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Edited Transcript of ALICORC1.LM earnings conference call or presentation 14-May-20 4:00pm GMT

Q1 2020 Alicorp SAA Earnings Call

na May 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Alicorp SAA earnings conference call or presentation Thursday, May 14, 2020 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alfredo Luis Miguel Eduardo Perez Gubbins

Alicorp S.A.A. - GM & CEO

* Hugo Carrillo Goyoneche

Alicorp S.A.A. - General Manager of VITAPRO (Aquaculture)

* Jose Antonio Cabrera Indacochea

Alicorp S.A.A. - VP of Consumer Goods International Division

* Juan Moreyra Marrou

Alicorp S.A.A. - CFO & Corporate VP of Finance

* Patricio David Jaramillo Saá

Alicorp S.A.A. - VP of Consumer Goods - Peru Division

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Conference Call Participants

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* Alonso Acuna Aramburú

Banco BTG Pactual S.A., Research Division - Strategist

* Felipe Ucros Nunez

Scotiabank Global Banking and Markets, Research Division - Analyst

* Johanna Castro Castro

Itaú Corretora de Valores S.A., Research Division - Research Analyst

* Rafael Borja

i-advize Corporate Communications Inc. - SVP

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Presentation

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Operator [1]

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Good morning, and welcome to Alicorp's conference call. (Operator Instructions) It is now my pleasure to turn the call over to Rafael Borja of I-advize Corporate Communications. Sir, you may begin.

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Rafael Borja, i-advize Corporate Communications Inc. - SVP [2]

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Thank you, Nikki, and hello, everyone. We are very pleased that you can join us today. From Alicorp, we have Mr. Alfredo Perez, Chief Executive Officer; Mr. Juan Moreyra, Chief Financial Officer; and other members of the management team. Today, they will be discussing the first quarter 2020 results after the press release issued by the company yesterday. If you have not yet received a copy of the earnings report, please visit www.alicorp.com.pe, where there is also a webcast presentation to accompany the discussion during this call. If you need any assistance, please contact i-advize in New York at (212) 406-3693.

Please be advised that today's call is for investors and analysts only. Therefore, question from the media will not taken. If you're a member of the media and wish to direct any questions to the company, please contact the company directly after the call.

Before we begin, I would like to remind you that forward-looking statements may be made during this conference call, and they do not account for economic circumstances, industry conditions, the company's performance or financial results. As such, these forward-looking statements are based in several assumptions and factors that change, causing results to materially differ from the current expectations. Thus, we ask that you refer to disclaimer located in the earnings release prior to making any investment decision.

It is now my pleasure to turn the call over to Mr. Alfredo Perez, Chief Executive Officer of Alicorp, who will begin the presentation. Alfredo, please go ahead.

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [3]

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Thank you, Rafael, and good morning, everyone, and welcome to Alicorp's First Quarter 2020 Earnings Call.

I would like to start this call wishing you and your families all the best and hoping you are all staying safe and healthy. Given the uncertain times created by the COVID-19 crisis, we're speaking to you from each of our homes. So please bear in mind with us if things are not as smooth as you would normally expect.

I would also like to extend a heartfelt thank-you to all of our employees, especially the ones in the front line, without whom we would not be able to continue to fulfill our purpose of assuring the availability of food, home and personal care products in all the communities where we operate. Alicorp is deeply concerned with our employees' safety and is making every effort to protect them in this difficult environment, precisely, our people who their adaptability, commitment and hard work is the main reason why we are sure that we will overcome this crisis together.

During this call, we will discuss the impacts we have seen in our business thus far and try to give you a view of how we see Alicorp going forward. Given the current uncertainty as well as the global and regional disruption generated by the current crisis, we are withdrawing our 2020 guidance. While we remain confident in our products, our people and our growth plans, the current context makes it challenging to provide you with a reliable projection set at this time. Although we expect revenue growth versus 2019, profitability is still very difficult to predict, given the uncertainties about the impacts COVID-19 will have on different aspects of our operations such as manufacturing, accounts receivables and others. However, it's important to mention that as of today, we do not see COVID-19 having a structural impact on our business, which is why we believe we are well positioned to overcome this crisis with our recovery margins after it.

Now let's move to Slide 5, for brief comments on the macroeconomic environment. First, COVID-19 is a tragic humanitarian crisis in Latin America and the world. This crisis will also have a tremendous impact on the economy, causing a severe recession in all economies where we operate during this year 2020, coupled with high volatility in exchange rates, in some countries more than others. For 2021, current forecasts show a rebound in GDP growth. How strong? It is too early to tell.

Let's move on to Slide 6, please. Under challenging circumstances, our agility and ability to adapt to constant change has been tested. We are very proud of the results, as our company has understood the responsibility and courage the role it is meant to play in this crisis and has mastered it with talent and cooperation, guided our 3 immediate priorities, which are: first, to ensure the health and safety of our people; second, to maximize the availability of the essential goods; and third, helping communities to reduce contagion, build our Business Continuity Plan based on 4 fronts: our people and community, supply and logistics, clients and consumers, and liquidity. I will touch on the first 3 fronts and leave the 3 for later in the presentation for Juan to explain in further detail.

Let's continue to Slide 7 to give you color on our people and community work stream. Like I mentioned before, one of our main priorities is to ensure the health and safety of our people, and we're determined to make our best efforts to rise to the challenge. We include in these efforts our plant workers, sales force and administrative employees. Some of the measures we have taken so far include strict daily cleaning and disinfection protocols in all our spaces, temperature measuring before the entrance to all production-scale facilities, obligatory social distancing in production facilities, dining rooms and changing rooms and mandatory home office implementation for almost all administrative employees.

We have made an important effort to secure a significant number of COVID tests, which should enable us to continuously test our frontline workforce team in the coming months. For us, this represents our most powerful tool to prevent the spread of the virus between our people.

Let's move on to Slide 8, please. Several of our main priorities is to help our communities during this difficult time. For the reason, we have designated PEN 15 million for donations of products destined to help vulnerable populations and those taking care of the population's health and safety through our Ayuda al que Ayuda program. Through this program, we're committed to support 400,000 families among vulnerable people, health workers and members of the military and police force with food and personal and home care products.

Additionally, we have contributed with PEN 120 million for the acquisition of respirators and sanitizing help. We have also transferred our expertise to the authorities for the implementation of a dynamic routing system to organize testing strategy and help develop the Peru en tus manos app. Sadly, it is impossible to attend all the requirement we receive. And we thank our sustainable development team for the hard work they have been doing to maximize the impact of our donations.

