Genomma Lab Internacional SAB de CV

BMV:LABB

Earnings Call Transcript 2020-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Genomma Lab Second Quarter 2020 Earnings Call. [Operator Instructions]

As a reminder, today's call is being recorded.

I'll now turn the call over to Enrique Gonzalez, IRO of Genomma Lab. Please go ahead, sir.

[Enrique González, executive]

Thank you, operator. Good morning, everyone, and welcome to our second quarter earnings call. With me today are Jorge Brake, Genomma's CEO; and Antonio Zamora, our Chief Financial Officer. Before I hand you over to Jorge for his discussion of this quarter, I will briefly review our legal safe harbor and cautionary declarations.

As a reminder, before we begin, today's discussion could contain forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Please see report on file with the Mexican Stock Exchange for a discussion of risk factors as they relate to forward-looking statements. A note in particular that these forward-looking statements may be affected by risks relating to the spread of and impact of the coronavirus, COVID-19 pandemic.

Please also note that we are, again, implementing a virtual approach while conducting this call. We ask you to please bear that in mind in light of any potential technology difficulties which could occur.

I will now turn the discussion over to Mr. Jorge Brake. Jorge, please go ahead.

[Jorge Brake Valderrama, executive]

Thank you, Enrique, and good day, everyone. Thanks for joining us today. While the outlook for our recovery from COVID-19 continues to evolve daily at varying speeds, in the market where we are present, Genomma's culture of embracing a crisis mindset to turn challenges into opportunities has been a constant during these turbulent times. We achieved our sixth consecutive quarter of growth and profitability despite this considerable adversity, which makes our company a true outlier in the COVID environment.

I, therefore, would again like to begin by thanking our people for their outstanding effort and dedication. The commitment and the innovative spirit of our team has been great, demonstrated by our rapid response in developing needed products, along with outstanding dedication to ensuring the continued availability of the -- of our products. This underscores our priority of supporting the health and well-being of our customers and our people as we work to serve our communities across our markets, playing an essential role in ensuring health and hygiene throughout Latin America and the U.S.

On Genomma's last earnings call, we have only begun to see the impact of the COVID-19 virus. This quarter, the extent of the impact has become more apparent. The immediate measures taken in an effort to halt the spread of the virus has fundamentally changed the way our customers have had to approach managing their health and hygiene and also their daily shopping needs and habits. Genomma has swiftly captured many related opportunities to deepen and broaden our market footprint and product reach.

Let me cover the highlights of our second quarter results, which speak to the value of our products and to our capabilities as a company. As lockdowns and restrictions were introduced, we saw significant declines for many global retail outlets, at times reduced to a fraction of the pre-COVID level.

However, Genomma's products are carried in retail outlets that are deemed essential, including our traditional retail channel, the mom-and-pop stores in Mexico, as we call it.

Having said that, in Latin America, the preference for digital shopping went quickly from trend to reality. We swiftly optimized and accelerated Genomma's renewed 2020 new reinvestment strategy, reducing but also rebalancing our previously budgeted investment in favor of e-commerce, for instance, to ensure product availability of those digital channels most relevant to our brand profile and markets.

As consumers adapt to today's at-home environment, Latin American consumers are embracing digital technology and accelerated the use of online media to purchase a variety of goods. These sales are having unprecedented impact on the sector, strengthening new sales channels and inspiring a clearer dialogue between brands and consumers. According to a research gathered by Statista, 2019 retail e-commerce sales in Latin America reached over USD 70 billion. Forecasts, taking into account the impact of the COVID-19 outbreak, expect this year to grow to about 83.6 billion in 2020.

As such, Genomma ended June more than doubling the participation of our e-commerce sales. Partnerships with key online retailers, including Amazon and Mercado Libre, along with delivery services such as Cornershop and Rappi and our key accounts to optimize our brand's presence in their online platforms, have enabled us to serve nearly 3x that of last year through these important channels during the second quarter of 2020.

Our outstanding innovation model was also an important driver for Genomma's success during the quarter. We launched new products within old key categories. Further, we leveraged Genomma's antibacterial product line to expand the company's footprint within the U.S. as well as in Mexico and other countries in South America and Central America.

Additionally, notable key brands driving growth during the quarter include the Cicatricure Gold Lift cream in the U.S., Mexico and a few countries in South America within the affordable luxury product category and our successful launch of the Suerox isotonic beverage in the U.S. In the second quarter, Genomma also launched or entered a new razor category in Mexico with a Personal Care portfolio under the Groomen brand with a favorable initial response. This new category represents an important mid- to long-term growth opportunity.

Genomma's go-to-market and market execution also contributed to our performance during the quarter, with a strengthened and deepened presence in the traditional channel in Latin America. And we further increased our points of sales. Despite lockdowns, as I mentioned before, the traditional channel remained open throughout the pandemic and became even more relevant for Latin American customers' immediate day-to-day needs.

We plan to continue our expansion while tailoring our innovation and product portfolio to reach a specific format. A recent example is our launch of Vanart and Medicasp shampoo sachets in Peru, Colombia, Ecuador, enabling our customers to purchase a smaller amount of shampoo at their neighborhood corner store.

In Mexico, quarterly performance reflected continued success of our late 2019, early 2020 traditional channel coverage as well as strong innovation. We saw favorable growth of our Novamil infant care and nutrition brand despite of the lockdown effects on pediatrician's ability to interact with their patients. We expect to gain further traction with Novamil in the quarters ahead as doctors increasingly turn to telemedicine, for instance, to interact with their patients. We have also been fine-tuning our communication strategy in this regard as today's millennial parents are particularly attuned to digital media.

Turning to cost and expense management. As part of our ongoing focus on maintaining and strengthening profitability, during this quarter, we increased our EBITDA margin about -- which Antonio will go into further detail on these specifics shortly.

