Greetings, ladies and gentlemen. Thank you for joining Genomma Lab's third quarter 2022 earnings conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. As a reminder, this conference call is being recorded and will be available for replay from the investor relations sections of Genomma's website following this call. I'll now turn the call over to Barbara Cano of InspIR Group. Please go ahead.
Good morning, everyone, and thank you for joining today's call. With me today are Jorge Brake, Chief Executive Officer, and Antonio Zamora, Chief Financial Officer. Before we get started, I'd like to remind you that our remarks today will include forward-looking statements such as our financial guidance and expectations, including our long-term objectives and forecasts, as well as our expectations regarding our 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's date, and we undertake 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.
Thank you, Barbara, and to everyone joining this morning's call. Let me start by summarizing today's key messages. While the global operating environment remains volatile, our teams continue to execute with agility to advance the pillars of our growth strategy. Genomma's balanced portfolio and operations and diversified risk profile again enable us to deliver both sequential and year-on-year top-line growth and margin expansion on a consolidated basis. We achieved a more than 9% year-on-year net sales increase and a more than 11% increase for the quarter closing in September, which represents Genomma's 16th consecutive quarter of top-line growth. We also reached a 21% EBITDA margin as we quickly approach our stated 24%-25% EBITDA margin targeted for 2024. We're excited to share the news that Genomma's body and facial cream manufacturing lines began operations in September.
This is therefore the first quarter with all five production lines fully operational at our personal care manufacturing plant. It is an important milestone and critical inflection point of our visionary strategy, which will trigger an additional margin improvement we expect to achieve as part of our targets. It is also relevant to note that the strong third quarter results we are reporting is without the full benefits we expect from Genomma's manufacturing plant, particularly on cost of goods sold, which will drive improved profitability in the short and the mid-medium term. More efficient working capital dynamics and potential market share gains from a more competitive pricing and better service. Genomma's remaining industrial cluster manufacturing lines are also ramping up with more than 8 million bottles produced during the month of September alone. I'm sorry.
Continued ramp- up of our shampoo and pomade lines, producing more than 2.5 million bottles of shampoo and 1 million bottles of pomade during the third quarter. On the pharma plant side, production levels further increased during the third quarter to reach 35 million solid tablets and 0.5 million semi-solid units. Finally, during the quarter, our Suerox Isotonic beverage manufacturing line received good manufacturing practices certification by the Mexican Health Agency, COFERIS, in the third quarter of 2022. GMP certification enables now Genomma to export isotonic beverages to markets that do require those certifications. We maintained our focus on high growth categories during the quarter, with low risk production innovation, product innovation, and new product launches. Additionally, our strong brands enabled us to increase our presence within new channels and points of sale to deepen and expand our reach during Q3.
We also increased our digital and omni-channel engagement with our customers, creating a more personalized customer experience, and exceeded our expectations for the quarter with respect to overall digital customer engagement. This increased engagement drove a 50% year-over-year increase in digitally driven accumulated revenues in the U.S., which is in line with our target to reach our goal of 10% of our net sales from the e-commerce channel in the region. Turning to our markets. Mexico year-on-year net sales grew 9% to reach close to MXN 2 billion for the first time in its history for the third quarter of 2022, reflecting a strong rebound in category performance for this market, where we again added new points of sale during the quarter.
We maintained top-line growth at our U.S. operations with a net sales increase of just under 26% year-on-year to reach MXN 420 million for the third quarter of 2022. Importantly, this once again growth was widespread in all our priority brands, all trade channels, and all key customers. We deepened our retail presence, not only with Walgreens, CVS, and Walmart, and saw particularly strong sales from the beauty or natural product Cicatricure, Tukol, Suerox, and other SKUs, and robust e-commerce sales, particularly on Amazon. Third quarter Latin American net sales grew just under 7% led by strong sales in Colombia, Brazil, and Peru. As can be expected, Argentina sales were dampened by inflation and devaluation in this country.
However, our Argentina team is maintaining its focus on the factors we can control with improved supply chain performance and effective revenue management to counter Argentina's inflation. We are also delivering strong innovation with a focus on highlighting our relevant, differentiated, and value-driven products and brands relative to our premium product competitors within the market. With inflation at four-decade highs, consumers everywhere are expressing uncertainty about the future and seeking value. At the same time, we know that health and wellness will always be a priority and increasingly so after COVID-19. We're leveraging our expanding portfolio, footprint, our digital capabilities, our hallmark brands, and deep consumer insights to continue driving growth. We're pleased to have delivered a strong third quarter and fiscal year to date, which we believe is not resonating in the price of Genomma shares given the overtone of today's global macroeconomic headwinds and inflationary environment.
