Genomma Lab Internacional SAB de CV

BMV:LABB

Earnings Call Transcript 2018-Q3

[Operator]

Good day, ladies and gentlemen, and welcome to Genomma Lab Third Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded.

I would now like to introduce your host for today's call, Mr. Enrique González, Head of Investor Relations. Mr. González, you may begin.

[Enrique González, executive]

Thank you, operator, and welcome, everyone, to Genomma Lab Third Quarter of 2018 Earnings Call. This is Enrique González, Genomma's Head of Investor Relations. Also, here with me on today's call are Mr. Jorge Brake, Genomma's CEO; and Mr. Antonio Zamora, our CFO.

Yesterday, we issued an earnings press release available on our IR website at genommalab.com. On our agenda today, Mr. Brake will begin with comments on the initial strategic views, sharing his perspectives on his first 45 days with Genomma Lab. Antonio will then review key highlights from the quarter and will disclose our recent financial performance. We will then open the call to your questions.

Before we get started, during today's call, we will make forward-looking statements that reflect the company's current expectations about future plans and performance. These statements rely on assumptions and estimates, and actual results may differ materially due to risks and uncertainties.

I encourage you to read the full disclosure concerning forward-looking statements within yesterday's press release and our filings with the Mexican [ office ] which also can be found in our corporate website.

With that, I would like to turn the call over to Mr. Brake. Mr. Brake, please go ahead.

[Jorge Brake Valderrama, executive]

Thank you, Enrique, and good morning and good afternoon, everyone, and thank you for joining today.

Let me start by saying that it's an honor to be part of the Genomma Lab team as the new CEO. This is the company I have long admired as one of the leading OTC and personal care brands in the world, with outstanding growth potential, behind exciting and innovative products that improve our customers' health and well-being. Throughout Mexico, the rest of Latin America and what this quarter's results have shown increasingly in the U.S.

Since joining Genomma, I have been focused on gaining an in-depth understanding of our company in order to develop a renewed corporate strategic plan. I have spent time with and listened to feedback from our employees, our customers in the different countries, where we have presence; and also from our Board of Directors.

While our company continues to face some challenges, it's important to recognize that today Genomma has an exceptionally strong foundation on which we will continue to build. The team has done an outstanding job rightsizing and transforming the company over the last 3 years. My initial assessment to date has confirmed there is a lot to be optimistic about at Genomma Lab.

First, our recently completed 3-year turnaround process has resulted in strong and highly incentivized team of experienced, agile, smart and engaged leaders, who are very well positioned to launch Genomma into its next phase of growth. In past quarters, we have seen evidence of the consolidation of Genomma's leadership team playing external role in our success, where our seasoned operational management team has worked cohesively across regions to deliver strong results. I plan to implement programs that ensure we continue strengthening our teams.

Second, we now have in place a highly effective go-to-market strategy with proven success with successfully using both internal and external resources to ensure our products remain present in our customers outlets and the scoring of our peer competitive advantages.

Third, once triggered, our product innovation pipeline will enable us to further expand in key consumer segments, where I have seen clear opportunities to leverage our presence in current categories throughout those countries in which we operate, while adding new adjacent categories with considerable growth potential.

Additionally, significant process has been made to date at Genomma's new manufacturing facility. And I intend to maintain a focus on ensuring we capitalize on the many opportunities that this new facility represents for our company. Importantly, you will note that innovation will be a key pillar of this strategy, expanding Genomma's product portfolio to broaden our appeal and address and even larger market of consumers.

Finally, our turnaround has resulted in what today is a highly efficient operating structure, with an improved financial model and a strong plan to fully optimize Genomma's supply chain. However, while our foundation is strong, it is clear we need to focus on taking better advantage of this platform. I see great opportunities for Genomma to leverage our strength and the progress we've made thus far; formalizing and activating the impressive team that has been put together over the last few years; to be more productive and innovative, with the benefit of an organization that has already been rightsized to drive top line growth.