However, I would like to take this opportunity to share with you an important program we initiated in April when we turned our focus inwards to reassessing Genomma's organizational structure with an eye towards streamlining and optimizing its functionality as part of our long-term strategy for the company and have accelerated this program in light of the current environment. The analysis component of this project was completed in June.

We're examining our structure and reallocating teams and team leaders based on the roles and performance, among other criteria. As a result, many areas in Genomma are being redesigned and/or rationalized to optimize our operations with excellent results and improving savings.

Further, this exercise was an important opportunity to strengthen efficiency across the organization, again, turning the current crisis environment into an opportunity. We expect to complete the second phase of rationalization -- of this rationalization exercise over the quarters ahead. As we accelerate plans, we optimize the company's key processes and functions with benefit of leading technology.

Importantly, I'm pleased to note that Genomma Lab was one of the 29 companies recently included within the new S&P/BMV Mexican -- BMV Total Mexico ESG Index. We are focused on joining other related indices in the future that are aligned to our commitment to the environment and to strengthening the societies where we operate. Along these lines, during the quarter, we donated almost 1 million Genomma products to local communities in need as well as 10,000 meals to frontline medical personnel in Mexico. We will continue these and other philanthropic efforts throughout the current pandemic environment and beyond as part of our corporate culture of supporting those communities where we are present.

In closing, I would like to reiterate my thanks to our Genomma team. The strength of our organization and of our corporate culture has been critical to our success during this period of volatility and one of the reasons we have come through this crisis strong. I'm incredibly proud of the way Genomma has performed in this unprecedented time, capitalizing on opportunities from our relative strength.

With that, let me now pass the call to Antonio, who will walk through our second quarter financials. And we'll be back for Q&A after Antonio's.

[Antonio Zamora Galland, executive]

Thank you, Jorge. Good morning, everyone. I'll begin now by providing some brief comments on our second quarter performance. Genomma achieved solid consolidated net sales reaching MXN 3.6 billion. This is an 11% increase year-on-year. As Jorge has discussed, this was due to strong product innovation, new category sales and increased points of sales achieved during the quarter. EBITDA for the second quarter 2020 reached MXN 755 million, with a 20.8% EBITDA margin. The 40 basis point margin improvement was due to operating leverage from higher sales, positive sales mix effects and continued savings and efficiencies from our effective extensive cost and expense containment strategies.

In Mexico, Jorge has described a positive sales and margin growth within this market supported by innovation, improved fill rates and additional point of sales within the traditional channel. We achieved MXN 290 million EBITDA for the quarter, a 19.2% EBITDA margin, reflecting 50 basis points year-on-year increase due to a robust operating leverage associated with top line growth, strict cost and expense control and strong growth of higher-margin products within this market.

Genomma's U.S. operations performed particularly well during the second quarter of 2020, with a 48% year-on-year increase in net sales to reach MXN 478 million, a reflection of the successful implementation of our 2019 restructuring strategy. As Jorge said, restructuring 2.0. The 3.4 percentage point of EBITDA margin contraction we saw within this market was due to increased marketing, visibility and communication strategy investments to support new categories and product launches.

In Latin America, an almost 9% year-on-year increase in sales were also the result of strong product renovation and new line extension launches, improved product visibility with key pharma clients as well as, to a lesser extent, increased e-commerce sales. These were mitigated by consumer demand, adversely impacted by the various degrees of quarantine within the countries where Genomma is present.

Strengthened EBITDA for Genomma's Latin American operations reached MXN 460 million, with a 190 basis point year-on-year margin increase. This margin improvement was due to increased sales of higher-margin SKUs during the second quarter as well as SG&A optimization and efficiencies. This was partially offset by ForEx and macro headwinds within some of Genomma's Latin American markets.

Net income for the quarter was also a clear reflection of our strong execution of our -- and our focus on growth and profitability. Second quarter net income reached MXN 735 million to close with an impressive 48% year-on-year growth. Genomma's balance sheet remains strong, ending the second quarter 2020 with a leverage ratio of 1.9x net debt to EBITDA and MXN 1.2 billion cash position, reaffirming our commitment to maintaining a strong financial position and liquidity.

During the quarter, Genomma was able to successfully place short-term commercial paper in the Mexican local market twice. Both issuances were oversubscribed despite the challenging COVID-19 environment in Mexico. It's important to note that Genomma is one of the very few companies within the Mexican market to place submissions at the longest 1-year term for this particular commercial paper market.

The company will remain active in opportunistically refinancing the debt to extend maturities and improve the cost of financing.

In closing, as Jorge mentioned earlier, we are focused on executing -- sorry, on execution and are well positioned to perform in today's dynamic environment -- dynamic and challenging environment. I think we should stress that. We are confident that we will prevail during this challenging period.

With that, let's turn to your questions. Dario?

[Operator]

[Operator Instructions] Our first questions come from the line of Luis Yance of Compass.

[Luis Yance, analyst]

Jorge, Antonio, Enrique, I hope you guys are doing well, and congrats on the good results. Two questions on my side. The first one is the divergence we saw of Mexican top line growth on OTC in particular versus LATAM, LATAM and U.S. being quite strong. Mexico kind of down year-over-year. If you could talk a little bit about why that divergence and whether that should correct going forward, but also the other -- the positive divergence, which was on the Personal Care side, which I understand, obviously, LATAM and U.S. suffer a bit from the lockdown measures. But Mexico, in particular, on Personal Care, was quite strong.

And that was -- and I guess a lot of it had to do with the innovation and some of the new products and the points of sale. But I wonder if that strength eventually will filter down into some of the other markets as you start moving some products there. So that would be my first question. If you could talk a little bit about that.

[Jorge Brake Valderrama, executive]

Okay. This is Jorge. Thank you for your question. I will start with the OTC front. There, the differences you see is -- basically, is a matter of where the opportunity is bigger or has been bigger and more relevant. As you know, and we've been saying this in the past quarterly reviews, our business is -- OTC business is quite more developed in Mexico than in Central, South America and in the U.S. So during this period of time, we have taken that seriously and accelerated several plans that are obviously helping more and showing in the numbers of the rest of Latin America and the U.S., as you have seen.

