Grupo Herdez, S.A.B. de C.V.

Good morning, everyone, and welcome to Grupo Herdez's second quarter 2020 results conference call. Before we begin, I would like to remind you that this call is being recorded and that information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed notes in the company's press release regarding forward-looking statements. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. At this time, I would like to turn it over to Mr. Gerardo Canovedi, CFO of the Frozen Division. Please go ahead, sir.

Thank you. Good morning, everyone, and thank you for joining us on today's call. The second quarter was marked by the COVID-19 crisis hitting our country and the full impact of lockdown was felt in our retail business. As stated in our last call, we established two simple and difficult objectives. To protect the health of our employees, and to assure the continuity of our operations. We feel very proud of the commitment and the results that our associates have achieved throughout the company. Employees in our corporate offices have been working from home since late March, and our plans, distribution centers, and sales force are working under additional strict safety measures. We have also experienced great collaboration from our suppliers and had minimal disruptions of our supply chain. Having said that, as usual, Andrea Amosorrutia will walk you through the results for the quarter, and we will take your questions at the end. Andrea? Andrea? Okay, sorry about that. We had a technical issue with Andrea's lines. So Guillermo Perez, Dinoco, we'll take it from here. Go ahead, Guillermo.

Thank you, Gerardo. Good morning, everyone. Net sales increased 7.6% on the quarter and 8.9% for the first half of the year. Growth was mainly driven by volume in our pre-search segment due to the lockdown. In fact, more than two-thirds of our portfolio grew at double-digit rates. in the quarter. However, our frozen and retail business was affected by the closure of our Cielito, Lavazza, Nutrisa, and Moya stores as of April 1st, and an unfavorable sales mix that allows misplay. As mentioned in the pressure list, this quarter we consolidate the results of Cielito for the first six months of the year in the frozen and retail segment. The implementation of several programs such as the detox campaigns encourage the consumption of tea Facebook Lives called Jueves Barilla, which La Lugarcia Cooked Pasta Recipes, and the Lunch Board Campaign, Hoy Toca, to promote cooking with the families using the products helped trigger demand in our pre-serve segments. These difficult times have been an opportunity to connect in different ways with consumers. In the frozen division, we had several product launches, such as Bailey's and Kit Kat Steak. In exports, net sales increased 60.2% in the quarter, 36.3% on a cumulative basis, hitting a record of 619,998, respectively. Net sales improved due to a combination of a weaker currency against the U.S. dollar and of a double-digit increase in net sales in Majones, Molle, and Homestyle losses. Consolidated gross margin in the quarter was 37.6%, 60 basis points without the second quarter of 2019. Benefit of cost absorption in our pre-sourced portfolio practically offset the effects of lower sales from the frozen and retail segment. In exports, consolidated gross margin increased 11.6 percentage points for the quarter. On a cumulative basis, gross margin was 37.7%, 40 basis points under the previous year due to the frozen and retail margin erosion of 120 basis points. Consolidated SG&A in the quarter was 26.8% of net sales, 1.1 percentage points higher than in 2019. In the frozen segment, SG&A increased 14.7% as expected due to the consolidation of Cielito and the impact of the closure of stores. For the first half of the year, SG&A represented 26.5% of net sales, 70 basis points higher than last year, mainly due to the aforementioned. Consolidated EBIT before other income decreased 7.4% in the quarter as a result of an operating loss in frozen of 219 million pesos that fully offset the margin increase in preserves. For the first half of the year, it remained aligned with last year's at 1.3 billion, thanks to a 24.3% jump at preserves. In the quarter, we registered net extraordinary COVID-related expenses of 9 million pesos. EBIT decreased 12.2% for the quarter, Meanwhile, EBITDA remained in line with the previous year, while the margins stood at 10.6% and 15.4%, respectively. On a cumulative basis, EBIT and EBITDA increased 9.6% and 12.8%, representing 12.7% and 16.8% of net sales, respectively. In the quarter, income from unconsolidated companies was $208 million, 1.7% higher than in 2019, And in cumulative figures, it was $345 million, 20.4% lower than last year due to the weaker results of Megamex. Consolidated net income for the quarter was $493 million, which was 14.2% lower than the previous year. In cumulative figures, consolidated net income was $1.2 billion, 6.2% higher than previous year. Majority net income dropped 56.2% and 29.1% during the quarter and year to date, respectively, mainly due to the performance of the frozen and retail segments. As of June 30, 2020, consolidated cash was $3.5 billion, down $700 million from first quarter after buying back 9.9 million shares, a net cap of $63 million during the quarter. Interest lien liabilities totaled 9.5 billion pesos with an average life of four years and an average cost of 7.72%. Leverage ratios remained comfortable and net debt to consolidate EBITDA was 1.7 times. Debt to consolidate stockholders' equity ratio was 0.38 times. As you may be aware, we recently announced a local bond offering for up to 3.5 billion pesos in the following weeks. The proceeds will be used to refinance debt that will be maturing in the next three years. While costs are expected to be in line with outstanding. With that, I will now turn the call over to Gerardo.