Let's continue on to our supply and logistics front on Slide 9. Measures taken by governments in Latin America like lockdowns and curfews to prevent the spread of the virus bring additional challenges to our operations, like the difficult transportation of our drivers and workforce. In addition, in order to ensure the wellbeing of all people, we have introduced safety protocols far beyond government-mandated measures, which implicated further efforts from our supply and logistics. Simultaneously, it's extremely important for us to ensure the supply of food, home and personal care products for our communities, responding with agility to new and changing demand. In this regard, we adapted quickly our production, prioritizing lines and SKUs according to market and demand shifts, establishing a mindset of continuous analysis for agile decision-making. Furthermore, we are in close coordination with our suppliers to ensure the supply of materials and implementing risk management throughout the supply chain end-to-end.

In order to maximize availability, we prioritized the distribution channels closer to the consumers, which are the modern channel and our exclusive distributors. Although our teams have given their best and have done an incredible job, as of today, our operations are looking at around 70% to 80% of capacity, impacted by changes in work shifts and absenteeism, and thus we will continue to face risk on the production side in the near future. And therefore, we're taking all the necessary measures to minimize such risks.

Please turn to Slide 10, where we start analyzing how the COVID-19 crisis has impacted our clients and consumers throughout our different business units. Regarding our Consumer Goods business, consumer behavior did change with similar trends across the geographies where we operate. We'll try to summarize the most important consumer behavior changes during the last few weeks on quarantine. In most countries, some stocking up occurred in the first few weeks of lockdown, which is, of course, only a temporary impact. Additionally, we see a significant increase in at-home consumption, which substitute out-of-home consumption since the food service sector has not been permitted to operate during this lockdown period.

Furthermore, we have observed higher demand for food staples like edible oils, pasta, canned tuna, flour and sauces in the modern as well as in the traditional channels. The prioritization of food staples resulted in lower demand for certain categories such as powdered juices and cookies. People, of course, are buying more hygiene products like bleach, soap and hand sanitizers, which we expect to become more than just a short-term impact. On the other hand, the lockdowns reduced the use of certain home and personal care categories such as detergents and shampoo. For the upcoming months, we expect at-home consumption to remain at high levels and consumers will continue to focus their expenditure on essential goods, home cleaning and personal hygiene products. Product availability is key and will continue to shape demand in the short term.

E-commerce initiatives should also show a surge in line with the preference to maintain social distancing. In this context, we believe we are well positioned in the region with vast distribution networks, strong multi-tier product portfolios and superior knowledge of local consumers.

Let's continue with our B2B unit on Slide 11. Like we mentioned before, there has been a shift from out-of-home consumption to at-home consumption, which will be mitigated by the consumer goods unit. During lockdown, most bakeries and industrial clients continue operating with increasing demand in certain categories such as industrial flour. But the dominant effect has certainly been the severe impact on the food service platform, which represents 30% of our B2B business' sales due to the temporary restaurant closures, restricted sales channels and limited operating hours.

We believe this is a key moment to leverage on the advisory skills we have developed throughout the years and support our clients on a case-by-case basis on 4 fronts: first, communication regarding delivery practices and heightened sanitary standards; second, help manage the liquidity and adjusting credit terms accordingly, discounts and advisory. For the coming months, we expect our food service platform to be affected by further restrictions. A protocol for restaurant operations has been released and allows them to operate only through delivery and pickup starting mid-May.

Regarding end consumer side, we suspect that consumers will change their habits, preferring at-home consumption for the time being until they view a safe return to a regular restaurant service.

Our bakery platform should be boosted by the expected strong demand from baked goods. Alicorp believes the food service industry will emerge stronger with new capabilities from this industry-transforming event. Delivery, pickup and e-commerce will become a pillar of recovery and an important share of the future business.

Now let's move on to our Aquafeed business on Slide 12. Since the beginning of the crisis, our Aquafeed business unit has been able to sustain manufacturing and logistics operations with some restrictions, taking appropriate biosecurity precautions. Our clients supply and export business and are subject to the global consumption trends of shrimp and salmon. In the first quarter, the global shrimp industry was affected by the strong deceleration of its biggest consumer, China, with significant decreases in shrimp prices. On the shrimp supply side, Ecuadorian farmers are being more cautious implementing new shrimp production, and shrimp processors are operating with limited capacity. For the coming months, we have a positive outlook for the shrimp industry, as China is slowly returning to normal, while other producing countries such as India face complex production situations. We believe in the strong fundamentals of our business, which is why we continue to move forward with the expansion of our shrimp production capacity with an additional 120,000 metric tons in Ecuador and Peru as well as a strategic plan to deploy advanced analytics, services and digital tools.

Regarding the global salmon industry, demand is under pressure due to lower demand of the main destination markets, the U.S. and Europe. China represents only 10% of global salmon consumption. The recovery in salmon harvest levels is expected to begin in the last quarter of 2020. In this context, the main tenders in the market have been postponed for a probable date in the last part of the year. In both our main markets, shrimp and salmon, we are working on new technological advisory for remote operations and extended credit support to our main clients. Aquaculture growth fundamentals remain strong, and a rapid recovery is expected in 2021.

On Slide 13, we discuss the impact of COVID-19 on our Crushing business. The global crisis has created a context of strong volatility in commodity prices comparable to the levels observed in 2008 and 2009, while global demand for agricultural commodities has not been materially altered. Furthermore, demand for biofuels, which impact vegetable oil prices, has been impacted negatively. Our business found support in local and export demand as well as intercompany sales, where approximately 30% of our soybean meal and soybean oil goes to our Aquafeed and Consumer Goods business in Bolivia. For the upcoming months, with challenging market dynamics for veg oils positively correlated to crush margins, should find support and demand as China and other countries begin reopening. In Peru, the economic deceleration represents a headwind for the demand of poultry feed, impacting soybean meal demand. We are shifting part of our volumes to other export markets, which have not experienced material reduction in protein demand. We continue working on the implementation of agro solutions through which we expect to differentiate ourselves and create value. Some of our other solution initiatives are productivity contest for farmers, technical talks and seminars about the market, creation of digital tools, like chatbot for farmers, and the online sale of agricultural supplies.

Let's now discuss our consolidated operating results for the first quarter of 2020, starting with the main highlights of our consolidated revenue on Slide 15. Consolidated revenue and volume grew 10% and 11.5%, respectively, year-over-year in the first quarter of 2020 on the back of strong growth across all of our businesses. First, CGP grew 12.5% year-over-year through a solid increase in sales pre-lockdown and an increase in at-home consumption and stocking-up in the second half of March as well as due to the inclusion of Intradevco's results in January 2020.

