Genomma Lab Intl Sab Ord

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Genoma Lab third quarter 2021 results conference call. At this time, all participants are in a 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. Should you require operator assistance during the conference, please press star zero to signal an operator. A replay will also be made available shortly after the conclusion of the call. I'll now turn the call over to Barbara Cano of the INSPIRE Group. Please go ahead.

Thank you and good morning. We'll begin today's discussion with remarks from Jorge Braque, Ponoma Labs Chief Executive Officer, followed by Antonio de la Mora, Chief Financial Officer. And we'll close with a question and answer session. Our call will include projections and other forward-looking statements. And it's important to note that actual results could differ materially from those projected. Tenoma undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or other factors. Investors are urged to carefully review various disclosures made by the company, including the risk and other information, disclosed within the company's filings with the Mexican Stock Exchange. With that, I'll now turn the call over to Mr. Jorge Brin.

Jorge Brin Thank you, Barbara, and good morning, everyone. And thanks for joining us today. Genoma's third-quarter performance reflects our sustained growth momentum. We delivered record sales and EBITDA results in the third quarter of 2021, in absolute terms. Net sales for the quarter reached almost 4 billion pesos, a 16% year-on-year increase with a more than 6% EBITDA increase to reach 819 million pesos for the first time in the life of the company. Portfolio strengthening line extensions, new formulations and new product launches throughout Latin America again drove our success. To call out a few specific examples, we launched our new Grooming Carbon Razor with a more than 100-day cartridge life at key Mexico retailers. And we have unveiled our new environmentally sustainable recycled and recyclable Tio Nacho shampoo packaging. Nine extensions within the quarter included our Asepsia Gen Facial Cleanser launch, which is Genoma's first specialized line dermatologically, tested for oily skin, and a new cicatric cure vitamin C serum. Novamil also gained further traction while we continued to span our Mexico retail presence during the quarter. Market share for both segments of Genoma's portfolio, personal care and OTC, are therefore growing in all countries in Latin America where we have presence. Our industry-leading innovation was again supported by strong marketing, sales, and overall go-to-market capabilities during the quarter, which continue increasing the presence of our new or upgraded formulations and brands, which benefits from fully optimized market coverage in terms of channels and distribution. This enables Genoma to expand high-growth products through strategic and often disruptive partnerships in key countries where we are present. an example of which was our Grumman and Suero launches in Chile during 2021. Genoma's Latin American operation continued its prior course momentum, with net sales reaching 2 billion pesos, a 27% year-on-year increase, driven by increased points of sale and expanded distribution within the traditional channel, coupled with new launches, line extensions, and product restaging with enhanced visibility. All of these as part of our strategy launched initially in 2019. In Mexico, third quarter 2021, net sales increased by just over 12% year-on-year, primarily due to the strong new category performance of products such as Sonoga Meal and Groovement, as we have described. as well as successful new line extensions and synergies within the traditional channel through new products and presentations. We are pleased to have announced on September the 7th that Genoma received COFEPRIS GMP certification for our solids and semi-solids manufacturing facility in Mexico, an important milestone related to our strategic goals. As we speak, the SWEROX line will produce close to 6.5 million bottles this month, representing more bottles produced than our third-party suppliers make on a monthly basis. We are focused on our second phase for liquids, which we expect to complete in the second half of 2022, and are receiving GMP certification in other Latin American countries to enable export from Mexico. Turning to our U.S. operations, While third quarter 2021 net sales decreased by approximately 12 percentage points due to abnormally elevated third quarter 2020 hand sanitizer sales, EBITDA margin reached nearly 13%. A year-on-year increase reflecting improved productivity, successful cost, and expense controls during the quarter. Worth to mention is that within the hand sanitizer sales in the base, The growth of the U.S. sales in Q3 of this year would have been double-digit. It's important to note that we began implementing our new approach to Genoma's U.S. business during the pandemic at the end of 2020, replicating our winning Brazil strategy. An example of our success in the U.S. market has been Genoma's Suedox Isotonic Hydration Drink, where we identified an innovative and cost-effective way to expand this product presence by leveraging Budweiser distribution to major retailers throughout California, enabling rapid brand recognition and growth. Sueros can also be found today at major retailers not only in California but also in Puerto Rico, where today we are a leading brand compared to competitors like Powerade and Pedialyte. We attribute our progress to Genoma's strength and new U.S. team and to our unique approach to this market by targeting first, second, and also third-generation Hispanics, as well as a broader U.S. consumer. Each state geography is considered now a standalone business unit with a state-specific general manager and PML. We are also taking a state-by-state approach to our U.S. expansions. beginning with California and Puerto Rico to next move to Texas and then to Florida. It's important to note that these four states combined have economies larger than many countries in Latin America. Additionally, other examples of this initial success of our new strategy in the U.S. are Puerto Rico double-digit growth in 2021, behind this new focused approach with an exclusive team dedicated to the region, and our explosive growth in e-commerce sales, mainly with Amazon. Therefore, while we are seeing important signs that our U.S. market strategy and approach are gaining traction, we expect this to fully develop during the next few months, mainly in 2022. Genomic e-commerce presence has also increased during the quarter, approaching 5% of total third quarter 2021 sales with room to grow. We're targeting 10% of personal care sales for this year and between 15% and 20% of personal care sales in 2022, noting the general limitations that OTC product sales have through e-commerce. The growth I have described and that of the last three years but no required corresponding increases to fixed costs, nor do we expect anything material in the midterm. Genoma has instead reduced fixed costs as a percentage of sales by identifying areas to enhance efficiency and cost savings, which fuels our goals with major increases. Today, we have achieved the uniquely advantaged position with solid foundation that enables us to now fully leverage our increased scale. In addition to our relevant and consumer-driven innovation, another element of our winning strategy is a refresh of our product's packaging and formulation. We continue contemporizing and restaging our brands to better match our growing millennial consumer base while improving our products and their overall shopability, then leveraging Genoma's marketing and commercial power to broaden our reach. Grumman and Novamil are interesting examples. Together, these products contributed $25 million to our Mexico sales since 2020, with no fixed cost increases. We created two new innovative products, piloted them in Mexico, then leveraged strong marketing and go-to-market execution to expand their presence to other countries in Latin America. As I have noted, Mexico's sales this quarter were primarily driven by a strong new category performance with products like snot on meal and grooming. While the pandemic continued to present challenges during the third quarter, I'm exceedingly proud of the new teams we put in place as part of our operational turnaround and how our teams particularly our frontline and supply chain teams adapted and rallied to an exceptionally challenging environment to maximize our products' potential in their respective markets, collaborating and bringing to life what we are doing successfully in other markets. Having said that, I would like to highlight how we have successfully turned around our Brazil business, where profitability and sell-out are growing double digits today. These achievements lie squarely with the new local team that began implementing a strategy of selecting the right portfolio of brands while optimizing consumer communications strategies and expanding market coverage some two years ago. On behalf of the entire Genoma leadership team, I'm deeply grateful for the dedication of our on-the-ground teams everywhere. Our company's success is a strong testament to our team's skill, experience, and leadership, despite the significant headwinds we have become familiar with this reporting season. Along these lines, I would like to say a few words about the current cost environment's impact on our third quarter results. We are operating in a dynamic cost environment, and like the rest of the industry, our experience is cost pressures with broad-based inflation across industries. raw and packaging materials, as well as transportation costs. However, Genoma has largely mitigated these increases through close relationships with a handful of select suppliers with whom we work closely to negotiate costs. We have also raised prices where and when appropriate. Our performance in this regard is further testament to our revitalized new teams, which were restructured in the second half of 2020. particularly Genoma's expanded supply chain team. We are realizing the benefit of our highly experienced new team members running plant, procurement, and finished products, which has enabled us to manage global supply headwinds and our COGS impact. Genoma improved service levels and fill rates during the third quarter of 2021 to reach levels which exceeded 90% despite all of these global supply chain disruptions. With that, let me turn the call over to Antonio to discuss in more detail our financial results. Antonio?

