Genomma Lab Intl Sab Ord

Ladies and gentlemen, thank you for joining Genoma Lab's first quarter 2023 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 meeting is being recorded and will be available for replay from the investor relations section of Genoma's website following the call. I'll now turn the call over to Barbara Cano of the Inspire Group. Please, go ahead.

Good morning, everyone, and thank you for joining. On today's call are Marcos Barbieri, Chief Executive Officer, 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 Genoma's 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, 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. Marcos Barrieri,

Thank you, Barbara. Good morning, everyone, and thanks for joining us. We saw a good start of 2023 with all variables in line or ahead of the expected targets. Top line was up 15.2% year on year in like-for-like currency, excluding Argentina, and 4.1% versus year ago in Mexican pesos, affected by the strong appreciation of the currency. EBITDA margin was 20.8% plus 20 basis point versus year ago. We delivered free cash flow of 294 million. and a cash conversion cycle of 106 days. Our core markets perform well with 73% of our sales growing ahead of inflation with Mexico up 10.7%, US up 24% and Brazil up 8%. All figures express in local currency. In terms of brands, 61% of our sales grew market share, with most of our core brands growing ahead of our internal targets. Suerox is up 27%, Teonacho 21%, Grumman 17%, Novamil 51%, Tuco 86%, and Analgesics plus 20%. All figures expressed in like-for-like currency, excluding Argentina. In terms of productivity, this quarter we finalized three projects that combined will deliver a total of 120 million in productivity savings when fully implemented. As I mentioned in the investors, they strongly believe that the upside potential Genoma has is huge for four reasons. Number one, over the past 25 years, Genoma was able to create a set of capabilities that combined represent a competitive advantage. Number two, our business model is proven and it works. Number three, our stock price is obviously undervalued. And number four, if you put together our business model that works and you see that our market shares are still small, 5.4 points in ODC and 3.7 points in personal care, just imagine what is the growth potential for Genoma. Now for 25 years, we have been working to create a set of capabilities that combined represent a competitive advantage. Number one, our communication model is unique. We air 1.5 million minutes per year and produce 1700 spots at a very low cost. Number two, we operate in 20 countries with standardized operations and an executive team that is at the top of the industry. And number three, our go-to market that I personally created and implemented is today at the level of the top companies in the market. We are committed to deliver our 2025 targets of reaching 20 billion in sales and 24, 25% of EVDA margin. We should expect a slight improvement of margin in 2023 and an exponential progress in 2024 that will continue in 2025. What's different going forward? Number one is the focus on our core brands. We will sell or divest non-core brands. We have worked a plan to add another 10 billion Mexican pesos in incremental sales behind this strategy. And number two is that productivity will become a top priority in our culture. We have a plan to add 1.8 billion pesos in productivity savings over the next five years. Let me get into more details. Go back to 2009 and you will see a company that makes 70% of the sales with 62 brands and 430 SKUs. very complex to operate, no leverage with suppliers and customers, complex manufacturing and high inventories. Fast forward to 2022 and you will see only 18 core brands and 211 SKUs that account for 70% of the sales. A lot simpler to operate, better cash management, simpler manufacturing and supply chain, and stronger leverage with customers and suppliers. This is more like the business model you should expect in the coming years. Let me take you through the exercise we did to define which are the core categories in which we want to compete. The X axis indicates how high our probabilities are to compete and gain market share in a given category. And the Y axis indicates the size of the markets. So go to the right of the chart and you will find the categories that we have chosen. Hair care, isotonic beverages, facial skin care, blades and razors, body care, and maybe sun care. Same exercise for OTC. We choose to compete in analgesics, cough and cold, gastro, infant nutrition, vitamins, derma, OTC, probiotics, and sexual health. Let's take a look at Xerox. If you go back to 2016, this brand almost didn't exist. In 2022, we sold almost a hundred million dollars. We went from nothing to a hundred million dollars in six years. What we did is create a product that is different with a fantastic consumer proposition, high hydration, no calories, no sugar. And we put it through our funnel of communication, market footprint, and go to market. Now, if you look up to the right of the slide, you will see that we are competing in a huge category and we only have 2% of market share. Imagine what's the potential for Suerox going forward. In Q1 2023, Suerox performed ahead of expectations, growing plus 27%. Here, you can see how we are rapidly expanding the brands to the balance of the markets. In the USA, we are growing 50% year on year. In Chile, we already achieved 