Genomma Lab Intl Sab Ord

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Genoma Lab fourth 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, please press star zero on 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 with the Inspire Group. Please go ahead, Barbara.

Thank you, and good morning. We'll begin today's discussion with remarks from Jorge Brake, Hanoma Labs Chief Executive Officer, followed by Antonio Zamora, 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. Hanoma undertakes no obligation to update or to 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 filing with the Mexican Stock Exchange. With that, I'll now turn the call over to Mr. Jorge Bray. Jorge?

Thanks, Barbara, and thank you to everyone joining today. I am pleased with our fourth quarter performance and our results for the year. As you read in yesterday's press release, the NOMA achieved historic levels of both growth and profitability in 2021. We also continue to prepare and adapt to the changing needs of our customers and, at the same time, focus on delivering a strong resource for our shareholders. We ended the year announcing a new strategic pillar as we are unleashing the next evolution of our strategy with an evolved view of health and well-being for the future by leveraging partnerships with leading global companies to enter new categories while we take our partner brands to the next level in our regions. Genoma is a health and well-being company that is leveraging our truly understanding manufacturing, marketing, and commercialization capabilities to expand our positioning beyond the traditional personal care and OTC company. As our results for the year and for the final quarter demonstrated, we will continue to leverage Genoma's innovation strengths with line extensions and new product launches through our reinforced supply chain strong network economics, and robust product offerings. However, new alliances, such as Genoma's recently announced partnership with Oramed, subsidiary of Oramad, enable us to expand beyond our traditional scope. This new inorganic component to our growth strategy, therefore, and distributed brands within the market we know well and partnering with global companies that have outstanding products to go beyond what's possible through organic growth alone. Needless to say, the opportunities are exciting, and we look forward to making further related announcements in the near future. Let me now discuss our very solid results for 2021. the enormous third consecutive year of double-digit growth and profits, which are growing faster than sales in absolute terms. Full-year 2021 net sales reached more than 15 billion pesos, a more than 11% year-on-year increase. EBITDA for the full year increased by more than 10%, with a 21% margin driven by consistent execution organization. We continue to see performance of innovation initiatives, particularly line extensions, and a strong new category performance supported by aggressive external media campaigns and in-store marketing. To comment on just a few examples, our Cleo Natural Shampoo with new environmentally sustainable recycled and recyclable packaging, which we have built last quarter saw a double-digit increase in sales during the fourth quarter of 2021 as a result of this initiative. The new Carbon by Grumman Razors launched in the third quarter is also growing here in Mexico, boosted by a Grumman testimonial advertising campaign, which increased second half 2021 sales by more than 50% year-on-year. We have since also launched Carbon Grumman in Chile, with a favorable initial response. These are only a few examples of the power of Genoma's brand value coupled with outstanding advertising and consumer messaging launched through Genoma's multifaceted media produced in-house. 