Grupo LALA Virtuous cycle drives success
Safe Harbor This material does not constitute an offering document. This material was prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities. Any offering of securities will be made solely by means of an offering memorandum, which will contain detailed information about the Company and its business and financial results, as well as its financial statements. Securities may not be offered or sold in the United States unless they are registered or exempt from registration under the U.S. Securities Act of 1933, as amended. This presentation includes forward-looking statements or statements about events or circumstances which have not yet occurred. We have based these forward-looking statements largely on our current beliefs and expectations about future events and financial trends affecting our businesses and our future financial performance. These forward-looking statements are subject to risk, uncertainties and assumptions, including, among other things, general economic, political and business conditions, in Mexico, United States and Latin America as a whole. The words “believes”, “may”, “will”, “estimates”, “continues”, “anticipates”, “intends”, “expects”, and similar words are intended to identify forward-looking statements. We undertake no obligations to update or revise any forward-looking statements because of new information, future events or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this presentation might not occur. Therefore, our actual results could differ substantially from those anticipated in our forward-looking statements. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. It should not be regarded by recipients as a substitute for the exercise of their own judgment. We and our affiliates, agents, directors, employees and advisors accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. This material does not give and should not be treated as giving investment advice. You should consult with your own legal, regulatory, tax, business, investment, financial and accounting advisers to the extent that you deem it necessary, and make your own investment, hedging and trading decision based upon your own judgment and advice from such advisers as you deem necessary and not upon any information in this material. 2
Who We Are LALA is Mexico’s largest Dairy Company with a strong presence in the Americas Mission “Nurturing your life is our passion” • Fresh, natural products of the highest quality • Disruptive innovation positively impacts customers’ health and well -being while improving their day to day life • LALA’s capable team is committed to your health and growth every step of the way Vision “To become the preferred dairy company in the Americas” 3
LALA at a Glance • Largest dairy company in Mexico • Over 500,000 POS served in Mexico • Fastest growing dairy brand in Brazil • #1 Dairy Brand in LATAM (1) Operations in: Mexico • Highly recognized brands and value-added Brazil product portfolio United States • 31 production facilities and 185 distribution Nicaragua centers Guatemala • More than 600 SKUs and 43 recognized Costa Rica brands El Salvador (1) • + 38,000 employees Production facilities 1. Euromonitor International, March 2018 4 2. Through third party distributor
Why Invest in LALA? LALA is the market leader in high growth markets - Market leader in Mexico and leader in Greek Yogurt, Parmesan Cheese and Spreadables in Brazil with a healthy and nutritious value added portfolio - Leading brands with a profitable segmentation product offering supported by strong innovation capabilities that set trends - Production facilities with the highest levels of manufacturing standards and a cutting-edge R&D Center drive a focus on premium products and a clear distribution competitive advantage - Largest cold distribution network in Mexico enables LALA to directly serve >500k points of sale, provides unique access to extensive retail channels versus peers and deepens access to Mexico market that creates value for shareholders. - Through a virtuous cycle of productivity to increase margins and invest in growth - Profitable growth drives future cash flows 5
Serving All Market Segments Diversified portfolio in different categories and socioeconomic segments Premium Value Mainstream Milk 53% of the portfolio Other Dairy Products 43% of total portfolio Beverages and other 4% of total portfolio 6
