Genomma Lab Intl Sab Ord

Ladies and gentlemen, thank you for joining Genoma Lab's third quarter 2022 earnings conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. As a reminder, this conference call is being recorded and will be available for replay from the investor relations sections of Genoma's website following this call. I'll now turn the call over to Barbara Arcano of the Inspire Group. Please, go ahead.

Good morning, everyone, and thank you for joining today's call. With me today are Jorge Bray, Chief Executive Officer, and Antonio Zamora, Chief Financial Officer. Before we get started, I'd like to remind you that our remarks today will include forward-looking statements, such as our financial guidance and expectations, including our long-term objectives and forecasts, as well as our expectations regarding our business, assets, products, strategies, demand, and markets. These statements are subject to risks and uncertainties that could cause actual results to differ materially. They're also based on assumptions as of today's date, and we undertake no obligation to update them as a result of new information or future events. Let me now turn the call over to Mr. Jorge Bray.

Thank you, Barbara, and to everyone joining this morning's call. Let me start by summarizing today's key messages. While the global operating environment remains volatile, our teams continue to execute with agility to advance the pillars of our growth strategy. GENOMAS balanced portfolio and operations and diversified risk profile again enable us to deliver both sequential and year-on-year top-line growth and margin expansion on a consolidated basis. We achieved a more than 9% year-on-year net cells increase, and a more than 11% increase for the quarter closing in September, which represents Genoma's 16th consecutive quarter of top-line growth. We also reached a 21% EBITDA margin, and we see quickly approach our stated 24 to 25% EBITDA margin targeted for 2024. We're excited to share the news that Genoma's body and facial cream manufacturing lines began operations in September. This is, therefore, the first quarter with all five production lines fully operational at our personal care manufacturing plant. It is an important milestone and critical inflection point of our vision at Australia, which will trigger an additional margin improvement we expect to achieve as part of our targets. It is also relevant to note that the strong third quarter results we are reporting is without the full benefits we expect from genomics manufacturing, particularly on cost of goods sold, which will drive improved profitability in the short and the medium term. More efficient working capital dynamics and potential market share gains from a more competitive pricing and better service. Genoma's remaining industrial cluster manufacturing lines are also ramping up with more than 8 million square of bottles produced during the month of September alone. I'm sorry. And continue ramp up of our shampoo and pomade lines producing more than two and a half million bottles of shampoo, and one million bottles of pomade during the third quarter. On the pharma plant side, production levels further increased during the third quarter to reach 35 million solid tablets and half a million semi-solid units. Finally, during the quarter, our Swerdox isotonic beverage manufacturing line received good manufacturing practices certification by the Mexican health agency, COFEPRIS, in the third quarter of 2022. GMP certification enables now Genoma to export isotonic beverages to markets that do require those certifications. We maintain our focus on high growth categories during the quarter with low risk production innovation, product innovation and new product launches. Additionally, our strong brands enable us to increase our presence within new channels and points of sale to deepen and expand our reach during Q3. We also increased our digital and omnichannel engagement with our customers, creating a more personalized customer experience and exceeded our expectations for the quarter with respect to overall digital customer engagement. This increased engagement drove a 50% year-over-year increased percent in digitally driven accumulated revenues in the US, which is in line with our target to reach our goal of 10% of our net sales from the e-commerce channel in the region. Turning to our markets, Mexico year-on-year net sales grew 9% to reach close to 2 billion pesos for the first time in its history for the third quarter of 2022. Reflecting a strong rebound in category performance for this market, where we again added new points of sale during the quarter. We maintained top line growth at our U.S. operations with a net sales increase of just under 26% year on year to reach 420 million pesos for the third quarter of 2022. Importantly, this, once again, growth was widespread. in all our priority brands, all trade channels, and all key customers. We deepen our retail presence, notably within Walgreens, CVS, and Walmart, and so particularly strong sales from the new Dionacho product, Cicatricure, to Kohl, to Aerox, and other SKUs, and robust e-commerce sales, particularly on Amazon. Third quarter Latin American net sales grew just under 7% led by strong sales in Colombia, Brazil, and Peru. As can be expected, Argentina's sales were dampened by inflation and devaluation in this country. However, our Argentina team is maintaining its focus on the factors we can control with improved supply chain performance and effective revenue management to counter Argentina's inflation. We are also delivering strong innovation with a focus on highlighting our relevant, differentiated, and value-driven products and brands relative to our premium product competitors within the market. With inflation at four-decade highs, consumers everywhere are expressing uncertainty about the future and seeking value. At the same time, we know that health and wellness will always be a priority and increasingly so after COVID-19. We're leveraging our expanding portfolio, footprint, our digital capabilities, our hallmark brands, and deep consumer insights to continue driving growth. We're pleased to have delivered a strong third quarter and fiscal year to date, which we believe is not resonating in the price of GenomaShares given the overhang of today's global macroeconomic headwinds and inflationary environment. Genoma was also recently removed from the S&P BNB IPC index in Mexico with a related loss of our prior index fund shareholders. We believe Genoma's shares, therefore, represent a strong investment opportunity at today's levels and considering the opportunity we see ahead. In closing, we are truly grateful for our team's continued dedication and commitment and are confident that successful execution of Genoma Growth Strategy pillars will continue to further resonate on Genoma's future results. With that, let me turn our call over to Antonio for commentary on our third quarter results, and we'll be back for Q&A after that. Antonio?

