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

[Interpreted] Good afternoon, everyone. We're going to be showing the results of the third quarter of 2023 of Nutresa. We have Carlos Ignacio Gallego, President of Nutresa; José Domingo Penagos, Vice President of Corporate Finances; and who is speaking, Catherine Chacón, Director of relationship with investors. In this space, we are going to make a presentation of the results of the company, both of the quarter as accumulated year and we'll have a space for Q&A. [Operator Instructions] Those who want to follow the slides in Spanish because they are in English, you can download them on the screen of the platform. To begin this presentation, I'll give the floor to Carlos Ignacio Gallego, President of Nutresa.

Good afternoon. Thanks for being with us in this meeting. To begin with, I invite you to go to Slide #1 where we're going to be sharing some slides on events. We are pleased to mention that Nutresa was distinguished as the second-best reputed company in Colombia, according to MERCO Companies and Business Leaders 2023 Monitor, being in the first place within the food industry. The evaluated reputational values assessed were ethics and corporate social responsibility, economic and financial results, the quality of the commercial offer, talent, international dimension, and innovation. Really reputation is a consequence of everything an organization does, how it relates with its relationship with the society. And it is very important in order to generate trustability with all the groups related. So we are so pleased to share this award with all of you. Now in Slide #3, I want to share with you that sales report on the 3 quarter 2023. During this trimester this year, you can see a moderation in the consumption in the geographies of the strategic region, due to a persistent inflation and a high volatility in the change -- exchange rates. We could see this in the different categories where we have presence and explains part -- important part of the moderate growth this period with challenges in the volumes that can extend to the rest of the year. Sales in Colombia reached COP 2.825 billion with a growth of 6.1%. The variation of price in this period is 16.2% and in volume, we have a reduction of 9.4%. It is important to mention that the price variability is due to -- we want to protect the equability of the products in the product without leaving behind the profitability. This variation is of the whole year, not this quarter. During the quarter, the pasta unit has a small decrease 8% and the other have a positive growth. Ice cream is 22.3%. The others -- the chapter of others, is 50.6% and restaurants is plus 6.6%. So if we look for business, the detail of cookies, Biscuit has grown 1.5% and volumes decreased 7.6% with mixed results in the different channels. Coffee grows 4.3%, decreasing volumes in 12%, explained by the size of the category. There mid-industry grew decreasing volumes of 6.6%. The dynamic in this category that has -- is impacted by the market prices, which causes a decrease in consumption. Chocolate grew 4.9% with a decrease of 14.6% in volume. Please recall this is a category very important portion of its portfolio discretionary and can be impacted due to the inflation because of the consumers' preference towards goods of first need. Retail Food is 6.6% growth. Ice cream grows 23.2% with volumes increasing 6.3%. Its main categories and sales channels has great value due to price strategy. Pasta decreased in 0.8% and 13.8% in volume. So our category has more competitors and price increased due to raw material price increase. In others, we have a growth of 11.5%, highlighting the performance of third-party distributed products. Outside of international sales, we have $455.3 million sales, growing in 6.1%. In Colombian pesos, these sales are COP 1.842 billion with a decrease of 2.1%. During this period, we have a revaluation of 7% of the peso, Colombian peso towards dollar compared to same trimester last year. The export in Colombia during the trimester, we exported $98 million. And in this business, we report a growth of 22.2% in dollars. So in its point, this growth was 12.3% with a positive behavior in its main geographies, which are Chile and Mexico. In its categories, our most important is cold instant drinks. In biscuit, we have an increase of 15.6%, especially Abimar in U.S. and Pozuelo in Costa Rica. Coffee has a decrease of 21.6%, affected mainly by the exports from Colombia to the U.S. associated to a less -- a lower dynamic in the B2B consumption. In -- But basic consumption of coffee in -- has a positive growth. Chocolates has grown 15.1%, high lining Mexico and Central America. Retail food has grown 16.6% with Central America growing in 2 digits. In Dominican Republic, there's a lower dynamism due to creamed issues that were occurred during that quarter. Please recall that international retail food are basically ice creams and sometimes when there are strong rains, could decrease sales. Cold cuts has a decrease of 16.1% with lower performance in Panama and lower exports from Colombia. In others, the growth is 15.2%, leveraged by the good results of Belina are food -- pet food in Costa Rica. Moving to the next slide. We find that when we combine the growth in Colombia of 6.1% and the international decrease of 2.1%, we have total sales during this period of COP 4.668 billion with an increase of 2.7%. During the quarter, the coffee and pasta units have a decreased sales decrease. Nevertheless, the other categories have reported growth. As you see, this is a pretty challenging quarter in Colombia, good in dollars. But due to the revaluation, we see lower numbers since our company consolidate in Colombian pesos. Moving to Slide #5. We can see accumulated sales. Accumulated 2023, we have double-digit growth. The first 2 trimesters this year were very positive. The accumulated is positive in every business and in the