Empreendimentos Pague Menos S.A. (PGMN3) Earnings Call Transcript & Summary

[Interpreted] Ladies and gentlemen, welcome to Pague Menos' conference call to discuss the results of quarter 4, 2024. This conference call is being recorded, and the replay will be available at the company's IR website, ri.paguemenos.com.br, where the presentation will also be available for download. [Operator Instructions] Before proceeding, let me mention that any forward-looking statements made during this conference call are based on the beliefs and assumptions of Pague Menos' management and information available to the company. These forward-looking statements may involve risks and uncertainties since they refer to future events and, therefore, depend on circumstances that may or may not occur. Investors, analysts, and journalists should consider that events relative to the macroeconomic environment, industry factors, and other factors may lead to results that differ materially from those expressed in such forward-looking statements. Today, we have with us Mr. Jonas Marques, CEO; and Luiz Novais, CFO and IR Director. Now I would like to hand the conference over to Mr. Jonas Marques to start the company's presentation. Mr. Marques, you may proceed.

[Interpreted] Good morning, everyone. Good morning, our more than 26,000 employees, our shareholders, our friends, and all of you who are listening to us today and thinking about starting to invest in the Pague Menos chain of pharmacies. We are the only chain of drug stores present in the entire Brazilian territory and the federal district with the Pague Menos banner in the four corners of Brazil. Today is a day of great joy because of the question we're asking ourselves in our results publication last year, the question we ask is how long does time have? This question echoed in our minds when we looked at the wonderful results we are delivering now. Delivery is a very important factor. And hearing this at the beginning of the year from all our stakeholders and employees, the numbers follow behaviors. Now talking about behaviors, I would also like to thank my family, Matteus, Mariana, Margaret, and Pedro, wherever you are, for all this energy that you bring to us so that we can wake up every morning and turn our purpose into reality, which is bringing health with joy and love to all Brazilians. Also, I'd like to greet to families of all our employees. Now, let's look at the year 2024. This was a record-breaking year, and we saw records in all the factors I will present. You're going to see the quality of the growth that we had. We are always asked how did you get such good results in such a short time. But the speed of a company is the speed of its people. When your people are heard, when you carefully listen to them and take care of them, they can really transfer all this love to the company's customers. I also reinforce our commitment to equity, diversity, and inclusion. We are a company made of people, people who love people. We love people. So everything that I'm going to present to you now, please try to infer what is the behavior behind these numbers. And I'm going to start with a brief recap of last year. Last year, we returned to the basics. And this was done in a very quick way. So first, we started with diagnosis. We first listened to our people. So we formed groups of 5 people, and we listened to them. What do you love about this company? What would you change about this company? What don't you like about this company? And how can you put into one word your ambitions, what you wish for this company, and the words that we heard the most were change and hope. So, our people wanted us to really capitalize on our strength. Having workshops with the leadership, with the families of our employees, understanding what their non-negotiables, and finding correlation patterns. Correlation patterns are very powerful because they clearly show what our work plan should look like. Also, our management model, the formation of an executive team, changes in attitudes and behavior, and creating focus. I think the role of a CEO is to create purpose and our purpose is to bring health with love to all Brazilians. So we have to listen to people, particularly our team because the match is always won by a team. The match is won by saying yes, not saying no. So you're going to listen during my presentation about the operational changes that we made. And it's not enough to just deliver results. As I said, how long does this time have? So it's the quality of your time, the time of opportunity; you can really change the game and grow even if the market is at a loss if you have a strong team and the right priorities. But you can't neglect the future. So, we accelerated our strategy; we stopped for 3 months, October, November, and December, to revise our strategy. You're going to hear a few things, particularly in our Investor Day this year that we're going to hold in May. We're just giving you a teaser for our Investors Day. We have a few priorities to focus on in the next 5 to 7 years. In 2031, on May 19, we're going to celebrate our 50th anniversary, and we are focused on our perpetuity. But the perpetuity also depends on the short term. So this is a repercussion of our