Management Report - Informe Integrado 2020

Carlos Ignacio Gallego P.

CEO

Grupo Nutresa

For Grupo Nutresa, it was a year in which the care for people’s life and health, as well as the protection of nature were priority benchmarks for all the Company’s decisions and actions.

2020 will be recorded in history as a year of major challenges and deep learnings for humanity.

For Grupo Nutresa, it was a year in which the care for people’s life and health, as well as the protection of nature were priority benchmarks for all the Company’s decisions and actions. The Organization tackled the challenges associated with the COVID-19 pandemic based on its corporate values and supported on the resilience of an agile and competitive business model led by qualified and committed teams.

Acting with a deep sense of humanity and a high level of responsibility, Grupo Nutresa defined three priorities during the early days of the pandemic:

Taking care of people’s life and health.
Ensuring the supply of safe and reliable food.
Leading its own initiatives and cooperating with public institutions, NGOs and other companies with the aim of contributing towards the protection of the most vulnerable.

These priorities enabled the Organization to operate continuously throughout the period and to have the capacity to cooperate with its stakeholders.

In a complex scenario such as the one experienced in 2020, Grupo Nutresa’s actions were aligned with our higher purpose: to build a better world where development benefits everyone.

Without a doubt, 2020 was a year that challenged the capabilities of organizations, and demonstrated that sustainable practices not only create value for the companies and its stakeholders, but are also necessary to drive business-continuity, transformation, and transcendence in challenging times.

For Grupo Nutresa, sustainability is a framework based on the constant search for progress for individuals through the comprehensive development of their capabilities, food security, and inclusion. In addition, the Organization strives to work towards the preservation of our planet through circular solutions, eco-efficiency and responsible sourcing. We strongly believe that the conservation of the natural capital and the progress of the social capital is everyone’s responsibility, and the Company undertakes it with full conviction and determination.

As a result of its commitment, the Organization was acknowledged as the world’s most sustainable food company according to the Dow Jones Sustainability Indexes, and it was included in the Gold Category of the 2021 Sustainability Yearbook published by Standard & Poor’s –S&P Global–. These achievements highlight Grupo Nutresa’s leadership in relevant topics such as materiality, risk and crisis management, information security and cybersecurity, tax strategy, health and nutrition, packaging materials, environmental reporting, risks associated with water, human capital development, talent attraction and retention, and social reporting. The Company has been included in this index for ten consecutive years, which highlights our management actions, leadership and conscious work on the implementation of sustainability practices.

In a complex scenario such as the one experienced in 2020, our actions were aligned with our higher purpose: to build a better world where development benefits everyone.

Our response

In the early stages of unprecedented circumstances, on March 5, 2020, the Organization created a Management Committee in charge of identifying the most critical aspects of the pandemic, learning, and making quick and effective decisions for both the Company and its stakeholders. This allowed us to allocate resources where they were needed the most, to establish protocols and processes for protecting both the employees and communities, and ensuring the continuity of the operation across our strategic region. The following is a summary of Grupo Nutresa’s actions on these three fronts:

Taking care of people’s life and their health

Ensuring the supply of safe and reliable food

Being aware of our responsibility of ensuring the supply of food, Grupo Nutresa worked nonstop on guaranteeing the continuity in the value chain and delivering our products in a timely manner through the multiple channels available.

Contributing to the solution

Today, we continue focusing our efforts and actions on these
priorities in a conscious, responsible, and safe manner for everyone.

We continued developing and enhancing the team’s capabilities and prioritized adaptability, agility, inspiring leadership, commitment, and organizational climate.

GRUPO NUTRESA’S BUSINESS MODEL

The following three pillars are the foundation of Grupo Nutresa’s business model, as well as major differentiating factors in the market: a motivated team that is committed to the Company’s objectives and progress; a portfolio of well-known and reliable brands with products that offer nutrition, well-being and pleasure; and a set of the necessary capabilities for delivering our portfolio offering. These strategic pillars are supported on a flexible Organization that strives to transform and adapt itself to the constant changes posed by the environment, while also serving the needs of customers, shoppers and consumers.