Along these lines, I also plan to energize Genomma's corporate culture to be more dynamic and innovation focused. With this, my aim is also for Genomma to soon have the reputation of being one of the best places to work.

In closing, Genomma Lab has gone through significant change over the last few years. We are now starting an exciting new chapter with a solid foundation and a singular focus on our core mission and business going forward. We will use the next months to finalize our 5-year strategic plan and the specifics of how we will implement it, while we continue to invest in the right people, processes, technology and tools to make sure we are best positioned as we look forward towards 2019 and beyond.

This renewed plan will focus primarily on accelerating our top line growth, as I have described and on optimizing shareholder value.

With that, I will hand it, our call, over to Antonio. Antonio, please go ahead.

[Antonio Zamora Galland, executive]

Thank you, Jorge, and good morning, everyone. As you saw from our press release, we delivered strong third quarter operating results under the circumstances, addressing a significant array of exogenous headwinds, as the Brazil and Argentina devaluations put pressure on our performance in Latin America.

Despite these hurdles, we were able to leverage the outstanding innovation and execution at the point of sale, which Jorge mentioned in the U.S., Colombia and Central America, partially offsetting these effects. When expressed in local currencies, total company sales for the quarter increased by 4.9% year-on-year.

Mexico maintained its position with a 2% year-on-year increase in the top line, despite a high comparable base. As last year, we engaged in aggressive promotional activities during the 2017 cough and cold season. While EBITDA in Mexico contracted 1.3% year-on-year, it is important to note that this was primarily due to preoperating and preproduction expenses associated with the company's new manufacturing facility.

Importantly, EBITDA margin improved by 220 basis points, as we recovered from last quarter short-term effect of high margin SKU supply shortages on our sales mix.

As Jorge has commented, our Mexico product offering will continue to expand through innovation once our Mexico-based manufacturing facility is running at full capacity. We are on track to begin manufacturing our over-the-counter product line in the first quarter of 2019, and our Personal Care plan with the second quarter of 2019, having already begin prior production runs on certain SKUs of our pilot plan. The delay in initiating operations at our OTC facility is due to the permit and certification processes, which should be resolved during the first quarter of 2019.

Our U.S. operation remains a success story with a 10.5% net sales increase in local currency or 17.7% increase when expressed in Mexican pesos. As promised, deepened relationships with key retailers benefited our performance this quarter, supported by solid execution of showcase brands and a good start of the winter cold season, while a continued focus on cost and expense reduction supported EBITDA expansion this quarter.

As discussed, hyperinflation and foreign exchange headwinds took a toll on our demand for Genomma's products in Latin America. The 10% year-on-year increase in local currency third quarter net sales, the limited Latin American operations were, therefore, a reflection of benefits from pricing actions and proactive steps to curtail these effects, coupled with strong perfect store point-of-sale initiatives in the region.

Turning to some highlights on our financial in this quarter. Consolidated net sales decreased by just under 2% due to the headwinds already described. The decrease in third quarter EBITDA and EBITDA margin also suffer from Argentina-related headwinds and was also impacted by MXN 24.5 million in preoperating expenses associated with Genomma's new manufacturing plant in the State of Mexico.

Gross profit declined by 3.2% in the third quarter of 2018, with a 90 basis point decrease in gross margin, primarily due to the short-term product mix effect as certain higher cost SKUs continued to make a more significant contribution to the company's top line results again this quarter.

Genomma was also impacted by increased input cost associated with foreign exchange impact, while consolidating the various currencies, which depreciated during this quarter.

Now briefly touching upon Genomma's financial position. We optimized our working capital in the third quarter of 2018, with our cash conversion cycle that decreased by 12 days year-on-year; a 2-day year-on-year decrease in accounts receivables; an 8-day increase in inventories. We also achieved an increasing days payable outstanding to 134 days, up from 116 days, as of September 30, 2017. We made investments in the amount of MXN 344 million in the third quarter, which was primarily related to the construction of the company's new manufacturing facility located in the State of Mexico.

