Good day, everyone, and welcome to today's Kimberly-Clark de México's Second Quarter 2023 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 star one on your touchtone phone. Please note that this call may be recorded, and that I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Pablo González, CEO. Thank you. Hello, everyone. I hope you're having a good summer, and thanks for participating on the call. As usual, I'll make some preliminary remarks and pass it on to Xavier to provide details on the second quarter results. Let me start by saying we had another good quarter. Our sales were a new record for the company, despite strong headwinds from our export business. Both consumer products and away-from-home grew double digits, and in the case of the former, through a healthy balance of volume and price. On the profitability side, we also posted records and strong growth, and we reached our target margins. All in all, a strong first half to the year. Let me pass it on to Xavier. Thank you. Good morning, everyone. During the quarter, our sales were MXN 13.7 billion, a 6.4% increase versus the second quarter of 2022 and a new record. Net sales were boosted by consumer products and away-from-home, which grew 11.8% and 26.1%, respectively. Exports were down 41.6%. Sequentially, sales grew 1.2%, supported by volume growth, while price mix was nearly flat. Year-over-year, consumer products volume grew 4%. We will continue monitoring prices and volumes to find the best combination going forward. cost of goods sold decreased 3%. Against last year, virgin fibers, fluff, and domestic recycled fibers compared negatively, while imported recycled fibers, SAM, and resins were favorable. Energy also compared negatively, while gas was down. The FX was lower, averaging 10% less. Our cost reduction program once again had very good results and yielded approximately MXN 450 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 26%, and margin was 38.2% for the quarter. SG&A expenses were 10.4% higher year-over-year, and as a percentage of sales, were up 60 basis points. We continue to look forward for additional opportunities to streamline our operations while strengthening the investment behind our brands and also provisioning for higher variable compensation. Operating profit increased 40.4%, and the operating margin was 22.1%. We generated MXN 3.5 billion of EBITDA, a 31.2% increase. EBITDA margin was 25.6%, a 150 basis points sequential improvement and a 480 basis points improvement versus the second quarter of 2022, underscoring our focus towards margin recovery. Cost of financing was MXN 381 million in the second quarter, compared to MXN 429 million in the same period last year. Net interest expense was lower, despite our incremental gross debt, because we earned more cash on our investments. During the quarter, we had a MXN 1 million foreign exchange gain, which compares to a MXN 4 million loss last year. Net income for the quarter was MXN 1.8 billion, with earnings per share of MXN 0.59, a 52.9% increase. We maintain a very strong and healthy balance sheet. Our total cash position as of June 30, was MXN 90.1 billion. Our net debt to EBITDA ratio was 1.1 times, with an EBITDA to net interest coverage of eight times. Thank you. Let me make a few brief comments before going to Q&A. On the top line, the economy in general, and domestic consumption more specifically, continue to show resiliency, and so far, we see no meaningful changes in the dynamics of our categories. In addition, we believe our strong innovation pipeline, together with more effective investments behind the brands, will strengthen our market positions. On the cost side, OCC recycled fiber prices are finally coming down. Fluff, on the other hand, is still significantly higher than last year. Superabsorbent materials and resins will continue to be favorable. Continued growth in our most important businesses, a better cost scenario, together with the investments we are making to optimize our footprint and strengthen our execution, as well as our consistent and effective focus on cost reductions, should allow us to continue posting margins within our target range. We are pleased with our progress and excited with the opportunities we see going forward. As always, we are committed and will be relentless in achieving our goals. With that, let me open the floor for questions. At this time, if you would like to ask a question, please press star one on your touchtone phone. You may remove yourself from the queue by pressing star two. Once again, that is star one to ask a question. Our first question comes from Jens Spiess with Morgan Stanley. Your line is open. Yes, thank you so much for taking my question. Congrats on the results, by the way. I just want to ask on cost first. You mentioned that virgin and recycled fibers have a negative comparison year-over-year. I was wondering, quarter-over-quarter, the sequential comparison, is it starting to look positive considering that pulp prices have started to decline? Have those not yet flown through the cost? If I may, on volume, how has the progression been there year-over-year and quarter-over-quarter? Thank you. Thanks for participating, Jens, and thanks for the question. When you look at it sequentially, we do see both pulp and recycled fibers coming down. They have not significantly had an impact yet on our results, because, as you know, prices have come down in the market more significantly, but we have contracts, and we update the pricing on the contracts every quarter. We will see, during the third quarter, better pricing, both in pulp and in recycled fiber. Again, a more favorable cost scenario overall going forward. Even fluff, that is still at very, very high levels, has started to come down a little bit, not as much, but a little bit. That's the only