CM Hospitalar S/A (VVEO3) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for holding. Welcome to Viveo's Fourth Quarter 2024 Earnings Release Video Conference. [Operator Instructions] We inform you that this video conference is being recorded and will be made available on the company's IR website, www.viveo.com.br/ir, where the complete material of our earnings announcement is available. You can also download the presentation in English. [Operator Instructions]  Please bear in mind that the information contained in this presentation and any statements that may be made during the video conference related to the business perspective, projections, and operational and financial goals of Viveo constitute beliefs and assumptions of the company management, as well as information currently available.  Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that overall economic conditions, market conditions, and other operating factors may affect the future performance of Viveo.  Today, we have the presence of Mr. Leonardo Byrro, the CEO of Viveo; Frederic Goldani, Vice President and Financial Administrator; and other Directors. I will now give the floor to Mr. Byrro, who will begin the presentation. You may proceed.

Well, good morning to everybody. Thank you for your presence at our conference for the earnings results of the fourth quarter and full year. I'm going to begin talking about our journey up to the present, referring to some strategic projects. I will give the floor to Frederic Goldani, and we are at your disposal for the questions.  We began our journey in 2017, building a unique, differentiated, and robust ecosystem in the health area. And our metrics increased sevenfold, at least, all the operational metrics increased sevenfold. We went from a business of distribution and medication to private hospitals. This is what we did in 2017 to a broader platform, expanding channel, service, and product portfolio, and creating a unique platform to add more value to customer delivery along the way. We had a great deal of organic growth, more than 15% a year, and many acquisitions, more than 25 acquisitions during the period.  Our last acquisition, NEVI, took place in May of 2023. From then onwards, we entered an agenda of integration and incorporation of the assets we had acquired. This agenda was intensified as of the second half of 2023. We have 18 incorporations of companies, systemic simplification in CRM, ERP, and several other company systems, and an evolution of our infrastructure systems and logistics processes, which is the core of our business.  We put together several operations throughout 2023 as well as in 2024. We know, and we knew it was fundamental for the sustainable growth of the company for the long term. We did a great deal in a very short period from the third quarter of 2023 until the end of 2024. But this construction was necessary for the long term to have an integrated sound company with the necessary controls we all want.  Well, what did we see in 2024 while we were working on this integration process? Now, in-house, we had accelerated growth much faster than we had in the initial 6 years. This is a process that we learned from. We're not the only ones who went through this, but things came out differently. The complexity of the integration of that large number of companies, several systems, and different dynamics, the need to evolve the visibility of indicators, policies, process control simultaneously as we were putting together operations and ending other complexity and operational challenges that did impact our results considerably in 2024 beyond what we had imagined.  Along with this, on the outside, the external scenario posed specific difficulties while we were dealing with internal difficulties, and fiscal changes brought about the vast need to readjust our logistics network and change our operational model while we were fostering all of the integrations. In the macro part, an increase in interest rate and an unfavorable macro scenario caused financial pressure on our balance.  And in the health sector, after the pandemic and after 2023, in '23 and '24, what we call the hangover of the health sector, with a deterioration in the working capital scenario, margins deteriorating in all of the links in the chain, and the search for efficiency. Several companies are working on integration after the expansion and acquisitions. And of course, this poses more outside challenges besides the internal challenges. Nevertheless, the year 2024 was fundamental to focus on operational indicators, carry out a clear diagnosis of the point of evolution, and the priorities we had to devote time to throughout 2024 and 2025. We learned a great deal. We learned from the failures during the process, and we are now ready to go into execution mode. This is what we did in 2024.  Between the third and fourth quarters, we began to execute each of these transformation fronts, and this is our agenda for 2025. We put aside the part of the growth diagnosis and much more. In 2025, it's all about execution and the evolution of our company throughout the year.  I would like to highlight some of these projects and the fronts that we ended in 2025, beginning in 2025, focusing on execution in operations, planning, and inventory. This is one of the fronts where operational integration showed us a lack of visibility and disconnection of some processes. This clearly impacted our working capital. So we have a process of planning, control, procurement, and inventory running since mid-2024, and we have begun to see some of the results of these new distribution centers. We carried out a large CapEx investment in the company in 2023 of BRL 300 million. In 2024, BRL 185 million reformulating all of our distribution centers. We have a highly streamlined infrastructure, one of the best in Brazil, and we have used WMS in all of our distribution centers since January of 2025. This will allow us more control and productivity throughout the year.  Evolution of our freight model. This was one of the main impacts on SG&A. And we're looking for an evolution of this model because of internal challenges and because we're reformulating the logistics network because of tax changes. Throughout this year, we will have a change in contracting and hiring of freight with new technologies, and we have integrated a freight partner. So we're seeking an enhancement in service levels and a reduction in our freight account, which is the highest account in SG&A.  