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Excuse me, everyone. We now have all of our speakers in conference. [Operator Instructions] I would now like to turn the conference over to Pablo González. You may begin.
Good morning, everyone. Thanks for your participation on the call and we hope you and your families are all safe and healthy. Let me start by making a few brief comments about the quarter. Our results reflect strong growth and improved profitability, both sequentially as well as year-on-year. Notwithstanding a difficult top line comparison, given last year's aggressive pricing by some market participants, our sales grew for the 22nd quarter in a row, mostly through volume, reflecting the strength of our brands. The volume growth, together with an improved cost environment and our increased productivity and cost savings initiatives, allowed us to continue to deliver good bottom line results. A positive quarter, but we faced a very challenging rest of the year. Xavier will provide additional details on the results before we discuss the current situation and possible implications for Kimberly-Clark de Mexico.
Hello, everyone. I also wish everyone is healthy, and your families are doing well for this period. During the quarter, our sales were MXN 11.7 billion, a new record and a 6% increase versus the first quarter of 2019. Volume grew while price and mix were slightly down versus last year. Consumer product sales were 6% higher, also as a result of higher volumes. Away from Home products grew 4%, and export sales grew 55%. We exported more competitive products as well as more tissue particles. Cost of goods sold were down 1%. Against last year, virgin pulp, recycled fiber and slot prices compared positively, as did oil derivatives, including superabsorbent materials and resins. Energy prices also compared positively. FX averaged 1% less during the quarter. Having said that, let me remind you that by the end of the quarter, the peso had depreciated 22.6% versus the previous year, which will impact costs going forward. The cost reduction program yielded close to MXN 350 million of savings during the quarter. Gross profit increased 19%, and margin was 39.6% for the quarter, 10 basis points better sequentially. SG&A grew 6% slightly below sales as we maintain a lean operation, while efficiently investing in advertising and point of sales to strengthen our brands and support our recent innovations. Operating profit increased 31%, and the margin was 23.1%, a 10 basis point sequential improvement. During the quarter, we generated MXN 3.2 billion of EBITDA, a 26% increase. And EBITDA margin was 27.5%, a sequential improvement of 20 basis points.
Cost of financing was MXN 412 million in the first quarter compared to MXN 368 million in the same period of last year. Interest expense was higher as we recognized an increase in the value of the food authority minority owners, in line with improved results of this business. The foreign exchange gain in the period was MXN 42 million compared to MXN 25 million in the previous year. As a consequence, net income for the quarter was MXN 1.5 billion, a 32% increase. Finally, earnings per share was MXN 0.50.
With that, I'll turn it back to Pablo.
It goes without saying that we are experiencing a new operating environment, together with very high uncertainty, regarding the magnitude of the impact of the COVID-19 epidemic on several fronts, including the spread of the virus among the Mexican population, the health of the Mexican economy and private consumption as well as the impact on the Mexican peso and the prices of certain raw materials. The epidemic, which has already shattered job markets around the world, will no doubt have very negative effects on Mexico's economy. At this point, the consensus is that the economy will shrink by at least 6%. And on top of this, the Mexican peso has lost 1/4 of its value in recent weeks. Of course, the greater the spread of the virus and the longer it takes to get the economy restarted, the more profound the impact on job losses, business closures, consumer demand and reduced output. We are at an earlier stage than other countries, and it's simply impossible and, quite frankly, futile at this point to try to determine the impact and what's in store. We really don't know, and nobody does either. In light of this, let me focus on describing what we have defined as our priorities and operating guidelines to navigate through the current environment and briefly describe the actions we've taken to provide the necessary current support to all of our personnel and to aid health institutions, governments and communities during these very difficult times. First and foremost, we are protecting the health of our employees and their families, and are implementing measures to positively impact them and the communities where we operate. Second, we're taking several actions to make sure we continue operating and supplying our products without major disruptions. We manufacture and distribute essential health care and hygiene products, and we need to make sure that all our customers and all Mexican consumers have access to them. Third, we're making sure that we become more efficient in every aspect of our operation to deliver the best results possible in this environment, and we will focus on generating and protecting cash. With regards to our personnel, when the first cases of COVID appeared in Mexico, we immediately implemented home office protocols for higher risk individuals. And these protocols were gradually expanded to most personnel in office and administrative jobs. At our production and distribution facilities, we implemented very strict sanitation, quarantine, safety and distancing protocols, much stricter