2021 sales growth, while tempered by the well-known headwinds of high inflation, exchange rates, and broad-based global supply chain challenges, was strong in most of our markets, this in detail shortly, but I'm very proud of how our teams manage costs related to this volatile volatility. Their strong execution combined with effective pricing actions across both segments mitigated effects to a large degree. Further, Genoma's supply chain was meaningfully bolstered by prior interventions with a new team in place for the last year and a half and a fully redesigned supply chain model. Our enhanced demand forecast in procurement and resulting improved fill rates and service levels are supported by our new sales and operations model, too. Both the processes and related cost reduction have improved, resulting in a lower cost and higher quality finished product, particularly compared to Genoma's third-party suppliers. Genoma's Latin American operation ended the year maintaining prior quarter momentum with net sales again reaching almost 2 billion pesos, a 12% year-on-year increase versus all of the 2020 results, supported by double-digit growth in the whole South America. Innovation and expansion strategies, as well as increased points of sales, supported these results, which were partially offset by a negative exchange rate impact in some countries where Genoma operates. In Mexico, fourth quarter 2021 net sales increased by 26% year-on-year, with initiatives which drove increased market share within key categories, as well as new core brand line extensions, including the examples I have already noted. This was supported by a slight recovery of common cold problems demanded in December, as Omicron symptoms were similar to a common cold for many. During the quarter, we made solid progress on our Mexico industrial cluster. Our personal care and beverage manufacturing plan is up and running. The suero shampoo and ointment line has completed the initial production phase, reaching roughly 6.5 million bottles of suero, 470,000 bottles of shampoo, and 22,000 bottles of ointments produced per month. OTC will begin shortly. and we continue making progress on expanding with an eye towards exports and diversifying product formats, which improved overall profitability for our personal care business. Turning to our U.S. operations, fourth quarter 2021 net sales increased by just under 2%. While we further advanced the U.S. market business model restructuring process that we began in 2020, also with a new team in place, we continue to face Omicron headwinds, delaying our full implementation. However, we believe we've reached an inflection point with increased consumption expected for the spring and better sell-out and selling optimization. Sheriffs at this point is performing extremely well in the U.S., expanding within points of sales in Puerto Rico, among other markets, including California. 2021 Shredox sales. Shredox can be found in major retailers in these states where we are a leading brand compared to competitors like Powerade and Payalite. The enormous e-commerce presence increased during 2021, approaching 6% of total four quarter 2021 sales. You will recall we targeted between 10% and 15% of personal sales for 2022, noting the general limitations that OTC product sales have through e-commerce. Finally, ESG is an important and long-standing pillar of Genomas growth strategy. Genomas was one of the 10 Mexican companies recognized for environmental, social, and corporate governance. Practices through our inclusion within the 2022, I'm sorry, S&P Global Sustainability Daybook for the first time. The 2022 edition assessed more than 7,500 companies across 61 industries globally and showcases the best performing companies among industry peers and in terms of financially material ESG metrics. We were also included within the Dow Jones Sustainability Mila Pacific Alliance Index. for the second consecutive year. And Genoma Labs' MSCI DSG rating was also upgraded to BB from B in 2021. In closing, while the environment in 2021 remained challenging, it also proved to be transformative for Genoma. We are advancing our strategic plan while adapting to a changing environment to capture exciting opportunities. Before I turn our call to Antonio for a discussion of our financial results, I would like to recognize the incredible and tireless work of all our associates and things through continued volatility in 2021. This was indeed Genoma Labs' year of our people.

