Genomma Lab Intl Sab Ord

Greetings, ladies and gentlemen. Thank you for joining Genoma Lab's fourth quarter and full year 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 section of Genoma's website following this call. I'll now turn the call over to Barbara Cano of the INSPIRE Group. Please go ahead.

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

Thank you, Barbara. Good morning, everyone, and thanks for joining us today. 2022 concluded a challenging and volatile year for retailers and manufacturers throughout the world, with ongoing impacts from more than two years of COVID-19 shutdowns, political turmoil, and supply headwinds. Genoma has been successful throughout this period. In the last years, the Genoma's team has done a terrific job of managing that which we can control. Specifically, in 2022, our sales reflect success in ensuring our value proposition are right for today's consumer in a uniquely difficult environment. The challenging environment coupled with continued forex and inflationary issues adversely impacted Genoma's results in the fourth quarter of the year. However, we ended 2022 setting all-time sales and EBITDA records for our company and delivered our fourth consecutive year of solid growth driven by the strategy we launched at the beginning of 2019. We have achieved more than 4 million 4,000 million pesos in net sales and exceeded 800 million pesos in EBITDA consistently in recent quarters by successfully advancing the pillars of our growth strategy. Let me share some related highlights for the year. In 2022, we made significant progress related to new product innovation, which continues to be an important competitive advantage for Genoma as we further differentiate and diversify our brands and stressing our relevance with consumers. 2022 saw a strong implementation of innovation initiatives, particularly line extensions throughout the markets where we operate and with new category performance supported by aggressive external media campaigns and in-store marketing. Throughout 2022, we increased our digital and omnichannel engagement with our customers, creating a more personalized customer experience and deepening overall digital customer connections. Importantly, another related milestone is our success in establishing and building our e-commerce sales presence through important online retailers, including Amazon. which today, for example, represents more than 10% of our business in the US. Throughout the year, we replicated our strategy of expanding Genoma's strongest go-to brands and products, what we call our proven innovation, and deepened our presence within countries and markets. We continue focusing the business on the OTC categories while increasing genomics presence within convenience stores as well as national, regional, and independent pharmacies. Some noteworthy examples are Suerox, outstanding reception in the U.S., and more recently in Chile, the third country to which the brand has expanded. We simultaneously launched new environmentally sustainable packaging for Tio Nacho shampoo in Mexico, Chile, and Costa Rica. Tio Nacho sales in Mexico ended 2022 with a substantial plus 21% year-on-year increase. Importantly, these examples of low risk innovation showed a favorable risk relative to return complementing higher risk new product launches. A final related note on our 2022 go-to-market strategy success is our progress in strengthening Genoma's brand presence within the traditional channel in all countries where we are present. In Mexico, we ended the year having closed aggressively exclusivity agreements on thousands of stores. Turning to our focus on Genoma's world-class supply chain, I am very pleased to share that Genoma's five personal care manufacturing facility lines are now fully operational. The facility's shampoo manufacturing line produced more than 3 million bottles of Theonatron van Aert and achieved a 93% of efficiency rate in the pomade line. Our Zoetrox manufacturing line continues delivering production levels that exceed our initial expectations. producing more than 76 million bottles during 2022. Genoma's pharmaceutical manufacturing plant production levels also increased during the fourth quarter of 2022, with 27 million next tablets and more than 1 million semi-solid units produced for the Mexican market. including the successful completion of the production transfer process for Unesia, X-Ray, Doll, Silca Medic, and UltraBengue, brands to Genoma's own manufacturing lines. With this, we have achieved another important milestone for our company evolving our manufacturing to our internal facilities. Once fully completed, an expected favorable benefit to our overall co-ops will drive improved profitability, more efficient working capital dynamics, and potential market share gains from more competitive pricing and innovation. Concurrently, we are advancing on obtaining COFEPRIS approval and resulting operating license for genomics or liquid, topical liquid, and coating manufacturing lines. This will be followed by the process of obtaining the Good Manufacturing Practices Certificate for Mexico and to then pursue GMP certification for Genoma's export markets. Finally, turning to our remaining strategic pillar, I'm pleased to share that Genoma was included within the 2023 S&P Global Sustainability Yearbook for the second consecutive year. as one of the 14 Mexican companies recognized for environmental, social, and corporate governance practices. The yearbook showcases the best performing companies among industry peers globally and in terms of financially material ESG metrics. Genomic sustainability performance was ranked within the top 15% of the industry category with an S&P Global ESG score within 30% of the industry top performing company, which was a key component to my vision and related to strategic pillar for Genoma. I'm particularly gratified by our success in this regard. With that, let me now introduce you to Marcos Parvieri, who is taking the post as Genoma's new CEO, as it was announced last year. Marco joined Genoma in 2014 and has held the role of Global COO in the last four years. Prior to Genoma, Marco also had a successful 20-year career with Procter & Gamble, working in several geographies and roles. Marco and I have been and will continue collaborating very closely in the future. I'm very pleased to have him join us today. Marco?