Finally, the industrial consolidation. We invested heavily in 2023 and 2024 in a new plant for wet wipes. We began the integration of the 2 plants we acquired to begin in March. This migration ends in May. And from there onwards, we hope to have new gains in synergy. Once again, investments made in 2023, 2024, and we will harvest results in 2025. Now, to speak about our commercial changes, which are important because of our understanding of the business and the market dynamic changes we had throughout that period. We have a more austere policy. We're revising the contracts in the company and all the plant units. We're reviewing the contracts and eliminating contracts that don't have a minimum contribution. We bid on those contracts when the sector was undergoing important terms. Our reception terms were much too long, and we had compensation for those terms through accounts to pay. Some of them happened. Most of them did not materialize, and we're going to redress this in the year 2025 in the coming months with a significant reduction in lead times. We will have an offer of lead times for our customers that is very different from previous years. And we're sure that this will have an impact on accounts receivable in the coming months.  We have great clarity in terms of which businesses have a better ROIC, for example, in SUMA and units where we will focus more on future growth. We also have a more robust area in category management that understands the ROIC of each unit in each of our categories. Along with the commercial team, they offer recommendations and clear directions on where we are to grow. Expenses are another important agenda we acted on throughout 2024. We ended the diagnosis process and definition of the plan at the end of the third quarter, and we started executing this throughout the fourth quarter of '24. This will continue in the first half of this year.  Some of the changes are CSP and the reduction of back office and reduction of fixed expenses, a freight cost reduction, as I already mentioned, very important for SG&A and the closure of operations that although they had a very good evolution in 2024 and although we do believe in the long-term thesis, we decided to close them down to have an evolution of G&A. These are [indiscernible]. Working capital is doubtlessly a focus for 2025 accounts payable and inventory. At the end of 2023, we had high inventories, and we carried them throughout 2024.  We now have adjustments. We're financing our inventory, as you could see in 2024, 6 days of funding. Now, we had an imbalance of this throughout the year, but we worked significantly to adjust our stocks, reduce excesses, and renegotiate terms to once again have that funding. What still isn't what we would like it to be are our policies for accounts receivable and terms with the customers. We will focus on that process throughout the coming months, and we hope to see the benefits of all this as of the second half of the year, once again, adjusting accounts receivable.  Governance: We had important changes in 2024. New additions of independent members to the Board. They bring experience that is relevant to contribute to the other counselors on the Board, a change in the management model based on the rapid expansion to several different companies and many acquisitions. We used to have a decentralized management and oftentimes took the correct and important decisions, but we did not have visibility of the impact on the whole. We have changed the focus and the main processes in the company, but not all of them. We do preserve the necessary autonomy for businesses to run differently because of their different characteristics, but the main decisions have been centralized since 2024. This allows us to prioritize the whole and not the parts. And throughout 2024, we had an evolution of my direct team with the new people that came in. Along with the team we already have, they will take the company to another level.  Now it's important to show you the new structure, the new reporting team, my team at the company. I would also like to thank those who have left the company and had a fundamental role in building the ecosystem that has brought us so far. I wish them luck in their new challenges, and we welcome those who are now part of this leadership team.  The arrival of Luis at the end of 2023 for operations and the arrival of Fred in the second half of last year to lead not only the financial area but also the legal and M&A area, which report directly to me. I had 17 people reporting to me at the end of 2023. I now have 7. The arrival of Ricardo, who leads category, strategy, pricing, and market intelligence, and Nelson, more recently, who will lead the Insuma business, is very important in service rendering. This business has characteristics that differ from the others, and we have Nelson now to lead this, and the Vice President of Human Resources, and we continue to count on the leadership and experience of all the distribution businesses and Henan in retail and consumption products. So this is a team that has led the diagnostics, the understanding, and the definition of the action plan. We will execute this throughout 2025. We have the right foundation, a clear understanding, and the plan set forth to execute them during the year.  Now, with this, I would like to show you the initial results of the execution of the plan that began at the end of 2024's free cash generation. In 2023, we had a large cash burn of almost BRL 900 million. In 2024, we have cash generation of BRL 206 million and the beginning of the work on each of these projects. That will be our focus this year to include increase our cash generation, a reduction of 11 days compared to the fourth quarter '23 because of inventories and accounts to pay.  And we want to evolve more this year because of our accounts receivables and the new policies that have been put in place. Reduction of expenses that also took place during the fourth quarter general and administrative expenses dropping 12.5% vis-a-vis the previous year and the sequential improvement of EBITDA with a growth of practically 12% in the fourth quarter.  Alongside this, at the end of the year, we renegotiated the covenants of our debentures with mass support of our creditors without increasing the rate, guaranteeing the stability. We leave that process with the confidence that our creditors do believe in the operational plan we have put in place for 2025. With this, I give the floor to Fred to offer you the details of our financial results. Fred, you have the floor.

