Genomma Lab Internacional SAB de CV

BMV:LABB

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Genomma Lab's Second Quarter 2021 Results Conference Call. [Operator Instructions] A replay will also be available shortly after the conclusion of the call.

I'll now turn the call over to Barbara Cano of InspIR Group. Please go ahead, Barbara.

[Barbara Cano]

Thank you, Robin. Good morning. Welcome to Genomma's Conference Culture Review Second Quarter 2021 Results. On today's call are Jorge Brake, Genomma Lab's Chief Executive Officer; and Antonio Zamora, Chief Financial Officer. Our results were released yesterday afternoon and can be found within the Investor Relations section of our website, along with the appropriate filings with the Mexican Stock Exchange.

Certain comments made during today's discussion may be deemed forward-looking statements within the meaning prescribed by the securities laws, including statements related to future business and financial performance. All forward-looking statements represent management's judgment as of the date of this conference call and are subject to risks and uncertainties that can cause actual results to differ materially from current expectations. Investors are urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filings with the Mexican Stock Exchange.

In particular, uncertainty remains about the duration and impact of the COVID-19 pandemic. This means results could change at any time due to the pandemic's impact on the company's business results. Management's outlook is a best estimate based on the information as of today's date. With that, I'm now pleased to turn the call over to Mr. Jorge Brake. Jorge, Please go ahead.

[Jorge Brake Valderrama, executive]

Thank you, Barbara. Good morning, everyone, and thank you for joining us today. Throughout the last 1.5 year, Genomma Lab has come together as a strong team through the pandemic and made decisions prioritizing the safety and wellbeing of our employees, while strictly adaptive to the changing needs of our customers and consumers.

This approach serve us well, enabling us to make meaningful progress on our 4-pillar strategy despite the volatile operating environment. Our team pulled together, we executed with excellence, and we delivered strong operating results. As you read in our press release yesterday, Genomma's second quarter results reflected expected challenging comparison to the prior year as we cycle the demand search that a compliant the COVID-19 pandemic in Q2 2020, while navigating several current headwinds.

Vaccination rates in Latin America continued to lag, with growing unemployment that impacts consumption across the board. Genomma is also experiencing FX headwinds compounded by a challenging macroeconomic environment and inflationary impact across the markets where we operate. However, we delivered MXN 3.9 billion in sales for the second quarter of 2021, a 6.3% year-on-year increase, reflecting Genomma's resilient and dynamic business model based on our 4-pillar strategy.

From a top line perspective, second quarter 2021 represented the 11th consecutive quarter of increased sales, and one of the best quarters in the history of the company. Our sales benefited from the continued momentum of our product portfolio utilization as well as innovation strategies with line extensions and new product launches also within new categories such as Novamil and Groomen, et cetera.

Net sales and EBITDA at Genomma's Mexico operations grew almost 9% and 14% year-on-year respectively, to close at MXN 1.64 billion with a 20.2% EBITDA margin. Latin America net sale reached MXN 1.9 billion during the second quarter, a 15% -- almost 16% year-on-year increase. It's also important to note that today, close to 25% -- 20% of Genomma's growth comes from innovation initiatives. To put this into perspective, essentially none of our growth was driven by innovation before 2019, but jumped to almost 16% in 2020 and 20% in 2021, as already mentioned.

We are now at a solid level as compared to our global figures on this front. [indiscernible] is an excellent example of a heritage Genomma [indiscernible], a total is growing behind innovation, reflected in a double-digit year-on-year increase in sales for this product. This is achieved through improved formulas and balances, strengthening distribution channels and an expanded presence in the countries where we operate.

The strong quarterly results were also driven by our decision to invest in supply and service while preserving brand investments through advertising and consumer promotions. This has further enabled Genomma to gain share in a difficult operating environment. While we faced significant inflationary pressure in the quarter, we anticipated and mitigated a vast majority of [indiscernible] by consolidating Genomma's third-party manufacturers.

Today, our suppliers are fewer, larger, more efficient at a lower cost. We have also fine-tuned our pricing strategy to be able to -- as true costs while continue growing our volume. This orders results were favorably impacted by the interventions we have successfully made within our supply chain in the third quarter of 2020.

Genomma's new and strong talent is focused on proactively and aggressively addressing all related opportunities, expanding from demand forecasting, repurchasing, specifically what were and how much, while optimizing costs. As I have commented on our call last quarter, this is the year of the supply chain. In particular, we are focused on transforming our supply chain in line with our new plan initiating operations.

We, therefore, are confident that we can continue addressing future headwinds, reflected in the plan and pricing already in place. We have also identified purchasing profits, where we see important opportunities to further optimize costs, particularly related to raw materials and packaging from which Genomma can benefit. [indiscernible] the benefits we're seeing from streamlining our suppliers to become more efficient and productive and of our manufacturing plant ramp-up.