In the case of B2B, it increased 4% year-over-year, despite the negative impact of the closing of restaurants due to COVID-19 in the second half of March. CGI grew 7.7% year-over-year due to strong volume growth, market share gains and innovation in Argentina, Bolivia and Ecuador.

On the Aquafeed side, it increased 8.1% year-over-year due to the recovery of the Salmon feed business in Chile, where strikes impacted production last year.

Lastly, Crushing grew 20% year-over-year due to higher volumes sold. As we previously mentioned, COVID-19 has had a mixed impact across our businesses. We'll further discuss the specific impacts on first quarter 2020 results when we dive into our operating results by business.

Let's now review our consolidated EBITDA for the first quarter of 2020 on Slide #16. With a solid operating performance in the first quarter of 2020, with consolidated gross profit growing 15% year-over-year and a gross margin of 25.6%, which is 1.2 (sic) [1.1] percentage points higher than last year. These results were achieved on the back of significant revenue growth across our businesses and higher gross margins in our CGI, Aquafeed and Crushing units.

Normalized EBITDA increased 18.9%, while normalized EBITDA margin reached 14.3%, a 1.1 (sic) [1.2] percentage point increase year-over-year, explained by higher gross profit and margin in addition to the prioritization of expenses in our CGP business, higher profitability in our B2B Bakery platform and successful SG&A savings in our CGI unit.

We are aware that COVID-19 will have certain financial impacts in 2020. That is why we have recognized the financial impacts from the COVID-19 crisis that we expect for 2020 in the first quarter, which resulted in higher onetime COVID-related operating expenses. These expenses include: first, donations for PEN 15 million; second, the PEN 48 million impairment of our operations in Brazil due to the exchange rate and country risk impacts of COVID-19 in the value of our investment in Brazil; and third, other nonrecurring expenses of PEN 37 million, consisting mainly of bad debt provisions constituted to reflect the negative impacts we expect COVID-19 will have on the accounts receivable of our businesses, particularly B2B and Aquafeed. Results were also negatively impacted by a onetime expense of PEN 13 million related to a negative verdict from Brazilian authorities about a tax contingency from previous years.

Let's now review our consolidated net income for the first quarter of 2020 on Slide 17. Net income was PEN 10 million, impacted by: first, the aforementioned onetime expenses, which impacted operating profit; second, higher net financial expenses due to lower financial income after the sale of our BAP shares in 2019 and higher financial expenses related to the debt raised to finance the Intradevco acquisition; third, an increase in exchange loss and hedging expenses explained by the devaluation of local currencies, higher effective tax rate due to nonrecurring expenses not subject to tax shield, such as impairment of Brazil and the donations. Excluding nonrecurring expenses, normalized net income increased 12.2% year-over-year.

Now let me hand the floor over to our CFO, Juan Moreyra, to discuss the liquidity front of our Business Continuity Plan in response to COVID-19.

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Juan Moreyra Marrou, Alicorp S.A.A. - CFO & Corporate VP of Finance [4]

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Thank you, Alfredo. And let's move to Slide 18 to discuss liquidity and how we prepared the COVID-19 crisis on this front.

Regarding Alicorp's debt metrics, as of first quarter of 2020, our net debt-to-EBITDA ratio, excluding Crushing business raw material inventory and the effect of impairments, improved significantly to 2.15x from 2.41x by the end of 2019. This result was mainly explained by an increase in operating cash flow due to working capital efficiencies.

Regarding our liquidity levels. As of March 2020, we drew approximately $200 million on short-term debt to build up liquidity for our operations against the potential impacts of COVID-19 on our businesses. In this sense, we are adequately funded even in the face of adverse stress scenarios. As a result, as of March 2020, we had PEN 1.5 billion in cash, which represented a debt coverage ratio of principal of debt maturing over the next 12 months of 1.46x. Additionally, as of March, we maintained uncommitted credit lines available for $1.4 billion and have room to issue debt securities in the Peruvian market for PEN 1.6 billion.

We have also had an active working capital management, which resulted in an average LTM cash conversion cycle of 28.1 days as of the third quarter of 2020, a 5.9 days decrease or improvement from last quarter and 9.3 days improvement compared to last year. This improvement was mainly explained by an increase in the payment cycle from 96.3 days to 101 days due to 3 extra contracts in our Crushing business. Furthermore, our receivables and inventory cycle showed a slight decrease as well.

The aforementioned actions show our prudent financial management, which leaves us on a solid and comfortable liquidity position. This has been recognized by all 3 global rating agencies, which have recently reaffirmed our investment-grade rating with a stable outlook.

Let's move on to the next section to start the operating results from our various businesses. Let's begin with Consumer Goods Peru on Slide 20. Reported revenue and volume from the Consumer Goods Peru business grew 12.5% and 17.6% year-over-year, respectively. Intradevco's January 2020 results, along with the impact of COVID-19 on our March results, are the primary drivers for this double-digit increase.

Food revenue grew 12.6%, primarily as a result of an increase in at-home consumption. This led to a double-digit growth for some of our products such as edible oil, pasta, flour and margarine, canned tuna, among others. There was a volume decline in categories such as cookies and crackers, candies and chocolate and cereals, because consumers prioritized everyday essentials. Home care and household grew 23.6%, driven by a larger concern from cleaning and disinfection, an increase that offset the decline in laundry products.

Our household cleaning products, namely surface cleaners, bleach, cleaning soaps and dishwashers, showed a big increase with double-digit sales growth. Personal care grew 85% as a consequence of a strong performance of our hand sanitizers and liquid soap as a response to the increased awareness of the importance of personal hygiene habits and hand washing.

Reported EBITDA reached PEN 155 million and 10.8% increase with an EBITDA margin of 18.3%. Excluding nonrecurring 2019 expenses related to acquisition of Intradevco, donations and inventory write-offs related to COVID-19 in 2020, EBITDA would have reached PEN 163 million, growing 13.8% year-over-year with an EBITDA margin of 19.2%, 0.2 percentage points above the first quarter 2019 figures.

Finally, as we mentioned in our previous call, we continue to be very satisfied with the performance of our Intradevco acquisition, which has translated into strong results in top line as well as increasing efficiency through the capture of synergies.

Now let's move to our B2B business on Slide 21. Our B2B business reported sales of PEN 389 million, a 4% growth year-over-year. Our bakery and industrial platforms grew year-over-year, mainly due to a tighter clear pricing strategy and an increase in our market share of flour in top-tier customers. Food Service revenue remained flat year-over-year, despite the 15-day of lockdown imposed in March due to COVID-19, mitigated by the 2 first months in the quarter where we achieved 10% growth, but primarily on strong sales of edible -- on edible oils and sauces.