Thank you, Jorge, and good morning, everyone. We continue to drive strong execution across all our operating segments, and again, delivered solid growth across net sales and EVDA. Second quarter 2022 consolidated net sales reached 4.4 billion pesos, a 9% year-on-year increase driven by successful product launches, and nine extensions with a strong digital channel performance throughout all regions as Jorge described earlier. This was partially upset by macro headwinds and local currency depreciation during the quarter in some markets. Third quarter EVDA reached 912 million pesos with a 21% margin. A 40% basis point year on year increase due to successful targeted pricing initiatives, which offset Cox inflation and Forex headwinds in some of the countries where we operate. Third quarter 2022 Mexico net sales increased by 9% year on year due to new line extensions, key category recovery, and additional points of sales as Jorge has discussed. Third quarter 2022 EBITDA for Mexico was 375 million pesos with a 20.7% margin, reflecting a significant 60 basis point improvement for the quarter due to increased operating leverage resulting from strengthened sales. This was partially offset by negative product mix sales as well as COGS inflation. Third quarter US net sales increased by 26% to reach 420 million pesos with strong sales across all product lines. Driven by increased local out of home advertising and e-commerce challenge performance reflected in doubled year on year online sales through Amazon. Latin American net sales for the quarter grew by 6% year-on-year to just over 2 billion pesos, partially offset by local currency depreciation in Argentina, as well as decreased year-on-year demand for COVID symptom-related products, lapping a strong third quarter 2021 period. Turning to profitability, third quarter 2022 gross profit increased by 9% to reach 2.7 billion pesos. The 20 basis point gross margin increase resulted from successful pricing strategies, which partially mitigating foreign exchange impact when consolidating depreciating currencies during the quarter. Third quarter SGM&A again decreased as a percentage of sales to 41.6% for the third quarter 2022. with a continued focus on marketing efficiencies and on expense control. Second quarter working capital was adjusted and the cash conversion cycle ended at 104 days. Accounts receivables amounted to 4.2 billion pesos as of September 30, 2022. Days of consolidated accounts receivable amounted to 9%. This is a 16-day decrease when compared to the end of September 2021. Genoma closed the third quarter 2022 with 1.1 billion pesos in cash and equivalents at quarter cent, a 38% year-on-year decrease. As Jorge commented, Genoma shares are considerably undervalued at today's levels. During the third quarter, we repurchased a little bit over 4.9 million shares, investing roughly 82 million pesos. We will continue buying back Genoma shares. Just in October, over 7 million shares and 100 million pesos were invested in the first 20 days. We believe This is an outstanding use of our capital with an excellent ROIC that is clearly beginning to resonate on our share price. Genoma's business, performance, and fundamentals are solid with a very exciting operating outlook. We also announced a third cash dividend of 400 million pesos payable to shareholders record at the close of business on November 11, 2022. Genoma's board of directors exercising the powers delegated at the last shareholders meeting have therefore deemed it appropriate to announce a third payment, also similarly the next phase of shareholder value generation. This payment is in addition to the previous dividends paid on December 2021 and June 2022. Genoma Lab and its board of directors express their continued appreciation for the trust of our shareholders and financial providers, including the IFC and the Inter-American Development Bank. With that, let me turn the call over to your questions.

Thank you, Antonio. We will now begin the question and answer session. To ask a question, you may raise your hand using the icon, raise your hand, located at the bottom of your screen. To withdraw your question, press the same icon at any time. This will be required in order to allow you to turn on your microphone and ask your questions. One moment please while we hold for questions. Thank you. Our first question comes from Antonio Hernandez from Arclays. Please turn on your microphone to proceed with your question.

Hi, good morning. Thanks for taking my question and congrats on your results. My question regarding the manufacturing plant, congrats also on finishing this and having fully operational the five lines in personal care. At what percentage of the desired production do you expect them to be by the end of next year or what are your targets in terms of, because you are now in the ramping up process. What are your expectations for next year in terms of percentage of desired production? Thanks.

