costs, which partially could be reduced from our income tax, the total entrants to COP 14,000 million a year after we had the tax discounts, which was not minor. But I would like to tell you that at Grupo Nutresa, we invest much more than that in caring for the environment. But that is the answer. And the other thing is regardless of whether it is approved or not, we have the plans that we submitted for 2030, and we will continue to be very active regardless of the reform or not. And because of our responsibility, we believe that it's necessary for our products to be more environmentally friendly. So this is the estimate what a company like Nutresa would -- might have cost for that reforming in taxes. So this is very coordinated between the Ministry of the Environment, the Ministry of the Tax so that it rewards the efforts for improving the impact on the environment. Thank you.

Question from Carlos Rodríguez from [indiscernible]

Two questions. One is about the 20% that you mentioned that we're having for fixed rates. And do you have any targets for higher percentage? And the second question is the problems in Colombia, what impact have we had with this on supply chain or sales points?

Indeed, so far, we have close to 20% of our coverage for fixed rates, but we don't have a specific target. At the beginning of the year, we didn't have practically anything was covered. And this depends on the conditions and the terms that we will get with the banking -- with the banks. We'll continue to be very active, especially setting terms between 5 and 7 years, but we don't have a specific target. And in second is about the disturbances we've had in -- over the past several days. I would say that we've had some problems in logistics in different areas because of blockaded roads or because of people. You have had to change some schedules or to cancel some ships. I would say that these are important impacts but not material yet to the results of the group. So in general, I think that at Grupo Nutresa, we recognize the right of the people to social protests. But at the same time, we are making a call for that to be done. We're expecting other people's rights and carrying not only for the private goods but also for public goods. And these are countries where we have a lot of needs, a lot of -- everything would be terrible if we do destroy the infrastructure that we have in the country. Lastly, with the COVID, priority is caring for the people. And that's why we've been very careful with -- like checking the conditions so that people can move to work safely and go back to their homes. I think that these are complex times. But as the government has said, there is a call to create and build together. And there hasn't been a material impact, but it's something that we have to handle very carefully in the presence of Nutresa, more than 900 municipalities in Colombia and having satellite warehouses have -- gives us a little breathing room, but it's not unlimited. We trust that there would be a willingness by the people to take back -- take that road, which We need to work together. We have to take care of the jobs, the companies they have. Poverty is a huge challenge, but work -- education and work are 2 roads to overcome that poverty, not through destruction. This is what I can tell you. And thank you for being with us.

From Felipe Ucros from Scotiabank.

Could you do a little follow-up on the question about the tax reforms? The last time we had a reform consumption was very impacted. We had very difficult years for the company. I think that they started before that, that tax reform was approved. Could you -- are you expecting something similar for this year in terms of tax reforms? Have you seen anything since the discussion began? The second is the purchase for repurchasing, something unusual, the superintendents requests to setting up a maximum of the transactions. Have you seen that in any other country? That's something unusual. What do you think about that?

Yes. Felipe, glad to talk about your 2 questions. First, we have not seen with the consumers that have changed their behavior due to the project, the idea of tax. I think there was the feeling that there were other ways to do that because I think that it's clear that it's needed. We need tax reform. But we haven't seen that the impact has more -- would be more related to higher levels of unemployment and to be more with growth of the poverty. But not simply with the announcement of the project to beat that, but we had a good quarter for sales in Colombia. So we didn't notice any reaction in the consumers' behavior, which has to do with the project. I think that vis-a-vis the coming reform, which we still don't know what it will be. I think that from the signs we receive on different sectors, first of all, it is not going to -- there are not going to be any changes to the VAT because the President said so -- or the end product or raw materials for the food products. So I think that our fears on the event was cleared. And the second is going to be a taxed on for people with salaries over COP 25 million. So that clears some -- many of the fears of the consumers vis-a-vis this topic. And what is most likely going to happen is that we will have a temporary surcharge on income tax, and then we postpone some temporary postponement of the benefits such as reduction of the [ income ] tax, which is also been promised. That with some limitations in government assets and efficiency for the state, such as the continuity or the equity tax of those who have had to pay with capitals greater than COP 5,000 million. So if it is a reformed, along those lines, it shouldn't affect our consumers' behavior. I think that this is a time -- well as long as we are having these levels of the pandemic, these levels of unemployment and the people's mood is impacted. But the challenge is, how as a society, all of us, including entrepreneurs, create more opportunities, defend jobs, create new jobs, export more to try to change that trend that the country has been following. One of the reasons why we need a tax reform is to continue to implement the social programs, the programs to defend jobs. So I think the reform of the project, it hasn't affected our consumer behavior. There is a reality that we to work on all of us so that we can move forward the country. About the repurchasing, very respectful because we follow the rules. We are -- abide with it by the law. And I haven't done the -- I haven't done my homework of comparing laws country by country. We have to comply with what we are told. I think that when the superintendency gives us this answer, sets some very clear conditions about amounts and prices, I think that with that regulation, you -- as a company, you don't go -- you don't raise the price. But it puts a net to protect the market from falling there. But the country is learning by retaking this type of operations in, and several companies will certainly -- are going to do so as well. And the market is going to have additional volumes. And we're going to have positive results. Besides, we have the possibility of investors who wants to go out, to have a way to get out. This is very quiet in market, not only in Colombia, but also in Latin America. But I am very respectful and we have to obey with the superintendency's provisions. Felipe, for many years, we had a single way of operating. Now we have an alternative. And we see that as good. We appreciate the position of the regulator because for all purposes, we are one more actor in the market. This is an activity or treasury and marketplaces that is very good for the shares and for the market. Beyond the price, it's like a very positive evolution, a very interesting alternative for the market.