So that's the main difference here because in overall terms, all the markets have been -- in terms of the channels, we recovered, quite open during this crisis. We have grown in key brands that are related to key health benefits that are obvious for this type of crisis that we are living, pandemic crisis that we are living.

So as I said, in general terms, I would say that the opportunity was more relevant in other countries, and that is what we are taking advantage of, expanding products as part of our innovation program, launching new brands or expanding line extensions in certain countries. We see that in several countries, that we are really growing more rapidly than in Mexico.

In the case of PC or Personal Care, yes, you are right, too, because the growth we're seeing in Mexico is very relevant because of new products. Innovation is playing again a big role on this one. We've been able to launch a new line extensions of shampoos like Tío Nacho that are helping the brand grow in double digits behind those news. Asepxia is another one that has -- is enjoying new products and new line extensions. And that is reflected in the numbers.

I want to reinforce before closing my answer, is that now we are seeing the importance of putting the right priority design innovation. You've been hearing from us in early 2019 that the product innovation pillar, as part of our 4-pillar new strategy, was a key priority. And now it's proving that, that was the right choice for the company because the growth that you're seeing in overall terms in the different countries in Q2 and also in Q1 and that we will continue seeing in the rest of the year is basically behind innovation.

And that's the first phase of our new innovation model. We're still fine-tuning, improving the model, and it's already delivering results. And we decided at the beginning of the quarter that we were going to continue with the plans that were behind our innovation model even before the COVID.

So we implemented the plan. We were able to manage the situation and results are showing. So that's one of the, let's call it, the risks we took at the beginning of the quarter. But fortunately, it's working for us because the execution has been outstanding in the different markets.

[Luis Yance, analyst]

Great. And then my second question is on margins, especially at a gross margin level, the contraction we're seeing. And you guys mentioned in the temporary effect of accruing raw material inventories and some related cost to the plant. So is it fair to assume that gross margins will remain under pressure until the new plant is online? Or are you taking any sort of measures to mitigate the impact at the gross margin level?

Because I understand, obviously, at the EBITDA margin level, you're doing a tremendous job and it's actually expanding. But I was just wondering if you could comment a little bit about the trends at a gross margin level.

[Jorge Brake Valderrama, executive]

Yes. I will -- thank you -- I will let Tonio give you more detail on that one, but just one quick thing that I would like to say is that, yes, we are very focused on gross margin. We are very focused on COGS. And the thing that you're seeing right now are results of some short-term things that were happening in the last few months. But our focus on that area will certainly produce some progress even before the plant is operating. Tonio?

[Antonio Zamora Galland, executive]

Yes. Thank you, Luis, for the question and your comment, Jorge. I think, Luis, that you very well pointed out the issue of the plant. We are accruing a number of expenses and buying raw materials to start the ramp-up of the plant. That will continue for a short while. But there's other issues that -- or there's other aspects to take into consideration.

The type of top line growth that Genomma presented during the quarter, as we said, it's not common if we compare against other companies in Mexico and Latin America. And part of that has to do with launching a lot of innovation. We saw in Brazil the launch of Next, which is an OTC product; and Groomen in Mexico, the razor category; hand sanitizers in the U.S., et cetera.

So when you are entering new markets, usually, you have to be very, very attractive in terms of pricing just to start gaining momentum and market share. So when you do new launches, there's going to be some pressure on the gross margin. If you just look at that, the way we are looking at this is we want to be accretive at the EBITDA margin, okay?

So even if it's pressure in the COGS line, what you have seen here is that with cost containment strategies and lowering expenses, we were able to expand the EBITDA margin, which is the -- in the end, what matters. And as we all know, once we have the plant, we will be able to lower COGS and then expand the gross margin line in the P&L.

But I think it's more important at this moment, and while we do the ramp-up of the plant, just to look at the EBITDA line because we are managing different lines of the P&L to secure growth -- a significant growth as we have achieved not only this quarter, but since the new strategy implemented by Jorge was in place, but also expanding EBITDA margin. And that, we think, is going to continue for the coming quarters. And as we ramp up the plant, there's going to be more synergy -- we expect to have more synergies. That's part of the plan. But I don't know if this answered your question, Luis.

[Operator]

Our next questions come from the line of Antonio Hernández of Barclays.

[Antonio Hernández Vélez Leija, analyst]

Congrats on your results. So actually, a follow-up on the previous gross margin question. What we can say then going forward is that maybe a strategy in terms of these new product launches is being price-competitive, but in the end, maybe not so much of marketing expenses that the EBITDA line impact is kind of offset of lower gross margin. But as I said, lower also marketing expenses, and then as you said, focusing on EBITDA. Is that how we should see it?

And a follow-up would be in terms of sales mix. Have you seen any shift as the ones have in the different operating geographies? How is, for example, Personal Care performing? Or any other light that you could share with us.

[Jorge Brake Valderrama, executive]

Tonio, could you take the first part?

[Antonio Hernández Vélez Leija, analyst]

Sure. Yes. First part of the question would be a follow-up on gross margin. Just I wanted to see if I would be correct. So focusing on EBITDA because of maybe lower marketing expenses but trying to be more competitive only in terms of pricing. But because of the lower marketing expenses, there's an offset. And therefore, EBITDA, that's why it's now expanded.

[Antonio Zamora Galland, executive]

Antonio here. It's a very good question, Antonio. And let me -- I just want to clarify my statement -- my earlier statement was to explain what happened during the quarter. That doesn't mean that it's going to be the strategy for the whole company for the whole quarter. So I think that the beauty of diversification is that we operate in 18 markets, 18 -- and each market has its own characteristics. And we operate across many categories. So my earlier comment had to do with the product launches of this quarter.

