Genomma Lab Internacional SAB de CV

BMV:LABB

Earnings Call Transcript 2020-Q3

[Operator]

And gentlemen, thank you for standing by. Welcome to the Genomma Lab's Third Quarter 2020 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded.

I will now turn the call over to Enrique González, IRO of Genomma Lab. Please go ahead, sir.

[Enrique González, executive]

Thank you, operator. Good morning, everyone, and welcome to Genomma Lab Third Quarter 2020 Earnings Conference Call. Yesterday, we issued our earnings release, which is available within the IR section of our website. Information in yesterday's release, and the remarks made during the conference call may contain forward-looking statements, which represent the company's current expectations or beliefs concerning future events and financial performance.

All forward-looking statements are based upon information currently available to the company. A number of factors could cause actual results to differ materially from our current expectations. In particular, there is significant uncertainty about the duration and potential impact of the COVID-19 pandemic. This means the results could change at any time and the considered impact of COVID-19 on the company's business results and outlook is a best estimate based on the information available as of today's date.

Please refer to our earnings release and other reports filed with the Mexican Stock Exchange by Genomma Lab for a more thorough description of these factors.

Joining us on the call today to discuss Genomma's third quarter results are Chief Executive Officer, Jorge Brake; and our Chief Financial Officer, Antonio Zamora.

Now I would like to turn the call over to Mr. Jorge Brake. Please, Jorge, go ahead.

[Jorge Brake Valderrama, executive]

Thank you, Enrique, and good day, everyone. Thanks for joining us today. As we continue to navigate the COVID-19 crisis, we hope all of you who are listening today and your families are staying safe and healthy. Our thoughts remain to those impacted during these challenging times. Our most important responsibility is to take care of our people, ensuring the Genomma team's health, safety and well-being continues to be our highest priority. We also remain focused and committed to helping our communities where we operate and where our people live and work. We'll continue to provide support and then make thousands of hygiene and personal care products to hospitals, to schools and people in need in general.

Before I review our results for the quarter, I would like to take this opportunity to again express my deepest gratitude, pride and appreciation for the extraordinary performance across Genomma, starting with our front-line teams. We have been operating in this challenging environment for 7 months. And our teams continue to exhibit determination, commitment and resilience. We have adapted to heighten safety protocols and made quick decisions to get our products to customers and consumers across Latin America and the U.S. while supporting one another and their communities.

I'm also sincerely thankful for our sales and logistics teams and the close partnership with our customers during these uncertain times. In fact, during this period, we have been able to successfully continue to strengthen our one-mission approach and fortify the collaborative teams, such as supply chain, cash management and recruiting that are making our company more efficient and connected.

As I have commented in the past, the key success in this regard, supported by the decisions we have made and opportunities we have captured throughout this crisis, have strengthened our company and marketing -- and market position.

Now let's turn to our performance. Our continued success in implementing the 4 pillars of our strategy and our commitment to innovation, again, serves us very well during the third quarter, as we swiftly adopted to changes in customer sentiments, demand and operating environments in Genomma markets to deliver more than 11% year-on-year increase in sales overall.

Our business was progressing on a steady positive trajectory prior to the pandemic's outbreak with important strides in innovation and portfolio optimization and a new operating model to strengthen profitability.

This quarter, we achieved a 20.4% EBITDA margin, which reflected a 230 basis point increase compared to last year. We have, therefore, seen continued positive momentum in pandemic, including the third quarter of 2020, with no need to alter our prior plans and objectives, including innovation and product launches, et cetera. We will continue to recontinue staying in the course. Our strategy is resilient and designed to withstand crisis periods, which is resonated in the continued strength of our results.

In the Latin America region, we completed new product launches and loan extensions, with double-digit growth in sales for Argentina, Chile, Colombia, Peru and Ecuador operations. While central countries like Brazil and Argentina have been particularly impacted by exchange rate headwinds, we are starting to benefit from the gradual consumption recovery we are seeing in the Latin American markets.

In the U.S., we furthered the progress we made last quarter on our new operating model for this market. And the business is healthier by initially focusing on a few key states, achieving a 20% year-on-year top line growth in Q3 2020.

In the quarter, Genomma launched almost 14 new Personal Care and OTC SKUs, namely California, Texas and Puerto Rico. Being the Puerto Rico market, a good representation of some important engines of those in the future.

Due to strong demand, we are seeing, for instance, our SueroX isotonic sports drink in the U.S. in which considered given the spending capacity and also potentially extending these products reach to other countries.

Finally, in Mexico, had a basically flat quarter in net sales, mainly impacted by limited TV advertising in the country and a slow initial winter season demand. However, we continue with our plans to launch new products, portfolio , go-to-market execution and improved visibility at the point of sales. A good example is the launch of Alliviax 4s pain indication in a new 4-tablet pack presentation within Mexico's traditional channel, a channel which is particularly critical in today's altered consumer sales environment, which reduced retail store traffic and enforced social distancing. We continue our expansion within this channel, while tailoring our innovation and product portfolio to this specific format.