Black Friday campaign. Our customers were enchanted by our offers. They were enchanted by the way we ensured execution in our 1,700 stores. And why? Because we are working every day, we're striving so that all our customers have the same experience in our stores every day. Now, moving forward, this is the reason for the greatest pride; which is our team. And here, I would like to give them a name and last name. So ahead, hunters, please don't write this down because these people will not accept your job offers. But Renato, Novais, Rosie, Carlos, Robledo and Wallace. This is the dream team. And it is through this dream team that I'm also naming each of our 26,000 employees. Our work is egoless. We are not focused on hierarchy. The people making the decisions are the most prepared to do that at the right time. So simple people, extraordinary missions. I have had the opportunity to travel around all the states in Brazil more than once; for example, this year, in 2025, we have already visited 13 cities in 10 states and giving an active role to store managers, understanding what is the customer paying and how customers can feel more connected with us, this is priceless. And when we can show that we're listening to people, these people are empowered and feel they own the issues. So there are three factors here. We have a mission as a company. We have an obsession for the front line and an owner's mindset, acting as an entrepreneur. Jonas, you already talked a lot about behaviors, you may say. Let's look at strategic pillars in our numbers. So to give you some color, we have been achieving our sales and all the projected numbers in all our mature stores, all the stores that we opened after our IPO. We are serving 21 million active customers, and these are continuous-care customers, customers that have holometabolic syndrome, diabetes, and hypertension. These customers need differentiated care. And why are we growing? You're going to see the numbers of our growth because we are attracting new customers. We are enchanting new customers. Customers who are coming back. They're coming back because they like our company. We grew more than 5% of the number of customers now being serviced by us again. This led to 16.6% of our sales coming from omnichannel channels and 10% of our customers already using our omnichannel experience. Our strategic proposal started in 2016, and we have serviced more than 6 million customers, bringing basic health care to the population. We are a country where more than 75% of the people do not have access to private health care or health plans. Let's look at the numbers that were driven by these behaviors. We had a quarter 4 that had record numbers with a gross revenue of BRL 6.6 billion and a growth of 17.4% versus last year. The same-store sales grew by 17.1%. If you look at the growth of our mature stores, we grew 3x more than our competition. So this is really strong. These are really strong numbers. It's very easy to grow just by opening stores, but look at our same-store sales and look at the healthiness and the soundness of the assets that we already have. Gross profit was BRL 1.1 billion, a 19.5% growth year-over-year. So 0.5 percentage point increase in our gross margin. This is very powerful. And our EBITDA, BRL 164 million, a 0.5 percentage point increase. And here, I'm very humble when I say, if you didn't believe us when we decided to acquire Extrafarma and we had an EBITDA which was not meeting your expectations, we are now closing this gap. And you can ask me now, do you still have further opportunities? Of course, we do. And why? Because I can't tell you because I can't -- I would have to talk about results that are not considered in this pool. But we have the mission and the commitment with you to continue to close this gap. We still have a lot to close in this gap. You're going to hear Novais talking about the average life cycle per store. We accelerated the gap that we had -- and we will continue doing what we're doing because we believe in the strength of market share. If you look, we had 6.5% increase in our national market share. We gained 35 basis points in our market share. And if you look at the quality of this market share, as I'm going to show you later, it grew in all regions of Brazil. Extra synergies with Extrafarma, we consolidated as a market consolidator. We know how to do M&A. If you ask a question, are you thinking of further companies to buy? The purchase of Extrafarma was something singular. This is not the focus. We want to focus on the basics and focus on organizational expansion. But about Extrafarma, we have captured BRL 267 million have been added to our EBITDA on an annualized basis. And finally, our net income, our net income in the end of 2023 was BRL 14 million, and now it was BRL 152 million, which proves that we're not growing percentage, we are growing in fold. So this result, I dedicate to all our employees and all our clients who believed us and returned to our stores and gave us the possibility of trialing us again, the love and joy that only Pague Menos can bring to the customers. Now let's look at the numbers, Luiz, because we need to better understand these numbers, and Luiz Novais is going to present them to you.