Now in -- and again, it was a 10,000 feet comment because, obviously, the specific situation of Next in Brazil is very much different from Groomen in Mexico or from hand sanitizers in the U.S. As you know, we don't disclose profitability by segment because we want to protect the rights of investors because we know that our competitors are also carefully looking -- listening to this call.

So for competitive reasons, we don't do that. But we need to understand that it's not -- depending on the category, the strategy needs to be tailor-made to that market, to that category in order to be successful.

And as Jorge has mentioned, in earlier calls and one-on-ones, part of the idea is that we want to de-niche the company. So instead of participating in just niche segments, which sometimes are very profitable, but they might be small, we aim high and we want to do things that are of a substantial size. And if you look at what happened in the U.S., that's a clear reflection of that.

So I wouldn't generalize. I think that what you need to take into consideration is that we are not only looking at the top line growth. We are looking at top line but being very careful of making sure that profitability is there and that cash flow follows as well because that's how we create value. So if in one specific situation, we need to have a lower gross margin, then we'll make sure that we lower our fixed expenses in whatever way in order to make sure that we deliver the profitability that our shareholders would like us to do.

But there's other categories that are highly profitable, and we aim to enter those segments in those markets. So my comment is it's not a general strategy. It depends again on a category-by-category situation, in a market-by-market situation.

And then even in the -- let's talk about OTC. OTC, now in the case of Genomma, includes, obviously, over-the-counter medicines but also isotonic beverages there. And when you look -- and just adding a little bit on Luis Yance's earlier question. Why did you have a slight decline in Mexico? Well, it is because as Mexico was facing the lockdown, not many people were visiting the changarros, the mom-and-pops or the OXXOs buying the beverage. So that affected that particular component.

But I think that it's more important to look at Genomma as a whole, as a portfolio of markets, categories, opportunity that we are going to be capturing instead of generalizing one comment. I don't know if this clarifies my earlier comment and it answers your question on tocayo.

[Antonio Hernández Vélez Leija, analyst]

Yes. Yes, actually, this did. And just a follow-up in terms of sales mix as lockdowns have eased, are you seeing any difference from pre-COVID?

[Jorge Brake Valderrama, executive]

I will take this one. I think it's a good question because your question is related to how it -- how sales or consumption is behaving in different countries across Genomma's operation. And I think it's good to be able to give you a perspective. As countries started to open up, and this happened basically in the month of June, late May, June and now it continues to happen, we started -- and at the same time, we were implementing the initiatives that we were implementing in the different countries.

As I said before, we have innovation in terms of product in all the countries, basically in all major countries where we operate during the quarter. That's a major achievement in terms of being disciplined and behind the position of really going after our innovation plan regardless of the COVID virus. So as we were implementing these plans, countries started to open up. And we saw a great reduction from the consumer, as I said, in most countries, especially the major countries in which we operate.

So just to give you an idea, in the last weeks of June or within the month of June, we've seen sellouts. In this case, we are talking about sellouts, the products that the retailers and our clients sell to the final consumer, which is a very important metric. As you can imagine, we see sellout growing at double digits in our products behind the product initiatives we have been launching during the quarter.

And that happened with Cicatricure Gold, for instance, in the case of Argentina and Chile, also launched in Mexico, Asepxia Carbon in the U.S., Colombia, Peru, Argentina. Sachets of Vanart and Medicasp that are also making us low double-digits in the countries because -- in the [ 10 ] countries because we are entering basically a new channel, which is a traditional channel that is so important in those countries. As I mentioned, it would be natural line extensions that are making the brand to grow in the U.S., in Brazil, in Mexico, et cetera, et cetera.

So in overall terms, answering your question, we're seeing positive results in most of the countries, mainly in the major countries behind a pipeline of product innovation that continues to be executed with excellence. And in this case, they were favored by the fact that in most countries in Latin America, they started opening up in late May and during the month of June.

[Operator]

Our next questions come from the line of Alex Falcao of HSBC.

[Alexandre Falcao, analyst]

I just wanted to touch based on your perspectives on where you are on the entire transformation of the company, meaning when you look at your countries and your products, in terms of knowing how much return on invested capital, return on invested marketing revenues you have for the entire portfolio, how much are you on that? How much is the innovation in terms of expanding some of those product lines? We know that you guys did a fantastic job in Mexico on this. But I just wanted to get a grip on -- is there still more from other regions and other lines on that? And if economic activity returns, will those benefits actually be reaped even more faster -- even faster and more pronouncedly here?

[Antonio Zamora Galland, executive]

Thank you, Alex, for your question. This is Antonio. Yes, we take very much into consideration ROIC. As you've seen, the latest launches, product launches, a lot of innovation coming from the infant formula business or from razors required no CapEx investment whatsoever. We didn't pay any goodwill to acquire any business. So we -- the way we did it is via strategic alliances and obviously, investing in marketing, we have -- this is part of our key strength, and investing in working capital because we are financing inventories as well as account receivables.

And that's -- so those businesses have very good -- very good returns. Even in the hand sanitizer business, we were using infrastructure from third-party contractors, suppliers that we've used in the past. So we care a lot about ROIC. Probably one of the key comments have to do with the plant. As we complete the commissioning of the manufacturing lines that we have, and we start the ramp-up and the learning curve finished, we expect to drive greater returns from that.

Now talking about specific investments in specific markets. Yes, we decide where to allocate our resources, which categories and which countries, and we prioritize. We have a new very sophisticated innovation methodology that Jorge brought to the company with a lot of financial strength in the analysis, NPVs, ROIs, ROIC. And each and every single initiative gets evaluated. And we decide whether we do one or we'll do another and what gets prioritized versus other opportunities.

