Genomma Lab Intl Sab Ord

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Denoma Lab second quarter 2021 results conference call. At this time, all participants are in listen-only mode. Following today's discussion, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. A replay will also be available shortly after the conclusion of the call. I'll now turn the call over to Barbara Cano of Inspire Group. Please go ahead, Barbara.

Thank you, Robin. Good morning. Welcome to HENOMA's Conference Call to Review Second Quarter 2021 Results. On today's call are Jorge Braque, HENOMA Labs Chief Executive Officer, and Antonio Zamora, Chief Financial Officer. Our results were released yesterday afternoon. and can be found within the Investor Relations section of our website, along with the appropriate filings with the Mexican Stock Exchange. Certain comments made during today's discussion may be deemed forward-looking statements within the meaning prescribed by the securities laws, including statements related to future business and financial performance. All forward-looking statements represent management's judgment as of the date of this conference call. and are subject to risks and uncertainties that can cause actual results to differ materially from current expectations. Investors are urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filings with the Mexican Stock Exchange. In particular, uncertainty remains about the duration and impact of the COVID-19 pandemic. This means results could change at any time due to the pandemic's impact on the company's business results. Management's outlook is a best estimate based on the information as of today's date. With that, I'm now pleased to turn the call over to Mr. Jorge Bray. Jorge, please go ahead.

Thank you, Barbara. Good morning, everyone, and thank you for joining us today. Throughout the last year and a half, Denoma Labs has come together as a strong team through the pandemic and made decisions prioritizing the safety and well-being of our employees while swiftly adapting to the changing needs of our customers and consumers. This approach has served us well, enabling us to make meaningful progress on our four-pillar strategy despite the volatile operating environment. Our team pulled together, we executed with excellence, and we delivered strong operating results. As you read in our press release yesterday, the normal second quarter results reflected the expected challenge in comparison to the prior year as we cycled the demand surge that accompanied the COVID-19 pandemic in Q2 2020, while navigating several current headwinds. Vaccination rates in Latin America continue to lag, with growing unemployment that impacts consumption across the board. Genomics also experiencing effects of headwinds compounded by a challenging macroeconomic environment and inflationary impacts across the two markets where we operate. However, we delivered 3.9 billion pesos in sales for the second quarter of 2021, a 6.3% year-on-year increase reflecting genomics as a healing and dynamic business model based on our four pillars of strategy. From a top-line perspective, second quarter 2021 represented the 11th consecutive quarter of increased sales, and one of the best quarters in the history of the company. Our sales benefited from the continued momentum of our product portfolio utilization, as well as innovation strategies, with line extensions and new product launches, also with new categories such as novel meal and rooming, etc. Net sales on EBITDA, as you know, has Mexico operations, grew almost 9% and 14% year-on-year, respectively, to close at 1.64 billion pesos with a 20.2% EBITDA margin. Latin American net sales reached 1.9 billion pesos during the second quarter, a 15%, almost 16% year-on-year increase. It's also important to note that today, close to 25% 20% of genomic growth comes from innovation initiatives. To put this into perspective, potentially none of our growth was driven by innovation before 2019, but jumped to almost 15% in 2020 and 20% in 2021, as already mentioned. We are now at a solid level as compared to our global peers on this front. Theonacro is an excellent example of a heritage genomic product that today is growing behind innovation, reflected in a double-digit year-on-year increase in sales for this product. This is achieved through improved formulas and fragrances, strengthened distribution channels, and an expanded presence in the countries where we operate. The strong quality resources were also driven by our decision to invest in supply and service, while preserving brand investments through advertising and consumer promotions. This has further enabled Genoma to gain share in a difficult operating environment. While we faced significant inflationary pressure in the quarter, we anticipated and mitigated the vast majority of the impact by consolidating Genoma's third-party manufacturers. Today, our suppliers are fewer, larger, more efficient, at a lower cost. We have also fine-tuned our pricing strategy. to be able to pass through costs while continue growing our volume. Discoverers' results were favorably impacted by the interventions we have successfully made within our supply chains through the third quarter of 2020. The enormous new and strong talent is focused on proactively and aggressively addressing all related opportunities, expanding from demand forecasting the purchasing, specifically what, where, and how much, while optimizing costs. As I have commented on our call last quarter, this is the year of the supply chain. In particular, we are focused on transforming our supply chain in line with our new plan initiating operations. We, therefore, are confident that we can continue addressing future headwinds. reflected in the plans and pricing already in place. We have also identified purchasing targets where we see important opportunities to further optimize costs, particularly related to raw materials and packaging, from which Genoma can benefit, in tandem with the benefits we're seeing from streamlining our suppliers to become more efficient and productive of our manufacturing plan. We also have seen our continued strength in market underpinned by the fact that Genoma has been uniquely competitively positioned to win. Genoma's broad range of products have powerful local brand recognition and can be an attractive price point related to our competitors. Further, we continue developing a deep presence within the tradition of China, the famous mom-and-pop stores. while at the same time we were able to shift the pivot towards e-commerce early in the pandemic, more than tripling genomic business within this platform over the last 18 months. We drove a strong quarterly performance with an expanded presence with the traditional channels in Mexico, Central America, and the Andean region during the first two quarters of 2020, while we also deepening e-commerce channels not only in Mexico, through attractive hot share campaigns that increase the number of shares within this marketing quarter. Consumers are increasingly moving online, as we all know, and we are ramping up our connected e-commerce efforts to continue to take advantage of related opportunities. Finally, the number was once again selected as a component within the S&P BNB Total Mexico EOK Index for the second consecutive year. as one of 29 companies recognized for outstanding E&T practices based on this standard and core corporate system ability assessment. Additionally, during the second quarter, we updated our diversity, inclusion, and gender equality policy, also inaugurating our Global Committee for Diversity, Inclusion, and Gender Equality. Further. We've worked with a consultancy to update our climate risk and opportunities analysis to closely align with the task force on climate-related financial disclosure recommendations. In closing, when I joined Genoma, our initial focus was on managing the company to increase market share. We also strived to help Genoma employees work differently and more effectively, supported by our company's effective four-pillar growth strategy. As a result, the NOMA has not only survived today's unprecedented challenges, it also prevailed, and we continue doing so. Thank you for your attention. It is now my pleasure to turn it over to Antonio, and I'll be back to answer your questions and opinions. Thank you.