Net financial debt, therefore, in risk likely due to the significant investments made in the new plan as well as to the resumption of the company's share buyback program. Genomma's cash and equivalents amounted to MXN 1.1 billion at the quarter's end, representing more than 10% year-on-year increase, a reflection of the improved collection process I've described already.

This quarter, we invested MXN 109 million in our share buyback program, a reflection in our continued confidence in Genomma's underlying value.

Finally, third quarter free cash flow from operations reached just under MXN 98 million for the first 9 months of 2018. However, it is important to note that when excluding investments made in the company's new manufacturing facility and brands acquisition, free cash flow would have reached MXN 937 million for the quarter of 2018.

Thank you, again, for your attention. And at this point, we would like to conclude our prepared remarks. Let's now open the phone lines for your questions. And we'll return again for the closing comments. Cherry, please go ahead.

[Operator]

[Operator Instructions] Our first question is from Nicolas Larrain with JPMorgan.

[Nicolas Larrain, analyst]

I have a couple here. So if you could comment little bit on the trends you've seen in Argentina, especially on the volumes side, and also you commented you're applying some pricing initiatives over there. I wanted to understand, how volumes have been behaving on the current scenario and how these could be evolving in the short term? Also, more broadly speaking, if you could comment a bit on the field rates taking into account? You're moving Genomma to internal production in the short term. And lastly, on -- especially on the preoperating expenses, we've seen these expenses in the last couple of quarters, I wanted to understand how we should think about this number going forward? And what magnitude you think we should have in the coming quarters as well?

[Antonio Zamora Galland, executive]

Thank you, Nicolas. This is Antonio. We will go one by one on your questions. Regarding Argentina, Argentina's business grew by 19% this quarter. As you know, there is a difference in inflation regarding the supply, the minority sales as well as the supply days. The business is healthy. It's growing. If we didn't have the Argentinian peso devaluation, this would have been a great quarter. The business is healthy. The business is healthy. I don't know exactly what is it that you need to have regarding Argentina, but let us remind everyone that we don't disclose specific figures of specific countries. I don't know if I answered your question, Nicholas.

[Nicolas Larrain, analyst]

Yes. If -- basically, I wanted to understand how you're seeing the volumes behave, Jorge. And if you've seen that is slowly picking up or still tough? And how do you see this now evolving in the coming quarters?

[Antonio Zamora Galland, executive]

Volumes are good. I mean, when you have a macro-devaluation or a macroeconomic situation in any country, obviously, there is changes in the market. But volumes have grown. Our business is healthy. We are growing share. We are innovating. We are launching new products. Our presence at the point of sale is good. There's some -- perhaps there's some impact in the provinces, not in the large cities, that has been short term. But let me remind everyone that our product categories are very resilient product categories because -- I mean, if you catch a cold, you are not going to stop taking your syrup or your medicine just because the Argentinian peso is at a certain exchange level or inflation is at a different rate, and the same thing happens for our Personal Care businesses. So volumes are good. Obviously, there's some impact. If the economy was growing, we will have better performance, but we have not concerned at all about our -- about how our business is performing in Argentina on a local currency basis. I don't know, Jorge, if you want to...

[Jorge Brake Valderrama, executive]

