Genomma Lab Intl Sab Ord

Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Genoma Lab second quarter 2022 results conference call. At this time, all participants are in a listen-only mode. We will conduct a question and answer session following today's discussion. Instructions will be provided at that time for you to queue up for questions. A replay will also be 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, everyone. I want to thank you for listening to our remarks for Genoma's second quarter 2022 earnings. Joining me today are Jorge Breg, Chief Executive Officer, and Antonio Zamora, Chief Financial Officer. Before I hand our call over, let me first touch on a few items. On Genoma's website, you will find our press release that was posted yesterday after markets closed. Please note that today's remarks include forward-looking statements that are based on management's current views and assumptions. While management believes that its assumptions, expectations, and projections are reasonable in the view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements and to carefully review all documents filed by Genoma with a Mexican bolsa. Let me now turn the call over to Mr. Jorge Briggs.

Jorge?

Yes, thank you, Barbara, and thank you to everyone joining today. I would like to spend some time talking to you about some of the key actions we are taking within our key strategic pillars and measurable progress. Antonio, as usual, will then take a few minutes to update you on our second quarter financial results. As you read in our press release, we again reported a strong year-over-year operating performance. This is our 15th consecutive quarter of top-line growth in a quarter that was still very much marked by currency-related and supply chain headwinds, which we have navigated. Our performance also represents a positive proof point for our successful execution in our strategy pillars. This was led by holistically applying innovation to our business and portfolio during the quarter. Marketing, packaging, and communications led innovation in growth and increased sales. We also again effectively replicated our strategy of expanding the norm as a stronger scope to brands and products, or what we call our proven innovation, new countries and markets. To call out a few examples, we launched ShredX in Chile, the third country to which the brand has expanded, and we increased SuaveDoc's presence in the U.S. Our women racers gained traction in Chile with a 50% increase year-on-year in sales. And early in the second quarter, our simultaneous Mexico, Chile, and Costa Rica launch of our new environmentally sustainable Tio Nacho shampoo packaging was also well-received. We introduced a new Tio Nacho shampoo format targeting the traditional China. Second quarter pionacho sales in Mexico increased by a substantial 20% year-on-year. These examples of low-risk innovation have favorable risk relative to return, which complements higher-risk new product launches. Genoma has developed a deep knowledge of who is shopping and when, where, and why. To strengthen Genoma's brand presence within the traditional channel in all countries where we are present. As example, in Mexico, where we have aggressive exclusive agreements on more than 550 sales routes. But our holistic approach to innovation during the quarter encompasses not just the physical product, but the digital experiences that contribute to value wherever and however a consumer engages with our brand. During the quarter, we leveraged technology to invest in blended digital and physical experiences that enhance the overall customer experience and drive sales. We invested in a range of customized advertising out of home, local media, and leveraging exclusive brand ambassadors, as well as brand activation marketing to drive product trial, ongoing usage, and advocacy. Second quarter e-commerce sales reflect the most significant increase to date at more than 10% of total personal care sales and are more than 10% of total personal care sales for the U.S. and Colombia. Total first half e-commerce sales increased by 67%. We expect to reach or surpass 5% of our total 2022 sales to e-commerce as compared to zero e-commerce sales just two years ago. Over the last several years, we have been navigating substantial headwinds. including the ongoing impact of supply pressures and rising level of inflation globally. The genomic region has done a great job of managing the controllables. Our ability to identify new opportunities to optimize ingredients and packaging this time to increase affordability while ensuring a strong consumer experience drove margin improvements during the quarter. The enormous numbers also reflect success in ensuring our value propositions are right for today's consumer in a uniquely challenging inflationary environment. Since 2019, our improved execution, optimized logistics, and headcount, coupled with a strengthened supply chain, enable us to limit the effects of coins and inflationary headcounts on costs. We work with our retail