main geographies of the group. In Colombia, we report sales for COP 8.392 billion, growing up 14.7%. And except cold cuts, all other businesses grow with 2 digits. The volumes decreasing 4.6%. So in this inflationary scenario with the volatility in the exchange rate, we have these numbers. We have a decrease we have outside of Colombia, the income in dollars is $1.337 million, growing 12.8% in Colombian pesos. These sales represent COP 5.893 billion with an increase of 21.7%. The total of exports accumulated from Colombia during the period was $306 million. The coffee units and cold cuts have negative variations due to less sales in the B2B for coffee and less exports from Colombia and sales in Panama in the case of cold cuts. In the next slide, we have that when we combine the growth in Colombia of 14.7%. And the international of 21.7%, we have consolidated sales during the whole year of COP 14.286 billion with an increase of 17.5%. Except from cold cut, all our business units and the chapter of others have double-digit growth. I also consider it important here to share with you that innovation sales represent in the year accumulated a 17% of the total group's income. It's still innovation, as I mentioned in previous meetings, an important motor for the Nutresa Group growth. Slide #7 shows sales by region. Sales outside of Colombia represent 41.3% of the total sales. You can appreciate here that the main geography is Colombia with 58.7%; second, U.S. with 13.4% of sales; third, Central America with 10.7%; and the fourth, Chile with 6.4%. We still see an increase in the key geographies like United States and Central America. We have advancements in Mexico and Dominican Republic. The main geographies of the group in general are growing with 2 digits. And in the next slide, I'm going to make some comments about our materials. In this trimester, we have a decrease in the commodities in dollars of Nutresa with a decrease of 8% compared to the same period of 2022. This is due to a reduction in the price -- reference price of proteins, fats, wheat and coffee. And in the composition of the cost, we can see a readjustment in the participation of some raw materials such as coffee and the packaging materials. Please recall that the index is presented in dollars, but in Colombia, which is the largest geography, we have some factors that when we apply the exchange rates, they are not directly translated into a benefit. But clearly, it was a favorable trimester in terms of commodities. And we keep working in our strategy to manage the volatility risks of the raw materials, making coverages and maintaining physical inventories when this is possible and profitable. Now I'm going to show you some other aspects of our profitability. I want to give the floor to our Vice President of Corporate Finances, José Domingo Penagos.

Thank you all. To talk about profitability, please go to Slide 9, where we showed the EBITDA of the third trimester this year. So always before the numbers, please see that this is a period with high uncertainty and availability in the region, and this leads to limited acquisition power. And inflation has been very high and persisted in all countries. And if we add the availability of raw materials that haven't been absent of that effect, we have purchasing powers that are more limited and limitations in consumption. We will see this in the volumes and the volumes have an effect on the profitability, as you will see next. It is also important to say that in these periods, they are not all the same, but we've gone through similar periods of time based in our responsibility as organization, where we must have an accessible value offer and maintain our responsibility within the brands. It's not the time to make investments, but we need to maintain the support to our brands in the market. And of course, in order to do so due to the restricted volumes we need to focus more and more in productivity and efficiency projects. That efficiency effort is the name of the game to support that reaction to the commercial dynamic, which is so challenging. If we make a connection between what we just mentioned or I just mentioned with the numbers in the EBITDA, you can see in the general profitability, you can see a first effect, moderation of volumes. In other words, less capacity to dilute fixed costs and expenses. We also have effect of the cash flow coverages due to the volatility in the exchange rate and this leads to the numbers that we will see next, but the dilution due to the volume of this organization, the loss in the ability to dilute has important effect. So said in this, we can go to the numbers. This is a semester with an EBITDA of COP 507 billion, the decrease in 4.5% with an EBITDA margin of 10.9%. So this is a group basket of business units and geographies. Among them, we have 4 important business due to its growth, some grow -- some are highly featured. We have decreased in the ice cream and coffee over 70%. I assume almost 90%. And retail food of 30%. So we have 4 of our businesses, which is with highlighted growth, with future growth, which is coffee, TMLUC, retail food and ice cream. Biscuits, the business, it's the largest in the group. We have an EBITDA that is decreasing in an important manner, 26% margin of 9.8%, below that 10%. We also mentioned the commercial topic that moderate growth of the income that limits that dilution of the fixed cost, a behavior in the commodities that helps, but that loss of volume impact on profitability in this particular quarter. Coffee, I already mentioned as featured in growth, growth of 74%. We have an effect of the coverages made with a good timing. You call the coffee, the raw material within this business is very heavy in its cost structure. We had a different situation last year. It was a totally different. This year, the raw materials grow in the 22% due to the coverages, which shows a good result in this business unit. It's a little bit combining the way I'm going to talk about it. Okay. Cold cut is also impacted a margin of EBITDA 7% decreases in an important manner. 