We also have seen our continued strength in market underpinned by the fact that Genomma has been uniquely competitively positioned to win. Genomma's broad range of products are powerful local brand recognition and can be found 25 points related to our competitors.

Further, we continue developing a big presence within the traditional channel, the same as Mom & Pop stores, while at the same time, we were able to fit this pivot towards e-commerce early in the pandemic, more than tripling Genomma's business in this platform over the last 18 months. This drove the strong quarterly performance with an expanded presence with the traditional channels in Mexico, Central America and the Andean region during the first 2 quarters of 2020. While we also deepening e-commerce channel sales, notably Mexico through attractive option campaigns that increased Genomma's share within this market in the quarter.

Consumers are increasingly moving online, as we all know, and we are ramping up our connected commerce -- e-commerce efforts to continue to take advantage of related opportunities.

Finally, the #1, once again, selected as a component within the S&P/BMV Total Mexico ESG Index for the second consecutive year as one of 29 companies recognized for outstanding ESG practices briefed on this Standard & Poor's corporate system of the media assessment. Additionally, during the second quarter, we updated our diversity incretion and gender equality policy, also elaborating our global committee for diversity contrition and gender equality.

Further, we work with a consultancy to update our climate risk and opportunities analysis to closer align with the [ PC and D ], the passwords on climate-related financial disclosures recommendations.

In closing, when I joined Genomma, our initial focus was on [indiscernible] the company to increase market share. We also strive to help Genomma's employees work differently and more effectively, supported by our company's effective 4-pillar growth strategy. As a result, Genomma has not only survived to raise unprecedented pandemic, we've also prevailed and will continue doing so. Thank you for your attention.

It is now my pleasure to turn it over to Antonio, and I'll be back to answer your questions in a few minutes. Thank you.

[Antonio Zamora Galland, executive]

Thank you, Jorge. Good morning, and thank you all for joining today's conference call. As Jorge just shared, we once again delivered strong results with another quarter of sales growth. Genomma achieved MXN 3.9 billion in consolidated net sales for the second quarter of the year, reaching a 6.3% year-on-year increase.

Continued successful execution of our growth strategies, innovation and product launches during the quarter supported sales during this quarter. This increase is due to excellent new category performance in Mexico, successful line extensions and product launches in key regions, go-to-market initiatives and digital advertising and marketing campaigns throughout the regions, as Jorge had just commented.

Consolidated EBITDA increased MXN 21.5 million year-on-year to reach MXN 777 million. However, as Jorge just shared, our second quarter year-on-year EBITDA margin and sales results were adversely impacted by last year's demand surge related to the start of the COVID-19 pandemic in certain markets where we're present as well as pronounced inflation, ForEx headwinds, decreased operational leverage and a negative sales mix effect from increased sales of lower-margin products as well as nonrecurring investments related to the process of consolidating the company's industrial cluster.

Mexico net sales for the quarter reached MXN 1.6 billion, an almost 9% year-on-year increase. This MXN 131 million increase is primarily due to a better-than-expected performance of new categories and line extensions as well as an improved go-to-market and in-store visibility execution within the various trade channels where we operate.

This increase was also driven by an increase in points of sales served as well as ongoing e-commerce initiatives. Mexico's second quarter 2021 EBITDA reached MXN 332 million with a 20.2% margin, reflecting a 100 basis point expansion. This was primarily due to the operational leverage effect on fixed expenses with continued cost controls and supply chain efficiencies reached during the quarter.

Second quarter 2021 EBITDA was partially offset by expenses associated with the commissioning of new lines at the industrial cluster and investments made in trade channels. Net sales for Genomma's U.S. operations decreased by 33% to MXN 390 million, also due to a challenging year-on-year comparison base with an extraordinary increase in second quarter 2020 hand sanitizer sales and the residual effect of weak OTC portfolio performance due to fewer 2021 cold and flu cases within this market.

Traditional pharmacy chain consumer foot traffic also decreased during the quarter due to increased e-commerce competition. In Latin America, successful go-to-market strategies enhance in-store visibility, new product launches and line extensions as well as an increased store base drove top line growth during the quarter. Net sales for the quarter increased by almost 16% year-on-year to MXN 1.9 billion. Year-on-year sales in Argentina, Brazil, Bolivia, Chile and Colombia reflected a double-digit increase when expressed both in local currency and in Mexican pesos.

Consolidated gross profit grew 8% during the quarter to MXN 2.4 billion with a 90 basis point year-on-year gross margin increase. This was the result of increased operation and our leverage and the favorable impact of a positive sales mix on the company's consolidated top line, despite the considerable inflationary challenges with Genomma -- sorry, which with Genomma and companies throughout the -- continue to confront, particularly relative to the cost of goods sold.