Our people

People are the foundation of everything Grupo Nutresa does, which is why the Company will continue strengthening the care for their life, and the enhancement of their capabilities and comprehensive development.

In 2020, the Organization prioritized the care for its employees health and life by implementing protection strategies and addressing psycho-social and ergonomic risks, as well as new risks associated with the preventive isolation conditions. Throughout the year, Grupo Nutresa continued fostering and developing the team’s capabilities and prioritized adaptability, agility, inspiring leadership, commitment, and organizational climate. The Company promoted environments to connect teams at their homes and doubled its efforts to solidify a culture centered on a sense of collectivity, service, and human transformation and adaptability in order to manage periods of change and uncertainty. Additionally, we made significant progress in the promotion of work-life balance initiatives, fostering quality time with families, and healthy and safe work environments for all our employees.

All these efforts were recognized once again by Merco’s 2020 Talent ranking, which acknowledged Grupo Nutresa as the second best company in terms of talent attraction and retention in Colombia and the leader within the food industry in the country. Some of the most outstanding programs and measures that have enabled the Organization to maintain these leading positions over the past five years are: personal and professional growth programs, family-oriented support, equality and inclusion, promotion of healthy lifestyles, and the strengthening of core leadership styles. Our objective is to attract and develop the best human talent within a culture focused on diversity and inclusion, and based on collaboration, integrity, and respect.

The work-from-home methodology was one of the measures we implemented to take care of the life of the employees whose jobs could be adapted according to the circumstances.

Brands with a superior purpose

The Company’s portfolio is composed by innovative, safe and reliable brands that are centered on understanding the needs of people, families and communities, and generating value for them. The Organization has a broad product portfolio that enables us to offer nutritious, healthy and convenient alternatives for all consumers both at home and out of home.

Over the year, Grupo Nutresa accelerated the penetration of its brands into people’s homes, adjusted the offer of its portfolio to address changing consumer’s needs, adapted its distribution capabilities to reach them at their homes, and launched innovations in relevant categories such as cold cuts, prepared meats, alternative proteins, healthy snacks and specialized nutrition. The Company’s brands continue to hold a strong position in the markets they serve, with twenty-six of them leading market share positions with a #1 or #2 position in the rankings.

Market entry capabilities

Our resourcefulness, agility and adaptability were key aspects in ensuring the availability of the Organization’s products in the market. Over the year, mom & pop shops, supermarkets and convenience stores experienced an unprecedented increase in demand due to higher food consumption at home. This phenomenon drove the Company to look for new alternatives that would allow us to continue operating under such extraordinary conditions while fulfilling our mission of continuously providing reliable and affordable food.

In 2020, the employees at our restaurants, particularly those who are part of “Amigos del Alma”, a program developed jointly with the Best Buddies Foundation, received a special and close support thanks to the commitment of their tutors and leaders.

Grupo Nutresa’s innovation-driven sales represented 19,6% of our total sales, which is a result that exceeds, for the fifth consecutive year, the goal set at 15% for 2020.

In our proprietary channels –restaurants, direct sales and foodservice– we used alternative ways to reach households directly, quickly adjusting our portfolio to meet market needs and strengthening our communication with customers and consumers through digital media.

As of 2020, Grupo Nutresa has a distribution network that serves more than 1,6 million customers directly, reaches more than 4 million consumers in Colombia through Novaventa’s network –which includes more than 242.000 entrepreneurs– and has 822 restaurants.

INNOVATION

For Grupo Nutresa, innovation is a strategic capability for competitiveness, organizational transformation and profitable growth.

