Grupo Bimbo, S.A.B. de C.V.

Good afternoon everyone and thank you for joining us. On behalf of Grupo Bimbo, I hope that you and your family are healthy and staying safe.

Connected on the line today is our CFO, Diego Gaxiola; BBU's President, Fred Penny and several members of our finance team. I'm very pleased with our third quarter results.

Despite challenging comparisons the 6.5% pressure coming from FX rates, significant inflation, and supply chain complexities, we have sequentially recorded record sales and profits and our free cash flow has been consistently growing. Our strong results are a reflection of our team's dedication, global diversification, strong consumer demand, investments in our brand, and pricing strategies.

Volume grew across multiple categories. More importantly, in buns and rolls, pastries, snack cakes, confectionery, bagels, and snacks, with Mexico and our QSR businesses outperforming.

All-in-all, very good results in terms of volumes, pride reputation, and revenue growth management initiatives across all our markets. I would like to highlight that we continue to cycle difficult comparisons driven by the pandemic-induced buying which occurred in some of our geographies starting in March of last year.

Our run rates are demonstrating strong performance versus 2019 with sales growing at 17.8%, adjusted EBITDA at 26.2%, and net majority income more than doubling. Nevertheless, I have to say we are facing a significantly higher inflationary environment.

More specifically, we are seeing increases in commodity, freight, and labor costs, as well as shortages across the supply chain in the U.S., U.K., and Canada. We have been making pricing, trade of our PVT actions, and we will continue to take them as well in 2022 to offset part of the cost increases across all our geographies.

Before I move on to our resource by region, I would like to share with you that we organize the 2021 Virtual Global Energy Race and thanks to more than 29,940,000 runners more than 5.8 meter slices of bread will donated to food banks around the world. And finally, we're proud to announce a big milestone towards our sustainability goals for our commitment to achieve net zero carbon emissions by 2050.

We will look for issuing business ambition of 1.5 . Our objectives have been validated by the science-based target immediately and we have now joined the United Nations-led weight to zero campaign.

The first globally coordinated attempt to reduce carbon emissions on time. I want to mention that we also have fenced towards our sustainability commitment of having 100% renewable electricity in all our operations by 2025.

And we have to report that during the quarter, France, Italy, Russia, and the 13 operations have started working with renewable electricity. We will soon share with you our renewed sustainability strategy with more ambitious targets.

So, stay tuned. Now, looking at the regional results of the third quarter.

Despite the difficult comparisons as we left COVID-19, our North American business had a great quarter. Net sales grew 5.5% in dollar terms.

The branded business performed very well, led by buns, breakfast, sweet baked goods, and snacks. And our front-line execution was the strongest.

We implemented price increases late in the quarter and given the outlook for 2022, with the significant inflation pressures we're expecting, we're expecting a second round of price increases and additional productivity. Market share grew across multiple categories, essentially breakfast and .

Our topline run rate, when compared to pre-pandemic levels, were very strong. The strength driven by consumer demand and investments we have made and continue to make in our brands.

The private label run rate has remained soft, while food service is beginning to rebound as schools and restaurants manage reopen. Our adjusted EBITDA margin in the region constructed 110 basis points, namely, due to a high inflationary environment including commodity, labor costs, and shortages across the supply chain.

This was partially offset by favorable branded mix and productivity benefits from past restructuring investments and cost saving initiatives. We're cautiously optimistic about our topline going forward as we begin to see post-pandemic trends evolve.

The significant inflationary headwinds we're facing do apply pressure to our margins and we're combating this with a second round of pricing as well as productivity and we're confident our brands will continue to resonate with consumers and the growth of our portfolio positions us well for the future. I'm happy to share that during the quarter, we completed the acquisition of Popcornopolis in the U.S., one of the fastest growing popcorn brands, our retail channel with a pristine reputation for quality.

Popcornopolis produces premium ready-to-eat popcorn made with natural and best-in-class ingredients. This acquisition marks our entrance to the crafted popcorn category in the U.S., which is an excellent platform for innovation.