than those suggested by health authorities. Also, very importantly, we decided to anticipate 50% of the profit sharing payment in April to provide our employees with cash and we'll disburse the other half during May, as we have always done in the past. KCM profit sharing was one of the highest in the country, and we're very proud of distributing it to our employees, as has always been the case. I also want to emphasize that we have not only supported all of our employees, but have been hiring additional personnel. Finally, we are providing all employees and their families with hygiene products to help them get through this contingency, toilet paper, cleaning wipes, anti-bacterial soap, and hand gel and masks, among others. We made coaching available to help them stay safe and healthy, both physically and emotionally. Protecting the health of our employees and their families is our most important objective, and we will continue to implement their protocols and take any other actions that we deem necessary to keep our people and their families safe. And with regards to supporting health institutions, governments and communities, we have taken the following initial steps. We have donated more than 1 million bars of soap, 14 tons of antibacterial liquid hand soap and 12 tons of antibacterial gel to the Red Cross and other public health institutions, and we'll deliver close to 3 million masks. During May, we will be supplying 10 public hospitals with all the required protection materials for doctors, nurses and staff, partnering with the initiative of [interlasando] Mexico. We have made donations of toilet paper, masks and antibacterial soaps to all municipalities where we operate, and we will be supporting small businesses and suppliers in our communities. KCM has always been committed to improving the lives of our consumers, personnel, communities where we operate and the country as a whole, and we will be doubling our efforts to have an even greater impact in these very tough moments. In relation to our second priority, we continue to operate efficiently to supply our products to the vast majority of the Mexican population. We are operating at very high rates. And as has always been the case, we are very focused on operating better and at lower costs. To this end, maintaining our supply chain up and running is a key factor. So far, we have not experienced any important disruption, and it is something we are closely monitoring and working hard. Let me now make some comments with respect to our third priority, delivering the best results possible in this environment and prioritizing cash generation. We are carefully reviewing our portfolio to ensure we meet our consumers' needs under the current market and economic environment. Our categories are not only essential, but are also very defensive. And KCM's multi-brand, multi-tier and multichannel strategy and business model, together with the strength of our brands at every tier, will allow us to offer the best value to every consumer. We will continue to push operating efficiencies and drive costs out. When it comes to raw materials, most will compare favorably versus last year, although we are seeing some slight sequential increases. In addition, going forward, the global economic slowdown and the consequential price reductions could mean lower growth material prices. One important exception are recycled fibers, which have experienced important increases given that supply has been impacted, particularly in the U.S. We're, of course, experiencing significant pressure from Mexican peso depreciation. Accordingly, we're reviewing and optimizing our pulp and fiber strategy, and we will double our efforts to reduce costs and expenses to offset these impacts. We have already identified MXN 1.2 billion for the year and maintained our MXN 1.5 billion target. And even though we already have a lean operation, we will be analyzing every single expense line to make sure we cut or reduce all non-indispensable ones. Further, in light of the current environment, we're placing a special emphasis on generating and keeping cash. We're not only looking at costs and expense reductions, but also closely reviewing every investment. In line with this objective, we are very carefully revisiting our CapEx projects, and we will be delaying or deferring a significant proportion of them. We're also analyzing diverse actions to free up more cash from working capital. Our strong financial position and cash generation ensure that we cannot only withstand what may be a very difficult economic scenario, but we will be able to emerge stronger from this environment. We have a strong balance sheet, and our net debt-to-equity ratio is 1.1x. In terms of liquidity, as of March 31, the company held MXN 9.7 billion in cash and equivalents. Also, as you know, we have 2 debt [ vacancies ] that's coming due in the next 12 months. We have already identified different alternatives to refinance those, either partially or in full, and are already working to make sure we can act whenever we consider it most appropriate. Finally, I would be remiss if I did not mention that our annual shareholder meeting in February approved the payment of a MXN 1.60 per share dividend. This amount represents a 3% increase versus last year, and is in line with our commitment to distribute cash to our shareholders while maintaining a healthy capital structure. The shareholders' meeting also approved a MXN 200 million buyback program, which will be placed on hold at this moment. In summary, we had a very good first quarter, and we're taking the necessary steps to face the challenges of the coming quarters. With that, let me open it up for questions, and thank you all again for participating on the call.