partners to deploy targeted inflation-driven pricing effectively and tactfully to ensure a minimum effect on their consumer volumes and sales. The NOMAS results this quarter reflect this work. Margins have remained stable while sales and absolute profits continue to expand. Pricing is just the start of our customer set of considerations where we are collaborating closely with suppliers and remain vigilant There is a shift in calculus between food and fuel inflation. We believe health and wellness will always be consumer priority. Turning to our markets, Mexico net sales grew just under 6% to reach 1.7 billion pesos. The 96 million year-on-year peso sales increase was due to increased points of sale served and the core brand product innovation I have described led by sales of sweaters and bio-nature. Supply chain issues, natural gas pricing, overall inflation, and geopolitical challenges have had a domino effect on Mexico and our Euro-based mobile infant formula partner. However, the combination of pricing points, productivity improvements, and cost savings initiatives I have described helped offset this effect. Mexico is a meaningful driver of genomic cash flow generation, which will be particularly relevant once our manufacturing facilities are fully operational and related investments have been completed. During the quarter, our Mexico beverage and personal care manufacturing plan progressed very well, achieving our commitment to full production of genomic swaddle plants. In June, the plan produced 7.8 million bottles of swaddles, and 11% increased from our prior high as we continued to improve the plant's efficiency. This also resulted in important cost savings, with costs that are 10% lower versus our expectations for manufacturing swaddles. Our shampoo and pomade lines continue ramping up to reach nearly 2 million shampoo orders during the second quarter. The pomade manufacturing line ramped up to reach a 45% utilization rate by the end of June 22. And our body and patient cream lines will start operations next month. The no-mass personal care manufacturing process is therefore working well with no stock-outs expected and is running in line with our expectations. U.S. net sales increased by more than 13% compared to a year ago, to reach 361 pesos. Prior interventions and strategies, which today have been fully implemented, are now resonating on second-quarter results for this market. significantly to Genoma's overall second quarter sales. To call out a few categories we are demonstrating success, Queroq showed record U.S. sales in the quarter six times that of last year's second quarter. We also saw solid performance within our own anchor markets, like Puerto Rico and California, which increased by 12 and 24 percent respectively. It is also important to note that we are seeing diversity by category growth in the U.S. with double-digit growth of all genomic key brands. This includes a 26% increase in cicatric acid cells, 40% increase in tionutrious cells, and a significant double increase in the core cells. We will also note that we are seeing strong cells within different channels, including the whole cell channel, while personal care is 17% year-on-year, in accounts like CVS, and Walmart. Second quarter U.S. sales through Amazon doubled as compared to last year. Further, the productivity improvement and the benefit of continued cost savings initiatives helped mitigate a continued inflationary environment in the U.S. market as well. In almost Latin America, second quarter 22, Next phase grew just under 17% with a 23.5% EBITDA margin. We saw a remarkable top-line growth in copper and gold, and we flew gastro-brands in all Latin America, as well as the launch of swirls from Chile. This growth in the quarter was led by Colombia, Peru, Brazil's commercial performance. It was partially upset by local currency depreciation in some countries where Genoma operated. Finally, as you read in Monday's announcement, Enuma was honored to be age-certified and the only pharmaceutical plant in the Western Hemisphere to receive a certification related to water and energy use and carbon dioxide emissions. H is a green building standard and a global certification system of the International Finance Corporation, the private arm of the World Bank, that certifies the design and resource efficiency of green buildings. As further updates for the first half, this is our 25th commitment we made in February, the Enoma Mexico Industrial Complex achieved fewer ways to launch this goal. And secondary packaging for for instance, now have the Forest Stewardship Council certification, commuting to responsibly managed forests that provide environmental, social, and economic benefits. I would like to express my thanks and congratulations to the UNOMA ESG Director, María Fernanda Aguilar, and her team for their outstanding progress on our 2025 ESG targets.

With that, let me turn our call over to Antonio for commentary on our second quarter financials. Antonio? Thank you, Jorge, and good morning, everyone.