42%, so it's very impacted here, the volatility of the exchange rate has helped effect affects the business and the raw materials, specifically in this business, the pork raw material is still in one of its maximum point in terms of cost -- historical costs. That volume was also shown in the commercial topic, and it decreases the dilution of those fixed costs that have an impact on the sales cost and in the logistics. Chocolate with a margin close to 10%, EBITDA decreases 27%. And here, we have the effect of a lower dilution. There's a mix, a blend that affects the profitability more in the more profitable -- and as a commodity, we have important pressures in Cocoa, that they should persist during the next following months. This is an impact for the cost in infrastructure. So these -- we have a lot of diversity. So sales in general are good. EBITDA increases 13% in an important manner with a margin of close to 13% in retail food. So this is a highly diversed unit, not only its categories, but in its geographies. It is well placed in Mexico, and this is a geography that provides great results. We can see these in this business unit. Let's not obviate that we have a good performance in the management of expenses, and that's why we have such good results. Also, food -- consumer food grows, growth of 3%. Retail Food, so it has a good performance. Of course, it still has to face the consumption channels, but this is a more discretionary category. And in this period, in the accumulated achieves the results and has a good management of its base and fixed cost. Two, which is the most featured has a margin of 23%, the highest the [ Tresmontes ] is featured great mix management, the balance of the categories is also leads to expense management and the results can be achieved during this business unit. So this is one of the best times of this business in its history. Pasta has a decrease in the volume. So it has a big impact. The margin is 3.2%, and it decreases importantly in 65%. In others, there are different initiatives here. We have a margin of 6.2% and an EBITDA decreasing almost 3%, and this is due specifically for greater investment in marketing and sales to support entrepreneurs -- entrepreneurships that are within this chapter and require these support right now with this consumption dynamic, which is so challenging. So this is that quarter. On the next slide, #10, accumulated data of the group and of each business unit, I want to highlight here because we don't have the same effect. The first semester was more solid, not in terms of sales but profitability and evidence that the improvement, and I'm going to mention this in a greater detail in the income statement that we -- financial statements that we have a better equation. So we have a first semester with a good dynamic and a second semester, which is more challenging with an EBITDA of margin of 12% and a growth of 14% with an EBITDA of COP 1.693 billion. So it's very similar to the income growth. So this explains, as I mentioned, the half of -- so here, we see the results of this quarter. So -- we have an income of [ COP 7.4 ] billion with a growth of 7%, but it will link results and profitability. Look at the sales cost decrease in sales. Very few quarters, we had cost decreasing and net margin of 40%. So we had important challenges in the net margin in the previous quarters, and we can see the trend now. It is a trend that has been sustained. We can maintain it during the next quarters, and this gives us an advantage to manage costs and expenses. So look at the expansion in the net margin -- in the gross margin, we have never seen that in the other quarters. Cost and expenses decreasing 50%, we have control. They grow on sales. And here, we have an important event for the operational profit. In the operational -- operating profit, we have -- we count the coverages of cash flow, record the volatility of the rate. The rate in Colombia have been reevaluated. But in Chile, for example, they are -- they were always more sustained. So we can see this in this specific. We have a chapter of other incomes. So we have COP 5,000 billion. Here, we count things such as sponsorships, indemnization, and it has a detail, but this is not a very representative number for our financial statements. So we decreased in around 9%. And as I mentioned before, the EBITDA is in COP 507 million with a margin of 10.9%, a decrease of 4.5%. In the midline from the PLL law, we have income due to the management of treasury down. The most relevant here is the financial expense. And even though we have a decrease of COP 72 million more we're going to compare it with accumulated numbers and the basis are balancing. So we've decreased the financial expense, but this is a challenge. And in the next slide, I'm going to show you the financial conditions of the group's debt. Here, we have a difference in non-operational exchange, the management of the flow, capital flow and in associated and work together, we have income and expenses that derived from the result of our minority investments like Oriental Coffee Alliance, Bimbo, Estrella Andina, et cetera, during this period. And they provide to us in a positive manner. And the tax rate, even though during -- it has been higher 39%, this is stational during time. We need to look at accumulated rate, which is 27%, and it is a good indicator of this effective rate for tax at the end of the year. And it's in the accumulated, as I mentioned. So all this shows a net profit of COP 114 billion with a decrease of 48%. These are about the quarter. But during the 9 months in accumulated, which is in Slide #12, we bring together all these effects that I already mentioned and numbers that we had already made comments about income of COP 14.2 million, growing 17.5%. The cost already showed the trend and the cost