[Operator Instructions] We'll take our first question.
This is Bob Ford of Bank of America. Pablo, I was very impressed with the current working capital improvements and debt reduction in the period and as well as the sharpening up in exports. And I was hoping you could talk a little bit about that, specifically in your expectations of the sustainability of that. And there also appears to be a derivative position on now given your reluctance to hedge in recent years. I was curious of what that was.
Okay. Let me -- Bob, let me take the exports one, and then I'll ask Xavier to get into the derivatives question. When it comes to exports, indeed, we had a very strong quarter. And it's because we've been really focusing on becoming a supplier to our partner, to Kimberly-Clark corporation and a supplier, not just of parent rolls, but of finished product. And as they've been going through their restructuring, we've been able to find some opportunities. And given our cost structure and our efficiencies, we've been able to provide them with good quality products at good costs. So we've been able to decrease our -- or build our business on finished product with them. And we do expect that to continue here in the coming months and hopefully years. Also, we've started to increase our exports on our Evenflo and Escudo business. And those are going well, represent a smaller part of our exports business, but we're certainly building those up as we go along. And we're very satisfied with the way that's going. So overall, I think we can expect exports to continue on a strong run through the rest of the year and, as I said, for the coming years.
Bob, this is Xavier. In terms of the derivatives, we have not actually changed our hedging strategy. The hedging strategy remains. As you know, we try to keep our balance sheet neutral in terms of FX exposure. But we, basically, do not hedge our costs going forward, neither through raw material prices, nor through FX. I imagine your question comes because of the effect that we recognized of a put. That's more related to a put that the original owners of 4e back half. If you recall, the original full owners of 4e, who still operate the business with us, own 22.5% of the company, they have a put option for those shares, which is contingent to certain conditions and limited to certain time windows. We recognized the obligation as a liability that has been in our balance sheet since we acquired the business, but we increased the value of such liability because that business is performing very well. The liability increased by MXN 100 million from MXN 260 million to MXN 360 million.
Congratulations on the pickups.
We'll take our next question.
This is Mohammed from FGP, and hope all of you are well. My question is simply, what was the consumer volume growth? If you could give us some color on that. And the second is if you could just refresh us on, what is the cause of USD exposure at current levels?
Mohammed, as we mentioned, our growth really came from volume during this quarter. Our price and mix was slightly lower versus last year. And I -- sorry, I didn't get the last part of your question. Can you repeat it?
Sure. Sorry. Just to reiterate, my first question was specifically for your consumer segment. So am I to understand that that's also exactly in line with overall business with roughly 7% volume growth and 1% pricing?
Yes. The same applies for our consumer business. Yes.
Okay. That's great. Just what's the latest USD cost exposure -- sorry, cost of goods sold exposure to foreign currency basically as a percentage?
It's close to 60%.
We'll take our next question.
It's Ben Theurer from Barclays. Pablo, Xavier, first of all, thanks for taking the opportunity and the call today. Two questions, if I may. So first, if we go back to 2008, '09, we've seen you guys performing actually relatively well in a tough environment with sales curves that was fairly in the decent level of high single digits and some quarters actually in the low teens. Can you remind us what drove back then the better sales? Was it a volume thing? Was it you being able to, nonetheless, price decently, just considering the nature of the basic needs? And if we look at what the first quarter was, basically all volume-driven, what would you expect for second and third quarter in terms of a volume price/mix if you were to compare it to last year? Where do you spend on pricing? And how would that translate into sales? That would be my first question.
Sure. Thanks for the questions. As we look into 2008, 2009, with the -- given the economic situation, what happened is there was a shift by consumers to mono pulp stores versus modern trade to lower accounts and to lower disbursements. They would go on a more frequent basis to buy, but make lower disbursement purchases. That is usually the case when the economy contracts. And what -- we adjusted, at that time, our portfolio, remember, we've got the advantage that we've got this multi-tier, multi-brand and multi-channel portfolio. And since we operate in every tier and in our most important businesses, we lead in every tier. We were able to adjust our portfolio to the needs -- to the particular needs of the consumers at that time. And that's exactly what we're focusing on right now. Looking at our portfolio and making sure that given the current conditions, we're offering consumers the best available product and pricing or the best available value overall at every tier and every channel. That has always served us well, and it's a strategy that we will continue to push hard. Now when it comes to volume, price and mix going forward, it's really hard to tell because, as I mentioned, we're at an earlier stage in this pandemic in Mexico. Authorities believe that the peak will come sometime in the middle of May. And right now, we're in the Phase 3 or when this is more contagious. So we really need to give this a little bit more time and figure out how long it takes for us to get through it, what the impact then is on the Mexican economy as a whole and particularly on the health of the consumer and what that means then for consumption going forward. So I wish I could give you a little bit more guidance, but it's really so uncertain, at this time, that it's very difficult for us to provide you guidance regarding volume, price and mix going forward.