Thank you, Jorge, and good morning, everyone. I am very honored and it is a privilege for me to be named CEO of this great company. I am committed to the long-term visions that we have established under leadership of Jorge. I know this company from the upside down, every market, every brand, every corner, in every function, every customer, and every supplier. I had the privilege of being part of a team that has done what very few companies in the world will ever do. What Genoma has become since I joined back in 2014 is an amazing transformation that you will rarely see in the history of businesses. I would like to mention three key elements that combined make Genoma a unique and differentiated company. First and foremost, the management team. Today, Genoma has probably the best team that any company could have. My opinion is formed based on my previous experience at P&G, which I believe is probably the best or one of the best companies in the world at developing talent and forming high performance teams. Today, we have it. Second, the brands and our consumer model. Today, Genoma has brands that are growing market share and taking it from brands that have been around 100 years or more. A great example is Tio Nacho, a brand that has achieved basically the same market share as a category leader in a few markets. This speaks to the amazing job done under their leadership of the brand team and Rodrigo. Third, our go-to market that I have personally created and led over the past eight years. Today, we reach every single store in which you could buy products in the categories we compete, in every channel and in every country in Latin America. Very few competitors are at this level. And lastly, the health of our core financial metrics, like our balance sheets, gross margin, cash flow, and productivity, that I am committed to continue to improve over the next few years. I want you all to leave you with this last thought. When you combine the massive upside potential in terms of share to be gained and a unique business model that has already proven to be effective, it makes this a beautiful moment to be a shareholder of Genoma. I hope you can join us on March 8th, where we will be sharing and explaining in more detail the plan we have for the next five plus years. Let me turn our call over to Antonio to discuss our financials with some comments related to our markets. Antonio?