Net income reached MXN 379 million and MXN 18 million year-on-year increase despite ForEx headwinds. Second quarter 2021 net income increased due to a lower reported effective tax rate as compared to the prior year. Genomma remains well-positioned from a balance sheet perspective, with a leverage ratio of 1.6x net debt-to-EBITDA and MXN 1.4 billion in cash and equivalents at the quarter's end, a 16.5% year-on-year increase. During the quarter, we again issued short-term bonds within the Mexican market at lower interest rates than those we have repaid, further improving our financial cost and maturities. This is further an affirmation of investors' continued confidence in Genomma and our strategies. Thank you for your trust.

Finally, during the quarter, we continued to invest in Genomma's buyback program to drive further liquidity on the stock. For the 3 months ended June 30, 2021, the company repurchased a total of 1.9 million shares, representing an investment of approximately MXN 38.4 million.

In closing, I would like to reiterate Jorge's conviction in the long-term performance of Genomma. We are delivering the results we knew we could deliver and are very optimistic about our strategy, our team and the underlying strengths of our brands.

With that, let's open it up to questions. Rob, please?

[Operator]

[Operator Instructions] Our first question comes from the line of Antonio Hernández with Barclays.

[Antonio Hernández Vélez Leija, analyst]

My question is regarding the U.S. You mentioned promotional activity there, and you mentioned I believe market share gains, if I hear it correctly. Could you elaborate a little bit more on the overall competitive environment that you are expecting? What cost -- with input cost pressure, you are expecting maybe you needed price increases from the overall industry, from yourself and they are going to continue as well with these promotional activities?

[Jorge Brake Valderrama, executive]

Antonio, this is Jorge. I will comment on your question. In overall terms, Q2, Q1 also have been tough quarters for many reasons. Not -- I cannot isolate one. But in addition to the external factors that Tanya just mentioned, had to do with FX, for instance, and some macroeconomic issues in some countries mainly behind the impact of pandemic, some social issues in some countries like Colombia, that also had several weeks of social manifestations in the country, et cetera, et cetera.

In addition to those external factors, the internal, which will relate to our business and categories and market and competition, that's also perhaps because all companies are trying to do their best, as you can imagine, coming out of the very tough 2020 for most of us. And they have been very creative and [indiscernible] in the different markets. However, we have said, we truly are confident on the potential of our strategy.

Our 4-pillar strategy continues to be valid, continues to be very solid in terms of the things that we are doing in the marketplace. And I'll give you some examples, together with explaining what -- how competition is changing the pricing situation and the promotion situation. I would say that if you think about our popular strategy, I would say that, as I said, continues to be very valid. It was valid during 2020.

That was the first year in the history of the company in terms of sales and profit. And continues to be valid in 2021, but I think it's going to become better than 2020 because we are in the right path now. And my personal opinion is that the second half is going to be better than the first half. So what is working?

We continue to be very aggressive in innovation, and innovation in design extensions, as you know, completion of our portfolio in different countries, restating and modernizing brand. You will see a huge re-launch for one of our key brands in next month. We continue also pursuing new big brands or categories. And let me mention one we're trying to clear is, as you know, we have started with Novamil, that's a new drug entering the infant formula category in 2020.

2020 was not a normal year. Pediatricians were not opening, so we couldn't exploit the brand to full potential. But the first half of this year is growing more than 30%. So that's the potential of a brand that will bring much more growth, profitable growth to the future in the company. We are also growing razor brand Groomen that was launched in Mexico exactly 1 year ago, and now it's proving to be a very powerful initiative, reaching between 5% and 10% market share depending on the channel and on the accounts, as we had mentioned, which is making us now be more aggressive in terms of the plan for the brand, that equal promotions, communications, consumer, supply, distribution, et cetera, et cetera.

I'm also thinking about expanding those 2 brands to more countries in the country where we operate. And you will see that happening by the end of this year. So I think the power is innovation. As we said when we launched the innovation pillar 2.5 years ago, this is normal. Now with 20% -- 20% of our growth is financial innovation. And that is one driver that is going to make us be very consistent in terms of [indiscernible] and consistent growth in the medium and the long term.

Also, thinking -- and competition, to be honest with you, is, as I said, it's been very aggressive, but more from a commercial standpoint. We have received lots of initiatives in many of the countries in terms of impact against our -- negative impact against our business. It's more commercial, it's more short term. Sometimes we react, sometimes we don't react when we don't think it makes sense.

But that's not a normal part of this type of businesses. Also, in the go-to market, we continue to -- we are stronger and stronger by the day in this area because we are expanding our business in the traditional channel. We will continue making this strongly our personal compatibility in the modern channels too.

And as I mentioned in my summary, we continue to grow dramatically in the e-commerce platforms. And that has happened in most of the countries in which we also operate. So from a competitive standpoint, I would say a normal situation. I would say that we're winning because we are consolidating the impact of our innovation pillar that is during the 2.5 years, et cetera, et cetera, so now you've got in terms of pricing that you mentioned, additional area in which all of us are working very hard.