[Interpreted] Thank you, Jonas. Good morning, everyone. Good morning. So we will now go over Slide #10. We have more information about all the good news that were announced by Jonas in the start of this presentation. As he said, we really finished the year on a very high note. So quarter 4 really finished the work that we -- the good work that we did quarter after quarter with very sustainable growth. On Chart #10, we see our sales performance. The total growth of quarter 4 was 17.4%. It's beautiful to see this chart. So from the quarter 4 2023, we see constant growth, growth after growth. Black Friday in quarter 4 helped us boost these results with very good execution with a lot of successful commercial campaigns and very good execution at our stores. So this was a very important quarter for us. The growth in Black Friday at the end of the year was 40% compared with Black Friday in the previous year in 2023. So this was a very important result for us. And in 2024, the total result was 13.5%, the highest growth rate we had in the past 10 years. This is all due to a lot of operational work and good execution at our stores, good quality of our service, digital channels, and all the CRM actions that have been put in place. And on the right side, one of the main pieces of news from quarter 4 is that this growth is based on our service volume. So we have a customer base that is ever-increasing. So 7.3% of this growth comes from new customers, customers that are now frequenting our stores. And we are very hopeful these customers will stay with us and that this will sustain the future growth of the company. And also the average ticket increased 7.6%, highly above inflation increase. So the shopping cart is also increasing in volume. So very sound structural growth, which makes us very excited for the coming quarters. And the third chart here, there's a very important information that you heard from Jonas. The growth in our mature stores was 16.4%, 3.6% inflation rate of the period. So very strong results, exceptional results for a quarter. On the next chart, Chart #11, we see our performance by banner. Same-store sales, total same-store sales growth was 17.1%, Pague Menos 16.5%, and the stores coming from the acquisition of Extrafarma, 19.8%. Of these 350 stores that we have coming from the Extrafarma acquisition, those have been converted grew nearly 30% and the not yet converted stores close to 15%. So the stores that were previously Pague Menos had an important acceleration compared with quarter 3 last year. So we went from 12.6% same-store sales to 16.5%, a very strong evolution. And also in Extrafarma, we see an acceleration. And on the right side, the average sales per store in quarter 3 '22, it was close to BRL 460,000 and now BRL 620,000 average per month per store, very strong evolution. Converted stores have an even higher income level, BRL 632,000 per month per store. Converted stores are growing more than 50% since the acquisition. And the average sales in Pague Menos are nearly BRL 160 000 per store per month, and we had the smallest gap between the 2 portfolios, 18%, and it was nearly 30% in the beginning. On Chart #12, we have an excellent piece of news, our market share. Even with a few openings, only 30 new openings in the year, we are in our fifth consecutive quarter of market share increase, particularly in the Northeast, we have reached 20.7%, nearly 21%, a growth of 82 bps in the region and 35 bps in Brazil. On the right, we see the curve of our market share growth, very positive starting in the second quarter 2023. This means we're extracting a lot of value from our store portfolio. The 1,650 stores, and this is what we see in our next slide. When we compare the average sales per store between Grupo Pague Menos and independent associations and networks, we have a much stronger growth in all regions of Brazil compared with all the other players in the market. Here, we give important highlights to the Southeast, where we grew 27%, our average sales per store, and the other peers here had a growth of about 10%, 11%. So very strong growth rates. And on the next chart, we see the components of this growth. As I said in the beginning, our growth is very much based on service volume and price and mix. So on the first column, we see in the IQVIA measurement of the market, 12.7% growth. And in the second column, the Pague Menos Group grew 16.1%, so on the first column here, we see the lighter blue that shows the new store component. So the market had a growth of 5.8% and for us, only 1.6%. But on the other hand, the customer base, which is volume, the intermediate blue, we grew nearly 8%, while the market grew 2.7%. So it was nearly 3x the growth volume when we compare Pague Menos with the rest of the market. We also had a growth in our mix, as we heard in the beginning of this presentation. That's why we're so excited and happy to share this information with you because this is structural sustainable growth for us. On the next chart, on Page 15, our gross profit and margin, we grew 50 bps compared year-over-year and 10 bps comparing year-over-year. And the main promoters of our gross margin and reduction of our stock losses. So we have neutralized the effect of our imbalance stock that we had from Extrafarma when we received the company 2 years ago. So we finished the year at a much better level, much closer to normal. And we still have a lot of opportunities to capture this in 2025, also commercial agreements, all the campaigns, Black Friday also helped improve our margin at the end of the year. We have some pressure of the mix effect, but this pressure comes from a positive event, which is the fact that we're growing the most important category in pharmacies, which is prescription drugs. So we grew 23% in this category, the core category of pharmacy, which is very sensible to execution and quality of your customer service. So this is a very important sign of our operational improvements. That's why we grew 23% in this category, and it puts some pressure on the margin because the margin is smaller than other categories. So we had growth in 12 of the 13 therapeutic classes where we offer drugs. On Page 16, we see our selling expenses. We also have good news here. In selling expenses, we diluted 50 bps compared with quarter 4 last year and 70 bps compared with the full year. So basically, the sales evolution with very good control of our expenses. So we're growing our sales much more than our expenses. So we're gaining operational leverage and the synergies of Extrafarma are also contributing greatly to diluting our expenses. In administrative expenses, we have some one-off pressure at the end of the year. We had been provisioning for variable compensation. But in the end of the year, we exceeded greatly all our targets, although we had some pressure from these provisions in the end of the year. And also in the end of the year, we hired a strategic consulting service and we carried out an important revision for the company to continue to build our future. So we finished the year in our administrative expenses at the same level we had in 2023, 2.7%. On Chart #17 on Page 17, our adjusted EBITDA grew 32% in our 2 metrics, both in the quarter-over-quarter comparison and year-over-year. And we had an