Thank you, Jorge. Good morning, everyone. Once again, our third quarter results demonstrate the strength and resilience of our business and our strategic initiatives. Genoma achieved almost 4 billion pesos in consolidated net sales for the third quarter, reaching a 16.2% year-on-year increase, driven by improved sell-out in Mexico and Latin America, as well as strong execution of the company's four key pillar strategy, as Jorge has discussed before. Consolidated EVDA reached 890 million pesos for the third quarter, A year-on-year increase as compared to 769 million pesos for the same period in 2020, with an EBITDA margin which closed at 20.6%, a 180 basis point year-on-year decrease primarily due to commodity inflation with Latin America, Forex headwinds, as well as increased distribution expenses in line with the current growth strategy of the company. Mexico net sales for the quarter reached 1.7 billion pesos, a 12.3% year-on-year increase. This 182 million pesos increase is primarily due to strong execution of all of our four pillars of our strategy, as well as certain key brands expanded reach to a broader consumer base within the country through new marketing and commercial initiatives. Mexico third quarter 2021 EBITDA reached 335 million pesos with a 20.1% margin, reflecting a 270 bps decrease. This was primarily due to COGS inflation on certain manufacturing plant startup expenses during the quarter, but was partially offset by productivity and pricing initiatives that continued also in October. Our net sales in the U.S. reflect a challenging year-on-year comparison to third quarter 2020's increased hand sanitizer sales. This was partially offset by optimized digital strategy and market share gains due to stronger e-commerce sales. Latin American net sales for the quarter increased by 26.7% year-on-year to almost 2 billion pesos per primarily due to outstanding traditional channel execution, marketing initiatives, new product launches, and successful line extensions implemented across the regions where the company operates. To a lesser extent, sales increased due to an expanded presence of Genoma's products at the point of sale. Third quarter net sales were impacted by Forex headwinds in some key countries where Genoma operates in Latin America, Third quarter net sales also reflected a double-digit increase when expressed in local currency. Third quarter 2021 EBITDA for Latin America operations reached 442 million pesos with a 22.3% EBITDA margin at 230 bps year-on-year margin contractions. Consolidated gross profit grew 12.1% during the quarter to 2.5 billion pesos. Gross margin decreased by 230 bps year-on-year to close at 61.6%, primarily due to COX inflation across all markets, as well as foreign exchange impact when consolidating currencies, which depreciated during the quarter. While working capital was partially impacted by the acceleration of payment agreements to take advantage of certain discount opportunities with some suppliers during the quarter, accounts receivable amounted to 4.4 billion pesos with 106 days, which represents a five-day decrease when compared to September 2020. Inventories closed at 2.4 billion pesos as of September 30, 2021, with 154 days of inventories, which represents a four-day year-on-year improvement, reflecting the success of the company's focus on improved field rates to improve the cash conversion cycle of Genoma. The company closed the third quarter of 2021 with a leverage ratio of less than 1.5 times net debt to EBITDA and 1.8 billion pesos in cash and equivalents at quarters and a 12% year-on-year increase. Finally, during the quarter, we repurchased a total of almost 1.9 million shares during the three months ended September 30, 2021, an investment of approximately 37 million pesos. In summary, our third quarter results underscore that our strategies are working, that the team is navigating today's challenges effectively, and that we are emerging from the pandemic stronger than before. We're extremely optimistic about the future, particularly to the return of the cold and flu season in the months ahead. With that, I'll turn to our operator for your questions.

Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star 2. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, to ask a question, please press star 1. Our first question is from Vanessa Quiroga with Credit Suisse.

Hi, thank you for taking my question. I would like to ask you about the current cost inflation pressures that you are facing, especially which you mentioned for the South American operations, just to understand what we could expect in terms of cost pressures going forward. And the second one would be if you think that in the U.S., the four-quarter results will have a comparable base, so that in 4Q20, I'm not sure how much sanitizer sales you still have. So that would be very helpful to get in detail. Thank you.

Vanessa, thank you for your question. I will start with the second and then leave the first one for Tonio. In your second question relating to the U.S., yes, I would say that we would see much less hand sanitizer in the base. I remember that Fort Coyote was one the U.S. government started stopping shipments and sales and product going through the border. And that is when we will start seeing much less sales of this product in the base. Just taking advantage of this, I wanted to highlight what I said in my remarks, that the U.S. in the last two quarters has seen a very healthy growth in its base business. And now we will be able to see more clearly, as you said, starting Q4 and in 2022, behind all the interventions that we made in 2020, including our strategy, portfolio review, team structure, renewed focus in a few states instead of trying to do everything in the whole country, and also a renewed strategy in how to communicate with consumers. So you will start, in summary, seeing those clearly starting this quarter, Q4 of 2021. Antonio, the first question.

Thank you, Vanessa, for your question. This is Antonio Zamora. You know, COX inflation, it's... a phenomenon that basically all consumer goods companies are experiencing everywhere, not only Genoma, not only in Mexico and Latin America. It's a worldwide situation. The company was able to cope with it, I would say, very effectively. But talking specifically about the third quarter, all of the COX inflation impacted the full third quarter, And we implemented pricing actions that started on September and that continued all the way over to October. With that in mind, one of the policies or the philosophies that we've always had as a company is that whenever there is COX inflation, we need to transfer that to the consumer. Fortunately, Genoma has enough pricing power to do that. But as I said, this happened between September and October, so part of that benefit was recorded in Q3, and part of that will come in Q4. So not all of the inflation was able to be offset during this quarter, but things will get better in Q4. We'll get back to normal. Again, this is something that most companies are experiencing. Fortunately, our customers, our clients in all regions where we operate understand that this is It is what it is, and the pricing power is there. But COX pressures will most likely continue for everybody. As I said, whenever those situations happen, we will take pricing as needed so that we don't deteriorate our gross margin. On top of that, with the beginning of operation of our new manufacturing facility, there are some synergies that are expected and that will help us cope with these situations. For example, in the case of our non-carbonated isotonic drink, the cost of manufacturing that we are achieving at this moment is lower than what our third-party contractors usually quote us. So we begin to see those benefits. As Jorge mentioned earlier in the call, the volume produced in September, it's almost 6 million bottles per month, which is a very, very high efficient rate. So we expect good news to come in 2022 as the plant – continues its operations.

