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Edited Transcript of NUTRESA.BG earnings conference call or presentation 27-Apr-20 1:00pm GMT

Q1 2020 Grupo Nutresa SA Earnings Call

N/A Jun 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Grupo Nutresa SA earnings conference call or presentation Monday, April 27, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carlos Ignacio Gallego Palacio

Grupo Nutresa S. A. - CEO & President

* Catherine Chacón Navarro

Grupo Nutresa S. A. - IR Director

* José Domingo Penagos Vásquez

Grupo Nutresa S. A. - CFO & VP of Corporate Finance

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Conference Call Participants

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* Carlos Enrique Rodríguez

Ultraserfinco S.A. Comisionista de Bolsa, Research Division - Director of Equity Research

* Daniel Guardiola

Banco BTG Pactual S.A., Research Division - Director of Equity Research

* Felipe Ucros Nunez

Scotiabank Global Banking and Markets, Research Division - Analyst

* Johanna Castro Castro

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

* Juan Gallegos;Porvenir;Analyst

* Julian Felipe Ausique Chacon

Corredores Davivienda S.A., Research Division - Equity Analyst

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Presentation

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Catherine Chacón Navarro, Grupo Nutresa S. A. - IR Director [1]

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Good morning. Welcome to the Conference Results for the First Quarter 2020 for Grupo Nutresa. At the table, we have Carlos Ignacio Gallego, President of Grupo Nutresa; José Domingo Penagos, Vice President of Corporate Finance; and Santiago Escobar, Director of Corporate Finance. My name is Catherine Chacón, Director of Investor Relations.

After the presentation of results for the first quarter 2020, we will begin the question-and-answer session. The questions we receive through the webcast will be read verbatim. Those who have connected to the conference in English, we appreciate it if you send your questions using the webcast chat options. If you want to follow the slides in Spanish because by default they are in English in the webcast, you can download them from the platform screen. (Operator Instructions)

To start the presentation, I'll give the floor to Carlos Ignacio Gallego, CEO of Grupo Nutresa.

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [2]

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Good morning. We hope that you and your families are okay. Thank you for being with us.

To start this conference of results, we are pleased to share with you that on April 12, Grupo Nutresa turned 100 years old. This first century is the result of a common purpose of -- to build a better world where development is for everyone. This is the summary of thousands of efforts, triumphs, learnings, challenges met and a well-done job. This is the sum in addition of millions of shared moments with clients and buyers and consumers, and it's a history of gratitude, recognition and commitment with the people who have made it possible and to -- with whom the company managed to create a vision of the future focused on the being with a great sense of community and sustainability. Today, more than ever, the vision of Grupo Nutresa is on creating progress and development for everyone in a sustainable way with a firm purpose of ensuring a better future for the coming generations. Within the framework of its 100th anniversary, Grupo Nutresa will plant at million years -- 1 million trees. This will be done with more -- Grupo Nutresa will improve the quality of life. It will create revenue for close to 500 families who will have the maintenance of the trees until 2022.

Going to Slide #3. As part of the highlights, we would like to tell you about the appointment of new members to our Board of Directors. During the General Shareholders Assembly held on March 24, we approved the appointment of 3 new Board members who have the competencies and the experience required to perform their duties as well as the necessary skills to contribute to the achievement of the company's strategic objectives. The 3 selected were previously evaluated by the Appointing and Retribution Committee of the Board of Directors. As new members of the Board, we have Dr. Valeria Arango Vélez, a physician specialized in integrative medicine and many studies in the area of health. The presence of Dr. Arango is especially important vis-à-vis the objective of contributing to the well-being, health, nutrition and quality of life of the people. Dr. Arango is an independent member. As equity members, we have the participation of Juana Francisca Llano Cadavid, who is currently working as President of Suramericana de Seguros; and Ricardo Jaramillo Mejía, current CFO of Grupo Sura. With these changes, our Board of Directors for 2020 have -- has 8 members. Half of them are independent, including the Chairman of the Board, Mauricio Reina Echeverri.

Going now to Slide #4. As part of the special interest aspects, let me tell you how we are managing in Grupo Nutresa the challenges of the pandemic of COVID-19. As you can see in the slide, you can summarize the way we are acting vis-à-vis COVID-19 in some major blocks. The first one and the most important has to do with the well-being of the people, their health and their lives. We are acting with humanitarian sense, prioritizing the common good and implementing our values. Very early since March 5 this year, we created an Interdisciplinary Management Committee in charge of meeting at least once a day to evaluate the evolution of the groups and what happens in each geography where we operate. In that committee, we learn, we follow up measures implemented, and we make decisions quickly and effectively. We are -- with our staff, we're working in the most safe manner. We have closed 25% of our workforce working from home. We have large groups on vacation. And while the legislation allows it, we have advanced the vacation time. A very important work front is the education and training for the teams to understand social distancing, hygiene and protective equipment use are part of the prevention and containment and mitigation of the pandemic.

A major -- another major great block has to do with ensuring food supply for the society of front businesses an issue of responsibility that is why we have work teams dedicated to ensuring the supply. We're working, following the national and local authorities' recommendations. We have protocols, which are very demanding in every aspect, but I would say that the level of cleaning and disinfection of production plants, logistics operations and everyone who want to enter in our value chain are very important. These protocols we have developed are very innovative alternatives to receive and delivery orders. And we -- whenever we can, we deliver to the homes. This is the second plan that has to do with responsibility and business continuity.

As you can see the third block, we call it responsible management of resources and cash flow. Here, we highlighted we believe that financial soundness is one of the necessary elements to have resilience in such a changing and volatile environment. We have a net cash flow, which is adequate. And I would point out that the working cash flow terms is not new. In prior conferences, we have been speaking about the changes we have made in Nutresa not only in evaluating our organization based on sales and EBITDA but to give a greater importance to returns on investment and cash flows. So this pandemic found us with several actions being implemented. I'd like to say that we are extremely aware of the fact that Grupo Nutresa is not just the name of the company, but rather it is an ecosystem. And that around us, we have thousands of suppliers and small companies that depend on Grupo Nutresa doing well, so that value generation can spread out and reaches them also. So we have been working very consciously and responsibly with resources and cash in the company.

And the fourth block that I point out here has to do with contributing towards the solution. Our company is acting in public and private alliances to help protect the vulnerable populations by making donations to improve the capabilities of the health systems, donating food packages that benefit more than 710,000 people in 18 cities around the country, making similar donations in Chile, in Costa Rica, in Mexico and making donations and joint work with local governments and institutions and lastly, working in agreement with the trade associations to suggest alternatives for national and local governments.

If we go to Slide #5, we show how we have a sound position to get around this difficulty. First, we have the ability to continue generating revenue because of a portfolio that is diversified in 8 business units because most of that portfolio is focused on the everyday consumption foods in homes. For several months, we have been growing mostly driven by volume. And because we have been concerned also with accessibility being within the consumers' reach. And very important also because the organization has had the capability to adjust quickly in the middle of such demanding and challenging circumstances. This first aspect that we point out in this slide has a lot to do with the diversification of categories and channels.

In the second place, I'd like to speak about the diversification of raw materials and hedging practices. You know that -- notice we have a diversified cost structure that no raw material is more than 11% of our costs. We have a global purchasing strategy. I was pointing out probably in the last conference we had that about 80% of our supplies are local, but we have more than 20,000 certified suppliers globally. And part of our job is to care for those suppliers. The volatility we've seen has been managed with financial hedging, with physical inventories where possible and more with risk management criteria to lower that volatility and avoid shortages in our chains. We have hedges. We have for the medium and start of the long terms. And in general, this is a look at -- our efficiency has a lot to do with the strategy and has to do with sustainability at Grupo Nutresa.