Thank you, Jorge. Good morning, and thank you all for joining today's conference call. As Jorge just shared, we once again delivered strong results with another quarter of sales growth. Genoma achieved 3.9 billion pesos in consolidated net sales for the second quarter of the year, reaching a 6.3% year-on-year increase. Continued successful execution of our growth strategies, innovation, and product launches during the quarter supported sales growth during this quarter. This increase is due to excellent new category performance in Mexico, successful line extensions and product launches in key regions, go-to-market initiatives, and digital advertising and marketing campaigns throughout the regions, as Jorge had just commented. Consolidated EVDA increased 21.5 million pesos year-on-year, to reach $777 million. However, as Jorge just shared, our second quarter year-on-year EBITDA margin and sales results were adversely impacted by last year's demand surge related to the start of the COVID-19 pandemic in certain markets where we're present. As well as pronounced inflation, forex headwinds, operational leverage and a negative sales mix effect from increased sales of lower-margin products, as well as non-recurring investments related to the process of consolidating the company's industrial cluster. Mexico net sales for the quarter reached 1.6 billion pesos, an almost 9% year-on-year increase. 131 million pesos increase is primarily due to a better than expected performance of new categories and line extensions, as well as an improved go-to market and in-store visibility execution within the various trade channels where we operate. This increase was also driven by an increase in points of sales served, as well as ongoing e-commerce initiatives. Mexico's second quarter 2021 EVDA reached $332 million with a 20.2% margin, reflecting a 100 basis point expansion. This was primarily due to the operational leverage effect on fixed expenses with continued cost controls and supply chain efficiencies reached during the quarter. The CONQUADR 2021 EVTA was partially offset by expenses associated with the commissioning of new lines at the industrial cluster and investments made in trade channels. Net sales for Genoma's U.S. operation decreased by 33% to 390 million pesos, also due to a challenging year-on-year comparison base. with an extraordinary increase in second quarter 2020 hand sanitizer sales and the residual effect of weak OTC portfolio performance due to fewer 2021 cold and flu cases within this market. Traditional pharmacy chain consumer food traffic also decreased during the quarter due to increased e-commerce competition. In Latin America, Successful go-to-market strategies, enhanced in-store visibility, new product launches and line extensions, as well as an increased store base dropped top-line growth during the quarter. Net sales for the quarter increased by almost 16% year-on-year to 1.9 billion pesos. Year-on-year sales in Argentina, Brazil, Bolivia, Chile, and Colombia increased reflected a double-digit increase when expressed both in local currency and in Mexican pesos. Consolidated gross profit grew 8% during the quarter to 2.4 billion pesos with a 90 basis point year-on-year gross margin increase. This was the result of increased operational leverage and the favorable impact of a positive sales mix on the company's consolidated top line despite the considerable inflationary challenges with Genoma and companies throughout the world continue to confront, particularly relative to the cost of goods sold. Net income reached 379 million pesos, an 18 million pesos year-on-year increase, despite forex headwinds. Second quarter 2021 net income increased due to a lower reported effective tax rate as compared to the prior year. Genoma remains well positioned from a balance sheet perspective with a leverage ratio of 1.6 times net debt to REBA and 1.4 billion pesos in cash and equivalents at the quarter's end, a 16.5% year-on-year increase. During the quarter, we again issued short-term bonds within the Mexican market at lower interest rates than those we have prepaid, further improving our financial costs and maturities. This is further an affirmation of investors' continued confidence in Genoma and our strategies. Thank you for your trust. Finally, during the quarter, we continued to invest in Genoma's buyback program, to drive further liquidity on the stock. For the three months ended June 30, 2021, the company repurchased a total of 1.9 million shares, representing an investment of approximately 38.4 million pesos. In closing, I would like to reiterate Jorge's conviction in the long-term performance of Genoma. We are delivering the results we knew we could deliver and are very optimistic about our strategy, our team, and the underlying strengths of our brands. With that, let's open it up to questions. Rob, please.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question today, please press star 1 on your telephone keypad. and a confirmation tone to indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And once again, that is star 1 to ask a question today. Our first question comes from the line of Antonio Hernandez with Barclays. Please proceed with your questions.