Genomma was also recently removed from the S&P/BMV IPC index in Mexico with a related loss of our prior index fund shareholders. We believe Genomma's shares therefore represent a strong investment opportunity at today's levels and considering the opportunity we see ahead. In closing, we are truly grateful for our team's continued dedication and commitment, and are confident that successful execution of Genomma growth strategy pillars will continue to further resonate on Genomma's future results. With that, let me turn our call over to Antonio for commentary on our third quarter results, and we'll be back for Q&A after that. Antonio?
Thank you, Jorge, and good morning, everyone. We continue to drive strong execution across all our operating segments, and again, delivered solid growth across net sales and EBITDA. Second quarter 2022 consolidated net sales reached MXN 4.4 billion, a 9% year-on-year increase driven by successful product launches and line extensions with a strong digital channels performance throughout all regions, as Jorge described earlier. This was partially offset by macro headwinds and local currency depreciation during the quarter in some markets. Second quarter EBITDA reached MXN 912 million with a 21% margin, a 400 basis points year-on-year increase due to successful targeted pricing initiatives which offset COGS inflation and Forex headwinds in some of the countries where we operate.
Third quarter 2022 Mexico net sales increased by 9% year-on-year due to new line extensions, key category recovery, and additional points of sale, as Jorge has discussed. Third quarter 2022 EBITDA for Mexico was MXN 375 million with a 20.7% margin, reflecting a significant 60 basis point improvement for the quarter due to increased operating leverage resulting from strengthened sales. This was partially offset by negative product mix sales as well as COGS inflation. Third quarter U.S. net sales increased by 26% to reach MXN 420 million with strong sales across all product lines, driven by increased local out-of-home advertising and e-commerce channels performance reflected in doubled year-on-year online sales through Amazon.
Latin America net sales for the quarter grew by 6% year-on-year to just over MXN 2 billion, partially offset by local currency depreciation in Argentina, as well as decreased year-on-year demand for COVID symptom- related products, lapping a strong third quarter 2021 period. Turning to profitability, third quarter 2022 gross profit increased by 9% to reach MXN 2.7 billion. The 20 basis points gross margin increase resulted from successful pricing strategies which partially mitigated foreign exchange impact when consolidating depreciating currencies during the quarter. Third quarter SG&A again decreased as a percentage of sales to 41.6% for the third quarter 2022, with a continued focus on marketing efficiencies and on expense control. Second quarter working capital was adjusted, and the cash conversion cycle ended at 104 days.
Accounts receivable amounted to MXN 4.2 billion as of September 30, 2022. Days of consolidated accounts receivable amounted to 90. This is a 16-day decrease when compared to the end of September 2021. Genomma closed the third quarter 2022 with MXN 1.1 billion in cash and equivalents at quarter-end, a 38% year-on-year increase. A decrease, sorry. As Jorge commented, Genomma shares are considerably undervalued at today's levels. During the third quarter, we repurchased a little bit over 4.9 million shares, investing roughly MXN 82 million. We will continue buying back Genomma shares. Just in October, over 7 million shares and MXN 100 million were invested in the first 20 days. We believe this is an outstanding use of our capital with an excellent ROIC that is clearly beginning to resonate on our share price.
Genomma's business performance and fundamentals are solid, with a very exciting operating outlook. We also announced a third cash dividend of MXN 400 million payable to shareholders of record at the close of business on November 11, 2022. Genomma's board of directors, exercising the powers delegated at the last shareholders meeting, have therefore deemed it appropriate to announce a third payment, also similarly the next phase of shareholder value generation. This payment is in addition to the previous dividends paid on December 2021 and June 2022. Genomma Lab and its board of directors express their continued appreciation for the trust of our shareholders and financial providers, including the IFC and the Inter-American Development Bank. With that, let me turn the call over to your questions.
Thank you, Antonio. We will now begin the question-and-answer session. To ask a question, you may raise your hand using the icon, Raise Your Hand, located at the bottom of your screen. To withdraw your question, press the same icon at any time. This will be required in order to allow you to turn on your microphone and ask your questions. One moment, please, while we hold for questions. Thank you. Our first question comes from Antonio Hernandez from Barclays. Please turn on your microphone to proceed with your question.
Hi. Good morning. Thanks for taking my question, and congrats on your results. My question regarding the manufacturing plant, congrats also on finishing this, and having fully operational the five lines in personal care. At what percentage of the desired production do you expect them to be by the end of next year or what are your targets in terms of 'cause we are now in the ramping up of process. What are your expectations for next year in terms of percentage of the desired production there? Thanks.
Hello, Antonio. I'll make a quick comment, and then I will let Tonio provide more detail. I'm just taking advantage of your question, as part of what I said in my speech. We are very satisfied actually, as you can imagine, at the point where we are now at the plant with all the personal care and beverage lines operating, plus the solid and semi-solid lines in the OTC pharma plant also. This is a breakthrough point in that regard because we are only missing a couple of things regarding liquids and ointments and those type of things.
