In November of last year, food companies and large hypermarket chains decided to support the launch of a new program created by the Government to try to control the go up in prices.
That’s how he was born Fair Priceswhich for a time converged with Precios Cuidados but later also added the parameters of that program and is currently the only official basket, with guidelines for increases of up to 4% for more than 1,500 products and total freezing in the rest.
The program, created by order of the Minister of Economy, Sergio Massa, and executed by the Secretary of Commerce headed by Matías Tombolini, was to last four months ending last March.
As of that date, it was assumed that there would be a convergence framework between prices and costs, which did not end up happening, but rather, the inflation rate did not stop increasing above that established 4%. Expenses skyrocketed and forced the Government to extend the duration of the Fair Prices program with a runaway macro economic context by the rise of all costs; with parity wages above inflationary levels and a permanent rise in inputs, local and imported, used by food companies for their production.
This scenario ended up having a strong impact on the operating results of the main companies that signed the Fair Price Agreement and that their accounts were injured and they accumulate heavy losses in their balance sheets due to having the obligation to keep the prices of their products fixed by official policies and not being able to transfer the increase in their costs.
A paradigmatic case is that of Rio de la Plata millsone of the main food companies in the country that is controlled by the Perez Companc family, which for several years has been suffering the same problems due to not being able to transfer cost increases to the sale prices of its products and seeing its margins affected by the constant inflation.
Molinos Río de la Plata began 2023 with a strong operating loss that it attributes to its participation in Fair Prices
In fact, during the first three months of this year, the company accumulated losses of $79 million in its operating results, which represents a decrease of $1,311 million compared to the same period of the previous year when it had generated income and profitability similar to those of the same period of 2021, but with a strong increase in production costs.
The equation caused that plateauing of its most important variants and the largest increase in expenses produced a 78% collapse in its operating margin compared to the first three months of last year..
The negative scenario occurred despite managing to increase its traded volume by 7%, generating income of $17,652 million and obtaining profits of $1,993 million between last January and March.
In the case of the first quarter of this year, their net income reached $37,625 millionwhich represents a growth of 4.3%, having marketed a 2% lower volume in the first three months of 2023, which is in line with the consumption situation registered by the main specialized consultancies.
According to a statement sent by the company to the National Securities Commission (CNV), the sharp drop in operating results “shows the clear impossibility of recovering in the sale prices the relevant and increasingly frequent increases in costs and expenses that continue to increase in line with the high and persistent levels of inflation and with the acceleration of the official depreciation of the peso”.
The company blames the situation on its participation in the Fair Prices program and ensures that it occurs “despite having maintained a firm policy of control in marketing and administration expenses.”
For the company, part of its operating losses are due to its participation in the Fair Prices program
According to the balance sent to the CNV, Molinos’ net result during the first quarter registered a profit of $2,901 million which, in line with the higher costs borne by the company, also shows a drop compared to the same period of the previous year for $1,170 million and that it was only possible to achieve due to the lower financial costs obtained as a consequence of the sustained process of reduction of the net financial debt.
In any case, in its statement the company warns that “Despite the difficulties of the context, it will continue to focus on the consumer, its brands, productivity and efficiency to continue accompanying Argentines with increasingly healthy, tasty, practical and accessible products.“.
But beyond these formal phrases, sources close to the company conveyed their concern about the strong negative impact that the permanent rise in costs is having on their activities, seeing this negative impact on the losses shown by the operating result in the first three months of 2023.
The impact is associated with the persistent rise in commodities internationally as well as local costs, especially inputs, packaging and freight, which continue to increase in line with the sustained inflationary process that the Argentine economy is going through, despite the “war” declared by President Alberto Fernández himself. and his government, who have been failing in their strategy to contain the permanent rise in prices in the local economy.
repeat x-ray
In recent years, and as is the case with the rest of the producers in its sector, mills has been accumulating financial results that reflect the periods of instability that the company is going through food industry product of the strong drop in consumption; of the impact of the sanitary measures to combat Covid-19 and of the freezing programs and price controls established by the Government with the supposed objective of controlling inflation.
After that official failure, the company even had to adopt a series of extraordinary measures to “disguise” in its balance sheets the true results of its activities affected by lower sales and the official decisions to impose stocks that prevent it from transferring cost increases to the values of its product portfolio.
The firm of Gregorio Perez Companc had to adopt extraordinary measures to improve its balance sheets
For example, in 2020 it resorted to the sale of its headquarters in the Buenos Aires town of Victoria and thus balance its results in red.
The establishment, located at Calle Uruguay 4075 in the town of Victoria, in the province of Buenos Aires, was transferred to an investment group in exchange for US$20.7 million, and it is more than likely that the new owners will face a development property in that area very close to the Pan-American Highway but agreed with the new owners to keep their commercial and administrative offices in the property through a loan agreement.
For Molinos, the operation brought income of $2,027 million, which was added to another $1,169 million obtained from control policies and extraordinary cuts in expenses, despite the higher costs generated by the Covid-19 crisis.and, to a rigorous non-recurring management of working capital that resulted in a reduction of the debt in dollars, and therefore, in lower financial charges.
The implementation of this plan occurred to avoid continuing to accumulate numbers in the red, such as those that it showed between 2017 and 2019, when it accumulated losses of $5,000 million, red that was reversed in 2020 precisely thanks to the sale of its headquarters .
In fact, the previous balance with profits had been in 2016, when closed with a positive balance of $880 million.
But that year, the company had still not spun off its bulk business which it later spun off to operate under the name Molinos Agrothe segment with the highest performance, with agro-industrial exports that reported the highest income and a brand area affected by cost increases, not transferred to prices.