Hi, good morning. Thanks for taking my questions regarding the UAVU. You mentioned promotional activity there, and you mentioned, I believe, market share games, if I hear that. Could you elaborate a little bit more on the overall competitive environment if you are expecting, of course, with input cost pressure, if you are expecting maybe a need of price increases from the overall industry, from yourself, and if you are going to continue with these promotional activities and so on. Thanks. Hi, Antonio. This is Jorge. I will comment on your question. In overall terms, Q2, Q1 also have been tough for us for many reasons. I cannot isolate one, but in addition to the external factors that Samuel just mentioned, it had to do with effects, for instance, and some macroeconomic issues in some countries may be behind the impact of the pandemic, some social issues in some countries like Colombia, that also had several weeks of social manifestations in the country, et cetera, et cetera. In addition to those external factors, the internal, which is related to our business and categories and market and competition, was also bad because all companies are trying to do their best, as you can imagine. coming out of a very tough 2020 for most of us. And they have been very creative and aggressive in the different markets. However, as we have said, we truly are confident on the potential of our strategy. Our fourth pillar strategy continues to be valid, continues to be effective, very solid in terms of the things that we are doing in the marketplace. And I'll give you some examples. Together, we've explained how competition is changing, the pricing situation, and the promotion situation. I would say that if you think about our popular strategy, I would say that, as I said, continues to be very valid. It was valid during 2020. That was the best year in the history of the company in terms of sales and profits. and continues to be valid in 2021, but I think it's going to become better than 2020 because we are in the right path now. And my personal opinion is that the second half is going to be better than the first half. So what is working? We continue to be very aggressive in innovation, and innovation means buying extensions, as you know, completion of a portfolio in different countries. Re-establishing and modernizing brands. You will see a huge re-launch for one of our key brands next month. We continue also pursuing new big brands or categories. And let me mention one that was fun to see. As you know, we started with Noma Meal as a new brand for us, entering the infant formula category in 2020. 2020 was not a normal year. The acquisitions were not opening. So we couldn't exploit the brand to its full potential. But the first half of this year is growing more than 30%. So that's the potential of a brand that will bring much more growth, profitable growth to the future in the company. We are also growing a razor brand, Gumen, that was launched in Mexico exactly one year ago. And now it's proven to be a very powerful initiative, reaching between 5% and 10% market share depending on the channel and on the accounts, as we've been mentioning, which is making us now be more aggressive in terms of a plan for the brand, very cool promotions, communications, consumer, supply, distribution, et cetera, et cetera, and also talking about expanding those two brands. in all countries in the country where we operate. And you will see that happen by the end of this year. So I think the power is innovation. As we said when we launched the innovation pillar two and a half years ago, it's enormous. Now it's 20% of our growth is coming from innovation. And that is one driver that is going to make us be very consistent in terms of continuous and consistent growth in the mean and the long term. Also, thinking and competition, to be honest with you, as I said, is being very aggressive, but more from a commercial standpoint. We haven't seen lots of initiatives in many other countries in terms of impact against our brand, negative impact against our business. It's more commercial. It's more short-term. Sometimes we react, sometimes we don't react. But that's not my part of running this type of business. Also, in the go-to market, we continue to, we are stronger and stronger by the way in this area. Yeah, because we continue expanding our presence in the traditional channel. We continue... making stronger our presence and visibility in the modern Chinese too. And as I mentioned in my summary, we continue to grow dramatically in the e-commerce platforms. And that is happening in most of the countries in which we also operate. So from a competitive standpoint, I would say a normal situation. I would say that we're winning because we are consolidating the impact of our innovation pillar, but it's been there two and a half years, et cetera, et cetera, so it's very important. In terms of pricing, as you mentioned, this is an area in which all of us are working very hard. As I also mentioned, inflation, cost inflation is here and will stay It's all of us. It's an old industry, old industries for a while. And we've been able to manage, as I said, fine-tune our pricing strategy. So we are very close to all markets. We are very close to all costs. I'm taking action in pricing as soon as possible. That is happening. That has been happening this quarter very frequently. And when we do so, we have to cover the increased costs and And our system, our model now is very agile so that we can react very quickly to any of the needs we may face in pricing terms. If you put together the needs of doing aggressive pricing because of cost and friction with the fact that we will continue innovating, commercially speaking, in terms of product or initiative, we are being able to compensate that. we are being able to reduce the risk of pricing affecting our sales in overall terms. So it is working for us, and it will continue working, I think, because we are taking a very well-balanced approach. Perfect. Thanks a lot for the call, and have a nice day. Thanks. Thank you.