We are getting very close to what we consider will be the period in which, as I said, we will start delivering expected efficiencies coming from the plant. With that said, let me invite Tonio to give you more details in terms of what is our perspective in terms of the ramp-up period and the percentage of our demand that we satisfy, will be satisfied by the plant in, especially in 2023. Tonio?
Thank you, Jorge. Thank you, Tocayo, for your question. As we presented earlier, the personal care plant has five manufacturing lines. The first one is Suerox or isotonic beverage.
That is fully commissioned, and right now it's running at a very high efficiency. We still believe that we can extract a little bit more, but right now, if we would just stay where we are, we will be satisfied, but we always want more. That's 100%. The ramp up for that line is done, and it's driving a lot of savings. Shampoos and ointments or pomades, as they call it in other parts of the world, they are at around 50% of the ramp-up process. That means that we would still require another three months to get to a higher efficiency rate in this curve. It's coming in the very short term.
Facial and body creams just began production last month, so they were just beginning this curve. Everything is going according to our plan. We haven't found anything that would derail us from the ramp up or the commissioning. Again, one line is done. two to three months, and the other two in five to six months. For the second half of 2023, everything will be at full speed. Right now, we will see some improvements and more productivity from the plant. Now, let us also remind everybody that in some of these lines, we have significantly more capacity than we need, so there's enough room for growth.
As you know, Jorge likes growth, and the company likes growth, and that's what we've been delivering. It's hard to say we would need to go line by line in terms of capacity utilization. I think that what's important to know is there's not much CapEx required from now on. There's going to be some maintenance CapEx, as all companies require. Some minor CapEx for innovation, new formats, new SKUs if needed, but nothing material. I think that that's going to be a driver of cash flow generation. Again, no more CapEx. As the savings start being recorded, you know, margins will improve. The good things about the personal care plant is that we don't require any government authorization to do that.
We just need to synchronize the supply chain network, which so far it's going well. That's the additional comments to what Jorge mentioned. Tocayo, I don't know if we were able to answer your question.
Antonio, one more thing before Antonio makes any comment that I'd like to mention is that regarding the team at the plant. We have been in the last two years, and especially this year, strengthening our team in the plant. Just last month, we hired the last, I would say, position that we were looking for, which is a new head of supply chain, actually, for Genomma global. This person will be in charge of everything related to the supply chain from forecasting demand, procurement, the plant manufacturing, logistics and customer service. He comes from Procter & Gamble. 28 years in P&G.
Always running supply chain businesses and especially manufacturing sites. As you can imagine, in P&G, this is something that is very important as part of their model. Now with this, plus the other heads that we have for procurement, logistics, manufacturing operations, et cetera, we truly have a outstanding team at the plant. Regardless the fact that Genomma has not had experience running plants in its history, we have a team of people that have more than 15, 20, 28 years of experience running plants and supply chains that are now in charge of this. You will be amazed when any of you could come to the plant and visit in the next weeks or months. You're invited to come.
You will be amazed not only by the plant, but also by the team we have in place. Finally, our commitment to get productivity from the plant continues to be fully alive. Those three to four EBITDA points that we have as a gap to our vision for the next one to two years mostly will come from productivity at the plant. We are already seeing it in Suerox. We are very confident that we will also see in the other lines that are in the ramp-up period. Antonio.
Perfect. Thanks a lot for the call, and have a good day. Thanks.
Thank you.
Thank you. Our next question comes from Alvaro Garcia with BTG Pactual. Alvaro, please turn on your microphone and proceed with your question.
Hi there. Good morning. Thanks for the call. My question is on dividends. I suppose the question is to what degree is the board committed to keeping dividends. You know, to keep paying dividends in the medium term. I guess my question is sort of, you know, is this dividend payment just a function of not having found sort of inorganic, I guess you can call them organic growth partnerships or initiatives in this year, and that's why the dividend came to be? Or is the board committed to keep dividends up over the medium term? Thank you.
Yeah. Quick comment, and then as usual, Tonio will complement. I would say, Álvaro, that the board is committed. We just discussed that two days ago in our quarterly board meeting here in Mexico, and I can tell you that we are committed to continue doing so. That's something that we started last year, as you know, with one dividend payment. This year we already did one, and we just announced that we will do another one in a couple of weeks. That is something that we want to continue doing. It is all obviously based on the health of our cash position that has improved dramatically in the last few years. That would be my comment. Tonio, anything else?
Yeah. Thank you, Jorge. Thank you Alvaro for your question. Yes, as Jorge said, the board is committed. It's part of this journey transformation that you know, Jorge started taking the company, transforming the company and taking it to the next level. You know, more mature, larger companies, they have a way to reward shareholders. One is cash dividend. It's not that we don't have opportunities for growth or investment, which we do, and we do a lot, but I think we're starting a new phase in Genomma. I mean, again, no more CapEx, no more major CapEx for the plant. The plant starts to operate, so it's going to drive some savings and some cash flow generation.