The third place in this slide, I'd like to point out the importance of our distribution. With these channels, we reached more than 1.4 million sales points where we are also in the modern chain, the traditional B2Bs. We have alternative channels and direct-to-consumer reach. This has given us a very major power vis-à-vis the competitors in the current circumstances. And our own distribution in the reaching the clients is the strength of Grupo Nutresa that is being seen much more in these times. And to reach the consumer directly, we're working in alliances with aggregators for home delivery. We're working strongly in e-commerce and in doing direct shipments. Many of our digital integration plans that we have been implementing and have been tested here and have been accelerated some of those that we have for later on.

Going on now to Slide #6 and talking about now is our position to face this difficulty. I'd like to say that the programs of productivity and efficiency are important more than ever because the pressures we are feeling to maintain a good gross margin make productivity as something that we have to develop and apply. That is where we have the commitment to control our management in sales expenses that's why these circumstances were in some categories. We have excess demand and others. Our shortages make the possibility of managing the advertising, marketing and administration costs has to be done very judiciously and that we have a major focus for productivity and efficiency.

In the second place, I'd like to say that the capital structure and risk -- the foreign exchange risk management is key. We came to the situation with a moderate leverage. We have no foreign exchange risk. We have no debt in dollars that is exposed. Because of our financial strategy, we decided not to have it. And we did a preventive rollover of our credits this year. And that means that we don't have to serve our onerous debts, so what we have is very manageable. We'll talk further about that. We have a centralized cash management usually like a control to our -- for liquidity, very strict in daily monitoring. And we have, as I said, a very healthy cash position. That doesn't mean that we're going to become careless. And we don't have the need to have a short-term debt for financing our operations.

And lastly, in that slide, I'd like to tell you that these circumstances are also appropriate for us to review our planned CapEx expenses. Our productivity and logistics capabilities are enough to meet the excess demand. We know that there are very important peaks, but we've been able to make most. Secondly, what we are doing is optimizing the CapEx for 2020 without compromising the business sustainability for the long term. We estimate that we can reduce by 30% our CapEx that we had intended initially without our long-term innovation productivity projects having to be sacrificed.

And to complete this section on the key issues for this period that we are reporting on, I'd like us to go to Slide #7 where we see how our portfolio is defensive in the current environment. We have business units that have positive dynamics in these circumstances. You can see on the left side of the slide our business units. Those that have positive dynamics are packaged meats, cold cuts and coffee and chocolate, which, together, represent 87% of our sales and produce more than 85% of consolidated cash flow for the group. The businesses that have been having some effects are consumer foods, retail foods and ice creams because these are believed to be more sensitive and discretionary businesses. And in both, we are implementing strategies to have direct consumer reach, alternative orders and to mitigate the lower visits to restaurants and lower consumption. Later in our revenue structure, we'll give you more details about these strategies.

On the right-hand side of the graph you can see how -- what the distribution of the channels is like. Interesting thing here is that with respect to channels, 74% is having a little excess demand in some of the cities where we are acting that's why we're saying that the portfolio of Grupo Nutresa, both businesses and channels, can be considered as a defensive portfolio.

We now can go to Slide #8 where we'll see sales during the first period for this year. In Colombia, we reported a very good business dynamics during the first quarter with sales for COP 1.626,6 billion, up 15.5% of sales. With except of the retail foods, all businesses have a very positive behavior. We should mention that more than 80% of this growth comes from higher volume, which increased 13.2%. In turn, prices increased 3.5% mostly because of changes in the product mix during the period. Our organic sales, excluding the acquisition of Atlantic Food Services, are COP 1.571,8 billion, growing 11.6% with a volume that grows 10.9% and prices growing at 0.6%.

By business unit, we highlighted double-digit growth of the pasta, cold cuts, biscuits, ice cream and coffee. The chocolate business has an increase of 6.7% in revenue as a result of higher volumes in its major categories. In retail food, we have a decrease of 1.9% during the period mostly due to the lower business dynamics over the past couple of weeks of the quarter due to the mandatory quarantine measures in the country. To counteract this effect, we have implemented several mitigation strategies, which include enabling e-commerce stores, integration of contact center to create home deliveries, extreme hygiene and additional care protocols, so the consumers can receive their deliveries with safety and confidence, strengthening our alliances with aggregators and external delivery services, create alliances with other restaurants to reach the consumers on a timely and safe way and promote -- actively promote these new solutions through social networks and technological platforms, in general, we could say, with good acceptance by the market.

Now in the lower part of this slide, we can go to international sales. During the period, we reported revenue for $291.4 million with a growth of 9%. In Colombian pesos, these sales are COP 1.032,8 billion with an increase of 23.3%. The development of the period is 12.7% vis-à-vis the same period in the previous year. The organic sales growth outside of Colombia, excluding the acquisition of Cameron Coffee, is 2% in dollars and 15.3% in pesos.

When we look at this by business, biscuits has a good business dynamics in this main platform as well as a double-digit growth in exports from Colombia. TMLUC has a 7.3% growth in its functional currency. But when we include the valuation of 20.2% of the Chilean peso vis-à-vis the dollar, revenues decreased by 11.3% in dollars. In the coffee business, we reported an organic growth of 30.9%, which when we include the sales in Cameron's Coffee, reaches 21.2% compared to the same period in the previous year. In chocolates, we had a decrease of 5.3% as a result of lower volumes in our Peru and Mexico platforms, which are platforms where our sales mix is more focused on snacks.

In retail foods, we have a similar effect to what we mentioned to our operations in Colombia. Good growth in the quarter and lower sales in the last weeks of March because of the quarantine and social distancing implemented in the countries where we operate. In the cold cuts, we report revenue for the growth of 10.6% in dollars with a good business dynamic of this portfolio in Panama and a significant recovery in exports from Colombia because of the release of the sanitary measures in some destinations. Finally, we can point out the exports from Colombia for $71 million, growing 26.4%.

Going now to Slide #9, we see that when we combine the good performance in the countries of our strategic region, we report consolidated sales for COP 2.659,3 billion with a growth of 18.4%. When we exclude the acquisition of Cameron's Coffee and Atlantic Food Service, the growth is equally significant, 13%. The results reported during the quarter include some weeks of high volatility and major changes in the way we operate, which invites us to continue managing our group in a responsible sense of manner, collective sense innovation and major adaptability. I don't want to leave out the fact that innovation is still a major driver for growth. Our innovative sales during the quarter were 22.1%, not including the innovations and the new acquisitions. I must also say that there's a lot of innovation behind the way we are working, taking care of ourselves and growing.

In Slide #10, we can sales by region where we highlight the growth in Central America, the U.S., Dominican Republic and Ecuador during this period. Sales in Colombia represent 61.2% of our total sales, and revenue from the international platforms are 38.8% of the total. You can see that the U.S. is now the second geography in this geography reaching 11.6% of sales. Central America is the third with 10.3%; and Chile, the fourth, with 7.4%. And we maintain a very interesting geographic diversification.

With respect to raw materials and now going into what has to do with profitability, Slide #11 shows how our commodities index for Grupo Nutresa. The average for the first quarter 2020 has a higher level to that recorded during the same period in the previous year. This is the result of a higher weight of reference in raw materials such as pork and chicken proteins as well as wheat and oils, cocoa and sugar. However, and compared to the immediately prior quarter, we can see that we have a downward trend in the main basket due to the lower reference price of some proteins, oils and coffee. Let us remind you that the local prices -- because this is just in dollars, the local price of -- in -- for some of these commodities do not necessarily follow the index trend, and the rate of exchange affects the final cost of the imported products for those that have the index to the dollar. This is extremely important because several of our geographies, the devaluations pushed the local cost upwards of our inputs.