Our next question comes from the line of Joaquin Le with ETAL. Please proceed with your questions.

Hi, good morning, Jorge.

Thanks, Joaquin.

Yeah, the first one, I would like to, and you just explained, I mean, the exposure that you have to oil delivery prices and so on and so forth, but yet I would like you to elaborate a bit more on the contraction in the margin that we saw. in the Latin American operation. And particularly, you mentioned in your press release that there's some, you know, contraction that relates to sales mix acceleration, which is something that surprises me, right? Because OTC grows over 20% and personal curve less than 10%. So I would like to understand that better, please.

And the second question goes to the U.S. I understand the super tough basis for CompuHat because of anti-backlash here. and the soft performance of anti-flu, but yet, I mean, the results of the U.S., they kind of look like a roller coaster in terms of sales and if it's done. If you could share with us what are we in terms of your new strategy in that operation, you know, in the four regions that you have focused, what we could expect for the coming quarters, that would be helpful. Okay. Thank you, Joaquin. I will take... I will make some overall comments, and then Tonio will complement in some others. But to our perspective, in the U.S. – I will start from the last comment. In the U.S., yes, you're right, because if you see the numbers, you see this kind of roller coaster in terms of results, especially if you compare it versus a year ago. And that is what we're seeing in Q2. However, and I was just with the U.S. team yesterday, but however, as you said, if you take out the anti-vax gel, that was an opportunity that came together with COVID in Q2 of 2020 from the days, then the growth of the U.S. is double-digit. That is the impact of of a big volume sold, leaving the opportunity, especially in Q2 when we were starting the pandemic. And as you can imagine, also taking that volume from Q2 to Q3, the company's result in terms of sales would have been double digit. So that's the way I'm looking at it to confirm how solid our if we take out those things that were present at that time. It doesn't mean that we will not, we are not continuing to sell gel or antivax. It does mean that that explosion in consumption that came with the start of the pandemic is not there anymore. But people are still using gel, but not at the volumes they were using. in the first month of the pandemic. So we will continue with that business, but not at the levels we saw in Q2 of 2020. So the U.S. business, as you said, Joaquin, the model that we launched last year, we continue very strongly developing it. This is year two of the restructure we implemented in the U.S., and I would say that given given the way they're looking at it, because as you know, we are now thinking about expanding or working, actually, in expanding our presence in other segments of the population, including the data market, in a gradual basis. We will see the potential for business be much bigger than now as we start implementing those strategies. And you will be hearing from us in the next quarter What do they mean? But basically, it's looking for implementing initiatives of product within our portfolio, product that will appeal to more and new segments of the consumers in the U.S. market. One example of that, quickly, is FedEx. We launched FedEx in the U.S. with a different mindset, not the mindset of the Spanish market. the mindset of the general market. Suerox is a brand that appeals to all segments of the population, including the name, including the product, the uniqueness of the product. As you know, it's eight items, no sugar, no calories, great flavor. So as we started with that new initiative, our mindset was this is for the general market. not for the Spanish market only. And we started in California by mid-2020, as you may remember. And it's doing great. It's doing great to the point that today we are expanding our production capacity to be able to meet the demand before expanding it to other states in the U.S. That is everything that was implemented with Swetox in terms of consumer, in terms of go-to-market, in terms of supply chain. We can... we apply to other categories or brands. So we are proving that we can get into those other segments if we are smart in the way we develop new initiatives as part of the U.S. portfolio. So that's the way to think about this business. I am very confident that in the next quarter, especially 2022, is the year in which we are gonna see the resource of all these changes implemented between 20 and 21. I think the case of Latin America, different situations in different places, and Antonio will explain more of that, but the margin differences are due to specific things that happen in some countries and not in other countries, but I will let Antonio give more perspective on that.

Thank you, Jorge.