Regarding profitability, gross profit reached PEN 81 million, growing 1.1%, while gross margin decreased 0.6 percentage points, reaching 20.9%. This result include a product expiration provision of PEN 5 million, primarily in the sauces category, caused by the abrupt closure of restaurants. EBITDA reached PEN 16 million, decreasing 60.2% year-over-year due to nonrecurring expenses related to COVID-19 amounting to PEN 29 million. These nonrecurring expenses, in addition to the product expiration provision previously mentioned and donations for PEN 3 million, also responded to bad debt provisions for PEN 21 million constituted in the first quarter of 2020 in advance of negative impacts based on the risk of business continuity of restaurants after almost 60 days of lockdown. Excluding nonrecurring expenses, EBITDA grew 10.2% year-over-year.

(technical difficulty)

2020 performance in order to give you a snapshot on our business. Our CGI business had strong results across the geographies in the first quarter of 2020, with revenue increasing 7.7% year-over-year, which was a very good result. This result was explained by: first, higher prices implemented in Argentina in addition to an increase in volumes sold in our Home & Personal Care platforms where we continued to gain market share; two, higher revenues in Bolivia, mainly due to market share increases in our food and home care platforms, achieving record market shares in edible oils and detergents during the first 2 months of the year; and three, higher volumes sold in Ecuador, mainly due to our pasta and home care products.

It is important to mention that although revenue in Brazil decreased in soles, this was explained entirely by a devaluation of the Brazilian real, which -- with revenues in reais increasing 5.7% on the back of market share growth in our pasta category. Gross margin in our CGI unit increased 0.7 percentage points year-over-year, mainly due to the increase in prices implemented in Argentina as well as higher pasta prices and cost efficiencies in Brazil.

Reported EBITDA decreased PEN 38 million as a result of COVID-19-related expenses, such as impairment of our Brazilian operations and donations as well as a onetime expense of PEN 13 million related to a negative verdict from Brazilian authorities about the tax contingency from previous years, as mentioned before. Excluding this effect, EBITDA grew 90.7% year-over-year, while EBITDA margin reached 9.9% or 4.3 percentage point increase year-over-year, mainly explained by volume growth, successful revenue management strategies and SG&A savings on the back of our transformation initiatives.

Regarding our acquisition in Bolivia, we continue to deliver strong results and build market share while gaining efficiency.

Let's move to Slide 22, Aquafeed Q1 2020 performance. Revenue increased 5.3% year-over-year, mainly due to the strong growth in volume in our fish feed business in Chile and higher volume share as a result of positive base effect from strikes in the first quarter of 2019, which negatively affected production. This growth was partially offset by price cuts in our shrimp business due to lower raw material prices and aggressive competitive environment.

Regarding profitability, our gross margin increased 0.3 percentage points due to lower commodity prices and the previously mentioned effect from strikes Chile in the first quarter of 2019. EBITDA reached $15 million, a reduction of 12.8% year-over-year with an EBITDA margin of 9.6% mainly as a result of bad debt provisions for $3 million, made by the estimated negative impact of COVID-19 will have on our business as well as a $1 million in donations to the communities where we are located. Excluding these effects, EBITDA grew 10.8% year-over-year, while EBITDA margin reached 12.2%, up 0.6 percentage points, mainly due to a higher gross margin.

Let's discuss the performance of our Crushing business for this quarter on Slide 23 (sic) [24]. Volume and revenue grew 14% and 17%, respectively, on a yearly basis, mainly due to sales volume from the fourth quarter of 2019 that were not crushed due to social unrest in Bolivia in addition to higher international soybean and sunflower prices early on the first quarter. Our EBITDA for the quarter amounted to $3 million, an increase of $7 million compared to the first quarter of 2019, mainly due to a strong winter soybean crush margin recovery and to the higher international prices, as mentioned before, despite a higher allocation of corporate expenses to the business. Furthermore, we are generating higher economies of scale via consolidation of shipments.

Finally, let me circle back to Alfredo to discuss Alicorp's view going forward.

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [5]

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Thanks, Juan. Let's turn to Slide 26 to give you an outlook of what we are preparing and planning on 3 horizons going forward, now, next and beyond. In the first 2 months of this crisis, our efforts have been focused on ensuring business continuity. As we mentioned before, this effort was focused on 4 fronts: our people and community; supply and logistics; our clients and consumers; and finally, our liquidity.

Next through the remainder of this year will be focused mainly on customer care, our people, supply chain, liquidity and the continuing preparation for the S4/HANA migration. On the customer care front, we're working on developing digital platforms for taking -- order taking and launching digital channels in B2C and B2B for direct sales to clients and consumers. We are also working closely with our commercial and industrial clients on holistic scheme for them to handle the crisis and return to operations in the best way, guiding them on how we can manage the businesses, liquidity and other needs.

On the people and supply front, we'll continue to reinforce our safety measures across all of our employees, especially our plant workers and sales force, prioritizing their safety. In this sense, one of our biggest challenges will be to ensure production continuity and the supply of food, home and personal care staples to all the communities where we operate.

On the liquidity front, we'll continue with our active working capital and OpEx management while giving clients extended credit terms where possible in order to support them. We will also review our CapEx and investment plan periodically as the year progresses. It is also worth mentioning that we continue to prepare for the S/4HANA migration. And even though the current crisis has slightly delayed the process, we plan to scale our migration early next year.

In the longer term, we plan to continue to innovate on our product portfolio in order to adapt to consumer trends and take actions to protect our sales against migration to competing brands due to possible tiering down, while also leveraging on this context to reduce our portfolio's complexity. We'll also work on scaling and continuing to launch digital channels, to meet this new trend towards the e-commerce channel, while also automating our manufacturing plants and warehouses.

Finally, let's turn to Slide 27 to tell you why we're confident about the future. We believe that we are well positioned to overcome what comes ahead and quickly adapt to a new reality, thanks to our unique business model and superior knowledge of local consumers. Our leading brand portfolio in the region with strong product diversification, coupled with an extensive multichannel distribution network and expanded production capacity, positions us to better undertake the challenges that this crisis will leave behind, all this on the back of a strong balance sheet and solid financial position.

Most importantly, the capabilities of our people and our experienced leadership team are what led us to be confident that we will get through this difficult time stronger than ever and with many lessons learned.

Thank you for joining us today. And now we'll open to any questions you might have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of Felipe Ucros with Scotiabank.