Sometimes, we need to accelerate a specific one just because the opportunity is there and we don't want to wait. And sometimes, some very promising projects, we have to wait a little bit because there are some regulatory constraints that need to be solved before we do them. But that's -- there's a lot of financial discipline in terms of innovation, in terms of investments, in terms of countries, products, categories.

For the time being, we want to be focused in the markets where we are present, Latin America and the U.S. But eventually, as Jorge has mentioned, we may not limit ourselves to that geography. But for that to happen, there's a lot of room for growth in the countries where we are, and we want to tackle those first. And eventually, we may look at other opportunities. We are always open to listen to other opportunities, both organically as well as inorganic.

I don't know if I answer your question or if Jorge wants to expand a little bit on that.

[Jorge Brake Valderrama, executive]

Yes. Just a quick comment to complement what Antonio said, just reinforcing the fact that today's innovation model that we implemented starting 2019 and we've been improving gradually during this last month and quarters and we will continue improving that as we continue learning and becoming more experts on how to use it.

But it is a very disciplined model. It not only produces creativity from our multi-functional, multi-country teams that bring the ideas to the innovation committee every month but also includes other criteria that is very strict, I would say, in financial terms.

So when an opportunity is brought to the innovation committee, as I said, we have 2 full days of the month on these discussions by the different teams. It's not only the opportunity from a market and consumer standpoint, but it's also opportunity from a financial standpoint, NPVs and returns on investment and forecast projections and potential sales and inventories and all -- and COGS projected, et cetera, et cetera. All of those variables are part of the discussions as projects move from opportunity to feasibility and then they are approved to be implemented in the following quarter or quarters.

So just wanted to reinforce. And this is valid for all countries, not only for Mexico or the big countries. It's valid for all countries. Everyone has to go through this. And we become very agile. We are agile, and this is a very dynamic and continuous -- process in a continuous improvement. But it's now, after 1.5 years of having been implemented, much more solid than before. It will be better next year, but it will continue filling the innovation panel that we want to be here forever.

As you have heard me saying before, I think innovation is at the heart of any company. And companies that stop innovating on a going basis will soon -- or sooner or later, hit a wall. And that will be a very bad situation. So we don't want to be there. That's why we are putting so much attention on the pillar of our strategy.

[Antonio Zamora Galland, executive]

Just one last comment building on Jorge's point, Alex, and I think this is very important. When we talk about this innovation process and the financial discipline, we are also evolving and transforming the company because now our commercial people, marketing, sales, they are also very much involved in the S&OP, sales and operations planning, in order to streamline our inventories and to make a very effective use of our working capital. And the way to look at this in the figures that we publish for -- I mean, the results is that we've grown double digit for the whole company. And at the same time, our cash conversion cycle remains stable.

Generally speaking, in order to grow -- to achieve that kind of growth, you also -- you need to invest a lot in inventories and account receivables. And usually, what happens is that the cash conversion cycle deteriorate. But that was not the case of Genomma, and that has a lot to do with the discipline that Jorge described and the fact that now everybody is involved in the -- this kind of supply chain metrics, KPIs as well. And that -- again, that goes back to your question about return on investment capital -- on invested capital or making proper use of resources. Just wanted to complement that.

[Operator]

Our next questions come from the line of Richard Dolhun of Westwood.

[Richard Dolhun, analyst]

Jorge, Antonio, Enrique, congratulations on the great quarter. I have just one question, and that has to do with your top line growth. Could you break down that 10.9% number by organic sales versus line extension versus internally launched new products? I'm guessing like the razors versus some of the in-licensed products like the recently infant milk. Could you give us a sense of what's making up that growth, please?

[Jorge Brake Valderrama, executive]

That's a very difficult question, but I will just say something briefly, and then I will let Tonio give you more detail. You know that I was -- I asked the same question a fewer weeks ago, obviously, to understand the detail of what was behind the 10.9%. And I would say that from a geographical standpoint, you have the prospective. That is seen in the report when we divide the U.S., Mexico and Latin America.

U.S. is a big driver, about 10.9% from a geographical standpoint. And as you know, that's mainly behind product innovation, including the new lineup of gel antibac. Latin America is -- the rest of Latin America, excluding Mexico, is also doing great behind all these innovation that we have. From a geographical basis, it is very clear.

From a product standpoint, the only thing that I wanted to say is that because I asked -- I did have the same question by other people in the last few days, is that about 1/3 of that growth comes from new products, including gel antibac, more or less. The other 2/3 come from initiatives that are related to our current portfolio. And that's not a very good balance, I would say, balancing act that we are implementing because our current base business is growing in a very healthy way while we are taking advantage of opportunities in the market and launching new products. Tonio?

[Antonio Zamora Galland, executive]

Yes. Thank you, Jorge. Richard, yes, thank you. Again, great to hear from you this question. It all depends on how you define -- and Jorge provided a great answer, but it also depends on how you define innovation. And let me explain what I mean because, for example, the launch of Next in Brazil, for Brazil, that's innovation because we didn't have that product or that brand in that market. But we have that product in other markets that were very, very successful.

So what is that? Is that organic because that's something that the company already had or that's innovation because that product and that brand didn't exist in that market?

What we are trying to do, and this was the comment that I wanted to make, is we are following the, what we call, the route to success. So once we have a product launch in one category with one brand in one specific market, then we replicate that in other markets. So Next in Brazil was the example of this quarter. A couple of quarters ago, we described Cicatricure Gold. Remember with Valeria Mazza, that started in Argentina, and now it's being launched in a number of other countries. Suerox in the U.S., it's innovation for the U.S. and Puerto Rico. But for Mexico, it's organic.

So it's a mixture. What's important for us, for the investor community to know is that this innovation is proven innovation, not only because we've done it in certain markets, but because we are replicating what is profitable. Sometimes, very large consumer good companies launch innovation with an idea of, yes, it might work, it may not. And -- but in the end, sometimes for those companies, the margins are diluted. And it's a bet and let's see if it works or not. In our case, what we're trying to do is be very prudent, again, following on Alex Falcao's question in terms of being very prudent and very disciplined.