Moving now to Mexico, our sales improved by 16.4%, attributable to volume growth, favorable product mix, and price increase. Almost every category and channel grew more strongly in cookies, pastries, buns, salty snacks, and confectionery as well as the traditional and modern channel and the recovery of the convenience in brand new channels.

Adjusted EBITDA margin expanded 110 basis points as a reflection of the strong sales performance and distribution of inflation initiatives such as implementation of difficult solutions across the supply chain. In Latin America, net sales increased 70% excluding the FX rate effect.

This was driven by strong volumes and price/mix across all three organizations. Mostly notably, our turnaround efforts in the field resulted in strong gains in EBITDA.

The eight countries of our Latin and Central regulation keep posting excellent results and we experienced a significant growth reteaming behind our expansion of the direct sales delivery channel in all our categories. We have seen a positive development of our main core categories and a successful path in salty snacks in some countries.

Going forward, we will continue to focus on rebuilding and expanding our distribution in order to strengthen profitability in the region. Following the end of the quarter, we completed the acquisition of Aryzta Brazilian operation.

Aryzta do Brasil is a major player in the QSR bakery market in the country, specializing in hamburger buns and breadsticks and nuggets, with a growing business in the sweet and bakery market. With these acquisitions, we strengthen our position in the industry and have an opportunity to expand our global leadership within the QSR industry and become a relevant player in Latin America, offering our customers better quality, service, and innovation with a very dedicated team.

Finally, moving on to EAA, excluding FX effect, sales increased nearly 16%. This was a result of double-digit growth across almost every country where we operate, mainly, Iberia, the U.K.

and the QSR business, coupled with the acquisitions of Medina del Campo in Spain and Modern Foods in India. We also continue to see a recovery of our QSR business throughout all the region.

Adjusted EBITDA margin expansion of 230 basis points resulted from the strong sales and lower general expenses driven by a better product mix, in contrast, cost-cutting initiatives across every country, including lower COVID-related expenses. I also am glad to announce that during the week -- this week, we acquired Kitty Bread, the number two bread manufacturer in Northern India.

Kitty Bread produces white, brown, whole wheat, and fruit bread among other products in a strategic located facility. These acquisition complements are current -- for volume that enhances our presence in India, and our long-term commitment toward the country.

I would like now to turn our call to Diego, who will walk you through our financial. Please Diego, go ahead.

Thank you, Daniel. Good afternoon everyone and thank you for joining us today.

I would like to start with a summary of our financial results, which were outstanding. Despite difficult comparisons, FX rate pressure and higher inflation, we achieved record levels for sales and adjusted EBITDA for the third quarter and a 270 basis points expansion of our return on equity.

We continue to benefit from being as diversified company as we see strong run rates in our core business and a recovery of the channels and categories that were under pressure during the beginning of the pandemic. We are strengthening our global profile and the positive mix is driving our strong margin expansion and free cash flow generation.

Moreover, we have benefited from lower material costs when compared with the spot prices over the last month due to the hedges in place, which has given us time to adjust our commercial strategy. We have also achieved substantial and sustainable productivity savings coming from capital and restructuring investments we have made in the past, which enabled distribution efficiencies, automation improvement, integrated systems solutions, and additionally, we also had the positive from having lower COVID-related expenses.

These contributed towards reaching a record adjusted EBITDA margin for our third quarter at 14.7%. Our financial costs decreased by 10%, reflecting an appreciation of the Mexican peso and our cumulative effective tax rate stood at 35.1%, which continue to reflect our benefit of our turnaround businesses that have been performing substantially better than last year.

As a result, the net effect of these factors yielded an improvement in net majority income of 11.9% and a margin expansion of 40 basis points to 4.6%. Turning to our balance sheet, thanks to the strong cash flow generation, we closed the quarter with a net debt to adjusted EBITDA ratio of 1.8 times.

Our total debt increased by MXN6 billion when compared to December 2020, primarily due to the FX effect, as well as to the funding of the acquisitions that were concluded on top of the MXN6.5 billion that we have given back to our shareholders through the combination of the share buyback program and the dividends. As I'm sure you all know, we renew our committed revolving credit facility in the current amount of $1.75 billion.