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Felipe Ucros Nunez, Scotiabank Global Banking and Markets, Research Division - Analyst [2]

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I hope your families are doing well through all this. Let me start with a quick one on the mom-and-pop channel. There have been a few peers that have already reported this season. And it seems that in several countries, we are seeing some mom-and-pop closures. Specifically, one of the Coca-Cola bottlers reported that in Peru, about 20% to 30% of mom-and-pops have closed down. We're seeing that, obviously, this is not just happening in Peru, now it's being replicated throughout Latin America. So I was wondering how you guys are thinking about this. What are the chances of this traditional channel to survive? And then whether you have an idea of how many players you think will make it out of this and how many won't? And then obviously, how the landscape will change if this becomes a problem that drives a few of them out of business?

And then the other question I wanted to ask you was on receivables. I think you've moved forward on doing some provisions ahead of most of the rest of your peers, which I think was a good conservative way of approaching it. I wanted to ask you how this works in Peru. We've heard, for example, from some (inaudible) players that they have insurance on receivables and about 80%, 90% of those receivables are covered by insurance. Not sure how that works in your market. If you could give us some description of that, it would be great.

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [3]

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Thank you, Felipe. Thank you. Also wish that you and your family are all doing fine. On the first question, I will make a quick comment, and then I'll pass it on to Patricio Jaramillo to explain a bit further. Overall, Felipe, we are obviously seeing many trades like mom-and-pops on the B2C front and also on the B2B front that actually, because of the current environment, are either impossible for them to operate normally or they decide not to do so, because they are afraid what will happen. Now is that number material for us? No, we don't think it's not material and shouldn't be a structural change for our business. Obviously, we're being very conservative as to how we handle our trade in terms of credit, in terms -- but also in terms of product availability. I will switch it over to Patricio, and then I'll take the second question also together with Juan. Patricio?

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Patricio David Jaramillo Saá, Alicorp S.A.A. - VP of Consumer Goods - Peru Division [4]

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Yes. Thank you, Alfredo, and thank you, Felipe, for the question. Definitely, I think that during the beginning of the crisis, we've seen some traditional mom-and-pop stores closing, but this was predominantly, I would say, during the start of the crisis -- of the lockdowns. As soon as the weeks started progressing, those mom-and-pops that were originally closed, started slowly to open. Nevertheless, as Alfredo said, this is not significant to us because even though there are still almost [15%] of mom-and-pop stores that are closed today, the ones that are open are compensating for the ones that have been closed. As Alfredo and Juan mentioned, we've seen a significant increase in demand for some type of products, food products, household products. And our strong distribution network has been able to supply most of these products to those traditional pop -- mom-and-pop stores that have been -- remained open.

Taking your second question, definitely, in terms of channel mix, this has produced some changes in channel mix. We, as a company, have preferred to focus our attention on the ones that have been focusing on direct-to-consumer sales, such as the mom-and-pops definitely and also supermarkets. How will this continue to evolve over the future? We've seen that supermarkets traditionally for our sales were close to 16% overall. Now those numbers have increased to almost 21%, 22%. But then again, the traditional trade is so big and so important for us Peruvians that those trends would tend to go back to the original numbers that we had starting this crisis. It is important to mention also that mom-and-pops open and close significantly over the years. So even though some are closed, more new ones will continue to appear.

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [5]

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Thank you, Patricio. And then on the second question that you touched on, Felipe, on receivables. I'll pass it over to Juan, but before I do so, as you read through our earnings report and as we, Juan and myself, we made some comments earlier, we have been very proactive as to evaluating as of today what we believe could be a potential impact in our receivables for all the businesses at Alicorp. We decided to register them in this first quarter, because we thought it was the best way to have a first conversation and to give all investors and analysts a very quick reaction as to what the company believes, how it will handle going forward, or how the COVID-19 crisis will impact our business going forward. But also, that will allow us to have a cleaner discussion in the quarters to come. Now Juan, please, I'll turn it over to you for further comments.

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Juan Moreyra Marrou, Alicorp S.A.A. - CFO & Corporate VP of Finance [6]

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Sure. Yes. As Alfredo was pointing out, we've constituted bad debt provision to reflect the fairly negative impact we expect from COVID-19 will happen on the on the accountancy of our businesses. We've done that basically analyzing client-by-client in each of our businesses, particularly the B2B and Aquafeed businesses, which were the most -- which are the most affected ones. This is the visibility we have as of today. And yes, of course, if things evolve better than expected, we could see some results going forward of those provisions.

Regarding your insurance question, Yes, we do have those, but to give you a sense, one of our businesses, which is the most affected one, which is the Aquafeed business, our insurance compared to our portfolio of accounts receivable accounts for around 75% -- 75%, 76%. So it's very well covered in that respect. And we feel very confident and comfortable with the amount of insurance that we have on those receivables.

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Felipe Ucros Nunez, Scotiabank Global Banking and Markets, Research Division - Analyst [7]

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Fantastic. That's great color. Thanks to 3 of you for those answers. Maybe if I can do a follow-up, Alfredo, on Argentina. It looks like results are doing much better, volumes rebounded. So I was wondering if you could give us some more details around what has been done in terms of the turnaround. And what do you expect since the macro doesn't look great for Argentina going forward?

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [8]

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Thank you, Felipe, again. I'll -- again, I'll make a quick remark, and then I'll pass it over to Jose Cabrera, who leads our consumer business international. So as you correctly pointed out, Argentina is performing very well. I think we were achieving record results this past quarter, both in terms of revenues, in terms of share, in terms of margins. But it's giving many messages that we believe are important lessons for our asset management team. First, we set out a clear strategy for the business for the turnaround of the business with clear focus on recovering profitability and also focusing the business on our key categories, which are on the personal care front and home care front as well. We also set up changes in the management team. We actually put on a fantastic team, both in the commercial marketing as well on the supply chain front that have been helping us really achieve the results that we're seeing. And also, this is important for us because this is a new capability that we have built. We're doing this in Argentina, which is obviously already providing very solid results, but also, we're implementing in Brazil. We exclude the one-timers we included this quarter, the turnaround is really coming along very nicely as well. This is the second quarter that you see this performance on the right direction. So we feel confident that this new capability is really panning out very well.

So -- and for the future of Argentina, I think Argentina has been living in a constant crisis for the last 5 years. And we are used to operating like that. This is obviously a new component to it. It gives it an additional complexity. The team is fully capable of handling it. But I'll turn it over to Jose for further explanations and details. Jose?