Thank you very much. One quick comment, Vanessa, just to complement what Tonio said regarding the pricing that we are taking whenever it's needed and appropriate in our key brands behind these cost increases. I wanted to mention that we do it in a very educated way. We have an internal tool that we developed the last couple of years, which is based on artificial intelligence, that is helping us make much better pricing decisions to optimize the value equation, meaning volume and profitability. And it is working very well. And we use it in all the countries in which we compete. And to be able to do this, obviously you need to have the right information at hand, which means you have to read the competition, you have to read their pricing, how they are moving, what they are doing in terms of promotions, that pricing, et cetera, et cetera. And this tool helps us, as I said, make the right and educated decisions when the time is needed.

Thank you very much, Jorge.

Thank you, Jorge. There's also another aspect that I think it's worth mentioning when we talk about, you know, Cox inflation or where our analysts and investors, you know, update their models, which is the following. There's also a product-mixed effect that we all need to take into consideration. As we said in previous quarters, You know, the flu season basically disappeared from planet Earth for a while because everybody was on the lockdown, washing their hands, using masks, et cetera. And that impacted, in a way, our sales of, you know, the cough and cold categories or the winter season, as we sometimes call it. And as we all know, OTC has a higher profitability than personal care. So the company, regardless of this headwind in a way, the company has been able to grow by selling, you know, other categories, especially in personal care. So when you do the product mix, obviously we have a less gross margin rich mix at this moment. But this is, we believe it's temporary. And we're beginning to see positive signs. that as people are starting to go back to work, whether it's in a hybrid model or they go actually to the office, and they start to use public transportation, and as the population gets vaccinated from COVID, et cetera, people are beginning to move more, and as they move more, people are beginning to catch calls more often and flu and et cetera. So hopefully, for us, obviously, hopefully the flu season and the cold season will come back, as it always has, and that will improve our product mix, especially in terms of how rich is the gross profit, and that would also help us lower the COGS as a percentage of sales. Obviously, this has a lot to do with external factors that we don't control, But we see positive signs of that, and hopefully that will be the case for Q4 and Q1. But we are obviously crossing our fingers, not that we want people to get sick, but we want, you know, people to get back to normal and reignite the world economy.

Thank you very much for all that cover.

Our next question is from Ulysses Argote with JP Morgan.

Thanks for the space for questions. Just one quick question on my side. Antonio, you were mentioning here on the share buyback. So I just was wondering, what's going to be the strategy there going forward? Are you going to cancel those shares? Are you going to keep in treasury? If you keep in treasury, there's obviously like that fiscal impact. So just wanted to get some thoughts there on how the rationale is going to be on that going forward. Thank you.

Thank you, Lisa, for your question. This is Antonio again. You know, it's an interesting question, especially regarding the capital allocation strategy. As we've always said, buybacks is part of that. And I'm going to add a little bit of more comment. I'll get back to your question. But also, there's a dividend payment that is pending, and I'm going to add this comment. because the company declared a dividend some time ago. We said that once the plant was almost finished or finished, we would consider that as well. Obviously, if you ask Jorge or me if we prefer buying back shares or paying a cash dividend, definitely we prefer to buy back our shares. But there's also that dividend comment that the company made in the past, So that's going to happen sometime in the near future, I would say. So I just wanted to add that comment. Now, talking about the buybacks, we think it's a great opportunity for the company, given where the current price is. We are generating cash, and as we don't have to – invest in the plant as much as we did in the past. There's going to be more buybacks in the future. We see that as a good opportunity for the company and for shareholders. Regarding what is the use of those shares, well, there's different uses. One, obviously, some of those shares might be canceled at some point in time. There's other shares that we are also using as... incentives for our people that we use as well. And eventually, that could also be used as currency for inorganic growth if needed in the future. And as Jorge and I have been discussing in the past, we're also looking at inorganic opportunities. not anything transformational, things that we can buy with our own resources, things that are bolt-on acquisitions that make sense, that are accretive, that are strategic alliances, those kind of things. But I don't know if I answered your question, Ulises.