I am proud that this successful transaction perfectly aligns with our philosophy of building a sustainable, highly productive, and deeply humane company. Over the past decade, we have benefited from having a committed revolving credit facility, providing a Grupo Bimbo with liquidity and flexibility.

With these sustainability linked loan, we continue to strengthen our financial profiles and given that sustainability is part of our DNA, and it is growing relevance in our world and business, we have renewed and linked it to our sustainability goals. Our net operating working capital, which mainly considers accounts receivables, inventories, and suppliers has improved significantly by 3.4 raise over the third quarter of 2020, which is the equivalent to MXN2.8 billion.

And this is mostly due to improvements in almost every caption. Our Supply Chain Finance program continues to pay off and bring significant savings.

Our cumulative free cash flow before acquisitions share buybacks and dividends totaled MXN3.7 billion. And, lastly, given the strong results during the quarter and during the year, we are happy to reaffirm our guidance for 2021 and would like to provide some visibility on what we are expecting for 2022.

In terms of net sales, we expect to see a growth of mid-single-digit. Taking into account that we will have a tough comparison, given the remarkable results of 2021 and despite the high inflationary environment, we are still expecting adjusted EBITDA to increase from mid to high single-digit, which will translate, of course, into a potential margin expansion.

As we keep investing in our business for organic growth in the markets where we operate and also to increase our profitability, our CapEx for the next year will be approximately $900 million. And finally, our effective tax rate should remain in the mid-30s.

With that, we conclude our remarks this afternoon. So Matt, please proceed with the Q&A.

Perfect. Thank you very much, Daniel.

Diego congrats on the results. Two major questions and one smaller one.

So the first one is really around everything you've been doing on the sustainability side and how you're looking into using cleaner energy and really working here in all the different countries and jurisdictions to make the most out of it, to comply with that agenda. Now, we all know, there is a reform being talked about here in Mexico, that could have potentially some adverse implications on what you've been doing and all the investment into solar energy on your plants here.

Is there any commentary you could share with us? And any maybe preliminary analysis, what the implications would be for you if that reform, as it was presented in first place would go through?

I know, it's a tough question.

Okay. I might answer this one, Ben.

And thank you for your comments and questions. Yes, sustainability is super important for us.

And we are fully committed that we have been committed on this journey for many years, we will continue to be moving along on this path. The energy reform that has been proposed by the federal government team and of course in the Congress so we don't have any clarity as to what's going to be the conclusion of a research proposal reform.

And what I can tell you is that, in any sense, there will be an energy like company. Even though, we have a lot of -- more than 1,000 electric vehicles are running in the streets of Mexico.

And we have this conversion to renewable energy. It's still not being a separate company that are a very critical component of our total cost.

So we'll have to wait and see.

Okay. Perfect.

Yeah, I guess then that direction is going to go? And then the next question, I suspect, that one's more for Diego also in light of the guidance you just gave.

So when we look at your performance and profitability, and not comparing it against last year, but comparing it to the prior year, and you made more lives easier, but putting in into the presentation. So clearly, Mexico is like that one spot will profitability is still somewhat behind the levels of the third quarter of 2019.

Could you provide some incremental color on to what has been the issue in Mexico? Considering that you've had such a good quarter in 2021?

What is what is still missing to kind of catch up on the margin? And in light of your guidance, is that essentially what you assume you can achieve for next year that could potentially help you deliver that small margin expansion or is that already very high base?

Yes. Hi, Ben.

Although, in the case of Mexico, that we have a very diversified portfolio within different Chinese and the categories in this market. If you remember, we had an important team talk.

Back when the COVID started to happen, which is a little bit of the opposite to what happened to some other regions. We have, as you can see, in this third quarter, started to see and continue to see a very strong recovery.

So we feel very confident on the outlook and of course, the guidance that we provide the Grupo Bimbo level is considering part of these recovery in Mexico.

Okay. Perfect.

And then when it comes to M&A, you're doing all these small ones. Is it because there's nothing big?

Or is it because you think that's the right way to do the strategy between internal CapEx and adding capital to word, some smaller acquisitions, just given that your leverage is so low, and you would have a lot of balance sheet opportunity to actually engage in something bigger?

