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

Good morning, everyone, and welcome to Grupo Herdez's second quarter 2022 earnings conference call. Before we begin, I would like to remind you that this call is being recorded and that the 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 note in the company's press release regarding forward-looking statements. At this time, I'd like to turn the call over to Mr. Gerardo Canavati, Chief Financial and Information Officer. Mr. Canavati, please go ahead.

Thank you, Joe. Good morning, everyone. Thank you for joining us on today's call. We appreciate your interest in Grupo Herdez. The expectation that 2022 would be a year of economic recovery after the COVID debacle has gradually faded, as we are now facing the possibility of a global recession as central banks combat the worst inflation of the last 40 years. We have been operating our businesses with extreme prudence, implementing pricing strategies, focusing on what is under our control, executing and securing working capital improvements. With that brief backdrop, I will now turn the call over to Andrea to discuss the results. As usual, we will take your questions at the end. Andrea?

Thank you, Gerardo. Good morning, everyone. Net sales increased 27.4% in the quarter and 24.5% for the first half of the year. Volume was responsible for one-third of the growth. though price increases are still the main driver of top-line performance in the quarter. Reserves increased 25.4% and 22.6% respectively, with similar behavior in the consolidated segment. Wholesale and supermarket channels remained strong for the quarter, with a medium-high single-digit increase. Impulse continued its sequential recovery due to ongoing improvement in food traffic in stores and price increases, which translated into a higher average ticket. Similarly, the DSV channel in El Adolfo Nestlé had outstanding performance, continuing the upward trend since the beginning of the year. In exports, Net sales increased 56.8% in the quarter and 39.4% for the first semester, driven mainly by volume, especially mayonnaise and homestyle salsa. Consolidated gross margin in the quarter was 35%, 230 basis points lower than in the second quarter of last year. As historically high input prices linger, alongside labor costs, or labor reform costs, which are not comparable versus last year. By segment, the margin was mainly impacted by a 260 basis point decrease in preserve, and this was partially offset by the recovery of 220 basis points in impulse. Consolidated SG&A was 25.2% and 25% of net sales in the quarter and for the first half of the year, respectively. This was 190 basis points lower in both cases versus 2021 due to the operating leverage resulting from increased sales that completely offset higher freight expenses as well as labor reform impacts. For the quarter, consolidated EBITDA and EBITDA increased 44.2% and 36.6%. with a margin expansion of 120 and 100 basis points, respectively. Meanwhile, on a cumulative basis, EBIT and EBITDA increased 36.1 and 29.7%, with margin expansions of 90 and 60 basis points, respectively. This is the result of double-digit growth in preserves and exports, which resulted from the price increases mentioned earlier, along with the recovery of the impulse segment. In the quarter, income from unconsolidated companies was 49 million pesos, 71.7% lower than in 2021, mainly due to the continued pressure on Megamex cost of avocado. For the first half, performance was similar, with income from unconsolidated companies decreasing 63.3%, dragged down by results that were 67% lower at Megamex. Consolidated net income for the quarter was 395 million pesos, in line with the previous year. This was impacted, as mentioned before, by lower results at Megamex, as well as higher income taxes due to proceeds from operations in the United States in 2021. For the first half of the year, consolidated net income decreased 7.9% to 859 million pesos, with a margin contraction due to the aforementioned. Our financial position remained strong. Cash stood at 4.8 billion pesos and interest bearing liabilities were 12.4 billion, which was 2.4 billion pesos higher than in the first quarter of 2022. As a result of the issuance of a local bond of 3 billion pesos this quarter, our first sustainability link and the first for a Mexican food company We paid down 500 million pesos in short-term debt, and we will repay in full our most expensive credit line of 2 billion towards year-end. Net debt for the quarter was lower somewhat. With this bond, we are committing to reduce our water consumption per ton produced by 25% for 2030.