Turning to our corporate culture and organization. Genomma continues to benefit from the implementation of best practice sharing of ideas and information throughout the organization, achieving our goal of uniting around a single compelling mission. Third quarter results, therefore, reflect the successful cross optimization between different countries as well as our new organizational model, which combines the agility, adaptability and cohesion of a small team with the power and resources of a larger multinational organization.

Our success in this regard is one more component of Genomma's cultural evolution to become a more efficient and connected organization, which is clearly resonating. A strong collaboration is also evident in Genomma's new approach to marketing as we successfully restructured this function during the second and third quarters of 2020.

Today, Genomma's global category leaders has complete ownership of their respective businesses and P&Ls and are becoming experts on what consumers of the categories want. It is a considerable change to how Genomma addresses planning and an important intervention in how our business operated previously. We now have an integrated and global approach to strengthen categories in countries. I believe this will fundamentally accelerate our strategy and optimize how we do with our consumer everywhere.

Another area of focus has been on digital commercial platforms. We are seeing consumers increasingly purchase our products and services online, wherever possible, with growing demand through e-commerce and continued strength in formal traditional manner of channels.

Genomma team swiftly adopted our overall strategies to the growing crisis, making e-commerce a high priority with benefit of our new collaborative approach across markets and geographies. Consumers' digital engagement has, therefore, increased significantly in more regions where Genomma is present. And e-commerce as a percentage of our sales again increased this quarter, particularly in the U.S. and South American countries such as Chile and Colombia from levels, which were essentially 0 in 2018 to '19.

Targeted marketing activity is driving better sales performance, and we remain aggressive in increasing the percentage of our sales coming from this channel, working closely with key e-commerce retailers, including Amazon and Mercado Libre, and delivering services or last milers, such as Cornershop and Rappi, to strengthen our presence within these platforms. We expect the shift to online shopping behavior to continue, and Genomma is well positioned to the investments we have made and continue to make in this channel.

Regarding Genomma's world-class manufacturing and supply chain capabilities, I would like to confirm that we have again seen more major disruptions this quarter, enabled by those client relationships with our third-party suppliers to ensure seamless product supply. To share some updates on Genomma's manufacturing capabilities, I'm pleased to let you know that we are in the final phase of our Personal Care plant. The plant is almost ready, and I can tell you that the speed of production is nothing short of amazing. Products produced at the plant will be sold to the market before the end of this year.

On the other hand, we were unable to open the Genomma's OTC plant during the quarter. When we continue to aggressively pursue corporate [ price ] approval, COVID-related challenges have created significantly road blocks and approval delays. We remain very close to the authorities, as you can imagine, and hope the meeting will be completed soon.

At this point, we have hired new plant managers for both of Genomma's manufacturing facilities. Our new OTC manager has 20 years of related experience in the pharmaceutical industry and our personal trade plant manager has 28 years of experience.

Further, I'm excited to note that our associated cost generation plant is also now in operation, producing our own sustainable energy for the use of our Genomma's plant without the need for any other regulatory permits. Our destiny and related energy costs is now within our control while reducing our carbon footprint with more efficient use of fuel.

In closing, we believe the habits and preferences consumers have developed during the last 6 months will be retained to a great extent. Moreover, regardless of the duration of the COVID-19 environment, we expect our results to remain resilient, driven by the sustained behaviors and focus on health and well-being, even as the environment normalizes over time. We expect a positive end of the year, given the current context and our continued success at that address -- to address uncertainty and challenges to transform this into opportunities by executing on our 2020 plan.

Looking to the near-term future. While purchasing power could decrease in many of our markets, particularly for the lower-income consumers, we believe our company is particularly resilient in this environment relative to our peers. Genomma benefits from a [indiscernible] position with a broad range of products, many of which represent an affordable luxury. We, therefore, are well positioned to continue capturing opportunities during extended crisis as we mainly adapt to the environment supporting the health and well-being of our customers throughout Latin America and the US.

The net of this is that we expect to be in a more advantaged position coming out of the pandemic than going in, which was already improving due to the progress we have been making against our strategic plan.

With that, it is now my pleasure to turn our discussion over to Antonio, who will review our financials. I'll be back.

[Antonio Zamora Galland, executive]

Thanks, Jorge. Good morning, everyone. Let me review some of the highlights on the Genomma's third quarter. As Jorge mentioned, Genomma again achieved solid consolidated net sales reaching MXN 3.4 billion for the fourth quarter and 11.4% year-on-year increase with benefit of strong new product launches and line extensions through our -- all of our markets and the successful execution of our growth strategy. As can be expected, strong results were somewhat tempered by the current consumer environment and FX pressures.

EBITDA for the third quarter 2020 reached MXN 769 million with a 22.4% EBITDA margin. The considerable 230 basis point improvement was due to operating leverage from higher sales and continued savings and efficiencies from our successful cost and expense containment programs.