Hello, Antonio. I'll make a quick comment and then I will let Antonio provide more detail. But I'm just taking advantage of your question as part of what I said in my speech. We are very satisfied, actually. You can imagine at the point where we are now at the plant, with all the personal gear and beverage, lines operating plus the solid and semi-solid lines in the OTC pharma plant also. This is a breakthrough point from that regard because we are only missing a couple of things regarding liquids and those type of things. So we are getting very close to what we consider will be the period in which, as I said, we will start delivering expected efficiencies coming from the plant. So with that said, let me invite Tonio to give you more details in terms of what is our perspective in terms of the ramp-up period and the percentage of our demand that will satisfy will be satisfied by the plant, especially in 2023. Tonio?

Thank you, Jorge. Thank you, Tocayo, for your question. As we presented earlier, the personal care plant has five manufacturing lines. The first one is Suerox, our isotonic beverage. That is fully commissioned, and right now it's running at a very, very high efficiency. we still believe that we can extract a little bit more. But right now, if we would just stay where we are, we would be satisfied, but we always want more. So that's 100%. The ramp up for that line is done and it's driving a lot of savings. Shampoos and ointments or pomades, as they call it in other parts of the world, they are at around 50% of the ramp up process. So that means that we would still require another three months to get to a higher efficiency rate in this curve. So it's coming in the very short term. And facial and body creams just began production last month. So they were just beginning this curve. Everything is going according to our plan. We haven't found any anything that would derail us from the ramp up or the commissioning. So again, one line is done to two to three months and the other two in five to six months. So for the second half of 2023, everything will be at full speed. And right now we will see some improvements and improvements and more productivity from the plant. Now, let us also remind everybody that in some of these lines, we have significant or more capacity than we need. So there's enough room for growth. And as you know, Jorge likes growth and the company likes growth. And that's what we've been delivering. So it's hard to say we would need to go line by line in terms of capacity utilization. I think that what's important to know is there's not much capex required from now on. There's going to be some maintenance capex as all companies require, some minor capex for innovation, new formats, new SKUs if needed, but nothing material. I think that that's going to be a driver of cashflow generation. Again, no more capex. And as the savings start being recorded, margins will improve. The good things about the personal care plan is that we don't require any government authorization to do that. We just need to synchronize the supply chain network, which so far, it's going well. That's the additional comments to what Jorge I don't know if we were able to answer your question.

Antonio, one more thing before Antonio makes any comment that I'd like to mention is that regarding the team at the plant, we have been in the last two years, and especially this year, stressing our team in the plant. And just last month, we hired the last, I would say the last position that we were looking for, which is a new head of supply chain actually for Genoma Global. This person will be in charge of everything related to the supply chain from forecasting demand, procurement, the plant manufacturing and logistics and customer service. He comes from Procter & Gamble, 28 years in P&G. always running supply chain businesses and especially manufacturing sites. As you can imagine in P&G, this is something that is very important as part of their model. So now with this, plus the other heads that we have for procurement logistics, manufacturing operations, et cetera, et cetera, we truly have an outstanding team at the plant. So regardless of the fact that Genomata has not had experience running plants in its history, we have a team of people that have more than 15, 20, 28 years of experience running plants and supply chains that are now in charge of this. So you will be amazed when any of you could come to the plant and visit in the next weeks or months. you're invited to come, you will be amazed not only by the plan, but also by the team we have in place. And finally, our commitment to get productivity from the plant continues to be fully alive. Those three to four EBITDA points that we have as a gap to our vision, for the next one to two years, mostly will come from productivity at the plant. And we already seen it in Suerox. So we are very confident that we will also see in the other lines that are in the ramp up period. Antonio.

Perfect. Thanks a lot for the color and have a good day. Thanks. Thank you.

Thank you. Our next question comes from Alvaro Garcia with BTG Pactual. Alvaro, please turn on your microphone and proceed with your question.

Hi there. Good morning. Thanks for the call. My question is on dividends. I suppose the question is to what degree is the board committed to keeping, you know, to keep paying dividends in the medium term? I guess my question is sort of, you know, is this, dividend payment just a function of not having found sort of inorganic, I guess you can call them organic growth partnerships or initiatives in this year, and that's why the dividend came to be, or is the board committed to keep dividends up over the medium term? Thank you.

Yeah, quick comment, and then as usual, Tonya will compliment, but I would say, Alvaro, that the board is committed. We just discussed that two days ago in our quarterly board meeting here in Mexico. And I can tell you that we are committed to continue doing so. That's something that we started last year, as you know, with one dividend payment. This year, we already did one. And we just announced that we will do another one in a couple of weeks. So that is something that we want to continue doing it. It is all obviously is based on the health of our cast position that has improved dramatically in the last few years. But that would be my comment. Tonio, anything else?