Yes, I would. This is Jorge. I will add just a couple of comments on Argentina, and then I will take the question on field rates. In the case of Argentina, as I said at the beginning, I've been in all our 17 markets in the last 4 or 5 weeks, including Argentina, spent a few days with the team, our country manager. And honestly speaking, I was very impressed. Very impressed by the team we have there that is at the same level of the teams of any large multinational in the world. And they are facing the crisis with the right attitude, with the right mindset. We are just focusing on continuing our growth path in terms of, as Antonio said, in terms of volume. The business is very healthy. We have launched 2 or 3 outstanding innovations in different products in the last few weeks and will continue doing so in different categories. We are impacting the point of sale also with a great plan and point-of-sale media as we call it. So I feel very proud about that team. I've had a couple of points that have come to mind, one is Teatrical, for instance, which is one of our skin care brands that based on the excellent launch that we had in Q3 has achieved the #1 position in the market, which is an outstanding achievement for Genomma and for one of our countries. So now based on the fact that we want to take this model to all the multinational, all the company, we're going to be reapplying what we have learnt from this very successful launch. So very positive impression from my visit to Argentina. Regarding the field rates, I think that's a great question because, as I said also in my speech, I'm working a lot of my time, actually, in developing a new 5-year strategic plan. I think the company, as I said, has gone through 3 or 4 years of transformation Phase I. Now this is a perfect time to get into transformation Phase II, which will include a strategic plan that will focus on top line growth. And that's my role, that's why I'm here now. And I'll put all my experience from the last more than 30 years to achieve those goals in Genomma, through innovation, through product expansion, through complete portfolios in all our countries, through exploiting the maximum potential we have in large countries, as you know, where we compete, like Brazil, Argentina, the U.S., et cetera, et cetera. And the area of supply chain and going back to your question is a very relevant one. I think, we are already working on this which might be just before or a few months before we start the plant in Toluca to be ready to take our service levels in the marketplace to industry standards, and that's the way I look at this. If we are now in the mid-90s, in terms of field rates, give-and-take, depending on the country, we want to go to 98%, 99%, which is the industry standard. And we want to take this company in many of these measures to industry standards also as part of this strategy. So our team is working on that one, that is our work. And we will connect perfectly when we start up the plan in the next few months.

[Antonio Zamora Galland, executive]

And your last question, Nicolas, regarding preoperating expenses for the plan, as you know, we've been hiring people that will be running that plant. These people are now working mainly to install the equipments to do the trial runs, training of the people that will be manufacturing. And the reason we are disclosing is, we need to let everybody know that we're incurring in these expenses although, at this moment, we're not getting the benefits of having the plant up and running. Once we have the -- that facility producing for us, obviously, these expenses will already be in the base, and you will see a very important increase in marginal contribution profits. But this will continue as we need to hire more people and as we need to prepare for the actual operations of the plant. But as you can see, we've been able to manage all these preoperating expenses in a very proven way. Our consolidated EBITDA number is above 20%. If you've seen from a quarter-to-quarter, we started with MXN 13 million in Q1, MXN 21 million in Q2, now we reported MXN 24.5 million. So it's going to be around that figure. Perhaps it's going to be a little bit higher as we approach the beginning of our production, but it's something that is going to be manageable. It's something that is going to be temporarily impacting our Mexico EBITDA results. But once we start operations, that's already in the rate and the benefits would be significant.

[Operator]

Our next question is from Rodrigo Alcantara from UBS.

[Rodrigo Alcantara, analyst]

Just a quick follow-up on the preoperating expenses. So I can assume -- you should start to assume that these personnel expenses that you mentioned throughout the sequential acceleration we saw versus 2Q '18 in terms of operating expenses? That will be my first question.

[Antonio Zamora Galland, executive]

Yes. As we approach the beginning of the manufacture -- the actual manufacturing, we need to get more people, and we need to do more training. And -- sorry, we'll start accelerating depending on that. Now as I said before, this is something that is manageable that we have been able to incorporate in our financials. And most of it is basically payroll. We're talking about people that will be running those machines, that will do in the shipping, that will be handling quality management, et cetera. So those are the operating expenses, and some electricity bills, et cetera. But that's basically what it is all about.

[Rodrigo Alcantara, analyst]

Got it. Got it. And just a follow-up here. What's your exposure to the minimum wage, I mean, to upcoming minimum wage hikes? What's your exposure in Mexico? And how this incremental salary expenses from the plant has changed these exposures if you have any at all?