No, yeah, that was perfect, Antonio. Thank you very much, and thanks for the added color there. I think that's really helpful. Congrats again on the results, guys.

I would like to add just a quick comment to something that Tonya mentioned because it is connected to the future. We just had a board meeting a couple of days ago. We've been working with the executive team thinking about the future because we want to keep these growth rates in the near and the long term. And to be able to do that, we have to continue doing two things. One, we will continue consolidating what we have done in the last three years, which is behind our current strategy, because as I always say, we still have many opportunities to address within our current business base, our current portfolio, meaning the initial good results of the U.S., we want to consolidate that We want to continue consolidating the startup of the plant. We are seeing very good initial results in terms of productivity, production, capacity, and costs in the case of FedEx, as Daniel said. We need to continue to do expansion of our portfolio. We still have a lot to be done in terms of continuing completing the portfolio of products that we want to have in each of the countries, et cetera, et cetera. But we also need to do continue our work on exploring potential opportunities so that we can add up to the organic growth we are enjoying now to ensure future growth in the future. And hopefully you will be hearing from us in the next couple of months or three months very good news in terms of new things, new business opportunities that we will be addressing to ensure that the future also looks as good as the present is looking today. I think we have one more question.

Yes. Our next question is from Raheep Parikh with Barclays.

Great. Thank you so much for those basic questions as well. I guess our question is for price pass-through, do you expect single, double-digit growth in prices in different regions, and maybe just more color on how your customers are accepting the price increases? Thank you so much.

Okay. A couple of overall comments. Very good question, because that's an area of pricing, even what we've been discussing, like increased costs, that are forcing everybody in the industries and many industries to raise prices higher than normal. As I said, we are very close to this. We work with our local teams where we have people that are always reading the market, reading our competitors, reading what is going on with retailers, and also reading the reaction to price. And as you said, That is a key area of focus for us. We explained, I think, a couple of times in the past that today in genoma, because this is, as I always say, a different genoma than the genoma that we had three years ago or four years ago, have platforms and tools to be able to measure everything. We have dashboards, more than 70 dashboards today that help us measure what is happening in the market with competitors, with pricing, with consumers. Specifically, in this case, with sellout. So as we do with our advertising investment, when we put a new TV commercial or a digital commercial or a digital communication tool in any of the social media platforms, et cetera, et cetera, in a specific market with a specific brand, we always start measuring sellout. because that is the key metric for us to be able to understand the payout of any investment that we do in the market. So when we move pricing in a specific brand or market, we go back to that tool to measure sell-outs. And based on that, we can understand what is the reaction in overall terms. What I can tell you is that we haven't seen major negative effects As Tonio said, we have some pricing power in some specific brands, which are leading brands in their respective markets. But at the same time, as you know, we have been improving our products. And there is where the value equation concept comes alive. The consumer is willing to pay more for better products. They're willing to pay more versus what is their perception of what they are receiving. as a product or a service behind that payment. And today the situation, the value equation as we measure it, of our key brand is very strong. It's much stronger than three years ago because we have been able to improve formula, to improve packaging, to improve messaging in the packaging, and to improve how we communicate to consumers. So it is a combination of factors that is making us be able to truly manage the potential negative impact of pricing using artificial intelligence, using the dashboards or the sellout measurement we use by brand and by country or market, and also behind the improvement we've made to our brands and products.

I think to Jorge's comment, Rahi, and I think it's an excellent question. I would like to provide additional color, which is, you know, your question about pricing power and passing through cost inflation, obviously it's relevant. But we are not only – I mean, that's something that obviously needs to be done. At the same time, something that we are doing very proactively, and this is part of Jorge's vision in terms of ESG, is we are changing our packaging materials. We are using, you know, recycled materials. We're changing, in some instances, polyethylene for PET that happen to be at a lower cost than At the same time, it's more sustainable, and we are using recycled, post-consumer recycled PET to have a lower carbon footprint, but at the same time, lower cost. We are considering a reformulation of some of our products. We are proactively launching bidding contests for some raw materials for the plant. We are being very proactive in terms of lowering the COGS basis, adding productivity as much as possible. We want to highlight that we have pricing power, fortunately, because consumers like our brands. There's that consumer preference, and we can do that. But at the same time, we believe that it's also very important to be as productive as possible to leverage our new manufacturing capabilities and at the same time consider new materials, new formulations that are more environmentally friendly, which is, again, part of the ESG vision, the 2025 vision that, you know, a couple of months ago Jorge published. And it's important to mention this because it's good for the environment, but it's also good for the P&L. So we are doing good for everybody.