Thank you, Marco, and good morning, everyone. As Jorge noted, we were able to maintain our growth trajectory, representing the company's fourth consecutive year of solid growth to set new sales and EVDA record for the full year. Let me briefly review. Full year EVDA margin closed at 20.6%, a 10 basis point year on year decrease, primarily due to Forex headwinds in certain countries where Genoma operates. With raw materials inflationary impacts as well as non-recurring growth related investments at the end of the year. Fourth quarter 2022 EBITDA margin closed at 20.1%, 170 basis point degrees due to higher cost inflation and lower operating leverage. Forex headwinds from a stronger Mexican peso and IAS 29 and IAS 21 hyperinflationary adjustments when restating the previous... the prior periods comparative figures in terms of the measuring unit at the end of the reporting period. I'll go into further related detail on this shortly. As we know, the Argentine peso depreciation was also significantly higher than local inflation during the fourth quarter 2022. Let me just pause for a second. Here's a couple of charts. you know, an image explains more than a thousand words. We've all seen the Argentine peso exchange rate against the Mexican peso. We also had negative headwinds. Look at the Colombian peso, 24% decline versus the Mexican peso. The Chilean peso, 14%. Paraguay is a small market, 10%. Ecuador, they use the US dollar and obviously our US market also with a negative impact. If we can go to the previous chart. This chart illustrates the impact on Forex for us this last quarter. And obviously it had an impact on the full year. We all know that the Mexican peso is a functional currency. So 45% of our business this quarter obviously had no FX impact. There's a couple of markets that had a positive impact when we translate the results from the local currency, but that only represented 6.2% of our total business. Almost half of it had a significant Forex headwind as you can see here. 16% had negative single digit, 12% had negative double digit. And obviously in the case of Argentina, it was a big impact. So this is very important for everybody to know. And when you do your own analysis about our reported figures this quarter, we all need to acknowledge that the so-called super peso, super Mexican peso had an impact. Just wanted to highlight that. Okay. Turning to Mexico, we closed 2022 with a 20.7% EBITDA margin and net sales of 7 billion pesos. A 318 million pesos increase primarily driven by an increased market distribution as well as new core brand line extensions. full year 2022 OTC sales grew 4% year on year, adversely affected by palm and sunflower oil shortages on Novamil, which is our infant formula brand. Genomas OTC category would have increased by double digit 11.2% in 2022 when we exclude this negative impact from Novamil. Indonesia, Malaysia created some export restrictions of some of those edible oils, plus the situation in Ukraine for sunflower oil that created some field rate issues for UPI, which is our ally, our business partner who manufactures Nova Meal. 2022 personal care category grew by 6% year on year. and there was an adverse impact of fill rate on certain brands that we will also discuss. During the fourth quarter of 2022, certain co-packers were not able to meet Genoma's new and increased standards of quality. This is part of our manufacturing transition process that is taking place to bring supply to our manufacturing plant. Some of these contractors were therefore phased out because they were not able to meet the best quality that our consumers deserve. If we exclude the impact from these brands, Genoma's personal care category in Mexico will have increased by almost 10% on a like-for-like basis. Fourth quarter 2022 Mexico net sales increased by 1.4%, closing at close to 2 billion pesos. That's 26.3 million pesos year-on-year sales increase with a 21.5% EVTA margin. Margin contraction was primarily attributable to COGS inflation and a lower operating leverage. The OTC category net sales grew 2.3% impacted by what we mentioned as well as the non-recurring shortage of certain APIs, such as paracetamol, pharma-grade caffeine, and dextrometrofen, among others. And we know that in China, there was an extraordinary demand for medicines following the COVID outbreak. If you look at this chart, China is the main API supplier of the world by far. But unfortunately, they had this outbreak in the last quarter. And as you will see in the next chart, that created shortages for everyone. This chart is provided by the FVA. And as you can see here in the fourth quarter, there are significant shortages. And if you look at the gray portion of the bar, it's because of this demand increase in the local markets. If we go to personal care, the personal care category grew 0.1% during the fourth quarter, mostly affected by heavy discounting from isotonic beverage competitors. If we exclude the sweat of sales, personal care will have grown 6.8%. Full year 2022 net revenues in the US, let me go now to the US, Daniel, please. Thank you. Full year 2022 net revenues in the U.S. increased by almost 15%, reaching 1.5 billion pesos with the benefit of a very strong cough and cold category performance, including next and two cold runs during the first and third quarter of 2022, with an aggressive Suerox expansion within Puerto Rico, points of sales during the year. It is important to note that 86% of the total full year 2022 US growth was driven by OTC product sales, which today represent 62% of total US sales. As you can see in this chart, the winter season began earlier in 2022 than the previous year. and was particularly strong during the months of September. So there's a rebalancing of the growth between the third and the fourth quarters. As we saw earlier, the strengthening of the Mexican peso adversely impacted the company's reported top line to reach 350 million pesos for the fourth quarter 2022. a 3.4% year on year decrease. Again, attributed to the Mexican super pesos. If we go to Latin America, 2022 net sales for the full year increased 11.5% relative to the other 2021 figures to reach 8.4 billion pesos. Sales benefited from strong execution of Genoma's innovation and expansion strategies, as well as increased brand distribution within the region. Particularly, strong Taffyrol, Next, and Nixon brand sales in Latin America drove a 26% OTC category increase during 2022. Personal care categories, on the other hand, decreased 5.5% in 2022, as we've already mentioned. Some co-workers were phased out, and that adversely impacted the field rate of certain Genoma brands, as we have mentioned before. As a result, Genoma prioritized fulfillment to its most significant markets, which continue to represent double digit sales increases in those countries. And we deprioritized the lower demand markets, the smaller markets. Fourth quarter Latin America sales reached 2 billion pesos, a 3.4% year on year increase when compared to audited fourth quarter 2021 figures. In addition to the previously described fulfillment challenges reported fourth quarter LATAM revenues were impacted by Forex headwinds from a stronger Mexican peso as we've seen in the previous charts. It is important to know that