Good day everyone, and welcome to today's Kimberly's Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one keys on your touch tone phone. Please note that this call is being recorded. It is now my pleasure to turn today's program over to Pablo González, Chief Executive Officer. Sir, please begin. Thank you. Good morning, everyone. Thanks for your participation on the call. We hope you and your families are all safe and healthy. A couple of early remarks. Our second quarter results show continuous improvement as we increase top line, bottom line and margins versus the previous quarters. We're on the right track and expect to continue delivering better results as the year progresses. We achieved record net sales for a quarter, the second in a row, including a monthly record in May, with stronger prices sequentially. Greater price realization, higher operating efficiencies and solid advances in our cost reduction efforts outpaced the raw material sequential cost inflation, and we were able to improve our profits and margins versus the third and fourth quarters of last year, as well as versus the first quarter of this year. From its lows in the fourth quarter, our EBITDA margin has improved 300 basis points, notwithstanding the continuous cost pressures. Progress, no doubt, but we still have much to do. Our focus on greater price realization, achieving further efficiencies, and expanding our cost reduction program while aggressively innovating, investing behind our brands and in state-of-the-art technology and strengthening our shares is steadfast. I'll share more details on each of these after Xavier provides a review of our results. Thank you. Hello, everyone. During the quarter, our sales were MXN 12.9 billion, a 10% increase versus the second quarter of 2021. Volume was down 3.1%, with price and mix contributing 13.1%. Sequentially, volume was down 2.3%. Price was up 4.8%. Overall, our record quarterly sales increased 2.5% versus the previous record in the first quarter. Compared to last year, consumer product sales increased 7.8%, with volumes down 4% and prices up 12%. As is usually the case in our categories, when we lead price increases, we take a temporary hit in volumes while competitors follow. This time around is no exception. Sequentially, versus the first quarter, consumer products pricing increased 4% and volume remained stable. Given the cost pressures, we will continue to focus on price realization, and we will continue monitoring prices and volumes to find the best combination going forward. Away from home product sales increased 12.8%, reflecting a gradual return to in-person activities. Export sales grew 42.5%. Cost of goods sold increased 13.8%. Against last year, every commodity and raw material category compared negatively except for resins. Pulp was up in high double digits, depending on the grade. Imported recycled fibers grew 70%. Domestic recycled fibers averaged high 20s, and fluff high teens increases. On the personal care side, super absorbent material were up 30% and resins were down single digits. Finally, energy compared negatively as natural gas nearly doubled. The FX was slightly lower, averaging 1% less. Our cost reduction program once again had very good results and yielded approximately MXN 400 million 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. Gross profit increased 2.8%, and margin was 32.3% for the quarter. SG&A expenses were 10.4% higher year-over-year, and as a percentage of sales were stable. Operating profits decreased 3.4% and the operating margin was 16.0%. We generated MXN 2.7 billion of EBITDA, a 1% decrease versus last year, but a 6.4% increase sequentially. EBITDA margin was 20.8%, which is an 80 basis points sequential improvement and a 300 basis points improvement versus the fourth quarter of 2021, underscoring that we are headed in the right direction towards margin recovery. Cost of financing was MXN 429 million in the second quarter, compared to MXN 453 million in the same period last year. Net interest expense was lower because we reduced our debt position and we earned higher rate on our cash investments. During the quarter, we had a MXN 4 million foreign exchange loss, which compares to a MXN 4 million gain last year. Net income for the quarter was MXN 1.2 billion, with earnings per share of MXN 0.38. We maintain a very strong and healthy balance sheet. Our total cash position at June 30 was MXN 9.7 billion. Our Net Debt to EBITDA ratio was 1.5x, with an EBITDA to net interest coverage of 6x. Given that we have approximately MXN 10 billion of debt maturities in the next three years, and in view of the current interest rate environment, we have assessed the convenience of issuing debt in advance. Consequently, we are in the process of issuing MXN 10 billion in local bonds, certificates. Thanks. Back to Pablo. Thanks, Xavier. Our continuous progress is spearheaded by our focus on execution on different fronts. Let me briefly comment on some of them. First, greater price realization. As you are all aware, we have implemented price increases, which together with our efforts to achieve better efficiencies and returns behind our promotional and advertising investments, allowed us to achieve greater price realization, a key component of our strategy, given the substantial and unprecedented cost increases we have experienced, particularly during the last nine to 12 months. Unfortunately, costs have not abated. In many areas, they continue to increase. Such is the case of pulp, recycled fiber and energy. A few others have stayed constant or have come down slightly, but are still at very high levels compared to last year and even historically. We're seeing some improvements in oil derivatives, but prices are very volatile. That is why, in addition to ramping up our efficiencies and cost reduction efforts, which I