In Mexico, as Jorge noted, we are seeing a somewhat slow start to the winter season within this market as well as a decrease in overall consumption and the effects of reduced advertising in broadcasting TV during the quarter, as Jorge discussed. Reported EBITDA for Mexico reached MXN 338 million with a 22.8% EBITDA margin, representing a 380 basis point margin expansion driven by cost savings, expense controls and the reduced TV advertising expenses I described before.

We are particularly pleased with the success we continue to see at Genomma's U.S. operations, where we closed the third quarter 2020 with a 20% year-on-year net sales increase in Mexican pesos to reach MXN 378 million.

Our 2019 restructuring strategy is working well with a significant increase in SKUs for both the OTC and the Personal Care categories and a strengthened media strategy. During the quarter, we also benefited from a favorable U.S. dollar exchange to the Mexican peso. EBITDA for the period reached MXN 46 million with a 12.2% EBITDA margin, a 380 basis point margin increase.

Genomma achieved a MXN 298 million year-on-year increase for our Latin American operations to deliver MXN 1.6 billion in net sales for this market, despite a particularly difficult consumer climate in many countries where we are present. This was, again, achieved through product innovation, successful line extensions, and importantly, increased point-of-sale complemented by a strengthening e-commerce presence. EBITDA for the quarter reached MXN 385 million as compared to MXN 307 million for the same period in 2019. This is a 40 basis point year-on-year margin expansion to close at 24.6%. This margin improvement was mainly the result of ongoing efforts for keep a tight cost and expense control as well as sales-driven operating levels. The positive effects were particularly offset by challenging for products headwinds in certain Latin American countries, including Brazil.

Third quarter 2020 consolidated gross profit increased by 11.6% during the quarter to MXN 2.2 billion, while gross margin improved by 10 basis points year-on-year to close at 63.9%. These results reflected a favorable sales mix, as higher-margin products may have more significant contribution to net sales during the quarter. This was particularly offset by certain input cost increases resulting from FX headwinds and by cost and investments associated with Genomma's future in-house production.

During the quarter, Genomma successfully completed a MXN 2.5 billion Mexican local bond issuance with a 3-year term, which was 2.3x oversubscribed in the debt capital markets. By combining the funds raised through this transaction between new long-term backbones, we were able to fully prepay our Lab 18 local bond for MXN 2.4 billion as well as other close to maturity financial loan commitments.

With this refinance strategy, we improved the related spread of our average debt interest by almost 60 basis points. Additionally, we also issued 1-year short-term bonds in the local Mexican market for a total of MXN 300 million, a transaction that was successfully completed in July and August. And as we all know, those were the 2 most challenging market period of this pandemic, especially in the financial markets in Mexico.

Finally, the fees of this successful refinancing measures smooths our 2021 maturity curve and creates a more balanced debt payment schedule between 2021 and 2026. Genomma will remain active in opportunistically refinancing the debt on its balance sheet.

Genomma's balance sheet, therefore, remains strong, ending the quarter -- the third quarter 2020 with a cash position of MXN 1.6 billion as of September 30, 2020, a nearly 70% increase as compared to December 31, 2019.

Net financial debt amounted to MXN 4.9 billion as of September 30 of this year, a MXN 180 million decrease since the end of last year.

In summary, Genomma delivered another quarter of strong growth and expanding profitability with a strengthened balance sheet. We are naturally pleased with this quarter's progress. We always recommend that you should not focus too much on the results of any single quarter as we do expect some volatility in the future. However, as Jorge mentioned earlier, we are confident that we will prevail during this challenging period and emerge as a stronger company than ever before.

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

[Operator]

[Operator Instructions] Our first question today comes from Antonio Hernández of Barclays.

[Antonio Hernández Vélez Leija, analyst]

Congrats on your results. Well, actually, 2 questions. The first one is on your Mexico sales trend. And you mentioned a couple of factors that affected sales, but I wanted to know you expected for the rest of the year.

And second question would be regarding overpricing and marketing expenses because, of course, you've been doing some rich offering there. But then there will be a quarter, of course, and a time when the comp base will be perhaps more [ levels ]. So also, if you can give more perspective on that.

[Jorge Brake Valderrama, executive]

Antonio, this is Jorge. I'll take the first question and maybe share the second question with Antonio. In terms of what we expect in Mexico, I would say that in general terms of Mexico business is in a strong position. As you know, this is a much more mature business for us compared to the U.S. and the rest of Latin America.

And I would say that our perspective for this last quarter of the year and especially 2021 is very positive. And I say this because of the trendy folks and the time we have looking ahead. And as you know, we've been working in innovation -- product innovation, which is the main pillar in designing our growth of sales and profits. And the plan for Mexico in the next few months are quite strong in terms of what we expect to see in terms of the results from [indiscernible] and that type of things.

