Genomma Lab Internacional SAB de CV

BMV:LABB

Earnings Call Transcript 2022-Q4

[Operator]

Greetings, ladies and gentlemen. Thank you for joining Genomma Lab's Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Genomma's website following this call.

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

[Barbara Cano]

Thank you, operator. Good morning, everyone, and thank you for joining today's call. On the call are Jorge Brake, Chief Executive Officer; Marco Sparvieri, CEO designate; and Antonio Zamora, Chief Financial Officer.

Before we get started, I'd like to remind you that the remarks today will include forward-looking statements, such as the company's financial guidance and expectations, including long-term objectives and forecasts as well as expectations regarding Genomma's business, assets, products, strategies, demand and markets. These statements are subject to risks and uncertainties that could cause actual results to differ materially. They're also based on assumptions as of today and the company undertakes no obligation to update them as a result of new information or future events.

Let me now turn the call over to Mr. Jorge Brake.

[Jorge Brake Valderrama, executive]

Thank you, Barbara. Good morning, everyone, and thanks for joining us today. 2022 concluded a challenging and volatile year for retailers and manufacturers throughout the world, with ongoing impacts for more than 2 years of COVID-19 shutdowns, political turmoil and supply headwinds. Genomma has been successful throughout this period. In the last years, the Genomma's team has done a terrific job of managing that which we can control.

Specifically in 2022, our sales reflect success in ensuring our value proposition right for today's consumer in a uniquely difficult environment. The challenging environment coupled with continue ForEx and inflationary issues adversely impacted Genomma's results in the fourth quarter of the year. However, we ended 2022 setting all-time sales and EBITDA records for our company and delivered our fourth consecutive year of solid growth, driven by the strategy we launched at the beginning of 2019. We have achieved more than MXN 4,000 million in net sales and exceeded MXN 800 million in EBITDA consistently in recent quarters by successfully advancing the pillars of our growth strategy.

Let me share some related highlights for the year. In 2022, we made significant progress related to new product innovation, which continues to be an important competitive advantage for Genomma as we further differentiate and diversify our brands and strengthen our relevance with consumers. 2022 saw a strong implementation of innovation initiatives, particularly line extensions throughout the markets where we operate and with new category performance supported by aggressive external media campaigns and in-store marketing.

Throughout 2022, we increased our digital and omnichannel engagement with our customers, creating a more personalized customer experience and deepening overall digital customer connections. Importantly, another related milestone is our success in establishing and building our e-commerce sales presence through important online retailers, including Amazon, which today, for example, represents more than 10% of our business in the U.S. Throughout the year, we replicated our strategy of expanding Genomma's strongest go-to brands and products, what we call our proven innovation and deepen our presence within countries and markets. We continue focusing the business on the OTC categories while increasing Genomma's presence within convenience stores as well as national, regional and independent pharmacies. Some noteworthy examples are Suerox, outstanding reception in the U.S. and more recently in Chile, the third country to which the brand has expanded.

We simultaneously launched new environmentally sustainable packaging for Tio Nacho shampoo in Mexico, Chile and Costa Rica. Tio Nacho sales in Mexico ended 2022 with a substantial plus 21% year-on-year increase. Importantly, these examples of low-risk innovation showed a favorable risk relative to return complementing higher risk new product launches. A final related note on our 2022 go-to-market strategy success is our progress in strengthening Genomma's brand presence within the traditional channel in all countries where we are present. In Mexico, we ended the year having closed aggressively exclusivity agreements on thousands of stores.

Turning to our focus on Genomma's world-class supply chain, I'm very pleased to share that Genomma's 5 personal care manufacturing facility lines are now fully operational. The facility's shampoo manufacturing line produced more than 3 million bottles of Tio Nacho and Vanart and achieved a 93% of efficiency rate in the pomade line. Our Suerox manufacturing line continued delivering production levels that exceed our initial expectations, producing more than 76 million bottles during 2022. Genomma's pharmaceutical manufacturing plant, production levels also increased during the fourth quarter of 2022, with 27 million Next tablets and more than 1 million semi-solid units produced for the Mexican market, including the successful completion of the production transfer process for Unesia, X-ray, Dol, Silkamedic and Ultra Bengue brands to Genomma's own manufacturing lines.

With this, we have achieved another important milestone for our company evolving our manufacturing to our internal facilities. Once fully completed, an expected favorable benefit to our overall COGS will drive improved profitability, more efficient working capital dynamics and potential market share gains from more competitive pricing and innovation. Concurrently, we are advancing on obtaining COFEPRIS approval and resulting operating license for Genomma's oral liquid, topical liquid and coating manufacturing lines. This will be followed by the process of obtaining the Good Manufacturing Practices certificate for Mexico and to then pursue GMP certification for Genomma's export markets.