[Antonio Zamora Galland, executive]

Well, that's an interesting question. But as you know, the company's that are exposed to the minimum wage inflation/increase are the ones who pay minimum wage. We don't pay minimum wage. We are in a different scenario. Obviously, there is always inflation, but I don't think it has impacted us a lot. Actually, as you know, the type of plant that we are building is a state-of-the-art facility with the most modern equipments, most of them coming from Germany, highly, highly automated, so the labor cost component is not significant. So we'd rather have the right people with the right skills and being paid properly than anything else. So the minimum wage is an issue that we don't face. It's not a concern. It is not a concern for us.

[Rodrigo Alcantara, analyst]

And the last one regarding the U.S. In terms of point of sale, how do you compare now versus the number of point of sale that you had with Walgreens? I mean, what would be your target in terms of point of sale for this year?

[Antonio Zamora Galland, executive]

I think, Roderigo, that just to clarify, we do sell at Walgreens. We haven't lost any point of sale at Walgreens. What changed with Walgreens is that we used to have a limited exclusivity agreement with them to sell them the -- in the past, the SKUs that have a highest performance back in the past. So we haven't lost any point of sale. But right now, we also serve other customers -- you name it, Wal-Mart, CVS, Rite Aid, et cetera. So we have more point of sale. We will be expanding our distribution in the U.S. with these customers and other customers. As you know, not every single point of sale is 100% incremental because some of this point of sale are just across the street from other retailers that are competitors. We have mentioned in previous calls that entering the U.S. and expanding in the U.S. is a process that takes many years, and we are growing gradually. I think the performance is -- as you can see, is there. But I would not -- I mean, if you are building a model, I would not correlate number of point of sale to actual sales. There's a lot -- there's many more components to that or perhaps Jorge would like to expand on that.

[Jorge Brake Valderrama, executive]

I'd like to expand a little bit based on the fact that I have spent the last 2 days in the U.S. that was my first visit to that market with Genomma, 2 or 3 things that I like to highlight. One is, we have a strong team there, too. A strong leader also in the country. And I was impressed with their analytical skills and the way they are approaching the market. And I'm impressed with their results, in terms of what they have achieved in the point of sale. As you can imagine, based on my background, with -- of 25 years in P&G., I really can appreciate what these guys are doing in terms of their presence in the store. Now the second point is here, we're gradually expanding our coverage, and that is a gradual process that, obviously, positively impact our results. But now we are basically presenting all of major changes in the U.S., and that process will be consolidated through the end of the year, and that includes all the major players actually in different regions of the U.S. But the other point that -- which as you know that I have been into detail, but I just wanted to mention is that, one of the huge opportunities we have in the U.S., in addition to expanding our presence in the major wholesalers, retailers, and drug chains on a national basis, is our portfolio. We will be working that will be our priority based on the agreement we made with the team yesterday in the next months and years. We are going to optimize and expand our portfolio of products -- through different vehicles, and one, of course, is going to be innovation, but we want to make sure that we do it in line with what the consumer is asking for or what are the consumer needs in that market. So -- and of course, we'll do that in partnership with key accounts in the market. So I see a great future for that operation.

[Operator]

Our next question is from Luis Willard with GBM.

[Luis Willard Alonso, analyst]

Jorge, this is a little bit more strategic. I know you told us about your 5-year strategic plan, and I know you're probably sanctioning the details, and you haven't had the chance to -- or you are not finished on that part, but thanks for sharing your thoughts on your 2 primary goals. I wanted to ask, do you have a ballpark assessment or a general idea, of how you plan to achieve either top line growth and also the shareholder value, optimizing shareholder value, as mentioned? I mean, I know you have already mentioned some points regarding top line growth in terms of innovation, probably expansion, et cetera. Maybe the only question on that part would be, if you plan to achieve this mainly organically? Or if you plan to kickoff a more relevant M&A operation? And on the shareholder value side of the equation, that would be through improving your working capital and continue to strengthen your balance sheet and free cash flow generation? Or you're thinking maybe dividends or buybacks? That would be my question.

