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

Good morning, everyone, and welcome to Grupo Herde's second quarter 2023 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 the forward-looking statements. At this time, I would like to turn the call over to Andrea Amozorucha, Head of Finance and Sustainability. Ms. Amozorucha, please go ahead.

Thank you, Brenda. Good morning, everyone. Thank you for joining us on today's call. As you saw in our earlier news release, Net sales rose 14.2% in the quarter and 17.7% for the first six months. The growth continues to be fueled by pricing actions implemented in the last 12 months, while volume performance finally showed some thoughts, as we expected since last year. By segment, preserve grew 17% in the quarter, with mayo, tomato puree, spices, and home-style salsas as the best-performing categories during the quarter, as well as home sales and price loss in terms of flying. Net sales for the first half grew 20.3%, and Mediterraneo contributed with 1.8 percentage points to the growth of the segment. Top line in the impulse segment continues its sequential traffic recovery in stores, while DSD performance of Relados Nestlé continues to be very strong. Med sales for the quarter and six months recorded increases of 12.7% and 16.8% respectively. It is important to mention that the corporation of Chilean contributed with eight and seven percentage points growth to the quarter and the first six months of the year. In exports, med sales decreased by 9% in the quarter and six year to date, mainly driven by a stronger Mexican peso and lower shipments of Megamex. On a dollar basis, sales increased almost 3% and 5% respectively. Consolidated growth margin in the quarter and year-to-date were 37.8% and 37.1%, which implied expansions of 2.8% and 1.5% each point when compared to 2022. This was mainly due to the pricing catch-up versus high input prices and a favorable sales mix particularly at impulse. Consolidated SDMA was 25.8% of net sales in the quarter and 25% in the first half of the year. For the quarter, consolidated EBIT and EBITDA increased 36.2% and 27.7% with margin expansions of 190 and 160 basis points. On a cumulative basis, EBITDA increased 30.5% and 24.9%, while the margin expansions were 120 and 90 basis points respectively. These results are explained by the recovery seen in the margins of reserves, as well as by lower operating losses in the input segments. During the quarter, income from unconsolidated companies was 224 million pesos, almost five times the results of the last year. This was mainly driven by the lower cost of avocado, price increases, and a better sales mix in hormigas. For the first half, income from this segment tripled to 520 million pesos. Please be aware that we are comparing with a very low base. Consolidated net income for the quarter was 702 million pesos. 78% higher than last year, while the margin expansion was of 290 basis points to 8%, benefiting from the recovery of Megamex and a normalized income tax rate. For the first half, consolidated net income was 24.6% higher and amounted 1.5 billion pesos. Our financial position remained strong. Cash totaled 2.3 billion pesos and interest-bearing liabilities kept at 10.5 billion. Our free cash flow for the quarter was 8 million pesos. As explained in the press release, in the quarter, working capital and particularly inventories demanded a significant amount of resources due to the slowdown in sales volume growth and inventory buildup for the second half of the year. With that, I will now turn the call over to Seraf.

Thank you, Andrea. It looks like inflation has peaked and the downtrend will continue for some time, even though the price level will remain elevated. So in the next few months, we will stop talking about inflation and focus more on demand creation. Mexico's growth estimates have been revised upward, mainly due to the resiliency of domestic demand, and consequently, the combination of these two factors should support our view that the softness in the consumption environment seen in the second quarter will be temporary. Even in this environment, we are okay with the performance of our portfolio, since our market share remains very solid. and even we were able to gain some share in specific categories like mayo, canned vegetables, home-style sauce, and more. In the impulse segment, the recent change in our pricing strategy for Nutrisa, like Thursday's two-for-one promo, had a positive effect on store traffic, resulting in the highest levels of food traffic in the last three years. We expect this trend to continue throughout the rest of the year, closing the gap towards pre-pandemic levels. Additionally, the recently incorporated Chilipa lamb business has very optimistic prospects for the segment. Megamex margins, as Andrea was mentioned, are in full recovery mode, driven by lower avocado costs, other pricing strategies, and, well, actions in Don Miguel regarding the portfolio SKUs. Having said all the above, we reiterate our guidance for the full year as discussed in the last conference call. That is, net sales are expected to grow in the mid-teens for preserves, in the low 20s for impulse, and flattish for exports. Growth margin should expand as follows. Preserves 200 plus basis points higher, impulse an improvement of 250 plus basis points, and exports flourish. EBIT should grow in the high 20s, while EBITDA will increase in the low 20s range. Consolidated and majority net income are expected to grow 30 and 50% respectively. That concludes our prepared remarks and we are ready for your questions. Brenda, please go ahead.