Finally, turning to our remaining strategic pillar, I'm pleased to share that Genomma was included within the 2023 S&P Global Sustainability Yearbook for the second consecutive year as 1 of the 14 Mexican companies recognized for environmental, social and corporate governance practices. The Yearbook showcases the best performing companies among industry peers globally and in terms of financially material ESG metrics. Genomma's sustainability performance was ranked within the top 15% of the industry category with an S&P Global ESG score within 30% of the industry top-performing company, which was a key component to my vision and related strategic pillar for Genomma, and particularly gratified by our success in this regard.

With that, let me now introduce you to Marco Sparvieri, who is taking the post as Genomma's new CEO, as it was announced last year. Marco joined Genomma in 2014 and has held the role of Global COO in the last 4 years. Prior to Genomma, Marco also had a successful 20-year career with Procter & Gamble, working in several geographies and roles. Marco and I have been and will continue collaborating very closely in the future. I'm very pleased to have him join us today. Marco?

[Marco Sparvieri, executive]

Thank you, Jorge, and good morning, everyone. I am very honored and it is a privilege for me to be named CEO of this great company. I am committed to the long-term visions that we have established under leadership of Jorge. I know this company from the upside down every market, every brand, every corner, in every function, every customer and every supplier. I had the privilege of being part of a team that has done what very few companies in the world will ever do. What Genomma has become since I joined back in 2014 is an amazing transformation that you will rarely see in the history of businesses.

I would like to mention 3 key elements that combined make Genomma a unique and differentiated company. First and foremost, the management team. Today, Genomma has probably the best team that any company could have. My opinion is formed based on my previous experience at P&G, which I believe is probably the best or one of the best companies in the world at developing talent and forming high-performance teams. Today, we have it.

Second, the brands and our consumer model. Today, Genomma has brands that are growing market share and taking it from brands that have been around 100 years or more. A great example is Tio Nacho, a brand that has achieved basically the same market share as a category leader in a few markets. This speaks to the amazing job done under the leadership of the brand team and Rodrigo.

Third, our go-to-market that I have personally created and led over the past 8 years. Today, we reach every single store in which you could buy products in the categories we compete in every channel and in every country in Latin America. Very few competitors are at this level. And lastly, the health of our core financial metrics, like our balance sheet, gross margin, cash flow and productivity that I am committed to continue to improve over the next few years.

I want you all to leave you with this last thought. When you combine the massive upside potential in terms of share to be gained and a unique business model that has already proven to be effective, it makes this a beautiful moment to be a shareholder of Genomma. I hope you can join us on March 8, where we will be sharing and explaining in more detail the plan we have for the next 5-plus years.

Let me turn our call over to Antonio to discuss our financials with some comments related to our markets. Antonio?

[Antonio Zamora Galland, executive]

Thank you, Marco, and good morning, everyone. As Jorge noted, we were able to maintain our growth trajectory, representing the company's fourth consecutive year of solid growth to set new sales and EBITDA record for the full year. Let me briefly review.

Full year EBITDA margin closed at 20.6%, a 10 basis point year-on-year decrease primarily due to ForEx headwinds in certain countries where Genomma operates with raw materials inflationary impacts as well as nonrecurring growth-related investments at the end of the year. Fourth quarter 2022 EBITDA margin closed at 20.1%, a 170-basis point decrease due to higher cost inflation and lower operating leverage. ForEx headwinds from a stronger Mexican peso and IAS29 and IAS21 hyperinflationary adjustments when restating the previous -- the prior period comparative figures in terms of the measuring unit at the end of the reporting period.

I'll go into further related detail on this shortly. As we know, the Argentine peso depreciation was also significantly higher than local inflation during the fourth quarter 2022.

Let me just pause for a second. There's a couple of charts, an image explains more than thousand words. We've all seen the Argentine peso exchange rate against the Mexican peso. We also had negative headwinds. Look at the Colombian peso, 24% decline versus the Mexican peso. The Chilean peso, 14%. Paraguay is a small market, 10%; Ecuador, 5.2%, they use the U.S. dollar and obviously, our U.S. market also with a negative impact. If we can go to the previous chart, Daniel?

This chart illustrates the impact on ForEx for us in this last quarter. And obviously, it had an impact on the full year. We all know that the Mexican peso is a functional currency. So 45% of our business this quarter obviously had no FX impact. There's a couple of markets that had a positive impact when we translate the results from the local currency, but it only represented 6.2% of our total business. Almost half of it had a significant ForEx headwind, as you can see here, 16% had negative single digit, 12% had negative double-digit and obviously, in the case of Argentina, it was a big impact. So this is very important for everybody to know when you do your own analysis about our reported figures this quarter, we all need to acknowledge that the so-called super peso, super Mexican peso had an impact. Just wanted to highlight that.