one really that continues to be compare very negatively versus versus last year. When it comes to volumes, as we mentioned, we had a better balance this quarter, particularly in consumer products, between volume and price, with volume being 4% and price roughly 8%. Away-from-home products is was still mostly price and mix when it comes to the growth. That's compared versus last year. When you take a look at it sequentially, again, consumer products showed a 3% growth in volume and was just slightly ahead in pricing, away-from-home. Again, all of the growth came from price and mix also when you take a look at it sequentially. Okay, perfect. Very encouraging. Thank you. Thank you, Jens. Thank you. Our next question comes from Luis Yance, with Santander Asset Management. Your line is open. Hi, Pablo, Xavier, hello, thanks for taking my questions, and congrats, really amazing quarter. I guess a follow-up on Jens' question, on the cost front. I mean, it's been remarkable, the margin improvement or recovery you've had, despite the fact that, as you said, you still haven't seen the full positive impact of costs rolling down. Can we pick your mind in terms of the potential evolution of margins going into the second half? Especially because, you know, you've been telling us, and fortunately you've been able to deliver on the idea that margins should recover, go back to that kind of 25%-26% by year-end. Well, here we are, half of the year, and you're already there, and it looks like, and I understand it's very difficult to know what's gonna happen the next couple of months, but if things remain where they are with a strong super peso, pulp prices coming down, oil prices kind of stable in this level, it looks like you're gonna have all the stars align, and you're already sitting at 25.6% margin. Is it conceivable, to see margins even outside that range on the way up, for a temporary basis? How do you expect competition and yourself to react in terms of that, meaning, you know, should we expect to start seeing some promotions coming into the market, or is it too early and perhaps the industry needs to recover for a longer period of time, that profitability, before we start seeing those dynamics happening? That's my first question. ` Thanks for your question, and certainly a very important one. As you say, I mean, uh, for now, really, uh, the improvement we've seen in margins over the past, uh, quarters has really been behind our pricing, uh, and price realization efforts over the past year and a half, uh, behind very important cost increases. And, uh, those prices have, uh, have, uh, stayed into the, uh, the market, and now, uh, raw materials are starting to come down, so it's a, it's a better combination. So just, uh, let's remember that, uh, I mean, our target range is for the mid to long term, and we certainly expect to be within that, uh, stated range. In specific instances, of course, as you mentioned, we may be above or below the same. As things stand right now, again, a couple of ifs, but if domestic consumption remains relatively strong, if competitive dynamics remain reasonable, so prices are steady, yes, given decreasing raw material prices and the strong pressure, we could see our margins either at the higher end or above our target range in the short term. Again, a couple of ifs in there, but as things stand right now, it is certainly a possibility. Great. That's a great color. My other question has to do with, you know, what that means in terms of capital allocations. Clearly, you know, we're seeing a very strong year for you guys in terms of earnings. I'm guessing, as I think forward, you know, the combination of strong earnings to my sense, and probably you can confirm on that, in terms of working capital needs, perhaps, that have been under a bit of pressure because of the higher input costs, perhaps we'll start seeing a bigger relief going into the second half. The combination of those two things, it looks like a very powerful combination in terms of cash flow generation. Given your debt levels very manageable levels, just one wondering how should we think about distribution to shareholders? Is that something that you could advance a little bit this year? Or as usual, you'll probably wait until April next year and then, you know, filter it through via dividends, or what's been your thinking behind that, and whether the addition of the working capital release is something that we'd also expect there? Hi, Luis. We'll definitely do something next year. As you stated, this is something that we usually decide at the beginning of the year. If things continue to improve, we'll very likely propose some increase to the dividend, to the board and to the shareholders' meeting. That's something that will be decided earlier next year. The only thing that I will add, Luis, as you know, our policy has been to grow our dividend at least with the rate of inflation. Given the difficult scenarios we faced over the past couple of years because of the cost increases, we fell a little bit behind on that proposal. If things continue to go as they are, we would certainly be expecting to propose some catch-up when it comes to the dividend, and as Xavier is saying, at our February board meeting, and February or March shareholders' meeting, so for next year. Hopefully some catch-up there, that would be very good for our shareholders. Great. That's great to hear, and congrats again on the main results. Thank you very much. Our next question will come from Bob Ford with Bank of America. Your line is open. Bob, please make sure that you're unmuted on your end. Yeah, sorry about that. Good morning, Pablo, Xavier. Pablo, could you discuss volumes and price trends in paper towels, facial tissue, wet wipes, and maybe some of the functional products? Could you also discuss what you're