In the right-hand side of the graph, you can see the cost composition for the first quarter. It has a similar trend to those for previous periods where you can see the packaging material is one of the important items. And then we have coffee, pork and wheat as the most important in the composition of our cost in -- during this period.

To go more deeply into profitability and financial aspect, in general, I give the floor to our CFO, José Domingo Penagos.

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José Domingo Penagos Vásquez, Grupo Nutresa S. A. - CFO & VP of Corporate Finance [3]

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Thank you, Carlos Ignacio. Greetings to all of us who are with us in this conference, and I hope that your families are also well.

To start our analysis of profitability and financial statements, please go to Slide #12 to evaluate the generation of EBITDA of our business units and the entire group. This slide shows, first of all, the generation of COP 371 million (sic) [COP 376.1 billion] with a margin of 14% -- 14.1%; very good growth, 17.5% growth.

Before we start with the numbers and the business units, in conceptual summary, as you could see from this generation of EBITDA, it's a very good business dynamics, as was shown that for profitability had very good results to dilute the costs and expenses, especially the volumes are very active in growth. Second thing is also I mentioned the pressure on the costs because of the raw materials. Because of the rate of exchange -- the incidence of rate of exchange also, all of them are made probably with the exception of Central America and Costa Rica, all the other rate of exchange are very -- going up or devalued, and that has an impact on the cost. We'll see that in the financial statements. But good management that we balance that very well in the final equation. It has a very good balance not only in EBITDA but also with the returns and the generation of cash for the group.

After that, we have profitability results for more businesses. For example, biscuits, cold cuts, coffee, ice cream, pastas, very good business units with good dynamics in profits and other businesses that they have the effects of specific situations. For an example is the effect of the rate of exchange on cocoa affects the chocolate business. We already had some spot prices very high for cocoa in the first couple of months of the year. But we have had very good opportunities over the past several weeks, especially -- and we took very good hedging, but this accumulated for the quarter is reflected somewhat here. And the analysis of these business units will be done further. We'll also have effects in Chile because of the economic situation in the country in the first couple of months and the effects of the quarantine and social distancing in some countries where we operate.

In the retail foods, and perhaps to start analyzing by business, consumer foods, retail foods, obviously, there's a significant variation in the 24% in the EBITDA margin of 16.8%. We are no longer referred to -- in fact, where the rentals or the leases are important. And as we mentioned earlier, the -- due to the quarantine, we've had a focus on home delivery to maintain a very active commercial part. But in our cost and expenses that affect profitability, the key factors in addition to people are the other leases or rentals. We've had a very good support from the structure of the transaction. We acquired the operations, not the properties. And we received very good support in some cases. Before we went to negotiate with them, they've had some proactive work of the owners of the shops, so we have some evaluations that we have been evaluating. What we have is the effect of the quarantine. We have to -- during the quarantine, we have to manage the administration expenses. This is the most important impact on profitability.

And now let's go in order by the business, starting with biscuits. It's a very, very sound block biscuits, cold cuts, chocolates and coffee that we could call as the more mature and larger businesses -- mature, but we have to reinvent them constantly. And in biscuits, we use the description, it's a good balance. We saw that commercially. It has presence in several countries. The balancing rate of exchange is very adequate. We had good export dynamics, and exports rate of exchange is positive. Obviously, it has impact on the -- on -- we put that balance allows us to show you the numbers that we see here, good dynamics, good growth, good margin, very sound, very well-balanced business.

In the cold cuts, another major important basis for the group's good sales behavior, I explained that. This also has effects on the fixed costs, very good control of expenses. And in costs, which we had some important pressures over the previous years for several months, in proteins, especially, we have good behavior. We've been capitalizing on that. And we move forward in hedges, especially in pork, internationally. Remember that we also have very important suppliers for pork locally. And we've had very good prices. All of this is an equation for value and allows us to have a good behavior of the margin and for the EBITDA that is shown by this business unit.

Then the chocolate business unit, as mentioned, the impact of the rate of exchange on the cocoa. Remember that I mentioned it's always close to 60% of these raw materials has -- even when we import them or buy them locally, they are indexed to the dollar. That's cocoa. We buy cocoa all over the world but mainly in Colombia. And its index tied to the dollar, and that's had felt that pressure on the cost.

Coffee as a business unit has a very good dynamics. And we spoke about the commercial effect, very local business dynamics. And we add to the importance of the international sales of that business. We see that the behavior is excellent. The EBITDA is COP 64,000 million. We have a very important growth of 156%. And not only because of the business dynamics in Cameron's but organically, also very good behavior, these numbers without Cameron's are still a margin of 17.4%, a variation of 120% variation, which was a very sound organic level and good progress with profitability.

Then the TMLUC, a remission of the effect of social issues from beginning of the year. But at the cost level, the most important is that these have pressure on the distribution locations during the period. The most important for the EBITDA is a margin of 12.2%, but it has a decrease of 16.4%.

In retail food, I already mentioned that in more detail. Now let's talk about ice cream, good margin, 16% -- 17%, good scale economies, the business dynamics, especially the first 2.5 months of this period, very good. And that allows us to achieve this scale -- economies of scale to dilute the costs. After that, we have the impact due to the quarantine in Colombia, but we have very good results for the quarter.

And pasta is a business unit with a very significant results, a margin of 13.5%, growth of 18.7%, has a good trend, good level of consumption. In pasta, we are full in our pasta plants. It's nothing new. Most of these business units already had very good percentage throughout the period over the past 2.5 months. And when the quarantine came about, our demand, we have capitalized that. That is the effect of the EBITDA.

And let's go to Slide #13 to speak about the financial statement. Let's make some general operating comments. Now I'll give you some details about the first profit. This is a quarter for COP 2.6 billion. Carlos mentioned that 18.4% growth. Organic growth is 13%. And this indicates that the business that we had and the acquisitions, especially Cameron's Coffee, have very good results. Commercially, this is a very sound dynamics. The costs I already mentioned that we have seen the impacts on the numbers. We have an impact of 160% -- 150 basis points. We have our -- mainstay of our profitability gross margin historically. This is a fact that here, the devaluations in all those countries have a significant effect to which I already mentioned. But what -- this is to show you the numbers, the balance in the equation in the expenses. You see all this entire block of administration sales and production expenses has growth of close to 13%. So the revenue growth 18% and expense growth of 13%. We recovered almost 150 basis points. The entire log goes from 34% to 32.5%. The group expenses, COP 161 million, but this 150 basis points help us recover the operating equations of how the rate of exchange affects that I mentioned earlier in operating profits of COP 156,000 million with a double-digit growth, 11.5%. Because of the rate of exchange, because we have export and operation, because differential exchange in post operations, which net us out close to COP 14 million due to our operations between suppliers and receivables and payables vis-à-vis the effects of the rate of exchange, the positive is even more significant.

And the middle part, which is the exchange of assets and liabilities, this is due to our hedging operation. All our hedging operations, in this case, have had this effect. So the net results on the financial effects of the impact is very -- is positive in the financial statements. The growth is double digit. And in the lower part, post op, we have a good performance of our financial revenue. Due to the group's cash position, we have a differential rate of exchange, which I already mentioned. And in participations of some associated companies, we have an impact from COP 6,000 million, but we don't believe it is material for the numbers of the entire group.