With that, I will turn you over to Antonio, our CFO. Antonio?

Thank you, Jorge, and good morning, everyone. 2021 was an important year for Genoma. We exceeded our financial goals, we advanced our strategy, and we brought greater value to our customers. Genoma ended a strong 2021 with another strong quarter, entering 2022 with favorable momentum. As Jorge noted, Genoma's successful growth strategy implementation throughout the regions where we operate drove an 11.5% year-on-year increase in consolidated net sales to reach 15.5 billion pesos for the full year 2021. Fourth quarter net sales increased by 17% year-on-year. to reach 4.1 billion pesos due to successful innovation initiatives such as line extensions, strong new category performance, as well as aggressive external media campaigns with solid in-store marketing for Mexico and Latin American operations. To a lesser extent, increased sales were driven by a slight recovery of the cough and cold category beginning in late December. Full-year EBITDA reached $3.2 billion with a 20.8% margin, a 30-based BIPs year-on-year decrease primarily due to FX headwinds, raw materials and commodity inflation, and non-recurring expenses related to new product launches and e-commerce platform investments. To a lesser extent, margins decreased due to a negative product mix effect with increased sales of lower-margin products, as well as investments made to begin Genoma's industrial cluster operations in Mexico. Fourth quarter 2021 VDA increased 170 million pesos as compared with the same audited period of 2020. to 890 million pesos due to operational leverage resulting from increased sales, a favorable product mix effect, as well as operating efficiencies. Additionally, every day margin improvement was driven by price increases implemented during the fourth quarter 2021. Along these lines, we have been managing inflationary pressures in all countries where we're present, through discipline and also strategic pass-through of cost increases, notably delivering on our aim of passing through inflation to the end consumer. An example of this is Argentina, where we're seeing roughly 50% inflation a year, yet Genoma has been able to raise prices in line or even above inflation where possible with double-digit unit volume growth as well. expanding market share, and profits above company averages. Turning to Mexico, we closed 2021 with fourth quarter net sales of 1.9 billion pesos, just short of 26% year-on-year increase. It's a very important number. This $376 million increase was due to initiatives which drove increased market share within key categories, as well as new cold run line extensions, as well as slight cough and cold product demand recovery during December due to the Omicron variant common flu symptoms. Mexico EVDA for the fourth quarter 2021 reached $423 million, with a 22.6 percent margin, reflecting a 110 basis point year-on-year improvement, benefiting from higher operating leverage, successful cost and expense controls, price increase strategies to recover macroeconomic headwinds, and to a slight decrease in non-recurring expenses associated with Genoma's new industrial cluster. As Jorge mentioned, four-quarter U.S. net sales increased by just under 2% to 327 million pesos. This was supported by an increased e-commerce presence, strong Suerox performance in Puerto Rico, as well as new product launches both in Puerto Rico and California. Our U.S. performance was adversely impacted by fourth quarter innovation strategies being delayed due to continued COVID-related pressures. Latin American net sales for the quarter grew by 12.5% year-on-year to 1.9 billion pesos. Strong performance was partially offset by a negative forex impact in some countries where Genoma operates. notably Argentina, Chile, Colombia, Brazil, and Uruguay. For quarter 2021, EVDA reached 452 million pesos with an EVDA margin just below 24%, a 90 bps year-on-year increase with benefit of cost and expense control and price increases to mitigate macroeconomic headwinds. Regarding our profitability, fourth quarter 2021 gross profit increased by almost 19% to 2.6 billion pesos. The 90 basis point year-on-year gross margin increase for the fourth quarter was due to favorable sales mix with the slight cough and cold category recovery that I mentioned before, offset by Forex-related increases on certain input costs as well. Working capital was adjusted during the fourth quarter of 2021, and the cash conversion cycle improved by four days since the end of September 2021 to reach 109 days. Strengthened collections and other successful initiatives during the quarter decreased our days of consolidated accounts receivables by six days to 100. As Jorge mentioned, Genomas improve S&OP system benefits on controls and operations, strengthens our supply chain, which reflected a 24-day decrease in days of inventories that reached 130 days as of December 31st, closing at 2.1 billion pesos at year's end. Genoma closed the fourth quarter of 2021 with a leverage ratio of a little bit less than 1.5 times net debt to every DA and 1.3 billion pesos in cash, an equivalent at the quarter's end, a 40% year-on-year decrease due to debt repayment throughout the year. During the quarter, we repurchased a little bit over 2.8 million shares during the three months ended December 31st, 2021, which represents an investment of approximately 53 million pesos. Finally, Genoma paid a cash dividend for the first time in the company's history. This decision signaled the conclusion of Genoma's manufacturing plant investment phase coupled with strong cash flow generation and no significant near-term cash investments expected. As Jorge mentioned, 2021 represented the company's third consecutive year of sustained growth since implementing Genoma's new strategy back in January 2019. In closing, our 2021 operating performance underscored the strength of our business model, the value of our products and capabilities, and the resilience of our employees. We have demonstrated that we have been able to successfully manage through pressures and did so again in the fourth quarter as we did in 2020 and all of 2021. With respect to do the same in the future and coping with inflationary environments using our pricing strategies and other levers that we have to fully offset cost pressures over time. With that, let me turn the call over to your questions. Operator?

Thank you. And now we're conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Our first question today is coming from Rodrigo Alcantara from UBS. Your line is now live.

Hi. Good afternoon, good morning Jorge Antonio. Congratulations on the quarter. I have two questions here. The first one, I caught my attention on the reported growth that you mentioned in the press release on your shafoos category of geonaturing in Mexico of double digits, which may suggest some market share gains here. So my question here is, you know, to what extent the production of the plant is responsible, and to what extent is the addition of point of sale or innovation responsible of this result? That would be my question regarding the growth you said, or you reported on condition pools in Mexico. And the second one, I just need to ask here, About the U.S., you know, if you can comment a bit about, you know, what is missing there? I mean, you mentioned about this initiative being delayed on the COVID, but if you can comment a bit more on what is left to be done or what should we expect as investors, you know, about the U.S. for 2022? Could it be a year where we see more stability during those operations or Any direction or comment you can give about the U.S. would be really helpful. Thank you very much. Thank you. Thank you, Rodrigo.