[Jorge Brake Valderrama, executive]

Okay. Great question. I will start with the strategic comments here, which is one of my favorite topics, as you can imagine. As I said, I've been able to meet, talk, discuss and learn from many people in these last weeks, my first 6 weeks in Genomma. In all of those 7 markets that I've mentioned, that I have visited -- the last Mexico, of course, the first thing that I'd like to mention is that one of my pleasant surprises was that the team in Genomma is very strong. Not only in Argentina, as I mentioned already, the U.S., but all across the border. The work that this company has done in the last 3, 4 years to attracting and hiring a very good professionals is very clear. So that's the first thing that is -- that has -- was very good news for me. The second thing is that, exactly the strategic plan. I think this is the perfect moment to build a very strong strategic plan that is very clear in terms of where are the areas in which we're going to focus our efforts to produce growth and market share gains, and also to be clear in how we're going to do it. So -- and that is exactly what we're working on now. As I said, we plan to have it ready by the end of the year. I will be able to share the highlights of this with you and everybody else in Q1 of 2019, of course. So getting into more details on this one, based on your question, it is nothing that we will invent in terms of the concepts that will be part of this strategic plan, but a big opportunity that I think here, that I just mentioned it for the U.S., applies to the company, which is our portfolio. I think our portfolio has a huge potential to be -- to deliver much more than what it is delivering now, and that is through different approaches. It is throughout the portfolio, which means that we can make our brands travel to adjacent categories. We can make our brands, mega brands. So participating in bigger portions of the categories in which they already compete in. Portfolio, meaning countries. We have a huge opportunity to expand our portfolio of brands, basically all the countries in which we are operating. And finally, portfolio at the trade channel level. That's another big opportunity in terms of optimizing our portfolio of brands, products, SKUs on a per-trade-channel basis. And depending on the country, we will have different approaches, so that that's the general concept. So as I said, I see a time in the near future and in the midterm, where we will be expanding from those type of strategic plans on an organic basis, and that's the other piece of your question. I see that organically, we have lots of opportunities and the example of portfolio is one of them with those different approaches. I'm not saying that we will not consider M&A, we would probably consider M&A as we go. But if we talk about priorities, our priority #1 for us now is growth including business base, which has tremendous opportunities, clear opportunities, ahead of us.

[Antonio Zamora Galland, executive]

Talking about perhaps working capital, Luis, for the second part of your question, we will continue as you have seen streamlining our working capital, improving our cash conversion cycle, you have seen it. Perhaps, in the short term, we may have some adjustments, for example, in terms of inventories, as we will have the plant operating in 2019, we will also have to incorporate inventories for raw materials. And while we do the transition from third-party suppliers to our in-house production, we may have to increase inventories of finished products a little bit, so that we avoid stockouts in the market, but that is just a short-term effect. Once we have that, inventories should go down because we would confirm more of the supply chain as a whole so we can be more efficient. Safety stocks will go down, and we will become even more efficient. Now in terms of our accounts receivable, as you know, as you have seen, we keep on working to optimize that. You saw a jump in days payables because, obviously, we have now more suppliers and also part of the construction of the plant is there. But generally speaking, what I can say is, we are extremely committed to optimize our cash conversion cycle even more, and we will do that. Regarding potential dividends, at this moment, the priority is investing in the plant. And I would say that we would consider more buybacks as we manage our cash flow to help create more shareholder value. But we would do this making sure that we don't -- that we manage financial leverage in a very prudent way as you have seen. We have a 1.6x net debt-to-EBITDA ratio, which is very, very prudent, and so we are committed to that. We will follow that same prudent approach that we've had in the past. And if we combine that with the kind of commercial and top line initiatives, growth initiatives that Jorge mentioned, definitely there's going to be a lot of shareholder value because what we need is growth. And growth comes from having the right portfolio, the right innovation and also with a new capability that is going to be our manufacturing plant that will allow us to have products with better quality and lower cost. So it's a combination of all of these aspects that will drive shareholder value growth. It is a discipline. It is, as Jorge mentioned in the read. Perhaps, we completed the phase 1 of the turnaround, now it's a different but a new phase, the second phase of the turnaround, more focused on other aspect. So -- I mean, everybody here is extremely excited about the future. And I think this complements Jorge's answer to your question.