Thank you, Jorge. This is Antonio. Joaquin, thank you so much for your question. In Latin America, I think your question is very interesting because usually it's a rule of thumb that OTC has a better profitability than personal care. It is a rule of thumb, and it's the right rule of thumb. But, you know, depending on the category and the specific moment, that may not hold true. And let me give you one example which is very relevant, at least for genoma this quarter. Our paracetamol-based business, you know, the brand Tafirol in Argentina, which is very, very strong, and it grew at a very high speed during the quarter, and we are very proud of that brand. The problem is paracetamol API is important. Obviously, we're increasing prices of the end product in the market, but sometimes there are some lagging effects. I mean, you take the hit of the clocks immediately, especially when it's about Forex, and it takes some time just to adjust pricing. So one of the things, one of the drivers of the margin decline in Latin America, which, again, let me stress this is temporary, had to do with this – COX inflation, especially Forex, and particularly with paracetamol in Argentina. That's one of the drivers. That's one of the situations why the general rule of thumb didn't apply this quarter. On top of that, We always talk about the flu season, and we generally speak about the northern hemisphere. We talked about the U.S. We talked about Mexico during the winter. But now it's a winter in the southern hemisphere. So there's some cough and cold medicines that didn't have the performance that we had anticipated. It's the same thing that we are experiencing everywhere else, people wearing masks, staying at home, washing their hands. So the flu, at least for this year, almost got eradicated from the face of the world. I think that the good news is that as people get vaccinated and as people start, you know, moving out and getting to public places, et cetera, there was a this possibility that the flu will come again and the cold symptoms will come in the near future. We don't know if this is going to hold true as there's new guidelines at this moment. But the important thing, Joaquin, is that And one of the beauties of Genoma is that it's a well-diversified company in terms of markets, geographies, as well as categories. So when we see an opportunity, as we did last year with the hand sanitizer opportunity in the U.S., we took it. At that time, you know, this is a great opportunity to help us offset the gap that was happening at that time in Chile, in Central America, in other markets that were experiencing a very hard or strong lockdown. That was then. That was last year. This year, we don't have that benefit or that tailwind of the hand sanitizer. Many people already have the hand sanitizer. But then we are capturing new opportunities. As Jorge mentioned, Swetox in the U.S. is growing like hell. To be honest, it's one of the pleasant surprises here. If we exclude the hand sanitizer business and we do apples-to-apples comparisons, the U.S. would have grown double digits. I mean, we need to extract that just for comparative reasons. And, again, Xerox was one of the key drivers. As everybody knows, during the second quarter, the Xerox line is already fully commissioned and operational. We manufactured more than 5 million bottles during the month of June. That's additional capacity that we didn't have. In the past, we have many different third-party contractors. We added our line, and basically we sold everything. So demand is not stopping for that product line. It's very promising. Growth in the U.S. works well. Unfortunately, we have these tough pumps because of the hand sanitizer problem. But excluding that, as I said, the U.S. would have grown double-digit. But let me ask you if I was clear enough or you need more clarification in terms of what happened with margins during the quarter in Latin America. As I said before, when you get – especially Forex impacts for APIs and some raw materials, this comes immediately. And it takes some time for companies, for consumer goods companies, to adjust pricing to the retailers and eventually to the end consumers. But that's part of the strategy. That's part of the actions that we are taking to offset this negative impact. trend in terms of COGS. This is something that all consumer goods companies are experiencing everywhere. But, you know, we are confident. I mean, this is just part of doing business. And in the long run, we have seen this kind of situations many times in our careers, not only at Genoma, but previously. And we know how to deal with it. But obviously, this quarter, we have that effect. I don't know if... I was able to clarify your question, or you need more clarification, Joaquin?

No, that was great, Colin. Thank you, Antonio. Thank you, Joaquin.

Our next question is from the line of Alvaro Garcia with BTT Pactual. Please proceed with your questions.

Hi, Jorge Antonio. Thanks for the space for questions. I have two questions. The first one is on e-commerce and conversion. I was wondering if you can, now that it's been a couple of years of solid dynamics on that front, I was wondering if you can comment, you know, which of your products sell best online, which have the highest conversion, where do you see the best long-term opportunity there? And my second question, you know, a big chunk of your growth, obviously new channels, given the strength of the traditional channel we've seen from you guys, but I was wondering if you can comment on sort of same brand sales. There's been a lot of line extensions within specific brands, and I just worry that maybe, you know, the core original brand might not be where it used to be. So any sort of comment there would be very helpful. Thank you.