will touch upon in a moment, price realization will continue to be a priority. We will continue to seek opportunities in consumer products, and we'll focus on reflecting increases in the professional contracts business during the quarter, as well as the cost increases in our parent roll and finished product export sales. Efficiently executing our strategy while protecting our market positions will be key as we strive to continue to improve our results sequentially and end the year with margins that are closer to our targets. Second, efficiencies on our cost reduction program. Another pillar of our strategy is achieving further efficiencies and expanding our cost reduction program. Our personnel continue to make improvements in productivity and waste measures. Further, we're investing to strengthen our operations and logistics footprint and incorporating data technology to improve our execution. On the cost reduction front, we continue to identify opportunities, and for 2022 expect to achieve record savings. As you know, the program is rooted in our culture and made up of an important number of initiatives, some of them small, some more impactful and all add up. Every peso counts, and we will continue to look for and find ways to expand and accelerate our program for 2022 and the coming years. Finally, our relentless focus on consumers. We will continue to invest in the most advanced technologies to bring relevant and differentiated innovations to market, offer the best products to consumers and increase their preference. Our innovation pipeline is very strong, both for the short and long term, and we're supporting our launches and brands aggressively and efficiently. As examples, during the quarter, we launched a new technology to improve the integrity of the absorbent core in our economy diapers, as well as softer covers in our premium line. We introduced new tissue products that balance quality and price. Consumers are at the center of all we do, and together with our clients, we're coming up with better ways to serve them and meet their needs. In summary, our actions are taking hold and are allowing us to continue to post sequential improvements. We still have much to do, and we're confident that our laser focus on consumer needs, greater price realization, incremental efficiencies, and acceleration of our cost reduction program will allow us to continue to improve results sequentially and have a strong second half in 2022. Thanks again for participating in the call. Now we will open it up for questions. At this time, if you would like to ask a question, please press the star and one keys on your touch tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. Our first question will come from Luis Yance with Compass. Your line is open. Hi, Pablo, Xavier. Thanks for taking my questions and congrats on the sequential improvement that you've had for two quarters in a row. Two questions on my side. First one, I guess on pricing. I know you mentioned that we saw it in the results, very strong price realization. But as you mentioned, you know, the cost side of the equation hasn't abated just. Just wonder if you could comment a little bit about, you know, your plans in terms of further price increases as we go into the second half. Where do you see most of the opportunities? Perhaps if you're in the consumer segment, on the away from home, et cetera. Anything you can comment there, as well as, you know, what's been the lag so far of your competitors, because you kind of closed the gap in terms of pricing. Now you increase pricing, so they're again behind. But do you feel they're being quite diligent in terms of following you? This kind of volume decline is just temporary as it usually is when you lead the price increases. That'll be my first question. Thanks for the question, Luis. Yes, price realization will continue to be a priority for us, and we're looking at all the different scenarios and opportunities as we move forward. On the consumer front, particularly on the tissue side, where that's an area where we continue to see quite a bit of pressure on the raw material side. We will continue to move forward with pricing on tissue and certainly on the away from home business, both in the open market and in the contracts business. The latter one is taking a little longer to take hold because we just renegotiated the contracts with our clients. That should be showing up here late in this quarter and certainly into the fourth quarter. We'll see some improvements over there. We'll continue to focus on passing on those costs that we're experiencing on our parent roll sales and our export sales as those continue to increase sequentially. That's a little bit of the picture. Again, we will continue to look at and take advantage of any opportunity, not only of increasing prices, but being more efficient on our promotional set. When it comes to competitors, for the most part, we have seen them follow, but as usual with a lag. This last price increase that we implemented is exactly what we're seeing. They're lagging a little bit, but they've announced that they're following. That has been the scenario that we faced here in the past year or so. Now, when it comes to volumes, we'll see what happens going forward. The one important thing to mention is that in our categories, volumes are, for the most part, either flat or slightly growing or slightly down. I'm talking about the category here, not our volumes. We've lost a little bit more given our price increases, but volumes for the categories are, for the most part, flat. Increases or growth is coming from pricing. No doubt when it comes to volumes, inflation is taking its toll. Great. That's a great color there. My other question would go to margins. You know, if I put everything together that, you know, volumes are a little bit weak for