I'll answer a couple of – I will make a couple of comments, and then Tanya will complement us as usual. On the shampoo business in Mexico, as you mentioned, we have a very good, strong water. And I would say it's behind – two or three very important things. One is the market. We are impacting the market via innovation. And that is a very good example in the case of shampoos because Tio Nacho is part of that. And as you know, we didn't go through this initiative with a lot of detail in the last call, but now the new Tio Nacho 100% recycled is our first 100% sustainable brand, but it's also behind our 2025 commitment in terms of sustainability. It's out there. It started shipments in Mexico exactly starting the last quarter of the year. And now it's being rolled out in other countries, too, as we continue expanding manufacturing production capacity for the new version. So that also has to do with what we're doing in the plant. As you know, the plant started in early last year with suerox, but implemented the shampoo lines also in the last few months of 2021. And that's another factor that allows for more flexibility, for more effective delivery of product, better logistics, better customer service, and a couple of times in general in terms to get to the market to the point of sale. As you know, we have a very strong go-to-market commercial model which allows us to, with the help now of the plant, allows us to be much more efficient in the whole chain. So that's another factor that worked out very well. And finally, the consumer is reacting very nicely to the new Tio Nacho. I think the only shampoo in Mexico, and it will be in Latin America, that is 100% sustainable, is going to be very attractive, not only for the traditional consumer of Tio Nacho, but now we are hopefully, and we are already seeing a little bit of this, We are attracting younger consumers, which is part of the strategy behind this launch. So that would be my comment in terms of the category, the shampoos. Before going to the U.S., Tonio, anything else to add?

Yes, Jorge. I think that the other impact that it's worth mentioning is that for the first time, at least in a couple of years, and this is something that Jorge and I mentioned during our remarks, cough and cold is back, which is great for our business. And it's also a sign that the world is becoming more normal. Fortunately, Omicron resembles a lot the common cold. So So, looking into the future, we hope that the world will be more normal. What we're seeing in the first weeks of 2022 is a very strong performance in that category, and that's something that helped us also in Q4. And for genoma, that's a very important category, not only in terms of sales. but also in terms of profitability. So we're very happy about that, especially because the world is becoming more normal, and that category's strength is also good for us. With that, let me turn the mic back to Jorge for the U.S.

Yeah, and one comment just on the last point you made, Tonio, is that we are very pleased we continue developing our portfolio. We're very pleased by the fact that it's a diversified portfolio. We had an excellent 2020 in the middle of the pandemic. We had an excellent 2021, despite of the fact that at the beginning of the year, there was no cough and cold season because the other brands in our portfolio showed up in terms of market presence, et cetera, et cetera. And 2022 is looking very good, by the way. We are just starting 2022, but as I said and Antonio said, given that this cough and cold season is back to normal and given the inertia of several initiatives in other categories that we have launched in the last few months and we continue launching this year, in addition to the improved in the supply chain, including the manufacturing plant. We are very bullish about what we can see in 2022. My 2022 comment includes the U.S. As I said in my comments, we think we are in a very important, relevant moment in the history of our new strategy in the U.S. You may remember that in 2019, we decided to analyzed and redesigned the strategy in the U.S. In early 2020, we implemented a new strategy focused on key states with a new restructured team and with an improvement in the portfolio of products we were offering in the market. Now, towards looking for younger Hispanics, not only the traditional Hispanic consumer, and going to some general market consumers in a few key selected states. And that during 2020 was a difficult year. As you remember, 2021 was a better year in terms of the implementation of that strategy. I mean, it is working. You don't see it in the total U.S. numbers, but if you would go and see Puerto Rico, for instance, where we have a specific focus behind the new strategy, We're booming in Puerto Rico. We're gaining market share in all the categories in which we compete. Now we started doing the same thing in California in 2021, and we'll continue doing the same thing in other states. But the number in 21 is kind of impacted by the base, unfortunately, but that's gone now. The base, I meant there was no acrobat court in 21. That was... a big issue versus early 2020, that was a regular cough and cold season. And the antibacterial gels also that are in the base in 2020, which sales really decreased a lot as a category as a whole in 2021 because consumers are not using gels as they were using it in the middle of the pandemic. So those two truly affected the base. However, as I said, that's gone. And without having specific numbers, the first two months of 2020 are being great months for the U.S. You will see it when we close the quarter, but the sellout, as we measure it also, sellout is in the very high double digits for the first seven weeks of the year. And that's a clear sign that our strategy is working and will be seen in terms of results in 2022.

That's terrific. Thank you very much, Jorge and Tony. Thank you.

Thank you. As a reminder, if you'd like to be placed into question queue, please press star 1 at this time. One moment, please, while we poll for further questions. We've reached the end of our question and answer session. I'd like to turn the floor back over to Mr. Brigg for any further closing comments.

Okay. Thank you, operator, and thank you, everyone, for joining us today. As we noted, 2021 was marked by strong operating performance across all of our businesses with very good progress and continued evolution of our strategy. We're entering into 2022 well-positioned to capture opportunities with very powerful momentum. Thank you very much.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.