As Jorge noted, we delivered solid growth in the second quarter across net sales every day and our EVDA margin amidst persistent macro headwinds. Our focus remains on ensuring we leverage our enhanced efficiencies and optimized organization to further strengthen our position for sustained growth. Our first half 2022 performance positions as well to deliver on our objectives. Second quarter 2022 consolidated net sales reached 4.3 billion pesos, a 12% year-on-year increase driven by the innovation that Jorge has discussed. However, these results were partially offset by supply chain and other related headwinds.

Second quarter EBDA increased by 15%,

to reach 892 million pesos with a 20.6% margin. A 50 basis points year-on-year increase due to successful target pricing initiatives which offset cost, inflation, and forex headwinds in some of the countries where we operate. Second quarter 2022 Mexico net sales reached 1.7 billion, a 6% year-on-year increase, largely due to increased point of sale, and the product innovation Jorge has mentioned before. However, global supply chain challenges continue to adversely impact Genoma's novel infant formula category sales. Second quarter 2022 RDA was 351 million pesos, with a 20.1% margin, reflecting a 10 basis point decrease, primarily due to inflation of certain raw materials, as well as time investments related to the manufacturing line ramp-up process at the industrial complex during the quarter. Moving to the U.S., second quarter U.S. net sales increased by 13.2%, to reach 361 million pesos, notably with continued strong beverage performance and record sales for the quarter. Double-digit year-on-year sales in key markets such as Puerto Rico and California with strong growth in Genoma's key brands. Going to Latin America, net sales for the quarter grew 17% year-on-year, to just over 2 billion pesos, also due to innovation and expansion strategies, as well as increased points of sale, yet partially offset by local currency depreciation. Genoma's Latin American EVDA margin closed at 24%, a 70 basis points increase. This was primarily due to a positive price mix with increased operating leverage, resulting from increased sales successful cost and expense control management, and targeted price increases which mitigated macroeconomic headwinds. Turning to profitability, second quarter 2022 gross profit increased by 13.1% to reach 2.6 billion pesos. The 40 basis point gross margin decrease was due to a negative price mix and foreign exchange headwinds across all markets during the quarter. Second quarter working capital was adjusted, and the cash conversion cycle ended June 30, 2022, at 100 days. Genoma closed the second quarter with 1.3 million pesos in cash and equivalent at quarter end, a 7.8 year-on-year decrease as we continue paying down debt during the second quarter of 2022, and we therefore have a very solid balance sheet with a considerably higher strong cash position, and a net debt to every VA of just 1.2 times, despite prudently paying dividends to our shareholders and paying down debt. It's important to note that this further reduces our interest expense as well as Genoma's inherent business risk. We repurchased a little bit over 1.6 million shares in the second quarter, an investor that represents 33 million pesos. We are encouraged by your strong quarter results as we continue to sharpen our focus and execute our strategy pillars. As a leader in personal care and OTC, Genoma strives to deliver outstanding health and wellness for our customers and clients.

With that, let me turn over the call to your questions. Please, operators.

Thank you. We will now 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 that your line is in the question queue. You may press star 2 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.

Thank you.

Our first question is from Joaquin Lee with ITAO. Please proceed with your question.

Hi, good morning. Jorge Antonio. Can you hear me? Yes. Hello? Hello? Yes, Joaquin. I'm sorry.

Hi, hi. Go ahead. Good morning and thank you. Thank you for taking my question So, you know you continue to release very solid operating results and growth rates But you know, there's there continues to be some noise below the operating line and your EPS Ultimately does not reflect what happens or the underlying trends of the business So how should we think about your non consolidated sub series? I mean, what is the big sense does it make to keep my Sam in there or just maybe thinking about you know, I divesting even at a loss, right, and get that noise out of the way, which ultimately I believe would be a positive for your return metrics. And also, you know, the hyperinflation accounting impact on your cost of financing. Is there a chance that eventually we can see, you know, a parallel accounting as some other companies with relevant exposure to Argentina have, you know, and seeing a P&L excluding IAS 29. So we can have a better sense of what the real EPS of the company looks like.

