Grupo Nutresa: Consumer goods

THE COMPANY: Grupo Nutresa is the fourth-largest consumer company in Latin America by market capitalisation. The firm has a well diversified portfolio of products with more than 122 brands, 15 of which are leaders in Colombia and neighbouring countries. It also has six different business units: cold cuts, biscuits, chocolates, coffee, ice cream and pasta. Although the largest part of its revenues comes from its operations in Colombia (around 70%), Grupo Nutresa has successfully expanded internationally in the past few years, establishing a presence in 12 countries in the region, including manufacturing plants in eight of these (US, Mexico, Central America, the Dominican Republic, Peru and Venezuela). Additionally, their products are sold in 65 countries across five continents. In Colombia, the firm is the biggest distribution company, covering around 85% of the country, which gives it an important advantage over competitors. The company reported solid figures for the third quarter of 2012. Total sales grew 5.2% and reached COP3bn ($1.8m), mainly due to positive local consumption, which offset a loss of momentum overseas. On this note, profit margins continued to improve, nearing historical levels, thanks to lower costs in commodities. The EBITDA margin expanded to 13.2% in the third quarter, contributing to a consolidated 12.7% in 2012. Its stock weighs 6% on the main Colombian stock market index (Colcap) and it is part of the Dow Jones Sustainability Index. Nutresa trades with a price-to-book value near 2x, which is less than the regional average, but with a price-to-earnings ratio above its peers.

DEVELOPMENT STRATEGY: Grupo Nutresa has experienced significant growth over the past few years in terms of total sales, with a rate of 14% CAGR between 2005 and 2011. The company has successfully captured local consumption in Colombia, given an economy that has grown by mid-single digits since 2009. On the other hand, the firm has been dynamic on the acquisition front, incorporating more than 10 companies, both local and international, into their operations since 2005. Grupo Nutresa has been successful in creating synergies with their new acquisitions, and further acquisitions are part of their future expansion plans, especially overseas. Its high level of cash and low debt could help solidify more of these transactions in the near term. The management has announced its goal to triplicate 2005 sales by 2015, while maintaining the quality delivered to their customers.

In terms of profitability, the consumer company had a difficult year in 2011, with the EBITDA margin falling to its lowest level historically. This was mainly caused by a continuous pressure in commodity prices. It is important to point out that as a percentage of COGS, coffee, packaging material, pork, wheat, beef, cocoa and sugar account for almost 50% of their exposure to commodities. However the company has a hedging strategy of around 50% in order to mitigate volatility in the markets. Additionally, it performs individual contracts with some producers, therefore international prices may not always be the best reference.

Another issue that will enhance the company’s performance in the short term is the nationwide consolidation of its “Comercial Nutresa” model, which will generate efficiencies in the distribution of products and better sales dynamics. According to Grupo Nutresa, its implementation in all lines of business will increase sales by 2% to 3%.

Looking ahead, the company will likely benefit from the latest free trade agreements between Colombia and the US, as it will be able to purchase different raw materials with more favourable taxes. Moreover, it offers the company the opportunity to penetrate bigger markets, while at the same time there is no major threat of losing market share in Colombia given its leadership and the competitive advantage it also has in terms of distribution.

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