Grupo Bimbo, S.A.B. de C.V.

Good day and welcome to the Grupo Bimbo's third quarter 2023 results conference call. If you need a copy of the press release issued yesterday, it is available on the company's website at www.grupobimbo.com. Before we begin, I would like to remind you that this call is being recorded and that the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risk and uncertainties and actual results may differ materially. Please refer to the detailed note in the company's press release regarding forward-looking statements. I would now like to turn the conference over to Mr. Rafael Tamias, Chief Operating Officer of Grupo Bimbo. Please go ahead, sir.

Yes, good afternoon, everyone. Thank you for joining us. Connected on the line today is our CFO, Diego Regiola. Mark Bendix, Executive Vice President, and several members of our finance team. Unfortunately, Daniel is unable to join us today, but I will try to communicate the message the best way I can. Before presenting the company's financial results, I would like to express on behalf of myself and our group of BIMBOS associates our deepest solidarity with the people from the state of Guerrero, who is currently facing an extremely difficult situation after the impact of Category 5 Hurricane Otis on the Mexican Pacific Coast, which has severely affected the city of Acapulco and its surrounding regions. Although the enormous damage that this phenomenon has caused is very difficult to quantify yet, we hope that families will soon be able to return to their homes and find the necessary strength to recover their daily lives and move forward. Around 500 Grupo Bimbos associates live in the affected areas who are taking all necessary actions to ensure their well-being as well as that of the families, our consumers, and customers. We will be monitoring very closely the situation to take the actions to help alleviate the impact of this event. Our hearts are with you. I'm going to start now. In the face of a very strong Mexican peso, increased but moderated inflationary pressures, and the MEPS non-cash benefit register in the third quarter of 2022, which makes the comparison in some metrics tougher, Our results for the third quarter were exceptional as we reached record levels for net sales and adjusted EBITDA, of course, excluding FX rate impact. And our EBITDA margin strongly expanded 50 basis points, now a standard at a robust 14.6%. Both key metrics have consistently improved, showcasing 10 years compound annual growth rates of 5% and 7% respectively. Moreover, we successfully completed two strategic acquisitions, and our capex investments reached record-breaking levels so far. We also advanced towards our ESG goals, reaching 27 countries which are now operating with 100 renewable electricity, and we were ranked number one as the company with the best corporate reputation in Mexico by Merco. In September, we held the 2023 Bimbo Global Race, and thanks to more than 300,000 participants, including 180,000 virtual runners, more than 2.8 billion slices of bread are being donated to food banks around the world. Before I jump into the results of the quarter, I would like to share with you the three investments we made through Bimbo Ventures, our venture capital arm, Harbinger Motors, Healthy Brand, and Shinka. We also kick-started our second edition of Bingo Open Door, our open innovation program focused on collaborating with promising startups. In this year's edition, we are focusing the program on the cookies and bars categories. Looking now into the results by region for the quarter, North America delivered another quarter of a strong top-line growth, growing more than 6%, excluding FX effects, across all categories with notable growth rates from buns and rolls, breakfast and salty snacks. However, volumes were soft consistent with the overall category, but more than upset by carryover pricing, which was implemented in 2022. It is relevant to mention that the rate of decline is slowing sequentially. In fact, in the first weeks of October, we saw share gains on our sweet baked goods and English muffins businesses which are critical to the overall success of achieving North America's top and bottom line objectives. Adjusted EBITDA margin constructed 80 basis points. This construction is primarily due to continued but moderated inflation, category and channel mix, partially offset by improved productivity benefits. We remain focused on eliminating waste and investing in key areas of our business to optimize our operations and ultimately reach our full potential. As we move forward into the fourth quarter, we anticipate a better volume performance. This improvement will be a direct result of the innovative and effective commercial strategies we are currently implementing in the marketplace. we remain confident in our ability to overcome