Turning to Mexico. We closed 2022 with a 20.7% EBITDA margin and net sales of MXN 7 billion, a MXN 318 million increase primarily driven by an increased market distribution as well as new core brand line extensions. Full year 2022 OTC sales grew 4% year-on-year, adversely affected by palm and sunflower oil shortages on the Novamil, which is our infant formula brand. Genomma's OTC category will have increased by double digit, 11.2% in 2022 when we exclude this negative impact from Novamil, again, Indonesia, Malaysia created some export restrictions of some of those edible oils, plus the situation in Ukraine for sunflower oil. That created some fill rate issues for UPI, which is our ally or business partner who manufactures Novamil.

2022 Personal Care category grew by 6% year-on-year, and there was an adverse impact of fill rate on certain brands that we will also discuss. During the fourth quarter 2022, certain co-packers were not able to meet Genomma's new and increased standards quality. This is part of our manufacturing transition process that is taking place to bring supply to our manufacturing plant. Some of these contractors were therefore phased out because they were not able to meet the best quality that our consumers deserve. If we exclude the impact from these brands, Genomma's Personal Care category in Mexico will have increased by almost 10% on a like-for-like basis.

Fourth quarter 2022 Mexico net sales increased by 1.4%, closing at close to MXN 2 billion. That's MXN 26.3 million year-on-year sales increase with a 21.5% EBITDA margin. Margin contraction was primarily attributable to COGS inflation and a lower operating leverage. The OTC category net sales grew 2.3%, impacted by this -- what we mentioned as well as the nonrecurring shortage of certain APIs, such as paracetamol, pharma grade caffeine and dextromethorphan, among others.

And we know that in China, there was an extraordinary demand for medicines following the COVID outbreak. If you look at this chart, China is the main API supplier of the world by far. But unfortunately, they had this outbreak in the last quarter. And as you will see in the next chart, that created shortages for everyone. This chart is provided by the FDA. And as you can see here, in the fourth quarter, there are significant shortages. And if you look at the gray portion of the bar, it's because of the demand increase in the local markets. If we go to Personal Care, the Personal Care category grew 0.1% during the fourth quarter, mostly affected by heavily -- sorry, by heavy discounting from isotonic beverage competitors. If we exclude the Suerox brand sales, Personal Care would have grown 6.8%.

Full year 2022 net revenues in the U.S., let me go now to the U.S., Daniel, please. Thank you. Full year 2022 net revenues in the U.S. increased by almost 15%, reaching MXN 1.5 billion with the benefit of a very strong Cough and Cold category performance, including Next and Tukol brands during the first and third quarter of 2022, with an aggressive Suerox expansion within Puerto Rico points of sales during the year. It is important to note that 86% of the total full year 2022 U.S. growth was driven by OTC product sales, which today represent 62% of total U.S. sales.

As you can see in this chart, the winter season began earlier in 2022 than the previous year and was particularly strong in the month of September. So there's a rebalancing of the growth between the third and the fourth quarters. As we saw earlier, the strengthening of the Mexican peso adversely impacted the company's reported top line to reach MXN 315 million for the fourth quarter 2022, a 3.4% year-on-year decrease. Again, attributed to the Mexican super peso.

If we go to LatAm, Latin America 2022 net sales for the full year increased 11.5% relative to the audited 2021 figures to reach MXN 8.4 billion. Sales benefited from strong execution of Genomma's innovation and expansion strategies as well as increased brand distribution within the region. Particularly strong Tafirol, Next and Nikzon brand sales in Latin America drove a 26% OTC category increase during 2022. Personal Care categories, on the other hand, decreased 5.5% during 2022 as we've already mentioned, some co-packers were phased out, and that adversely impacted the fill-rate of certain Genomma brands as we have mentioned before. As a result, Genomma prioritized fulfillment to its most significant markets, which continue to represent double-digit sales increases in those countries, and we deprioritized lower demand markets, the smaller markets.

Fourth quarter Latin America sales reached MXN 2 billion, a 3.4% year-on-year increase when compared to audited fourth quarter 2021 figures. In addition to the previously described fulfillment challenges reported fourth quarter LatAm revenues were impacted by ForEx headwinds from a stronger Mexican peso as we've seen in the previous charts. It is important to note that more than 49% of Genomma's operations fourth quarter consolidated total sales were materially impacted by ForEx headwinds when these were translated into Mexican pesos. If we look at the performance in local currency, those markets really performed really well. But we use the Mexican peso as a functional currency. So that's the reason why we are explaining this.