Well, thank you, Leonardo. I'm going to begin on Slide #11. First of all, speaking about nonrecurring adjustments of the fourth quarter. Now, all of these have had a nil impact on the company's cash, and they come from the changes we had in the management judgment.  First of all, regarding DFAL. DFAL is a topic that is well known in the sector, not only for medication but also the retail sectors, and based on the opinion of our advisers and regarding the forecast of the payment to the states, we came up with a provision of BRL 390 million between principal and interest rate. Of the BRL 390 million, the cash impact was BRL 38 million. These are the cases in which we decided to pay through installments. And, of course, once again, through payments in installments.  Despite this, we have also created a provision because we have some pending issues at the STB modulation. And so we have changed the forecast that we will follow in the near future. And there are some issues referring to some local issues, state by state. Of course, we are interested in recovering all of the values that are due to us. So this is more an accounting retressing and does not mean a significant cash disimbursement for the company.  Another 2 points I would like to highlight are the provision and the write-off of OLs. OLs are funds that we have in the pharmaceutical industry. We review the expectation of recovering all of the funds that we had recorded for the company. We remind you that we sold some incorporations, different systems, and different management model.  When we finish these incorporations, we put everything under the same management and control model. By applying the more reasonable rules for the recovery of these funds, we have now understood that this parcel has a very low probability of being recovered by the company. So we have written off those values, BRL 260 million.  Then we have several other factors that relate to M&As, the conciliation of acquisitions, the write-down of assets. We assess the recoverability of all of these. And we have BRL 350 million with a low probability of recovering this.  Now when we put all of this together, we're speaking of a write-down of approximately BRL 1 billion once again. And our cash is quite limited. These are nonrecurring events that help us to clean out the company balance, and we don't foresee additional adjustments going forward. All of the estimates that were carried out were done so in the fourth quarter of '24. 2025 should be a year free of these nonrecurring effects in the company.  Now, to continue on to Slide #12. I would like to speak about the financial highlights for the fourth quarter. First of all, our net revenue reached BRL 2.936 million, ending the year with BRL 11.5 million, a 4.5% growth vis-à-vis 2023.  Gross profit, BRL 386.4 million, with a margin of minus 8.2%, a contraction compared to last year, but stability in terms of what we have been presenting in the last quarters, because of a worsening of the mix that we mentioned and segments that are structurally working with lower figures.  At the end of the year, we stabilized the company's margins, and we should continue in this trajectory throughout 2025 to recover margins. Adjusted EBITDA, BRL 164 million in the quarter, totaling BRL 652 million for the year, with a margin of 5.6%. Our free cash flow, we ended the year with BRL 206 million of cash generation. Perhaps this is the most important change we had during the year because in '23, our cash consumption was approximately BRL 900 million.  Now, BRL 206 million is below our potential of normalized cash generation, but it shows the company has adopted measures in the right direction, and we should have a substantial cash flow during 2025. Our cash cycle we were 52 days in the fourth quarter. I will speak in more detail about the details of this, and finally, ROIC of 10.9% is still low. The minimum is 15%. This is what the company pursues, but we're on that path to recover ROIC in mid-year 2025. Now, to continue, I'll speak about the net revenue in our different segments. First of all, the hospital and clinic segment. It's worthwhile underscoring here the growth of high-cost drugs, specialties, and the reduction in the sale of some material, we had 4.3%. It is a segment that no longer has a focus on growth. Our focus presently is on profitability and releasing working capital. We began to make adjustments throughout the second half of 2024, but major adjustments will be made during 2025 as we renegotiate contracts in [indiscernible] between March and April, for example, and we will privilege operations with a higher ROIC. So it should be a year with a shy growth this year but with a substantial improvement in working capital indicators and gross margin.  