these challenges and drive the growth trajectory in the right direction. During the quarter, we successfully acquired Mile High Bakery in Colorado, U.S., known for producing buns and English muffins for the QSR channel. This strategic acquisition strengthened our geographic presence in this high-growth industry and opened doors to new QSR customers in the U.S. In Mexico, We are thrilled to report a remarkable increase of over 8% in net sales, primarily driven by favorable price and product mix. Notably, we witnessed healthy growth in various categories, especially tortillas, cookies, buns, cakes, and snacks, and double-digit growth in the convenient and retail channels. Our adjusted EBITDA margin posted significant expansion, surging by 140 basis points. This was a direct result of sales performance, coupled with lower cost of sales and enhanced distribution network efficiencies, including the incorporation of digital solutions. These achievements reflect our commitment to delivering quality products while ensuring cost-effective operations for sustained growth in the Mexican market. Moving to EAA, we achieved an outstanding growth of over 20% in sales, excluding the impact of FX fluctuations. This remarkable growth was primarily driven by a positive price and product mix throughout the region with notable strength in Iberia. Additionally, the continued robust performance of BIMBOK-USR, especially in China, along with the contribution from our strategic acquisitions of Belpitar in Romania and St. Pierre in UK contributed to this growth. Adjusted EBITDA margin posted a strong 100 basis points expansion mostly due to the strong sales performance, lower cost of sales, and the successful implementation of productivity enhancing initiatives. During the quarter, we also completed the acquisition of the majority stake of our QSR business in Switzerland, Cortiza, leaving us with a 60% stake of the business. This allows us to integrate the facility in our footprint to further enhance our presence in the country. Finally, Moving on to Latin America, excluding effect-to-effect, net sales increased more than 14%, with growth in local currencies in every organization, highlighting Brazil and the Latin Sur division, favorable price mix across the region, and strong volume performance in Brazil, which continues to post record-breaking results. Adjusted EBITDA margin reached a sustainable double-digit record level at 10.5%, attributed to the strong sales performance, improved product mix, and productivity benefits across the business, highlighting the extraordinary performance of Brazil. I would now like to turn over the call to Diego, who will walk you through our financials. Please, Diego, go ahead. Thank you, Rafa. Good afternoon. Thank you for joining us today. Our third quarter results continue to improve. especially when we consider a soft consumer environment and a complex operating environment in some markets. We were able to reach record levels of net sales and adjusted BBVA, of course, excluding the superficial effects. Our sales grew above 8%, excluding FX effects. Our adjusted theta margin expanded 50 basis points, reaching 14.6%. and our operating margin, excluding the net non-cash benefit of the third quarter of last year, improved by 30 basis points. However, our financing costs rose by over 30%, mainly due to increased debt, deep refinancing of our perpetual bonds completed earlier this year, and the impact from higher interest rates. As a result, of the FX translation effect, the net effect and the higher financing costs, our net minority income declined by 31%. Our community effective tax rate closed the quarter of 33.5%. Shifting to the balance sheet, our net debt to adjusted dividend ratio stands at two times, with total debt increasing by 23 billion pesos. This primarily because of a higher debt position, the perpetual bonds refinancing accounting impact, and the strategic acquisitions completed in the past 12 months, coupled with our intensive capital expenditure program aimed at fostering our prospective expansion across diverse countries and product categories. We have also seen a rise in short-term debt. mainly due to the upcoming maturity of our 2024 bonds. We are continuously evaluating market conditions and alternatives to face such maturity. At the same time, we remain confident given the flexibility and liquidity that our committed revolving credit facility for $1.93 billion provides to us. Our net operating working capital increased by 3.3 days over the third quarter of 2022, equivalent to around 3.4 billion pesos, mostly due to increases in inventories and clients. Lastly, despite the FX rate conversion effect, our local currency results remain strong, and we would like to reaffirm our 2023 guidance.

We continue to anticipate change growth in a low-to-mid single-digit range.