seeing in the traditional channel? There seem to be some high-profile efforts to consolidate wholesale, and I was curious how you're thinking about how that might impact, you know, consumer tissue categories, if at all. Thank you. Thanks. Thanks, Bob. Thanks for being on the call. Yeah, I mean, particularly on tissue, again, we faced very significant cost increases, particularly in the second half of last year. Well, most of it, at least three quarters, but very heavy on the second half of last year. As you know, we priced, we passed on quite a few price increases to offset some of those costs, and those were reflected in the market, both by us and competitors, and continue to be still something that's helping us even throughout this year. We passed our latest price increase on tissue was late first quarter, early second quarter. Dynamic, there is still working in terms of pricing holding up and volumes being pretty steady, and our shares actually improving as not only us, but everyone else, given the cost pressures, have passed prices on to the market. We'll see how that evolves going forward. We're watching it very carefully. Stronger pricing still in the market on the tissue side and on the personal care side, where we started passing prices earlier on because of the cost pressures. When it comes to wholesale, still very dynamic market. As we've mentioned before, over some past years, modern trade was gaining ground on wholesale. We believe now wholesale is being a little bit more aggressive and holding its ground. We see nice growth overall in the segment. Yeah, some dynamics there happening between some of the participants. We'll see how that impacts the channel going forward, but if anything, I think they're trying to just gain greater scale, become more productive, and again, be more competitive versus modern trade. I think overall, wholesale will be able to hold its ground better going forward versus modern trade. I hope that answers your question, Bob. That's super helpful, Pablo. Just one follow-up, and that is, you know, given how strong, you know, selling this growth has been, how are these less penetrated categories growing? I'm just curious if they're above or below your overall averages in the consumer division. We're also, just in terms of trying to understand the mix across price points, how are you seeing any shift between, you know, value tiers and premium tiers in your core categories? Let me start by the latter, then I'll come back to the former, Bob. We are seeing no significant shifts in terms of tiers in our categories so far. Which is a good indication. In terms of penetration, as you know, penetration of facial tissue, kitchen towels, and some other categories, is still pretty low in Mexico. The opportunity there is very important, both in terms of penetration, in terms of frequency of use, and certainly eventually in terms of mix performance. As we've said before, the key thing there is for the economy to hopefully grow at a consistent and somewhat high rate over a period of time, so that the broad, the middle class can strengthen and be broader. What we've seen in other markets is that when that happens, then penetration certainly accelerates, and again, frequency of use and mixed improvement also happen. We believe there's a great opportunity for that to happen in Mexico going forward with all of the dynamics we're seeing, particularly nearshoring, but not just nearshoring, I mean, all of the geopolitical tensions are creating a lot of movement. We see even a lot of companies from China setting up shop in Mexico to be able to supply the U.S. market. We also see North America consolidating as such. To the extent we can capitalize on all of that, we see a great opportunity for the Mexican economy to grow at a higher rate consistently over the coming years. That'll again, be very good for the economy, particularly for the middle class, and that would be terrific for some of these categories to increase in again, in their penetration and everything as [Elsmo] mentioned. By the way, it will also be very, very beneficial for even the penetrated categories, because then we might see quite a bit of mix improvement, which would be very, very helpful both in bathroom tissue and diapers, just to give a couple of examples. A good path going forward. Hopefully, we take as a country, great advantage of it, and that would be very, very beneficial for all. That's super helpful, Pablo. Thank you so much. Thank you. Our next question comes from Antonio Hernández with Barclays. Your line is open. Hi, good morning. Thanks for taking my question. Congrats on the results. My question regarding the competitive environment and you're seeing, along with other players, a slowdown, of course, in terms of raw materials, cost inflation. In which categories maybe do you expect more competitive pressure? Or maybe have you seen already have that taking place throughout the last couple of months? Thanks. Thanks. Look, so far, as I've mentioned, we see no material changes in the dynamics of our categories. I mean, we're coming out of the, as you know, very heavily promoted summer season and maybe a little bit more aggressiveness here or there, but nothing material. Overall, pretty similar to what we've seen in past years. As we come out of this promotional season, we will see how everyone acts and how the market reacts. But so far, again, no meaningful changes either in consumer products or professional business. A little bit on the parent roll sales, where we are seeing some parent rolls coming in from Asia, both into Mexico and the U.S. at lower prices. That's really the only area so far where we see an important change in terms of the dynamics. Okay. In terms of exports, maybe you could provide a little more light there. What should we expect going