Within the Organization, the Imagix Model allows us to manage innovation comprehensively and effectively. Our model is continuously evolving, articulating resources and processes for the development of capabilities both inside and outside the Organization, and these capabilities contribute to the construction of the Company’s future.

Last year was a period in which many of the innovative capabilities that Grupo Nutresa had been strengthening over the years materialized into proposals that were swiftly presented to the market. Over the year, we launched new products centered on health, nutrition, well-being and convenience, while developing flexible processes and business models that enabled us to make progress in an increasingly changing environment.

Grupo Nutresa’s innovation-driven sales represented 19,6% of our total sales, which is a result that exceeds, for the fifth consecutive year, the goal set at 15% for the year 2020.

Digital transformation was a key factor in 2020. Throughout the year, we were able to deploy technological platforms that facilitated the relations with our stakeholders.

Digital transformation

Human transformation, flexibility, resourcefulness and adaptability are key aspects for incorporating and utilizing digital tools in any organization.

Furthermore, digital transformation contributes to Grupo Nutresa’s objectives, while benefiting suppliers, customers, shoppers and consumers. This transformation involves all organizational processes and relies on the development of new capabilities, such as: exploring, implementing and adapting new technologies; capability building for diverse ecosystems; researching; and evolving go-to-market strategies.

In 2020, our digital transformation process required the application of adaptive thinking, as well as the strengthening of technology-related skills in order to have flexible and effective solutions. As a response to the circumstances, and with the objective of strengthening Grupo Nutresa’s value proposition and getting adapted to the new market needs, the Organization accelerated the application of digital initiatives. This allowed us to create new communication platforms to reach our customers, shoppers, consumers and communities while providing the Organization with new capabilities and business models that will enable it to overcome the future challenges posed by an increasingly evolving business environment.

Nutrition, health and well-being

Nourishment and nutrition are increasingly relevant topics in the global agenda. Due to the events that have occurred over the past year, the level of awareness about these aspects has been growing with important reflections regarding food security, the nutritional quality of food products and their contribution to people’s health.

We launched 27 supplements and 541 nutritionally enriched product items into the market.

For Grupo Nutresa, all these topics are significantly important, which is why the Company has made them a priority. Through multiple food banks in the strategic region, the Organization enhanced the technical skills and capabilities of populations and communities while supporting their work with the contribution of more than 1.000 tons of products. In addition, the Company continues supporting vulnerable populations by helping them to produce their own food and teaching them about healthy eating habits through our Germinar Program.

As a strategy focused on mitigating the risk of food insecurity emerging from preventive isolation measures established in 2020, our volunteers made important contributions that were channeled towards the construction of new healthy food production systems in the Colombian states of Antioquia and Valle del Cauca.

Moreover, we achieved progress in the development of our product portfolio. In 2020, Grupo Nutresa continued reformulating products in terms of ingredients such as sodium, sugar and fats. Additionally, we launched 27 supplements and 541 nutritionally enriched product items into the market. Further, we accomplished the objective we set to increase 2,5 times the number of products that meet the improvement requirements according to the food matrices formulated by the Organization.

For Grupo Nutresa, contributing to the improvement of the population’s quality of life through nutrition, health and well-being is a permanent responsibility of all its teams. This objective is also an inspiration for both new product propositions and the development of advanced scientific knowledge, which is managed by Vidarium, the Organization’s nutrition, health and well-being research center.

Social capital

Human development continues to be one of Grupo Nutresa’s core strategies. The strengthening of capabilities such as adaptability and leadership was a key factor in order to tackle the different challenges during the year and to achieve results. Empathy is deeply embedded in our leadership capabilities and we strive to focus on supporting each work team. We implemented leading practices that enabled the rapid adoption of new forms of work and enhanced the development of digital skills.

Moreover, the Company continued strengthening its diversity and inclusion practices, and bridged gaps in terms of gender equality through the promotion of equal opportunities, the development of women leadership, the awareness about shared responsibilities within the families, while providing support with tools for overcoming the challenges of working from home.

