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

Good morning, everyone, and welcome to the presentation of the earning results of the first quarter 2025. We have Mr. Jaime Gilinski, who is the CEO of Grupo Nutresa; Andres Bernal, Corporate Finance VP; and Diana Bernal, who's also part of the Corporate Finance team. My name is Catherine Chacón. I'm also part of the Corporate Finance team. In this space, we will be providing a presentation of the results, and we will also have a Q&A session. [Operator Instructions] Those of you who would like to follow the slides in Spanish since they are in English by default, you can download them through the platform's screen. We will start with the presentation. And now I will give the floor to Jaime Gilinski, Grupo Nutresa's CEO.

Good morning, everyone, and welcome to this call where we will be talking about the earning results of the first quarter in 2025. It is an honor to me because I started as a CEO in this company in January 25. And today, we will be seeing the beginning of the transformation process that we are leading, so we can become a more efficient and profitable company. I would like to welcome all the investors who joined us in the issuance of the bond, of Nutresa's bond. And now I would like to give the floor to Catherine, who will be starting with the presentation. And later on, we will have a Q&A session.

Thank you so much, Jaime. To start with the presentation, I'd like to ask you to go to Slide #2, where we will be talking about recent events in the company or recent highlights. As Jaime mentioned, on May 6, Grupo Nutresa issued their first bonds in the international bank. This was for $2 billion. It was done through a senior bond with no collaterals. And it had 2 maturity dates, 2030 and 2035. During the process, we experienced a lot of interest and commitment from the investors. This is why through -- even though we had a volatile environment, the demand in issuance was twice what it was expected. Considering the regional diversification and the transformation plan that is focused on efficiency and productivity of the business, the issuance was rated as Aa3 by Moody's and BB+ by Fitch. This also became a milestone in the region because it has been the largest debut of a Latin American company. And to the hundreds of investors who supported us, we would like to thank you. And we also ratified that all the commitment to meet or to -- all the goals that the company has proposed. So we will be including for these investors figures in COP and USD and the exchange rates, so you can have a better understanding of the evolution of our business plan. And we will also be presenting the results as of today in English with an interpretation into Spanish. We will continue with Slide #3 where we want to mention some portfolio management decisions that have been made in the last 90 days in the company. On the left hand, you can see the portfolio management model that Grupo Nutresa uses whose goal is to maximize performance and returns for different stakeholders, considering organizational resilience. Having this in mind, we had 2 divestments and 1 investment during this period. The first divestment was the sale of Grupo Nutresa's equity interest in Estrella Andina. Estrella Andina is the Starbucks operation here in Colombia, and Grupo Nutresa had 30% of the company's shares. The buyer was its main shareholder. The next divestment is linked to a minority interest that Grupo Nutresa had in Bimbo. And Grupo Nutresa had the equivalent to 40% of the company's shares. In line with what was said before, there were also some investment decisions that were made. In February, the Board of Directors of Grupo Nutresa authorized the acquisition of 40% of the shares of Inversionista Alcora S.A., who is the owner of Productos Yupi. This is a very traditional Colombian company that participates in the savory snacks category, and it has presence in Colombia, Ecuador and Panama. This process involves the acquisition of up to 100% of the company. Let's move to Slide #4 where we want to talk about the progress that we've had in the operational transformation of the company. This transformation has been boosted by a combination of initiatives and a road map to create value that was led by management and external experts. To structure and execute this transformation, Nutresa partnered with McKinsey & Company in order to have a plan that includes pricing, manufacturing, logistics and the trading strategy, among other things. Some key elements of this initiative include rationalization of SKUs and improvements in performance, consolidation of duplicated services, digital integration in planning, supply and demand, more efficiencies and among others. The initiatives will be executed in the next 2 (sic) [ 12 ] to 18 months, and they will take us to clear goals, achieving an EBITDA between $1.1 billion and $1.2 billion by the end of 2026, which is equivalent to a margin between 18% and 20% of the sales of the organization. These initiatives are very practical actions that are also transforming the cost and expenses base of Nutresa, which will also lead to strengthening the profitability of the company in the long run. Let's remember that in 2024, Grupo Nutresa's EBITDA was around $583 million. So the objectives of this company in the short run are aligned to doubling the EBITDA in the next 2 years. Now let's move to Slide #5. And here, we can see some details about the trade dynamics of the first quarter in Colombia and in other countries. In Colombia, we can see that sales reached $2.8 billion (sic) [ COP 2.8 billion ], and there was a growth of 9.7%. The variation in prices is 10.6%, and we have a volume reduction of 1.4%. There is sales growth in most of our businesses, except Ice Cream and Pasta where we have more competitors and promotional activities from other players. If we see the structure based on verticals, we have growth in 6 of the main businesses of the group, highlighting the double-digit growth of Chocolate, Biscuits, Others and Coffee. If we talk about businesses, in the Meat business, we reported an increase