Thank you, Jorge. And thank you, Alvaro, for your question. Yes, as Jorge said, the board is committed. It's part of this journey transformation that Jorge started taking the company, transforming the company and taking it to the next level. More mature, larger companies, they have a way to reward shareholders and one is cash dividend. It's not that we don't have opportunities for growth or investment, which we do, and we do a lot. But I think we're starting a new phase in genoma. I mean, again, no more CAPEX, no more major CAPEX for the plant. The plant starts to operate. So it's going to drive some savings and some cash flow generation. And our shareholders have been patient with us in this process to build the plant. So it's also a way to reward them. And there's other opportunities. And one of them is the one that I mentioned, which is buying back our shares at the current share price. It's got a tremendous return. And the board is also considering to cancel some of those shares. That is obviously something that needs to get voted at the shareholders meeting next April. No, I mean, there's a number of initiatives there. Also, if you look at our financial leverage, we're at the lowest, I would say, in history for genoma. The net debt to EBITDA is just 1.1, which, again, even after all these buyback activities you know, reducing debt, because we've been paying debt as well, as you've probably seen, long-term debt has been reduced as part of the amortization payments that we did to the IFC and the IADB. So I think it's more of a signal that things are positive, that the outlook is also positive, and that we're confident that we're going to be generating more shareholder value for all shareholders, obviously, and enough cash flow to pay this dividend, this third dividend, as well as others that might come in the future. I don't know, Alvaro, if Jorge and I were able to answer your question.

Yeah, that was very clear, and I'll keep it there for now. We think dividends are pretty important to keep up, and I think that the message is very clear. Thank you very much.

Thank you, Alvaro. Thank you very much. Our next question comes from Ulises Argote from JP Morgan. Please turn on your microphone and proceed, Ulises.

Hi, thank you. Hi guys, good morning. Congrats on the results and thanks for the space for questions. So just a couple on my side, one follow up on the plant, no, but on the OTC pharma side of it. So there's still some additional GMPs that are required for that to kind of carry on the ramp up curve. Any comments or any thoughts that you have on what the timing for that might look like? And then maybe kind of tied into that question, but Jorge, you mentioned there on your comments that 24 to 25% would be the margin by 2024. And also just trying to get a sense here, if we should think on this as a sequential and gradual improvement into those levels from here to 2024, or if we should think of this more being kind of back loaded and more towards the end of the period, sorry. So those would be my questions, thank you.

Carlos Bernalim? Okay let's start, thank you for the questions, I would say that in on the on the beat that question, you will see that more as a gradual process is starting mainly next year and culminating in 24 that that is a commitment that we have in writing with our. operational team, to be honest. We have all the plans needed to get to the one billion in sales in 24 and the 24, 25% EBITDA. The building blocks are there and I'm very confident that we'll deliver. As I said, the three, four points that we're missing in the EBITDA front will come mostly from the plant productivity we expect to achieve. And we are now feeling more confident because we are seeing that that is happening with sweaters. It's starting to happen with some of the shampoo brands. And as we get more and more expertise from these startups, from the current team. So you will see some in 23 and you will see the other part in 24. Obviously, there are other things that we're doing also to make sure that we continue to be as productive as possible in the way we invest. We invest back in the market, we invest back in media, we invest back in the consumer. So there is an ongoing effort in terms of making sure that we are productive in all those other fronts too. So some will come from that as expected. On the GMPs, Yes, we have a couple of GMPs pending, especially the important one there is the liquids for brands like Tukol, for instance. As a matter of fact, Antonio will compliment that we have Cofeprisa, the plant, right now as we speak. They came this week, finally. It was a little delayed, but finally they came this week. They're auditing specifically those couple of things that we are missing. So we expect some good news from this visit that will be followed by other processes, of course, from the Mexican health authority. But this means that we are, sooner rather than later, we'll be seeing the solution to those two pending GMPs, Toño?

Thank you, Ulises, for your question. I think that the margin evolution was perfectly explained by Jorge. I don't need to add anything to that. On the COFEPRIS visit, yes, they are right now. As Jorge mentioned, this is a process. It's not just one visit and that's it. So it's a process. The first step of the process is to expand the operating license of the pharma plant to also include the additional lines, as Jorge mentioned, the oral liquids, topical liquids, coating of pills, et cetera. So the new lines that are already installed, that have been already installed for quite a while. But this is, again, the first process. After that, and once we get... that certificate, the operating license, then there's other processes that would need to take place for us to get the GMP. But the good news is that they are there. So far, the visit has gone well so far. And it's a beginning of the process, as Jorge is saying. How long is this going to take? It's hard to know. It's hard to know because it's not dependent on us. But I think it's a positive sign that we wanted to share with the market.

No, thank you very much both for the color. They're very useful as always. And glad to hear that the ball is rolling in that front. So more good news to come, I hope. Thanks so much, guys.

Thank you, Ulises. Thank you. Thank you.

Thank you. Our next question now comes from Joaquin Ley from Itao. Please go ahead, turn on your microphone and proceed with your question.