Our shareholders have been patient and with us in this process to build the plant, so it's also a way to reward them. There's other opportunities. One of them is the one that I mentioned, which is buying back our shares at the current share price. It's got a tremendous return. The board is also considering to cancel some of those shares. That is obviously something that needs to get voted at the shareholders meeting next April. No, I mean, there's a number of initiatives there. Also, if you look at our financial leverage, we are just the lowest, I would say, in history for Genomma.
The net debt to EBITDA is just 1.1, which, again, even after all these buyback activities and you know, reducing debt, because we've been paying debt as well. As you've probably seen, long-term debt has been reduced as part of the amortization payments that we did to the IFC and the IADB. I think it's more of a signal that things are positive, that the outlook is also positive, and that we're confident that we're gonna be generating more shareholder value for all shareholders, obviously, and enough cash flow to pay this dividend, this third dividend, as well as others that might come in the future. I don't know, Álvaro, if Jorge and I were able to answer your question.
Yeah, that was very clear. I'll keep it there for now. We think dividends are pretty important to keep up, and I think the message is very clear. Thank you very much.
Thank you, Alvaro.
Thank you very much. Our next question comes from Ulises Argote from JP Morgan. Please turn on your microphone and proceed, Ulises.
Hi. Thank you. Hi, guys. Good morning. Congrats on the results and thanks for the space for questions. Just a couple on my side. One follow-up on the new build on the OTC pharma side of it. There's still some additional GMPs that are required for that to kind of carry on the ramp-up curve. Then maybe kind of tied into that question, but Jorge, you mentioned there on your comments that 24%-25% EBITDA margin by 2024.
Also, just trying to get a sense here if we should think on this as a sequential and gradual improvement into those levels from here to 2024, or if we should think of this more being kind of back-loaded and more into the end towards the end of the period, sorry. Those would be my questions. Thank you.
Okay. I'll start. Thank you for the questions. I would say that on the EBITDA question, you will see that more as a gradual process starting maybe next year and culminating in 2024. That is a commitment that we have in writing with our operational team, to be honest. We have all the plans needed to get to MXN 1 billion in sales in 2024 and the 24%-25% EBITDA. The building blocks are there, and I'm very confident that we'll deliver. As I said, the three, four points that we're missing in the EBITDA front will come mostly from the plant productivity we expect to achieve. We are now feeling more confident because we are seeing that is happening with Suerox.
It's starting to happen with some of the shampoo brands as we get more and more expertise from these startups from the current team. You will see some in 2023, and you will see the other part in 2024. Obviously, there are other things that we're doing also to make sure that we continue to be as productive as possible in the way we invest. We invest back in market, we invest back in media, we invest back in the consumer. There is an ongoing effort in terms of making sure that we are productive in all those other fronts too. Some will come from that, as expected.
On the GMPs, yes, we have a couple of GMPs pending, especially the important one there is the liquids for brands like Tukol, for instance. As a matter of fact, Antonio will complement that, we have COFEPRIS at the plant right now as we speak. They came this week finally. There was a little delay, but finally they came this week. They are there auditing specifically those couple of things that we are missing. We expect some good news from this visit that will be followed by other processes, of course, from the Mexican health authority. This means that we are sooner rather than later, we'll be seeing the solution to those two pending GMPs. Antonio?
Yeah. Thank you, Ulises, for your question. I think that the margin evolution was perfectly explained by Jorge. I don't need to add anything to that. On the COFERIS visit, yes, they are right now. As Jorge mentioned, this is a process. It's not just one visit and that's it. It's a process. The first step of the process is to expand the operating license of the pharma plant to also include the additional lines, as Jorge mentioned, the oral liquids, topical liquids, coating of pills, et cetera. The new lines that are already installed, that have been already installed for quite a while. This is again the first process.
After that, once we get that certificate, the operating license, then there's other processes that would need to take place for us to get the GMP. The good news is that, you know, they are there. So far, the visit has gone well so far. It's the beginning of the process as Jorge is saying. How long is this going to take? It's hard to know. It's hard to know because it's not dependent on us. I think it's a positive sign that we wanted to share with the market.
No, thank you very much both for the color. They're very useful as always. Glad to hear that the ball is rolling in that front. More good news to come, I hope. Thanks so much, guys.
Thank you, Ulises.
Thank you. Thank you.
Thank you. Our next question now comes from Joaquín Ley from Itaú. Please go ahead, turn on your microphone and proceed with your question.
Hi. Good morning, Jorge, Antonio. Can you hear me?
Yes.
Yes. Perfectly.