Now, to speak about laboratories and vaccines. Now, this is the highlight of performance in the company, substantial growth throughout the year, it grew and it continued to grow, a 24% growth. Here, the dynamic is very important, happening, especially in vaccines associated with vaccines for adults. Now, historically, the vaccine department was focused on children. We have several launches in industry: Abrisio for bronchiolitis, Neumo, and dengue, and they have been leading the growth in the vaccine segment, and this should continue throughout the coming years. It's very important, and we have a sound position in that segment. That's a segment where we operate with healthy margins. But of course, there are opportunities to optimize the working capital that we will implement throughout 2024.  Now, the retail segment here, we had stability throughout the year, a slight contraction in the fourth quarter. We do have to highlight an important issue, which is the mix in categories such as tissues; we had a relevant change in the sales composition. We have increased sales in our private label at the detriment of direct sales through the channel. We also had significant growth in new categories and the expansion of the portfolio in several segments, and this is a segment that, throughout 2025, has a focus on recovering margins. It's a segment that should have a more timid growth throughout 2025, with significant improvement in gross profit and margins through the year.  Finally, the service category. This is a category that showed a very frustrating performance during 2024. We had several factors impacting this. Well, we had the impact of the flooding in Rio Grande do Sul, and this is a segment that is very important for dialysis, and of course, this extended throughout the second quarter and operated way below our expectations. In handling of chemotherapy, we had the loss of some contracts because some relevant customers decided to bring these services in-house, but we did have important changes, as Leo mentioned, we brought in a new VP focused on handlers with broad experience in the sector, and he should give a different dynamic to this segment throughout 2025.  Finally, we remark, as Leo mentioned, that we took the decision in December to discontinue Farme activities. We closed this operation in the first quarter of this year. Adjusted gross profit with a slight contraction vis-à-vis last year. But as we mentioned, we have maintained stable margins compared to previous quarters. For the year, we see a drop because of the performance of the year 2023, which was much stronger. But now, as we enter 2025, we have positive expectations for growth in gross profit and recovery of gross margin.  In the next slide, I'll speak about our adjusted expenses. We said that throughout the second half of last year, we spoke about the adjustment of the structure and the review of contracts, and we are already beginning to see some of these impacts in the fourth quarter. Not all, of course, the first quarter had important effects. The second quarter will have important effects, but there was a sequential drop of SG&A in the fourth quarter compared to the third quarter of '24, but we still have important milestones in expense reductions that we will incorporate in 2025. The freight, of course, is the main cause of expenses throughout the year. As Leo mentioned, we have a series of actions focused on improving freight efficiency in 2025.  We brought in-house one of our main freight partners, as well as having other initiatives, the use of systems. Now, freight is something we have to work on throughout the year. As Leo said, it is the highest expense we have, and we will have an enormous focus on optimizing that line item. Finally, the adjusted EBITDA of BRL 164 million in the first quarter. We had a sequential improvement vis-à-vis the third quarter. We already see some of the impacts of this, although they're shy, and they begin to point towards a different direction for EBITDA. With this, we end the year with BRL 652 million in EBITDA. And in the comparison with '23, we see a small drop, but when we look at the forecast, it is our understanding that the figures will improve beginning with the year 2025.  