Consequently, and in line with our human right practices, we organized twenty-one discussion conferences for our employees, to monitor the effectiveness of the management system and confirm its positive effect in terms of health, well-being and good labor practices.

The care for people’s health, the strengthening of our leadership skills and the development of capabilities remain at the center of Grupo Nutresa’s talent strategy, ensuring an adequate transition to new methods for accomplishing results and increasing the organizational resilience in order to maintain our leading position in the industry.

The programs we have developed to promote food security enabled communities such as those from Santa Marta’s Sierra Nevada to mitigate to a large extent the impact of the COVID-19 pandemic in 2020.

In 2020, through Fundación Nutresa, its partners and the collaboration of the stakeholders, Grupo Nutresa fulfilled and exceeded its corporate goal of completing 1.000 projects centered on enhancing capabilities in the communities. These actions represented valuable learning experiences and knowledge opportunities for the Company. Through the strategic alliances with our clients and suppliers, we have boosted the implementation of inclusion-based businesses, food sourcing systems and healthy lifestyle promotion programs in vulnerable populations. Additionally, the Nutresa Volunteer Network supported multiple projects throughout the strategic region that convened the participation of 11.652 employees.

Furthermore, and in line with its responsible sourcing objective, we used the diverse learnings we have acquired through our social initiatives to enhance the capabilities related to production and associative work of 1.476 suppliers in order to increase their harvests, growing their income and consolidating relations based on trust and teamwork. The Company worked collaboratively with more than 7.961 customers from the value chain, sharing business tools focused on innovation, entrepreneurship and sustainability.

In terms of education, Grupo Nutresa supported 5.645 teachers and academic directors to improve their teaching skills, and contributed to the “Obras por impuestos” initiative in Colombia, investing COP 19.954 million in school supplies.

We fulfilled our 2020 corporate goal of reducing GHG emissions per ton produced by achieving 46,4% in this indicator.

Natural capital

Over the past decade, a highly important transformation in terms of lifestyles and consumption preferences. As a result, there has been a significant increase in the use of natural resources and the frequency of extreme climate events has also increased. Therefore, it becomes essential to take the necessary measures to reduce the environmental impact of human activities, preserve the biodiversity and promote both people’s health and the balance of the ecosystems. As an organization, Grupo Nutresa will continue implementing solutions that allow using natural resources in the most responsible and sustainable manner.

As the decade comes to an end, we are aware that we can contribute to the preservation of the natural capital based on our eco-efficiency capabilities. Particularly in 2020, we underwent a transformation with the aim of overcoming challenges on three important aspects for Grupo Nutresa: packaging materials, the sourcing process and responsible sales. In the case of packaging materials, the use of plastics increased as a result of the special biosecurity measures for the protection of our people; as for the sourcing process, there were difficulties in the procurement of several commodities as a consequence of the preventive lockdown; and in the context of responsible sales, our ability to respond in terms of distribution, logistics and deliveries was challenged and underwent swift changes on multiple fronts.

In 2020, we concluded our work towards the goals we established as part of the Mega 2020. In terms of the protection of the natural capital, the following were the results based on the 2010 baseline: greenhouse gas emissions per ton produced, -46,4%; energy consumption per ton produced, -23,5%; waste generation per ton produced, -28,2%; and usage of packaging materials per ton produced, -2,8%. As for water consumption, eliminating the effect of the strategy for taking care of people’s health by promoting increased sanitation, hand washing and disinfection at all the production, distribution and commercial facilities, we achieved a reduction of 33,3% per ton produced. These results represent significant progress in Grupo Nutresa’s efforts to be an increasingly eco-efficient company and motivates us to fulfill the objectives we set for 2030.