Congratulations for the results. Thank you, Carlos Ignacio Jose for your answers.

To continue with the Q&A, I have 2 questions in general questions by Valentina Martínez from Bancolombia. Valentina asks, how do you see the topic of transferring high prices to -- from raw material surprises? And Manuela asks, Could you give us more details about the price strategy. What is going to be our price strategy for the future?

Thank you for Valentina and Manuela for being with us, and I will be glad to answer your questions. I mentioned during the outlook how important we believe flexibility is. The products from the Grupo Nutresa should be within the reach of our clients, consumers and buyers. Also, during the introduction, I mentioned that when we spoke about an increase in average prices, more than 60% of what we see as price increases is really a change in the mix of sales. And we're not talking about the change in prices for the past month. This is a comparison with the first quarter of last year. This gathers everything that we've done during the previous year, plus what we've done during the first quarter of this year. So I would say that, that is very important. You have mentioned -- or the issue of the pandemics have affected the economies. Obviously, we have moved back what we had advanced in reducing power in the region. And that is why we have strategies, which are not just price. I was speaking about financing coverage or hedging physical inventories. And we've been very active and we have good levels of coverage. We spoke about innovation how by innovating, we can do things that respond to the needs, but which, at the same time, may be lower-cost products. Innovation to improve flexibility is important. And I -- Jose Domingo highlighted that also that the productivity in cost and expenses programs. For us, those issues of coverage, innovation and productivity are always before price. We don't go automatically to prices. And when you come to prices, our pricing models, what we do is allow us to simulate through some calibrated models with reality. Every time I touch the price of a product in a geography or through a channel, I simulate some scenarios because all these markets are freely competition. We see some possible behavior with the competitors, and I find the effect on the volume. The pricing strategies are not just general. They are segmenting by reference, by channel and by geography and also respond to possible scenarios of competitors' behavior in dire cases where we shouldn't do that because what you move in price, you might lose more in volume. So we always work like that. These pricing strategies are implemented at that level of detail, and we will have them in hand. But I must say they are not the first tool that we use to manage in the group. The other thing is I insist that the fact that Grupo Nutresa has geographic diversification is very valuable because not all the geographies have the same realities. If the second geography of Grupo Nutresa is the U.S., you see how the U.S. economy is going, how the COVID things are going there while the market situation is if the market in Central America is a different reality, and Chile's also is different. This is also something that you can use to get the higher returns in some geographies in a punctual manner. It's different from a company that is -- with a single geography. This is what we've been doing. We want to be active right now. I mentioned that let's just say, a percentage, a double-digit growth in prices in Colombia because that figure was for Colombia. Less than 5.3% is price income in some categories. So if you tell me if we like to touch prices, no we should do the most we can to not to touch the price. But we -- that is viable, and we have the ability to do that, to have our alternatives. That is the answer that I could give you. Obviously, the hedging helps a lot. So thank you for the question. I think that we're going to have a very -- we're doing a very careful management of prices and also including the accessibility and return.

The next question is from Andres Soto from Santander.

How much does the current margin reflects the current prices of the commodities? Or is that the effect of previous quarters?

They covered like -- this is very dynamic. Carlos Ignacio was saying. We're talking about physical and financial coverage and the commodity is commodity by commodity. But in general, our policy is trying to cover between 50% and 75% of year-to-year. We're more on the upper part of the range. And it's a very specific case, depending on the geography, on the competitive conditions and how the competition recovered itself, we can come up to 100% and even longer, some up to 24 months. So we are in the upper part of that range with a -- year-to-year, this is a very dynamic process. And we have challenges that -- we have -- this new consumption also has challenges in logistics containers. So this is -- we're adapting. We're around 75% coverage for the future.

Next question comes from Juliana López Hincapié from Banco General. It has to do with a lot -- with commodities.

How to face the growth of all the increase in prices in all raw materials?

Thank you for being with us. I think that in part, my previous answer answers that. Let's -- just to recap. Cost and expense productivity financial and physical coverages, innovation, eco-efficiency, the effort affecting less of the environment but also using productivity and pricing. That concludes the Q&A and the teleconference for results for the first quarter of this year. Any additional questions, you can send them through the Investor Relations office. Thank you very much for being with us. Have a happy week.

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