Okay, Alvaro, thank you for your question. I'll start with the e-commerce one. We are doing great in terms of growth in the e-commerce, diverse e-commerce platforms in which we are participating, basically in partnership with key companies, key customers. Amazon has become one of our largest partners in e-commerce in both the U.S. and Mexico, where they are operating in the case of our regions. But also Walmart and others similar to Walmart in different countries in Latin America are also now key partners for us in our sales and e-commerce. And this has different forms. We've learned a lot in the last couple of years on our base and I think the things we have been doing are working based on the research we are seeing. There are countries in which we already have and present of ourselves coming from e-commerce. And that was our meeting goal for the whole company. So we're thinking now and taking that to a higher level, giving the success that we are facing. What is it that is working in our case? I would say that there are two or three things. One, we assign people dedicated fully dedicated to this program. We didn't have that before. So now we have a few experts in different countries that are fully dedicated to developing our business in e-commerce. And as you know, it is different than selling in a physical store. So we are developing the same concepts that we have for a perfect physical store. Now we call it a perfect e-commerce store. That includes the image of the brand. It includes the content we have. We see the page in terms of information. It includes reaction and answers to the comments from consumers. It includes the right pricing versus the physical channels or the physical stores, et cetera, and includes a strategic alignment of what we say in the e-commerce platform versus what we say in the TV copy or the TV commercial or different communication vehicles that we have. So there's consistency in terms of the strategy we are using to grow e-commerce. So that's one big thing that is happening. Obviously, a special specific agreement with the key e-commerce platforms or companies, it's also another key thing. We have been able to develop new long-term plans with them so that we support each other in what we do to grow our secondary. And we see that brands like Dionatrio, Cicatic, Suero Cicel, Grooming, Novamil, that are key representatives in terms of growth in the e-commerce market, depending on the country. But you will see that those four or five brands are the ones that are enjoying more growth in overall terms. So it's behind that type of different strategy in different fronts that is working now. Just to finalize my comment in the e-commerce front is that this is the people of the iceberg. We think that we are going to grow much more in the challenge because what we are seeing today is the result of the first interventions. We are perfecting what we do in the e-commerce as we go. So I think that we have a few more years of growth that we are going to be seeing in this type of platform. Going to the growth of our co-brands, that's a great question because it's difficult to say with the core brand, let me, let me talk about that. Genoma that this year is growing more than 20%. Uh, why is that? Why is that? Why is it doing that much in the moment that is the markets and everything is challenging. And we say, we always say that because of innovation. If you think about the core brand when we started the new strategy two and a half years ago, the core brand was very strong, continues to be strong, and we call it core brand is basically the lineup we had at that moment that was working very well. What we have done in terms of innovation came also with other interventions that have to do with formula, that have to do with packaging, have to do with the way we communicate the benefits of the brand and the fact that the brand is natural and we are taking now that to a different level because in terms of communication and that's one of the key benefits that the consumers appreciate so so it's a combination of restricting the core brand by doing all of these other things including all distribution and expansion in other channels etc etc but also at the same time bringing the other type of innovation, which is line intentions. We brought the new flavors, new fragrances that are in line with the consumer needs and trends that complement what we did in the forefront of the business of the brand. So if you add up those two things, you have a brand that is exploding. It's exploding in Brazil, it's exploding in the U.S., et cetera, et cetera. It's a combination of both, but I feel very, very comfortable with the fact that the core fund is growing and the new line extension, the new programs and the innovation is complementing that. And the same thing is happening to asepsia, same thing is happening to cicatric gold, or gold extensions, and now it's a whole line up. So those three different genomes are experiencing the same sort of growth and the factor behind that. If you think of other brands of other companies, as you know, I come from other big multinationals, and if you think about shampoos like Pantene, Pantene does the same. The brand that has been in the market for, I don't know, 30 years probably, and they keep growing the core, but they keep doing new line extensions every year. So it's the combination of both that make the brand much more stronger and make the brand gain shares, retain lucky share on a constant basis.