Then we have the taxes. I'd like to make a special reference because they have a current income tax growth of 20% -- 34%. But we have 3 major impacts. One, we had tax benefits from previous years. This was in Chile. And what we wanted to do is to simplify the societies of the company in the group. This improves our efficiency, but it's much better from the structural point of view. That will be close to 100 basis points. Remember, due to the tax reform, we have higher nondeductible expenses this year. And withholdings in revenue from overseas are not deductible. These are 280 or 300 basis points. And the lower use of some tax benefits, companies -- some companies that I mentioned in the previous conference to which the stability -- legal stability agreement expired last year. But it's good to maintain your perspective, although -- and we have an increase in profits in operations, so that increases at least the calculation of these taxes.

What I wanted to highlight about the perspectives, we have already tax rate of around 26%. Last year, it was 20%. 26% is a very good rate compared to current rates, although it is -- we have an effective rate, which is very -- with a very good structure.

After taxes, I will talk about net profit, COP 190,000 million with a growth of 9.1%. This is for the first quarter of the previous year -- compared to the previous year.

And I'll end with Slide #14 with the debt situation and the CapEx for the group. So first of all, the number is COP 2.9 billion. In the net -- the indicator is 2.37%. We took some credit -- treasury credits very quickly after the committee set up to which kind of [judgment] of the first several weeks. It was very difficult to foresee what was going to happen. We had to be very careful with the resources we took from the market. We had to do that very responsibly, but we had to have this scenario. So we triggered COP 226,000 million treasury trade that are seen here. The message, we practically ended within -- there's -- we modified what we had last year. On this date, we still -- even when we had new debt from treasury in very favorable conditions, as we mentioned, this in time, that has a cost of 5.7% and we believe which is very competitive vis-à-vis the growing market conditions and very good expiration like 4 years, it can be extended. So we took out debt, but it's very healthy. This has prices with a healthy leverage indicator compared to the maturities. We took these credits. We also renegotiated the rollovers that we had for the year. So what we can tell you is that for the first quarter, we have no payments for that. And the trenches that we have for the second quarter are no bigger than $70 million. And for the size of the cash for the group are not at that levels that cannot be manageable, and we are managing those maturities no matter how small they are.

Finally, after all of this is reflected in returns of 9.1% compared to 9.3% for the previous year, let's talk a bit about or remind you the value of the CapEx that we had in the budget, which was adjusted by 30%, COP 240,000 million. And based on that, we are going to be making the adjustment to which Carlos Ignacio alluded.

So this is my part of the financial analysis. I give the floor once again to Carlos Ignacio who will tell us about his vision and outlook for the future, for the following months, and then we'll have the Q&A.

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [4]

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Thank you, José Domingo. Vis-à-vis the outlook, I'd like to start by saying that all the companies around the world are facing an extremely changing situation and, as you all know, unprecedented. As I mentioned earlier, in our case, we have a position, portfolios and channels that gives us a defensive nature. But I'd like to be very clear, we know that defensive doesn't mean invulnerable that is why we are managing our company with all the care, major responsibility, but also taking advantage of the flexibility that our organization has and our capabilities, not capabilities that were developed in plenty of days or months, some things that we've been working with the past several years that have been proven to be extremely important now.

Now in the midst of the situation and with the uncertainty that we all know, what we expect for the next few months is that the positive demand will continue for basic foods. We said earlier, it's almost 87% of our business, and that positive demand will cover the effects in our categories in -- even continue to grow. So we see with some businesses and, in fact, in others, we have lower demand, but we believe we're going to continue growing in the coming periods.

With respect to profit levels, we see a favorable trend in commodities, volatility in the rates of exchange, which will put a pressure on the cost. But with the use of our hedging strategies, very liquidity management, very important now, efficiency and productivity will enable us to continue to have adequate returns.

Especially, I'd like to point out in the outlook the major challenges that you see in a company like Nutresa. I could name them. One is human risk that we have to do because that is what the priority that we assigned to take care of our people, life and health. All to the others, they have to do with business continuity where, as I mentioned, we look at this very responsibly, so we will not be short of food in our consumers' tables where we act and those that might come from the effects of the demand due to macroeconomic situations in the regions where we operate. So this is a cautious but positive outlook. What we're saying is that we are going to be growing, and we're going to have adequate returns.

With that, I'll give the floor to Catherine to go to the Q&A section.

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Catherine Chacón Navarro, Grupo Nutresa S. A. - IR Director [5]

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Thank you, Carlos Ignacio. Now we'll start the Q&A session. Right now, I give the floor to Sylvia, so that she can help us manage the questions we have on the audio.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Carlos Enrique Rodríguez, Ultraserfinco S.A. Comisionista de Bolsa, Research Division - Director of Equity Research [2]

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Carlos Enrique Rodríguez from Ultraserfinco. Congratulations for -- on the results at this time. My question is about the cash position. What could we expect with respect to working capital, accounts receivables? Could you see any renegotiation by those receivables or any significant variation from suppliers? Also, are you going to extend the maturity of those payables?

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [3]

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Thank you, Carlos. Let me take that. The working capital is one of the most important part of our liquidity management always and currently. Of course, by chapter in -- to protect our cash flow, this collection is key because we have very major sales in supermarkets and neighborhood shops. With different frequencies, both have been operating very well. We are seeing compliance, especially in those 2 areas of cash, and we have no specific alerts with respect to receivables. With a good management of collections, the responsible thing is to do proper payment of our suppliers instead of any extraordinary renegotiation with these. Our main focus is to comply with stipulated times, as we've always done, by evaluating the size of the various supplies but not making any differences. Together with something that's measured with the good consumption we have of inventories, the cash we're getting from there and good collections, our focus -- and it's practically the same days in the 3 magnitudes of the working capital at the end of the first quarter. As the same as at the end of last year, we're collecting well, and our focus is to pay our suppliers on time without any extraordinary measures.

Vis-à-vis the small suppliers, I was mentioning the Grupo Nutresa as a major ecosystem. We haven't had to apply any extraordinary measures because Nutresa, we're already paying small people there as well. And we are very careful because -- especially those who have a major labor component receive their payments, I say, between 1 week and maximum 2 weeks and the others around 2 weeks. So the working capital management and improvement are not going to be drawn by strangling our small suppliers. We are aware of the major responsibility we have. When I said responsibly, public job protection is one of our key social fronts where we -- companies can make the biggest contributions. And we see that so we are going to be well behaved. And the payments that we are making on time and that what we receive on time, we are paying on time. The frequency is weekly. This -- we have -- the frequency is weekly payments. So we maintain our weekly payments as scheduled.

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Felipe Ucros Nunez, Scotiabank Global Banking and Markets, Research Division - Analyst [4]

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Felipe Ucros. Congratulations for the results, and good luck for the way you're leading the crisis. Very quick question. Can you tell us the organic EBITDA growth?

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José Domingo Penagos Vásquez, Grupo Nutresa S. A. - CFO & VP of Corporate Finance [5]

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Of course. Lend a second, you can go to the other question.

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Felipe Ucros Nunez, Scotiabank Global Banking and Markets, Research Division - Analyst [6]

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The other one is about capability or capacity. The demand has been -- Nutresa, especially, pasta, where sales grew 23%. Can you tell us a bit how the capacity is like in different plants, especially in those categories where demand is so high? Are you being able to meet the demand? Or are you having to use inventories? And will there be a time when you won't be able to achieve this?

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José Domingo Penagos Vásquez, Grupo Nutresa S. A. - CFO & VP of Corporate Finance [7]

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Now before you answer, it's 14.3% there. So it's out of that 17.5%, most of that EBITDA growth comes from operations.

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [8]

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And Felipe, vis-à-vis the question that you asked about capacity, Grupo Nutresa has 47 plants in different geographies. And when we think about the capacity, the first thing is people. So everything that has to do with protecting people, care, the way we organize in small crews. So that in case somebody has any symptoms of a cold, we have to isolate the lowest number of people possible is extremely important. And I would say that the first part of the capacity is the willingness, the commitment and the sense of belonging. And there is where, in this company, it's an exceptional aspect.