Hi, good morning, Jorge, Tonio. Can you hear me? Yes, yes, perfectly. Good morning. Thank you for the call and thank you for changing the format of the call much better now. So two questions here. First on the buybacks, Tonio, you mentioned that the board is considering canceling a portion of the shares you've bought back so far? Why just a portion and not all of them? And alongside that, if I understand correctly, you have a self-imposed limit of having no more than 10% of your own shares in treasury. Are you thinking about changing that? That would be my first question.

Yeah, thank you, Joaquin. Well, again, canceling the share is a decision of all shareholders, not just the board. So at this time, I would not be able to say canceling all the shares that we bought back. And let's, as a reminder, the shares that we have in treasury, obviously we can cancel them or we can use them for other transactions eventually, you know, as currency for M&A or or also as incentive to the key talent of our company. So that's why I didn't say all of them. The actual number is something that is going to be discussed at the next board meeting in February. And so that's when we will know, but the important thing Joaquin and for everybody is that the board for the first time in Genoma's history, is considering to cancel shares again to increase the intrinsic value of each individual share. Just like dividends, it's a way to reward our shareholders. But again, the final number is for the board to propose and eventually for all the shareholders to vote on that. So we need to wait for now, but... But the discussion was very interesting and it's something that the board is taking very seriously, especially having heard many analysts like yourself and many of our key investors, that that's something that would help us generate more value for our shareholders.

That's pretty clear. Thank you. And the second question, I mean, it's good to see that Marsan is back in terms of bottom line, but still it's a non-strategic asset for you, that 49%. So anything you can share, where do we stand there?

Yes. Thank you, Joaquin. Yes. As we mentioned during our last earnings call, Marsan was going, it's still going on, it's undergoing a turnaround process. So they optimize the headcount, reduce some expenses, et cetera. But when you have these kinds of expenses, those are recorded in one quarter or two quarters, and the savings would come in the long term. That happened Q1 and Q2. As you very well point out, Marsami is on the red, sorry, on the black. Right now, it's again adding some profits using the equity method, but still, which is good by the way, but still it's a non-strategic asset. And as we've mentioned before, we're working to find alternatives to monetize that. It's not easy because as you know, it's a non-controlling stake, the one that we have. But at this moment, we are We are looking into some possibilities that, you know, we are under confidentiality agreements, so I cannot mention more. Just the fact that, yes, we're working on that, which is, as you very well pointed out, it's not a strategic asset. But stay tuned. Hopefully things will move on the right direction.

It's good to hear, Toño. Thank you very much.

Thank you, Joaquin.

Thank you very much. Our next question is from Rodrigo Alcantara with UBS. Please go ahead, turn on your microphone.

Hi, Jorge Antonio. Thanks for checking my questions. I have two quick ones here. Just curious if you can provide us some Sergio Alvarez- sales growth figures in in local chorus your market share data that you have on on your relevant brands and Emily if we can comment on on swear ox in Mexico taffy role in Argentina and and. let's say if you're natural, that would be helpful. And the second question is actually a question that we have received from our clients here is that based on this valuation gap that we see on your share price, if you have ever considered the investments of some of your brands perhaps to take some valuation opportunities there, that would be my two questions, Jorge and Antonio.

Let me comment on an overall, from an overallist perspective, Rodrigo, the points that you're making, and then Tonio will come back and give more details. But I think your two comments are very interesting and important because they touch on something that we've been discussing in the company as part of the continuous improvement of our strategic approach as a company. And we commented this with some of you a couple of weeks ago when we were in New York in the BTG conference, that there have been many of you in the last months and couple of years Dr. Based on my meetings with all of you, etc, etc, I have been asking genoma to be more transparent to be to provide information that that could be. more useful in terms of analyzing the status of our business, being able to benchmark what we do versus others in a better and more efficient way, etc., etc., etc. And we've taken those very seriously. So what we are now considering to do, and we will confirm this in the next weeks, is that we want to start sharing More information with you in terms of category and brands. That's something that we haven't done in the past. We are finalizing the how we will do that. Of course, I'm working on some of the details and that's why I said that we are going to announce this more formally in a few weeks. But that will allow you guys, and based on your questions, to have much better perspective on the potential, the importance, and the value for our categories and brands. And I think you will be amazed by what you will see in terms of how important is our presence in different markets, in different categories. And you mentioned a few brands like Suerox, like Tafirol. Suerox is now becoming a global brand very quickly. Our only limitation is production. capability and we very quickly are adding more capability here in the next few months. But brands like Tafiro, brands like Zoetrox are very good examples of the type of things that Genoma is able to do behind our marketing and go-to-market power. And now manufacturing too, by the way. And you will be able to see more of that in a comprehensive way because we are, as I said, because of what we're planning to do. And that will also allow us, your second point, to better analyze what we do and how we do it with some of these groups of categories. And will allow us to share with you more transparently how we are giving priority to some categories of brands, because it makes sense that they are priorities within our portfolios. because of potential, because of share growth, because of the countries in which they are present, because of the growth margin they have, et cetera, et cetera, and also will allow you to see what are the non-priority categories and our plans behind those. That could include the investiture of some of them, as you mentioned, based on numbers and analysis and strategy. So that's an overall comment. Thank you for your comment or question because it allowed me to explain this to you. We will be talking more of this in the next couple of months because we're thinking that 23 would be a year in which we can start with these new narratives. Toño?