more than 49% of Genoma's operations fourth quarter consolidated total sales were materially impacted by Forex headwinds when these were translated into Mexican pesos. If we look at the performance in local currency, those markets really perform really well, but we use the Mexican peso as a functional currency. So that's the reason why we are explaining this. Besides this, hyperinflationary accounting effects took place during the fourth quarter because we had to restate Q1 to Q3 quarters at the closing FX rate And these resulted in a negative effect of 147 million pesos. Here we have a couple of charts to explain how this hyperinflationary accounting effects work. You know, usually you look at this chart, you know, in non hyperinflationary subsidiaries, we simply report and all companies simply report whatever the quarter is and that's it, simple, beautiful. However, in the case of hyperinflationary countries, when you report a new quarter, you have to restate the previous quarter. So when a company reports Q2, they have to restate Q1, accumulating the inflation during the second quarter, and then converting it using the ending forex rate at the end of the second quarter. The same thing happens when you go into Q3. When you go into Q3, you need to restate Q1 and Q2, adding the inflation of the Q3 and then converting at the ending forex rate of the third quarter. And obviously at the end of the year, you have to restate all of the previous quarter. So in theory, the accounting, theory, and this is what the IASB, you know, when they created IAS 29 and IAS 21, in theory, inflation and devaluation should be equal. But we know that that's not the case in the real world. Sometimes inflation is higher. Sometimes inflation is lower than devaluation. These are the numbers. These are the inflation rates reported by INDEC in Argentina on a quarter by quarter basis. As you see, we use that. And obviously everything was restated using that inflation. And we can also see what happened to the Argentine peso as compared to the Mexican peso quarter on quarter. So for example, in the first quarter, inflation was higher than depreciation. So that helped to one result. Same thing in Q2, but that impacted Q1 and Q2. Same thing in Q3. But in Q4, where we have to restate Q1, Q2, and Q3, devaluation was higher than inflation. So that's why we have this cumulative negative effect on the Q4 numbers, but this is related to results that were previously reported. And this situation happens to all companies that have subsidiaries in hyperinflationary markets. Just wanted to explain that. Okay. So let's move on to, let's move on to the next. Latin America, Latin America EVDA margin closed at 23.2% for the full year 2022 fourth quarter EVDA margin. So the full year was 23.2% and the fourth quarter EVDA margin closed at 21.4%, a 250 basis point year on year decrease. due to reduce operating leverage and the FX headwinds and hyperinflationary adjustments that we have previously discussed. Okay, so in summary, and I think this is an interesting chart. We reported on a consolidated basis, 2% net revenues increase for the quarter. If we add or if we isolate the forex impact from most countries, and we add that just to have a like for like comparison, and we exclude the hyperinflation effects that I've just described, on a constant currency basis, just to make it apples to apples comparison, the company would have reported a top line growth of 8.5%. Now, we don't control Forex. We don't control the accounting rules. Those are simply macroeconomic events that impacted us. On top of that, as we mentioned, there were some API shortages given the COVID outbreak in China. If we had enough supply of paracetamol, dexamethophen, and pharma-grade caffeine, et cetera, we could have achieved higher growth. How much? I don't know, we're just putting an X here, but it would be higher than what we reported. And then we also have the issue of a couple of co-packers who were not able to meet our quality standards. So in summary, we just wanted to provide this as context. We did report 2% net sales growth, but there's some macroeconomic effects that we don't control and on a like for like basis, a constant currency growth rate of close or high single digit would have been achieved. And there are other impacts that would have helped us as well. Let's move to working capital. Working capital was adjusted during the fourth quarter, 2022. And the cash conversion cycle ended a hundred days. This is a nine, day improvement since the end of December, 2021. Accounts receivables amounted to 4.3 billion pesos as of December 31st, 2022. And the days of consolidated accounts receivables amounted to 91 days. That's a nine day year on year decrease, okay? Also during the quarter, if you go to the next chart, Daniel, also during the quarter, we want to highlight that we did receive 150 million pesos advanced payment for a future capital reduction in Marsan. We think this is positive news and we use this amount of money for our buyback program. So in essence, we are exchanging our investment participation in this affiliate company, two shares of the company that we bought back. So we think this is a positive improvement in the journey that we have defined for Marsan. Genoma also closed 2022 with a financial leverage ratio of 1.4 times net debt to EVTA and 1.5 billion pesos in cash and equivalents, that's a 19% year-on-year increase. Again, some of the impacts that we mentioned during the quarter are non-cash, and cash is king. Having 1.5 billion pesos cash on hand and equivalents, it's very important, especially considering that we invested a significant amount in buybacks. We repurchased 30, 0.1 million shares during the three months ended December 31st, 2022. Most investors and analysts did and we mentioned that we were going to do that simply because there were some conditions in the market that we saw it was an opportunity and we put our money where our mouth is. It's a significant investment and This was equivalent to 445 million pesos. Out of those, 150 million pesos came from the advance payment from Marsan. In closing, while we experienced operating a macro headwinds during the final quarter of 2022, the important milestones we reached throughout the year underscored the resilience of our business model, the value of our products, the significant value of our brands and our employees enduring commitment to our vision. We ended 2022 with a strong financial position, which was further endorsed in December by HR Ratings, which upgraded Genoma's long-term debt credit risk score to AA+, and subsequently, at the quarter's end in January, Fitch also upgraded our credit rating to AA+. Both agencies noted that their upgrades reflected Genoma's ability to ensure cashflow generation and geographical diversification despite today's challenging macroeconomic environment. Therefore, while the macroeconomic environment likely will remain uncertain, and 2023 will bring us new challenges, you can expect Genoma to continue to make strides forward. With this, 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 raise your hand icon 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 Barclays. Please turn on your microphone to proceed with your question.