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Jose Antonio Cabrera Indacochea, Alicorp S.A.A. - VP of Consumer Goods International Division [9]

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Yes. Thank you, Alfredo. Just to give a little bit more color on Argentina. As you said, Felipe, we had a very good quarter. Volume is up 8%, almost. Revenue is up 22% versus year-on-year. Hair care is up 15%, and detergent is up 29%. So both our main businesses are doing really well. We've seen share gains on both businesses over 1.5 points of share gains over the last measures on both the hair care and the detergents business. Gross margin is up almost 7 points. We were able to take pricing in December and January, aggressive pricing, obviously, waiting for a higher devaluation and inflation. The devaluation hasn't happened yet. So that's why we're seeing also significantly better margins. And obviously, also, we have the full annualization of all of our transformation initiatives from last year. So EBITDA margin is up almost 15 percentage points year-on-year. So we're very happy with where we are. Very happy with these results.

Now do we expect the same level of margin going forward? Probably not. We expect more devaluation than what we have seen over the beginning of the year. And right now, as you might know, there's government restrictions to being able to take pricing. So if we see devaluation over the next coming months, and we are unable to price for that devaluation, then we would expect to see some pressure on our margins. But still, the parts that we control, which are our transformation, our SG&A discipline, our innovation and our growth is working really well. And as Alfredo said, in Argentina, we are about a year ahead of Brazil. We are already beginning to see also some of those transformation initiatives take place and bear fruit in Brazil.

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Operator [10]

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And we have a question coming from Johanna Castro with Itaú BBA.

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Johanna Castro Castro, Itaú Corretora de Valores S.A., Research Division - Research Analyst [11]

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My question is more oriented to Bolivia. And taking into consideration that still in Bolivia, you have like -- if I'm not wrong some 15% of the business in B2B. And I know you gave a little bit of color on the Crushing segment of how do you see the things coming. But more on the consumer side, can you give us a little bit of insight of what's going on in there? Because we have seen that there is different impacts from COVID and the consumption parameters have changed from Santa Cruz to La Paz, and you still have, I know, leading brands and the consumption, because of edible oil is basic, should be going okay. But can you give us a little bit of color on how you see demand coming ahead? And what are the strategies to actually work out with those B2B segments? But as I have seen, they have not received too much help from the government like in Peru. So it would be great if you can share with us something.

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [12]

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Fantastic. Thank you for the question, Johanna. I'll make a quick intro, and then I'll pass it over to Jose again for further details. I think Bolivia, being -- on the consumer front, being the 2 -- the second largest country in our operation, and the business we acquired a year plus ago is performing very well and above our business case for the acquisition. So our expectation of the return we'll have on the investment is quite positive. As you correctly pointed out, there are many trends that are happening in the country. We're seeing, relatively speaking, a better environment for our performance in Bolivia versus Peru. However, we're -- as Jose would probably point out, we're seeing some delay on the impact of the COVID-19 in the country itself. But before getting into that, I think, as you see in the categories, that Jose will probably touch on, both on the basic one, the essential, meaning the edible oils and the fats as well as our home cleaning products, they are performing very well. And as you might also remember, when we acquired Intradevco, it did contain an international portfolio as well. And one of the countries that's included the portfolio was Bolivia. As you all know, what this COVID crisis has done is increased the consumption of many of the categories that actually Intradevco have here. So now Jose, please go ahead.

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Jose Antonio Cabrera Indacochea, Alicorp S.A.A. - VP of Consumer Goods International Division [13]

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Yes. Thank you, Alfredo. Just to give a little bit more color on Bolivia. Some of the trends that Patricio mentioned on Peru are similar to Bolivia. So I won't get into those. What's different in Bolivia is that our Food Service presence is much smaller than in Peru. So even though the Food Service business has been impacted, it has not had such a big bearing on our results as it would have here in Peru. And the consumer side of the business is much more than compensating for any declines in our Food Service business. As Alfredo mentioned, we're doing very well in our core categories. Our food categories are up 6%. Our home care categories are up 28%. And we just received our share measures from the last quarter, and we're doing very well also on both. We have record shares both on our edible oils category, which is our main food category, and on our detergents category. We have seen a little bit of trending down. So our lower-tier products are performing better. For example, in our Home Care category, our UNO brand is growing over 100% versus a year ago, whereas the Bolivar brand, which is our mainstream tier 2 brand is -- has only a single-digit growth. So we are seeing some trending down, which I think we would all expect from this -- from the current situation, but we have very strong portfolios, multi-tier portfolios in most of the essential categories. So the performance has been really well. And as a whole, as you can see, volume is up 18% for Bolivia versus the same quarter of last year, and revenue is up 10.3%. So obviously, a very, very good, very solid results despite all of the things that we're seeing.

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Johanna Castro Castro, Itaú Corretora de Valores S.A., Research Division - Research Analyst [14]

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And if I may just change the topic with 1 question on the Aquafeed business. Taking into account the results of the Norwegian companies reported that the salmon industry is actually holding the fish in the water for longer term and not farming them. That actually postpones the release of the [smalls] for this quarter to the next quarter and is unavoidable that the feed consumption is going to grow sometime during this year. But my question goes to how flexible are the formulas that you manage for shrimp and for salmon? Like, how -- can you change relatively quickly to more cheap products and also premium, high energetic kind of products like (inaudible) kind of products that you can actually sell it for lower kind of quality products in the stable? It's more a question on how flexible and how fast can you change the formulas on those kind of things?

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [15]

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Thank you, Johanna, for the question. And I'll pass it over to Hugo, who can very quickly answer that question.

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Hugo Carrillo Goyoneche, Alicorp S.A.A. - General Manager of VITAPRO (Aquaculture) [16]

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Thank you, Alfredo, and Johanna for the question. In the question -- in the case of the formula for our product in salmon or shrimp, we have a portfolio of products for all the specials of them -- of animals. So we can manage this formula including different raw materials and additives. So for us, it's very easy to assure the crab or the salmon or shrimp with different formula. So right now, when the prices of the shrimp or salmon decrease, we are ready to change our formula to assure the growth of the animals. We don't have any problem with that.

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Operator [17]

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(Operator Instructions) And we're going to take our next questions from Alonso Aramburú with BTG.

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Alonso Acuna Aramburú, Banco BTG Pactual S.A., Research Division - Strategist [18]

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A couple of questions on my end. First, on CapEx, you mentioned some adjustments on CapEx. Just wondering what the magnitude of those will be, and where do you see roughly CapEx this year? And on the digital initiatives for direct sales, I'm just curious if you can give us some color on how that is advancing and how relevant do you see them in the short term?