If I may, Ben, this is a -- Ben, this is now something that you can plan for, or you can put it in a spreadsheet, So a opportunities come some of these opportunities, we have been working for them for four years. And they make sense for our strategy in the particular business unit.

And that's how we basically see t this happening in this quarter. So we don't rule out bigger or smaller acquisitions.

Everything has to make sense from strategic standpoint. And it's something that all materializes in different ways certainly every year, in every occasion feature of mine.

And we're very glad with the, with the three acquisitions that we made this quarter, and I think that, they will allow us to strengthen our market positions in the different regions.

Okay. Perfect.

I'll leave it here. And thank you very much.

Congrats again.

Hi, gentlemen. Yeah.

Did you hear me?

Yes.

Hi. Daniel.

Hi, Diego. How are you?

I have two questions. The first one since you are seeing your EBITDA increasing by high single digits next year.

And in your CapEx, the implicit guidance here is that, it's also falling a little bit from this year's numbers. Can I assume that your distribution should also be bigger next year?

Unless, obviously we have some relevant demand to do but should we expect your cash distribution to increase their to more buybacks or dividends? Is this the way to read it?

And the second question, more regarding the business environments in outside the US, when it comes to the cost pressures that we're seeing in the industry? Is it fair to say that we're seeing these cost pressures that are coming first to North America than the other regions?

When should we expect to see Mexico, Latin American, Europe cost effect peaking for you? When exactly that should happen considering hedges considering your unit orders?

Thank you.

If I look up, if it's okay Daniel, I can take the three questions. The two, sorry.

Just let me be very clear, you mentioned in terms of the EBITDA guidance, high-single digit, the guidance is mid to high single. Now in terms of the expectation on how much we're going to get back to the shareholders for 2022 is still early to tell.

We still have to go through all the process of course, finished the year in order to propose to the board and then they work to the shareholders meeting. What will be the dividend for the year?

So hard to give any specific comments, if it's going to be more or less than last year. And also in terms of the buyback program, I mean, we will continue to execute the program with the same guidelines that we have been executing it for the last years.

So as long as we continue to have strong cash flow generation, strong financial position, and we see an opportunity, we're going to be active. How active impossible to roll.

I'm sure you understand that it's very hard to predict and give an estimate on the resources that we're going to be investing on the buyback program. What I can tell you is that today, we still have on our buyback legal reserve, approximately MXN6 billion.

Perfect.

Okay. And in terms of the costs that you mentioned, for Mexico, Latin America, we're still -- we are already seeing the impact.

The thing is that the strong performance on the topline created some economies efficiency some operating leverage that allows us to have part of our reduction if you see or the gross margins in Mexico decrease even with a strong topline performance, we had a decrease of 60 basis during the quarter.

That's very clear. Thank you very much.

Okay.

Thanks. Good evening, Daniel, Diego, congrats on another good set of results and thanks for space for questions.

I have two questions on my side, one on B2B platforms and the other one on raw materials pressure. So let me start with the first one.

We've been observing how some global and Latin American players have been deploying digital B2B platforms to serve the traditional channel in Latin America. Most of that has been happening in beverages, it's not really in food yet.

But given your original makeup, you're uniquely positioned in the food sector with a press in almost every country in the region. But then on the flip side, I tend to think that traditional trade has not historically been your fortress -- your forte.

So just wondering here, whether you have any plans to develop a digital B2B platform for the traditional channel, or if you have contemplated jumping into another third-party platform at some point, something with the likes of AmBev or the Coca Cola company or something like that, given that they're going into food as well? And then the second question, much shorter and less strategic on raw materials pressure, obviously, we saw some raw materials pressure and you guys moving on with prices, but the head seems pretty mild at this point.

Do you think we've seen the bottom of the gross margin pressure? Just trying to think how we face this into our models going forward?

Thank you.

Well, the second question, let me tell you that I don't think that we know clearly what the path for some of the cost increases that we've been facing, we don't know if it's basically the worst of it or there's more to come. So that's why we mentioned that we're taking further actions for next year in terms of pricing and as well in growth management, as well as productivity initiatives.