One more thing that will impact positively in Mexico in the near future and 2021, as I mentioned in my speech, is the continuation of the expansion of the traditional channel effort and the e-commerce platforms. We are seeing this closing in some countries already. Mexico will continue getting to more traditional stores in the next, I would say, 3 to 24 months because we still have a way to go and continue expanding our product portfolio in large channel. And in terms of e-commerce, where we have started to pilot our new model in South America where we're seeing a lot of growth, we will get into Mexico, so that in 2021, that will also be a key building block. So what we see as potential results for the country.

So in overall terms, I would say, behind innovation and we have behind go-to-market expansion, the growth of Mexico, I would say, will be very positive in the next few months. One more thing about this is the supply chain and the efforts behind the start-up of our plants and our new distribution center in Toluca in Mexico. Those also will start during 2021 to deliver part of the cost reductions and efficiencies that we've been looking for. I can tell you, Antonio, that we have a team that has been working many hours per day in making sure that the start-up of these 2 plants plus the new distribution center make some initial positive results in terms of, as I said, costs, efficiencies and services to our customers in overall terms.

So that's another positive that I see coming from the Mexico operation. In terms of advertising and marketing investment, I would say that behind all these initiatives and innovation, we have continued and will continue making investments in that front. We expect that TV will continue being a key peer in terms of how we communicate with consumers. We probably continue to be the most important peer and complemented more efficiently now, what we are doing to make a difference in what we call in-store as media and some of our digital platforms and e-commerce in particular.

So I would say that -- Antonio, any further perspective in terms of the investment with marketing and advertising in terms of 94% in our overall P&L results?

[Antonio Zamora Galland, executive]

No. No, I think you summarized it really well, Jorge.

[Operator]

The next question is from Nicolas Larrain of JPMorgan.

[Nicolas Larrain, analyst]

I wanted to see if you could provide maybe a little bit more color on how the main countries in the LatAm division are performing, whatever you can give us in terms of qualitative feedback that would be super useful.

[Jorge Brake Valderrama, executive]

Okay. I will do that. Thanks for your question. You'll see the difference between the growth that we have been paying in the South American countries. And the LatAm region, as we call it, from Central America to South America. And you probably remember that about 1 year, 1.5 years ago, I said as we were launching our new strategy that probably the biggest opportunities were in these countries, in South America and obviously in the U.S., too, being less mature in terms of our operations than Mexico. And that is becoming a reality. As you know, also in terms of innovation, we have expanded our presence of our portfolio, as we call it, we are completing the product portfolio in several countries in Central and South America with the portfolio of brands that Genomma has, mainly the most relevant signs like , et cetera, et cetera.

And those brands are now in most of those countries, completing almost 1.5 years, almost 2 years of work behind that those [indiscernible]. That's one thing. The other one is that they have been benefiting from the restating of some of our brands, modernization of some of our brands because when we do that in Mexico as the headquarter country, that is quickly expanded to other countries now, which was not the case in the past. And those countries are obviously now benefiting from the combination of completing the portfolio and the restage in modernization of parts of the portfolio, too.

The other part is that, as you remember, at the beginning of the year, we restructured a bit the way we operate in these countries. And we have established now 5 clusters so that we have a cluster head that managers describe [indiscernible], which includes Argentina, Chile, [indiscernible] and Bolivia. The other one, which is the [indiscernible] and Central America. The other one is, of course, Brazil. The other one is Mexico and the other one in the U.S. So those 5 are now working in a much more effective and efficient way. So that when we have a new initiative that is going to go to a country like Argentina, it quickly becomes an initiative for the whole southern cone cluster. This happens the same in the other regions, for instance. So that's another laser intervention that we've done in the way we operate that is helping a lot accelerated innovation and execution in these countries.

And finally, the other factor, and then I will tell you what is happening in a few countries. But the other big factor is, as I said before, the traditional channel. The traditional channel is big in several of these countries like Peru, Colombia [indiscernible] and Central America. And as you also may remember, we decided that, that was going to be one of our priorities because that's kind of a white space for the company 2 years ago. And we've done it. We implemented service structures to be able to cover that channel and expand in that channel, covering more on top traditional stores. We made some changes to our product portfolio to make sure that we have some presentations, sizing and pricing to be in line with that is needed in that channel.

So we introduced shampoos, 2 or 3 bands of shampoos in sachets. We have introduced skin care products in sachets. We have introduced OTC products in smaller cans. And without getting into specific numbers, you see that in countries like Peru, where this channel is so important, we are going 3x versus what we used to sell in this channel in 2019 behind this right coverage and the right product portfolio. And it's happening in Colombia, et cetera, et cetera, too.

So that is producing a more accelerated growth rate in South America, obviously, because it represented a region in the most evident, important and relevant opportunities for the company. So -- and we are taking advantage of that.

So we have -- as I said in my speech, we have several countries that are growing very solidly and consistently at a double-digit rate growth for several quarters already, and that is accelerating. So it's very good news. And our value growth in big countries, that includes Argentina, that includes Peru, Colombia that are the largest in that region that are in a very healthy growth path as we speak.