[Operator]

Our next question is from Richard Dolhun with Westwood International Advisors.

[Richard Dolhun, analyst]

Jorge, might -- this question is for you. You mentioned several times in your set remarks at the beginning how you are joining and you're entering a company that has been through several years of transformation. And your initiative is to grow top line sales as you've said and to enrich shareholders on the bottom line. That requires quite -- the 3 years at the company has been through versus what you are doing now or you are going to be embarking on now? That's a very different mindset going from cost control and reducing people, looking after expenses, reducing expenses to now growing the top line and focusing on profitability. You've said this, but I would like you to restate it that you feel that you have the people in place that this transformation can be made with the people that you have. And the second question is, do you feel that you're going to have to redo remuneration packages, in general, across the company to be focused on this top line growth and bottom line shareholder accretion, as opposed to cost-cutting and rightsizing, which had been the focus for the last several years within the company?

[Jorge Brake Valderrama, executive]

Okay. Very good questions. I'll start with the team and the people we have here. As I said and you mentioned the word reinforce or reinstate, and I'm reinstating that we are going to this Phase 2 of the transformation, that's the agreement with the Board of Directors, with the founder and the Chairman of the company and with my team, and I would say even further than that with the whole organization. In the 7, including Mexico, 8 markets in which I have been in the last 6 weeks, I have had town halls with all organizations. Everyone in our organization was present on those town halls. And in those town halls, I -- we have spent from 1 hour to 2 hours. I explaining all of these things to the organization in terms of our vision and what I have -- what is my initial assessment of the company, and where we're going. Explaining to them what their participation will be in this phase 2 and answering many questions, responding many questions that came from them. Because as you said, this is a big change. We're going to go from a company that has been focused on optimizing its processes, its structures and costs, to a company that is now going to be focused on top line growth and innovation, to add through this shareholder value formula as we have said. So I believe that thanks to what we've done in those 3 -- last 3, 4 years. It means that we're going to be able to go to phase 2. And these were type of all my conversations with the company board members when I was assessing the possibility of coming to do this job here. And I think the company is ready. I think the company is ready, not only from what they did in our processes and structures but also going back to your questions in terms of the teams that is here. I said a few minutes ago, I was pleasantly surprised by the caliber of the people that I found here. My Marketing Director, my COO, Commercial Director, my Finance, as you know, Antonio, the team that is building the plant and will be running the plant, everybody with years of experience in the industry, in different multinational top companies. And by the way, I know a couple of them that worked for me in P&G through a few years ago. And so -- they don't need to really learn something. They just need to follow a clear strategy and execute as they know. And one more thing that is also a positive thing that I found here is that, the next level of managers, are reported to all of these VPs or Directors, is a very strong group of people too. People that also come from different companies, multinationals consumption companies in overall terms that are very strong. These are the type of people that can execute quickly and not waste time doing other things or learning. Very, very positive thing that I found here. And in terms of the compensation plans for this people, yes, the answer is yes, we are going to do that. We're going to redesign our compensation packages, and we are working on that as we speak with our Human Resources people and our leaders, so that they can truly incent our leaders, not only the first line one or first line of leaders but also the following levels of the organization to pursue top line growth. And that is going to be a key part of the compensation packages starting 2019.

[Operator]

Our next question is from [ Jorge Muller ] from Fundamenta.

[Unknown Analyst]

It's regarding the operations in Argentina. I understand that there has been some companies reporting inflationary accounting this quarter. So I wanted to know if you had reflected any of these in your P&L? And if that's the case, what's the impact this quarter?