Secondly, when you speak about capability or capacity is to grow the plant and then about the distribution centers and transportation and lastly, about the capacity of our overarching services. Plants, where we've seen the most demand in Colombia is in the pasta plants. We have in Colombia 2 plants. We also have 2 mills, which is extremely important.

And I would start with raw materials. Fortunately, due to the planning systems that we had and the reaction capability, I would say that with 1 or 2 exceptions, very small exceptions, in general, we've had the input, and we have been able to react to that major demand. And I think that we were not going to have a major problem in the short term.

Secondly, with respect to -- I see this is the distribution centers, there was a major pressure because some of the supermarket chains began to ask us not to ship to their major distribution center but rather to do store-by-store deliveries, and that made our transportation multiplied several times. What was 1 trip became several trips, but we've taken advantage of our available capability from other sectors and have been able to combine our own capability with the capacity of all the third parties. And we're doing good, okay, and we still have the possibility by combining ships to do more.

With respect to our plans in the shelves, I say the highest pressure was on pasta. After pasta, we had perhaps biscuits and thirdly, cold cuts. In pastas, we have 2 plants -- production plants. They've been working 24/7. And this week, we start an expansion of 1 of the 2, those references that harm, a more importance for clients, consumers and buyers. But in general, this is a stage where the level of service is an extremely demanding indicator. And as you mentioned, knowledge of other group that you have in pastas is where we had the most pressure.

In biscuits, I would say we are at levels where we still have some room to grow and deliver more products in the other businesses also. But we've been able to achieve that good balance. I'd like to point out, because you are going to ask that later, that one of the obvious things in this pandemic is that the consumers have made a difference between what they believe as most essential and those that is not essential, and they prioritize differently their purchases. And what we are seeing in Colombia, we're seeing that -- we are seeing, as seen in Chile and in the Central America. And we're seeing that in the U.S., those categories that are the basic consumption for the home are having higher demands. And it's very natural that while it's not being spent in entertainment and in food outside the house, it is being used for people who are -- many people are cooking at home where we prepare many of the ingredients. So yes, the most pressure is on pastas. We have additional capacities, but we're working on doing it better every day. And the combination of people, our [action] services, including supplies, distribution centers, transportation and manufacturing, that entire chain where we are also tied to our suppliers and our clients is what makes it possible to show the results that I show you today.

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Felipe Ucros Nunez, Scotiabank Global Banking and Markets, Research Division - Analyst [9]

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Carlos, can I ask you last question in ice cream? It was impressive how you were able to grow in spite of the last couple of weeks. Can you give us a bit more idea? Was there some inorganic and -- or were just a recovery of the division as we hand out in the earlier months? Could you give us a little more idea about ice cream and what you expect for the next periods?

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [10]

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The ice cream business, until the end of the second month but since the beginning of the year, we had very good trends. We're recovering volume and growing significantly in sales, improving their returns. And when this pandemic came by, we begin to see more impacts. The first thing is that the results that we showed are a combination of 2 periods, which were extremely good with another one that had some negative impact over the month. In the highest impacted period, I'd like to remind you that in ice cream, we have a category of juices also. And that juice category behaves as the defense [made] there may be orange juices, which are high in Vitamin C, and people have received very well the country-held brand. So they compensate a little bit. But we are doing a major task in ice cream, which -- and also selling home delivery in pharmacies through our digital channels during major reinforcement of telephone sales, trying to innovate to develop the take-home because the consumption of ice cream in Colombia has been strongly in impulse sales. But if you can go out on the street, impulse sales on work as a take-home has to grow more. We were hard hit and that this -- during the second quarter, is not going to be as good as the first, but we have positive indications that those strategies that we are applying are beginning to work. So I believe that we're going to have some impact, but it's a -- it's very strong, and it's -- that negative impact is what we're going to be learning after we get out of these quarantines is going to be an additional layer that will make the business stronger in the future. That is the reason why it was a good quarter and what we see for the future.

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Catherine Chacón Navarro, Grupo Nutresa S. A. - IR Director [11]

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Catherine Chacón for the web questions. We have one question from [Juan] (inaudible). Juan says, could you go more into the physical hedging strategies and raw material prices? Keeping in mind the pressure on the commodity prices, what are the periods you've handled for those?

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [12]

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[Juan], let me ask -- answer your question. The structure of our hedging, our financial markets and we have physical market hedges in products such as cocoa and coffee. So we're always in the midst of a complex situation. We also have opportunities. And the commodities is where we not only have seen them but we have used those opportunities. In international prices as in general, we are long -- we have very good positions in all these commodities that we mentioned. What I was telling you in coffee, we have almost 75% of coverage. And this is an example. Also in physical hedging, we're advanced. This is also in terms of coffee and in cocoa, but it's the combination of both. And right now, in their international prices are an opportunity for the group. We have already had some parts of 2021. In commodities like ours, the prices have been more trending to decrease, and we've been using that.

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Catherine Chacón Navarro, Grupo Nutresa S. A. - IR Director [13]

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Thank you. Another question -- 2 questions from [Daniel Cortez from Corficolombiana]. First, what are the efficiencies that you are implementing that we were able to manage the operations and had good balance over the period? And about the repurchase program, are you not going to implement that part of the repurchasing program?

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [14]

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Thank you, [Daniel]. Let me take the second part, and José Domingo will answer the first part. The recent Shareholders Assembly, the assembly approved share repurchase -- stock repurchase program for 3 years for COP 300,000 million. We are very clear when we disclosed the project in the previous investors meeting when we were telling you that, that program is an option that the organization has so that the Board of Directors can analyze whether the situation is appropriate or not, can decide to take the step. It's an option but not an obligation. If -- although in previous weeks, the price of the stock had gone down significantly because we're seeing recently that -- we're seeing some recovery recently. The Board of Directors during this meeting has a possibility to analyze, obviously, as we said, under these circumstances. It is not just that we have the appropriate conditions to do so, but the liquidities also allows it. And what I believe is that the Board will keep in mind not only the conditions that make it convenient but also the fact of protecting liquidity because I've been mentioning all throughout the conferences, we are in a very volatile situation, and we have to be very cautious in every decision we make. So I think that -- I couldn't say that we are not going to know it because, quite frankly, it's a possibility that the Board of Director has. What I can tell you is that we'll certainly -- they will keep into consideration -- take into consideration the liquidity. The advantage is this is also -- this is a 3-year window that they have to do so. According to those conditions and possibilities, they will make the best decision for the company.

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José Domingo Penagos Vásquez, Grupo Nutresa S. A. - CFO & VP of Corporate Finance [15]

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About the efficiency. Don't forget that the upper part also, you have an effect of efficiency, which is a growth of volume, and solid growth and sustained growth of volume help a lot to the -- dilute the cost and expenses. With respect to expenses, we have savings in every area. In administration, we have a decrease in marketing also [demand], expenses related to push without expenses that we don't have to dispose of the products in the market. The mix is another impact and has an impact on the value creation for their segments or categories and businesses, the major businesses in the group, and have good EBITDAs help a lot with the balance.

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [16]

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And last, I would say, expenses from this contingency, which are not implemented, for example, travel expenses, some fees, which also help a lot through have a different mix with the difference -- the decrease in some expenses to other market. I could also -- and as I said, that over the past several years, we've been implementing programs to improve our return and the flow, and those programs are still going on. They are all going on, including measures such as the ones that José Domingo mentioned. So it's not that we have a plan that we started 1.5 months, no, the fact we've been doing it the past few years, becomes more important under current circumstances.