Besides this, hyperinflationary accounting effects took place during the fourth quarter, because we have to restate Q1 to Q3 quarters at the closing FX rate. And this resulted in a negative effect of MXN 147 million. Here, we have a couple of charts to explain how this hyperinflationary accounting effects work. Usually, if you look at this chart, in non-hyperinflationary subsidiaries, we simply report and all companies simply report whatever the quarter is, and that's it, simple, beautiful. However, in the case of hyperinflationary countries, when you report a new quarter, you have to restate the previous quarter. So when a company reports Q2, they have to restate Q1 accumulating the inflation during the second quarter and then converting it using the ending ForEx rate at the end of the second quarter. The same thing happens when you go into Q3. When you go into Q3, you need to restate Q1 and Q2, adding the inflation of the Q3 and then converting at the ending ForEx rate of the third quarter. And obviously, at the end of the year, you have to restate all of the previous quarters.

So in theory, the accounting theory, and this is what the IASB, when they created IAS29 and IAS21, in theory, inflation and devaluation should be equal. But we know that that's not the case in the real world. Sometimes, inflation is higher, sometimes inflation is lower than devaluation. These are the numbers. These are the inflation rates reported by INDEC in Argentina on a quarter-by-quarter basis, that you see we use that. And obviously, everything was restated using that inflation. And we can also see what happened to the Argentine peso as compared to the Mexican peso quarter-on-quarter.

So for example, in the first quarter, inflation was higher than depreciation. So that helped Q1 result. Same thing in Q2, but that impacted Q1 and Q2, same thing in Q3. But in Q4, when we have to restate Q1, Q2 and Q3, devaluation was higher than inflation. So that's why we have this cumulative negative effect on the Q4 numbers, but this is related to results that were previously reported. And this situation happens to all companies that have subsidiaries in hyperinflationary markets. Just wanted to explain that.

Okay. So let's move on to the next. Latin America EBITDA margin closed at 23.2% for the full year 2022 fourth quarter EBITDA margin. So the full year was 23.2% and the fourth quarter EBITDA margin closed at 21.4%, a 250 basis point year-on-year decrease due to reduced operating leverage and the FX headwinds and hyperinflationary adjustments that we have previously discussed.

Okay. So in summary, and I think this is an interesting chart. We reported on a consolidated basis, 2% net revenues increase for the quarter. If we add or if we isolate the ForEx impact from most countries and we have that just to have a like-for-like comparison, and we exclude the hyperinflation effects that I just described, on a constant currency basis, just to make it apples-to-apples comparison, the company would have reported a top line growth of 8.5%. Now we don't control ForEx. We don't control the accounting rules. Those are simply macroeconomic events that impacted us.

On top of that, as we mentioned, there were some API shortages given the COVID outbreak in China. If we have enough supply of paracetamol, dextromethorphan, pharma grade caffeine, et cetera, we could have achieved higher growth. How much? I don't know. We're just putting an x here, but it would be higher than what we reported. And then we also had the issue of couple of co-packers who were not able to meet our quality standard.

So in summary, we just wanted to provide this as a context. We did report 2% net sales growth, but there are some macroeconomic effects that we have control and on a like-for-like basis, a constant currency growth rate of close or high single digit would have been achieved. And there are other impacts that would have helped us as well.

Let's move to working capital. Working capital was adjusted during the fourth quarter 2022, and the cash conversion cycle ended at 100 days. This is a 9-day improvement since the end of December 2021. Accounts receivables amounted to MXN 4.3 billion as of December 31, 2022. And the days of consolidated accounts receivables amounted to 91 days. That's a 9-day year-on-year decrease, okay?

Also during the quarter -- if you go to the next chart, Daniel. Also during the quarter, we want to highlight that we did receive MXN 150 million advance payment for a future capital reduction in Marzam. Within this is positive news, and we use this amount of money for our buyback program. So in essence, we are exchanging our participation in this affiliate company, 2 shares of the company that we bought back. So we think this is a positive improvement in the journey that we have defined for Marzam.

Genomma also closed 2022 with a financial leverage ratio of 1.4x net debt to EBITDA and MXN 1.5 billion in cash and equivalents, that's a 19% year-on-year increase. Again, some of the impacts that we mentioned during the quarter are noncash and cash is king, having MXN 1.5 billion cash on hand. And equivalents, is very important, especially considering that we invested a significant amount in buybacks.

We repurchased 3.1 million shares during the 3 months ended December 31, 2022. Most investors and analysts did, and we mentioned that we were going to do that simply because there were some conditions in the market that we saw it was an opportunity, and we put our money where our mouth is -- it's a significant investment. And this was equivalent to MXN 445 million. Out of those, MXN 150 million came from the advance payment for Marzam.