Hi, good morning. Thanks for the space for questions. You mentioned the set of headwinds that you faced during the quarter. Which of these headwinds should we expect forward? Which of these maybe were basically a one-off and they are not there in the first quarter this year? What are your expectations on overall these headwinds? Thanks.

Antonio, you take that one.

Yeah, thank you, Antonio, for your question. It's a great question, and there's some things that we already know. There's others that we can obviously speculate, but we don't like to speculate. So in terms of Forex, at least for the first quarter of the year, 2023, the Mexican peso has continued to strengthen, okay? On average, we ended Q4 with an average exchange rate of 19.64 Mexican pesos per dollar. And now it's lower than that. So that headwind, at least for the first quarter, will still be there. And it's a situation basically that impacts the translation effect when we convert you know, the business from our Latin American and US subsidiaries into the holding company. And this is something that other multinational companies are experiencing. I heard that recently American Mobile reported their results and they had the same situation. Probably other companies that have a presence, you know, these multiple countries, BIMBO, et cetera, they will face that headwind as well. How long will that happen? We don't know. We don't know. We don't have the crystal ball. If we go to the hyperinflationary accounting, I think that in the long term, inflation and devaluation of the currencies, eventually they concur. But there are short-term effects, like what happened in Q4. In theory, things should match each other in the long run. But for that, it's very hard for me to predict. Now, the API shortages, we think that that's temporary. You know, I don't think COVID will continue forever in China. They had this situation. They obviously prioritized API supply to the domestic market. So that should be reversed. And that should be, we should have an improvement there, as well as what happened with some of the co-parkers. So, would say that that forex is is probably going to be the only the only headwind that is going to be there but obviously we don't have the crystal ball we don't know how currencies will will evolve in the future i don't know what's what's your point of view okay excellent thanks for the for the transparency so co-packers which maybe is more

than external, then that is something that you would expect to be normalized this first quarter or maybe throughout the first half of the year.

No, again, as we said, we upgraded our quality standards. We are moving to the production within our own manufacturing plant. So we set higher. Part of the business rationale of building the plant was obviously lower costs, COGS, but also improve quality. So we improve our standards. Those co-packers who were not able to meet that, I mean, we're not using them anymore. It's a signal for every third party co-packer. So they have to upgrade their standards as well. But everything that we are doing in the plant and hopefully, you know, in the next coming days, most of you will be able to come and visit us at the investor day at the plant. So you will see the plan, the quality standards. There's very interesting projects for a couple of brands like Banart. We're upgrading the formulation, the products, the packaging, et cetera. And so this is, I would say, it was temporary. It was just for the quarter. And as we make progress with the plant, that will not be there. Now, having said this, we don't want to compromise quality at all. So if any co-packer is not able to meet the higher quality standards, we're not gonna do business with them. Because as Jorge always mentioned, the consumer is boss. And as Marco very well pointed out in his remarks, the value of our brands is one of our most important assets. It's an intangible asset, but we must protect the brands. So quality is an essential element for that. So I think that was just temporary. We just wanted to highlight it because it happened during the fourth quarter.

Okay, excellent. Excellent, Antonio. Thanks for the caller and have a great day. Thanks. Thank you, Tokayo.

Thank you. Our next question comes from Joaquin Ley from Itao. Please turn on your microphone to proceed with your question.

Hi, good morning. Can you hear me? Yes. Loud and clear. Okay. Good morning, everybody. And thank you for taking my question. Just a quick one. Could you please provide some color about sellout dynamics in all of your markets, I mean, main regions and particularly Mexico, please?

Marco will respond that, Joaquin. Thank you.

Okay. Thank you, Jorge. Can you guys hear me?

Yes.

Yeah. Thank you. That's a great question. I think actually a very important question because focusing on the results of this fourth quarter on internal metrics doesn't actually reflect the reality of what's going on with the overall health of the business, okay? So when you look at, our business is very healthy today, and I will provide some quick perspective on that statement. It remains very healthy. Actually, it's healthier than ever, okay? When you look at sellout in our company, in the different markets, you will see that basically, In every market with a few exceptions like Peru, which is mostly driven by the current political situation, our brands are actually growing share and growing double digits in local currency. Basically across the categories, at least across the core categories, and especially in the OTC, as Antonio mentioned, OTC has been a very, very strong, performed really strong this year because of the seasons, the flu season. And when you look at Mexico, referring to your question, Joaquin, Also, the sellout was actually pretty strong. OTC was double digits in Mexico and personal care was single digits with most of the core categories growing share. There's one particular brand that performed well, which actually was a little bit by choice because of the gross margins that category has. We retrieved a little bit of support. But in general, the sellout remained strong across the year in every market and including in Mexico as well. Okay, thank you.