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Catherine Chacón Navarro, Grupo Nutresa S. A. - IR Director [17]

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Thank you, José Domingo and Carlos Ignacio. We'll continue with a question from Omar Suarez from Casa de Bolsa. Two questions. I'd like to know what the experience in e-commerce has been like. What have been the major challenges and the results? And the second is, do you think you can change from 12% to 14% EBITDA margin? And what were the guidance for the -- the new guidance?

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [18]

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Let me take the 2 of them. First, thank you to Omar for your -- being with us. And I'd like to talk to the e-commerce. No doubt, and I was telling earlier, one of the results of this special situation has been the acceleration of the digital initiatives in our company and generally, in companies around the world. In our case, we have several e-commerce platforms, which do not represent major percentages in sales. They're so small in our channel mix but have had very significant growth and very significant that they double or triple. And that normally, they put a pressure on other processes that are connected to them. I think that in our case, one of the major challenges has been to connect the logistics to those e-commerce initiatives because they're not just capturing an order but also how to have the appropriate logistics to deliver those goods, products and services to where they should be. Well, the time line is what people need. One of the things that when there's some fear of lack of supply is that nobody wants to buy something that will not be delivered on the same day, for example. So the delivery frequencies have become shorter, and that put a pressure on the existing capacity for third-company home deliveries. That's where we wanted to create, for some business, we created our own call center to have our own delivery service.

Obviously, the way to work digitally is a way that is constantly [in the field]. These are initiatives that are polished, improved every day and have been allowing us, in our case, for example, to review the way in which we take orders. We review the way in which we plan the entire supply chain, and we order the logistics around it. So my summary would be, we have doubled or tripled and we have many initiatives, in general, things that were for the middle terms, we already did that and are ongoing. And the digital is -- has also some connection challenges with other factor because the solution is more an ecosystem that will operate that includes banking, logistics, that combines their own capabilities and third-party capabilities. Growth is very important, but we're still at Nutresa, and no business has major figures that are bigger than in other channels.

The most interesting thing here is that these are capabilities that are not only for this contingency. These are things that are going to remain and will continue to grow. Secondly, the other questions I answered over the guidance. When we -- this is the last year that we're facing with the goal that we have set up. In the second quarter of the year, we intend to release a new aspiration, a new major goal. We have not stated here yet. What we have said is that we want to continue to grow and that the returns and flows are going to play a very major role there. Not only the EBITDA by itself. The EBITDA, I think, we having a good EBITDA is very important. It's an indicator that has a correlation to others. But very likely, the growth, returns and flows will be a protagonist in those aspirations for the group. Thank you very much.

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Catherine Chacón Navarro, Grupo Nutresa S. A. - IR Director [19]

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Thank you, Carlos Ignacio. The floor to Sylvia to continue with the Q&A through the audio.

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Operator [20]

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Johanna Castro from Itaú.

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Johanna Castro Castro, Itaú Corretora de Valores S.A., Research Division - Research Analyst [21]

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My question is more conceptual about the -- what you can expect with respect to trends after the quarantine. I know it's very difficult to imagine how you're going to be operating after that, but I think there's a series of clear trends, such as the use of frozen foods in which necessary to produce products that are no longer there. Have you begun to do innovations and that type of things? What do you imagine the scenarios after the quarantine in different regions? That would be my question.

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [22]

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Thank you, Johanna, and I'll be glad to answer your question. You tell us that you know it's complex. We are in the frozen foods, and they're growing extremely well. What we did was a transformation and consolidation of the brands, and they are doing extremely well. And we have those frozen foods, for example, in 2 versions: one is the foods that are part of celebrations or meetings that are closer to the snacks, and others that are complete dishes or meals. Let me go to the generality. Mind that in so many geographies, there might be some different nuances. But first of all, these quarantines in the countries have made people once again go back to dare to try to prepare their foods at home. And that is why this convenience in preparation is extremely important. I believe that it's one of the reasons why our cold cuts business has been doing so well during this period because it offers an alternative good case, excellent quality, security or safety because they have all the safety, hygiene, all the backing in hygiene and health. But they also lend themselves for quick and easy preparations at home.

So one of the things that we believe is going to happen is that we're going to have some reactivation of those food preparation at home. And being present there with new recipes, with communications, with appropriate engagement can make -- many of our basic categories will become reactivated. There's an analysis that I think is very interesting, and it's by a third party, and that's why I dare to share it with you, which is prepared by a company called (inaudible) that analyzes the periods of declaration of quarantine, isolation, release and after adjustment. And what you can see in this projection that measures actual expenditure at home in Colombia is that after the quarantine was declared, there were some additional expenses, even some households spend more than they usually spend in a month. And the foods became 36% of the total household expenditures. Usually, household spend means decreasing their expenses in-house, and dedicating more to entertainment and including out -- dining out. When the isolation began, expenses began to decrease. One of the unfortunate consumers in the entire region of this crisis has been impact on employment. In many homes, some family members lost their revenue, but food became 43% of the total home -- household expenses. So although the home income decrease is basic for increased their share in their basic expenditure.

After you come out of that -- according to projections, you leave that isolation, the revenue increases, some jobs are recovered, and food comes to 39%. They're a little [less on participation], but it's more than that earlier and then after -- there after 2 or 3 years in the future, they consolidated at about 36%, which is higher than what we had before this entire crisis. So this forecast by a third-party says that those basic categories are going to increase. So people are going to sacrifice, even in middle term, not only is the -- they are going to be sacrificing some categories that are more luxury, nonfood categories or nonhome cleaning and basic hygiene, but the things that have to do with categories that had to do with fashion or entertainment are going to dedicate them to eating at home. That's the third-party prediction. We believe that some of the trends that we mentioned when I just answered about new ways of reaching households, the possibility of reaching the consumer directly are also continue to be present around the virtual reality that society is learning will remain. And we expect getting out of the purely business aspects, we expected this crisis that is making us think more about interdependence, respect for others, caring for ourselves and for others. In a more compassionate vision of society can also last, and we come out better of this pandemic. Thank you, Johanna.

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Operator [23]

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We have Daniel Guardiola from BT ENG.

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Daniel Guardiola, Banco BTG Pactual S.A., Research Division - Director of Equity Research [24]

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I have a couple of questions. First one is about the expense structure. We saw a very important improvement in the first quarter. I'd like to understand how structural is this for the future, keeping in mind especially that the world is going through a recession and this is going to have a negative impact on volumes. It's one of the leverage that allows you to have -- to decrease the cost. So my question is, how structural is this improvement in expense inefficiencies? And the second is the restaurant business. As was said earlier by José Domingo, which one of the less defensive businesses, more discretionary and is going to be most highly affected by all this crisis. And I'd like to understand how flexible can you be by reducing expenses. And to what extent, after the quarantine, could you begin to close restaurants and to rethink this business strategy?

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [25]

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Let me take the first one. Let me remind you that this reduction of expenses is not due to the pandemic or quarantine. These are projects we've had been implementing for several years. So we believe that in optimizing expenses, those capacities are installed to preserve. You mentioned the volumes, and when I -- it's just -- it's very difficult right now to foresee or expect it by the volumes. But if the trend of consumption -- food consumption at home remains, we have a major part of that portfolio and in the cash generation in that type of product. And the volumes that we've been -- they were doing very well before this situation, if it will continue with this trend, can continue to be sound, and we will take advantage of the projects that I mentioned earlier in detail. But none of these actions has been due to the quarantine. These were things that were already set up in the organization.