As I also mentioned, inflation -- cost inflation is here and will stay with all of us, with all the industries for a while and we've been able to manage, as I said, fine-tune our pricing strategy. So we are very close to all markets. We are very close to all costs and taking action in pricing as soon as possible.

And that is happening -- that has been happening this quarter very frequently. And when we do so is to cover the increased cost and our system and our model now is very agile so that we can react very quickly to any of the needs we may face in pricing terms. If you put together the means of doing aggressive pricing because of cost inflation, with the fact that we will continue, commercially speaking, in terms of products or initiative, we have been able to compensate that.

We have been able to reduce the risk of pricing affecting our sales in overall terms. So it is working for us and we will continue working, I think because we are taking a very well-balanced approach.

[Operator]

The next question comes from the line of Joaquín Ley with Itau.

[Joaquín Ley, analyst]

Yes. The first one, I would like to -- and you just explained, I mean, the exposure that you have to oil derivative prices and so on and so forth. But yet I would like you to elaborate a bit more on the contraction in the margin that we saw in the Latin American operation. And particularly, you mentioned in your press release that there's some contraction that relates to sales mix deceleration, which is something that surprises me, right? Because OTC grows over 20% and personal care less than 10%. So I would like to understand that better, please?

And the second question goes to the U.S. I understand the super tough basis for comp you had because of anti-bac last year and the soft performance of anti-flu, but yet I mean, the results of the U.S., they kind of look like a rollercoaster in terms of sales and EBITDA and if you could share with us where are we in terms of your new strategy in that operation in the 4 regions that you have focused, what we could expect for the coming quarters, that would be helpful.

[Jorge Brake Valderrama, executive]

I will take -- I will make some overall comments, and then Antonio will complement on some others. But to our perspective, in the U.S., I will start for the last comment. In the U.S., yes, you're right because if you see the numbers, you see this kind of rollercoaster in terms of results, especially if you compare it versus a year ago.

And that is what we are seeing in Q2. However, and I was just with U.S. team yesterday. But however, as you said, if you take out the anti-bac gel, that was an opportunity that came together with COVID in Q2 2020. From the days, then the growth of the U.S. is double-digit. That is the impact of big volume so giving the opportunity, especially in Q2 that we were studying the pandemic. And as you can imagine, also taking that anti-bac gel volume from Q2 2020, the company's result in terms of sales would have been double-digits.

So that's the way I'm looking at it to confirm how solid our overall businesses, if we take out those things that were present at that time. It doesn't mean that we will not -- we are not continuing to sell the anti-bac. It does mean that that explosion in consumption that came with the start of the pandemic, it's not there anymore. But people are still using gel, but not at the volumes that were using in the first half of the pandemic. So we will continue in that business, but not at the levels we saw in Q2 of 2020.

So in the U.S. business, as you said, Joaquín, the model that we launched last year, we continue very strongly developing it. This is year 2 of the restructure we implemented in the U.S. And I would say that given the way they're looking at it because, as you know, we are now thinking about expanding or looking actually in expanding our presence in other segments of the population, improving the data market on a gradual basis, we will see the potential of our business being much bigger than now as we start implementing those strategies.

And you will be hearing from us in the next quarter what's going on. But basically, it's looking for implementing initiatives of products within our portfolio, products that will appeal to more new segments of the consumers in the U.S. market.

One example of that quickly is Suerox. We launched products in the U.S. with a different mindset, not the mindset of the Spanish market, the mindset of the general market. Suerox is the brand that appeals to all segments of the population, including the name, including the product, the uniqueness of the product. As you know, it's 8 items and no sugar, no calories, great flavor.

So as we started with that new initiative, we -- our mindset was this is for the general market, not for expanding market only. And we have started in California by mid-2020, November, and it's doing great. It is doing great to the point that today, we are expanding our production capacity to be able to meet the demand before expanding it to other states in the U.S. That is -- and everything that was implemented straight in terms of consumer, in terms of go-to-market, in terms of supply chain, we can -- we apply to COVID categories or brands on some key differences.

So we are proving that we can get into those other segments we will have smartly in the way we develop new initiatives as part of the U.S. portfolio. So I think that's the way to think about this business. I'm very confident that in the next quarters, especially 2022 is the year in which we are going to see the results of all these changes implemented in 2020 and '21.

As in the case of Latin America, different situations in different places, and Antonio will explain more of that, but the margin differences due to specific things that happened in some countries and not in other countries. But I will let Antonio give more perspective on that.

[Antonio Zamora Galland, executive]

This is Antonio, Joaquín. Regarding Latin America, I think that your question is very interesting because usually it's a rule of thumb that OTC has a better profitability than personal care. It is a rule of thumb, and it's the right rule of thumb. But depending on the category and the specific moment, that may not hold true.