So there's a lot of innovation in terms of replicating what has worked or what we can improve. And then there's true innovation from scratch like the hand sanitizer business that didn't exist back in February. We've never manufactured or sold a single bottle of it. And now it's a very relevant business. Or razors. So it's a mixture of both and -- but the important thing is that our innovation is a little bit organic, and it's proving, and we have that route to success that we can replicate. I just wanted to add that to Jorge's comment.

[Operator]

Our next questions come from the line of Sylvia Bigio of Itaú Asset.

[Sylvia Bigio, analyst]

Yes. Jorge, Tonio, Enrique, congratulations on the outstanding results. Very impressive in the middle of the pandemic. I have a couple of questions. So one is, could you share with us some of your plans for these 2 very exciting and large categories, antibacterial and razors, for the next year in terms of penetration of countries, new product extensions of the antibacterial, et cetera?

And then the other question is, could you give us a sense on the penetration of the traditional channel in Mexico and in LATAM that you're having right now relative to your plans or targets for that channel?

[Jorge Brake Valderrama, executive]

Okay. I will take this one. Nice to hear you. On the first one, I would say that -- let's start with antibac and gel. Our decision was to go as efficient as possible with this project. So that's why we decided to focus and prioritize the U.S. and then Mexico. Those are the 2 countries that are now a part of our strategy in the short term, I would say, the rest of the year at least. Those -- because those are the larger markets for this category because our capabilities are very strong in these 2 countries, including the U.S. after the restructure we implemented in the U.S. in late 2019 and because of the size of the market.

Now, of course, the size of the market, this is very important and relevant. And the projections we have in terms of the growth of these markets in these 2 countries. Obviously, we will continue confirming the opportunities we have in other countries, in the rest of Latin America, as we grow in the next few months. But for the time being, that's our key focus.

In addition to that, we will continue exploring. And as I said, we want to digest the gel antibac project first, but we will also continue exploring opportunities in other antibac subcategories so that we can continue growing our presence in the general antibac category while we continue exploring and developing other countries as we go -- as a Phase 2 of how we have been -- our entering in this category.

As I said before, habits changed during the crisis. Consumer habits are different in many, many situations and cases, and this is one of them. Hygiene here and the focus and attention that the consumer is putting in hygiene with antibac products for surface, for their homes, for their body, for their hands is here to stay. And that change in habit is confirmed by different sources of experts that are telling us that this change in habits will make these categories grow, continue growing and here to stay. So we are going to continue taking advantage of that, as you can imagine.

In terms of razors, this is a great category, and our initial weeks in Mexico have been positive. We have clear expectations and a clear vision for what we want to achieve in this category in Mexico from now to 2021. And as we continue making progress in the category based on the results in Mexico, we will start lightening the greenlight for the other countries.

So of course, we will focus on the country where the opportunity and the category is big and where we can make good profits. That's already part of our plan. We have it on paper, but we won't trigger the plan until we reach a certain point of development of -- based on our results in Mexico.

So yes, it will be expanded. We will wait and see for a certain period on our results in Mexico, mainly all 2020. I think 2020 will be a great proof of success. We are very positive, as I said, on the initial results. Without being too specific, but we have key retailers in Mexico where we have already a significant portion of market share in the category, which is one of the key metrics we use to measure our success. And so it is happening. It is strengthening and improving what we do, but it's happening and looks positive. Your second question was, I'm sorry?

[Sylvia Bigio, analyst]

Yes, if you could give us a sense of the penetration that you currently have of the traditional channel in Mexico and LATAM relative to your plan.

[Jorge Brake Valderrama, executive]

Okay. Yes. You've been hearing from me also since almost I joined the company almost 2 years ago that our -- one of our great opportunities and white spaces in Genomma was the traditional channel. Basically, we were not present with that channel. I would say in 2017, '18, we were starting to focus on that channel, but it was still a great opportunity for the company to expand our presence in the channel through the right sales coverage and the right portfolio of products because we need to do both to be successful in that large channels, as you know, in several countries.

So I'll give you an idea that we call it commercial innovation, if you want, as part of our go-to-market pillar. But we have been able to get to several hundreds of thousands of changarros or mom-and-pop stores. And I'll tell you in Colombia and Peru, for instance, we already have surpassed in just 2 to 3 months of having launched the sachet of shampoos, which is the perfect SKU or presentation for that type of channel, more than 150,000 mom-and-pop stores in the first 2 months of our campaign in both countries. As you know, Colombia, Peru, Ecuador, Central America and Mexico will be a part of the project because those are the countries in which this channel represents a big portion of the consumption that is produced in those countries.

So those are big numbers. In Mexico, I've been saying that we already cover more than 200,000 changarros and continues -- via continuous expansion. During the crisis, we hired people to continue expanding our programs in the traditional channel in Mexico, and we've done the same in the Andean region behind a better portfolio of products for the channel. And that will be an ongoing project. We will continue expanding, and every quarter, we were going to be able to say, now we are covering more and more. We will be at the 0.5 million mark between these 4 or 5 countries by the end of the year, I think. That was one of our visions. Or early next year.

And that will be a very efficient "coverage" because we will be covering most of the consumption that is made in those countries, representing 0.5 million changarros. The 80-40-20, I would say, of the consumption in that channel. So continues to be a great opportunity for us. We still have many other products that we will be launching with the right SKU. It's more or less a year in those products and in those countries on the next several quarters.

[Sylvia Bigio, analyst]

Great. If I could steal one more question. Now that Mexico seems to be on the road of opening, are there any planned visits by COFEPRIS to finally give the GMP license to the plant? It looks very impressive on the pictures, by the way.