And before the second question, I'd like to make a comment with all my -- well, today, one of the characteristics of this pandemic is that it questions the entire structure. No sector will tell you that they guarantee how they'll financially win, they have mass consumption of food. When I spoke about interdependence, we realize that we are all connected to everybody else. And a company like ours that has sales 61 in countries and in the countries -- and the import products and has production in 16, we're heeding the decisions of the national and local governments, and what happens is that it develops our capabilities to work in that turbulent environment. What we can promise is that we're doing the best, and we're going to continue to do so. And we don't know everything. We're trying to learn as quickly as possible and to act as responsibly as possible, so that this company can continue to be as it has over the past 100 years, a viable company, serious [orthodox] in its actions. So it's very difficult to promise a structure. But what we do is to promise the best management possible in such a dynamic and changing framework.

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José Domingo Penagos Vásquez, Grupo Nutresa S. A. - CFO & VP of Corporate Finance [26]

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With respect to the food business, consumer food or retail foods and the questions whether could we close some restaurants. I can tell you that we have right now closer to 50% of them are closed, not only is something that we are thinking of recovery part of our business is to open and closing the restaurants when in (inaudible) Colombia. The measures I said that restaurants could only act through delivery, the shops that we open is only those that we can have a big significant delivery volume. Otherwise, the good news is that we have more than tripled our sales that we had for deliveries at the end of February with major effort. We also mentioned that we are doing our biggest effort to maintain and protect employment. Many of those people who are available for -- from the restaurants that are not operating are going to the new fronts where we are selling more. Some were -- went to the call center that we created. Others are doing deliveries in the form that we called neighborhood restaurants. Others are doing deliveries. Others are enjoying their vacations. So in general, we have a major flexibility. There is no doubt that, as I mentioned and José Domingo underlined, this has been one of the most affected sectors. And the ones that are in the last position in line to reopen after government believe that the conditions are safe enough to gradually ease off these measures, we are very much aware of that. We believe that, unfortunately, the situation will make many competitors, leaving the market, there are going to be some calling off the competition. That is unfortunate. We like competition because it forces us to be better, but we are working, as we mentioned earlier, with high levels of innovation, are trying to keep and protect our brands to offer new alternatives to clients, consumers and buyers. And yes, it is going to be one of the businesses that will not look very pretty in the short term, but fortunately, and as I said, most of the other businesses have had significant demand that will enable us to finance and fund the retail food business, which is going to -- we've come out stronger after we can reopen our -- all our sectors.

In China, to give you an example, the restaurants in the hardest isolation areas were able to have 70% or 80% less than normal. Now that they open with deliveries and with pickups, they are above 40%, but they're gradually improving. So we know, because of those examples, that it's not easy. But these businesses, it's a long-term business, and we believe that there's a different future and that we have to work together to develop our capabilities to make us successful on the different conditions in the future. So thank you, Daniel.

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Operator [27]

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Julian Ausique from Davivienda Corredores.

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Julian Felipe Ausique Chacon, Corredores Davivienda S.A., Research Division - Equity Analyst [28]

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First of all, congratulations on the results for the first quarter. My question is the TMLUC business, because, as you mentioned, it's one of the effects because of the rate of exchange relating some distribution expenses. Give us a little more information about that segment and what segments are most affected by this situation.

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [29]

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Thank you, Julian, for being with us. And I'll be glad to talk to that question about Chile. I was saying earlier that, that thrust towards higher consumption of more basic and essential foods, the second place, not only in Colombia but in other areas in Chile, is not an exception. And fortunately, at TMLUC, we also have a broad portfolio. If you ask me for the categories which haven't been doing so well, I think those that have more of snacks. You know that we had told you that we had launched, for example, our chocolate bars, and we have a significant participation in -- those 2 categories have not been very strong. In our case, those would be the most effective. But fortunately, we also have pasta. We have a plant for manufacturing pasta, and they've done very well, and we have been able to meet huge demand peaks. And the other one that -- powdered drinks have also behaved as basic foods. So those 2 plus the soups that we have, some prepared soups and the sauces and coffee, in general, the basic thing has had a very good behavior. And we've seen that affected more by snack [eye] products. It's very important in Chile also we have orders. We have a very powerful brand, which has made us bullish, which I had mentioned it, and we've had some limitations for supply. But in Chile today, what we have is, in general, higher sales of more than we had budgeted because in the -- over demand much bigger for basic demands, then the negative effect of those that are more similar to snacks. That is the question -- the answer to your question.

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Julian Felipe Ausique Chacon, Corredores Davivienda S.A., Research Division - Equity Analyst [30]

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Can you give us some more information about the CapEx? 30% of CapEx is more focused on what of the investment? And what would be the objective of the 30% reduction?

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [31]

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Yes. We were mentioning earlier that as part of that control for liquidity, one of the exercises to review the CapEx and the OpEx as well. What investments have we scheduled that are not -- compliance or legal compliance issues that do not delay the growth of the company because there are projects they have to do creating more sales. That CapEx and OpEx will be left alone. But those that are investments that, when we planned our finances or budgets, were desirable, but that could not be canceled but could be postponed for different moments. So in general, what we are removing from those 30% are investments which are desirable but not necessary, and we do not postpone our strategic and priority issues of our businesses. So you can rest easy. We're doing that just to be responsible. In the future when the conditions are different, we will take them up again.

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Unidentified Analyst, [32]

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I'd like to ask 2 questions, 3. I understand that you have mentioned that with the increase with the -- when the quarantine was declared, the demand for Nutresa products increased. So under normal conditions, according to models, how much of the volume growth being on the normal demand without this over demand that we had over the past several weeks in March due to the quarantine? I also like to know, keeping in mind that the purchasing power of people will eventually decrease because of having this going on, will they going to migrate the consumer patterns to lower-priced brands? What percentage of our Nutresa income is going through the -- are those major brands? And how do you intend to counteract that? MERCO didn't have any home delivery. Now you said that home deliveries have increased by 4x. But before that, you didn't -- were minimal or just 0 because at times, 3 or 4 is still a very small amount. What do you expect for the second quarter out of the COP 125,000 billion (sic) [COP 125,000] that we sold for this quarter in retail foods? How much could we expect to have from the next quarter? What difference would there be?

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [33]

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Thank you, [Natalia]. Let me take your 3 questions and perhaps with a very general introduction. We do not guide detailed guidance. So minus some of your questions, I cannot go through details as you would like them.

First of all is the issue of growth and demand. I've said that since from the previous year, we've had very good growth levels, historically, mostly due to higher volume. So what I can tell you is that these sales for the first quarter they consist of 2 months of normal life and a month with a partial effect, very significant over the past 2 weeks. The first 2 months were very good and were -- months were not unusual, the continuation of our past history.

So what I mentioned is that there was a peak fear at the beginning, when we declared the quarantine. I also mentioned that in this isolation stage that peak goes down or went down, but it was above what the historical levels were. And what we are saying, because nobody has the last word, everything is models and predictions, what we are forecasting is that after the economy reopens in this better adjustment in the future, the products which are called basic or essential foods very likely will have levels that are higher than they had historically. That expenditure, household expenditure, what company is going to capture that volume that is being used? Well, that will depend on a combination of the brand's strength, the distribution capabilities, the possibility to survive these difficulties in the future, which is the corporate sustainability that the companies might have to come out of this situation stronger. It's very difficult to forecast, but we've been working on here for many years. It's not just in this year. And it's different behaviors in different geographies. So what I can tell you, there was a peak, and that peak in most geographies went down, but we believe that the basics will maintain a level of participation over the household expenditure, which is higher than earlier.