forward? Thanks. Yeah, absolutely. I mean, exports, what we have right there is a combination of two things. One, a lower or less sales to our partners, Kimberly-Clark Corporation, on finished product, particularly because there's been some destocking going on in the U.S. market, and they wanna take care of their inventory. We saw less orders from them so far this year, versus very important orders in the first half of last year. The comparison is hurting us in an important way. Also, the sales of parent rolls have been a little slower than before. One, because we're using more of our capacity here in Mexico as we grow our volumes. Two, as I mentioned, because there's more parent rolls coming in from Asia into the market. That's one part of it, less orders per se. The other is, of course, the exchange rate, which has had a little bit of an impact on the sales. Going forward, I mean, the exchange rate will continue to be a factor, but we expect one, orders to be a little bit more flattish in the coming quarters. Comparisons will be a little bit easier because we started to see orders come down in third and particularly fourth quarter of last year, so the comps will be a little easier. Not really that the export business will be contributing heavily to our growth, but it shouldn't be in the second half of the year, the lagger it's been and pulling our growth under. It'll be a little bit more flat going forward here in the rest of the in the second half of the year. Perfect. Thanks for the call and have a nice day. Thank you. Our next question will come from Rodrigo Alcántara with UBS. Your line is open. Hi, thanks for taking my question. Just curious to pick your brain, maybe, alternatively to Xavier, in the expected strength of the Mexican peso, perhaps? You know, to increase, because you have a couple of future sales covering your U.S. dollar, right? It's not that much, but just to assure you maybe be more willing to increase your hedge system or to be hedged on the U.S. dollar to take advantage of the current levels of the Mexican peso. That would be my question for you, Xavier. The other one, just to follow up on your previous comments on the export. Would be fair to assume that, you know, second half, assuming that nothing happens on the export side, just from, you know, comparison-based considerations and, you know, we should see top line growth consolidated, accelerating, you know, given the momentum that we have seen in the consumer away-from-home. Is that fair to say? That would be my two questions. Thank you. Hi, Rodrigo. On the FX, as you pointed out well, or correctly, we did have some hedges throughout the first half of the year. We basically have nothing going forward. I really cannot answer if we're gonna do something. That's something we talk about every day, and at this moment, I really can't answer that. I don't think we will. If we do something, we'll let you know it at some point. Yeah. We I mean, we expect the pesos to continue to be strong, so we're carefully analyzing it and trying to figure out what our next move should be. When it comes to sales, I mean, as I mentioned, for what you've seen in the latest quarters, is a strong push in or a strong growth in sales, particularly behind our pricing and realization efforts. For finally, this quarter, we started to see a balance in consumer products, but still with some pricing. As we move forward, we will lap that pricing, so that will not be as helpful as it has been in the past quarters, but we should see volume growth. We expect both in consumer products and away-from-home to continue to grow at a good rate. We need to see exactly how exports evolve, which again, we expect them to still be negative in the third quarter, maybe a little higher on the fourth quarter, overall flat for the second half. We'll see how the whole mix comes out. Very important, when I say all of this really is again, the consumer has been very, very resilient, and we expect and hope that continues through the second half of the year, right? Yeah. Yeah, for sure. Yeah, appreciate the comments also on the, on the FX side. Thank you very much. Thank you. As a reminder, that is star one to ask a question. Our next question will come from Juan Guzman with Scotiabank. Your line is open. Great. Good morning, Pablo, Xavier, and all the team there. Congrats on the results. Just a couple follow-ups here. First, I don't know if you have this number in hand, but I'd like to understand how the FX raw materials and your cost efficiencies contributed to this impressive 600 basis points gross margin expansion in net terms, or at least if you could give us an idea of which factors were the more relevant in terms of magnitude? The second question will be if you could please share some details on how was your market share performance in your key consumer categories during the quarter, and also if you have seen competitors behaving rationally during the period? That's it. Thanks. Hi, Juan. On the FX, it was partial, because as I mentioned before, and we've mentioned earlier, we did have some hedges on the first part of the year, not all of the benefits of the super peso, as they call it, have trickled down into our costs. As for the cost efficiencies, we have MXN 450 million of savings in the quarter. Of course, not all of them are go all the way down to the profits, because some of that is reinvested into the improvements of our products, that was the gross figure. Of course, the fact that, again, we still have some pricing in the market and our volumes start to grow is certainly very, very helpful. When you put it all together, it's pricing and volumes, a little bit of FX, a little bit of raw materials, and certainly our cost efficiencies, as Xavier just mentioned, that the combination of all of them really helped us improve our margins, as