In closing, while we experienced operating and macro headwinds during the final quarter of 2022, the important milestones we reached throughout the year underscore the resilience of our business model, the value of our products, the significant value of our brands and our employees enduring commitment to our vision. We ended 2022 with a strong financial position, which was further endorsed in December by HR Ratings, which upgraded Genomma's long term debt credit risk score to AA+ and subsequently, at the quarter's end, January, Fitch Ratings also upgraded our credit risk rating to AA+. Both agencies noted that their upgrades reflect Genomma's ability to ensure cash flow generation and geographical diversification despite today's challenging macroeconomic environment. Therefore, while the macroeconomic environment likely will remain uncertain and 2023 will bring us new challenges, you can expect Genomma to continue to make strides forward.

With this, let me turn the call over to your questions.

[Operator]

[Operator Instructions] Our first question comes from Antonio Hernandez from Barclays.

[Antonio Hernández Vélez Leija, analyst]

You mentioned the set of headwinds that you faced during the quarter. Which of these headwinds should we expect forward? Which of these maybe were basically a one-off and then they are not there in the first quarter this year? What are your expectations on overall these headwinds?

[Jorge Brake Valderrama, executive]

Tonio, you'll take that one?

[Antonio Zamora Galland, executive]

Yes. Thank you, Antonio, for your question. It's a great question. And there are some things that we already know. There are others that we can obviously speculate them, but we don't like to speculate. So in terms of ForEx, at least for the first quarter of the year 2023, the Mexican peso has continued to strengthen, okay? On average, we ended Q4 with an average exchange rate of MXN 19.64 per dollar and now it's lower than that. So that headwind, at least for the first quarter will still be there. And it's a situation basically that impacts the translation effect when we convert the business from our Latin American and U.S. subsidiaries into the holding company. And this is something that other multinational companies are experiencing. I heard that recently, America Movil reported their results, and they have the same situation. Probably other companies that have a presence in these multiple countries, Bimbo, et cetera, they will face that headwind as well. How long will that happen? We don't know. We don't know. We don't have the crystal ball.

If we go to the hyperinflationary accounting, I think that in the long term, inflation and devaluation of the currencies eventually they concur. But there are short-term effects like what happened in Q4. In theory, things should match each other in the long run. But for that, it's very hard for me to predict. Now the API shortages we think that that's temporary. I don't think COVID will continue forever in China. They had this situation. They obviously prioritized API supply to the domestic market. So that should be reversed and that should be -- we should have an improvement there as well as what happened with some of the co-packers.

So I would say that ForEx is probably going to be the only headwind that is going to be there. But obviously, we don't have the crystal ball. We don't know how currencies will evolve in the future. I don't know what's your point of view?

[Antonio Hernández Vélez Leija, analyst]

So co-packers, which maybe is more internal than external, then that is something that you would expect to be normalized this first quarter or maybe throughout the first half or throughout the year?

[Antonio Zamora Galland, executive]

No. Again, as we said, we upgraded our quality standards. We are moving to the production within our own manufacturing plant. So we set higher. Part of the business rationale of building the plant was obviously lower costs -- COGS, but also improve quality. So we improve our standards. Those co-packers who were not able to meet that, I mean we're not using them anymore. It's a signal for every third-party co-packer. So they have to upgrade their standards as well. But everything that we are doing in the plant and hopefully, in the next coming days, most of you will be able to come and visit us at the Investor Day at the plant. So you will see the plant, the quality standards. There's very interesting projects for a couple of brands like Vanart. We are upgrading the formulation, the products, the packaging, et cetera.

And so this is, I would say, it was temporary. It was just for the quarter. And as we make progress with the plant, that will not will not be there. Now having said this, we don't want to compromise quality at all. So if any co-packer is not able to meet the higher quality standards, we're not going to do business with them. Because as Jorge always mentioned, the consumer is boss. And as Marco very well pointed out in his remarks, the value of our brands is one of our most important assets. It's an intangible asset, but we must protect the brands. So quality is an essential element for that. So I think that was just temporary. We just wanted to highlight it because it happened during the fourth quarter.

[Operator]

Our next question comes from Joaquin Ley from Itau.

[Joaquín Ley, analyst]

Just a quick one. Could you please provide some color about sell-out dynamics in all of your markets, I mean in regions and particularly Mexico, please?

[Jorge Brake Valderrama, executive]

That one will -- Marco will respond that, Joaquin. Thank you.

[Marco Sparvieri, executive]

Thank you, Jorge. Can you guys hear me?

[Jorge Brake Valderrama, executive]

Yes.