To preserve the natural capital, the Company continued identifying the risks associated with the sourcing of commodities and expanded this process to the dairy chain. Moreover, we advanced in the implementation of the circular economy strategy by means of the collective plan 30/30 Vision in Colombia, as well as other similar initiatives across the strategic region. Additionally, the Organization promoted a culture of responsible consumption internally and boosted cycle-closing initiatives through its brands. In relation to climate change, we keep working on an efficient and clean energy management in all our operations, including the transition to logistics with a reduced environmental impact.

The protection of our employees was the core of our actions. At our production facilities, we ensured the compliance with all the necessary biosecurity measures.

Generating value

The Company’s financial results are the result of a business model based on sustainability, consistent investment in the brands and a diversified value proposition in terms of products, experiences, channels and markets. Over the year, we achieved growth in seven of our eight main markets, reinforced the penetration into multiple categories of products for daily consumption at home and strengthened the market share of several products. Seven of Grupo Nutresa’s Businesses grew in terms of sales, with the Coffee, Cold Cuts and Pastas Businesses achieving two-digit increases. Transformation, flexibility and adaptability were key aspects in accomplishing the results we present in this Integrated Report.

Our sales dynamic was positive both locally and internationally as we generated a consolidated operating income of COP 11,1 trillion, with a growth rate of 11,7% compared to 2019.

In Colombia, the consolidated operating income totaled COP 6,7 trillion, with a growth rate of 7,9%, and represented 60,1% of Grupo Nutresa’s total revenue. The international sales, which amounted to COP 4,4 trillion, were 18,1% higher than the equivalent 2019 sales and represented 39,9% of the total revenue. In dollars, these revenues are equivalent to 1.199,7 million, growing 5,0% in relation to the past year.

The gross profit, which totaled COP 4,7 trillion, grew 6,1% with regard to the profit achieved in 2019. This increase is lower that the rise in the revenues for the period, mainly due to the higher costs of the commodities in some countries of our strategic region over the year.

The operating profit reached COP 1,0 trillion, representing a 6,6% improvement compared to 2019. This is the result of consistent work focused on the efficiency and productivity in the administrative, sales and production expenses during a period that required additional efforts to continue with the operation. In terms of profitability, the EBITDA totaled COP 1,4 trillion, representing a 7,2% increase compared to 2019, with a margin on sales of 13,0%.

The net post-operative expenses amounted to COP 204.255 million, 9,0% lower than last year’s expenses. This is explained by a 7,8% rise in the financial income due to Grupo Nutresa’s good cash position over the year and a 6,4% reduction in financial expenses from lower interest rates.

The consolidated net profit of the period was COP 575.441 million, representing a double-digit growth of 14,3% and a 5,2% margin over sales.

In the Statement of Financial Position, the Company reports assets for COP 15,5 trillion, with a decrease of 0,8% in relation to 2019. This reduction is explained by the lower market value of the Organization’s investments over the term due to the volatility and uncertainty in the global markets associated with the pandemic.

In terms of total liabilities, Grupo Nutresa recorded a 4,3% increase with a total value of COP 7,3 trillion mainly due to the financial loans taken as a preventive measure for ensuring the Company’s liquidity.

The equity amounted to COP 8,3 trillion, presenting a decrease of 4,9% compared to 2019.

In terms of cash flow, the Organization reports positive results with a free cash flow of COP 774.022 million, which represents a growth of 29%, a free cash flow on sales indicator of 7.0% and an indicator of FCF/Net sales of 1.3x. For its part, the return on the invested capital was 9,6%, which reflects an increase of 0,4%.

In 2020, Grupo Nutresa made decisions focused on ensuring a healthy financial situation with adequate liquidity levels in order to take care of the business continuity at all levels of the Organization. We are aware that many suppliers and small companies depend on our financial stability and, consequently, we make the necessary efforts in order to continue creating value over time. This is only possible with the implementation of sustainability capabilities complemented with proactivity, resourcefulness and agility.