Antonio, would you take that? Yes, Jorge.

Joaquin, thank you for both of your questions. Excellent questions. Going to the first one, talking about the affiliated company, Marsan, where Genoma owns 50% less one share, so we don't control it. We don't consolidate it for that reason. We don't manage that company. At this moment, Marsan is going on to a turnaround. You know, the management, the Moench cooperative team that is managing and controlling the company, they are streamlining some expenses and some of the operations, things that we believe are the right things to be done at that company. So that's good. Obviously, when you do some turnarounds, there's some short-term impacts, especially some severance payments, et cetera. And that's what's driving some of the short-term negative effects of the affiliated subsidiary. Obviously, there's going to be savings in the future, and the business is going to be a stronger one. Although we don't control Marsan, we think that the measures that they are taking are the right ones. Having said this, I'm going to a more strategic level conversation, which is basically what you're bringing, Joaquin. Thank you again for that. Is Marsan strategic for genoma in the long term? Not necessarily. We are focused, as Jorge has always mentioned, on genomic on providing health and wellness to our consumers. We're mostly focused on OPC and personal care. So we have that investment, and we are analyzing strategic options for the Marsan business. Whenever that happens, I would hopefully reduce that noise. and we can move forward with the investments in the categories where we are mostly present. So, yes, this is something that we are thinking. We're looking at a number of alternatives. But for the time being, as I mentioned before, I think what's going on at Marzan is the right thing. Again, it's a short-term noise that obviously impacts on net income and has – an effect on EPS, which is unfortunate. But again, as I said, this is short-term, and we are analyzing alternatives for the long term.

I don't know if I was able to answer your first question, Joaquín.

I think we lost Joaquin.

Thank you. Our next question is from Vanessa Corroga.

No, just operator, operator, hold on one second because I still need to answer Joaquin's second question, which was related to Argentina, the hyperinflationary accounting, IAS 29 and IAS 21, which there's a specific provision for hyperinflationary accounting. You know, the IFRS rules are the ones that exist. We cannot change them. We may like them or not. The IFRS rules, IES 29 and 21, basically require that we convert the hyperinflationary subsidiaries using the official exchange rate. which is determined by the central bank. Whether we think that's right or not, because there's a free market exchange rate, that's obviously a lot of discussion. We have many, many discussions with the auditors whether we should use the official exchange rate or the free market exchange rate. I mean, from a personal point of view, I'd rather use whatever is more, you know, the open market, the reality. But the accounting rules are the way they are. We take your suggestion about thinking of pro forma, parallel kind of reporting. We'll analyze that, and we'll see what other companies are doing in this regard as well. And we'll see if there's a better way to communicate to shareholders and analysts, you know, the potential impact of depreciation in that coverage. But again, this is something that we will analyze. Thank you for the suggestion, and we'll keep you posted.

Thank you. Our next question is from Vanessa Quiroga with Credit Suisse. Please proceed with your question.

Thank you very much. I want to ask about the new manufacturing plans and if you could provide some color on how supply chain restrictions are affecting in any way the speed of the ramp up of the plans and your expectations regarding the ramp up of the different lines that you are working on currently.

Thank you.

Yes, Vanessa, thank you for your question. I had some trouble with the line. Would you please repeat it?

Sure, Tonya. I would like to ask you to give some color on how supply chain restrictions are affecting the ramp up of the new manufacturing plant in any way. And what's your expected ramp up for the lines that you are working on currently? Thank you.