So we still don't think that we have seen that this is the end of it. And there are issues not only on commodities, but in some countries, most notably the Anglo speaking countries, we record shortages, the supply chain constraints are even bigger and more complex than in other places.

Regarding the question on digital platforms, we have had for a good number of years a project in Mexico. We now have basically control of that project.

We have been renewing our digital connection with our customers, it's called a connector. And it's basically in all the countries.

We're aware of all the different initiatives that are happening and we're not only strengthening our own platforms, but we're also talking and seeing if it's possible to work in other platforms. So this is an evolving journey and one where we do have a role to play and we will be playing a role in the traditional channel given the exposure and the importance for us, but it's something that it's changing every day.

And we have a full team dedicated to take advantage as much as we can on the margin opportunity.

Great. Thanks for the color guys.

Have a good night.

Good afternoon, everyone. Thanks for the call.

Just quick question. How will you be expanding margins next year given all the costs increases?

I mean, commodities we’re talking about is extensively over the past few months, but now we have labor freight costs supply chain issues. Is it any particular market that you're more optimistic on?

I mean, is the US prices implementation surprising to the upside? Is it the efficiencies that you're carrying from the COVID savings?

I mean, Diego mentioned a few questions before that Mexico is part of the story. But can you just give some more granularity on this issue?

Because I mean, mid to high single-digit EBITDA expansion of a tough day seems like a quite remarkable performance? Thanks for the question.

Yes, hi, Ricardo. In the in terms of the margin expansion, but of course, as I mentioned, we do expect something because of having this mid-single-digit topline growth broadly a mid to high single-digit EBIDTA expansion, of course, this will mean some margin expansion.

One of the big drivers, I would say the topline expectation, and here what we're considering is strong volumes to continue, but also on prices and on the pricing strategy and the product mix that can help also to offset part of the pressures that we will see with the commodities and the labor that was already discussed. On top of this, we have several initiatives today, as we speak in that are in working progress, initiatives that will generate efficiencies and productivity for next year, that will also help us to offset the headwinds that we're going to face.

And that's why I mean, what we think in terms of the margin is that it will be flat to a slight expansion.

Thanks for the color, Diego.

Thank you so much, and congratulations for the results. A couple of questions.

The first one is regarding I mean, you've done an amazing job in many fronts, but also including spending all of your debt and the maturity is very, very long. I mean, according to your press release, you don't have more than $200 million of amortization in the next two years.

And you're already at a very low level of net debt to EBITDA. So my question is, how long do you think it'll go the net debt to EBITDA?

I mean, the last time you were below one or one and a half times net debt to EBITDA was in 2008. So you don't have any issue going back to that low level of leverage, which I guess it's a good thing that you want to reconfirm?

That will be my first question.

Yes. Hi.

Yes, we're very happy with the profile of our debt, the tenure that we have is close to 16 years, a little bit more than 16 years. So it's very strong.

We still have some depth in the short term, basically the part of it is a $200 million remaining of the 2022 bond that matures in January, of course, I mean, it's not going to be an issue. And then we will till 2024 with the next Bond that it's $800 million.

So, we have a lot of time to plan and to see what we're going to do in terms of our liability management transaction. So we feel very confident, very happy with this debt profile.

Also remember that we have the new sustainability linked revolving credit facility for $1.75 billion. That also provides a lot of flexibility to Grupo Bimbo.

In terms of the ratio, I think, I mean, for many years, we have received the question that and we perfectly understand that in the past, there were some cycles when Bimbo the leverage, and then some big opportunities came into the table, and we went back to three times, 3.2 times, 3.4 times. And that probably happened like two times, three times after we got the leverage.

And now it's been a steady period of the leveraging the company. We ended 2017 at three times.

As you mentioned, we are at 1.8. Last year, we ended at 1.9.

With the acquisitions that we already discussed, during the press release on this presentation, we were going to see probably as small pickup in the ratio slightly. And again, I mean, the strategy that we have in terms of the inorganic growth for the company is not changing.

So it's not really that because with the leverage, we’re going to start to look for big transformational acquisition. There's still a lot of projects in the pipeline and a lot of opportunities.