of 2.6% in revenue and some sales that reached COP 708 billion. And this is very powerful, and it has a very important market share, and this has been demonstrated by the sales. In Chocolate, we are growing 22% in revenue, and we are leveraged by the price management of the portfolio. We also highlight the good dynamics in categories such as regular chocolate and candy. In Others, we reported a 14.3% growth, and we were able to achieve COP 415 billion. And we would like to highlight the dynamic in growth in foodservice and third-party distributors. Let's move to the Biscuits business that grows almost 17% in savory snacks and sweet snacks, and it also has a good performance in all the channels that it has here in Colombia. Here in this business, we have a growth that is really balanced in prices and volume. As for the Coffee business, it has a growth of 13% in Colombia, which is mainly driven by price. And later on, we will see that during the period, the reference prices grow around 100%. The coffee cost has had a very relevant growth. In Retail Food, we have a growth of 8.6%. And we have a good turnover when it comes to customers, and the average ticket is growing 14%. As we mentioned at the beginning, Ice Cream and Pasta are decreasing. Ice Cream is decreasing at 7.3% and Pasta at 2.6%. These 2 categories are highly affected by the competition and the number of promotion in these categories. Now let's move to international sales. In general, we reported revenue for $478 million. In COP, it's COP 2 billion, and the growth is 18.5%, with the devaluation of the COP has an effect of almost 7%. The total of exports from Colombia during the quarter was $132 million. So the exports are growing over 50% during the period. When we see the details by business before starting with each category, it is worth noting that we have the main 4 verticals with a revenue that is close or even above $100 million. So these verticals have -- can -- are very powerful when it comes to creating revenue or income. Let's start with Biscuits, the sales are almost $120 million and their growth is 3%. Here in this category, the growth is very balanced in among the U.S. -- or between the U.S. and Central America. In Chocolate, our sales are $100 million, and their growth is 38.8%. This growth has been driven mainly by the good institutional business dynamic in the U.S. There is a decrease in TMLUC of 5.3%. And in Chilean peso, this decrease or this drop is 2.3%, and this is because of the trade dynamic that is happening in pasta and some instantaneous drinks. The business of Coffee has a growth dynamic that is very interesting. It is growing at a 2-digit, 22.4%. And this growth is very balanced between the local brand sales, Cameron's Coffee in the U.S. and especially to the increase of the B2B sales in this country as well. As for Retail Food, we have a growth that is almost 2%, and the sales are almost $30 million. Let's remember that here, we have ice cream stores in the Central America; and the Dominican Republic, the growth is a little bit more moderate. And this is based on some adverse climate effects due to the rain. As for Others, we reported sales of $23 million, and the growth is 3.9%. And here, the growth is leveraged mainly by the third-party distributed income. The cold cuts, the sales are close to $9 million, and the growth is 9%. And in Pasta, we have a growth that is over 100% because we have some sales in Mexico. Now let's move to the next slide. So if we combine the growth in Colombia and the international growth, which is 18.6%, we have consolidated sales during the period that are COP 4.8 billion and the growth is 13.1%. As you can see, with the exception of Ice Cream, the other businesses have positive variations, and we can highlight businesses such as Chocolates, and the growth is 33.5%; Coffee, the growth is 21.3%; Biscuits, almost 13%; and Other, the growth is 13.7%. So this growth is very balanced when it comes to consolidated -- or in consolidated terms among our main business units and categories. In the case of Ice Cream, the business is already implementing some actions to turn around these figures. Now let's move to Slide #7. As many of you know, this is a company that is present in 18 countries in Latin America and the U.S. And here, what we want to show you is the revenue distribution on each of these countries. Colombia represented less than 60%, 58.9%. So we were able to witness a very positive dynamic, a growth dynamic in the categories outside Colombia. We would like to highlight the growth in countries such as the U.S., where the growth is 38% during the period; Central America, whose growth is 10%; Peru, the growth is almost 15%; and the Dominican Republic, where the growth is 2%. On Slide #8, this is for our new investors. Let me give you some context about what we have here. On the left-hand side, we have a chart with an instrument that we call commodities index -- Grupo Nutresa's Commodities Index, and it shows the evolution of reference prices in dollars, in USD. And here, we have the elements and the weight of raw materials such as cocoa, coffee, proteins, fats, sugar and packing materials, among others. If we focus on the evolution of the quarter, the Commodities Index presented an increase of 62% in dollars if we compare it to the first quarter of 2024 and a 17% increase based on the previous quarter. And this is due mainly to the high volatility and increase of global prices in coffee, which increased almost 100% during the quarter, and cocoa that had an increase that was very important as well. On the right-hand side, you can see the cost breakdown and the representation of these raw materials in our cost structure. Later on, we will see the effects on the margins, how the hedging strategy that Grupo Nutresa has in both commodities and currencies has helped us keep and improve the profitability that we're showing. To continue with the presentation and start talking about profitability and the general results and the business general results, I would like to give the floor to Andres Bernal, who is the CFO and CSO of Grupo Nutresa.