increase of 50 bps in our EBITDA margin. So we are in our fourth consecutive quarter of EBITDA growth. So we finished the year '24 and the quarter with 4.6% margin, a very healthy and sound combination of growth and sales and expense dilution. And in the results of the full year 2024, we don't have the annualized effect of the capture of the synergies from Extrafarma. We finished the year with an Extrafarma margin of 5%, 6%. So if we annualize the effect in the year 2024, the EBITDA margin would be even higher than it was than the 4.6%. So there's a lot of room to improve further. And this chapter of Extrafarma, I'm going to tell this story now in the next 3 slides in more details, which is a story that makes us very proud. So the integration plan has been completed. We have 4-year projects. We started this project in May 2021 when we signed the contract with the Ultra Group. It was 1.5 years of discussion with the competition authority, approval of the project and 2.5 years of integration. The integration process, as you know, was very complex. It was a company with 400 stores with a turnover of BRL 2 billion. So it was very complex migration of the systems, organizational structure, logistics system, which we executed brilliantly in our opinion, which resulted in a very important operational convergence between the Pague Menos and Extrafarma stores. We improved the assortment of the Extrafarma stores, increasing stockout, we captured benefits with the margin and all the other operating components in the Extrafarma stores. And on the right, we have the assets turnaround. So we go from an average sales per store of BRL 468,000 to BRL 620,000 per store. So we still have room to improve. You remember the average sales per store of Pague Menos is BRL 756. So there's still room to improve to increase the average sales per store for Extrafarma and the contribution margin went from 3.2% to 7.3%. So 4 percentage point growth in 2 years. So this is a very complete and very effective turnaround. On Chart 19, we have more information about the synergies captured. We had BRL 267 million above the range that was published by us. We started this capture in August 2022. In the first year, we were above range. Then in the end of '23, start of '24, we were within range, but closer to the bottom. But then we really accelerated this work with the sales capture levers. So banner migrations and all the actions to operationally improve execution in our stores to further contribute to the sales really helped us capture this volume of BRL 267 million. And on the right, we see the impact on the P&L for Pague Menos and Extrafarma and corporate and also here the breakdown by lever in the groups and everything that we captured. And on the next page, -- just to finish about Extrafarma, we have a strategic rationale. As you heard from Jonas in the beginning, we were questioned whether this was a good decision for the company. But we think these results are undisputable, and we truly believe that this was an excellent decision for the company, both financially and strategically. Financially speaking, this incremental EBITDA that was captured on an annualized basis is 2.6x the price paid by the company with a tier superior to the organic expansion and a very important operational scale gain. And strategically speaking, we reinforced our leadership in the North and Northeast. We improve our capillarity to be able to reinforce our digital and health hub strategies, and we open a new path for growth. So in addition to organic expansion, we also have the capability to integrate companies, which is not trivial at all. I'm very happy to share with you these results and these milestones the company achieved. And we're always going to -- we're also going to give more information about this in our Investor Day in May. So this is our net result for quarter 4. We finished the year with BRL 77 million net profit -- net income and in 2024, BRL 152 million in net income, which is a 1.1% increase. We also grew in our 2 operational components, both sales and margins. So we continue to be very focused on our operational efficiency and deleveraging of the company to get even better margins and even better results in the coming quarters. Now about our cash cycle and indebtedness, the cash cycle on chart -- on Page 22, we finished the year at 48 days, 7 days fewer than in 2023. The main driver here was stock control and average stock time. We reduced 4 days compared with quarter 4 '23 and 14 days compared to quarter 4 '22 when we were at the peak of the logistic integration with Extrafarma. And we still have room to improve. As we see in the end of 2020, for example, at the time, we had a stock level that was even lower. So this year, we're also going to focus on being more assertive in our average stock time. We had a one-off increase in anticipations at the end of the year. In the end of the year, we have an additional need for working capital, which is seasonal and expected. So for a greater need for cash disbursement in the end of the year. But we continue to focus on reducing our excess stocks, adjusting our assortment, and improving our logistics system. And next year, we're going to have a new distribution center to further improve our cash cycle efficiency. On Page 23, our indebtedness, we delivered our commitment on reducing our leverage. We finished the year with 1.97x the banking debt compared with the EBITDA. And with the anticipations of payables that we had from previous years, we finished the year with 2.81x. So comparing this composition of debt plus anticipations and Extrafarma installments compared with the end of 2023, we reduced 1.5x our EBITDA when going from 4.3 to 2.8x. It is a very significant reduction, and we continue to focus on reducing our leverage and this -- our projection for the end of '25 is to finish the year at an even lower level. On Page 24, we have a bridge of our net debt. We finished the year with the banking debt at the same level of the previous year, and we are showing here that the components of the free cash flow were sufficient to pay our debt and the last installment for Extrafarma. So the debt profile is very healthy, 70% in the long term, and with the reduction of our spread in '24 compared to previous years in terms of the cost of debt. Now on Page 25, we see our ROIC development. So with all the capital reduction, we finished the year at 19.2%, a 5.3% increase compared to '23, a perfect evolution between reduction of employed capital. And finally, I have excellent news, very important news. If we look at the year 2019, which was the year immediate previous to our IPO, the company has doubled in size. We go from a revenue of BRL 6.8 million to BRL 13.6 million, the EBITDA, BRL 259 million to BRL 628 million and our operational cash flow grew more than 3x in 2024. It was a record-breaking year in terms of operating cash generation. And all these results, we did not include the annualized Extrafarma capture. So we started the year at an intermediate level of capture of our synergies, and we finished very strong. And if we annualize the effects of Extrafarma, we have even stronger results. So this is the end of my part of the presentation. And now I hand it over to Jonas to talk about the future. Jonas?