Widely Recognized Brands LALA and NutriLeche top 5 most recognized Vigor top 60 most valuable Brands in Brazil (4) brands in the food industry in Mexico (1) Place Brand Penetration (2) Frequency (3) 99% 66 99% 31 96% 29 78% 28 83% 18 Fourth consecutive year Top of Mind prize for Requeijão and Greek Yogurt (5) 1. Source: Kantar Top 50 Latin American Brands 2019 2. Penetration based on number of households that purchase a brand 3. Frequency of purchase (# of times per year) 4. Ranking Millward Brown – Magazine Isto é Dinheiro 7 5. Instituto Data Folha
Market Leadership Positioned #1 and #2 in participant categories Mexico Brazil US CAM Milk Total Total 3° Yogurt Total Greek Total Drinkable Adults Total Cheese Spreadable Parmesan Packaged Cream Cream Total 1. Source: Nielsen 2018 8 2. CAM includes Guatemala and Nicaragua
Agenda 1. Priorities 2. Quarter Highlights 3. Financial Results 9
2019 Priorities 1. Nurture talent 2. Focus on key markets and drive a virtuous cycle 3. Capital allocation 4. Increase transparency 10
Nurture Talent Top 10 (1) industry benchmark compensation plan implemented in 2019 ▪ Aligning employees with shareholders Volume ▪ Variable portion going from 21% to 54% of growth total compensation 1 1 ▪ Expansion from 20 to +200 employees Working Sales 2 5 ▪ Short Term Incentives (STI) Capital growth Company • Cash + RSU (2) • 1-3 year vesting period KPI’s ▪ Long Term Incentives (LTI) • RSU (2) • 4 year vesting period EBITDA EBITDA 4 3 margin growth ▪ KPI’s mix: individual and company (1) General Industry and Executive Compensation – Mexico 2018, Willis Towers Watson 11 (2) RSU: Restricted Stock Units
Focus on Key Markets Virtuous cycle to win in Mexico Invest in growth – projects started ▪ Modernization and brand disruption – S1’19 ▪ Packaging update and design – S1’19 ▪ Creative campaigns that reach the new generations – S2’19 ▪ Revenue management – S2’19 Virtuous ▪ Route to market – S1’19 ▪ Innovation process from Vigor – S2’19 Cycle ▪ Food service: Culinary Central – S1’19 ▪ 8 milestone campaigns tied to innovation to drive growth in 2019 Cost optimization ▪ ZBB (1) • P&L designed to control fixed and variables costs • PMO already in place to ensure budget targets ▪ Procurement • Redefining global procurement area to accelerate regional opportunities • Variable compensation aligned to control and compensate adversities • Procurement organization focused on pricing, value engineering and payment terms 12 (1) ZBB: Zero Based Budgeting
Capital Allocation Aligning capital allocation strategy Where to play, How to win & Capital Allocation – S2’19 Improvements in Working Capital ▪ Cancellation of advance payment to milk producers (MXN $1Bn) ▪ Negotiation with large suppliers (packaging, media, insurance companies, etc.) from 45-60 to 90 days CAPEX ▪ From 5.9% of sales or MXN $3.7Bn in 2017 to 3.2% or MXN $2.4Bn in 2018 ▪ Capex for 2019 should be around 3.5% - 4.0% of sales Exploiting intellectual synergies ▪ Innovation: products ▪ Processes: IT, legal, back-office, audit, revenue management, manufacturing, compliance and internal governance ▪ Talent: strengthening an experienced team M&A ▪ Priority to deleverage the company ▪ Analysis based on portfolio complementarity ▪ Discipline and ROIC on M&A decisions 13
Results Related to Priorities (1/2) 3.3% YOY topline (1) in constant currency, and 1.5% in consolidated rates; 1. growth driven by +3.9% in Mexico, affected by flat sales in Brazil and 9.6% BRL depreciation 2. Brazil performance offsetting increase in input milk cost; anticipating price increase vs. competition 3. Mexico innovation driving growth: 5.5% of sales (2X compared to last year) 4. Productivity of MXN $988m YTD ($568m in Q2’19) reinvested in fueling growth Solid quarterly EBITDA (1) MXN $2,220m (+14.4% YOY (1) ); highest margin (1) in the 5. last 6 quarters 14 (1) Q2’18 comparable figures, include IFRS 16 and the deconsolidation of Elopak JV
Results Related to Priorities (2/2) +130 bps YOY EBITDA (1) margin expansion, all regions increasing margins 6. 7. -290 bps YOY working capital improvement: 2.7% of sales 8. Leverage ratio improvement to 3.1x: target of <2.5x by 2020 ▪ 2.9x pro forma leverage ratio includes the effect of Itambé settlement paid on July 3 rd , 2019 9. Controlling net income growth of +44.6% YOY based on operating income increase and with optimized tax rate 15 (1) Q2’18 comparable figures, include IFRS 16 and the deconsolidation of Elopak JV
Second Quarter 2019 Highlights 16
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