[Marco Sparvieri, executive]

Yes. That's a great question. I think actually a very important question because focusing on the results of this fourth quarter on internal metrics doesn't actually reflect the reality of what's going on with the overall health of the business, okay? So when you look at -- our business is very healthy today, and I will provide some quick perspective on that statement. It remains very healthy. Actually, it's healthier than ever, okay?

When you look at sellout in our company in the different markets, you will see that basically in every market with a few exceptions like Peru, which is mostly driven by the current political situation. Our brands are actually growing share and growing double digits in local currency, okay? Basically, across the categories, at least across the core categories and especially in the OTC, as Antonio mentioned, OTC has been a very, very strong performed really strong this year because of the seasons, the flu season.

And when you look at Mexico, referring to your question, Joaquin. Also, the sellout was actually pretty strong. OTC was double digits in Mexico and Personal Care was single digits with most of the core categories growing share. There's one particular brand that perform well, which actually was by -- a little bit by choice because of the gross margins that category has, we retrieve a little bit of support. But in general, the sellout remains strong across the year in every market and including in Mexico as well.

[Operator]

Our next question comes from Jorge Izquierdo with BTG.

[Jorge Izquierdo, analyst]

Congrats Jorge and Marco for the new roles. I have a couple of questions. The first one is regarding brand's performance. I don't know if you could share any comments on which brands have suffered the most. That would be very useful. And the second question is on how is the business performing during the beginning of 2023? And finally, how should we think about dividends and buybacks going forward?

[Jorge Brake Valderrama, executive]

Yes. I think Marco will take the first 2. Antonio the last one.

[Marco Sparvieri, executive]

Perfect. Jorge, thank you for the question. In terms of brands, I would like to highlight. First, let me address the start of quarter 1 of 2023. We're seeing really strong results across the markets. Mexico, in particular, had a fantastic start of the quarter with the exception of let me U.S., very strong. Yes, Peru is probably the only case where we remain uncertain, but mostly because of the political situation that we're living in the country. In the rest of the markets, we continue to see very strong performance starting this 2023.

In terms of brands, I would say that there's 2 particular -- actually, 3 particular situations that we are addressing. Let me say that the Pharma portfolio, it's actually performing really strong across the board. The issues are mostly focused on Personal Care in 3 particular brands. Number 1 is Asepxia, which is a brand that is suffering across the world, and we're working on redesigning our business model for that brand. The second one is Cicatricure only in Mexico because the rest of the markets are doing particularly well. But in Mexico, we have struggled a little bit last year. But when you look at that particular brand in 2023, at least in the first month or so, results are really, really strong, okay? And that's mainly driven because of a -- that brand particularly is very dependent on TV. And now that we've signed a deal with -- for communication, that brand is turning around.

And the other one is Vanart, as mentioned -- as Tonio mentioned, Vanart is a brand that in which one we actually retrieve a little bit of support because of the poor margins or high cost that we had with our contract manufacturers. But during December and January, we were able to actually move manufacturing of that brand in full to the plants in San Cayetano, making it a lot more profitable. And we have very strong plans to get that brand to grow again this year. I don't know if that provides the perspective you are looking for.

[Antonio Zamora Galland, executive]

Let me go -- thank you Jorge for your question. Let me go into the second part of your question, talking about dividends and buybacks. Dividends and buybacks will continue, as we have mentioned before in previous quarters, the CapEx, the major CapEx investment that we have for the plant is gone. The plant is there, and we will be honored to host you during our Investor Day in March 8, you will see it. So there's no more significant CapEx. And the plant is -- the Personal Care plant is now operational, all lines are operational. So during the year, we'll see some improvements and especially in strong brands and categories and projects as Marco has just described, especially in the case of Vanart.

So cash flow generation will be there. Obviously, we have the negative impact of the leading interest rate, which is TIIE that we don't control. But our financial leverage is just 1.4x net debt to EBITDA. So that's fine. So we will continue generating cash. As the business continues to progress, we will be generating more cash. So dividends, cash dividends will continue and buybacks will continue. And as you've seen, as everybody has seen, if there -- if it happens that there's an opportunity to buy back more, we'll do it. We did it last quarter. And if there's one coming, if we're thinking about that, we'll do it again. Because there's not a better investment in our case, to buy back our shares. So that will continue, and that's it.

At this moment, we will be focused on refinancing the long-term bond that matures in August. We don't see any major issue as everybody has seen. We secured long-term financing from the IFC, $60 million for a 6-year term loan. And both credit agencies upgraded our ratings. So dividends will continue with the same rate that we have already paid MXN 200 million a year, and buybacks will continue as well. I hope I was able to...

[Jorge Brake Valderrama, executive]

Tonio, it would be good if you make a quick reference to the plan of cancellation of shares.