Thank you, Novais. I think you can understand the excitement and the level of motivation we come here and present these results. These results really make us very proud and humble and grateful. Most importantly, we're grateful. We learn every day here with Deusmar, our visionary founder, and he talks about being thankful to God. So in respect of all the other relations, I'd also like to thank God. We always thank God because this is not something trivial at all. So it is the fourth quarter that we deliver our results. So please, if you watch the call of quarter 2, 3, and 4 last year, this is the fourth time we deliver the results expected for the quarter. We also delivered the leveraging the way we promised under 2, so 1.97, as you heard from Novais. And on February 28, we paid interest over our own capital, 7%. So in this situation that we have now in Brazil, paying 7% of interest over our own capital to our investors is a reason for pride. And it is the third consecutive year that we make this payment. So look at what we're doing, look at our behaviors and the numbers we're delivering. We're very proud. But as I said, we're also very humble. Now you may be wondering, so what happens now? What are you going to do after a record-breaking number, and it's not just for our market, but in retail as a whole. So let me give you some prospects for 2025. 2025, but will continue and never will change is our focus on our people. On the left, you see we're going to really potentiate the organizational culture. We were not born yesterday. We were a 43-year-old company, beautiful, brilliant work that is going to celebrate 44 years in May this year. We're getting close to our 50th anniversary, working on our perpetuity on the organizational culture, which has always been one of our pillars. 70% of our pharmacists received grants to study grants paid by the company, and we are people who take care of people. So how do we recruit, how do we hire? How do we receive our new employees so that they can really serve people according to our mission and our culture from day 1? So all these processes with the help of Rosen, our HR team, we have been reviewing our HR processes because our main asset is our people. And we are also revising our commission -- the commission policy that we have for our sellers, because we really need them, of course, they need to love what they do, but they also need to be rewarded and recognized for their results. So in the center, we have our operational improvements. So focusing on doing the basics right. I am obsessed with execution. I visit our stores every day, and I can assure you that it's not just me, it's our entire team. We really love visiting our stores because things need to work properly every day in all our stores for all our customers. Today, I went to our store here in Largo da Batata, close to Faria Lima here in the city of Sao Paulo to say hello to our employees, to buy a few things, and to see what the environment was like inside our stores. So I also invite you to be a golden customer, come and look at our stores, what you see in our numbers and our behaviors, you also see happening inside our stores. We will continue our financial deleverage with very strict expense control. We are changing the way we work. We know about the macroeconomic factors, but we are focusing on what we can control. Our main competitors are ourselves. So we really focused on controlling our expenses. On the right, you see that we are gradually expanding, very responsibly expanding because we have a proven model. Our model really works. You see the results of our stores, the maturation of our stores. We are delivering results above expected, and we want to continue opening new stores in a responsible way. And have you converted all the stores, you may ask me, no. We have a detailed study because we made mistakes in the past. When you make mistakes, you learn. So we have very clear guidelines where we need to convert and where we should not convert. We are now converting another 20 stores and the strategic review that I already talked about. I'm not going to go into details. I even had a more detailed chart, but I removed it from the presentation so that we can have time to talk to you on our Investor Day. So I invite you all to come and we're going to send you to save the date shortly. So thank you. I think now we can open for questions.