Thank you so much, Catherine, and good morning to you all. The best market dynamic is the focus on packages and sizes that can be bought by our consumers, the profitability of the portfolio and a good management of the commodities allow us to report at COP 729 billion. So the growth is 17.2%, and the EBITDA margin is 15%. This is the best quarter in EBITDA margin in the last 5 years. And this is 5 points above the same period in the previous year. We can highlight the increase in Chocolate, 67%. Here, we are using a pricing tool that in a responsible manner, in Biscuits, 29.5%. And I would like to highlight the Others chapter because the growth is 85.8%. The businesses of Coffee, Ice Cream and Pasta keep a small growth -- a decrease. And as you all know, that Ice Cream has been affected by the weather. If we see the bars, this is in billion COP: Biscuits, COP 145 billion; Chocolate, COP 128 billion and the growth is 68% and the margin 15%; Cold Cuts, COP 123 billion, the growth is 6.8%, the margin 16.6%; Retail Food, this is here in Colombia for restaurants and Ice Cream in Central America and the Dominican Republic, COP 91 billion, the growth is 23%, and the EBITDA margin is almost 25%; Coffee, COP 74 billion, the decrease is 24% due to the increase of coffee cost or the coffee grain, but we still keep a healthy EBITDA margin of 9.7%; TMLUC, COP 71 billion; the Other, I already mentioned, COP 46 million (sic) [ COP 46 billion ] and the EBITDA margin is 9.1%; and finally, Ice Cream and Pasta, COP 30 billion and COP 17 billion, respectively, and they still keep their EBITDA margins in a healthy manner. In the next slide -- on the next slide, we can see the results of the company or the company's results. Basically, the sales were COP 4.8 billion, and the increase was 13%. The cost of goods sold, there is an increase of 17%. And even though we were able to get good results when it comes to hedging, so this [ closes ] the gross profit, so we moved from 40.8% to 38.7%, the percentage of revenue. So we closed at COP 1.8 billion. So how did we compensate it? Administrative expenses, there's only an increase of 1.5%; sales expenses, COP 1.1 billion, and this is below COP 3.1 billion, which is the sales growth; and the operating profit is COP 602 billion. In financial income and financial expenses, let me remind you that we had a syndicated credit for $2 billion, and this was deposited into USD CDs, and it kept the same rate. So this doesn't change the debt of the company, and it can reflect a more financial income. And it also has more financial expense due to this syndicated credit. The income before tax and noncontrolling interest closes at COP 420 billion, and the growth is 33.8%. Once taxes are paid, the profit after taxes from continuous operations ends in COP 298 billion with a growth of 44%. And if we go to the net profit, we ended up in COP 237 billion and a growth of 15.9%. As I was mentioning before, EBITDA was COP 729 billion, and the growth was 17.2% and a very sound margin of 15%. The net consolidated -- consolidated net debt, you can see the increase that has led to the syndicated loan that I mentioned that was COP 2 billion. And the ratio is stronger, the net debt without discounting the COP 2 billion that we have in CDs, certificates of deposit, and this increases the net debt over EBITDA ratio to 4.5x because the EBITDA is covering almost 5x the interest. And interest over sales is 277%. It's important to let you know that the CapEx is fully controlled. In March this year, it reached COP 98 billion and 18% had been executed. And the budget for the year is COP 523 billion. The return today is 13.84%, while last year, it was 13.33%. With this, we completed the earnings results presentation, and now we are open to your questions.

Thank you so much, Andres.

We have multiple questions here. We will start with questions that are being asked by [ Miguel ] about hedging and the efficiency plan. I will ask 3 questions. First, did you implement a hedging procedure for the issued bond? Was it converted into COP? And did it have a floating rate?

Yes. The analysis that we conducted with the bankers was how much debt was in COP and how much debt was in USD and, at the same time, how this revenue in dollars was represented. Remember that almost 40% of the company's revenue is in dollars. So the hedging that we carried out allowed us to have a debt in pesos that was almost 60% and the remaining 40% was in dollars. We still have this hedging, and the bonds just replaced the syndicated loan.