Good morning. Thank you for the call and thank you for changing the format of the call. Much better now. So two questions here. First, on the buybacks. Antonio, you mentioned that the board is considering canceling a portion of the shares you've bought back so far. Why just a portion and not all of them? And alongside that, if I understand correctly, you have a self-imposed limit of having no more than 10% of your own shares in treasury. Are you thinking about changing that? That would be my first question.
Yeah. Thank you, Joaquín. Well, again, canceling the shares, it's a decision of all shareholders, not just the board. So at this time I would not be able to say canceling all the shares that we bought back. As a reminder, so, you know, the shares that we have in treasury, obviously we can cancel them or we can use them for other transactions eventually, you know, as currency for M&A or also as incentive to the key talent of our company. So that's why I didn't say all of them. The actual number is something that is going to be discussed at the next board meeting in February. That's when we will know.
The important thing, Joaquín, and for everybody, is that the board, for the first time in Genomma's history, is considering to cancel shares again.
Mm-hmm.
To increase the intrinsic value of each individual share. Just like dividends, it's a way to reward our shareholders. Again, the final number is for the board to propose and eventually for the shareholders to vote on that. We'll need to wait for now. The discussion was very interesting, and it's something that the board is taking very seriously, especially having heard many analysts like yourself and many of our key investors, that that's something that would help us generate more value for our shareholders.
That's pretty clear. Thank you. The second question, I mean, it's good to see that Marzam is back in black in terms of bottom line. Still, it's a non-strategic asset for you, that 49%. Anything you can share, where do we stand there?
Yes. Thank you, Joaquín. Yes, as we mentioned during our last earnings call, Marzam was going. It's still going on, it's undergoing a turnaround process. They optimize the headcount, reduce some expenses, et cetera. When you have these kind of expenses, those are recorded in one quarter or two quarters, and the savings would come in the long term. That happened Q1 and Q2. As you very well point out, Marzam is in the red, sorry, in the black right now. It's again adding some profits using the equity method. Which is good, by the way, but still, it's a non-strategic asset. As we've mentioned before, we are working to find alternatives to monetize that.
It's not easy because, as you know, it's a non-controlling stake, the one that we have. At this moment, we are looking into some possibilities that, you know, we are under confidentiality agreements, so I cannot mention more. Just the fact that yes, we're working on that, which is, as you very well pointed out, it's not a strategic asset. Stay tuned. Hopefully things will move in the right direction.
Yeah. That's good to hear, Antonio. Thank you very much.
Thank you, Joaquín.
Thank you very much. Our next question is from Rodrigo Alcántara with UBS. Please go ahead, turn on your microphone.
Hi, Jorge, Antonio. Thanks for taking my questions. Have two quick ones here. Just curious if you can provide us some sales growth figures in local currency or market share data that you have on your relevant brands. Namely, if we can comment on Suerox in Mexico, Tafirol in Argentina and let's say, Dietio Natural, that would be helpful. The second question is actually a question that we have received from our clients here is that, based on this valuation gap that we see on your share price, if you have ever considered divestments of some of your brands, perhaps to take some valuation opportunities there, that would be more. Those would be my two questions, Jorge and Antonio.
Let me comment from an overall perspective, Rodrigo, the points that you're making, and then Antonio will come back and give more details. I think your two comments are very interesting and important because they touch on something that we've been discussing in the company as part of the continuous improvement of our strategic approach as a company.
We commented this with some of you a couple of weeks ago when we were in New York in the BTG conference, that there have been many of you in the last months and couple of years, based on my meetings with all of you, et cetera, have been asking Genomma to be more transparent, to provide information that could be more useful in terms of analyzing the status of our business, being able to benchmark what we do versus others in a better and more efficient way, et cetera. We've taken those very seriously.
What we are now considering to do, and we will confirm this in the next weeks, is that we want to start sharing more information with you in terms of category and brands. That's something that we haven't done in the past. We are finalizing the how we will do that, of course, and working on some of the details, and that's why I said that we are gonna announce this more formally in a few weeks. That what that will allow you guys, and based on your questions, to have much better perspective on the potential, the importance, and the value of our categories and brands.
I think you know, you will be amazed by what you will see in terms of how important is our presence in different markets, in different categories. You mentioned a few brands like Suerox, like Tafirol. Suerox now becoming a global brand very quickly. Our only limitation is production capability, and we very quickly are adding more capability here in the next few months.
Brands like Tafirol or brands like Suerox are very good examples of the type of things that Genomma is able to do behind our marketing and go-to-market power, and now manufacturing too, by the way. You will be able to see more of that in a comprehensive way, because, as I said, because of what we are planning to do. That will also allow us, your second point, to better analyze what we do and how we do it with some of these groups of categories, no?
will allow us to share with you more transparently how we are prioritizing, giving priority to some categories or brands because it makes sense that there are priorities within our portfolios, because of potential, because of share growth, because of the countries in which they are present, because of the growth margin they have, et cetera, et cetera. also will allow you to see what are the non-priority categories and our plans behind those. No? That could include the divestiture of some of them, as you mentioned, based on numbers and analysis and strategy. that's an overall comment. thank you for your comment or question because it allowed me to explain this to you.
