Genomma Lab Intl Sab Ord

Ladies and gentlemen, thank you for joining Genoma Lab's first quarter 2025 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 on the investor relations section of Genoma's website following the call. I'll now turn the call over to Christian Ibañez, Genoma's Head of Investor Relations. Please, go ahead.

Thank you and welcome, everyone. 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 Denoma'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 are 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 Barbieri.

Good morning, everyone, and thank you, Chris. I would like to open the call by announcing we have identified 10 targeted projects where we will invest excess cash and profits to accelerate sales growth. We are confident that the successful execution of our growth projects will drive low team sales growth over the mid-term, while maintaining an average of 24% EBITDA margin. As part of our growth strategy, we have identified a set of focused initiatives across key categories and capabilities where we believe targeted investment can unlock meaningful upside. In Xerox, we are working to expand distribution, support its international rollout, and enter a new segment to further scale the brand. In skincare, we aim to revitalize the category through the relaunch of Asepsia and Cicatricure. In haircare, we are repositioning Tio Nacho, relaunching Banart, and launching a new brand, expanding them in the international markets. In OTC, we continue to enhance our innovation pipeline to gain market share while in infant nutrition, we are preparing to introduce Novamil in Brazil and Argentina. We also see significant potential in supplements and we are building the capabilities needed to support our entry into this category. On the commercial front, we are intensifying efforts across high growth channels, including traditional trade, convenience, hard discounts, and e-commerce, while building a dedicated digital capability to accelerate sellout. We are also elevating the in-store experience by investing in coolers for Suerox, OTC drawers for the traditional channel, and strategic displays for pharmacies, leveraging our in-store as media manufacturing capabilities as a key visibility driver. Lastly, we're pursuing deeper collaboration with our top five clients to strengthen execution and unlock joint growth opportunities. Before turning to our first quarter results, I would like to highlight that together these initiatives represent a disciplined approach to capital deployment aligned with our commitment to sustainable profitable growth. Turning now to first quarter results, Genoma Sell-In grew 5% in Q1 2025, while Sell-Out grew in the low teams. The sell-in-sell-out gap is mainly attributable to the US and Argentina. In the US, a weaker-than-expected flu season and related share loss in cough and cold impacted sell-in. In Argentina, lower inflation led customers to reduce inventories to improve productivity, reversing prior stockpiling behavior typical in a hyperinflationary environment. We delivered strong profitability this quarter. With continued momentum across the P&L, EBITDA grew 12%, outpacing sales, and net income rose even faster. While gross margin was impacted by a higher mix of beverage sales, EBITDA margin expanded 149 basis points to 23.8%, driven by productivity gains. EPS increased 70%. 17.7% to 5.50%. The cash conversion cycle increased by 13 days driven by a strategic inventory buildup for Xerox and shorter payment terms as we transitioned to in-house OTC manufacturing in Mexico. Free cash flow reached 2,678 million over the trailing 12 months, up 62.4% year over year. Our business remains healthy. with 72% of our sales maintaining or gaining market share and 86% of sales outpacing inflation. The next chart highlights core category performance this quarter. Isotonics beverages are driving portfolio growth, while the Asepsia relaunch in Mexico is helping skincare return to positive territory. Derma, OTC, and analgesics remain strong performance, while cough and cold reflects the impact of a weaker-than-expected flu season in the U.S., And the same chart now shows country level performance where key markets delivered growth in the low to high single digit range. Our strong profitability gains begin at the gross margin levels. which has expanded by an impressive 5.9 percentage points. We have improved gross margin from 57% to 63% over the past couple of years, a testament to the impact of our productivity initiatives and manufacturing capabilities on the business. Let's now take a closer look at EVDA margin improvements. The chart shows we have expanded EVDA margin by 3.9 percentage points over the same two years period. More than half of the gross margin gains translated into EVDA growth, while the remainder was reinvested to accelerate top-line growth in our core categories. Looking ahead, we will continue to strengthen core brands by reinvesting excess profits and cash into our growth projects while maintaining a 24% average EVDA margin. The following chart highlights our accelerating momentum down the P&L with the EPS significantly outpacing sales and EBITDA growth, achieving a 23% CAGR over the past five years. This is resulting in a higher free cash flow where we have reached a 71% CAGR over the past five years while returning a healthy dividend to our shareholders. All this efficiency has resulted in a much better ROIC, a variable that is becoming a central focus of our leadership team. In the chart, you can see the evolution of Labs ROIC over the past four years. Our current business model is delivering 1.4 times more value for every invested peso than four years ago. ROIC will remain a key metric throughout investments in growth projects. Our cash conversion cycle increased in preparation for the high season. We have been building inventory of Suerox and limited production capacity. Payable days also increased as we transitioned to in-house OTC manufacturing in Mexico. The new Suerox production line set for commissioning by the second half of 2025 will enhance manufacturing efficiency and help reduce inventory days. The factory acceptance test has been successfully completed at the vendor's site and shipment is in progress. We continue to capitalize progress in our productivity program and remain on track to reach 1.8 billion pesos in accumulated productivity savings targeted by 2027. Looking forward, we will reinvest productivity gains in our growth project as we maintain EBITDA margin in a 24% average. I would now like to provide an update on the progress we have made in our growth projects. A key pillar for Genoma is the expansion of the traditional channel, where we have already made significant strides. As you can see, we have sustainably increased sales through this channel over the past few years. Today, we reach over 600,000 points of sales across Mexico and LATAM out of a 2.1 million stores addressable universe. Our goal is to scale this to over 800,000 within the next three years, accelerating both reach and impact. Our skincare turnaround is advancing well. The Asepsia relaunch in Mexico is delivering encouraging sellout results, laying the foundation for further domestic growth and international expansion. As shown in this chart, sellout has grown significantly since the relaunch. We are also increasing digital content to support the Asepsia relaunch. This chart highlights a snapshot of our social media campaign in the Mexican market. Turning to our OTC innovation pipeline, we are seeing strong momentum with many of the registrations submitted since 2023 now nearing approval. As shown in the chart, submitted registrations have increased significantly, and we remain focused on further strengthening the pipeline. In the US, we are also focused on expanding our distribution points. Today, we have reached over 400,000 distribution points with a three-year target of more than 800,000 within a 13.2 million addressable universe. The US represents our strongest progress in e-commerce. where we are focused on strengthening core brand positioning and gaining market in the general market, we have a clear strategy to enhance our infrastructure and accelerate expansion in this channel. To close, I would like to share our short-term and mid-term outlook. In the near term, microeconomic uncertainty around consumption, FX, and global supply chains may result in softer growth, which is expected in the low to mid single digits range. However, looking ahead, we see meaningful upside. As our growth projects gain traction, we expect sales to accelerate toward low teams levels. In both scenarios, we remain confident in maintaining a stable EVDA margin around 24%. Before handing the call over to Tonio, I want to thank our team for our focus and dedication toward achieving our growth projects. I have no doubt that we have a best-in-class team capable of taking Genoma to the next level. I also want to thank our investors for your confidence, trust, and support. We remain committed to delivering lasting value for all our stakeholders, and we look forward to the opportunities ahead. Please, Tonio, go ahead.