Okay. Next question. How are we doing in implementing efficiencies in April and May? And what can we expect regarding the margin evolution in the next months?

We keep working very hard trying to find more efficiencies. We have some external advisers who have covered most of the countries where Grupo Nutresa is operating. This includes plants, logistics, sales teams, distribution capacity. We have over 1,300 initiatives so far. So as we implement them, we will see an improvement in the company's results, and this is in alignment with the strategic goal, which is to reach $1.1 billion in EBITDA.

So how much regarding the margin expansion is related to a price increase and how much is related to efficiencies?

When it comes to pricing, this is very comprehensive because each business unit has a different strategy. Chocolates and coffee have had to increase prices quicker, and this has happened around the world. Coffee and cocoa, all the prices are based in dollars for all producers around the world. In other categories, price's differences have been more moderate. And I would say that regarding this additional margin, between 50 and 75 basis points should be reported in the improvements that we are implementing. And the difference is the usual day-to-day activities of the company.

We have a question from [ Matias ]. Can you please give me a hand understanding how the Grupo Nutresa's commodity index variation have an impact on costs and hedging policies? The increase that we see on the index this year will have an index on cost as of 2026. Why is that? Well, Matias, this is a very good question. First and foremost, the hedging policy in Grupo Nutresa regarding commodities is a policy that doesn't change irrespective of the market. There are some specific decisions and additional authorizations, but the team that manages this commodities portfolio has a clear focus, which is to reach the target EBITDA that the organization is aiming at. And therefore, the hedging is done based on this. Having said this, as you also mentioned, the company does hedging operations every day. And what we do is that we take market opportunities as they appear. If you see the history of Nutresa -- of Grupo Nutresa, the gross margin has been relatively stable irrespective of the market volatilities. So we have 2 elements to protect margins: first is hedging; and second, the pricing. So when we have commodities that have an extreme variation, such as the ones we have seen in cocoa and coffee, commodities management aims at finding the best prices. But we are also seeing, as you can see on the variations of these 2 businesses during this period, price or pricing and volatility have been well received by the consumers. So an increase not necessarily will lead to a margin reduction in the near future because, as I was telling you, we have those 2 variables, and our focus in both is to manage and expand margins and profitability. Okay. We have a question from [ Rob ], and he's asking us here, what are the amounts of the divestments and the acquisition that you mentioned?

Rob, divestments amount -- or the recent divestments are around $100 million, and acquisitions have a very similar amount. So there are not relevant changes when it comes to the company's cash.

Thank you, Andres. So there are 2 questions from [ Nicolas ]. There is one that has already been answered related to the visibility of the initiatives and the impact on the EBITDA in the future. Second question asks us, if we can explain the CD that we have or the cash that we have restricted that amounts to COP 4.8 billion, and this is part of the bond structure.

Okay. I will explain the mechanism that we used. In the acquisition that the current controlling shareholders did, they've required -- and this was approved in the shareholders' assembly, Grupo Nutresa's shareholders' assembly. So the idea was to take a debt for $2 billion and open a CD for the same term and rate that the syndicated loan had. Those CDs that amount to $2 billion were used as collateral for the shareholders, so they could get a controlling interest in the company. This is why these CDs have or used this figure. With the bonds issuance, the CDs were liquidated prematurely. And there were other CDs that use the same interest rate that was used by the bonds. So in average, the new CDs have an average interest rate of 8.5% in dollars. So if there is a fluctuation in the USD, there will be no changes in Nutresa's results because the difference in the exchange rate will be equal on the debit side and on the credit side, and the interest of the bonds and the CDs is the same.

Thank you so much, Andres. The next question is asked by Goldman Sachs, and she is asking [Foreign Language]. Thank you so much, [ JP ]. And first and foremost, when it comes to seasonality, we do not have big differences in this period. This is a company that, based on the nature of its portfolio, which is mainly composed of daily consumption products, there are not very big variations, except for the last quarter where we have the Christmas and holidays portfolio for family gatherings, where we can see that there is a particular increase. Second, when you talk about the low-hanging efficiency fruit, during the year, we have executed certain decisions that entail closing certain initiatives, closing some production plants that have been transferred to existing capacity. So within the next 3 months, we will be executing these initiatives that will bring quick changes and quick efficiencies, and that will be reflected in the EBITDA. And hand-in-hand with McKinsey, we will also be executing the other smaller initiatives, but that together will take us to the $1.1 billion EBITDA.