Very well. Let's go on to our financial results. We had a financial expense of around BRL 543 million, an increase of 9% vis-à-vis the previous year, very much aligned because of the increase in interest rates and because our financial cost is aligned with the CDI plus 1.6%. Now, the highest cost problem was the increase in the interest rate. When we bring together all of these effects, the results for the year 2024 are a net adjusted loss of BRL 90 million. On Slide #18, we'll speak about our free cash generation. Now, perhaps this is the main change that we can show you the direction of 2024 vis-a-vis 2023, a cash burn of approximately BRL 900 million, a generation of BRL 206 million for 2024, still below our structural generation, and it's worthwhile mentioning the effects that we mentioned, noncash effects in the company, and noncash items of BRL 1.25 billion. The adjustments, therefore, did not have a relevant impact on the company's cash, and a last comment that I would like to make is about the performance of our cash generation in the fourth quarter. There's a difference compared to the third quarter; given the negotiation of covenants we put in place, we had a lower level of anticipation of receivables than we had in 2023. This has an important effect in explaining the negative cash generation. There's also the issue of seasonality with all of the adjustments that we made in the management of working capital and in procurement. Historically, we have a suppliers' account that tends to be very favorable in the fourth quarter but negative in the first quarter. With the changes implemented in procurement management and working capital, this should become more normalized as of the first quarter of 2025. We should not have a negative effect on the suppliers' accounts as we used to have in the previous year. So the situation should be more stable throughout quarters vis-à-vis the previous years. So the fourth quarter here still has a significant impact because of the changes we had in working capital. Throughout 2025, you should see more adjusted figures and figures that are easier to understand compared to the previous years.  Now, finally, on Slide #19, we'll speak about the cash cycle. We do have a significant improvement in the cash cycle. We have reached 52 days. Now, the main highlight here is that we have an inventory that is moving towards appropriate levels of funding. We have a 6-day gap between inventory and suppliers. We still have room to enhance this difference. The inventory has the potential of falling below 60 days in 2024, and accounts payable should remain stable or perhaps increase somewhat vis-a-vis what we see presently. In accounts receivable, we have 59 days clean of anticipation of receivables. We stand at 53 days, and this does not include the impacts of the changes in term policy that we are implementing in 2025. So this is the account where we will have the largest variation throughout 2025, especially in the second half of the year, when all of the negotiations and terms will be changed, and we should run accounts receivable below 60 days. Very well, we go on to the next slide, our levels of indebtedness.  As Leo mentioned, we renegotiated the covenants in the fourth quarter. And in a temporary way, in the fourth quarter of '24 until the first half of 2026, we have covenants for the fourth quarter. We took the leverage level to 5x. We have a falling curve, and we need to go back to the previous levels of 3.5x only in June of 2026. At the end of the year, we had leverage at 4.3x. This period of renegotiation will be sufficient so that we end up implementing our adjustment plans and have the company leverage returning to previous levels. You'll see our amortization schedule at the bottom of the screen. We have BRL 500 million this year, and we will not need to raise capital this year. We can deal with these maturity dates with the volume we have in cash and with the cash generation we expect for the year. We will only have to raise funds again in 2026. Very well, these are the main points regarding the close of the year 2024. We will now go on to the Q&A session. Thank you very much for your attention.