Thank you, Jorge, for the perspective. And obviously, Rodrigo, it's a very good question. I'm just going to add a little bit more color to what Jorge mentioned. But the important thing here is to know that we are rational people and we are business people. So if there's an opportunity to sell one brand at some point in time, that would create significant shareholder value. That's something that we would look into that. Okay. So we're not close to that. That's not something that we want to do because we want to build brands. We want to create new things. We want to, which is part of the DNA of the company. But eventually that's something that we, that, that, may happen, we're not close to that. There's some candidates, there's some, you mentioned some brands, the categories that are very, very strong. What I can also share with you is that as part of the evolution of the company, many of you know that seven years ago, the complexity that we had was huge in terms of number of brands, number of SKUs, So something that we've been doing over the years is simplifying complexity, reducing complexity. So strengthening some brands, de-emphasizing some others, but the important, it's not an individual brand. It's how do the performance of our categories look like? Because we may merge one or two brands to have a stronger one, And that has a better bang for the buck in terms of advertising money spent, which is what many of the major multinational companies do. So that's something that we've been doing. So focusing on individual brands, well, it may be a hint, but let's look at this more on a broader sense. Carlos Bernal- On a category evolution and we have very good categories that are performing really, really well their problem there's probably going to be more visibility on that. Carlos Bernal- As Jorge mentioned as part of, as we always say, as Jorge always says, taking the company to the next level and looking at you know strategic. Carlos Bernal- avenues for the future so. For the time being, just stay tuned. And I think that there's a lot of value that is in the company that we need to unleash. And sometimes markets are not rational. And this was taught to everybody by Daniel Kahneman's Nobel Prize. the economy, basically markets are not rational. And just to prove that is that the sell-off of our shares, just because the Ministry of the Economy of Argentina resigned last July, and oh my God, is this the end of the world? And then we were dropped out of the IPC index. But the true value of a company is not whether you are in an index or not. It's the future cash flow generation that the company can can create with a business model. So some investors may see that. Some investors may not. Some investors claim that because we report on a more consolidated basis. Sometimes it's hard to know. It's hard to recognize the value of our jewels that we have in our company. But some investors know that. And some investors see that. And some of you When we have the conversation with our analysts and some of the more sophisticated investors, they know that the value is there. And thank you again for your trust. But there's a lot of potential to unleash shareholder value, to create shareholder value. And we are open to that. Again, it's not that we're selling a specific brand. It's just that we want to communicate what the company is really worth and what we are seeing. And thank you for making this question because this allows us to provide a hint of how things will evolve in terms of communicating with the market and in terms of looking at Genoma differently. On top of that, there's times to do things, right? And now that we have the personal care plan, and fully operational, there's more things that we can do. Some of you have had the opportunity to go and visit the plant. You've seen it with your own eyes. Some people coming from all the way from New York, London, Singapore, or South Africa have visited the plant. Obviously, some people from Mexico, but unfortunately, some people, some local investors have not even taken, invested 45 minutes to go and see the plant. Well, there's nothing we can do about that. We believe there's a lot of value, and you will see that with the new strategic avenues that we are developing, as Jorge described. And those investors who will trust on Genoma and who keep on investing with us, I think they're going to do well. And as we mentioned in this call, We are putting our money where our mouth is. That's why we're buying back so many shares. And we are doing this on a daily basis so that everybody has the opportunity to follow us if they want to or not if they don't. That's what I wanted to add.