because it also has a good effect, an improvement of 107 basis points, which is not a minor. Look at the margin, it ends in 38.6%. We have a couple of months in 40% of the gross margin. This is fundamental for the structure of the group, at least have a gross margin and even improve it in certain points. That allows the management or absorption of the expenses, operational expenses in this case all that block of expenses, which is 23%. I already mentioned the effect of the dilution of fixed expenses. So the most relevant here thing is the cost. We also have impact or the difference in the operational exchange rate. I also mentioned the effects the coverage of the cash flows or other incomes that could be, in this case, the accumulated number is of COP 17 billion. This allow us to present an operational profit of COP 1.3 million, growing towards 16.7%. This is aligned. If you see the income and operational management is good hand-in-hand, both is its magnitude and its operation. From the middle of below, you see the same concept I mentioned in the quarter. But here, we can see the magnitude. We have financial income for COP 56 million and financial expense that decreases -- that increases in 112%, which is COP 596 million versus COP 280 million last year. So it is a growth of -- that rates are 13%. So it is superior to that rate. We were using last year during the same period of time, which was 6%, 7%. So in the accumulated, we also consider the dividend SURA and Argos, where we have a growth of 41% and the difference in operational exchange is not too much, is the reflect of the reevaluation of the exchange rate about the activities of the next year. I also mentioned joint ventures and associates share profit and other expenses. So we have a great stability. Here we can see a net profit -- accumulated net growth of over COP 593 million, that decreases an 18%. So these are the financial statements and the EBITDA. The last slide, #13, I'm presenting due the consolidated debt -- net debt that we should go beyond that and update you with the conditions. And this is the group's debt. So we have a net debt of an EBITDA that we consider very healthy, you can see historical -- here it's the lowest of the historical years and even lower than 1.9 that we finished with last year in December. I already mentioned the cost that 0.5%. And with the structure of multi paths, I want to continue using the Windows market offers, but sustained high interest rates still persist during the rest of the year and eventually for the next year. So these in terms of debt coverage and cost -- so I want to update you all here so you can calculate that free cash flow in order so we can talk of the CapEx. And in this case, we have an accumulated execution of COP 300 million, more than the budget because we are updating the number. We have an estimate of COP 500 million -- COP 500,000 million. And this is a period where we must make important payments of investments we did last year in order to adapt our installed capacity and of course, everything about maintenance. So all these allows us specifically in this period to talk about cash, about a generation of free cash flow of COP 1 million that has allowed us to honor the dividends to face the CapEx, and we've also had some adjustments in the debt stocks. So we've paid some -- we are not doing rollovers next year. So where does these management comes well so in -- we are making a huge emphasis in the working capital. When you look at the financial statements of the inventories, you will be able to see that we are more disciplined with the inventories, allowing us to generate these cash flow. So with this, we close the description of the group's finances during the third quarter and accumulated. And now I give the floor to Carlos Ignacio, who is going to share our vision about and our perspectives to the end of 2023 and then we go to Q&A session.

Thank you, José Domingo. Facing that perspective, I will start saying that in terms of the commercial thing, we forecast and we will have moderate sales in value with decreasing volumes. Outside of Colombia, we project sales with greater growth which are being affected once they're consolidated in pesos due to the activity of the exchange rate, but we see a better dynamic outside of Colombia than in Colombia for the rest of the year. When we add those fronts, we come to close the year with double-digit growth -- digit growth. And in profitability, we project our fourth semester with improvement of the net margin. We see that we still have room to improve our net -- our gross margin due to less absorption of fixed expenses, but we will have a lower pricing activity, fuel increase -- price increase and some focused in very particular cases. So we are going to keep with our efficiency and productivity model to improve our cash flow. At the same time, we strengthen our brands, and we make necessary investments for the organization's future. So this is the panorama. Stronger quarter where sales outside of Colombia were stronger. We will continue seeing a decrease in the volumes and a strong work in order to improve through the efficiency productivity. We don't look this in prices because we think it's going to be very modern. We're going to have a great flow that will allow us to back support our brands. So when the market is more challenges where we need to do this the most. So we're going to make those investments for the future of the organization. With this, I ask Catherine, if we have any questions written in the chat.

Thank you, Carlos Ignacio. Up until now, we have no questions. Nevertheless, we invite the participants once you check the information and you study the information packages we've published with the results. If you have an additional question, please contact us through the relationship with investors group, and thank you for being with us today, and have a great afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]