And let me give you one example, which is very relevant, at least for Genomma this quarter. Our paracetamol-based business, the brand Tafirol in Argentina, which is very, very strong, and it grew at a very high speed during the quarter, and we are very proud of that brand. The problem is paracetamol API is imported. It -- we -- obviously, we're increasing prices of the end product in the market.

But sometimes, there are some lagging effects. I mean you take the hit of the COGS immediately, especially when it's about ForEx. And it takes some time just to adjust pricing. So one of the things -- one of the drivers of the margin decline in Latin America, which, again, let me stress, this is temporary, had to do with this COGS inflation, especially ForEx and particularly with paracetamol in Argentina. That's one of the drivers. That's one of the situations why the general rule of thumb didn't apply this quarter.

On top of that, we always talk about the flu season, and we generally speak about the Northern Hemisphere, we talked about the U.S., we talk about Mexico during the winter. But now it's a winter in the Southern Hemisphere. So there's some cough and cold maybe seen that didn't have the performance that we have anticipated. It's the same thing that we are experiencing everywhere else. People wearing mask, staying at home, washing their hands. So the flu, at least for this year, almost got eradicated from the face of the world.

I think that the good news is that as people get vaccinated, and as people start moving out and getting to public places, et cetera, there was this possibility that the flu will come again and the cold symptoms will come in the near future. We don't know if this is going to hold true as there's new guidelines at this moment. But the important thing, Joaquín , is that one of the beauties of Genomma is that it's a well-diversified company in terms of markets, geographies as well as categories.

So when we see an opportunity, as we did last year with the hand sanitizer opportunity in the U.S., we took it. We said, at that time, this is a great opportunity to help us offset the gap that was happening at that time in Chile, in Central America, in other markets that were experiencing a very hard or strong lockdown. That was then, that was last year.

This year, we don't have that benefit or that tailwind of the hand sanitizer. Many people already have this hand sanitizer. But then we are capturing new opportunities. As Jorge mentioned, Suerox in the U.S. is growing like hell. To be honest, it's one of the pleasant surprises. If we exclude the hand sanitizer business, and we do apples-to-apples comparisons, the U.S. would have grown double-digit.

I mean, we need to extract that just for comparative reasons. And again, Suerox was one of the key drivers. As everybody knows, during the second quarter, the Suerox line is already fully commissioned and operational. We manufacture more than 5 million bottles during the month of June. That's additional capacity that we didn't have. In the past, we have many different third-party contractors. We are aligned, and basically, we sold everything. So demand is not stopping for that product line. It's very promising growth in the U.S. Works well. Unfortunately, we have these tough comps because of the hand sanitizer. But excluding that, as I said, the U.S. will have grown double-digit.

But let me ask you if I was clear enough or do you need more clarification in terms of what happened with margins during the quarter in Latin America? As I said before, when you get especially ForEx impacts for APIs and some raw materials, this comes immediately. And it takes some time for companies, for consumer good companies to adjust pricing to the retailers and eventually to the end consumers. But that's part of the strategy. That's part of the actions that we are taking to offset this negative trend in terms of COGS.

This is something that all consumer goods companies are experiencing everywhere. But we're confident this is just part of doing business and in the long run, we have seen this kind of situations many time in our careers at -- not only at Genomma, but previously, and we know how to deal with it. But obviously, this quarter, we have that effect. I don't know if I was able to clarify your question or you need more clarification, Joaquín ?

[Joaquín Ley, analyst]

No, you were, that was a great color.

[Operator]

Our next question is from the line of Álvaro García with BTG Pactual.

[Alvaro Garcia, analyst]

I have 2 questions. The first one is on e-commerce and conversion. I was wondering if you can -- now that it's been a couple of years of solid dynamics on that front, I was wondering if you can comment, which of your products sell best online, which have the highest conversion? Where do you see the best long-term opportunity there?

And my second question, a big chunk of your growth, obviously new channels, given the strength of the traditional channel we've seen from you guys, but I was wondering if you can comment on sort of same brand sales? There's been a lot of line extensions within specific brands, and I just worry that maybe the core original brand might not be where it used to be. So any sort of comment there would be very helpful.

[Jorge Brake Valderrama, executive]

I'll start with the e-commerce one. As documented, we are doing great in terms of growth in the e-commerce -- diverse e-commerce platforms in which we are participating basically in partnership with key companies, key customers. Amazon has become one of our largest partners in e-commerce in both the U.S. and Mexico, where they are operating and the pace of our regions, but also Walmart and others similar to Walmart in different countries in Latin America are also now key partners for us in our sales in e-commerce.