18% of market share. This quarter, we launched in Peru, shipping broke 500% ahead of targets. We launched in Brazil, where in one customer, we achieved 25% of market share, and we launched in Central America and Argentina. Let's now take a look at the case of Tio Nacho. Again, go back to 2016 and we didn't even appear in the Nielsen scorecard. Our competitors didn't take us into account, but now we are a real threat to brands that have been in the market for more than a hundred years. Take a look at the charts on the left, and you will see that we are getting closer and closer to the market leader. Now, they do take us into account. And again, go up to the right, and you will see that this category is huge, and we only represent 3% of the market. Imagine what the upside potential is for Teonacho. In Q1 2023, Teonacho performed ahead of expectations, growing plus 21%. Let me provide a bit of color of what's going on with Teonacho in Q1. Mexico grew 58%, the US grew 26%, Colombia, 23% and Brazil, 24%. Growth was driven by the introduction of 950 ml size that already represents 18% of the brand in Mexico and 16% of the brand in Chile. And the launch of Genehypsia, a new version that helps with gray hair. Excellent performance across the board. Grooming is being very successful with market shares approaching threatening levels for Gillette. I wanted to share with you how in this quarter, we are completing our portfolio with the launch of our disposable cases for 240 days and 120 days respectively. You will notice that in our packaging, we are strongly claiming the duration of the product. We are doing this because we have a product that is superior and delivers a much better value for consumers than our competitors. Our blue friends do not claim duration. Guess why? Brilliant future for grooming. Analgesics is another one of our core categories. Again, if you go back to 2016, we were a very small player. Today, we are the number one player in Argentina, number three in Mexico, and number three in Colombia. This is another example of how our business model works. As well as the other categories, if you look up to the right, you will see that this is a very large category and we are still very small. Imagine the upside potential we have. The most fantastic example of our analgesics portfolio is X-Ray in Colombia, a brand that didn't exist five years ago and today is the number three player in the market in a category that no competitor dares to launch a brand from scratch. This is an M&A category. Up in the chart, you can see how our analgesic brands performs in Q1. Let me now share a few pictures of our in-store execution. Here you can see pictures of the Grumman Lounge in Colombia this quarter. Let me now get into productivity. I would like to first share with you the 1.8 billion Mexican pesos plan. And then I would like to provide perspective on the three projects that we are completed in Q1 that account for 120 million Mexican pesos in annual savings when fully implemented. For the past six months, we have been working on a plan to deliver productivity savings of 1.8 billion pesos. I am personally supervising the progress of these projects on a bi-weekly basis. The first pillar accounts for $600 million that should come from the manufacturing plant. $100 million will come from vertical integration of some of our manufacturing processes. $300 million from re-engineering packaging and formulas in our largest brands. $400 million will come from cutting non-productive costs and maintaining SG&A fixed while growing top-line over the next few years. And $400 million from optimizing our go-to-market programs. Let me now show you the progress we made this quarter. For the first time ever, our manufacturing site delivered a positive return of 6.2 million of positive Cox contribution. I acknowledge that the ramp up of San Cayetano was lower than everybody would have liked, but I now feel comfortable that this number will start becoming larger and larger in the following quarters. In Q1, we completed the vertical integration of our shampoo blowing and injection processes. When fully implemented, this move will deliver close to a hundred million in annual savings. And finally, in March, we concluded a global negotiation for our cardboard packaging. In this negotiation that took over six months, we are moving from having 23 suppliers with low volume each to only two suppliers, one with 80% of the volume and the other one with the remaining 20%. We are also significantly reducing our complexity, going down from 72 SKUs to 12 SKUs. When fully implemented, this project will deliver approximately 20 to 30 million pesos in productivity savings. Now let me provide a summary of what changes you should expect in our quarterly reports going forward. The introduction of like-for-like figures to provide a better perspective of how the markets and brands are performing independently of the appreciation or depreciation of the Mexican peso. The introduction of two KPIs, percentage of sales growing ahead of inflation and percentage of sales growing market share to provide perspective of the health of our portfolio and markets. Very intentional focus on our core brands, a strategy that is already working. Productivity as a core in our culture and a quarterly update of the progress against the 1.8 billion pesos plan. Let me turn our call over to Antonio to discuss our financials with some comments related to our markets. Antonio.