[Operator]

The next question is from Álvaro García of BTG.

[Alvaro Garcia, analyst]

My first question is on sales trends. You mentioned in the release, whether it was in the U.S. or Mexico that there was lower foot traffic in retail stores and this impacted sales. But the same is true in terms of mobility in the second quarter. So I guess my question is if you could help us sort of piece of part how relevant that impact was. We were a bit surprised -- given some of the inorganic growth in Mexico, Novamil, Novalac, we were a bit surprised with the sales decline relative to last quarter. So sort of the sequential trend there. That's my first question.

[Jorge Brake Valderrama, executive]

Okay. I will tell you that in overall terms, we think this slower rates of -- and a slower traffic in retail stores, mainly in Q2, as you said, that was the first 2 quarters behind the pandemia. And at that time, as you may remember, we also decided to go and work virtually, making sure that our salespeople and our logistics people were -- continued to work following the strict protocols implemented, following government directions in all countries.

So Q2 was tough on that one. But remember that at the same time, we were fortunate to have most of the segments on retail stores where we sell our products, remained open because they will consider essential activity. So all supermarkets and pharmacies remain open, although with less traffic, as you said. So what we did at the same time was to accelerate our plans behind e-commerce and in all countries, and that could proved to be the right move because we've been able to sell above expectations in the e-commerce platforms.

Today, we are selling double what we used to sell in the comments at the beginning 2019. So that's a reflection of how well we're doing in e-commerce as an excellent complement to what we continue to do in the physical retail stores. So that combination worked for us in overall terms. And I will say that in the second part of your question regarding Mexico, I think the third quarter just reflects tightening of some things that were happening between Q3 and Q4. I would say that most of the initiatives, for instance, in the OTC category, which is very important for us. And it's the one that is growing rapidly in all Genomma, most of the initiatives are coming now because this is the time of the year in which we put all the priority behind OTC during the season. Now we are entering the fall, entering the winter season. So that should be reflected in the results, as I said, based on timing in Q4. But nothing else structural that will concern us.

Of course, we've been working in some tests of different things, and we use Mexico always as our laboratory. So many things that we try to pilot and test, including media, including advertising, including sales coverage and supply chain key variables.

And that's another thing that impacted our results in Q3. But as I said, nothing is structural. We will see Mexico continue to exclude path in the next quarters.

[Alvaro Garcia, analyst]

Great. That's very helpful color. And then just really quickly, my second one is a much bigger picture, just sort of on your experience on the e-commerce front in different countries. I'm assuming, just given the levels, I guess, a bigger picture question on penetration of e-commerce in places like Brazil relative to Mexico, for example. But I was wondering if perhaps you had a sort of story to tell on how much more dynamism there is in a place like Brazil relative to Mexico or whether or not it's a relatively even sort of e-commerce experience. What's your sense on that front?

[Jorge Brake Valderrama, executive]

Okay. It's a very good question because we were surprised looking at how some countries, in the case of Genomma, accelerated the sales in the e-commerce platform very quickly. It is very interesting to see that, for instance, Chile and Colombia, those are 2 countries in which you would say, yes, probably the penetration of Internet or whatever is not as good as in Brazil for instance or Argentina or the U.S., but importantly, we saw that our sales in Chile and Colombia accelerated very quickly behind the intervention. We implemented in terms of the team and the strategy, working together with key retailers has been key because some of them are [ readier ] than others. And I can tell you that now our sales in Colombia and Chile -- basically, between 6% and 7% of our total sales in both 2 countries are in e-commerce. And that was a very good surprise for us in terms of the development of this channel versus almost 0 to 1.5 years ago.

And now you see other countries following, Brazil, Argentina, the U.S., Mexico. We are between 2% and 3%, 4% in some countries. But I think the important thing here is our vision. Starting in January, we are going to have a stronger team behind e-commerce. Now given our experience in the last 6, 7 months, that will truly work very strategically in the key development of our business in both channels because we want to get to 10% of our sales, total sales down through the e-commerce channel in 2022. It's possible before, we will do it this year.

But -- and one more thing that I'd like to mention behind this, we've been talking to experts on this one. We are not doing it by ourselves. And we keep talking to experts in Amazon, in some of our key retailer accounts because they have their own platforms like the [indiscernible] or the similar type of companies in Southern Cone and in Brazil, Lojas Americanas, et cetera, et cetera, and also with what the -- and commercial because these guys are also experts on this one. And the point here is that we should see and we should confirm in the mid-term that sales coming from the e-commerce platform are new sales and -- to compare to the sales that are made in the physical store because our brands still are not the big market share brands.

We benefit more from selling e-commerce and attracting totally new consumers to our brands. And we are seeing that already. We are seeing that in market shares also in Chile and Colombia that are growing faster than the others for the time being, but that brings additional market share because our brands still have a lot of room to develop and are attracting new consumers to them. So it has very good things that, strategically, you want to take advantage of, too.