Okay. Totally understandable. And then my last question on -- within the cost of financing, so you've mentioned that revaluation of the put, the kind of impact that on a year-over-year basis, your cost of financing, that was something that just appeared because of the value. You have to revalue it now on a quarterly basis? Was it just a 1Q thing? Or is that something that could have an impact in coming quarters as well? Just to understand the structure of the put and how the revaluation is basically tested.
Ben, this is Xavier. This is something we have to evaluate and value. I'd say, on a continuous basis. Of course, we wouldn't just adjust it for 1 quarter of good or bad results, we take a look at this. This is something that the exercised time is in the future. So we have time to go, look and see how the business is performing, and then bring that to present value. And that's how we adjust it. This is the first time we adjust it. If the business continues to perform very well at some time in the future, we would probably need to do this again.
Okay. Is there a dollar component within that? A U.S. dollar revenue or cost component within it that could impact the value of the put?
No.
We'll take our next question.
This is Luis Willard from GBM. First of all, congrats on the results, and especially on the initiatives you've put in place to aid this crisis. Always a fan of you guys out. And I just have one question. Can you tell us a little bit more, how have the relationships and the negotiations with retailers being traded so far, especially after the spike in March? I believe they might be getting tougher in terms of commercial commissions. So if this is the case, how the -- is more aggressive negotiation with retailers bid your strategy to improve working capital and profitability that you mentioned earlier?
Luis, I hope everything's going well. Thanks for the question. Look, we really have been focusing our work with retailers and making sure we've got our products at the shelf. And it's been very fluid. And they've been helping us, and we've been helping them to make sure the whole supply chain works well. And we can have, again, enough product for all the Mexican consumers at the shelves. We saw a very important peak back in the middle of March in terms of sales. Different from what, at least, we understand has happened in other countries, where there were several peaks as the phases of the pandemic were announced. Next, we really saw the peak right at the middle of March when it was the 15th of March or so. And then the volume stayed, not at a peak level, but at a sustained high level for the rest of March and early into April. So as that happened, some of the stores and some of the shelves did not have enough product. So really, our work, again, has been just focused on making sure we get enough product to the shelves. And that has been our priority with our clients, and that has been our clients' priority.
Other than that, as you know, some of our clients have mentioned they will put some products in a basic basket to make them a little bit more affordable and easier to get for consumers. And we are part of that and some of the products are part of that basket, and we've worked with our clients through that. But I wouldn't say that the negotiations have gotten any tougher or any more difficult for us at this time. We're really all working together to make sure the consumer has enough product at this time at the shelf.
We'll take our next question.
[ Pablo, Xavier ], just a follow-up on the competitive landscape. So not as for guidance, but as for what you are looking right now, if you can comment on the reaction you have seen from competitors in terms of pricing promotions, especially at these difficult conditions, both in terms of demand and currency.
And my second question would be a quick one. So when you comment on this that you are analyzing the pulp and paper costs and other costs, would this imply a shift or a major shift in the composition of pulp and recycled paper? If I'm not mistaken, around 6% of recycled paper is -- around 60% of your pulp and paper requirements is recycled paper. Would this change in the near-term or not really? That would be my questions.