Thank you. Our next question comes from Jorge Izquierdo with BTG. Please turn your microphone on and proceed with your question.

Hello, good morning. Can you hear me?

Yes.

Good morning, gentlemen. Thank you for the space and congrats Jorge and Marco for the new roles. I have a couple of questions. The first one is regarding brands' performance. I don't know if you could share any comments on which brands have suffered the most. That would be very useful. And the second question is on how is the business performing during the beginning of 2023? And finally, how should we think about dividends and buybacks going forward? Thank you very much.

Yeah, I think Marco will take the first two and Antonio the last one.

Perfect. Jorge, thank you for the question. In terms of brands, I would like to highlight. First, let me address the start of quarter one of 2023. We're seeing really strong results across the markets. Mexico in particular had a fantastic start of the quarter. With the exception of, let me... U.S., very strong. Yeah, Peru. Peru is probably the only case where we remain uncertain, but mostly because of the political situation that we're living in the country. In the rest of the markets, we continue to see very strong performance starting this 2023. The, in terms of brands, I would say that there's two particular, actually three particular situations that we are addressing. Let me say that the Pharma portfolio, it's actually performing really strong across the board. The issues are mostly focused on personal care in three particular brands. Number one is Asepsia, which is a brand that is suffering across the world, and we're working on redesigning a business model for that brand. The second one is Cicatricure, only in Mexico, because the rest of the markets are doing particularly well. But in Mexico, we've... we have struggled a little bit last year, but when you look at that particular brand in 2023, at least in the first month or so, results are really, really strong, okay? And that's mainly driven because of a, that brand particular is very dependent on TV. And now that we've signed a deal with, you know, for communication that brand is turning around. And the other one is VanArt that as mentioned, as Tonio mentioned, VanArt is a brand that in which one we actually retrieve a little bit of support because of the poor margins or high cost that we had with our contract manufacturers. But During December and January, we were able to actually move manufacturing of that brand in full to the plant in San Cayetano, making it a lot more profitable. And we have very strong plans to get that brand to grow again this year. I don't know if that provides the perspective you were looking for.

Yeah, thank you, Marco. Very clear. Sure.

Let me go. Thank you, Jorge, for your question. Let me go into the second part of your question, talking about dividends and buybacks. Dividends and buybacks will continue. As we have mentioned before in previous quarters, the CAPEX, the major CAPEX investment that we have for the plant is gone. The plant is there, and we will be honored to host you during our investor day on March 8th. You will see it. So there's no more significant companies. The plant is, the personal care plant is now operational or lines are operational. So during the year, we'll see some improvements and especially in some brands and categories and projects as Marco has just described, especially in the case of Barnard. So cashflow generation will be there. Obviously we have the negative impact of the leading interest rate, which is TA that we don't control. But our financial leverage is just 1.4 times that to a BTA. So that's fine. So we will continue generating cash as the business continues to progress. We will be generating more cash. So dividends, cash dividends will continue and buybacks will continue. And as you've seen, as everybody has seen, if they're If it happens that there's an opportunity to buy back more, we'll do it. We did it last quarter. And if there's one coming, if you're thinking about that, we'll do it again. Because there's not a better investment in our case to buy back our shares. So that will continue. That's it. At this moment, We'll be focused on refinancing the long-term bond that matures in August. We don't see any major issue as everybody's seen. We secure long-term financing from the IFC, $16 million for a six-year term loan. And both credit agencies operated our ratings. So dividends will continue with the same rate that we have already paid, 800 million pesos a year. And buybacks will continue as well.

I hope I was able to... Antonio, it would be good if you make a quick reference to the plan of cancellation of shares.

Oh, yeah. Excellent comment, Jorge. As we announced at the ending part of the earnings release report, you probably saw that the company will propose two things in the next shareholders meeting. One is the appointment of Jorge as board member and actually being appointed as active vice chairman. But also, we will propose to cancel 28 million shares. So, on top of buybacks, on top of dividends, there will be, obviously, if all shareholders approve, 28 million shares shares cancellation, which is equivalent to 2.8% of the total market cap of the company. So that should also be good news. That will happen if all shareholders approve at the end of April.