Excellent, Vanessa. Thank you so much for your question. What I would say is that any new plant in any company, and Genoma is not the exception. I've seen this in my career in, you know, different companies, and Jorge as well. We have a lot of experience in terms of, you know, the startup of new plants, new facilities. There's always that period of time where you need to synchronize the supply chain. new suppliers, new materials, sometimes fine-tuning the specs and the supply chain model, et cetera. What I can tell you is we have not experienced anything unexpected or different from what we've seen in other experiences in our careers. So I think that the plant is going well. The ramp-up is going according to our expectations. Some of the initial hiccups that happen in any line, they are there. We are managing those. So, yeah, maybe today there's a little bit of more difficulties in the global supply chain networks. But I don't think that's impacting anything. significant matter, a ramp of processes. You know, the Suerox line, we were already very, very happy with the efficiencies that we had a couple of months ago where we reached 7 million bottles a month in terms of production. And right now, we're at 7.8. So that's a significant productivity increase. And the cost per unit is even lower than what we had anticipated. So what we need to be in this process is we need to make it right. We need to do the ramp up in the right way. There's always a learning curve that needs to happen. It's happening. Some of the other lines that we have, the shampoo line or the ointment lines, right now I would say that they are at the 40 to 45% mark of the ramp-up process. So they are going well. And we expect the ramp-up process for each line to take between five to six months, each one of them. Again, shampoos, I mean, it's perfect. It's fine-tuned. It's delivering even more than what we had anticipated. Shampoos, anointment, very well according to the ramp-up cure. and facial creams and body creams will start operations in August. So I think that you will start to see, we will start to see savings and synergies from the manufacturing facility. Obviously, and the caveat is that there's COGS inflation everywhere in the world. Some of the COGS increases will be offset by this productivity increase that we will have in the plan. And that's a little bit of the process. So I think it's an excellent question, but we are not worried in terms of the personal care plan. In terms of the pharma plan, that's a different story. We are still dependent on the permits and the GMPs from Covfebris. This is the story that we know. As we've mentioned the previous quarter, We think that it's still going to take a couple of months. And in the case of the pharma business or the pharma manufacturing facilities, there's longer lead times for raw materials that need to be taken into consideration. But we'll get there when we get there. Hopefully, you know, the coffer priest and the other permits from from the other countries will come soon. But at this moment, that's something that we are dependent on the authorities.

I don't know if I was able to answer your question, Vanessa.

Yes, yes. Thank you. That's helpful, Tanya. Thanks.

Thank you. Our next question is from Alvaro Garcia with BTG Pactual. Please proceed with your question.

Hi, Jorge and Antonio. Thanks for the call. A couple questions. One on infant formula. You mentioned it was a drag. Once again, I was wondering if you could maybe quantify that maybe within the OTC category in Mexico, which did see lower growth. Maybe you'd adjust for that. What type of growth would be seeing there? And then my second question is on maybe more for Jorge on sort of new line extensions and new product rollouts. What are you most excited about into the second half of the year in terms of new line extensions or potentially new product roll-ups. Thank you very much.

Daniel, you take the first one. I'll take the second. Yes. Thank you, Alvaro, for your question.

The infant formula category is one of our fastest-growing categories. I think we're very happy with the performance of our commercial team, and the acceptance of the products. They are indeed superior products that the market is accepting really well. As we mentioned last quarter, and this is still happening today, our partner, United Pharmaceuticals International, who manufactures Novamil in their two plants in France and what used to be Eastern Germany, are experiencing some hiccups in terms of some raw materials, but especially energy. You know, Germany is supplied by natural gas, usually supplied by natural gas from Russia, as everybody has seen in recent years. There's been some disruptions there, and that's affecting the ability of... of UPI to source the kind of growth that we need. So there's probably a couple of percentage points that Mexico could have grown faster because we have the demand. The demand is there. We just simply were not able to cope with it because of this situation. Hopefully, this will be short-term. Now, there's another aspect, another micro aspect that is happening, which is we all know that there were some major disruptions in the infant formula category in the U.S., and that is driving the U.S. to go out to the world for the first time ever and try to buy infant formula from everywhere, from Europe, from Australia, from New Zealand, etc., And that is also creating some pressures in the supply chain network because of that. That's a macro situation as well. Again, this is temporary. Eventually things will get solved. Unfortunately, we didn't get all the products that we could have sold. And as I'm saying, the demand is there. The demand is strong. And our plans to expand the brand to other countries in Latin America is there. So it's unfortunate, but we have to live for the time being with that.