Thanks for the questions. Look, we've seen so far no changes when it comes to the competitive landscape with respect to pricing or promotion. I think we are all, at this time, just trying to make sure we can supply the market with a product it needs. That has been the focus of every producer. And we, again, have seen no important changes at this time when it comes to pricing or promotional activity. In terms of the composition of pulp and recycled paper, sure, what we've seen, again, is a surge in the pricing of recycled paper, particularly in the U.S., given the impact that the supply has suffered. And that -- what we've done after we saw the surges, we're really taking a look at our -- the composition of all of our products and what we use in terms of virgin fiber, recycled and some other materials. And we will -- we're putting a strategy together to figure out what makes the more sense to make sure we continue to provide consumers with the best quality products, but hopefully, be able to lower costs as we mix -- as we ship the mix between pulp, recycled and the other components to make it more efficient.
[Operator Instructions] We'll take our next question.
This is Alan Alanis with Santander. I have a follow up to the previous question -- regarding the competitive environment. That has to do with private label. So I think then -- what we're doing with this crisis that we're facing certain private label is at a higher percentage of sales than in previous cases. How does the situation with private label should evolve in light of this crisis? That would be my first question. And my second question, very directly regarding, if you can expand a little bit more in terms of the types of products that you're increasing exports into the United States.
Sure. Thanks for the questions. Well, first, on private label, usually, when we have tough economic conditions, private label surges somewhat. And certainly, retailers, for a while now, have been saying that private label will be a focus of them. Having said that, as you know, for the most part, it represents lower percentages than it does in other parts of the world. And I think that has to do, particularly with the fact that many producers have products -- economy products that compete with private label and are very good quality products. In our case, particularly, again, we've got our multi-tier strategy. So we participate from the economy segment all the way to the premium and super premium segment, and try to offer the consumer the best product at every tier, including the economy tier. So as has always been the case, and that we'll continue to do this going forward, we will focus to make sure that we have a very, very good product in the tiers where private label participates. And hopefully, consumer will prefer our brands, and we'll be able to continue to grow nicely. When it comes to the export side, we've been -- it's really a mix of products that we did supply to our partner. Particularly, it has to do with -- we're supplying some charter products. Right now, we're supplying some bathroom tissue products and even some parent rolls. And we're talking to them to analyze additional opportunities in the professional business and others. So what has happened again is that we've been able to increase our share of the finished product sales on the export side to a partner, and that has helped us. And again, we continue to analyze different opportunities and are very, very positive, that we'll be able to capture some of that volume going forward. And when it comes to our other businesses, we are trying to expand the reach of the Escudo soap and of our Evenflo bottles through Central America and South America. And we're certainly making progress on that, not as quickly as we would like, but the progress has been pretty good. And we're very excited with the opportunities we see going forward.
That's very clear. And, I guess, with the depreciation of the peso, the opportunities for your exports to continue making share in the United States is pretty high. So congratulations on the results and the outlook.
We'll take our next question.
This is Nicolas Larrain from JPMorgan. I wanted to double click a bit on the trends, but more on the oil derivative side. How should we be looking at this? I just wanted to make sure that you see the same trends that we normally see on the oil price, especially what you normally see also on the oil derivatives. And also, could you remind us quickly on how is the -- what the maturities you need to pay the rest of this year and also early next year?
When it comes to oil and oil derivatives, which I understand is your first question, and if not, please let us know because it's -- your question did not come through very clear. But I think the first one has to do with oil, the derivatives. And really, what we're seeing there is we are starting to see the impact on the oil prices coming down on raw materials, of oil derivatives also coming down, but at a much lower scale at this point. There's always a lag between oil coming down and the oil derivatives really reflecting those reductions going forward. So we will, certainly be seeing, and we expect to be seeing oil derivatives come down further in the next quarter or so, given what has happened to oil prices. And can you repeat the second part of your question? Because, again, it didn't come out very clearly.
That was my first question. On the second one was mostly on the maturities. How -- I mean, what's the amount you need to pay during this year and also early 2021?
The amount -- for debt, there's -- it's around MXN 6 billion for the 2 years. This year is MXN 2.5 billion, Certificados Bursátiles. Next year is around MXN 3.5 billion. It's actually $200 million, but it's hedged. And the peso amount gets to around the MXN 3.5 billion that I mentioned. Again, in both cases, if I may add, as we mentioned, at the start of the call, in both cases, we have already identified opportunities to refinance those, and that we will be ready to act upon them when we feel the time is needed. So we're ready to move forward.
And we have no more questions in the queue at this time.
Well, thanks again, everyone, for participating in the call, and we hope you and your families stay safe and healthy, and look forward to talking to you in July. Thanks so much.
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.