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [19]

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Thank you for the questions, Alonso. On the CapEx front, as both Juan and myself put it out during the call, given the COVID crisis, we have had to review all of our investment programs and obviously, categorize them by priority and the one who have a direct impact in short-term versus medium and long-term results and the nature of them. We have done a first cut in terms of identifying CapEx program that we want to execute this year and then the ones we can actually phase them out for the next year. That first cut has allowed us to provide some reduction in the expected CapEx for the year. Right now, and actually, just to give you some figures, the biggest CapEx program we had was and still is the SAP S/4HANA implementation. That one actually remains as it is, given its criticality, even though we have delayed it a little bit, as we pointed out on the call as well. Excluding that CapEx, we're reducing CapEx overall in 20%, overall. We will continue to search for additional opportunities to delay CapEx programs but also as we see the COVID-19 progress. We want to be first, obviously, very careful with our liquidity and how we handle our cash outlays. But at the same time, we're going to make sure that we are prepared for our future. And the future, as we see it, as we also reflected on the call, is still very positive for us. We see to really take advantage. So we will not risk that future for any short-term gains. So overall, right now, you have a little below of a 10% overall CapEx program reduction. We'll continue to look for further opportunities as the COVID crisis hopefully phases out.

Your second question, Alonso was? Sorry...

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Alonso Acuna Aramburú, Banco BTG Pactual S.A., Research Division - Strategist [20]

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Yes. On digital initiatives for direct sales.

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [21]

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Fantastic. I'll give a quick intro. And then I'll pass it over to Patricio, so he can actually provide further details. Even though -- the digital initiative is a company-wide initiative. Across businesses, we are developing many programs and projects, a few of them are already in place, that will provide additional growth prospects for us while at the same time strengthening the [rest] that we have both with clients and now with consumers as well. We have now already piloted programs in Peru specifically for our direct to sale effort. That is giving us a lot of insight as to how we can progress forward on that end.

On the B2B front, we have already been working on our marketplace effort before the crisis hit. So that effort and project will push even further our -- the sales that would potentially go through that channel. And the case of Vitapro, specifically, now digital is part of the value proposition to clients. We're already deploying new digitally based and analytically based programs in the case of Chile, the salmon production process, but also developing new products digitally based for Ecuador. But now to provide further detail as to the impacts on them of this initiative, for example, in a business like our Peru customer products, let me just pass it over to Patricio, so he could provide further details.

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Patricio David Jaramillo Saá, Alicorp S.A.A. - VP of Consumer Goods - Peru Division [22]

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Thank you, Alfredo, and thank you, Alonso, for the question. Yes, definitely, I would say, throughout this last 60 days, e-commerce has multiplied by 10, I would say, in terms of the current demand that we have had here in Peru, not only the traditional retailers who have been, I would say, exhausted by order takings and deliveries of people, obviously, using those channels so they remain at home. So we have strengthened our presence in those channels, working with Cencosud, Tottus and Supermercados Peruanos to increase our offers and to increase our presence and to maximize delivery and availability of products so that we can comply with current demand. We have also been working on providing consumers with 3 new marketplaces. One that we had in the past, it's been over a year that we've worked in a platform called Juntoz and we have added 2 new ones, [Lineo and Domingo] that we have started working since a couple of weeks on that end. We also started piloting telephone sales direct to consumers versus our direct B2B business that we had originally done for so many years. And we started doing that a couple of weeks ago with great results, and we plan to restart that perhaps doing next week.

And finally, since as Alfredo commented before, this is a company-wide initiative. So we are working strongly on developing an owned base e-commerce initiative that will serve not only our B2C business, but also our B2B, and we hope to have it in the very near future.

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Alonso Acuna Aramburú, Banco BTG Pactual S.A., Research Division - Strategist [23]

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Thank you for that. Very interesting. Maybe just one final question, if I may. I'm wondering, when you look at Intradevco, of course, you had a lot of demand in recent weeks. How has that changed? Or has it, your synergies, expectations for the acquisition? I mean, do you see that moving faster than expected or basically in line with what you were expecting before?

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [24]

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Thank you, Alonso. I'll make a quick comment, and then I'll pass it over again to Patricio given that it's his responsibility. Again, Intradevco, as we have been providing information to investors and analysts over the last few quarters, has been performing above our due diligence or acquisition case. And in all different fronts, growth-wise as well as synergies that we could expect from the different categories. Now the current environment obviously has pushed demand for almost all products that come from that acquisition. And you might imagine the results that we expect, at least for this year, are definitely above that for the acquisition case as well as what we call our IMO situation, which is our integration management office now exceeding all estimates that we have before. How sustainable this could be in the future? I will let Patricio answer that part. But we believe the acquisition was exactly what we needed, it's performing very well, and this environment not only actually provides us with even more opportunity to grow the business and more synergies as well. Patricio?

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Patricio David Jaramillo Saá, Alicorp S.A.A. - VP of Consumer Goods - Peru Division [25]

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Thank you, Alfredo. Yes. Definitely, Intradevco's product portfolio is -- has been in great position to attend this crisis. As Juan mentioned before in terms of our results for consumer goods in Peru, home care and household products grew almost 24% when you compare it to our results in 2019 for the quarter. And this is mainly driven by some of the products that Intradevco has, such as surface cleaners, bleach, also cleaning soaps and definitely dishwashers. So as Alfredo said, we have benefited from this increasing demand of those type of products, given, obviously, consumers' preference for this type of categories.

As how will this continue to move forward? We're still trying to understand how consumer trends and habits will continue to evolve over time. We do believe that cleaning products and personal care products such as hand washing, soaps and other type of categories related to this infection will continue to have an increase over time. And as I said before, Intradevco's product portfolio is well positioned to attend them. During the past quarter, bleaches and cleaning items have been growing more than 50%, 60% on a year-over-year basis. And we are confident that some of those habits will continue to expand as we continue passing through this crisis.

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Operator [26]

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At this time, we'll take the webcast questions. I will now turn the call over to i-advize.

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Rafael Borja, i-advize Corporate Communications Inc. - SVP [27]

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We have some questions from the webcast. And the first one is coming from Santiago Petri from Templeton. Does it impact any sense the wide gap between the official foreign exchange rate and market-based FX in Argentina?

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [28]

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Thank you for the question. As Jose mentioned, also Juan on the call, obviously, there is a lack of connection between what we see in the marketplace today and what we expect it to be. But I'll -- let me just turn it over to Juan for any potential additional insights on the matter.

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Juan Moreyra Marrou, Alicorp S.A.A. - CFO & Corporate VP of Finance [29]

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The exchange rate in Argentina hasn't moved as much as in the other countries. Eventually, it will have a negative impact, as Jose was pointing out in terms of the -- converting those into soles. But at this point, we don't see any major impact in terms of our overall results in the company. And yet to be seen how the impact is going to be in Argentina itself, but this is what I can tell you at this point.