Antonio, let me just give one example because this was a great question. One example of behind all your comments and the comments that I made a few minutes before is Suero's. And we talked about this in New York also with some of you two weeks ago. But just take one brand and imagine what we can do with other brands also based on this example. This is, and I'm using Sueroq because this is the first line that started operating a year ago, more or less. And now it's at full capacity delivering interesting, very important initial savings that we think it would be even better in the next few months, et cetera, et cetera. And that is a brand that now with the manufacturing capability, plus the experience we had in Mexico, we are now making it global. So the brand now is in the US, mainly California, Puerto Rico, and now expanding distribution in other states as we speak, and in Chile. And in Chile already got, and I'll give you some specifics because I think are good for the example. In Chile, we already have between eight and 10% of market share in a category where we are competing against Pepsi Cola and Coca-Cola. So in the US, in California, we're getting close to 5% share. And the good news is that our gross margin, those two countries are much better than the gross margin we have in Mexico. The gross margin in Mexico is improving because of the plant, and the gross margin in the other two countries are benefited by the higher prices that the category has in those countries versus Mexico. So expanding the brand to other countries makes sense. We're doing the same with Tio Nacho, for instance. Tio Nacho, as you know, has been relaunched with a new image, 100% sustainable, and it has had a great reception from all markets. in the US, we have a better gross margin than Mexico again, because of higher prices. And the brand is growing more than 20% this year in the US. That is one of the drivers of the US growth that we just mentioned. So I'll stop here, but this is, I think a great example of, and when we start sharing this type of stories with you on a category basis in the next weeks or a couple of months, you will start seeing the power behind what we're doing. From that standpoint, at the end, it's truly the value of the company, it's the value of its brands or categories in different markets. So stay tuned, as Tonio said, we will be sharing and discussing more of this in the near future.

Yeah, sure. Thanks. Appreciate those final remarks. Jorge, thank you. Thank you.

Thank you very much. Our next question is from James MC Dimatro from Invesco. Go ahead, James.

Hi, thanks. Yeah, I've got two questions. The first one, can you give us any operational update on Argentina? And the second question on Suerox. So you mentioned you have export license now for that, but your capacity is full. So how much are you planning to expand capacity by?

Yes. Operational speaking in Argentina, as I always have said since I joined this company, We've had a great team in Argentina. We have great people from great experience from different companies and with several years already in Genome Argentina. And from that standpoint, just going back to your question, our team and our company in Argentina is doing great. Our market shares are growing. We have leading brands in several categories, in several categories. The mix of our business is very healthy. We have about two thirds of our business there is OTC, which produces better efficiencies in terms of margins, as you can imagine. And this team is a team that is an expert. They are experts in managing crisis because they are always in crisis. So based on that standpoint, During the crisis, during the last few years, we kept stressing in our market presence from all standpoints, I would say. Unfortunately, the country is always in crisis, and that's something that you cannot take full advantage of. But as you said, from an operations standpoint, we are doing great in the country. Anything in addition to that, Toño, in the case of the Argentina question?

Thank you, James, for your question. Argentina, as Jorge mentioned, grows well. It's got very good VDA margin. We are very proud of our Argentinian operations. The only thing that is a concern to everybody is the foreign FX controls where we cannot take the money out of the country. That's the same thing for all companies that operate there. There's a discrepancy between the fixed or the official exchange rate and the blue market exchange rate. So I would say that's a concern. It's a valid concern because if we want to take the money out, we would need to incur in an FX loss. However, at this moment, what we've been doing is we're buying real assets, buying raw materials, packaging materials, intangibles, some brands, some registries, et cetera, because those are real assets. They would not lose value if an eventual devaluation takes place. But it's a reality. We have to live with it. As Jorge mentioned, we're very proud of it. of our Genoma Argentina operations. Genoma has been in crisis, as Jorge mentioned many times throughout history. So there's times when this happens, and then in a couple of years time, things change a little bit. It is what it is. Unfortunately, again, if we want to take the money out, which we're looking into that, if we should start doing something of that, but then it's incurring in FX losses. So that's one of the reasons why we haven't done it. Things may change in the future. We don't know. There's elections coming. There's many things going on. But from an operational point of view or from a business perspective, it's a great business. It's a great operation. It's the team. It's a source of inspiration for me. A lot of innovation is coming from there. So again, we're proud of it. But again, the effect situation, that's unfortunate, that's out of genomics control and we have to live with it.

On the soil box question in terms of the capacity, yes, we are looking into expanding capacity from different fronts. Actually, as we have said that we have, we're producing now more than 8 million boggles per month in our plant. We continue working with two third party suppliers in Mexico, the most important ones continue to supply us with product for Mexico and the US. We just announced, I think we made some comments a couple of weeks ago also in New York, that we signed an agreement to produce for us with Anone and Bonafont in Mexico. They will start producing suero for us in Mexico next month in November. And we will use some of that production from Mexico and or the US. And based on how that works, we could span that agreement to other geographies. And in addition to that, we continue exploring other options. So in the U.S. or in other geographies where it would make sense to have local manufacturing. So the answer is yes. We keep moving very aggressively on that front, as you can imagine, because that is the limitation to continue growing aggressively in the brand.

Okay, and just so one follow-up, so you're not planning on expanding your own capacity on Suarex?

We are also constantly evaluating that. The answer for the short term will be no.