I don't know if I was able to answer your first question or not.

Confirm that growth there is below potential on the supply side of things. That's clear, and thanks for all the comments. That was helpful for that first question.

Excellent. So let's move to the second question with Jorge about the new – what are the – New line expansion that excites him the most. The second semester looks bright, too. And this is, I would say that the main reason why we feel positive about it, despite what is happening around us everywhere, is that our world is very solid and it's broad-based. If we were to get into a lot of detail in terms of where the growth is coming from and looking at the big perspective, total company, I would have to say that it's coming from everywhere in terms of countries. Our countries are growing very healthy, including now this year the U.S. that has had two very strong quarters in terms of building critical mass and for sure, because we have the plans and we are proving that the plans are working. Latin America as a whole is also growing very healthy. I'd like to mention especially Brazil and Colombia, which are coming very strongly this year, with Brazil growing almost double-digit, a very healthy business that is now being diversified. So, and Estonia is playing Mexico in the high-series digits, and we'll keep in the high-series digits in the foreseeable future. So, also in terms of categories and brands, we see a broad-based growth base, actually. It basically grows in all our categories. It could be personal care, it could be OTC, or it could be beverages now. Xuelo continues to grow very healthy in all countries, including California and Chile, and we will continue expanding that. We see very healthy growth in OTC, basically in all our key categories, and And some of them that are related to Pope and Colt, of course, even better, given the situation, the health situation in the world. And finally, all our personal care led by Teomacho and Cicatricure, that are two of our top brands as a company. They're growing also double-digit, basically, in most of the countries in which we operate. So in overall terms, we are very satisfied by the fact that the growth is very healthy, coming from all key categories, all key countries, and all key Chinese. And I want to reinforce what I said in my opening in terms of channels beyond the traditional channels and the supermarkets and the pharmacies that are really growing very fast in the e-commerce platforms. As I mentioned, we grew 66% this last quarter over the same period of previous years as a total company. And we already have some countries with 10% of their business coming from e-commerce. And others getting closer to five and either in their journey to get to 10% as the minimum goal that we have for the next one to two years. So that's also a very healthy situation in terms of growing the e-commerce platforms. What is coming? I would say that more of the same because this is This is behind solid plans that have been built as we were making progress in the last few years, plus some additional expansions of some of these plans to other countries, including Novanil. including women, including . They will continue to expand to other countries because they are proving that their models are successful. So as we normally do that, with that group, we expand to other countries. So that's something that is going to happen very, very quickly in the next few months. And finally, at the beginning of this year, we agreed on a fine-tuned plan with our leaders, country managers and category leaders in a three-year plan that is basically 22, three, and four, that will take us to the next level. And you will be seeing that as we make progress quarter by quarter, but we continue very focused on our target. As I mentioned in early 2019, also passing the $1 billion target. sales and mark with 24, 25% by the margin. That continues to be alive. We believe that we will get there in the next two, two and a half years. And we will keep you posted. As I said, we will review and strengthen some of the plans at the beginning of this year to make sure that we get there. So, yeah.

Was that helpful? Yes, very complete. Thank you very much. Thank you.

Thank you. Our next question is from Antonio Hernandez with Barclays. Please proceed with your question.

Hi, good morning. Thanks for taking my question and the results.

My question is regarding the U.S. operations. I mean, you mentioned your first release, a new launch there, and just wanted to get a sense of the different brands that you're operating there in the U.S., and what are your plans there for the country, especially as a

One moment, I believe our analyst line has been disconnected.

We do want to apologize with everybody for the communication issues that we are having. We discussed this with the vendor because this shouldn't be the case. And this is the second analyst that gets disconnected operator.

This is unacceptable.

Yes, I understand. I'll move on to the next question while we wait for them to see if they dial back in. Our next question is from Rodrigo Alcantara with UBS. Please proceed with your question.