[Antonio Zamora Galland, executive]

Yes, that's a -- this is Antonio. That's an excellent question. As you know, IAS 29, that's a rule that says that when a company needs to report on their inflationary accounting, some companies started to do that this quarter. We are working together with Deloitte to assess the potential impact for that on next quarter. So what we have reported in Q3 financials do not include inflationary accounting. That will be, as I said, work together with Deloitte. There is going to be a onetime adoption impact that will be included in our audited financials. But now at this moment, we didn't do it. And the reason for that is there was a lot of controversy in Argentina. There used to be a decree for many years ago that didn't allow companies in that country to report on inflationary accounting. The decree is no longer replaced. There was also questions about what was the right inflation index to be used. So as there were a number of things that were not that clear, we decided to let this quarter as it is, as it always has been, and we will incorporate the inflationary accounting effects for the end of the year.

[Unknown Analyst]

Okay. And if I may, when looking at the constant currency growth in LATAM, you reported 10%. Just to get an idea, what this represent in real terms? So I tried to build like blended of the different inflation in the countries in which you operate, and I see inflation blended for LATAM growing at around 20%, which was more consistent with the '18 in the previous quarter. So any thoughts on this? Where is your real growth in LATAM?

[Antonio Zamora Galland, executive]

Well, that depends on what is the weight that you put to every single country, because you're going to get different answers. And in certain countries, the measure of inflation, it's also something that is uncertain. That's the -- on inflation. Minorista and inflation -- minorista in Argentina are very different today. So nobody really knows what the real inflation in Argentina is. And then if you go from industry to industry, there are some industries that have faced higher inflation than others. And there are some industries that have been able to pass that inflation back to the consumers. So -- especially when you have a huge macroeconomic situation, like in Argentina, it's hard to know. Now what I can tell you is that, in -- separate from Argentina, in all of the other countries, we are growing in real terms. We are growing very rapidly. As was disclosed in the report, we have very pleasant progress. We've made very pleasant progress in countries like Colombia, Central America, Brazil -- so obviously, the U.S. So I think that -- I mean, Colombia, it's -- I mean, when I'm saying, very good progress, I'm talking about double digit and not double digit that's starts with a 1 sometimes with a different number in certain regions of Latin America. That is a reason why even though and as everybody knows, Argentina used to be our second-largest operation. I mean, the largest market being Mexico, then it was Argentina. If you consider that fact and the size of the devaluation in Argentina, I mean, this quarter's results would have been much, much worse than what you've seen. The reason you didn't saw that is that Colombia, Peru, Central America, they are very -- Brazil, they are growing very, very strongly. And unfortunately, we have this situation in Argentina. Argentina will eventually come back. As we have been able to share with many investors on our one-on-one basis, when you see our business, for example, our Tafirol business in Argentina, since 2012, it has been growing on a CAGR basis at 65% in Argentinian pesos, CAGR, but 32% in dollar terms. So what do I see in Argentina right now is something that, yes, it hurts; yes, it's going to be hurting a couple of quarters more, but eventually, we -- I mean, we're going to be back as it happened some years ago with Colombia and now it's growing very fast as it happened with Brazil. The issue when you have 19 countries is that sometimes there is going to be something in one country. Unfortunately, for us, Argentina was a very important market, and the impact of the devaluation was huge. But when you consider these 2 aspects, I think the results are very good.

[Operator]

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Jorge Brake for closing comments.

[Jorge Brake Valderrama, executive]

Thank you. I just want to offer a few comments to conclude. First of all, I want to thank everyone for joining the call. I think it was a great conversation today, my first one, the first of many to come, but I believe it was a good conversation. I'd like to touch on a couple of points. First from an operational perspective, excluding those external headwinds that we just mentioned, which are beyond our control, Genomma had a very strong quarter. We're also making substantial progress in bringing our manufacturing plant online, as we successfully transition towards our manufacturing base business model, which will leverage to drive innovation, and more broadly, address our consumers' needs, as I explained during the call. Our performance, therefore, reflects the ongoing transformational shifts in our business, focusing on growth, with discipline and on the goal of adopting an increasingly energized and innovative experience. As always, we thank you for your interest, your investment in our company and for joining us today. Have a great weekend.

[Operator]

Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.