Kimberly-Clark de México

Excuse me, ladies and gentlemen. Thank you for your patience and holding. We now have our presenters in conference. Please be aware, each of your lines is in a listen-only mode. At the conclusion of the presentation, we will open the floor for questions. At that time, instructions will be given to the procedure to follow if you'd like to ask a question. I'd like to now turn the conference over to Mr. Pablo Gonzalez. Please go ahead.

Good morning. Thanks for participating on the call. I hope you and your families are all safe and well. Let me first make a few brief comments about the quarter, and then Javier will provide the details behind the numbers. During the quarter, we faced three distinct challenges. The comparison to last year's COVID sales, 4E's continued recall, and raw materials-related cost pressures. As you all know, last year's second quarter sales were atypical since some of our businesses saw a boost from the pandemic, particularly 4E, but also exports and some consumer health-related products, while others experienced a severe contraction, mainly away from home. 4E deserves specific attention since it had extraordinary export sales and profits during that period. If you add to that the fact that it is currently facing the continued costs of the recall of some of its products, the corresponding impact to our consolidated results is very significant. That is why, for purposes of clarity and to facilitate the analysis, we've provided more information on our press release and are ready to discuss it with you today. With respect to cost pressures, we experienced high and rapid price increases in most of our raw materials. This is not unique to our industry, and it is certainly unprecedented. Combination of increased demand due to strong global economic growth, some speculation, and the supply chain and distribution bottlenecks have caused big disruptions. We expect this will correct itself, but it's hard to say when. In the meantime, the increased costs are upon us, while measures to deal with them take some time to implement. Having said that, excluding 4E, a rapid DAC contraction was in the low single digits, and we maintained healthy margins. We're not happy with the quarter results, But we believe that given the above-mentioned circumstances, the adjusted results clearly reflect the underlying resilience and strength of our business. So let me pass it on to Javier.

Good morning. Given the impact of 4E in the quarter's results, particularly when compared with last year, on this occasion, we presented results excluding this business and I'll provide more details on both the consolidated as well as the segregated numbers. Let me start with the underlying business results. During the quarter, our sales were 11.3 billion pesos, a 3% increase versus the second quarter of 2020. Volume was stable, with better price and mix. Consumer products, again, not including 4E, grew 1% as we continue to face a slow consumer environment. If we exclude from 2020 the one-time sales related to the COVID-19 pandemic, namely antibacterial soaps, cleaning sprays, surface wipes, hand sanitizers, and face masks, consumer products grew 4%. Away-from-home product sales increased 50% as they compared with their weakest quarter last year when most of the economy was shut down. Export sales decreased 9%. The contraction comes from lower parent role sales. Exports of finished products continue to grow and are expected to double total 2020 sales. despite exceptional sales of tissue-finished products last year, as we supplied a large volume to Kimberly Clark to help them cope with the surge in demand. Cost of goods sold increased 5%. We continue to face rapid and unexpected cost increases in most of our raw materials. Against last year, pulp, domestic recycled fibers, fluff, superabsorbent materials, resins, energy, and natural gas compared negatively. Particularly damaging has been the very strong rise in resins and superabsorbent material prices. Only imported recycled fibers compared positively. The FX was lower, averaging 13% less. Our cost reduction program once again had very good results and yielded approximately 350 million pesos of savings in the quarter. These savings are mainly at the cost of goods sold, level, and are generated by sourcing, materials, improvement, and process efficiencies. Cross-profit decreased 3%, and margin was 35.3% for the quarter. SG&A expenses were 2% lower year over year, and down 60 basis points as a percentage of sales. Operating profit decreased 4%, and the operating margin was 20.1%. We generated 2.7 billion pesos of EBITDA, a 4% decrease, and the EBITDA margin was 24%. Let me now talk about the consolidated results. On a consolidated basis, during the quarter, our sales were 11.7 billion pesos, a 5% decrease versus the second quarter of 2020. Volume decreased 6%, and price and mix grew 1%. With respect to 4E, the sales comparison is particularly challenging, as last year they sold a very large volume of sanitizers in the U.S., and sales this year are still impacted by the effect of the product recall. Given the recall, not only 4E is not selling in the U.S., but we are creating provisions that further affected this year's sales, which were lowered by more than 900 million pesos and decreased 80%. Gross profit decreased 14%, and margin was 34.5% for the quarter. SG&A expenses were 5% lower year over year, and flat as a percentage of sales. Operating profit decreased 21%, and the operating margin was 19%. EBITDA decreased 18%, and the EBITDA margin was 23.2%. Cost of financing was 452 million pesos in the first quarter, compared to $401 million in the same period last year. Net interest expense was 24% higher, as we have additional debt. During the quarter, we had a $4 million foreign exchange gain, which compares to a $33 million loss last year. Net income for the quarter was $1.2 billion, with earnings per share of $0.40. We have a very strong balance sheet, which reflects solid cash generation from EBITDA. Our total cash position at June 30 was 14 billion pesos. Our net debt to EBITDA ratio was 1.1 times, with an EBITDA to net interest coverage of 7 times. Thank you.