We will be talking more of this in the next couple of months, because we're thinking that 2023 would be a year in which we can start with these new narratives. Tonyo.
Yeah. Thank you, Jorge, for the perspective. Obviously, Rodrigo, it's a very good question. I'm just gonna add a little bit more color on what Jorge mentioned. The important thing here is to know that we are rational people and we are business people. Okay? If there's an opportunity to sell one brand at some point in time that would create significant shareholder value, that's something that we would look into that. Okay? We're not close to that. That's not something that we want to do because we want to build brands, we want to create new things. We want to, which is part of the DNA of the company. Eventually, that's something that may happen. We're not close to that.
There are some candidates you mentioned, some brands, categories that are very, very strong. What I can also share with you is that, as part of the evolution of the company, many of you know that, you know, seven years ago, the complexity that we had was huge in terms of number of brands, number of SKUs. Something that we've been doing over the years is simplifying complexity, reducing complexity. Strengthening some brands, de-emphasizing some others. The important is not an individual brand. It's how do the performance of our categories look like.
Because we may merge one or two brands to have a stronger one, and that has a better bang for the buck when in terms of advertising money spent, which is what many of the major multinational companies do. That's something that we've been doing. Focusing on individual brands, well, it may be a hint, but let's look at this more on a broader sense, on a category evolution, and we have very good categories that are performing really, really well. There's probably going to be more visibility on that, as Jorge mentioned, as part of, as we always say, as Jorge always says, taking the company to the next level and looking at you know, strategic avenues for the future. For the time being, just stay tuned.
I think that there's a lot of value that is in the company we need to unleash. Sometimes markets are not rational. This was taught to everybody by Daniel Kahneman's Nobel Prize in Economics. Basically, markets are not rational. Just to prove that is that the sell-off of our shares just because the Ministry of Economy of Argentina resigned last July, and oh my God, is this the end of the world? We were dropped out of the IPC Index. The true value of a company is not whether you are in an index or not. It's the future cash flow generation that the company can create with the business model. Some investors may see that, some investors may not.
Some investors claim that because it's we report on a more consolidated basis, sometimes it's hard to know, it's hard to recognize the value of our jewels that we have in our company. Some investors know that, and some investors see that. Some of you, when we have the conversation with our analysts and some of the more sophisticated investors, they know that the value is there. Thank you again for your trust. There's a lot of potential to unleash shareholder value, to create shareholder value. We are open to that. Again, it's not that we're selling a specific brand. It's just that we want to communicate what the company is really worth and what we are seeing.
Thank you for making this question because this allow us to provide a hint of how things will evolve in terms of communicating with the market and in terms of looking at Genomma differently. On top of that, it's there are times to do things, right? Now that we have the personal care plant operational, fully operational, there are more things that we can do. Some of you have had the opportunity to go and visit the plant. You've seen it with your own eyes. Some people coming from all the way from New York, London, Singapore or South Africa have visited the plant. Obviously, some people from Mexico. But unfortunately, some people, even some local investors have not even taken 45 minutes to go and see the plant. Well, there is nothing we can do about that.
We believe there's a lot of value, and you will see that with the new strategic avenues that we are developing, as Jorge described. Those investors who will trust on Genomma and who keep on investing with us, I think they're going to do well. As we mentioned in this call, we are putting our money where our mouth is. That's why we're buying back so many shares. We are doing this on a daily basis so that everybody has the opportunity to follow us if they want to or not if they don't. That's what I wanted to add.
Tonyo, let me just give one example because this was a great question. One example behind all your comments and the comments that I made a few minutes before is Suerox. We talked about this in New York also with some of you two weeks ago. Just take one brand and imagine what we can do with other brands also based on this example. Now, this is. I'm using Suerox because this is the first line that started operating a year ago, more or less. Now it's at full capacity, delivering interesting, very important initial savings that we think it would be even better in the next few months, et cetera.
That is a brand that now with the manufacturing capability, plus the experience we had in Mexico, we are now making it global. The brand now is in the U.S., mainly California, Puerto Rico, and now expanding distribution in other states as we speak, and in Chile. I'll give you some specifics because I think are good for the example. In Chile, we already have between 8%-10% of market share in a category where we are competing against PepsiCo and Coca-Cola. In the U.S. and California, we're getting close to 5% share. The good news is that our gross margin in those two countries are much better than the gross margin we have in Mexico.
