Kimberly-Clark de México

Ladies and gentlemen, thank you for your patience and holding. We now have your presenters in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of this morning's presentation, we'll open the floor for your questions. At that time, instructions will be given as to the procedure to follow to ask an audio question. It is now my pleasure to introduce today's first presenter, Mr. Pablo Gonzalez. Please go ahead, sir.

Thank you. Good morning, everyone. We hope you and your families are healthy and safe, and we wish you all a great 2021. Let me start by saying that we had another good quarter and overall a very strong year. We set out our priorities and guidelines early on to navigate through the challenging environment we have faced. We focused on executing them, and that allowed us to deliver strong top and bottom line growth and to keep our margins healthy and among the best in the business sectors in which we participated. During the quarter, we reinforced the various measures and actions to protect the health of our employees and their families, number one priority. We maintained our contact with the authorities and communities to assist during the pandemic and mitigate its impacts. Also, the actions we have taken to guarantee our continued operation, as well as that of our suppliers, to ensure all of our customers and consumers have access to our products, have allowed us to continue to operate our facilities without any meaningful disruptions. On the sales front, despite private and B2B consumption still being affected by the COVID confinement and its impact on the economy, several categories performed well, particularly those related to personal hygiene, health, and protection. We continue capitalizing on new growth opportunities. Altogether, our top line grew for the 25th consecutive quarter, driven by healthy balance, volume, and price. On the cost side, from materials other than fibers to be recycled were flat or compared positively. And together with our increased productivity and very good results on our cost reduction program, as well as expense containment, allowed us to deliver solid bottom line growth in spite of the peso depreciation. So we were able to produce another good quarter and very good year in the midst of a very challenging environment. Javier will now provide more details on the quarter's results. Good morning. During the quarter, our sales were 11.6 billion pesos, a 7% increase versus the fourth quarter of 2019. Volume grew 3%, and price and meat were 4%. The latter because we achieved better price realization, particularly from reduced promotional activity. Consumer products grew 8%. Our web-from-home product sales were down 12%. reflecting the effects from the COVID-related restrictions, particularly in offices, hotels, and restaurants. Finally, our exports business performed very well, with overall sales growing 48% and sales of converted products more than doubling versus last year. Cost of goods sold increased 9%. Against last year, pulp, fluff, superabsorbent materials, and resins compared favorably in dollars. imported and domestic recycled fibers, and energy prices compared negatively. Finally, TFX was higher, averaging 9% more. The cost reduction program, an important component of our business DNA, had once again very good results and yielded approximately 350 million pesos of savings in the quarter. These savings are at the cost of goods sold level and are generated by sourcing, materials improvement, and process efficiencies all contributing in a meaningful way. Broad profit increased 4.7%, and margin was 38.5% for the quarter. G&A expenses were up 1.6%, and as a percentage of sales were 90 basis points lower. We achieved better efficiencies in distribution expenses and continue to find ways to invest more efficiently behind our brands, balancing advertising with points of sales promotions. Operating profit increased 7%, and the operating margin was 22.9%, in line with last year, and representing a sequential improvement of 160 basis points. Net income for the quarter was 1.6 billion pesos, an 11.1% increase, with earnings per share of 52 cents. During the quarter, we generated 3.1 billion pesos of EBITDA, a 5.3% increase, and EBITDA margin was 26.8%. Cost of financing was 423 million pesos in the fourth quarter, compared to 398 million in the same period last year. Net interest expense was 10% higher from increased debt as earlier in the year we pre-financed late 2020 and 2021 maturities to take advantage of favorable market conditions. In the quarter, we have a 3.5% million for an exchange loss, which compares to a 15 million pesos loss last year. For the whole year, our sales were 46.7 billion pesos, a 7% increase. Our EBITDA was 12.5 billion pesos, a 14% increase, and 27% of sales. And our net income was 6.1 billion pesos, an 18% increase, and represented 13% of sales. All of these results were records for KCF. We have a very strong balance sheet, which reflects solid cash generation from EBITDA, with 10 billion pesos of free cash flow generated in the year. Positive results from working capital management, and in general, the priority we set at the beginning of the year to protect cash. Our total cash position was 19 billion pesos. Our net debt to EBITDA ratio was 1.1 times. with a net debt to net interest coverage of eight times. With that, I'll turn it back to Parviz. Let me first make a few additional comments about the year that just ended. We have said all along, our number one priority has been and will continue to be the health and well-being of all our personnel and their families. To that end, we established and executed strict health protocols and have provided extensive support, both medical and emotional, to all KCM employees. Very unfortunately, and despite the strict protocols applied, we very deeply regret the passing away of 25 of our colleagues due to COVID. We have worked with the authorities and several organizations during the pandemic and have supported the communities where we operate. All in all, our COVID-related expenses have been more than 100 million pesos. Proud results translating to an earnings per share of a peso 97 cents, an increase of 18% versus last year. Given this result, profit sharing will again be over 800 million pesos. Our personnel are highly skilled and committed, delivered very good results, and all will share in the benefits. This has always been the case at KCM, and we are very proud. Finally, It's worth mentioning that we continue to advance our sustainability goals and our results have been recognized by being included in the S&P BNP Total Mexico ESG Index, the FTSE for Good Index Series, and both the Dow Jones, NILA, and Dow Jones Emerging Markets Indices. Only five Mexican companies achieved the required scores to be included in the latter. In the coming months, we will update our results as well as communicate our new goals. 2020, KCM delivered good results, and we will continue to strive to do what's best for our employees, consumers, shareholders, communities where we operate, and of course, Mexico. Now let me turn to 2021. We will continue to operate in an unprecedented and uncertain environment. It is in moments like this when KCM's positioning, resiliency, adaptability, strategic model, and very strong balance sheet allow us to not only successfully navigate through the challenges, but also capitalize on the opportunities. Mexico's economy is experiencing a sharp contraction, and the impact on domestic consumption is evident. But we believe we can continue to grow because we sell essential products and have very solid positions in defensive categories, with strong and leading brands and a successful multi-brand and multi-tier strategy. We will face tough comparisons in the first half, but we will achieve healthy top-line growth for the year through a combination of volume, price, and mix, and by taking advantage of our strong innovation pipeline and developing opportunities and technologies for which we will increase investments. On the cost side, we expect pressure from bulk, super-absorbing materials, and more pronounced, from residents. We have plans in place to mitigate this impact. which together with our operating efficiencies, our cost reduction program, and hopefully a relatively strong threshold, should allow us to also post-bottom line growth and achieve healthy margins in 2021. To this end, the cost reduction program will continue to play an important role. The fact that many of these savings are technology-driven, together with our intention to continue actively looking for, developing, and investing behind new products and process technologies, keeps us confident that we should be able to keep delivering good results in this very important area. Finally, consistent with our long track record of shareholder friendly policies, on our February board and shareholders meetings, we will be proposing a dividend increase in real terms and that we resume our shared buyback program. Summary, we had another good year and we believe we can continue to deliver good results for our stakeholders. With that, let me open it up for questions. Thank you all again for participating on the call.

Thank you. Ladies and gentlemen, at this time, the floor is open for questions. If you would like to ask a question, you may do so by pressing star 1 now. If you are on a touch tone phone, please make sure that your mute function is disabled to allow your signal to reach our equipment. Again, to ask a question, press star 1 now. Our first question comes from Bob Ford with Bank of America.