Alvaro, this is Antonio. I just wanted to complement Jorge's answer. When we talk about innovation, it's very important to clarify that innovation is a very – It's a concept that is very wide. And let me use one example. When we say we are launching a new product, which is part of innovation, like Suerox in the U.S., for the U.S., Suerox is a new launch. It is innovation from scratch, but it is not for Genoma because we have a successful brand, a successful category in Mexico. We're just following what we call at Genoma the route to success. So innovation, it's innovation for certain markets, for certain channels. That doesn't mean that it's a completely new product. But it's more about replicating our existing brands, our existing SKUs in other markets. So that's innovation for those regions, for those markets. The good news is that it's proven innovation. Now, we also have two types of other innovation. One is line extensions, total new products that we are experimenting, that we are entering. I think that the hand sanitizer business last year was an example of that. Blades and razors was an example of that. Entering the infant nutrition was an example of that. But then we also have a third type of innovation, which may be called renovation. And you see this in the very large multinational CPG companies across the world. You may see the same product, but it's not the same product. There's improved formulation. There's improved packaging. There's new communication, as Jorge was very well describing. For example, when we relaunched Tocol, You may argue that the formulation was the same, but the packaging was different, the communication was different, and the positioning of the product was different. Instead of targeting a niche segment that only represented 7% of the market for the heavy smokers, We wanted to target the overall market, the family market, which represented 93% of the market. So it's an innovation. We use the word innovation, but it's something proven. And the good news about this is that it's less risky than starting something new, number one. And number two, and I think this is very important to say, because if people compare what Genoma was doing, I don't know, 20 years ago when the company was launching new products every six months, and then the old product is no longer existent because every time we launch something, it's being replaced. That is no longer the case. We launch innovation, new products, but we also have a substantive responsibility based of our brands, of our core SKUs that are very important to us, you know, the Tio Nacho. We launched a new version of Tio Nacho, but we keep the old version as well, and we launch it in different market segments, et cetera. So it's a great topic. Innovation is always a great topic. I think that I just wanted to clarify, I don't know if we were able to answer your question, that it's not about doing everything new. We're launching new things, definitely, and it's very important. But we are also renovating the core, and we are reapplying the route to success that we have in certain markets to other markets as well. I don't know, Alvaro, if you would like to expand.

No, that was very clear. That was very clear. They're great examples. SWEDUX, for example, in the U.S. Awesome. Thank you very much.

Thank you. Thank you. As a reminder, to ask a question today, you may press star 1. The next question comes from the line of Nicholas Lorraine with J.P. Morgan. Pleased to see you with your questions.

Hello, good morning, Jorge, Antonio. Thank you for the call and thank you for taking my question. I want to touch a bit on the production plan, especially on the personal care lines. Do you have some call that you can share in terms of ramp up of the existing lines, you know, and also the new lines you mentioned in the release? And also, what is your expectation towards the end of the year, thinking about how much of your personal care sales could actually be sourced by the plan towards the end of the year. Thank you very much.

Yeah, I'll just make one quick comment and then Tonio will compliment. As part of the plan, it has gone very well in terms of what we are doing in the personal care section of our industrial site. As you know, Tonio mentioned and I also mentioned that in June we already produced 5 million bottles of sweaters. We are targeting to surpass that number July, August on a monthly basis. It is going very well. We are also starting in the next few weeks with production, initial loss of production of our two shampoo brands, T&H and Banai, and also creams in the following months. So you will see us by the end of the quarter with already those four categories being produced at the time. as we speak. And together with that, and as part of our supply chain project, as I mentioned before, we are also following very close all the interventions that are being made to optimize costs. And I will let Daniel explain that because he's part of that project. He's very close to that because in all cases, we are intervening in all key areas to make sure that we start seeing the benefits of our own production facility.

Yes. Thank you, Nicolas, for your question. You know, it's a great question, and it's part of the transformation that we are doing with the manufacturing cluster, as Jorge mentioned. There's a number of lines to be commissioned and to be installed and to become fully operational. And by the end of the year, I'm sure we're going to have very good news. The first personal care line, which is the Suerox isotonic beverage, as we said, more than 5 million bottles were manufactured during the month of June. So that's excellent, excellent news. As of today, the shampoo line has just started tests with some initial batches. Same thing has happened with the beverage line. We need to do, you know, tweaking, fine-tuning, optimization, et cetera. And we believe by the end of Q3 that line is going to be, you know, operational and manufacturing products. We are also in the commissioning phase of the facial creams, body creams, and ointments, and we are installing an additional line for medical devices in that plant. So in terms of the personal care plant, everything is going well according to plan. Fortunately, we don't need government permits or GMPs. to manufacture there. So everything is more on their own hands. It's very hard to say what the percentage of products that are going to be manufactured in the personal care plant at the end of this year. Remember, this is a multi-year project. And as Jorge mentioned, we are also upgrading some of our products. We are, for example... One of our shampoo lines will be relaunched as a more sustainable product with an environment in terms of packaging, formulation, et cetera. So we are doing some changes to improve the quality, the marketing, and the profile of our products. And so that is being considered in the plant market. so that we gain even higher efficiencies in terms of COGS and better quality as planned. I wouldn't adventure at this moment say, you know, how much of our personal care services Products will be manufactured there because everything has been under commissioning, and we need to do the ramp-up and the learning curves. If everything goes the same way as it did for the beverage line, I think that everybody is going to be pleased by the end of the year, and that's what we are planning for. In the case of the OTC plant, well, everything is ready. It has been ready for a number of months. I think we're closer than ever to get the GMP for that plant. We've seen the authorities moving faster than they did in the past. I think that the changes that the government did are positive, and we expect to have a good news soon, but I wouldn't venture in terms of saying when that is going to happen. I just want to say we are more positive than ever in that regard. So once that happens, we will start manufacturing products in the OTC plant as well. And the third component of the industrial cluster is obviously our central warehouse. That is working – seamlessly with high levels of efficiencies. It's working really well. We're very proud of what they are doing. The other thing that is important to mention and it hasn't been asked during this call is what happened about the labor reform in Mexico. The good news, and I want to highlight that, is that Genoma was prepared. We did all the changes that were needed. We don't need any extension in time, as other companies are requiring. And there's basically no impact whatsoever, but we are prepared. And that entailed a huge work with the people, with the culture. Everybody was, you know, satisfied the way we did it. Everybody's motivated. Everybody, hopefully, in the very short term, everybody will have a chance to go and visit the plant. It's worth visiting, and Jorge and I are preparing something for the near future. So I would say stay tuned. Your question is great, but I don't want to give a number at this moment. We're not ready for that, Nicolas.