Got it. Thank you so much. Thank you.

Once again, if you'd like to ask a question, please press star 1. Our next question is from Ken Wilson with Lazard.

Hi, this is Ben Wilson. So, glad to see that you received your GMP license for the OTC plant. One, if you could just give me an update on how that plant is ramping up, what the utilization is now, where do you expect it to be? Two, are there any other GMP approvals? I see in your presentation that you are waiting for a liquids line approval, so just give me a little specifics on that. And thirdly, now that you have these approvals, can you give us an update on some of the promised IPITDA improvements that you expect to come?

Okay, I will update you in the first part of the question, and then Tonya will take also to complement whatever I say. Yes, as you know, in early September, we finally got the GMP for the solid and semi-solid lines. As you know, the GMPs are granted by line of production. So in this case, we have gotten this for these two lines. and this will enable the plant to start producing a few of our brands, like Lakesia, Unesia, and Next, which are big volume brands in overall terms, in this case for Mexico only for the time being. There's two things that need to happen now in the next few months to follow up on this initial GMP approval. Actually, I just wanted to mention that this GMP approval was gotten about a year later than we expected. We can blame COVID, of course, to have been an obstacle on this because the Mexican authority basically closed down their doors during almost a year. But having said that, now there are two things that we have to continue doing to complete the process. One is we need to obtain the GMP for the liquids and semi-liquids lines. And that... It's work that is underway already, as you can imagine, and that should take us to about mid next year, second, third quarter of next year to get that final GMPs. With that, we will have the 100% of the OTC plan with GMPs approved. And in parallel, we have started already also the work to expand this GMP to other countries in Latin America so that we can export to those countries. In some countries, this is a very efficient and quick process. In some countries, it's not. We are going to be doing both. We will be probably getting some initial approvals to start exporting to some countries sometime in Q2 or Q3, and to export in others a little later, so that 2022 will be a key year to not only complete the GMPs for the current plan, but also to be able to start exporting to other countries. Tonio?

Thank you, Ben, for your question, and thank you, Jorge, for the comments on the GMPs. All these regulatory processes in pharma are, you know, are a pain. I need to say they are a pain. But on the other hand, they are also good barriers to entry, okay? So Genoma decided to invest in this manufacturing facility, obviously to get better quality to be able to control more of our own destiny, to lower COGS, to get a number of benefits. But at the same time, we need to deal with all these regulatory processes. So the solids and semi-solids line, GMP, that we have for Mexico needs to be harmonized with some of the regulatory bodies in South America, Colombia, Peru, Chile. Those are countries that have bilateral agreements with Mexico, so that's a lot easier. There's other countries that the process takes a little bit longer. As Jorge mentioned, the additional GMPs that are required will need to be managed, not only for Mexico, but also for the other countries. Regarding your question on updates on the EVDA improvements, I think we need to split the question into what are the benefits coming from personal care, which it's a lot easier to say because we, well, easier saying, obviously, there's a lot of work that needs to be done. But the personal care plan, it's more under our control because, you know, there's not GMPs. I mean, there's some GMPs, but that's a lot easier to get. and the productivity is more on our hands. So we will see improvements, every day margin improvements, driven by the personal care plan in 2022 as the lines get, you know, the full ramp-up and they are producing at full scale. We saw that in the beverage line, and the productivity and the savings are pretty much in line with – with our expectations, and actually we're taking a little bit of additional measures to even improve a little bit on that. The initial results of the first patches that we are manufacturing of the shampoo line look as promising. Obviously, we're in the beginning of that ramp-up period, but very much what we're seeing today is very much the same kind of issues that we experienced when we started the beverage line. So everything is going as expected. So regarding the everyday improvements, I think that we are confident that on the personal care plan, those savings will be achieved throughout 2022. In the OTC plan, It's probably going to take a little bit more because, I mean, the plant is ready. You've seen it. You've seen videos, et cetera. But we need the GMP harmonization with the countries because although we can manufacture solids or semi-solids products for Colombia, Peru, Chile, et cetera, we need that harmonization process to take place so that we can do that, as Jorge was saying, and that's a little bit out of our control. The good news is that those regulatory bodies seem to take less time than COFEPRIS. We are also working very closely with COFEPRIS in Mexico. They are helpful, and we need to get the GMPs for the other lines, the liquids, et cetera. So there's a little bit more uncertainty there. I think it's just a matter of time, and the savings will come. I don't know if I was able to answer, Ben, your question.