you on a temporary basis because you said the categories are still holding up quite well. Pricing will continue, but you have this kind of cost pressures. It seems like some of the oil derivatives, as you mentioned, with oil coming down, have been more stable. We'll have to see at some point, hopefully, you know, pulp also does that. As it pertains to margins, I mean, you seem to be delivering in terms of what you were saying, you know, sequential improvement, we've seen it twice in a row. Just wondering if you feel so comfortable that, by year-end, you should be closer to that kind of, you know, normalized range of the 25% to 27%, or given what you see today, in order to get there, you will need, you know, some further cost relief. Or even if things have stayed here, you think we should continue to see the sequential improvement in margins that we've seen so far? Or how do you feel about that portion of the profitability side? Yes. Well, that's really sort of one of the key questions, right? We're pretty happy with what we were able to do in the second quarter because we did not expect to continue to see such sequential pressure on the cost side. Notwithstanding that, we were able to improve our margins, certainly not at the rate we would have liked to and at the speed we would like to. Given that costs continue to increase sequentially, we were happy with the fact that we could improve those margins for the second quarter. Going forward, it really depends on what will happen to those cost pressures. So far, what we're expecting is that we will continue to see a sequential pressure on both recycled fibers, maybe even on super absorbent material. We might see a little bit of relief on resins, but energy will continue to most likely put some pressure sequentially. Again, we're trying to catch up, but costs are not abating, and that makes it a little bit harder. We will stay focused on greater price realization. We will be very aggressive on our negotiations to try and mitigate the impact on the raw materials. We will be very aggressive on our cost reduction program, and we believe that that will help us continue to improve margins as we move forward in the year and certainly have better margins at the end of the year than where we are right now. Now, whether that will allow us to get very or much closer to our target range, it's really hard to say because we every quarter we seem to get a different picture of what will happen to the costs. We'll see. We're again trying to catch up, and we're very confident that at some point in the next quarters, we will get back to our margins. Don't know if by the end of the year we'll be there, but we will certainly be closer. We'll be closer than where we started. That's a fact. Okay. Great. Thanks a lot, guys, for the details, and congrats again for the results. Thanks for your questions, Luis. Thank you. Our next question will come from Jens Spiess with Morgan Stanley. Your line is open. Hello, Pablo and Xavier. Thanks for taking my questions. I I hope you're doing well. I just want to ask a bit more on the volume side that you commented. We have seen now a few quarters with negative volume growth. You mentioned that volumes of the categories have been flat. Can we imply that you have basically lost a bit of market share while you were leading the price increases? Hence, once the competitors follow you, do you expect those to recover those percentages that you lost? Secondly, on natural gas, could you just give us a sense of how much of your total cost those represent? Because I think energy is maybe around 10%, so how much of that 10% is actually directly natural gas? Thank you. Thanks, Jem, and thanks for the two questions. First, on the share side, yes, I mean, it's a mixed picture. There's categories where we've been able to hold our ground, some where we've increased our share and some where we've lost a share. In the latter case, it is tied to us being the first to put prices out there and the competitors lagging, and that's certainly hurting our volume. We will work hard as competitors follow to recoup those share losses over the coming quarters. Again, it's very common for that to happen, but we need to work to make sure that we recover those shares. Hello, Jem. The gas is approximately 2% of our cost. Okay. Perfect. Very clear. All right, thank you. Thank you. Thank you. Our next question will come from Antonio Hernandez with Barclays. Your line is open. Hi. Good morning. Thanks for taking my question. The question regarding pricing versus sales mix, I know most of your overall top line is of course driven by pricing growth, but also can you give me a little bit more light on sales mix and maybe your expectations on this for the rest of the year? Thanks. Antonio, unfortunately, you're not coming out too clearly. Can you try and repeat the question? Sure. My question is regarding pricing and sales mix. I know most of your top line is of course driven by pricing growth, but also wanted to get a sense of sales mix. What has been the performance for the last quarters and especially what's your expectation for the remainder of the year? Thanks. Great. Thanks. Now we were able to hear you. Thanks for repeating, Antonio. Yeah. I mean, when we talk about the increase, it's really price. We haven't seen an impact on mix or at least an important impact on mix. That has been the case so far. Going forward, it remains to be seen because, again, with inflation being so persistent and so high and consumers being stretched, you would expect that there might be some trade down going forward. We have not seen it yet, but going forward, if this continues for some time, you would expect some trading down. Okay. You haven't seen any difference perhaps from the beginning of the quarter compared to the end of the quarter, no specific difference