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Rafael Borja, i-advize Corporate Communications Inc. - SVP [30]

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We have another question from Donatas Uzkurelis from LGM Investments. Do you see any potential disruptions in your supply chains if this crisis lasts longer? Do you expect your working capital position to go up again in the next quarters? Do you see opportunities for M&A?

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [31]

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The first part of the question related to supply chain. As we pointed out during the call, supply chain, but specifically within supply chain manufacturing, and within manufacturing, specifically, Peru has been the most affected because of the COVID-19. The COVID-19 is obviously creating a very difficult environment for our workforce. Meaning you have people that would be -- that will have the COVID-19 or that would think they have. And given that our very restrictive protocols, at the very end make sure that nobody gets the COVID-19 during the -- in the workplace, we are having a significant amount of people not being able to attend the workplace. So that could potentially consider to be another risk going forward? Yes. And to me, that is the main one. Again, if we can find that our workforce can actually attend the different production lines that we have, mostly in Peru, then we'll have a significant upside potential for the company. It will happen in a different direction, then that could potentially become a risk? Yes.

Then the second part of the question is about our working capital. The working capital, as you might imagine, we have -- as Juan also pointed out during the call, it is expected to have a negative impact as mostly our clients in certain sectors, in certain regions will ask for further cash, meaning extending payment periods. However, we believe that it will slowly come back, obviously, as the COVID-19 impact lessens its impact. So yes, we believe that will happen next quarter, that's our expectation. But again, we need to see exactly the extent of the negative impact the COVID-19 will have on a country-by-country and business-by-business basis.

On the M&A front, we are a company that we feel very confident in including M&A of us -- part of our growth strategy, and we have done a few deals in the last 2 years, have been very successful deals for the company. We have integration capabilities so that will remain as part of our strategy going forward. However, the current environment, obviously, we need to be very careful as to what we evaluate, the size of it, the place, and any -- all the relevant conditions. So we'd be very careful as to what are investments we make related to M&A. We believe there will come up opportunities. That's for sure. There will be some potential weak companies that will need -- that will come up for sale, we'll have to evaluate each one on their merits and then decide whether or not we're going to push the agenda. Again, it is our strategy, it is. However, we'll be very careful as to evaluating future M&A deals in the next few months.

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Rafael Borja, i-advize Corporate Communications Inc. - SVP [32]

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We have another question from Paul Trejo from GSAM. It's about working capital cycle. How sustainable is improvement in accounts payable terms for the Crushing business?

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [33]

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I'll pass it over to Juan for further details -- the answer to the question.

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Juan Moreyra Marrou, Alicorp S.A.A. - CFO & Corporate VP of Finance [34]

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Sure. As you can -- as you have seen in the presentation -- saw the presentation, the cash conversion cycle has improved quite a bit in the first quarter. That has been done through a number of initiatives to basically make our working capital more -- to work more efficiently. One of the many actions that we've taken there is basically doing some pre-export financing in the Crushing business, which has provided us with a lot of liquidity, which is very good. We do -- we actually will continue to try to do those in the next quarter. So that will definitely give us some additional liquidity in the next quarters.

Now as Alfredo was pointing out in terms of the overall working capital for the rest of the year, even though we may have some additional initiatives like the one I just mentioned about the pre-export financing initiatives, the accounts receivable definitely is going to help the negative impact in the next couple of quarters, I would say. And then we are also seeing that mitigating towards year-end. So that's kind of the overall picture there. I don't know if you want me to give you more color on that, but it's going to be very true that the average cash conversion cycle level towards year-end is going to be very similar to what we ended up at the end of last year. That's where we are reaching now.

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Rafael Borja, i-advize Corporate Communications Inc. - SVP [35]

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There's another question from Rene Le-Fort from MBI. It's about -- could you see in the next quarters any impairments due to FX and country risk in Brazil? And could you give more color on the Aquafeed business in terms of demand production? Have you seen recovery in shrimp business on April?

(technical difficulty)

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Hugo Carrillo Goyoneche, Alicorp S.A.A. - General Manager of VITAPRO (Aquaculture) [36]

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Here is Hugo. To answer about the Aquafeed business, to give you some colors about the demand of the shrimp market. We believe that we could have a rapid recover in our shrimp business depending about the demand of China. You know that China is by far the most important market in the -- of shrimp. So we believe that in the third quarter we could see a recovery of the demand.

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [37]

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Thank you, Hugo. It's Alfredo again. I'll take the first question -- the first part of the question on Brazil. I think what we expect today is already included in the impairment charge that we included in the first quarter results. So for now, we feel confident that we are covered. Obviously, if the COVID-19 crisis has a stronger effect on the Brazilian economy and specific in our business, we'll have to review that. But for now, we feel comfortable that the numbers are fine. And obviously, I mentioned before on the other hand, our results on this quarter as they were on the last quarter are performing very well, excluding those one-time charges. So we are confident that the business plan on the restructuring front is performing as we expected or even higher.

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Rafael Borja, i-advize Corporate Communications Inc. - SVP [38]

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We have one more question from Andrés Eyzaguirre from Moneda Asset Management. Do you have any visibility on when the price fix restriction that the government of Argentina impose will end? Which consumption products are affected by this restriction?

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [39]

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Jose, will you take that, please -- that one please?

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Jose Antonio Cabrera Indacochea, Alicorp S.A.A. - VP of Consumer Goods International Division [40]

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Yes. Right now, the restriction on taking prices on all essential products goes through the end of May. We don't know if that's going to be lengthened. Up until now, it's still the end of May. Now the federal government is also giving more leeway to regional governments to do their own restrictions. So we might not have just one common restriction across the -- across Argentina, we might have different regional restrictions as well. But up until now, it's at the end of May, and obviously, we are hoping

(technical difficulty)

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Rafael Borja, i-advize Corporate Communications Inc. - SVP [41]

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At this time, I'm showing no further questions. I would like to turn the call over to the operator.

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Operator [42]

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I would now like to turn the program back to Mr. Perez for any closing remarks.

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Alfredo Luis Miguel Eduardo Perez Gubbins, Alicorp S.A.A. - GM & CEO [43]

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Well, let me just thank you all once again for participating in our first quarter 2020 conference call. In case you have any additional increase or information request, please do not hesitate to contact us. Have a great day. And obviously, please you and your families stay safe. Thank you.

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Operator [44]

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This does conclude today's conference. You may disconnect your line at any time, and have a wonderful day.