So you would say that OTC plant improvements and margins is more of a 2023 story?

Yeah, I would say there's going to be some improvement in 2022 because we already have the GMPs. We can manufacture for Mexico, so those savings will be achieved. But But other improvements do require, you know, the GMP harmonization and additional GMPs. So, yeah, a portion of the benefits will come 2022, and the rest will need to wait, at least for the second half of 2022, I would say. Thank you.

Our next question is from Rodrigo Alcantara with UBS.

Hi, thanks, Jorge Antonio, for taking my question. Just to understand here about the growth drivers that we have seen here today, I was wondering, for example, in the case of Mexico, if you would give an order, let's say, addition of new points of sale, line extensions, and product, and new categories, I mean, if you would give an order to those drivers, I mean, what would be that order in terms of revenue growth contribution in your view, Jorge, Antonio? And how would you see this order changing as we go through year end and 2022 with the ramp up? That would be my question in Mexico. And in the case of Argentina, just curious here about How do you see volume growth in this country? If I'm not mistaken, here Taffy Roll is to be a relevant brand, right? But as you mentioned, you know, some OTCs, OTC products are still weak, right? So just curious, what has been the growth driver in the case of Argentina? So those would be my two questions. If you can comment on those, please.

Okay, we'll do the same. I will start. Antonio will complement anything that is needed. Hola, Rodrigo. In the case of Mexico, I would say that fortunately there are several things that are happening that are positive. It's not only one thing, but I will do what you're asking for. I will try to put them in some sort of a ranking. But I would say that the first one is our go-to-market strategy. Remember, in Mexico, we already had a very comprehensive portfolio of brands. This is the market in which we've been for almost 20 years, different than other markets in which we are a newer company. So we have been able to take our brands, our key brands in the portfolio, to more points of sale, to expand their presence, and specifically, as you know, to traditional stores where they were not present a few years ago. Just to remember that the traditional channel in Mexico, as well as in the Andean countries, is very relevant. In some categories, it gets up to 50% of the consumption is done through traditional mom and pop stores that are in the hundreds of in the 500,000 to 600,000 stores in the country. And we've been able, with our traditional store program, as I said, to span the presence of our key brands in overall terms. This has also needed that we fine-tune our portfolios in terms of sizing and presentations, because to be able to go to those channels, you have to to adapt your sizing, for instance, and price points to what is needed by the consumer that shops in those channels. So smaller sizes, higher price per meal or per gram, and lower price points. And we did that. We launched, as you know, a year ago, a couple of years ago, we started with launching some sachets or shampoos. sachets for creams. We've done that in other countries like Peru, Colombia, et cetera, et cetera. In Peru, our entrance in sachets, that market for shampoos is exploding. Our sales in the category in the country because we are participating in a category and in a channel that is very large in terms of the consumption of the hair care category, for instance. So that's one. This expansion of our key brand's We think portfolio on a distribution base. So we are reaching more consumers. That's the key point there. And we'll continue doing that. We are not done with that. We will continue doing that in the next couple of years. We still have a lot of room to continue developing in that front, not only in Mexico, but also especially in the Andean countries and Central America. The second, I would say, is the fact that we are growing behind new businesses. As I have mentioned, we entered initially only in Mexico with infant formula and raisers, women from men. We are just starting with our grants. 2020 was the first year, but with COVID, everything was not up to ideal standard. 2021 is actually the first year then. We are deploying all the weaponry we have behind the brand, and it also is growing in the 20th percent versus previous year as we speak. So it's a very good performance of a very good brand with great technology and it's a great product. So it's being recognized by the public. We find our go-to-market and advertising capabilities. A movement that has one year in the market, Mexico, is proven to be also a very good idea. Behind, again, a very good product with the latest technology made in the U.S., as you know, and is gaining a lot of traction in the country. In the system segment, within the razor category, already got very important share points very quickly. And that has produced the decision of expanding the line. We have introduced the disposables just a few months ago in Mexico, especially to the traditional market. And now we are going to expand it to other retailers because it's a very important part of the segmentation of the category. And we just launched it in Chile. Chile is going to be a great market for this brand because we have all the capabilities needed since day one. to make it successful. And initially, it has been very well received. Today, you see it already in Walmart Chile, in the stores, and you will see it in other retailers as we go in the next few days and weeks. Very good perspective. So that's the second one. And the third one, I will say that we have continued modernizing and restaging several of our brands. in Mexico, including Teatrical, Cicatricure, is growing double digit in many of the countries and very high single digits in Mexico. Tionacho is growing in addition to these new businesses, Asepsia. And in OTC, we are seeing, fortunately, a comeback of the flu season. The initial signs are very positive. All our cold and flu brands, cough and cold brands are are back to growth rates that are normal for this time of the year, so we expect that to continue. So it's a combination of the three factors, expanded market presence, new businesses, and strengthening, continued strengthening of our current portfolio behind key brands. And in the case of Argentina, to finalize, we are seeing a very healthy growth, Argentina continues to enjoy a bit of margin higher than the company's average. We have a great team that for the last two or three years is doing a great job. We are gaining share in all businesses, including personal care and OTC. And OTC now is growing in addition to Tafiro. We enjoy a very nice situation there because 60% of our business in Argentina is OTC. And that's why we see higher margins than average versus the total company. So in overall terms, we will continue growing very, very strongly in OTC in Argentina. That's part of our budget for 2022. Adding also a few new businesses in the case of personal care, but maintaining that ideal balance to keep the country growing in a very healthy way. Antonio?