And this has different fronts. We've learned a lot in the last couple of years on our days and I think the things we have been doing are working based on the results we were seeing. There are countries in which we already have 10% of our sales coming from e-commerce. And now what's our midterm goal for the whole company. So we're thinking now in taking that higher level given the success that we are facing. What is it that is working? Is that the case?

I would say that 2 or 3 things. One, we are signing people dedicated -- fully dedicated to this program. We didn't have that before. So now we have a few experts in different countries that are fully dedicated to developing our business in e-commerce. And as you know, it is different than selling in a physical store. So we are developing the same concept that we have for a perfect physical store, now we call it a perfect e-commerce store that includes the image of the brand and improve the content we have.

We see the terms and types of information includes reaction and answers to the comments from consumers, includes the right pricing versus the physical channels or the physical stores et cetera, and includes a strategic alignment of what we say in the e-commerce platform versus what we say in the TV copy or the TV commercial or different communication vehicles that we have. So there's consistency in terms of the strategy we are using to grow in e-commerce.

So that's one big thing that is happening. Obviously special -- specific agreements with these key e-commerce platforms or companies, it's also another key thing. We have been able to develop mid-, long-term plans with them so that we support each other in what we do to grow our [indiscernible] here. I don't see that brands like the natural Cicatricure, Suerox, Groomen and Novamil that are key representatives in terms of growth in the e-commerce side, depending on the country, but you will see that those 4 or 5 brands are the ones that are enjoying more growth in overall terms.

So it's behind that type of different strategy in different fronts that is working now. Just to finalize my comment in the e-commerce front is that this is the people [indiscernible]. We think that we are going to grow much more in the channel because what we are seeing today is the result of the first interventions. We are perfecting what we do in the e-commerce as we go. So I think that we have a few more years of growth that we are going to be seeing in this type of platforms.

Going to the growth of our core brands, that's a great question because it's difficult to say the core brand, let me talk about Genomma for instance. That's very [indiscernible] for Genomma, that this year is growing more than 20%. Why is that? Why is that -- what is the ingoing that match in the moment that is the market and everything is challenging. And we say -- we always say that it's because of innovation.

If you think about the core brand, when we started, it was in a strategy 2.5 years ago, the core brand was pretty strong, continues to be strong and we call it core brand is basically the light we have at that moment was working very well. What we have done in terms of innovation, same also with other interventions, that have to do with formula, that has to do with packaging, that has to do with the way we communicate the bigness of the brand. The fact that the brand is natural, and we are taking now that to a different level in terms of communication, and that's one of the key benefits that the [indiscernible] must appreciate.

So it's a combination of strictly the core brand by doing all of these other things in improving all distribution and expansion in other channels, et cetera, et cetera, but also at the same time, bringing the other type of innovation, which is line expansions. We brought the new flavors, new fragrances that are in line with the consumer needs and trends that complement what we did in the forefront of the business of the brand.

So if you adapt those 2 things, we have a brand that is closing. It keeps growing, it's growing in the U.S., et cetera, et cetera. So it's a combination of both, but I feel very comfortable with the fact that the core front is growing and the new line extension, the new product innovation is complementing that. And the same thing is happening to Asepxia. Same thing is happening to Cicatricure gold, our fully [indiscernible] gold extension. And now it's a whole line app. So those sales as brand of Genomma have been through the same sort of growth and the factors behind that.

If you think about other brands of other companies, as you know, I come from other big multinational. And if you think about shampoos like Pantene, Pantene does the same. That brand has been in the market for, I don't know, 30 years probably, and they keep growing the core, but we keep being real line extensions every year. So it's the combination of both that make the brand much more stronger and make the brand gain shares with [indiscernible] share on a constant basis.

[Antonio Zamora Galland, executive]

Álvaro , this is Antonio. I just wanted to complement Jorge's answer. When we talk about innovation, it's very important to clarify that innovation is a very -- it's a concept that is very wide. And let me use one example. When we say we are launching a new product, which is part of innovation, like Suerox in the U.S., for the U.S., Suerox is a new launch. It is innovation from scratch, but it is not for Genomma because we have a successful brand, a successful category in Mexico.

We're just following what we call at Genomma, the route to success. So innovation, it's innovation for certain markets, for certain channels. That doesn't mean that it's a completely new product, but it's more about replicating that our existing brands, our existing SKUs in other markets. So that's innovation for those regions, for those markets. The good news is that it's proven innovation. Now we also have 2 types of other innovation. One is line extensions, total new products that we are experimenting that we are entering. I think that the hand sanitizer business last year was an example of that.

Blades and razors was an example of that. Entering the infant nutrition was an example of that. But then we also have a third type of innovation, which may be called renovation, and you see this in the very large multinational CPG companies across the world. You may see the same product, but it's not the same product. There's improved formulation. There's simple packaging. There's a new communication as Jorge was very well describing. For example, when we re-launched Tukol, you may argue that the formulation was the same, but the packaging was different.