in terms of trade down? Not in our case. When I see some or when we take a look at the categories as a whole, there's a little bit of a shift to value and economy products, but we've been able to maintain our mix pretty stable. Shift we've seen in the categories in the market is not significant. Okay. Perfect. Thanks a lot. Have a great day. Thank you. Our next question will come from Bernardo Malpica with Compass Group. Hi, Pablo. Hi, thank you for taking my question. My question is regarding the cost reduction program. I just was wondering if you could give us a little bit more color in terms of the initial projects you had already going on. If I remember correctly, some of the projects you had right now were going to deliver full impact by 2023. I just wanted to know if you could give a little bit more color and an update of maybe how much, what percentage of the impact is already in place right now and what we could see towards the end of the year. Thank you. Sure, Bernardo. Great to hear from you. Sure. I mean, talking about some of the projects that we mentioned last quarter, one of them having to do with our new nonwovens machine, we were able to get that on time, under budget, and it has really ramped up very efficiently. We're very happy with the way that's going, and we're getting better raw materials for our products at lower costs, and that's certainly helping. Given that that really started up March, April timeframe, we saw a little bit of that of those savings in the second quarter, but we will see the full impact during the current quarter. The other one I believe we mentioned, which is another big one, is our reorganization, our new footprint for tissue. That one really will take. That process is just starting, and it will really happen in the second half of the year. We won't see the full impact of that new footprint or reorganized footprint until really next year. That's when we expect to see the benefits. Overall, we continue to move ahead with not only these big projects, but many smaller ones that are adding up so that we expect to have a record in cost savings for this year. You should expect in the second half our cost savings to be stronger than what we achieved in this first half of the year as things ramp up. Perfect. That is super clear and helpful. Thanks so much. Thanks, Bernardo. Thank you. Our next question comes from Sergio Matsumoto with Citigroup. Your line is open. Yes. Hi, good morning. Thanks for taking my question, Pablo and Xavier. Just wanted to ask, just on this line of the projects that you're working on, is there a? I thought there was another one involving data analytics, and if so, could you comment on how that project might help you? And also, I know this is kind of not the optimal timing to ask this, but just wondering, given the you know how things are, whether you know some change in dividend payout or the level of it could change in any way next year? Those are my two questions. Thanks. Thanks, Sergio. Well, first on data and analytics. I mean, that really spans across the company. There are a whole bunch of areas where we're really leveraging data and really diving deep to understand what it says and what it tells us and how we can make better decisions. That's certainly helping. It's certainly helping on the price realization front, where our Revenue Growth Management program has really been key in us determining where we move, how we move, and with what percentages and what the response is in the market. We are more and more confident with that information and really using it again to leverage our decision making and to push forward. I think it's allowing us to be much more efficient on our promotional mix and our pricing, and mix efforts. Along with that, we're also doing it in the logistics front to understand how we're moving our products and how we can improve costs in that area. We're certainly doing it in the operations front to better understand our operations and our metrics and how we can improve. It's really an enterprise program that we're really working on, and that continues to allow us to make better decisions, more informed decisions and better decisions. That is really helping us in different fronts, be it on the productivity, cost or pricing side. We're very happy with it, and we'll continue to push aggressively to move forward there. When it comes to the dividends, no change in our policy whatsoever. We'll see where we end up in the year. As we always do, we try to deploy our cash in the most shareholder friendly manner. The better results we have, the better the dividend will be. There's absolutely no change to our policy. I would only add there that for next year, basically, the dividend will basically be what we make this year in net terms. It's gonna be very close to what we're paying this year. Okay. Thank you, Xavier and Pablo. Thanks, Sergio. Gracias, Sergio. Thank you. As a reminder, that is star one on your telephone keypad to ask a question. Our next question will come from Bob Ford with Bank of America. Thank you. Good morning, everybody, and congratulations on the improvements. Pablo, the export numbers. Can you comment on your cost versus KCC's cost structure less? How should we think about that export opportunity over the next year or two? Sure, Bob. Great to hear from you. Thanks for being on the call. I mean, the export number is a combination, of course, of our parent roll sales, which have grown significantly here over the past quarter, and our finished product exports, which as you know, are mainly to KCC and those continue to perform well. Sequentially, we didn't see a strong growth in this latter part of the business as we had been seeing. That's just a part of the cycle of working with Kimberly-Clark on different projects to move forward. When I see the pipeline that we've got going