you say, versus last year, so importantly. When it comes again to competitor dynamics and shares, again, we see no meaningful changes in the competitive dynamics in our categories so far. Our shares in our biggest categories, we've regained some shares here in this year. Given our innovation pipeline and our push behind those innovations, we believe we have a good chance to continue to grow those shares for the second half of the year. That's right. Thank you very much, guys. Thank you. Our next question will come from Jeronimo de Guzman with INCA Investments. Your line is open. Hi, good morning. I wanted to follow up on pricing a little bit, because I wanted to understand, this year you did put through some pricing. It seems like maybe in tissue, just wanted to confirm that. Looking forward, I did want to kind of try to understand, I know you're mentioning maybe the competition is still rational, but in given kind of the sharp decline that we're seeing in these input costs, what has been the experience in the past? Have you seen kind of the competition reduce pricing to react to this? Or have you seen pricing kind of remain stable in these kinds of situations? Sure. One, yes, we did pass along a little bit more pricing on the tissue side, again, late first quarter, early second quarter of this year. That's the only pricing we've passed on. We haven't done anything really on the personal care side. As we always do, we'll continue to analyze for opportunities for price realization, and that could be price increases, but also ourselves being more efficient in terms of how we utilize our resources to push our brands and products at the shelf. That'll continue to be a focus of us, certainly. When it comes to category dynamics, again, I don't know that we can talk about rationality. All I'm saying is that we really see no material changes. Past instances when we've seen cycles, prices tend to stay in the market for some time, and then depending on whether the categories are growing or not, then we see competitors become a little bit more aggressive in their stance. If categories continue to grow, prices tends to stay in there. If category growth falters a little bit, that's when you start to see some movement. That's historical, but we gotta be careful with the fact that the impact that we've all went through in the past couple of years was very, very significant. The cost increases we saw over a 16 or 18-month period were historically, we had never seen anything like that in terms of the speed at which they happened and the incredible amount at which they happened, taking all of our raw materials to historical high levels. Given that the impact was so big, we all have some catch up to do. You're seeing it in our results, and we're catching up. I think we all have some catch up to do. Also we're all thinking, "Hey, this was tough, and we need to have a solid footing going forward," because you never know, these things are cyclical, and it can come back at some point. Hopefully, that'll help everyone behave a little bit more rational, but we'll only know it when it happens. It's impossible to predict. Makes sense. Thanks. I did wanna ask about OpEx, because what we have seen is that you've had higher increases in operating expenses over the last couple quarters. Wanted to kind of better understand what's driving it and, how much is the brand investments that you mentioned, and kind of how you're seeing that line item, going forward. That's really two things happening there. One, as you just mentioned, a stronger push behind our brands and particularly behind the innovation at our brands. We're going to be pushing into the market. We've been, and will continue to push into the market innovation pretty much every single tier in both bathroom tissue, diapers, fem care. We just introduced new products in adult care, so a lot happening and we're supporting our brands and our launches, and that's part of it. The other part is as we see results improving materially, we are making the necessary provisions for variable compensation going forward. Those are really the two main factors behind it. When you take a look at everything else, as we've always done, we're keeping everything very, very tight, and we'll continue to look for opportunities to bring those line items down. Okay, makes sense. I also wanted to ask just one more question, because I wasn't sure what you were mentioning when there was a question about the traditional and wholesale channel. You mentioned some dynamics with some participants that could impact the channel. I wanted to better understand, what is that? What we've been seeing over the past years is some of the wholesalers buying smaller outfits. That continues to happen, for one, and then on the other hand, we also see retail wholesalers expanding to have their own stores to compete more effectively versus modern trade and investing very heavily behind productivity efforts again to be able to be more effective out there in the market. A lot moving quite a few dynamics in the wholesale channel, but again, all of them to gain greater scale, greater efficiencies, and compete more effectively. I think it's a good thing for the channel. Okay, great. No, very helpful. Thank you very much. Thank you. Thank you. At this time, there are no further questions in the queue, so I would like to turn the call back over to management for any additional or closing remarks. Well, nothing really. Just, thanks again for participating on the call. We really do appreciate it, and, we're here to answer any additional questions you might have at any time. I hope you have a terrific summer. Look forward to talking to you again. Thank you. Thank you, ladies and gentlemen. This concludes today's call, and we appreciate your participation. You may disconnect at any time.