The gross margin in Mexico is improving because of the plant, and the gross margin in the other two countries are benefited by the higher prices that the category has in those countries versus Mexico. Expanding the brand to other countries makes sense. We're doing the same with Tío Nacho, for instance. Now, Tío Nacho, as you know, has been relaunched with a new image, 100% sustainable, and it has had a great reception from all markets. In the US, we have a better gross margin than in Mexico, again, because of higher prices. The brand is growing more than 20% this year in the U.S. That is one of the drivers of the U.S. growth that we just mentioned. I'll stop here, but this is, I think, a great example of.
When we start sharing these type of stories with you on a category basis in the next weeks or a couple of months, you will start seeing the power behind what we are doing from that standpoint at the end. At the end, this is truly the value of the company. It's the value of its brands or categories in different markets. Stay tuned, as Tonyo said, we will be sharing and discussing more of this in the near future.
Yeah, sure. Thanks. Appreciate those final remarks, Jorge. Thank you.
Thank you.
Thank you both, Tonyo, Jorge.
Thank you very much. Our next question is from James McDermottroe from Invesco. Go ahead, James.
Hi. Thanks. Yeah, I've got two questions. The first one, can you give us any operational update on Argentina? The second question on Suerox. You mentioned you have export license now for that, but your capacity is full. How much are you planning to expand capacity by?
Yes. Operationally speaking, in Argentina, as I always have said, since I joined this company, we've had a great team in Argentina. We have great people from great experience from different companies and with several years already in Genomma Lab Argentina. From that standpoint, just going back to your question, our team and our company in Argentina is doing great. Our market shares are growing. We have leading brands in several categories. The mix of our business is very healthy. We have two-thirds of our business there is OTC, which produces better efficiencies in terms of margins, as you can imagine. This team is a team that is an expert. They are experts in managing crisis because they are always in crisis.
Based on that standpoint, during the crisis or in the last few years, we kept strengthening our market presence from all standpoints, I would say. Unfortunately, the country is always in crisis and that's something that you cannot take full advantage of. From, as you said, from an operational standpoint, we are doing great in the country. Anything in addition to that, Tonio, in the case of the Argentina question?
Yeah. Thank you, James, for your question. Argentina, as Jorge mentioned, grows well. It's got very good EBITDA margin. We are very proud of our Argentine operations. The only thing that is a concern to everybody.
Mm.
It's the foreign FX controls, where we cannot take the money out of the country. That's the same thing for all companies that operate there. There's a discrepancy between the fixed or official exchange rate and the blue market exchange rate. That's a concern. I would say that's a concern. It's a valid concern, because if we want to take the money out, we would need to incur an FX loss. However, at this moment, what we've been doing is we're buying real assets, buying raw materials, packaging materials, intangibles, some brands, some registers, et cetera, because those are real assets. They would not lose value if an eventual devaluation takes place. It's the reality. We have to live with it.
As Jorge mentioned, we are very proud of the Genomma Lab Argentina operations. Genomma has been in crisis, as Jorge mentioned many times throughout history. There's times when this happens, and then in a couple of years' time, things change a little bit. It is what it is, unfortunately. Again, if we want to take the money out, which we're looking into that if we should start doing something of that, but then it's incurring FX losses. That's something that's one of the reasons why we haven't done it. Things may change in the future. We don't know. There's elections coming. There's many things going on. From an operational point of view or from a business perspective, it's a great business. It's a great operation.
It's the team. It's a source of inspiration. A lot of innovation is coming from there. Again, we're proud of it. Again, the FX situation, that's unfortunate. That's out of Genomma's control, and we have to live with it.
On the Suerox question, in terms of the capacity, yes, we are looking into expanding capacity from different fronts. Actually, as we have said, we're producing now more than 8 million bottles per month in our plant. We continue working with two third-party suppliers in Mexico. The most important ones continue to supply us with product for Mexico and the U.S. We just announced, I think we made some comments a couple of weeks ago, also in New York, that we signed an agreement to produce for us with Danone Bonafont in Mexico. They will start producing Suerox for us in Mexico next month, in November.
We will use some of that production for Mexico and/or the U.S. Based on how that works, we could expand that agreement to other geographies. In addition to that, we continue exploring other options, so in the U.S. or in other geographies where it would make sense to have local manufacturing. The answer is yes. We keep moving very aggressively on that front, as you can imagine, because that is the limitation to continue growing aggressively in the brand.
Okay. Just one follow-up. You're not planning on expanding your own capacity on Suerox?
We are also constantly evaluating that. The answer for the short term will be no.
The reason for that, James, let me compliment Jorge's comment, is that the challenge that we have is, as Jorge very well mentioned, is capacity. Demand for the product keeps on growing. It's an excellent product. It's ideal for keto diets. It's ideal for people who play sports. It hydrates you. It doesn't have the negative consequences of our competitors who use sugar, or some of them even use glucose, which is, I mean morally we think it's even wrong because it creates own health issues. We have the healthiest product of the category, great tasting, great value proposition, and it keeps growing everywhere we are.