[Operator]

The next question is from Vanessa Quiroga of Crédit Suisse.

[Vanessa Quiroga, analyst]

The first question that I have is regarding future margins. How much of the margin benefit from the new plans could be achievable if the OTC permit is not obtained in the near term? That would be my first question.

And the second one is, if you can comment about how you saw that traditional point of sale, the moment of behaving compared to the modern channel during this past quarter.

[Jorge Brake Valderrama, executive]

Antonio?

[Antonio Zamora Galland, executive]

Vanessa, thank you for your question. This is Antonio. Regarding the future outlook of our margins, the first thing that's important to highlight is that we've been covering the fixed cost and the fixed expenses of the manufacturing facility for quite some time already. As you know, an OTC plant once it starts operations, you cannot show it down. I mean, we have the HVAC and the water filtration, et cetera. I mean, the whole plant works 24 hours. And it's going to be that way because it needs to be operating and running. We also have 300 people already working at the plant.

So the fixed expenses are already embedded in our financials. So we are perhaps in the worst-case scenario, okay, at this moment.

We think -- I mean, obviously, we've said this some quarters before that we expect the cost at least to -- within the short term, grant of the GMP certificate so that we can start to sell the products that we can manufacture in the OTC facility.

But let me divide the problem into 2. I mean, it's one industrial compass with 2 plants. One is a Personal Care, the other one is the OTC. For the Personal Care plant, we don't need the GMP certificate. We just need an operating license, and that's something that we expect to get in Q4 with no problem. And the -- and Personal Care, we'll start operations in Q4. It's very well advanced, at least in the shampoo line and the beverage line, the storage line. So you will see some benefit starting 2021, just from the Personal Care plant.

And in the OTC, I think we're going to get good news in Q4. We expect to get good news in Q4. If we don't, then some of the benefits will be delayed a little bit. But I think we're making progress. We've had some progress in terms of information that was requested from COFEPRIS. So the ball is moving there. We see support from the authorities, maybe not at the speed that we would like, but they -- I mean they have stated that they want to collaborate and help us.

So the ball is moving. We hope to have good news soon. But at least, you can count with the 2 lines that will be operational in Q4. And during 2021, we will be installing additional lines for the Personal Care. So that should drive some of the margin expansion that we ambition, that we plan and even in not the best-case scenario. I don't know if I answer your question regarding that, Vanessa.

[Vanessa Quiroga, analyst]

Yes, Antonio.

[Jorge Brake Valderrama, executive]

And I will take the second question.

[Vanessa Quiroga, analyst]

Yes, sure.

[Jorge Brake Valderrama, executive]

Just before that, I just want to complement what Antonio said by saying that, remember that we will also move in our distribution center. In early 2021, that should be completed. And that will be also appreciated to our supply chain. We are implementing a new technology. We are implementing a state-of-the-art distribution center that will also bring some efficiencies to the system that we will be informing during 2021.

On your question of traditional channel, that's interesting, too, because, as I've been saying, this is kind of a new channel for the company, mainly in the last 2 years that we started doing this project and expanding it. In your question on how is it different versus the modern channel, it's very relevant because it is very different. And you would be probably surprised to see that traffic during the pandemia in the rational store did not go down. Why? Because they are neighborhood stores. So you need to go to a big retail, Walmart or similar type of the stores, in your car and get very close to a lot of people, those type of things. We just needed to go to your neighborhood store. In many cases, we're working several times a week to get the products you want. And that is the main feature of the traditional channel, and that has been the future expectation channels forever. But in this case of a pandemic, [indiscernible] became something that was positive for the channel.

So the channel grew. And in our case, as we have already started in 2019 with our traditional channel, go-to-market expansion project, we benefited from it. We just accelerated furthermore the plant that we had in 2020 in terms of ensuring expanded coverage, not only in Mexico. I'm talking about the Indian region and some areas in Brazil [indiscernible] and Central America, too. But we accelerated the expansion of our sales coverage. We fine-tune the supply chain that was needed for this type of channel. And more importantly, we make sure that we also accelerated expansion or new SKUs that were the type of SKUs needed for this channel, mainly smaller sizes at lower price points.

And one last thing that is also different in this channel versus the others is that this channel is more profitable for Genomma and for the industry in general terms, because the consumer that goes to the traditional channel goes to the store more frequently. It goes, on average, using the example of Mexico, between 1 to 2x per week. They go to the retailer normally 1 or 2x every 2 weeks. And during the pandemia, [indiscernible]. It was 1 or 2x times per month versus the traditional channel that continue with the same-store frequency or visit frequency.

So that's very important because that's why you need smaller sizes and lower price points, but this consumer is willing to pay more for [ NIM ] or more per gram to get the benefit of smaller sizes and lower cash outlook. So in overall terms, it's more profitable in terms of our brand portfolio.

[Operator]

The next question is from Rodrigo Alcantara of UBS.