with them, we're very excited about this opportunity in the coming years. We've had the opportunity to sit down with them and really think about the North American footprint and how together we can be more efficient and we can improve our cost structure, and we can improve our innovation capabilities, and we can improve our productivity and certainly our sales going forward. Again, quite a bit of projects that we're analyzing and that are on their way and very excited about what we expect to be getting or achieving together with our partner in the coming years in those programs. Again, we're really looking at the North American footprint as a whole. That's why it's so exciting and why we believe it could bring such benefits to our partner and to our company. Okay. Pablo, it sounds like, you know, I don't wanna put words in your mouth, but it sounds like maybe we can expect more elevated growth rates. At the same time, when we envision some of the benefits to Mexico, maybe there's some product lines that were not scalable for the Mexican market, but now maybe, and there's some new sales opportunities as well. Is that fair? No. I mean, remember when we're talking about our main product lines, which our partner of course sells around the world, anything we do selling those products is working with them so that they have more capacity for different kind of products, but working and selling through them. Again, in those, we see some great opportunities going forward in those product lines, maybe some things that we'll be producing in Mexico and providing for them to sell in the U.S. within those categories. Again, very exciting. We're gonna see some ups and downs on that because they're we're talking now about some of the bigger projects, but it takes a little bit of time to put that in place and to move forward. So we might see some lows and some highs, but overall, when you see it comprehensively, it's very exciting what we think we can accomplish together going forward. When it comes to other product lines where they're not involved and where we participate, we continue to move those forward and sell them both in the U.S. and Latin America. We continue to increase our sales in with those product lines in different markets. We're also excited about what we believe we can accomplish with those in the coming years. It's really a two-pronged approach, one together with Kimberly and the other one on our product lines where they don't participate. We see great opportunities on both going forward, Bob. When you mention product lines, would that also include maybe some of the Mexican that could be sold into the U.S., into the Hispanic markets? No. No, at least not at this point, Bob. Again, we're really just right now looking at their product lines and seeing how we can help provide a more robust and a better cost footprint for North America. If there's opportunities for us to help there, well, that's what we're exploring, and that's where we will continue to move forward. We'll see what those conversations take us going forward. Understood. Thank you very much. Again, congratulations on the progress. Thanks, Bob. Appreciate it. Thank you. Once again, that is star one to get into the questioning queue. Our next question will come from Ulises Argote with JP Morgan. Your line is open. Hola, Pablo, Xavier. Hope all is well with you guys. Just a quick one here on market dynamics. You mentioned industry volumes there on key categories were remaining kind of flattish, but wanted to get your sense if there is any down trading within those broader categories, or how do you see this evolving, given the price increases we have seen kind of industry-wide now? Any color on that would be appreciated. Thank you. No, Ulises. Thanks for the question. Hey, when you look at the categories in the consumer segment in the market, really most, as I mentioned, are slightly growing flat or slightly declining on volume, except for, of course, food categories and non-alcoholic beverages, which are growing also a little bit stronger in volumes. For the most part, again, categories are somewhat flattish, and growth is coming from pricing. In our categories particularly, I think we've seen, again, a little bit of a mix shift towards value and economy, but it hasn't been substantial till this point. We'll see how that evolves going forward. Again, if inflation continues to be an issue and is here with us for quite some time, and with consumers being stretched, they've really held up nicely so far. I guess that in many ways has to do with remittances and with some parts of our economy growing well, like tourism and certainly manufacturing exports to the U.S. That's all helping, and I think the consumer has held up reasonably well. Inflation is there. Inflation has been very sticky, and if it lasts a little longer, we might see some more trading down in the coming quarters. It hasn't been the case so far, but we might see it going forward. Okay. Very clear. Thank you very much, guys. Congrats on the results again. Thank you, Ulises. At this time, we have no further questions in the queue, and I would like to turn the call back to our speakers for any additional or closing remarks. Well, thanks again for participating in the call. We really, really appreciate it, and we really like the dialogue we can have with you, and we're open to receiving any additional questions and talking to all of you. Hope you have a great weekend, and hope you have a terrific summer. Looking forward to talking to you after the third quarter ends. Just a reminder to ask your fixed income teams to buy our Cebures, hopefully next week. Terrific. Great point, Xavier. Thanks again, everyone. Appreciate it. Thank you, ladies and gentlemen. This does conclude today's call, and we appreciate your participation. You may disconnect at any time.