The communication was different and the positioning of the product was different. Instead of targeting a niche segment that only represented 7% of the market for the heavy smokers, we wanted to target the overall market, the family market, which represented 93% of the market. So it's an innovation, we use the word innovation, but it's something proven.

And the good news about this is that it's less risky than starting something new, #1. And #2 -- and I think this is very important to say because if people compare what Genomma was doing, I don't know, 20 years ago when the company was launching new products every 6 months and then the old product is no longer existent because every time we launch something, it's being replaced. That is no longer the case.

We launch innovation, new products, but we also have a substantive base of our brands, of our core SKUs that are very important to us. The Tio Nacho, we launched a new version of Tio Nacho, but we keep the old version as well, and we launch it in different market segments, et cetera. So it's a great topic, innovation. It's always a great topic.

I think that -- I just wanted to clarify, I don't know if we were able to answer your question, that it's not about doing everything new. We are launching new things, definitely, and it's very important. But we are also renovating the core, and we are reapplying the route to success that we have in certain markets to other markets. I don't know, Álvaro , if you would like to expand or...

[Alvaro Garcia, analyst]

No. That was very clear. That was very clear. There are great examples. Suerox, for example, in the U.S. Awesome.

[Operator]

[Operator Instructions] The next question comes from the line of Nicolas Larrain with JPMorgan.

[Nicolas Larrain, analyst]

I wanted to touch a bit on the production plan, especially on the personal care lines. Do you have some color that you can share in terms of ramp up of the existing lines, one also that the new lines you mentioned in the release. And also what is your expectation towards the end of the year, thinking about how much of your personal care sales could actually be sourced by the plant towards the end of the year?

[Jorge Brake Valderrama, executive]

Yes. And I'll just make one quick comment, and Antonio will complement. As part of the plan, it is going very well in terms of what we are doing in this personal care section of our industrial site. As you know, Antonio mentioned and I also mentioned that we -- in June, we already produced 5 million bottles of Suerox.

And we are targeting to surpass that number July, August on a monthly basis. It is going very well. We're also starting in the next few weeks with production -- lots of production of 2 shampoo brands, Tio Nacho and Bane and also creams in the following months. So you will see us by the end of the quarter, it's already those 4 categories being produced at the plant as we speak.

And together with that, and as part of our supply chain project, as I mentioned before, we are also following very close all the interventions that are being made to optimize costs. I will let Antonio explain that because his part of the project is very close to that because in all cases, we are intervening all key areas to make sure that we'll start seeing the benefit of our own production facility. Antonio?

[Antonio Zamora Galland, executive]

Yes. It's a great question about -- and it's part of the transformation that we are doing within manufacturing cluster, as Jorge mentioned, there's a number of lines to be commissioned and to be installed and to become fully operational. And by the end of the year, I'm sure we are going to have very good news. The first personal care line, which is the Suerox isotonic beverage, as we said, more than 5 million bottles were manufactured during the month of June.

So that's excellent news. As of today, the shampoo line has just started test with some initial batches. As same thing has happened with the beverage line, we need to do tweaking, fine-tuning, optimization, et cetera, and we believe by the end of Q3, that line is going to be operational and manufacturing products.

We are also in the commissioning phase of the facial creams, body creams and ointments, and we are installing an additional line for medical devices in that plant. So in terms of the personal care plant, everything is going well according to plan. Fortunately, we don't need government permits or GMPs to manufacture there.

So everything is more on our own hands. It's very hard to say what the percentage of products that are going to be manufactured in the personal care plant at the end of this year. Remember, this is a multiyear project. And as Jorge mentioned, we are also upgrading some of our products. We are, for example, one of our shampoo lines will be re-launched as a more sustainable product with the environment in terms of packaging, formulation, et cetera.

So we are doing some changes to improve the quality, the marketing and the profile of our products. And so that is taking -- that is being considered in the plant so that we gain even higher efficiencies in terms of COGS and better quality as planned. I wouldn't venture at this moment, say how much of our personal care products will be manufactured there because everything has been under commissioning, and we need to do the ramp-up and the learning curves.

If everything goes the same way as it did for the beverage line, I think that everybody is going to be pleased by the end of the year, and that's what we are planning for. And in the case of the OTC plant, well, everything is ready. It has been ready for a number of months. I think we're closing -- closer than ever to get the GMP for that plant.

We've seen the authorities moving faster than they did in the past. I think that the changes that the government did are positive, and we expect to have good news soon. But I wouldn't venture in terms of saying when that is going to happen. I just want to say, we are more positive than ever in that regard. So once that happens, we will start manufacturing products in the OTC plant as well.

And the third component of the industrial cluster is obviously our central warehouse. That is working seamlessly with high levels of efficiencies. It's working really -- we're very proud of what they are doing. The other thing that is important to mention, and it hasn't been asked during this call, is what happened about the labor reform in Mexico. The good news, and I want to highlight that is that Genomma was prepared.