[Jorge Brake Valderrama, executive]

Okay. As you know, we've been ready to -- for the approval of GMP since the second quarter -- third quarter of 2019, actually, when we sent and requested the audit for the approval of the GMP. And then a combination of delays from COFEPRIS and then the virus came after that didn't play in our favor.

We have heard that COFEPRIS will be restarting these processes very soon, within these months. So we expect to be out of -- be first on the pending list so that we can get that visit for the OTC plant soon, hopefully. But still, will depend on what they can do and what they decide to do.

On the other plant, which is Personal Care, we have good news because we are right on track versus the plan. We have -- we started the installation of equipment for the shampoo line and the Suerox line in June. We have the Italian team that finally was able to come to Mexico working with our team and other technicians, experts on this type of equipment in Mexico, working together. And the pictures that I've seen are impressive. We are very well advanced so that we can start with dry runs more or less in a month from now. And our vision continues to be to start the first lots of production of shampoos and Suerox at the end of this quarter. So that is good news, and the plan continues to be on track.

[Operator]

Our next questions come from the line of Jose Garcia of MFS.

[Jose Garcia, analyst]

Yes. Jorge and Enrique, just 2 questions. From a cultural perspective and long-term management perspective, are there any human capital holes, meaning people that you're looking for in terms of key positions in any of your business lines or geographies?

And the second question is, I know it's pretty new but the pension bill reform just proposed. How does that affect you if it did happen and the contributions went from 5%, 6% to 14% or whatever the change would be?

[Antonio Zamora Galland, executive]

Thank you, Jose Luis. Yes, the pension fund reform is fairly new. It's just on the news. And the quick answer is it will affect the same to all companies in Mexico. And labor is one component of our COGS, but it's not the only component. There's -- so I mean I don't see any specific implication. As everybody knows, Mexico is the most efficient country in terms of manufacturing. The cost of labor is cheaper than China. So I don't anticipate that with this pension fund reform, that is going to change.

We decided that we would establish a manufacturing facility in Mexico, not only because labor is competitive, but also because there's a very long tradition in Mexico as a manufacturing country. There's a lot of manufacturing that is done in Mexico that is linked to North America, to the U.S., Canada, et cetera. Unlike other countries in Latin America, there's a lot of that in place in Mexico.

There's a lot of -- our workers are extremely efficient. And we are very well located in terms of sourcing the U.S. or Latin America. As you know, our manufacturing facility is just 2 miles from the intermodal port. So we can ship goods by train to the U.S.

So we have a number of cost advantages. I don't think personally that this pension fund reform is going to impact our business as much as perhaps other companies that their labor cost component is a lot higher. But even for those companies, I mean, this is a level playing field. It's the same rules for everybody. So personally, I don't anticipate there's going to be some costs, yes. But that shouldn't change, at least in our case, the whole thing. That's my perspective. But still, it's a -- I don't know, Jose Luis.

[Jose Garcia, analyst]

Then on the capital -- human capital talent leading to holes long term?

[Antonio Zamora Galland, executive]

Human capital. You had -- you're talking about talent, talent that we need, that's your question?

[Jose Garcia, analyst]

Yes. Just if you feel that given all the growth, different categories, different everything that you're doing, are there key positions that you need to fill to make sure that the growth and the success continues? Any one...

[Antonio Zamora Galland, executive]

What I can tell you is -- and Jorge has described this a number of times, especially since he joined the company. We upgraded a number of key position in specific markets, sometimes promoting people from within. We have very good talent. I mean person who was in Central America was promoted to Chile, and she was instrumental in terms of achieving double-digit growth -- significant double-digit growth in that market. Just to put one example. And now the person who's leading Central America was also promoted from another position that he had in Mexico. But we also hired key talent for Brazil and for Argentina. And those markets are performing really, really well.

And I will let, when I finish, Jorge expand a little bit on this question. But what I just wanted to highlight is that the organization as a whole is very, very highly motivated because under this stressful and challenging environment of this pandemic, and while many companies are struggling and suffering, we've been able to thrive with innovation with -- and transforming. And success motivates people and people motivated being more success and it's a self-reinforcing cycle. And we are looking at that.

And the fact that we enter new categories like Next in Brazil, Groomen in Mexico, the razor business or hand sanitizer in a very, very fast way and efficient way, that reflects that the people that we have today is the right people. And they are motivated, and we are very happy with them. But I don't know, perhaps Jorge would like to expand on the answer that I just provided.

[Jorge Brake Valderrama, executive]

Just quickly, I want to highlight the fact that 1 of our 4 pillars in our corporate strategy is exactly human capital, the development of talent and the evolution of our culture to truly have a winning culture with the right balance in the right place at the right time. And that, I guess, a huge priority for us. I am a believer and my team and our Board are believers that people are the key drivers for anything that happens in the company. You're going to have the best plans and the best strategies on paper, even have the -- as you said, if you don't have the right people in the right place at the right time, then those plans or strategies are not fully exploited. So that's a priority.

We have, as we speak, implemented a plan that is, as I mentioned in my remarks, behind optimizing our organizational structure, roles, responsibilities, processes, using technology also. And we are going to finalize all of that by the end of this year. We already completed Phase 1, and we are going for Phase 2 of that project.

But in addition to that, we start -- we are implementing talent, key roles and responsibilities review that will be an ongoing program, an ongoing program by which a few of our key people will be part of a team that develops assessment program, analysis program and succession plans and development training plans for our key people on a going basis. And that is a big change versus the past 2.

We are going to be able to do that starting now, maybe second semester, so that we really are ahead of the curve in terms of making sure that we have the right talent everywhere. We have improved a lot in the last 1.5 years, but part of the plan that as we do with innovation for this to become something that we do ongoing on an effective way.

[Jose Garcia, analyst]

Congratulations on everything you're doing.

[Jorge Brake Valderrama, executive]

Thank you.

[Operator]

Our next question is coming from the line of Andrés Ortiz of Crédit Suisse.