[Interpreted] [Operator Instructions] Our first question is from [ Talis Cronio from Safra ].

[Interpreted] Congratulations on your results. I'd like to further explore your sales performance in the beginning of this year. You have a strong basis due to the dengue outbreak last year. So should we expect growth in sales? Will it accelerate or slow down? So what do you expect based on January and February this year?

[Interpreted] Thank you for your question Talis, we can't really give you a lot of information about the results of the start of 2025. You're right. In the start of 2025, we had the effect of the dengue outbreak. What I can tell you is that our results are still very strong, very solid. Our execution, our store execution team, and our commercial team, they have been carrying out a lot of commercial campaigns, the quality of our service and store operation, our stockouts are lower. In all our digital channels, we're seeing great evolution. So all the levers are working towards a very healthy increase in our sales. So we're very happy with the start of 2025, Talis.

[Interpreted] Talis, thank you for your question. And Novais is always keeping me compliant here. So I have to pay attention to what I say, but results are very positive. We see that in the market, there are some complaints about competitors asking us what will your sales look like. But what I can tell you, I can reinforce what Novais said. Sales are very positive in the start of the year. I can't really give you numbers, but what I can tell you is that we are seeing the strength of positive inertia. You should never be compliant. You should never be totally satisfied, and you have to work hard. Novais used the word hard work. Yes, a lot of hard work. Last year, we never stopped during Carnival, Christmas, New Year's. As you know, retail can be very intense. And when you have a crisis, when you have difficulties, that's where you have the greatest opportunities because if you execute well and if you have a strong growth, it's easier to maintain growth if you already have the momentum, then recover after you lose it. So if you look at the third, fourth quarter last year, we see acceleration. So we're working hard. We're really striving so that in the first call this year, we can also give you some very good news.

[Interpreted] The next question is from Vitor Fuziharo, Santander.

[Interpreted] Congratulations for the year 2024. My first question is about the integration with Extrafarma. I want to better understand why this expected improvement of sales in Extrafarma stores? Is it more related with the conversion of the banners? Or are there other factors that we should have in mind? And profitability, do you believe that in 2 or 3 years, you should have some leveling in the profitability between the 2 banners? And my second question is about your capital allocation. You have been talking about resuming your expansion plan. So I would like to hear from you. What about continuity of your deleverage process?

[Interpreted] Thank you, Vitor, for your questions. About the integration of Extrafarma, fortunately, I think all the elements really conspired favorably, contributing to better results for the entire company. But if I can highlight one factor that probably was the greatest contributor, particularly in the beginning, it was the assortment and leveling of commercial conditions. This really helped us bring our EBITDA margin to a better level. Also, we carried out a lot of complex work integrating the administrative area, all the systems, and the organizational structure, and this led to very important savings in general G&A expenses. But in sales itself, assortment and supply was the main lever. And store operation also was really helpful. All the work that was done to improve the quality of our store service. And this is very clear when we look at our NPS and the evolution of product categories inside our stores. So all the elements were really favorable. But the most important, for example, when we compare the share of our digital channel, which went from 2% to nearly 13%, and the share of our private brands, which went from 2% to 7%. So all these elements where we still have room to grow and something that we had already seen when we decided to acquire Extrafarma, all of them were met, were fulfilled. And the contribution margin, we still have room to improve. The contribution margin of Extrafarma is about 7.3% now. Pague Menos is 7.7%. So we still have room to improve and the average sales where we are at a level of 620 for Pague Menos 756, we still have a lot of room to grow. We can talk about another 20% potential growth if we look at these numbers. So we're very positive about what we have already achieved in the first 2.5 years, but we converted only 125 stores to Pague Menos, the Pague Menos brand. We have another 250 stores. We still have the 5 the Extrafarma banner, and we are testing a potential conversion, and we still have a lot of potential to improve the profitability of this group of stores. Now in respect to our indebtedness and expansion, as you also heard from Jonas, we're going to be very careful in resuming our expansion. We will open more than 50 stores like we gave guidance for 2025. And this will not any way offend our focus in continuing to reduce the company's leverage. So cash generation is very strong and increase in our operational results will be more than enough to finance the opening of 50 new stores and all the other elements of working capital management of the company, we also have room to improve, particularly in stock management. So we are working with these 2 components at the same time, and we should end 2025 at lower debt levels than how we finished 2024. Vitor, of course, Novais is in a better position to answer about Extrafarma because I only lived through half of the integration period. But there's something soft here that I want to really make clear, which is our culture. We have -- we see very few M&As. I have more than 30 years -- a career of more than 30 years, and we -- I have seen very few M&As that have been so successful. And between Pague Menos and Extrafarma, we really manage this successfully in a very humane manner. this adaptation. We don't want people to say, I used to be Pague Menos, I used to be Extrafarma. So this is something that it's hard to be translated into numbers and to really understand what is the impact of the soft aspect of the integration, but it certainly contributed to the capture of value. And I really agree with Novais that we still have a lot to capture in the future looking forward, and you're going to hear us talking about that in the upcoming quarters.

[Interpreted] Just one last question about something that was published today that the government is trying to put a cap in the maximum price of drugs. Will this have a relevant impact for you?

[Interpreted] Well, this is not yet something concrete. There's nothing concrete about this. We talked about Abrafarma. We don't have any concrete positioning. We think this law is very well established, and we will wait and see. But of course, this will not harm a chain of pharmacies like ours because we already have prices that are much below the PMC, and we have scale to offer the lowest prices to consumers. That's why we are called Pague Menos or Payless, right? But that would harm the smaller pharmacies. If you -- I had the privilege of looking -- of working and living in other countries and the Brazilian system with more than 90,000 pharmacies, it offers a very important coverage that will support the public health care system. So if this is really discussed and if it's not just a speculation, this would only harm the smaller independent pharmacies. Thank you.

[Interpreted] The next question is from [ Kelvin Daci with Itau BBA ].