We did all the changes that were needed. We don't need any extension in time as other companies are requiring. And there's basically no impact whatsoever, but we are prepared. And that entailed a huge work with the people, with the culture. Everybody was satisfied the way we did it. Everybody -- is motivated everybody. Hopefully, in the very short term, we -- everybody will have a chance to go and visit the plant. It's worth visiting.

And Jorge and I are preparing something for the near future. So I would say stay tuned. And your question is great, but I don't want to give a number at this moment. I'm not -- we are not ready for that, Nicolas.

[Jorge Brake Valderrama, executive]

Just one quick point to complement your answer, Antonio. I've had 2 key visits in the last couple of weeks in the plant. And I just mentioned that because it's positive in terms of context, COFEPRIS, which is the Mexican authority that approves the GMPs and operation of plants. This is the plant. And that was a visit we were expecting since early 2020 when COVID started.

So it finally happened. So as Antonio said, that is a very good sign, but the new administration of COFEPRIS is starting to move finally. Second, the last week, we had a visit of the World Bank inspectors. And they spent a full day at the plant. As you know, they finance the project, and they were expecting progress, and they were very positive. Comments were very positive at the end of the visit, which confirm what we think is that we are now starting with this, facing a bright future, I would say, in overall terms.

[Operator]

Our next question comes from the line of Ben Wulfsohn with Lazard.

[Ben Wulfsohn, analyst]

Yes. You partly answered the question I had, but it was related to the GMP certificate for the OTC plant. You used the word more confident than ever that is coming soon. We've been hearing soon for a long, long time now. So I was wondering if you could expand on what you mean by more confident than ever?

[Jorge Brake Valderrama, executive]

I would say something -- I will repeat what I said and then Antonio has probably more perspective, but I said this visit from the COFEPRIS authorities to the plant 10 days ago, it's something that makes us feel more confident because, as I said, that visit was scheduled for early 2020. It didn't happen, then COVID showed up, and never happened.

And the fact that today it happened, which meant that -- that was the last piece of the -- last part of the process that we had to complete for them now to interior, deliver the final approval. So that was completed just a few days ago. And also the fact that, as Antonio also mentioned, that there is a new administration in COFEPRIS that basically already took over the management of the execution last month. They were announced 3, 4 months ago, but it took over last month. And all signs, all comments coming from the industry are very positive about these new people in charge of COFEPRIS. And we are seeing it in terms of the visit, let's put it that way. Antonio, anything else?

[Antonio Zamora Galland, executive]

I completely agree with you, Jorge, and that's probably the news -- the news is there's news. The original visit from the authorities was scheduled for April 2020, okay? So that's when we were expecting the visit, the inspection for the GMP process. That didn't happen because in March 2020, we had the lockdown in Mexico, and there were very strict regulations in terms of what we call the [indiscernible] or the red -- the red, orange, yellow, green lights in terms of the kinds of visits, inspections, et cetera, that the authorities could do.

So that inspection visit that was scheduled to happen in April 2020 get canceled because of that. And it just happened. And they were very strict. They were very professional, they look at every single aspect of the plant. And generally speaking, it went really well. Obviously, they made a lot of questions. It was more than 800 different items that they checked and everything went well.

So that's the reason why we are positive. And again, it was just a matter of having that visit so that the process may continue. That was -- it is a requisite. It's mandatory for them to do that in order to continue the process. And that's the news. Obviously, we don't have the GMP yet, but the visit has already been accomplished. And so we're waiting for the next stages. That's why we are more confident than ever, but still, we don't have the GMP yet, but it's closer. I don't know, Ben, if we were able to answer your question.

[Ben Wulfsohn, analyst]

No, no, you were because the fact that you had the inspection, I did not know that. So that's a new piece of information that is very relevant.

[Jorge Brake Valderrama, executive]

It is. It is.

[Operator]

That concludes the question-and-answer portion of today's conference call. I would like to turn it over to Mr. Brake for closing remarks.

[Jorge Brake Valderrama, executive]

Thank you, operator, and thank you, everyone, for joining us today. I would like to conclude today commenting that while we expected the second quarter of 2021 to be a challenging quarter for the company, we delivered a significant performance, reflecting good momentum despite a challenging year-over-year comparison and external headwinds. We have a strong foundation on a balanced portfolio, which drives consistency in our performance. We are well-positioned to capitalize on those lockdown consumer trends, which accelerated during the pandemic. And we look forward to taking advantage of the momentum and adding wood to the fire for the future. Thank you very much. Have a great week.

[Operator]

Ladies and gentlemen, that concludes Genomma Lab's Second Quarter 2021 Results Conference Call. We would like to thank you again for your participation. You may now disconnect.