Alicorp is a Peruvian company dedicated to the export, import, distribution, and marketing of consumer products, mainly food and cleaning products. They are also dedicated to the industry and commerce of wheat and any cereal. Alicorp provides all kinds of industrial, commercial, and administrative services and advice and is engaged in the preparation, processing, distribution, industrial and commercial exploitation of concentrated food for human and animal consumption. Finally, they have authorized bonded warehouses with the purpose of storing goods exclusively owned by the company and third parties.
EXTERNAL FACTORS
High Competitiveness in the Industry
The company operates in a highly competitive industry so it competes on prices, using the constant improvement of the quality of its products as defense mechanisms. As a result of the competitive nature of the industry, when under market pressure the company reduces prices in order to continue leading the market. In the face of price increases of inputs, the Company cannot raise the price due to the high competitiveness in the industry as that could affect the profitability margins it has. Instead, it increases the volume of sales and tries to be more efficient in expenses so as to counteract this effect.
Input Price Volatility
In addition to the above, there is currently a great volatility in the prices of raw materials they use. "The international price of soybean oil has risen 106.82%, wheat 82.41%, corn 60.95%, among others. Globally, there is a greater demand for raw materials related to the economic recovery in China, greater demand for oils for the production of biofuels in some countries and lower harvests in some producing countries", said Alicorp. This volatility can generate an increase in product costs, so the company is currently seeking to take the lead in terms of pricing actions and measuring efficiency to limit the impact on its margins.
COVID 19
Due to the health crisis experienced worldwide in 2020, different governmental measures were applied that had a strong impact on the economy, such as temporary closures of commercial properties, bankruptcy of small and medium-sized businesses, and the breakdown of payment chains, among others.
This phenomenon had an impact on both the volatility in the price of raw materials and the volume of sales. In addition, the second wave of COVID-19 experienced in the first quarter of 2021 led to an economic slowdown as a result of the severe restrictions imposed. Although they did not experience disruptions in production capacity, restrictions on mobility and fear of contagion had an impact on demand.
2020 FINANCIAL RESULTS
In 2020, Alicorp's net profit showed a decrease of 31.3% as compared to the previous year, mainly due to a 1.3% decrease in gross profit caused by lower volumes sold due to the restrictions implemented by the Government on account of COVID-19, which also increased the cost of sales. This caused the gross margin to decrease from 24.8% in 2019 to 23.9% in 2020.
Between the years 2019 and 2020, operating income decreased by 16.3%. This decrease is mainly due to the decrease in gross profit and the increase in operating expenses and miscellaneous expenses. These increases were also related to the State of Emergency, leading to higher impairment of trade receivables, donations, food expenses, transportation and COVID-19 tests to administrative staff.
FIRST QUARTER 2021 FINANCIAL RESULTS
Consolidated sales increased 8.4% over the first quarter of 2020, while sales volume remained relatively stable. This effect is due to the good performance of Alicorp’s milling business and the good implementation of pricing actions in the Peruvian Masico consumer business.
Net Income increased by 14.1x from the previous quarter due to higher operating income and lower foreign exchange loss and hedging expenses, partially offset by higher interest expense, net, and higher income taxes. As a result, earnings per share (EPS) also increased from 0.01 soles in the first quarter of 2020 to 0.157 soles in the first quarter of 2021. All this caused EBITDA to increase 68.5%.
In addition, during the first quarter of 2021 Alicorp had 21 new product launches and relaunches as part of an innovation strategy. As such, there are good expectations for the future of the company.