Hi, good morning. Good afternoon. I don't get disconnected. So the first question would be, you know, the CapEx is going to decelerate, right? You know, regardless on the EPS, the cash EPS potentially was much higher than what you reported on an accounting basis. So just to share on the outlook for dividends, I mean, you already paid the second dividend, $400 million dividend, right? Can we expect a more active dividend policy for 2023? And my second question would be regarding the the cash conversion cycle. I mean, is it fair to say that improvement that we have seen mainly on the receivables has been driven by the higher addition or the high penetration of the traditional channel? That would be my two questions.

Thank you. Thank you, Rodrigo, for both of your questions.

Yeah, I think that and we've mentioned this, that 2022 is an inflection year, especially in terms of cash flow generation, because as you very well pointed out, there's not much capex left to be done. I mean, there's always a little bit of maintenance capex, and there's a little bit of the capex that is required for completing the commissioning of the lines that will start operations, but it's It's very minimal. It's very minimal. So there's not going to be significant capex anymore. We have enough capacity, more than enough capacity sufficient for the growth that the company requires. At the same time, as you very well pointed out, the cash conversion cycle is improving because we're putting a lot of effort in terms of that. The inventory... The days of inventory, it's a challenge that we have to manage. As everybody knows, during the first months of the plant's operation, we do need to increase a little bit of inventory because we are receiving raw materials because we don't want to create any disruption in the market where we transition from co-packers to our plant. So we're managing that, and we have been able to manage that. Some people had expected higher levels of inventories, but we are doing very good work there. And in terms of the accounts receivables, you are right. The more that we sell to the traditional channels, the better it gets because that's a channel that pays cash. We do provide some financing to certain distributors, business partners, but it's more efficient from a BSO point of view. So, yes, that's right. But I wouldn't say that it's the only factor. Yes, it helps, but I think that the whole organization is putting a lot of effort in terms of collections and being very efficient. But at the same time, investing in clients, investing in when we launch new categories, you need to provide some financing so that they put your products and your products in their shelves and the business starts. And that is something where we invested, you know, in the resource, in the infant formula. But as our customers, get used to it, and they see that this is a very interesting business, things get normalized. So I think it's a combination of everything that you've mentioned, and we're very proud of this higher and better cash flow generation. Going back to your other question about the dividend, there is not a formal dividend policy, and let me underscore policy, It's not a policy at this moment. It's a dividend practice. The difference between a practice and a policy is that the policy is set on stone. And a practice is more of, you know, the way we do business. At this moment, shareholders and the board and management and everybody is committed to reward our shareholders as much as we can. So the dividend that we paid in December and the dividend that we paid in June, and most likely there's going to be more dividends coming in the near future, and it's going to look more like a policy. But if in the future we find an interesting opportunity where we need to source certain sources of financing, we may analyze if that needs to change. For the time being, as everybody knows, and as you very well pointed out, Rodrigo, we're generating cash. We hope that the plant will help us generate even more cash. And as such, I think that investors and analysts should expect a living stream in the future. And we are happy to reward our shareholders. As everybody knows... top management. We are shareholders as well, and we'd like to get some rewards as much as all other investors. That's a little bit of what you can expect, but again, it's not something written on stone. We are a very dynamic company. We're always looking at opportunities. If there's a very good business where we should invest for the future, and there's a lot of organic growth initiatives taking place. Jorge was very clear in terms of innovation. When we talk about innovation, we have what is called the route to success, or la ruta de exito, which is bringing innovation that has been successful in some countries to the rest of the countries. And if we see that there's a big opportunity there, we will invest in our organic business as well. So it's always going to be a combination In terms of capital allocation, there will be dividends. There will be buybacks. But we will always, always continue investing in the business because we see that there's a lot of opportunities that may be captured. And as we capture them, we grow the business. We grow top line, MVBA, and cash flow. That, for the long term, is in the best interest of all shareholders. Was I able to answer your question, Rodrigo?

No, that was great. If you have already answered this, please feel free to go to the next one. If you can comment on this exclusivity agreement strategy that you mentioned on page two, I found that interesting as well. Thank you very much, Antonio Jorge.