The question about how much our future demand will be, in fact, it was very complex and every time we look at them, and analysts, they tell us a different figure. So I have the report from the (inaudible) banks, and they all say different. I mentioned the report from (inaudible) in Colombia. I could say -- mention the scenario analysis that Fedesarrollo updated recently in where they say that at the end of the year, we have a decrease of between minus 2.7% and minus 7.9%. So the contractions of the economy in Colombia with unemployment levels at very hard and very high levels, when there's lower revenue or you raise the expense basket, and from the point of view of Nutresa, we're playing, as I said, in the areas which we call more defensive because we are -- in most of our businesses, we are within the expenses that people wouldn't sacrifice last. So this makes us -- our investment interest has the nature of a defensive investment.

The hard discounts. We have mentioned that we don't see hard discounts as enemies. We believe that those are simply actors that are a channel that came to stay. And what I can tell you is that we have present sales through hard discounts as well. We've grown there also. We've looked at them with a lot of respect, but let me tell you that one of the -- the consumer doesn't look only for price. The value is very important and in hard times of the economy, but we're working a lot on sensitivity, and we have a major battery portfolio of leading brands, and we have also like brands which offer alternatives to fill those expectations on the clients, consumers and buyers. And we hope to be the best suppliers for -- among all actors in the geography. So we expect to be -- to continue to sell there. We do not reveal how much we sell through the hard discounts. That is information, which is very sensitive to the competition. What I can tell you is that we've been growing part of the sales in hard discounts.

And with respect to home deliveries, we will not also will disclose the figures on sales by brand that we do -- we do when we purchased El Corral. The brand El Corral didn't have any home delivery, but it is also true that we've been doing the selling -- doing deliveries for several years now because we saw that although we didn't do it, there were third parties who did. The (inaudible) delivered them home -- at home, and we made some alliances with those third parties, developed their mobile's appropriate packaging, safest packaging, and that have been growing very well. Even some brands such as Papa John's are brands that have a very strong presence in home delivery since we brought them to Colombia. So what I can tell you is that, today, those sales are significant and that we will have a chance to -- in the next quarter, for the next quarter report to show you how important it is, but it is not negligible. They have been growing and multiplying severalfold. And our challenge is to make them grow faster and I was only mentioning along those lines but also the creation of our own e-commerce and home delivery capabilities. And obviously, reach to all levels only there through the home deliveries right now but -- and we're far from that, but mitigated significantly this impact, we are doing that. You can rest assure that we are not going to be standing still. We are going to be surprising you with new alternatives for consumers. So those are the -- that's the way I can answer your 3 questions, Natalia . Thank you for being with us in this conference.

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Catherine Chacón Navarro, Grupo Nutresa S. A. - IR Director [34]

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[Valentina] from [Coban] Colombia.

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Unidentified Analyst, [35]

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I'd like to ask, although we've spoken about several categories, could you give us a bit more information about the sales dynamics for the quarantine in the various countries? Now we've seen the supply of raw materials that we believe is a risk during this period, I'd also like to know more about the price strategy. And how do you see the prices for the rest of the year?

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [36]

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Thank you, [Valentina]. Let me take up the first question. Let me -- I'm not going to repeat what I said already. Some ideas could be included here. In general, additional increase in demands in more basic categories. Of our geographies, I would say in a conference that in the chocolate business where we had some effects on Peru and in Mexico, mainly not because the countries have a different behavior but because our portfolio is much stronger in snacks in those geographies. So we've been hit a little harder because of that.

Also to point out that the quarantines and some social distancing measures are much stricter in some geographies than others. For example, in Ecuador, in some regions, we had curfews. In other countries, we haven't had that curfews. So that makes it difficult to circulate in the logistics and delivery of many orders, but Chile and Colombia have similar behaviors. In the U.S. where we had major demands in biscuits and the Cameron's Coffee, work has been spectacular because they've increased a lot of more coffee prepared at home, and Cameron's has an important portfolio, especially in the Midwest. So the U.S. has a very good demand. As mentioned, Mexico and Peru, somewhat affected in that. In Dominican Republic, what we've had is mostly ice cream shops, and they behave like retail foods. The effects is mainly because of closures stores and ice creams are being sold more to the supermarkets in the presentations that we have for take home. But most of these geographies, fortunately, have had positive behaviors.

Raw materials. In general, we've had good supplies, appropriate response from the suppliers. In Grupo Nutresa, we have a very -- we try to build long-term relations with our stakeholders. Our suppliers are very important. Most of them have responded on time. And when I say suppliers, I'm talking about packaging raw materials, inputs that we used in maintenance. And as we're seeing out, there's only 1 or 2 references that we've had as a little -- in fact, we haven't had any total interrupters. Also point out that when this situation began, we are not depending on -- significantly from Chinese inputs. So we supply -- we saw some things from there, but we have alternatives and subject to suppliers in other areas. So we've had very good supply of raw materials.

And with respect to prices, before the situation of the pandemic came around, came to Columbia specifically, some businesses had made some adjustments that we needed. We believe that this situation is more complex. We believe that now it's very important to make sure to work on productivity and efficiency because it's another source of profits. We believe that as long as we are in these isolation stages with some lockdowns and some not completely normal activities, we have to be very careful with prices, and even several geographies and governments have decreed some surveillance of some categories, and we try to get our profits not through comfortable growth or through price. And we have to be very careful, and only under special conditions could you -- or touch those prices.

The other thing is that we're talking about the company prices. Now those are set by different channels. We are in free competition, and we cannot say anything. The -- these are issues that is defined by each channel, and we have been always defenders of free competition and that we're going to have a competition between channels as well. So I think that's the summary for your questions about the dynamics in raw materials and prices.

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Catherine Chacón Navarro, Grupo Nutresa S. A. - IR Director [37]

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We have Juan Gallegos from Porvenir.

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Juan Gallegos;Porvenir;Analyst, [38]

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I have 2 very specific questions. One about the behavior of exports. How they are doing? Have they grown? Or have they decreased? And second is you spoke a little bit about the expenses. What expenses -- how much of these expenses are in dollars and will continue to be affected by the devaluation?

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Carlos Ignacio Gallego Palacio, Grupo Nutresa S. A. - CEO & President [39]

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Thank you, Juan. When you ask about exports, I imagine that you're asking for exports from Colombia because we also export from platforms that we have in other regions. Juan, the first thing I have to tell you is that during the first quarter, exports from Colombia had extremely well -- good behaviors. We grew by 26.4% in dollars from exports during the first quarter. Specifically, the exports to the U.S., we grew 19.6%. And in general, the performance has been outstanding. In some countries like Japan, we have also grown significantly. And you were mentioning in your comments that after we reviewed and we overcame the problems of the fever, the foot and mouth disease, we have restarted exports to other geographies. It also depends on the capacities that I mentioned earlier when Felipe asked is that we had the capacity to meet the local market but not to neglect the overseas markets. So this is extremely important because that growth in dollars, with the rate of exchange that we have at present, increased on our revenue, and the rate of exchanges where we see the -- has a risk in some areas, but it's an opportunity in others. This company that has a long-term outlook has invested a lot of time to develop brands and markets, channels outside of Colombia, and we're not [losing] them. So the first quarter was extremely good. And I could say that in this one that was just beginning, we're doing very well, and we expect to continue growing in exports from Colombia.

Your second question about expenses. Now the rate of exchanges has more impact of on expense because expenses on our technology also but do not represent a lot in our cost structure. The most significant impact is on raw material costs.

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Catherine Chacón Navarro, Grupo Nutresa S. A. - IR Director [40]

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Thank you, Juan, for your question. This will conclude the presentation for today. We've been here for 2 hours. Thank you very much for your active participation. We know these are special circumstances, and we thank you for giving us this additional time to cover and answer all your questions. Obviously, if you have any additional questions in the next few days, our Investor Relations department will be willing to process demands as quickly as possible. Thank you, all. Have a very nice day.

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Operator [41]

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Thank you for your participation. You can now disconnect.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]