The reason why we signed this agreement with Danone is that they have an available line at the moment, so we could expand capacity right away. If we buy another line, then, you know, you need to wait nine to [audio distortion] till the manufacturing line is manufactured in Germany, and it's sent to Mexico, and then the commissioning. It's more of a capturing the opportunity as fast as we can. We are using co-packers in Chile, for example. That's a great problem to have. We have a winning product that keeps on growing and growing and growing, and the problem is capacity. Capacity, it's something that we need to deal with. We want to expand this brand and this category as much as we can.
As Jorge very well pointed out, the sales price outside of Mexico is higher. Which again, going back to your question about, you know, now we have GMPs for the Suerox line in our plant that we could export to countries that do require GMPs like Central America, Colombia, et cetera. Yeah, we could do that, and we could improve our profitability actually as well as the business. We need to. We don't want to let our existing consumers down and switch capacity or production that we have in Mexico to other countries. Yes, that's a challenge that we have. We need to expand capacity to keep on to catch the demand. It's a great product, and the team is doing great things. We've launched new flavors.
Those new flavors are expanding. There's a pipeline of things and innovation that is coming there. We are extremely optimistic about that brand. So far, you're very right, hit the nail on the head in terms of what's our constraint right now. It's again, as we said before in you know in the previous question, it's a source of value that we have. I don't think not many people are seeing that, you know, that has a significant value inside of Genomma, as well as other brands in other categories. In pharma, margins are higher than on isotonic beverages. Some brands are unique. Next, for example, it's a great product. There's no competition to that. Just wanted to complement what Jorge mentioned.
Thank you, James, for your question.
Great. Thank you both very much.
Thank you.
Congrats on the results.
Thank you. Thank you.
Thank you. Our next question comes from Emiliano Hernández, GBM. Go ahead, Emiliano Hernández.
Sorry, can you hear me?
Yes. Go ahead, Emiliano.
Sorry about that. Good morning, Jorge, Antonio. Thanks for taking my question and congrats on the results. Just wanted to know from the original plan to the one today where you mentioned margins up to 24%-25%. Considering the pandemic and delay on some licenses, is there any material change on the long-term view on this project? Or maybe is there any change of dynamics in these four years since you started the project of this plan?
Antonio? Well, obviously the pandemic impacted the world in different ways. I would say that the biggest impact that we saw with the pandemic is a disruption or big changes in the supply chain networks of the world. That created you know significant COGS inflation for everybody, every industry, everywhere. On top of that, if you see what happened with Ukraine and you know a lot of vegetable oils coming from there and et cetera, natural gas. There's been changes obviously from that were not considered in the business case. If we isolate that and if those things haven't happened, probably the margin expansion would have happened already and somehow. Okay?
Now we have to deal with extraordinary inflation that was not part of the business case, but we're dealing with it. You saw we reported gross margin expansion, maybe modest, but you know, again, we're in the ramp-up process. In the Suerox line, the savings that we've achieved are actually a little bit better than the business case. We are proud of that. Hopefully the other lines will show significant improvements as well. So far I would say the business case it's still there. We see improvements. Obviously, we're disappointed that we haven't gotten the GMPs in the pharma plant because that has been a challenge. We have the newest, most efficient, most optimized pharma plant in maybe in Latin America.
You know we can't leverage it yet because we need some government authorizations both from Mexico and eventually being ratified from other countries. That has delayed some of the savings. In the long run, it makes sense that we made this investment, and that will help us get new capabilities that we don't have, improve quality, lower cost, be more in control of working capital, because as you know, once the plant will be up and running at full speed, once the ramp-up has finished, inventories may come down and should come down because we control the process.
As Jorge mentioned, now that we have a new leader of the supply chain, our supply chain network with experience that he has from P&G, that's going to drive efficiencies not only in terms of costs, but also in terms of working capital. Oh, yeah, maybe there's been delays. Nobody could have foreseen the pandemic and the supply chain networks and cost inflation. It's good. I mean, it's a good project. It's a good investment.
That makes a lot of sense. Thank you, Antonio, and congrats again on the results.
Thank you, Emiliano, for your question.
Thank you.
That concludes the question and answer portion of today's conference call. I would like to turn it back over to Mr. Brake for closing remarks.
Thank you, operator, and also to those who are joining our call today. There is no doubt that the global operating environment remains challenging, which underscores the benefit of Genomma's uniquely diversified results and of our strategic transformation and growth strategy on how our company operates today. The conclusion of our manufacturing plans commissioning processes and full operation of our personal care, beverages, and pharma solids and semi-solids plant manufacturing lines now unlock significant value and economies of scale, enabling Genomma to achieve our full growth and margin potential in the short and mid-term. We thank our team and our investors for your continued support. We'll see you soon. Thank you.