[Antonio Zamora Galland, executive]

Yes. Excellent comment, Jorge. As we announced the ending part of the earnings release report, you probably saw that the company will propose 2 things in the next shareholders' meeting. One is the appointment of Jorge as Board member and actually being appointed as Active Vice Chairman. But also, we will propose to cancel 28 million shares. So on top of buybacks, on top of dividends, there will be, obviously, if all shareholders approve, 28 million shares cancellation, which is equivalent to 2.8% of the total market cap of the company. So that should also be good news. That will happen if all shareholders approve at the end of April.

[Operator]

Our next question will be from Rodrigo Alcantara with UBS.

[Rodrigo Alcantara, analyst]

I just have one very straightforward question. I guess sometimes asking in the past, could be also a straight answer. Just, I mean, looking at just today's results, has your view on giving more disclosure on the geographies and revenue by product on a quarterly basis changed or should we expect kind of like the similar disclosure over the next few quarters? That will be my question.

[Jorge Brake Valderrama, executive]

Rodrigo, I will take that one. And Marco and Tonio can complement if needed. Rodrigo, as we mentioned, I think in our previous meetings, we also mentioned a little bit of this. And you will see in the March 8 session, where Marco will present our plans and our vision, building from the current strategy to the next phase around categories. And it's going to be very interesting. And that will be, I would say, the starting point of communication strategy that will lead us to be more open in terms of what is happening with our category. So and we think that's the best way to truly reflect the true value of the company. And as I said, you will see it on March 8. But the answer is yes, we will be evolving to that.

[Rodrigo Alcantara, analyst]

And by region, should we also expect like more granularity in LatAm?

[Jorge Brake Valderrama, executive]

And that's something that we are assessing to, exactly. Because as we have been discussing in the past, it will be a lot of extra help to understand the company, especially for you guys within that different frame. And for us, that will be basically opening up a little bit more information in Latin America as a whole. But that's also under consideration.

[Operator]

Our next question is from Juan Ponce with Bradesco.

[Juan Ponce, analyst]

It's on the potential labor cost pressures in Mexico this year. And specifically on how you see the impact of minimum wage hikes, doubling vacation days and the gradual increase of employer pension contributions impacting the way you think about pricing in 2023. And related to this, I mean, do you see more room to increase prices to offset some of these macro headwinds you were discussing in the call?

[Jorge Brake Valderrama, executive]

Tonio?

[Antonio Zamora Galland, executive]

Thank you for your question, Juan. Yes, we've heard from other publicly traded companies that they are experiencing a lot of pressure this year about labor and all these kind of things. But this is not new. This happened -- the labor reform took place quite a while ago. It shows that some companies didn't adjust accordingly when they had to. Fortunately, in the case of Genomma, we've made a number of rightsizing when it was needed and we did some changes when it was needed. So we are not going to have -- I mean, we're going to have some pressures, yes, but not significantly as it's impacting other companies.

Having said that, I think that in terms of pricing, we always price in line with inflation that has been our policy always. That's what we do in every single market. If there is some markets where inflation is higher, so we price higher and more often if it's needed. So we'll keep on doing that. We need to be very careful in terms of not impacting the consumer, okay, because the consumer -- on the other hand, the consumer will have a higher purchasing power. Because those people who get the minimum wage, et cetera, they are going to get higher salaries.

So it's a complex question. Our philosophy is we price in line with inflation, generally speaking. We price in line with the competitive landscape. That's one of the reasons why we had to defend our market share position in the isotonic beverage, as Marco described earlier. And obviously, competitors understood that if they want to fight, they will find somebody who's willing to fight and defend our position. That price war and that promotional activity is gone. And so we expect that to be normalized. I don't see any particular negative headwind in the case of Genomma because of that. That's number 1.

Number 2, as we operate in 18 countries, that's just an impact for Mexico, not for the rest of the countries. But as I said before, the company had already adapted to the labor reform challenges, and there's a number of productivity initiatives that we have identified. And that Marco will be describing some of them with more detail during the Investor Day, not only for this year but even beyond that. So that's not a significant headwind for Genomma. I don't know if I was able to answer your question, Juan.

[Operator]

We will move on to our next question. This one comes from Andres Ortiz with BTG.

[Andres Ortiz, analyst]

As we are currently at the end of February now, could you please comment if you are currently experiencing API shortages and if the impact of the phaseout of these contractors is still there? And additionally, you mentioned that Suerox had aggressive pricing from competitors. Is this still happening today?

[Jorge Brake Valderrama, executive]

Tonio?