[Rodrigo Alcantara, analyst]

Two quick ones, if I may. And the first one, I was wondering if you can give us an update, perhaps your expectations ahead of the end of the year of your 3 main brands that you -- well, categories that you recently launched Novamil, Groomen, OraQuick in Brazil. Also, if you can comment a bit an update on what is happening with the hand sanitizer with the anti-bac gel. If you can comment about the situation with the FDA that announced a couple of Mexican products containing methanol, that will be helpful.

[Jorge Brake Valderrama, executive]

Good. Go ahead, Antonio. I will complement you.

[Antonio Zamora Galland, executive]

Yes. Thank you, Rodrigo, for your question. It's an excellent question. As you know, we don't disclose things that might be of interest to our competitors. They are clearly interested to proceed what happens with these new categories and to understand what our strategies are so that they can counterattack us. But I'm going to give you some comments about Mexico, in particular, the Novamil and [indiscernible].

The third quarter, as everybody saw, didn't have the best growth in terms of top line in Mexico, and there's a reason for that. As we explained, the amount of investment that we have on open forecasting TV was significantly less than what we have during the third quarter of 2019. And that impacted our sales. That impacted our growth, not only in these categories, but in all categories. So it wouldn't be fair to say that whatever happened in Mexico in the fourth quarter reflects the state of our business. What it does reflect is that open TV is important, that consumers are still watching TV. It's relevant, especially for new products or new categories as -- and the best example for Novamil and on Groomen, our venture business. So that impacted a little bit of our growth in those categories this quarter.

Obviously, things may change. And As we change the strategy and as we do different things in terms of other pricing in that media as well as other actions, I mean, it's nothing to worry about. It's just an explanation of what happened with this category. And I can go into more detail, again, for competitive reasons because there's many people from other companies, from our competitors listening to this call, and it is in the best interest of our investors to not disclose that.

Having said that, the other part of your question regarding the hand sanitizer business. Hand sanitizers in the U.S. were extremely strong during the second quarter, as we all know, the market demand has softened a little bit during the third quarter because, obviously, last quarter, everybody was buying those products. As we all know, we have a number of third-party contractors, third-party manufacturers who have manufactured our products for the U.S. And yes, one of them had a situation with one lot. That's it. But you saw our numbers in Q2, you saw our numbers in Q3. We didn't have a big impact that we can report, but just one up. And that's it. The other manufacturers didn't have any problem.

Having said this, obviously, we're thinking about a new wave of COVID is coming, unfortunately, to the world. There's going to be a demand for high-quality products. And we are going to be upgrading that business category in the coming months. Again, we cannot disclose more because it's -- again, for competitive reasons, it's something that we will not do. But that, by the way, is strongly good. Now [indiscernible] to report. I guess, other companies all publicly traded companies to manufacture those products may tell you something in addition to your question, but nothing to worry about. I don't know if I answered your question, Rodrigo. And if Jorge wants to add some comments...

[Jorge Brake Valderrama, executive]

I just -- yes. I will just add, Antonio, to the last part of the question, the anti-bac or the general -- that we'll continue seeing this category as an opportunity category that will be very, very interesting for Genomma, so the anti-bac category. So and that's something that we will be talking about more and more in 2021.

Today, there is no -- it is known that we have launched products also in Walmart in Mexico as a pilot, including tissue, towels and a spray that are anti-bac in addition to the year. So you will see more of that in 2021 as we strengthen our strategy and execution in that new category.

[Rodrigo Alcantara, analyst]

That's great. Very helpful. And the second one would be -- perhaps if we can focus a bit more on Argentina, perhaps if you can comment a bit on the market dynamics, competitive landscape here. So far, you have benefited a bit from this affordable luxury trend. If you can comment a bit more about this. Also, concerned the growth you reported there, the depreciation. I don't know if perhaps it's reasonable to say that, there, you perhaps achieved actually growth in real terms. Is that fair to say? That would be my last question.

[Jorge Brake Valderrama, executive]

I will comment very general in the overall, and then maybe Antonio can complement the other additional perspective, but I can tell you that we're very proud of our team and our operation in Argentina. As you know, these guys are fully trained in managing crisis. They were born with crisis, and they know how to do that, how to manage crisis. And we have [indiscernible] in the country. And what I can tell you is that we've said in the past that Argentina in Q3 and during the year so far is performing very well. We are improving our market shares in OTC and Personal Care, which basically means that we are gaining both market service from our competitors. We are growing in Argentinian pesos ahead of inflation, which is another very good factor. And also, we continue to have EBITDA margins in Argentina that are better than the company's average. And that is the situation as of today. So that's why we continue to feel very proud of our operations there. Antonio?

[Antonio Zamora Galland, executive]

Yes. Okay. Thank you for answering that. Let me add just a little bit of color to your question. In Argentina, during the quarter, inflation -- accumulated inflation during the quarter was 9.5%. So that, obviously, under IAS 29, the international accounting for hyperinflationary countries. So you will add 9.5% on top of the numbers. So that, in a way, should help you.