[Interpreted] I have 2 questions. The first question, we want to better understand the disruptive dynamics. You had a very relevant market share gain in the Northeast. So the question is who you're getting this share from? And what is the expectation in terms of the continuity of this increasing market share in 2025? And my second question is about your HPC dynamics. We see some other peers talking about slower growth in this category, and we have some marketplaces be very vocal about increasing their focus on this segment. So how are you seeing this competition in online? And do you -- are you foreseeing a more difficult environment due to marketplaces?

[Interpreted] Thank you, Kelvin, for your question. Well, about competition in the different regions and the average competition environment -- competitive environment. On Slide #13, we talk about our comparison with independents, associations, and chains. And Kelvin, I can tell you that, fortunately, since our commercial team, the operations team, the company as a whole is very engaged in improving all the operational aspects of the company, we are standing out among all our competitors. The independents are suffering more according to IQVIA's survey, but we are beating not only independents but also chains associations. So our market share is much better. Our average sales per store are growing much more than that of our competitors. And this is all based on the number of customers that we serve, so the volume of customers served and also the increase in the shopping cart or the average ticket of the people that visit our stores, which is very structural growth. And also, another example of the quality of our service and execution is that we are growing a lot in the most important category, which is continuous use drugs, not just continuous use, but prescription drugs as a whole, which is 40% of our revenues. So these examples here really make clear the quality of our execution and operational efficiency, and that is why we are performing better than all the other groups of competitors. And about HPC, we also have a very good performance. Another example of this was the campaign during Black Friday that all retail companies have very aggressive campaigns during Black Friday. And our growth was more than 40% compared to the same period last year for the same campaign. And from what we heard from other retail companies, some grew 10%, 20%, and we had an increase of more than 40% in Black Friday sales. So our commercial team has really been focusing on bringing attractive appealing campaigns to the public. Our operations team is working brilliantly to execute these campaigns in our stores. So we see this movement that you talked about. But for us, the evolution of the category is also important here at Magimenos for prescription drugs that you talked about. So I would just like to add that we also had very strong growth in digital, 55% growth versus 25% in the market for the rest of the market. But my comment to you, Kelvin, is that HPC is only 30% of our sales. And this is a background, not a figure because 70% of the sales and at the core of our strategy, we are thinking of continuous care patients, chronic patients who have plurimetabolic syndrome. And HCP is one aspect within the customer's journey. So they're buying the drug, and they're also buying beauty, hygiene, and over-the-counter. So it's very important to understand this trend. So we don't see any barriers for this because we really want to treat this patient and this consumer holistically. Thank you. Very clear.

[Interpreted] Our next question comes from Mr. Guilherme Vilela from JPMorgan.

[Interpreted] I have a question about our selling expenses. When we look at our selling expenses, this is an important operational leverage. But when we look at the selling expenses per store, it is still quite above inflation. So I want to understand what is the breakdown and what made this level of expenses per store higher? And also, can you give us more details about -- still about your selling expenses about the changes in your commission policy that you talked about when you talked about highlights for 2025?

[Interpreted] Good morning Guilherme. Thank you for the question. About our selling expenses, what happened during '24 and in the end of the year in quarter 4 is that the company is highly focused on operational missions. We were focused on what we call operational missions, which are 6 sets of actions that comprise about 42 initiatives to improve the quality of the service at our stores. So this includes improving technological stability, improving the look and feel of our stores, air conditioning is another example, pricing at our stores, we changed all our printers and the pricing process at our stores, quality of service, we are conducting more training courses to the employees of our stores, investing more time to improve the quality of service. So this all required a higher level of expenses when compared with the inflation rate. But this also has resulted in such a substantial growth in our sales that we were able to really dilute and have a strong operational deleveraging. And all these actions that were addressed in 2024, many of them were completed in the end of the year. So we will see the reflections of them in the sales and the revenue of 2025. And this customer that we are regaining or reattracting to our stores, once again, will support the future growth of the company. So yes, we had to invest slightly more and then increase the expenses to improve the operation of our stores as a whole and also some marketing actions, particularly in the end of the year for the Black Friday campaigns, which once again, really warranted or were the reason for this more than 40% increase in our sales during Black Friday. Now about commissions, we are still working on the changes. We have not rolled out the changes to our stores. We are testing a few models and concepts, and this should have an impact in 2025. But for us, at least initially, this will not have great effects on the company's P&L because what we are planning to change are the ways we compensate our team. So today, we have commissions in different categories of products, different commissions to the store team, and we are migrating part of these commissions to quality, measuring the quality of the service. So all our stores will have quality meters and mysterious customers or secret customers and for the stores that already have a high level of service, new stores will have a better compensation. So in our P&L, the effect should be neutral, but conceptually, the mechanics will change. And just one last point about simplification. So whenever I come to visit a store and I ask them, what is your bonus like? How are you compensated? And they don't know how to explain. If it's not in their mind, it's also not in their heart. It's not in their heart either. So one of the critical factors for our success last year was how to simplify. This is something that is vital, essential, and it has to do with the new commission policy. And also the investment in our people. We really want to form a high-performance team and a high-quality team. So some people who are face-to-face with our customers clearly do not yet have this new culture. So we have to change this. So this has a one-time cost implied here that we are -- we will not consider or integrate to our results. So that's why you're asking this question, and that's what you're trying to anticipate.