[Antonio Zamora Galland, executive]

Yes. I think that perhaps, Marco will be able to answer the Suerox question first. But let me go into the API. The API -- Andres, thank you for your question. As we mentioned, it's more of a situation related to China. I think we've seen some improvement. So there's better fulfillment of APIs, but still not all the ones that we would like to have. So there's -- the main situation in this case, Andres, is that the APIs have the largest shortages, are the ones related to anti-flu COVID-related illnesses or symptoms, et cetera. So paracetamol, caffeine, dextromethorphan, et cetera. So we need to see what's going on with China. But the situation is improving. We don't anticipate the same impact that we had in Q4. So it's going to be better. How better? Let's see.

And in the case of Suerox, I understand and Marco will obviously complement this. But I understand that the heavy promotional activity was mostly happening in the fourth quarter. We don't see happening that this year because -- let's understand one thing in the beverage industry. There's a high season that starts during the spring and summer, and there's the low season simply because of temperature and the weather. So a price war heavy promotional activity usually or may happen during the low season. That's why it happened in Q4 because the impact on volume is not that large. Starting a promotional or a price war in the high season would be a suicide for our competitors. I don't think that's going to happen. But I don't know if Marco wants to add some color to this.

[Marco Sparvieri, executive]

Yes. Thank you, Tonio. The category is becoming increasingly more competitive with more players. It's actually became a very large category in Mexico. I don't know the exact numbers, but I think we're talking like MXN 20 billion already, the electrolyte category, some number around those figures. And today, there's a lot more players than in the past. And I think that will actually make the category more competitive in the future. I think as mentioned by Tonio, what happened last year was unusual. I don't expect that to be something that we will see in the markets this year and going forward, but I don't know.

But the point is it doesn't really matter because we -- Suerox is a large -- actually a very large brand for us. But when you look at it from a category share perspective, including all isotonic beverages, we are still a small player in the market. And I think that promoting -- if it doesn't happen, like if it doesn't -- if we don't see that level of competitive activity in pricing, we will continue to grow as we have been doing in the past. If it actually happened, it also favors us because we're not the large player in the category, okay? And we will continue to grow as we have been doing in the past.

So any scenario is actually positive for us. Because when you see a lot of these promotional activities and so on, it's actually in the short term might be a little bit disruptive, but it's actually attracting more consumers to the category. So we get benefit of it.

[Andres Ortiz, analyst]

And a second question, if I may. You reiterated your '24, '25 targets of MXN 20 billion sales and margins of around 24%, 25%. Could you provide us with your view on how you see top line performance this year and the margins for this year given the current scenario that you're experiencing?

[Antonio Zamora Galland, executive]

Andres -- let me take that one. Andres, as you know, it is the company policy not to provide guidance. I mean, it's a great question, and I'm sorry, but we don't provide guidance. We just provide results. And as Marco and Jorge mentioned before, and as our full year results demonstrate, we've had great performance. Unfortunately, everybody is now focused, and I understand it's part of the drill, it's part of the process in the fourth quarter. But if you look at the full year, we had a great year. If you look at the past 4 years, we have a very good track record.

And as Marco just mentioned, if there's a price war, we'll grow, we'll grow even faster because there's opportunities for expanding distribution. These new competitors in the isotonic beverage only reflect that saying that imitation is the most sincere form of flattery. And it's not the first time that some people are trying to imitate Suerox, okay? And they tried and they were not successful. That's just in the case of Suerox.

I think that, again, having the plant reaching its full potential and investing in the brands, investing in the markets, investing that's the essential part of why Genomma and interesting investment. And if there's short-term hiccups and there is some situation where the stock price goes down for a while, we'll buy it -- we'll buy back shares, okay? So that's it. Unfortunately, we don't provide guidance because as research has demonstrated, companies who provide guidance, they don't perform better than those who don't provide guidance. So we just decided not to provide guidance. We just want to be focused on the operation, on the business, on the strategy. And we'll have more opportunities to discuss that with you and the rest of the investors and the analysts during our March 8 Investor Day. And by the way, here on the screen, you have the QR code so that you can register for the Investor Day if you haven't done so yet. Please take out your phone, use your camera and do registered. Thank you.

[Operator]

We will now conclude our question-and-answer portion of today's conference call. I'd like to turn it back over to Mr. Brake for closing remarks.

[Jorge Brake Valderrama, executive]

Thank you, operator, and also to those joining our call today. As mentioned, 2022 was another landmark year for our company, and we will continue to drive growth as we successfully execute our long-term strategies, actively respond to changing consumer behavior and capitalize on the many opportunities that lie ahead. Today, we are well positioned to continue our success and remain committed to driving long-term value for our shareholders. Thank you for your participation today. And hopefully, we'll see you soon in Mexico in a few days. Thank you.