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

Good afternoon, everyone, and welcome to Group of Bimbo's second quarter results conference call. If you need a copy of the press release issued earlier today, it is available on the company's website at groupofbimbo.com. Before we begin, I would like to remind you that this call is being recorded, and the information discussed today may include four looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ maturely. Please refer to the detailed note in the company's press release regarding forward-looking statements. I will now turn the call over to Mr. Rafael Samir, Chief Executive Officer of Group of Bimbo. Please go ahead, sir.

Thank you very much. Good afternoon, everyone. Thank you for joining us. Connected on the line today is our CFO, Diego Gagiola, Mark Bendix, Executive Vice President, and several members of our finance team. The second quarter results emphasize the advantages of our status as a diversified global leader in our industry. Our EAA operation substantially increased profitability, achieving a record double-digit margin for the second quarter, at 10.4%. Significant contribution came from our operations in Mexico, which not only demonstrated solid performance, but also continued to emerge as our most profitable region, achieving sustained growth with an EBITDA margin expansion of 140 basis points. These successes effectively mitigated the challenging environment in North America and certain Latin countries. Furthermore, we continue to reap the benefits of our enhanced revenue growth management capabilities, lower raw material costs, and a strategic investment in innovation and transformational projects aimed at long-term value creation. Collectively, all the mentioned initiatives contributed to a record adjusted EBITDA margin for the second quarter of 14.2%. We are pleased to share with you that Canta recognized our Bimbo brand as the most chosen food brand in Mexico and within the top five most chosen brands in Mexico and Latin America in the fast-moving consumer goods sector. Our local teams have done an excellent job of positioning our brands in the different markets, meeting our consumers' needs through a variety of products. We continue making progress towards our sustainability goals, At the end of 2023, we'll reduce our scope three emissions by 12% versus 2022, or by 3.7% versus our 2019 baseline. These results are in line with our target of becoming a net zero carbon emission company by 2050. We are proud of our accomplishments, acknowledging the challenges we face and the significant work to do ahead to continue reducing our carbon footprint. However, we firmly believe we're taking the right steps on being sustainable by design through our sustainability strategy and its three priorities, for you, for life, and for nature. Now, looking into the results by region. In Mexico... Despite a very tough comparison of the second quarter of 2023, where we posted almost a 13% growth rate, coupled with extreme hot and abnormal weather conditions in Mexico, which mainly affected our sweet baked goods category, sales improved by 4.4%, mainly due to sustained growth across almost every category and every channel. A positive price-mix effect, increasing the value to our consumers, with three quarters in a row with positive volume evolution. Adjusted EBITDA margin strongly expanded 140 basis points, reflecting the favorable mixed effect, positive volume contribution, lower commodity costs, and productivity savings throughout the supply chain. In North America, after several years of heightened demand and subsequent growth, Overall consumption has been recently constrained along with a shift to value impacting volume performance. Excluding FX effect, top line declined 3.4% mainly due to a difficult comparison from the second quarter of 2023 when our sales increased by nearly 12%. Also, because of the strategic exits of some non-branded business. Although these results are slightly below our expectations, we are already seeing improving trends sequentially. We continue to evaluate promotions to ensure we have competitive pricing in the marketplace and enable the right price-volume equation. Our promotional activities continue to drive consumer engagement and market penetration while supporting an anticipated modest sequential improvement in volume throughout the remainder of the year. We continue to expand our distribution to meet the consumer where they shop and provide the right value for them, aligned with channel and value pack offerings. And we're building on our tailwinds as we see continued growth with Rostig brand, Artesano bread brand, Marinela brands, and our salty snacks business. Despite lower commodity costs and the realization of the strong productivity benefits, Adjusted EBITDA margin contracted 130 basis points, mainly due to the soft top-line performance, a strategic investment in our value chain to increase our capabilities to better serve more customers and consumers, the strong Mexican peso impacting product costs important for Mexico in general, but moderating inflation. We are always looking for opportunities to optimize our efficiency and effectiveness across our supply chain footprint. Aligning with that objective, we recently announced the closure of three small bread and rolls facilities in the U.S. These bakeries are older and less efficient than our remaining fleet of bakeries. To put it in perspective, these bakeries constitute less than 2% of our total capacity. we will continue to proactively look for opportunities to improve our process structure. Moving on to Latin America, excluding FX, net sales increased 3.8%, mainly because of the excellent results in Brazil and smaller countries such as Costa Rica, Uruguay, and Paraguay. On top of that, our business in Argentina has shown signs of resilience due to our ability to capitalize our risk management policies, together with proactive revenue growth management strategies. On the other hand, we are facing a challenging environment in Colombia and Chile, where we are working on maximizing consumers' value and meeting their needs by continuing to strengthen our brands through innovation and differentiation, as well as focusing on operational execution and cost discipline. In Europe, Asia, and Africa, excluding FX, sales increased almost 9%. This was mainly due to strong sales performance across most organizations, most notably bimbo quick service restaurants, UK and Romania, coupled with the inorganic contribution from the four acquisitions we have completed in the region over the last 12 months. The very strong adjusted margin expansion of 280 basis points resulted from the solid sales performance lower cost of sales, efficiencies throughout the supply chain, and the positive contribution from the past acquisitions, which led to a record double-digit margin for the second quarter of 10.4%. With this, 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, everyone, and thank you for joining us today. These quarter results were good and a perfect example of the benefits of being a well-diversified company. On one hand, we were able to reach an all-time high level of sales in Mexico and EAA, while at the same time, Grupo Bimbo's sales increased without the negative effect of a stronger Mexican peso. Despite the tough comparison of the second quarter of 2023, where our sales grew 14.2%. We continue to benefit from lower commodities and from the investments we have made in the past, as well as efficiencies gained across the supply chain, which led to a record EBITDA margin for a second quarter. All this happened despite the soft consumer environment we and most CPGs are experiencing in the U.S., while we invest in our transformation journey for our supply chain in the country. Moving on to the balance sheet, we closed the quarter with a net debt to adjusted TVDA ratio of 2.6 times, and our total debt closed at 135 billion pesos. The increase in our debt position when compared to 2023 was mainly due because of the capex and strategic investments, including the two strategic Bolton acquisitions that we closed during the quarter and announced in the past conference call, which were Mulandor and La Sarcerena. And also because of the depreciation of the Mexican peso of more than one peso per dollar that happened at the end of the second quarter. Regarding the opportunity to optimize our footprint with the three bakery closures in the U.S. that Rafa just mentioned, financially speaking, it is a very positive news because the payback will be of close to one year, so we will see these benefits in 2025. As for the guidance of the year, we are reiterating our expectations of flat to low single-digit top-line growth and a low single-digit growth in EBITDA. Although the Mexican peso recently depreciated and we expect a higher peso for the second half of the year, we're not adjusting our guidance, mainly because the overall consumer environment in North America continues to be challenging. If you recall, we were initially expecting a contraction of the EBITDA margin during the first half of the year. Nevertheless, we have seen better results as our margin has remained flat during this period. So, even considering the sub-consumer environment, we are reiterating the guidance and are highly confident we will see a margin expansion in the second half of the year. We can now proceed with the Q&A session.