[Operator Instructions] Our first question comes from Felipe Amancio from Itau BBA.

We have 2 questions at our end. The first is about the adjustments made during the half of the year. And please correct me if I'm wrong. In the presentation, you said these adjustments did not have a cash impact. Now in terms of DIFAL, which will be the disbursement of that amount? Will there be an impact of that in 2025?  The second question refers to the dynamics of hospital clinics. There was a lower growth of that BU in that quarter. And you spoke about a new policy for terms for customers, which will be the impact of that strategy on the growth of your revenue, thinking of 2025?

I'll answer the first question, and then Leo can answer the second part of the question. Regarding DFALL, the provision is for DFALL '22. This has been finalized. We still have some embargoes because of modulation. And, of course, we're holding discussions state by state. Once again, this is still at a very early phase of discussion. This is the more relevant point. We don't see any outcome for that volume in the short term. The volume are those BRL 38 million refer to 2021. We still have BRL 100 million for 2021 that may have a result an outcome in 2025. We will lose some. We will win others. We say 2021, those BRL 38 million that we lost, we gained important figures in some states like Sao Paulo as an example.  And even in the cases where we lose this, most of these states have a program for installments that is ongoing, and part of the debt would come back in installments with a diluted cash disbursement. Now, these installments that we carried out the highest, I believe, was in 35 years. Well, each state sets forth a specific condition, but we do not expect that DFALL will generate relevant disbursements throughout 2025.

Now, to answer your second question, Felipe, the sector continues to grow. And in our vision, it will grow with a lower double digit. There is growth even when we were faced with operational challenges and challenges in the DC, we were always able to grow because of our capillarity. Now, for the year 2025 for the company, our growth goal is quite small in that channel, hospitals and clinics, so that we can act on all of the operational processes that I mentioned previously and focus on the revision of working capital and our lead times for that channel. We will grow less, but in that lower growth, there is an exchange of businesses, contracts, and growth we will no longer pursue this year. And we have the base of results of last year. We're going to reduce our presence and sales in several businesses. At the same time, we're going to occupy that space with new sales that have a better working capital, ROIC, and margin dynamic. There will be a minor growth in the channel, but we're changing the sales profile significantly, and that will release working capital during the year and an enhancement of gross margin in the channel.

Our next question comes from Gustavo Tiseo from Bank of America.

We have 2. The first is a macro question, trying to understand what Viveo expects after all of these processes. And how can we look upon competition in this logic margins as well? Another point is cash generation. You spoke of an improvement of BRL 200 million in cash versus a loss of BRL 900 million in the previous year. Which is the company expectations? Will it be higher than that? You have also had the advance of receivables, BRL 750 million, if I'm not mistaken, minus BRL 500 million for 2024. Does that make sense? And are you going towards 0? Or will this anticipation of receivables be something frequent going forward?

Regarding the macro situation, what do we expect in terms of future competition? Because of our new execution discipline, we expect a higher gross margin, the release of cash and working capital, with the cycle improving in accounts receivable after the enhancement in inventory. In fact, we are going to push the queue for significant changes in the sector. For 2 years, the distribution sector has funded the growth of the sector, extending terms for the customers. We're no longer going to extend those terms. Now, based on that, we hope that the sector and competition itself can adjust its terms and rebalance something that became imbalanced in the last 2 years. We expect to grow with profitability with cash generation, recovering margins, and going back to our cycle throughout this year. Well, cash generation, although we had BRL 750 million during the year, that was very much at the beginning of the year, the open balance is of approximately BRL 160 million. If we add this to the cash flow of the company, an important part of that is that we have credit. We have some operations where we offer credit to liberal professionals using credit cards. We transform this into cash automatically. We will continue to do this with receivables at the same volumes we have done. But the deadline for this is very short. When I anticipate in December, I'm anticipating revenues for the first quarter. These anticipations change from one quarter to the other. It's not correct to imagine that the sum of the balance would be a high cash generation for 2025; we expect to have higher cash generation compared to 2024. The expectation is to generate sufficient cash to tackle all of this. That's the expectation of management for cash generation this year. And I think it's feasible to attain this even with the interest rate that we are facing presently.