Thank you. I think he's referring to the strategic alliances, right, Antonio? I just wanted to clarify with Rodrigo.

Yeah, it's the aggressive agreement in Australia on the 550 sales routes that you mentioned on page two.

Well, there's many exclusivities that we have.

As everybody knows, we have... alliances with our business partners that help us distribute products to the mom and pops, to the more than 500,000 points of sale, and those are exclusive arrangements. They may only sell and carry Genomas products, not the competitors, so that's something that is working well, that we continue to do that, and that's been a very successful and it's a win-win situation both for us and the business partners. On top of that, as Jorge was mentioning, we have exclusivity agreements with some of our strategic allies, like in the case of the infant formula or in the case of blades and razors, and a couple of others that are coming that, as we said in the past, can almost become like the gateway to Latin America for certain categories, for certain partners. And we leverage our commercial and marketing strengths together with the strengths of our partners. So that's a strategic leader of growth. All of them, I mean, exclusively with the business partners for the traditional channel, as well as the strategic alliances

that Jorge mentioned. That's super helpful. Thank you very much, Antonio.

Let me take quickly Antonio Hernández's question that we didn't answer because he got disconnected in the last couple of minutes. He asked about the U.S. and the brands that we were selling in the U.S. and what was our plans in the in the near future. Tonio, I mentioned quickly that we're very, very positive about what is happening in our business in the U.S., especially in the last three quarters, because I'm including the last quarter of 2021. Behind the plan that we launched in, as you may remember, we launched in late 2020 after an analysis and a revision of our strategic focus in the country. And now we are seeing widespread growth coming, fortunately, from different fronts. Our key brands there are Ticoil, Cough Syrup, Tica-Ticua Skin Care, Silkamedic, it's food, Tio Nacho, hair care, shampoo, beverages, among other brands, our key brands in the country. And all of them in the last two quarters have been growing double digits, even much than low double digits. And that's behind specific plans and specific strategic moves in the brands. I think you're expanding the portfolio, the natural with the relaunch of the sustainable line of products and products that continues to be successful as a brand, preferred by the consumers, whatever we put on the shelves. And now with a program that will continue expanding the brand in the general market in the upcoming months. So it's very energizing to see a brand like Freighters that is proving what could be a road to success for a genomic brand entering the general market in the U.S. And the potential is huge, as you can imagine. The market in which we have focused behind that strategy, especially California, which is, as you know, larger than many of the countries in Latin America, there we are growing 24%. And that is another proof that we can do it with a specific focus on some key markets. And as you know, we will continue doing this in other key states in the U.S. as we go ahead, like Texas and Florida, et cetera, et cetera. So it's a more targeted surgical type of approach. that is delivering much better results than in the past. And finally, Amazon in the U.S. is a key partner of Genoma now, and we are basically doubling every quarter of business with them. And that's another key contributor to what we are seeing in the U.S. So we see positively the future because of all of these things that are very solid pillars behind the growth that we are seeing. And, of course, we always continue assessing and exploring potential new businesses or new brands in the market to further accelerate this.

Thank you.

As a reminder, 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. Our next question is from Antonio Hernandez with Barclays. Please proceed with your question.

Yes, this is the question that I just answered. Yes. Yes. Thanks a lot. Appreciate it. Thanks. Okay. Thank you. I don't think we have more questions. Thank you.

This concludes the question and answer portion of today's call. I would like to turn it back over to Mr. Brake for any closing remarks.

Okay, thank you, Operator, and to those joining our call today.

This quarter's diversified results reflect consistent progress against the themes and periods we have established as our guideposts for sustainable growth. Our consumer-centric model is working and will continue working. We're tracking well against all of our key milestones for this year and remain very optimistic about our long-term growth potential.

Thank you to all and have a great week.

Ladies and gentlemen, this concludes Genoma Lab's second quarter 2022 results conference call. We would like to thank you again for your participation. You may now disconnect.