But on the other hand on the applied IAS 21, which is you need to convert everything using the ForEx exchange rate over the very last day. The devaluation of the Argentinian peso against the Mexican peso was 14.5% during the quarter. So when you combine both effects, you had a headwind of almost 5%, okay? So there's no accounting help. On contrary, it was mostly negative, the impact. I know you also need to restate Q1 and Q2 on a cumulative basis.

So generally speaking, the accounting rules will create a headwind of 5% to our performance down there. But the business performed really well, as Jorge mentioned. The business is doing really well. The team is excellent. The activities -- the commercial activities that are being implemented are very successful, and we are very proud of our Argentinian team. And even under these very tough 3 consensus for them, Argentina subsidiary will still have higher EBITDA margins than the average of the company. And the growth is good. So they are growing in terms of market share in that market. So the business is doing well. Obviously, if the macroeconomic context was different, we would be growing even further, but it's growing. It's performing well, and it's a little bit more profitable than the average of the whole company.

[Operator]

The next question is from Douglas Turnbull...

[Jorge Brake Valderrama, executive]

I think...

[Antonio Zamora Galland, executive]

Yes. One more question, yes.

[Operator]

From Douglas Turnbull of Invesco.

[Douglas Turnbull, analyst]

I was just wondering, on the Mexican sales number, can you give us a feeling for how much is the slower growth that are related to the decision to spend less on sales and marketing, especially TV advertising, and is that you're thinking consciously about a trade-off between revenue growth and margins?

[Antonio Zamora Galland, executive]

Well, it was -- thank you, Doug, for your question. This is Antonio. It was much more than we have anticipated. Otherwise, we wouldn't have burned it. But open TV is still important to us. From time to time, we try different things in different markets with different categories. Sometimes we spend more on digital. Sometimes we have increased in the past with the Mega Pauta in certain markets. So we do it sometimes because that's part of the evolution of any business of any company.

This quarter, we invested less on open broadcasting TV as compared to the third quarter of last year. That created an impact. I can -- as I mentioned before, I cannot go into the details for competitive reasons. But as we mentioned earlier, we have new categories like the razor business, like the infant formula, product launches in the anti-bac category that if we have more investment on open broadcasting TV, a performance would have been better. But it is the way it is. And I mean, from time to time, you have some of these situations happen. You learn, and you apply those learnings for the future. So again, this is a temporary situation.

I would say that regarding our media strategy for the future, it's going to be a combination of digital, definitely, cable and pay TV, but also open TV or broadcasting TV. There's a lot of people watching that TV. It is very important for a large segment of the population, for certain age segments in many countries, and that created an impact on our top line growth. Obviously, we have some savings, and that's why you see the EBITDA margin expansion. But most importantly, what we want to have as part of the strategy that coincide in early 2019 is we want to have sustainable and profitable growth. But from time to time, these things happen.

You can also see that Latin America grew very fast. And we have, during the quarter, significant investment in open TV in those markets. And that is also supported the installed market in the traditional channels, the new product launches. So you have 2 stories, 2 different stories. The company grew in a very sustainable way so that we were happy to report that double-digit top line growth, double-digit EBITDA growth and even more on net income. But Mexico was different from what we did in the rest of the countries.

I mean, again, from time to time, it's good to make some tests in certain categories, in certain markets. And hopefully, the results will be positive, sometimes they are not. And important thing is that we learned from those experiences, replicate about the success, as we call it here in Genomma. And what we learned that needs to be changed, we change it. And it's part of the evolution that -- and the transformation of the company. I don't know, though, if I was able to answer your question.

[Douglas Turnbull, analyst]

Yes. No, I think that's pretty clear. Basically, you wouldn't have cut to the TV advertising as much if you knew it would have had this impact on sales. And so on a normalized basis, you'd expect the margin, everything else equal maybe to go down a little bit, but the sales to come back up again.

[Antonio Zamora Galland, executive]

That is correct.

[Jorge Brake Valderrama, executive]

Yes. That is a good summary, yes, yes. I think we are done for today. Thank you. I think we are done for today, operator. I want to go with my closing comments.

[Operator]

Yes, sir.

[Jorge Brake Valderrama, executive]

Okay. Okay. Thank you for joining today's call. Our continued strength during the quarter reflects the resilience of Genomma's 4-pillar strategy. We remain well positioned to adapt to future challenges, collaborating on opportunities, managing through volatility and responding with speed and agility while further strengthening our customer relationships. We continue across all regions to be fully committed to helping our customers manage through the COVID-19 recovery phase, of which regulations have put in place. This low and evolving recovery process is dependent on many factors, including restrictions being lifted, the revenues go with reopening and possible resolutions.

In the meantime, we will focus on the operational excellence needed to achieve strong resource and position our company for future long-term sustainable growth. Thank you very much for your interest today, and please be careful. Take care of yourself. Thank you.

[Operator]

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