Just one quick comment to complement your answer, Tonio. We had two key visits in the last couple of weeks at the plant. I just mentioned that because it's positive in terms of context. COFEPRISP, which is the Mexican authority that approves these GMPs and the creation of plants, this is the plant. That was a visit we were expecting since early 2020 when COVID started. It finally happened. As Antonio said, that's a very good sign of the new administration of Cofepris starting to move finally. Second, last week we had a visit of the World Bank inspectors. They spent a full day at the plant. As you know, they financed the project and they were expecting progress. And they were very positive. Their comments were very positive at the end of the visit, which confirmed what we think is that we are now starting with this, facing a bright future, I would say, in a lot of terms.

Perfect. Thank you very much, Jorge. Thank you very much.

Our next question comes from the line of Ben Wilson with Lazard. Please proceed with your questions.

Yes. You've partly answered the question I had, but it was related to the GMP certificate for the OTC client. You used the words more confident than ever that it's coming soon. We've been hearing soon for a long, long time now. So I was wondering if you could expand on what you mean by more confident than ever.

I would say something. I will repeat what I said, and Antonio has probably more perspective. But I said this. Do you think From the Confederates authorities to the plant 10 days ago is something that makes us feel more confident because as I said, that visit was scheduled for early 2020. Didn't happen, then COVID showed up and it never happened. And the fact that today it happened, which meant That was the last piece, the last part of the process that we had to complete for them now to, in theory, deliver the final approval. So that was completed just a few days ago. And also the fact that, as Antonio also mentioned, that there's a new administration in Cofepris that basically already took over the management of the institution last month. They were announced 34 months ago, but it took over last month. And all signs, all comments coming from the industry are very positive about these new people in charge of Cofepris. And we are seeing it in terms of the business, put it that way. Antonio, anything else?

I completely agree with you, Jorge, and that's probably the news. The news is there's news. The original visit from the authorities was scheduled for April 2020, okay? So that's when we were expecting, you know, the visit, the inspection for the GMP process. That didn't happen because in March 2020 we had the lockdown in Mexico, right? And there were very strict regulations in terms of, you know, what we call the semaphores or the red, the difficult red, orange, yellow, green lights in terms of, you know, the kinds of visits, inspections, et cetera, that the authorities could do. So that inspection visit that was scheduled to happen in April 2020 got canceled because of that. And it just happened. And they were very strict. They were very professional. They look at every single aspect of the plant. And generally speaking, it went really well. Obviously, they made a lot of questions. It was more than 800 different items that they checked, and everything went well. So that's the reason why we are positive. And, again, it was just a matter of having that. visit so that the process may continue. It is a requisite. It's mandatory for them to do that in order to continue the process. And that's the news. Obviously, we don't have the GMP yet. But the visit has already been accomplished, and so we're waiting for the next stages. That's why we're more confident than ever, but still we don't have the GMP yet. But it's closer. I don't know, Ben, if we were able to answer your question.

No, no, you were, because the fact that you had the inspection, I did not know that. So that's a new piece of information that is very relevant. Thank you.

It is. It is.

Thank you. That concludes the question-and-answer portion of today's conference call. I would like to turn it over to Mr. Brick for closing remarks.

Thank you, Operator, and thank you, everyone, for joining us today. I would like to conclude today commenting that while we expected the second quarter of 2021 to be a challenging quarter for the company, we delivered significant performance. reflecting Europe's momentum despite the challenging year-over-year comparison and external headwinds. We have a strong foundation and a balanced portfolio, which drives consistency in our performance. We are well positioned to capitalize on those low trends which accelerated during the pandemic, and we look forward to taking advantage of the momentum and adding wood to the fire for the future. Thank you very much. Have a great week.

Ladies and gentlemen, that concludes Sonoma Labs' second quarter of 2021 results conference call. We would like to thank you again for your participation. You may now disconnect.