Thank you, Sonia. Thank you very much. Our next question will be from Rodrigo Alcantara with UBS. Please turn on your microphone and proceed with your question.

Hi, good afternoon, everyone. Just have one very straightforward question. I guess sometimes asking in the past could be also a straight answer. Just, I mean, looking at yesterday's results, has your view on this giving more disclosure on the geographies and revenue by product on a quarterly basis change or should we expect kind of like the similar disclosure over the next few quarters? That would be my question, thank you.

Rodrigo, I will take that one and Marco Antonio can compliment if needed. Rodrigo, as we've mentioned, I think in our previous meetings, we also mentioned a little bit of this and you will see in the March 8th session where Marco will present our plans and our vision building from the current strategy to the next phase around categories. And it's going to be very interesting. And that will be, I would say, the starting point of a communication strategy that will lead us to be more open in terms of what is happening with our category. And we think that's the best the best way to truly reflect the true value of the company? And as I said, you will see it on March 8th, but the answer is yes, we will be evolving to that.

Okay, and by region, should we also expect more granularity in LATAM?

And that's something that we are assessing too, exactly, because as we have been discussing in the past, it will be a lot of extra help to understand the company, especially for you guys, within that different frame. And for us, that will be basically opening up a little bit more information in Latin America as a whole. That's also under consideration.

Great. Thanks. Looking forward to it. Thank you very much.

Thank you. Our next question is from Juan Ponce with Bradesco. Please turn on your microphone and proceed.

Hi, Jorge, Antonio, Marco. Thank you for taking my question. It's on the potential labor cost pressures in Mexico this year, and specifically on how you see the impact of minimum wage hikes, doubling vacation days, and the gradual increase of employer pension contributions impacting the way you think about pricing in 2023? And related to this, I mean, do you see more room to increase prices to offset some of these macro headwinds you were discussing in the call? Thank you.

Thank you for your question, Juan. Yes, we've heard from other publicly traded companies that they are experiencing a lot of pressure this year about labor and all these kinds of things, but this is not new. This happened, you know, the labor reform took place, you know, quite a while ago. It shows that some companies didn't adjust accordingly when they had to. Fortunately, in the case of Genoma, we've made a number of right-sizing when it was needed and we did some changes when it was needed. So we're not gonna have, I mean, we're gonna have some pressures, yes, but not significantly as it's impacting other companies. Having said that, I think that, you know, in terms of pricing, we always price in line with inflation. That has been our policy always. That's what we do in every single market. There's some markets where inflation is higher, so we price higher and more often if it's needed. So we'll keep on doing that. We need to be very careful in terms of not impacting the consumer, okay? Because the consumer, on the other hand, the consumer will have a higher purchasing power because those people who get the minimum wage, et cetera, they're gonna get higher salaries. So it's a complex question. Our philosophy is we price in line with inflation. Generally speaking, we price in line with the competitive landscape. That's one of the reasons why we had to defend our market share position in the isotonic beverage, as Marco described it earlier. And obviously, competitors understood that if they want to fight, they will find somebody who's willing to fight and defend our position. That price war and that promotional activity is gone. And so we expect that to be normalized. I don't see any particular negative headwind in the case of Genoma because of that. That's number one. Number two, as we operate in 18 countries, that's just an impact for Mexico, not for the rest of the countries. But as I said before, the company had already adapted to the labor reform challenges and there's a number of productivity initiatives that we have identified and that Marco will be describing some of them with more detail during the investor day, not only for this year, but even beyond that. So that's not a significant headwind for Genoma. I don't know if I was able to answer your question.

Yes, Antonio, very clear. Thank you very much.

Thank you.

Thank you very much. Our next question is from Luis Willard from GBM. Please turn on your microphone and go ahead with your question.

I don't know if Luis is having a problem with his microphone, Luis. Jonathan, please move on to the next one and we'll get back to Luis to see if he was able to fix his problem.

Thank you. We will move on to our next question. This one comes from Andres Ortiz with BTG. Go ahead, Andres. Turn on your microphone and proceed.

Hello, Jorge, Marco, Antonio. Thank you for the space for questions. As we are currently at the end of February now, could you please comment if you are currently experiencing API shortages and if the impact of the phase-out of these contractors is still there? And additionally, you mentioned that Swerex had aggressive pricing from competitors. Is this still happening today? Thank you.

Antonio?