[Interpreted] The next question is from Laryssa Sumer, XP.

[Interpreted] I think most of my questions has already been answered by your team. But if we look at the year 2025, you even mentioned this in the start of the presentation, 2024 was a very important year for you. You rebuilt the foundations to really start a new growth cycle. But here, when we look at the industry and the macro vision, we see that the outlook is more challenging this year with the cement below inflation or some other discussions about capping the price of drugs and some other tax-related issues will create a more challenging scenario for the industry this year. Now considering all these factors, what do you see for the company looking forward in terms of strategy, growth, or stability of your leverage? So what is your vision for the company looking forward? And congratulations for your results.

[Interpreted] Thank you for your question, Laryssa. I am 54 years old. And since I was born, I have never seen Brazil in this situation as everything going well in macro economy, I think we are very resilient people. We have learned to live through difficult times. I had to explain this to our colleagues in Europe or in Australia because they don't know how we live with that level of uncertainty. So you're right, the cement -- the increase in cement will be lower this year. We have a few threats or a few headwinds, but we need a plan to mitigate all this. So this is about our strategy. Taking care of our continuous care customers, this is very powerful. I don't want to -- I can't give you much information about our strategy, but we have identified a group of customers that go to our stores at least 48 times a week. And we need to understand how we can take care of this customer who needs intensive care. We really need to look at them in a differentiated way. We have to focus our people, we have to put them in a positive light. And for each customer that enters a store, you're going to see that our growth in 2024 came from different levers. We brought more customers to our point of sale. We increased their shopping cards. We increased their frequency. We increased their average ticket. So this was quality that we added to our growth. And this was very important, and we will keep doing that. And you also mentioned our strategy, our strategy regarding expenses, and I talked about this in the beginning of the call. For 2025, we are taking this very seriously. We started with a meeting on January 2 or 3, so very early this year, we had a meeting to raise awareness among people about this owner's mindset and what are the expenses that we need to make right now and what are the ones that can be avoided. So this ownership mindset and really understanding that the macro environment is not positive right now and that it is in our hands to control what we can control. This is very important. So controlling our expenses is something new, not the way we control, but the way we are making decisions, very strong decisions so that we can continue to deleverage the company, as you heard from Novais. So we delivered what we promised for 2024 without decelerating our sales. Novais, anything to add?

[Interpreted] No, that was a perfect answer, Jonas. Just to give you some more color, Laryssa, the start of the year 2025 is just as strong as 2024. So as a result of everything that Jonas just mentioned, we have so many levers that we can work on in this company and a lot of room to increase our average sales per store assortment. The commercial team is working on a clusterization of our stores so that we can revisit our assortment and price. So there are countless actions that we can take. Also cement that you mentioned, in 2025, we will also have the continuity of the work that we started in '24 to adjust our stock loss. levels, we have at least 20 bps of opportunity to improve this indicator in '25 compared to '24. So despite all the pressures that you mentioned that we indeed have this year, we also have a lot of levers. We are not concentrating our bets in 1 or 2 leverages. We have a lot of levers that we can work on that give you a very positive outlook for 2025. We already have 2.5 months past in 2025, and the results have been very, very good for the company. And I realize, Laryssa, that I said 48 times per week, but that's just wishful thinking. It's 48x per year, 48x per year. But I want to tell you and also I want to tell everyone else that is attending this call that our target for January and February, we have exceeded our target. I can say this, right Novais? Is this the end of the Q&A session? Let me check with Samantha. Samanta, are we closing the Q&A now?

[Interpreted] Yes, this Q&A session is now closed. And now I hand the conference back to Mr. Jonas Marques for his final remarks.

[Interpreted] I think we already said everything. So I really want to thank you all for cheering for our company, for being our customers, for giving us a chance of changing the expressions that I used, how long this time have. We continue to really focus on working hard. We're very positive about the future of Brazil. We're focusing on what we can control and do, and we will focus on delivering very consistently quarter after quarter. We don't have the date for the call for quarter 1, 2025, but we will certainly deliver a fifth consecutive quarter of good results. So if you need to see in order to believe, I really advise you to believe before you see because we can really do more with the time that we have because those exciting about the time that you have ourselves by treating people well, particularly the people in our company and our customers and giving them voice and a leading role, we can really do more. I wish you all a blessed week. Thank you, Novais. Thank you all for attending and see you next time.

[Interpreted] This conference call is now over. Thank you all for attending, and have a great day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]