And regarding the last point, the evolution of the margins in the second quarter of 2025 due to the increase in the raw materials cost, this is a huge challenge. The hedging policies have helped us a lot. However, as long as the price is up, we will be forced to add some adjustments in packaging material and eventually in the margins. What do we expect for the second quarter? We expect 50 basis points in excess.

The second question is from BTG Pactual. In which business units you see more opportunities to improve margins? And can you please share with us the main initiatives that you are implementing to improve efficiency?

[ Daniel ], honestly, initiatives are cross-cutting. Therefore, there are some that impact all business units in general. We have important initiatives when it comes to logistics, back office, marketing. As I mentioned before, in the production plants, there will be certain areas of improvement, but we're just analyzing this. We have 6 stages for these initiatives. Stages 1 and 2 is a preliminary analysis, get the figures, perform a field visit. Later on, we will see what are the business lines that have a higher potential. But I would tell that in general, these improvements are cross-cutting, and the big impact will come from the synergies and the optimizations that will be done across the company.

Thank you, Andres. Next question comes from [ Carlos Esteban ]. What actions are being implemented to overcome the world's cocoa crisis?

Well, it's very important to tell you that Nutresa is the largest purchaser of -- or the largest buyer of cocoa in Colombia. So we buy from 60,000 cocoa growers. This is a great advantage. Colombia, just as other countries in Africa, can grow cocoa, and the same goes for Ecuador and Peru. Today, we've been doing well when it comes to cocoa supply. But it is clear that there is a shortage, a global shortage and existing stock is going down, and this has led other manufacturers to use substitutions for cocoa. So human beings will always find a way to adjust or to adapt. And due to these situations, there are 3 possibilities: increase prices, manufacture similar products or reduce consumption. In Grupo Nutresa, we are aiming at keeping consumption to keep the quality and the sales of our products.

Thank you so much, Andres. Next question, it comes from Miguel. What should we expect from the Ice Cream business in the next quarter? Is there a possibility to -- for them to grow?

Well, we would like the weather to get better because there is a high impact between the level of rainfall, not just in Colombia, but also in Central America and the Dominican Republic. We are working on launching new products, new product sizes. And we are also working on the different channels. The idea is to facilitate access to the consumer. So even when the weather is harsh, they feel tempted to have in ice cream very close. We keep investing in the business, and we are also expecting for the results to improve. In April, we were able to see certain improvements in this business unit.

Next question. [ Juan ] is asking us, I would like to know if you have thought about new divestments in the short run. And I will give the floor to Jaime, so he can give us a hand with this question.

Thank you so much for your question. Well, honestly, we continue to analyze our portfolio very carefully. We do not have any short-term plans for divestments. We are strengthening all the categories, and this can be seen in the results that have already been mentioned, and we expect this trend to be kept for the second quarter.

Thank you, Jaime. The last question is being asked by [ Sona ]. I will read it. [Foreign Language] So let me take the first questions, and then we can provide an answer for the last one. Yes, the year's CapEx is COP 550 billion, and this is COP 550 billion. So how do we hedge commodities? Well, our commodity hedging is done 18 or 12 months before using the raw material. So we do this in advance. We have a plan to hedge one of the main risks that we have in this business, which is the raw material volatility. But these hedges are not rigid. They are dynamic. We can do rollovers, rollbacks when required to manage results in the short and long run. Just to give you an example, we have hedged up to 80% of the commodities that will be used this year. And we have made great progress in hedging commodities for 2026. I will give you the floor, Andres, so you can answer the other questions regarding the gross margin.

As Cathy was saying, since we have hedging in advance, we have a good certainty regarding our gross margin. Obviously, we do not know what's going to happen in the next months. But the goal that we have basically is to be close to 40% of gross margin.

Thank you so much, Andres. With this, we will finish the presentation of the financial results of Grupo Nutresa. To those of you who joined us and asked your questions, thank you so much. I will give the floor to Jaime, so he can help us with -- he can help us wrap up this presentation. If you have additional questions, feel free to send them.

Thank you so much, Catherine and Andres. Thank you for joining us in this presentation. We are convinced that we are on the right path to transform the company into a more global and efficient company. We hope that the next quarter continues the same trend. And we are also sure that in the next 24 months, with all the initiatives, as Andres was mentioning, around 1,300 initiatives and the different verticals, business verticals and the different opportunities that we are seeing, we will be able to achieve the $1.2 billion or the $1.1 billion EBITDA goal. Thank you so much. And I hope to see you in our next presentation, results presentation. And if you have any more questions, the Investor Relations teams will be ready to answer them. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]