The reason for that, James, let me compliment Jorge's comment, is that the challenge that we have is, as Jorge very well mentioned, is capacity. Demand for the product keeps on growing, growing, growing. It's an excellent product. It's ideal for keto diets. It's ideal for people who play sports. It hydrates you. It doesn't have the negative consequences of our competitors who use sugar or some of them even use glucose, which is which is, I mean, morally, we think it's even wrong because it creates some health issues. So we have the healthiest product of the category, great tasting, great value proposition, and it keeps growing and growing and growing everywhere we are. So the reason why we signed this agreement with Anon is that they have an available line at the moment, so we could expand capacity right away. If we buy another line, then you need to wait nine, 10 months till the manufacturing line is manufactured in Germany and it's sent to Mexico and in the commissioning. So it's more of capturing the opportunity as fast as we can. We are using co-packers in Chile, for example. So that's a great problem to have. We have a winning product that keeps on growing and growing and growing. And the problem is capacity. And capacity, it's something that we need to deal with. We want to expand this brand and this category as much as we can. And as Jorge very well pointed out, the sales price outside of Mexico is higher, which again, going back to your question about, you know, now we have GMPs for the Xerox line in our plant that we could export to countries that do require GMPs like Central America, Colombia, et cetera. Yeah, we could do that and we could improve profitability actually, as well as the business. But we don't want to let our existing consumers down and switch capacity or production that we have in Mexico to other countries. So yes, that's a challenge that we have. We need to expand capacity. to keep on, to catch the demand. It's a great, great product. And the team is doing great things. We've launched new flavors. Those new flavors are outstanding. There's a pipeline of things and innovation that is coming there. So we are extremely, extremely optimistic about that brand so far. you're very right here on the nail in terms of what's our constraint right now. But again, as we said before in the previous question, it's a source of value that we have. And I don't think not many people are seeing that that's worth, that has a significant value inside of Genoma, as well as other brands. In other categories, in pharma, margins are higher than on isotonic beverages. Some brands are unique. Nixon, for example, it's a great product. There's no competition to that. But just wanted to compliment what Jorge mentioned. Thank you, James, for your question.

Great. Thank you both very much. Congrats on the results.

Thank you.

Thank you.

Thank you. Our next question comes from Emiliano Hernandez, GBM. Go ahead, Emiliano.

Sorry, can you hear me?

Yes, yes.

Sorry about that. Good morning, Jorge Antonio. Thanks for taking my question and congrats on the results. Just wanted to know from the original plan to the one today where you mentioned margins up to 24 to 25%, considering the pandemic and delay on some licenses, is there any material change on the long-term view on this project? Or maybe is there any change of dynamics in these four years since you started the project of this plant?

Antonio? Well, obviously the pandemic impacted the world in different ways. I would say that the biggest impact that we saw with the pandemic is a disruption or big changes in the supply chain networks of the world. And that created significant cox inflation for everybody, every industry, everywhere. And on top of that, if you see what happened with Ukraine, and a lot of vegetable oils coming from there and et cetera, natural gas. So there's been changes, obviously, that were not considered in the business case. But if we isolate that, and if those things haven't happened, probably the margin expansion would have happened already. and somehow, okay? So now we have to deal with extraordinary inflation that was not part of the business case, but we're dealing with it. We're dealing with it. You saw we reported gross margin expansion, maybe modest, but you know, again, we're in the ramp up process. In the Soyrux line, the savings that we've achieved are actually a little bit better than the business case. And so we're proud of that. And hopefully the other lines will show significant improvements as well. So, so far, I would say the business case, it's still there. We see improvements. Obviously, we're disappointed that we haven't gotten the GMPs in the pharma plant because that has been a challenge. We have the newest most efficient, most optimized pharma plant maybe in Latin America. And we can't leverage it yet because we need some government authorizations both from Mexico and eventually being ratified from other countries. So that has delayed some of the savings. But in the long run, it makes sense that we made this investment and that will help us get new capabilities that we didn't have. improve quality, lower cost, be more in control of working capital, because as you know, once the plant will be up and running at full speed, once the ramp up has finished, inventories may come down and should come down because we control the process. And as Jorge mentioned, now that we have a new leader of the supply chain, our supply chain network with experience that he has from P&G, that's going to drive efficiencies not only in terms of COGS, but also in terms of working capital. Oh yeah, maybe there's been delays. Nobody could have foreseen the pandemia and the supply chain networks and COGS inflation, but it's good. I mean, it's a good project. It's a good investment.

That makes a lot of sense. Thank you, Antonio, and congrats again on the results.

Thank you, Emiliano, for your question. Thank you.

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

Thank you, operator, and also to those who are joining our call today. There is no doubt that the global operating environment remains challenging. which underscores the benefit of Genoma's uniquely diversified results and of our strategic transformation and growth strategy on how our company operates today. The conclusion of our manufacturing plants commissioning processes and full operation of our personal care beverages and pharma solids and semi-solids plant manufacturing lines now unlock significant value and economies of scale. enabling Genoma to achieve our full growth and margin potential in the short and mid-term. We thank our team and our investors for your continued support. We'll see you soon. Thank you.