[Andrés Ortiz, analyst]

Jorge, Antonio, Enrique, quick question from my side. I just want to understand a little bit more about your working capital dynamics, particularly in terms of account receivables. We saw a 16-day increase year-on-year. And we already completed a full cycle of high growth in the last 12 months, right? So trying to understand a little bit about this number, as a great part of your strategy is increasing presence at the point of sale in the traditional market, right? So these guys actually pay in cash, if I'm not mistaken. So I just want to understand. Why is that 16% -- 16-day increase? And what actions are you -- have you put in place to mitigate and to reduce cash conversion cycle going forward?

[Antonio Zamora Galland, executive]

Thank you, Andrés, for your question. There's only one thing that I would like to clarify in your question because when you say that the full cycle has been completed, my answer is no. It has not. The full cycle gets completed when growth stops. And we are -- we keep on growing. And the more we grow, the more accounts receivable will grow. Why? Because as you know, the balance sheet is the position of a specific date, in this case, June 30. But sales have been growing throughout the quarter and the previous quarter and the past 6 quarters. And if we continue growing, accounts receivable will continue growing with that.

Now the interesting thing is that top line grows faster than accounts receivables. And we've been able to keep, in terms of numbers of days sales outstanding, pretty much in line with what we've shown. So my suggestion would be not to look at the 1-year cycle because the cycle basically ends when you stop growing. And as long as we keep the cash conversion cycle in line as we have in the past, I think that it's going to be working well.

The other thing that's important is -- and yes, you are very right in a sense of pointing out that selling to the traditional channel is much more effective because you sell in cash. So accounts receivable don't grow as much. But then we also need to take into consideration that part of this growth is coming from many geographies. I mean the products that we launched in the U.S., hand sanitizers, Suerox, et cetera, we are selling to the modern channel there. So we need to finance those receivables. In Argentina, we are growing significantly in OTC. Tafirol keeps on growing and we sell to pharmacy chains. And Next in Brazil was also launched to the modern trade, et cetera.

So it's a combination of many categories in many countries. And I agree with you. The more we sell in the traditional channel, the more efficient accounts receivable become. But there's many factors to take into consideration. So I will expect accounts receivable in absolute terms to keep on growing as we keep on growing the top line. The important thing is that the cash conversion cycle, we keep it in line with our growth.

As you've seen, we've been very prudent, I mean, versus other companies that we are sometimes compared with, especially some Brazilian companies. And when you look at their cash conversion cycle, it's horrible. It's terrible. They grow, but the inventories skyrocket, and the accounts receivables are all over the place. That is not our case. As we've mentioned in earlier times, we don't sell-in more than we sell-out. Sell-in and sell-out are pretty much in line.

There's some seasonal variances that are reasonable because we sell a little bit ahead of the winter season in order to be at the point of sale. So that's normal, but that happens every year. And as I mentioned earlier, Andrés, our commercial team is now focused not only in terms of the top line, but they are very much involved in inventories and raw materials, et cetera, because the role has been upgraded more as general managers, not only marketing leaders or sales leaders.

So rest assured that we are very much committed to managing cash. We know cash is king. And the cash conversion cycle and the working capital, in particular, is very important for us.

So I mean your question is very good. When you look 1 year versus the prior year, the question is very logical. But -- and generally speaking, the kind of growth that we are showing is not very usual, but it's already been 6 quarters, consecutive quarters of growth. And as Jorge has mentioned, he wants to de-niche the company.

So we anticipate growth to continue and this trend to continue in the future. Hopefully, consumers will keep on preferring our products versus our competitors. I don't know if this answered your question, Andrés.

[Jorge Brake Valderrama, executive]

Andrés, just a quick comment, Jorge here, to close this one is that today, we're in a much better position than we were just a few months or a year or 1.5 years ago, not only because of what Tonio was saying but because of structurally, we have implemented different -- several changes in our -- in the way we work in the company so that this can be a clear improvement in the midterm behind cash conversion cycle can be achieved. So allow me to give you 2 examples only.

One is that our COO in the company, Marco, is in charge and has a very, very clear and detailed plan for the next 2 to 3 years, especially in the areas of focus on the operational areas, which are account receivables and inventories in the whole system, including raw materials, finished product, et cetera, et cetera, a very clear plan to get to a specific objective, which is a major improvement versus where we are today, as I said, in the next 2 or 3 years. And that plan has been deployed and is part of the income of our key leaders for -- by country, including the country managers and by category, including our business unit category leaders.

So that combination, that matrix is already working, as I said, it will be part of their compensation and their goals, working on specific plans by country, by trade channel, improving the S&OP process, working with the supply chain and the manufacturers, et cetera, et cetera, et cetera, so that we can design a holistic plan, get there in 2 or 3 years.

And the important thing here is that this is not a onetime effort. This is something that we have implemented so that our whole system behind cash conversion will continue in the long term, keeping those goods or even improving those results in the future.

[Operator]

That does conclude the question-and-answer portion of today's conference call. I would like to turn the call back over to Mr. Jorge Brake for any closing remarks.

[Jorge Brake Valderrama, executive]

Thank you for joining today's call. Our second quarter unfolded during an extraordinary period, and Genomma's results speak to the value of our products and to our capabilities as a company. Our ability to deliver strong results with the volatility of the quarter highlights our agility, strong foundation and the engagement of our people.

I am 100% convinced that we will emerge as a stronger company by focusing on our corporate strategy, short and long term, responding to changing consumer behavior and swiftly capitalizing on consumer trends, which are further accelerated during crisis like this. We are confident in our ability to perform in this dynamic environment and continue on our growth trajectory to deliver strong shareholder returns while we empower our customers to achieve exceptional health and wellness.

Thank you for your attention today and see you soon.

[Operator]

Ladies and gentlemen, that concludes Genomma Lab's Second Quarter 2020 Results Conference Call. We would like to thank you again for your participation. You may now disconnect.