The next question comes from [ Jean Seskin ] from BTG Pactual.

We have a single question. I'm asking about your disinvestment agenda and if this is a priority agenda for the turnaround of the company. And how much time does this take in terms of the executive agenda?

Yes, we are discussing potential disinvestments. Our operational plan was presented in the presence of all creditors. We want to resume our level that is within the leverage level of the company. This does not contemplate disinvestment. Operationally, we would not need these investments until the end of the year. But we're always open to opportunities, things that did not have the strategic fit we imagined in the ecosystem. We had several movements, several expansions. Some had the right fit. Others, of course, did not. So we're open to good opportunities, but they're not part of our execution plan. We're going to work with the initiatives that I described here. This is my focus, the focus of my team. Most of our time is devoted to assessing opportunities that may arise.

Our next question comes from Leandro Bastos from Citi.

We have 2 questions. The first is about cash generation. I'd like to hear a reference on seasonality. Historically, the company has a first quarter that is more intense in consumption. But you said that suppliers will work in a more stable way. Now, I'm asking about cash for the first quarter. What can we imagine? The second question, the freight efficiency, you have reiterated important plans for the year. Now, what is the timing for those enhancements, and what is the magnitude we can expect this year?

Very well, let me speak about cash flow first. In the first quarter, we're going to continue to consume working capital because, in March, we have that change of [ CME ]. It's a period of distortion. We have a change of pricing, and there's a normal anticipation of purchases. This will not change. In the first quarter, I always have a higher accounts receivable to deal with that dynamic. What will change, we had consumption of working capital in the account of suppliers normally. This will no longer happen. This account will be more stable. In previous years, we had a strong consumption of working capital. It should now be normalized. Now, that impact of increases should perhaps lead to a somewhat negative cash in the first half of the year, offset by the cash generation in the second quarter because we're normalizing working capital with the sales of March that tend to be stronger. In the first quarter, the cash generation was quite different from what we saw in the first quarter of 2024. This will tend to be the normal seasonality for the business. After the second quarter, the effects become normalized. A high consumption of working capital in the first quarter because of CME and normalization in the other quarters of the year. Now, regarding the freight efficiency, we do have a schedule for everything we're doing. We began in the fourth quarter with back office, CSC, general and administrative expenses, where we have already had a drop now bringing together the fixed operations of distribution centers with a reduction in cost, along with this, the closing of some operations like [ Farme ] that reduced our expenses in the first quarter. And freight efficiency will begin in the second quarter. We will see a greater capture of all of this throughout the year and the first quarter of next year. It begins now. We will go all the way to the third and fourth quarter in terms of magnitude, a reduction of 10% to 15%. The full benefit of this, we should see in the first half of the coming year, and we will begin to see this in the second half of this year.

The question-and-answer session ends here. We would now like to return the floor for the closing remarks of the company.

Once again, we would like to thank all of you for your attendance, your participation, and your questions. And we reinforce the confidence in the plan we designed in 2024. We are initially capturing some of the results, but we will have sequential results improving throughout the year, and the team will be fully focused on execution. Myself, Fred and the entire team continue at your entire disposal. Have a good Friday.

Now the video conference for earnings results for the fourth quarter of 2024 ends here. The IR department is at your disposal to answer any other questions you may have. We thank all of the attendance, and have a very good day.