Grupo Nutresa S. A. Individual results

In compliance with the Colombian regulations, Grupo Nutresa S. A. reports its individual results: the net operating income totaled COP 585.968 million, from which COP 516.703 million correspond to the profit from the equity method of our investments in food companies and COP 69.265 million correspond to dividends from the investment portfolio. Furthermore, the net profit totaled COP 583.241 million.

Dimensions of our strategy

Grupo Nutresa’s first 100 years and objectives for 2030

For Grupo Nutresa, celebrating our 100th anniversary is an exceptional achievement that has been accomplished with the valuable participation of our network of partners and stakeholders. Through multiple strategic initiatives, we attained most of our objectives set for 2020 and made considerable progress towards the fulfillment of the remaining goals. This path has taught us important lessons that enable us to face the future with confidence in our strong capabilities and resilience.

Grupo Nutresa created the map of value for 2030 as the result of collaborative work that included the monitoring, forward planning and vision of the capabilities we require for the next decade and society’s expectations. These expectations include the protection and prosperity of people and the communities, the preservation of the ecosystems, the transparency of the institutions and partnerships focused on accomplishing positive outcomes. Within the framework of the three sustainable development dimensions –social, environmental and economic–, the new strategy fosters the growing generation of value by cooperating with our allies and society. Moreover, the strategy also inspires development and innovation while promoting the preservation of our planet.

For further information about the conclusion of the Mega 2020 process and the map of new objectives for 2030, please review the details on pages 42 and 48 of this integrated report and the supplementary information that is available on Grupo Nutresa’s website: www.gruponutresa.com.

The Organization is convinced that only together as a collective society we will be able to find solutions and opportunities for building a better future for everyone.

Outlook

Our priority for 2021 will be to ensure our long-term sustainability. We will remain focused on taking care of the life and health of our employees, suppliers, customers, consumers and communities while putting our best efforts and resources at their disposal to fulfill such essential objective. Grupo Nutresa will also continue leading and supporting initiatives centered on benefiting the most vulnerable populations, with the conviction that only together as a collective society we will be able to find solutions and opportunities for building a better future for everyone.

Conclusively, the lessons we learned and the new capabilities we developed in 2020 made us more resourceful, agile and flexible, enabling us to offer timely and relevant solutions to the market and preserve the financial stability of the business.

The Organization will face this new year filled with hope and determination, motivated by new long-term objectives we will strive to accomplish with commitment. Moreover, we are aware that there will be major challenges on the road ahead but we are convinced that we have the best team to overcome them in a conscious, comprehensive and effective manner.

Acknowledgments

We believe that business activities create value for society as a whole and, consequently, we always aspire to be a driver of progress, growth and sustainable development. This is possible thanks to a team that is highly motivated to fulfill the Organization’s purpose.

Througout such a challenging year, Grupo Nutresa’s employees exhibited the highest level of commitment and loyalty. Their disposition and adaptability to change were key factors to be able to undergo the necessary transformations and accomplish important objectives. To every single one of you and your families, we would like to send a sincere message of deep gratitude and acknowledgment.

We would also like to thank our suppliers and clients, who demonstrated remarkable resilience in a complex environment for everyone, as well our consumers who allowed the Company to enter their homes through our products and the experiences we offer.

Finally, we would like to thank our shareholders, who support the Organization’s business strategy with conviction and trust. Our commitment to you, and to all the stakeholders, is to continue leading a conscious and competitive organization that generates value over time and actively contributes to the construction of a better world where development benefits everyone.

Mauricio Reina Echeverri, Chair of the Board of Directors

Gonzalo Alberto Pérez Rojas

Jorge Mario Velásquez Jaramillo

Juana Francisca Llano Cadavid

Valeria Arango Vélez

Antonio Mario Celia Martínez-Aparicio

Jaime Alberto Palacio Botero

Ricardo Jaramillo Mejía

Carlos Ignacio Gallego Palacio, Grupo Nutresa CEO

Integrated Report 2020