Yeah, I think that perhaps Marco would be able to answer this. sort of question first, but let me go into the API. You know, the API, Andres, thank you for your question. As we mentioned, it's more of a situation related to China. I think we've seen some improvement. So there's, you know, better fulfillment of APIs, but still not all the ones that we would like to have. So there's a, The main situation in this case, Andres, is that the APIs that have the largest shortages are the ones related to anti-flu, COVID related illnesses or symptoms, et cetera. So it's paracetamol, caffeine, dextrometrofen, et cetera. So we need to see what's going on with China, but the situation is improving. we don't anticipate the same impact that we had in the Q4. So it's going to be better. How better? Let's see. Let's see. And in the case of Suerox, I understand and Marco will obviously compliment this, but I understand that the heavy promotional activity was mostly happening in the fourth quarter. We don't see happening that this year because Let's understand one thing in the beverage industry. There's a high season that starts during the spring and summer, and there's the low season, simply because of temperature and the weather. So a price war and heavy promotional activity usually or may happen during the low season. That's why it happened in Q4, because the impact on volume is not that large. starting a promotional or a prize war in the high season would be a suicide for our competitors. I don't think that's going to happen, but I don't know if Marco wants to add some color to this.

Yeah, thank you, Tonio. The category is becoming increasingly more competitive with more players. It's actually became a very large category in Mexico. I don't know the exact numbers, but I think we're talking like 20 billion pesos already, the electrolyte category, some number around those figures. And today there's a lot more players than in the past. And I think that will actually make the category more competitive in the future. I think as mentioned by Tonio, what happened last year was unusual. I don't expect that to be something that we'll see in the markets this year and going forward, but I don't know. But the point is, it doesn't really matter because we, we, Suerox is a large, actually a very large brand for us. But when you look at it from a category share perspective, including all isotonic beverages, we're still a small player in the market. I think that promoting, if it doesn't happen, like if it doesn't, if we don't see that level of competitive activity in pricing, we will continue to grow as we have been doing in the past. If it actually happened, it also favors us. Because we're not the large player in the category, okay? And we will continue to grow as we have been doing in the past. So any scenario is actually positive for us. Because when you see a lot of these promotional activities and so on, it's actually, you know, in the short term, might be a little bit disruptive, but it's actually attracting more consumers to the category. So we get benefit of it.

Understood. Second question is, if I may, you reiterated your 24-25 targets of 20 billion sales and margins of around 24-25%. Could you provide us with your view on how you see top line performance this year and with the margins for this year, given the current scenario that you're experiencing?

Andres, let me take that one. Andres, as you know, it is the company policy not to provide guidance.

Understood. Thank you.

I mean, it's a great question. And I'm sorry, but we don't provide guidance. We just provide results. And as Marco and Jorge mentioned before, and as our full year results demonstrate, we've had great performance. Unfortunately, everybody is now focused and I understand it's part of the drill, it's part of the process on the fourth quarter. But if you look at the full year, we had a great year. If you look at the past four years, we have a very good track record. And as Marco just mentioned, you know, if there's a price war, we'll grow, we'll grow even faster because there's opportunities for expanding distributions. these new competitors in the isotonic beverage only reflect, you know, that saying that imitation is the most sincere form of flattery. And it's not the first time that some people are trying to imitate Suerox, okay? And they've tried and they were not successful. That's just in the case of Suerox. I think that, again, having the plant, you know, reaching its full potential and investing in the brands, investing in the markets, that's the essential part of why Genoma is an interesting investment. And if there's short-term hiccups and there's some situation where the stock price goes down for a while, we'll buy back shares, okay? So that's it. Unfortunately, we don't provide guidance. because as research has demonstrated, companies who provide guidance, they don't perform better than those who don't provide guidance. We just decided not to provide guidance. We just want to be focused on the operation, on the business, on the strategy, and we'll have more opportunities to discuss that with you and the rest of the investors and the analysts during our March 8th Investor Day. And by the way, here on the screen, you have the QR code so that you can register for the Investor Day if you haven't done so yet. Please take out your phone, use your camera and do register. Thank you.

Thank you. For our next question, we will go back to Luis Willard from GBM. Luis, if you are able to turn on your microphone, you may proceed with your question. It appears the technical difficulties persist. In that case, we will now conclude our question and answer portion of today's conference call. I'd like to turn it back over to Mr. Brake for closing remarks.

Thank you, operator, and also to those joining our call today. As mentioned, 2022 was another landmark year for our company, and we will continue to drive growth as we successfully execute our long-term strategies. actively respond to changing consumer behavior and capitalize on the many opportunities that lie ahead. Today, we are well positioned to continue our success and remain committed to driving long-term value for our shareholders. Thank you for your participation today, and hopefully we'll see you soon in Mexico in a few days. Thank you.