So we will continue to be active, doing and executing the acquisitions that we feel very confident, will bring a lot of value to the markets and will continue to build on the long-term strategy of the company.

Got it. That's very clear.

Thank you so much, Diego. And maybe last question, maybe a bit more strategic for Daniel, and it has to do with innovation.

I have the perception, and I could be wrong. That lately the innovation of Bimbo in terms of products has been more effective in contributing to the top line growth.

What has changed Daniel in the way that you do innovation right now versus the way you did innovation five or 10 years from now? Am I right to say that now you're much more effective, I'm seeing all of these products in the United States and the Takis and you see all these all these products, also in the supermarkets in Mexico.

And it seems that they become increasingly more successful in terms of contributing to the top line of Bimbo.

Thank you, Alan. Yes, let me tell you that we do have a basically renewed and change our innovation process.

We have been so focused on innovation, and on making sure that whatever works in one place can be studied and tested in others. And really, we're proud to see that some of our key products in some markets are now getting to be a relevant item on the portfolio of another of our countries.

So that's been in the works. And we've been refining it for about three, four years.

The other part I see that we're doing is, we're making sure that we can support those launches better than what we did in the past. And that implies a better strategy to our focus to program and at the end of the day, more economic support behind this launches.

So we have got, I think that we always have room to improve and we have to be further along, making sure that we learn from our successes and also from mistakes. But in general, I would say that innovation is playing a major role in the company.

I'm glad to see that that you're proceeding it.

Yes. No, it is very noticeable.

And congratulations. Thank you so much for taking my questions.

Thanks.

Thank you.

Hi, gentlemen. Thanks for the space for questions.

A couple of questions. The first one is on Aryzta in Brazil.

When you bought East Balt that was noticeable, when you included this in the presentation that their margins East Balt’s margins and your QSR business margins were a lot higher than average. And I'm just curious if it's fair to assume that Aryzta in Brazil has a sort of a similar dynamic if margins are higher than your LatAm average of your Brazil average?

And then my second question is on tax loss -- sort of tax loss carryforwards in the context of your tax guidance for next year, your tax rate guidance for next year? Will you be tapping into these in some markets like Brazil, the other markets in LatAm or Iberia or is this not the case?

Thank you.

Yes. On the first question, yes, this acquisition will be accretive to our operation in Brazil.

And not only that we strongly see a lot of synergies being developed over the course of the next few years in Brazil, with the opportunity of merging this business also in the interest of our Aryzta in Brazil.

Great.

Yes. Hi, Alvaro.

Regarding the tax loss carryforwards that we have and what we are expecting. First, I would say, remember that we have a very conservative accounting policy where we typically don't recognize any deferred tax assets from the losses.

So once we're able to turnaround that business, and we see an operation to be positive in terms of profit before taxes, then we will start to see the positive effect on the effective tax rate. And with what Daniel mentioned, that's going to be the case for Brazil as an example.

And some other not all. So yes, on the 35, mid 30s, it can probably below 35, 40 in the range of mid 30s.

On the effective tax rate, we do consider that we will start to use and see the benefit of some -- the uses of some NOLs.

That's very helpful. Thank you.

And if I just do one more, sorry. On the US, it's been pretty remarkable to see your market share gains, not sure Alfred is online or if Daniel you can take it on.

Just it's been two years now in a row of gaining market share, particularly in breakfast. And I'm surprised we haven't seen a pullback as activity has normalized.

I was wondering if you could just talk about that a little bit? Thank you.

Yes. I'd be happy to take that question.

We're continuing to see fairly strong market share gains, not in every category, but most of our categories. Breakfast, I think is a reflection of the continued trip to consumption at home, which even though we've cycled the most significant impacts of the pandemic from a year ago in the quarter.

I think that -- there's a continued trend of more consumption at home. And I think breakfast is one of the categories along with buns, I would argue is another category where the trend seems to be continuing.

And so we feel good about that. And hopefully, that'll continue as we move into 2022.

Awesome. Thank you very much.

Well, thank you very much for attending the conference. If you do have any other questions, please refer to the Investors group, and we hope to see you in the next conference call.

Thank you very much.