Thank you, Jorge. And a great question, Rodrigo. Let me just complement a little bit of additional comments to what Jorge mentioned. And I would say it's two words. It's two words. One word, which is a term that Jorge brought to the company, which is de-niche the company, okay, instead of being – you know, the leader in each segment. Let's go for the bigger markets. So one of the reasons why Genoma has consecutively growing quarter after quarter after quarter in countries like Mexico that has been very much flattish is because we are gaining market shares. We are executing with excellence at the point of sale And we're gaining share. That's very important. So I said two words. One is deniche the company, which is a term that Jorge brought to Genoma. Deniche the company. Let's go for the bigger segments. And the other one is capacity. So I'm going to answer the growth segment. you know, from the economics point of view, supply and demand. The other one is capacity. All of these examples or some of these examples that Jorge provided, for example, in racers, in infant formula, in beverages, you know, the constraint that we've had is capacity. So, for example, let's use the Suerox line. You know, at this moment, we have all of our third-party contractors working at full capacity, we added our own line, and our own line is close to full capacity. So You know, initially the thesis about investing in the plant was, okay, we're going to be replacing some of our third-party contractors, and we'll do our own manufacturing because it's going to be better quality. We control our destiny. We lower corks, et cetera. But we were not able to do that in Suerox. Why? Because demand is so large that we didn't replace our third-party contractors. Actually, we need to add more capacity, and that's something that we're working on. The Razors example that Jorge provided, you know, we could launch the grooming brand in many countries. What is the constraint? Capacity. Again, in this case, our U.S. supplier has no more capacity at this moment. They are investing in CapEx. They are deploying new lines, and as we get new lines, we'll do that. In the infant nutrition, there's some specific SKUs or categories, like the rice formula. There's no more capacity, so we're getting as much as we can. So, again, it's two additional comments to what Jorge mentioned, which is deniching the company, which is basically what he explained. And the other one is as we get more capacity, as we have the plant up and running, which is something that is happening, we will have more capacity. We will continue executing with excellence at the point of sale, and we hope to continue gaining market share. So if we add additional point of sales, wonderful. If we add new products, great. but we can also grow by executing with excellence and gaining share from the other competitors in the categories where we participate.

One quick one, a quick comment, Rodrigo, just to finalize my list. I mentioned three. There's a fourth one that is e-commerce growth. We are growing very rapidly in e-commerce. That was a non-existent channel for us, to be honest with you, two years ago. We grew a lot in 2020 during the pandemic. But in 2021, we are doubling what we did in 2020. And we expect to double again in 2023. So as I said in my remarks, we expect to get to 10% or more of ourselves in non-OPC categories in 2023. And that is another engine of growth. And that is happening not only in Mexico. That is mainly happening in Mexico, the U.S., Brazil, Argentina, Chile, those countries. So you will see more of that as we get into 2022.

Yeah, no, that's great. I mean, I'll just say a lot of things happening. So that was incredible. It makes sense of the full picture. So thank you for that, Jorge and Tony. Thank you, Rodrigo.

Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Jorge Breg for closing remarks.

Thank you, operator, and thank everyone for joining us today. As you've seen, our results, again, prove Genoma's unique competitive advantages. Our relentless, relentless focus on innovation and disruption is embedded in our purpose today as a company. As difficult and complex as this time has been, it has also been an extraordinary period for Genoma, and we have made clear meaningful progress advising our strategic plan. We have evolved into a different company, one that is stronger, more agile, and with relevant brands that are better positioned for the future. We see more of these coming in the near and the longer term. Thank you again for your time today and have a good week.