Ouro Fino Saúde Animal Participações S.A. (OFSA3) Earnings Call Transcript & Summary

[Foreign Language] [Interpreted] anticipates, intends, plans, estimates or similar expressions. The statements and information are not guarantees of future performance. They involve risks, uncertainties and assumptions because they are related to future events and therefore, depend on circumstances that may or may not occur. Future results and value creation for our stakeholders may differ materially from those expressed or implied by the statements made about the future. Many of the factors that will determine these results and values are beyond our ability to control or predict. Very well, to conduct the presentations and host the event, we have our CEO, Kleber Gomes; and our CFO and IRO; Marcelo Silva. Thank you, all. I would like to thank all -- the presence of both to continue with our event. And now please, Kleber, the stage is yours.

[Interpreted] Good afternoon, everyone. To start our presentation today, our first, using this video conference tool, which I believe that's a new way to do things and will bring a lot of possibilities and proximity with all the investors in the market. I'd like to thank the entire Ourofino team; our customers, who are our reason to exist; and other partners for their belief and their trust in our new management. And at the end of the third quarter, we had completed only 6 months of this new journey. So this will be a big challenge, but this challenge was also increased due to the pandemics. But really happy with the results so far of ours. When I assumed the presidency of Ourofino on April 1, I received from our founders and also from our counselors and managers permission of speeding up our company even more, adopting the best management practices. And that's how we have focused on work. And we had, like we said, the initial uncertainties of the impact of the pandemics, but we were always able and we were always sure that our team would overcome all these challenges. And we defined 2 pillars: the pillars of health of our employees and sustainability of our business. We went to the market, created opportunities, maintained effective communication process and clear process with all our employees and decided together to go forward with all of our strengths. We know that pandemic is not over yet. But on the other hand, we can already say that the worst is left behind. And to think of looking back and seeing how our business is strong and resilient, and this has proven itself once more. During this period, we've worked with all of energy and thinking about the medium and long term and short term as well. And this new management [indiscernible] we restructured our Board of Directors with excellent professionals. It's what we have -- the best people we can have in the market. We have a very interesting mix of knowledge about the market, [indiscernible] professionals who came to work with us. Also a lot -- many professionals who know Ourofino really well. I also emphasize the creation of the Board of Directors of Strategic Development and New Business Development. It has the responsibility of thinking about the future of the company, both regarding the evolution of our strategic plan, which has been completed in 2019 and also alliances, partnerships and new products as well. We have very quickly restructured the company, with new significance of our main core values. And this work has involved all company levels which contribute for this process. And this culminated in an event in which we launched our main core values in August '20 with the presence of our founders, our counselors, our managers, and also the entire team, and are lectured by the best technical sports coach in Brazil, Bernardinho. His professional story has a lot to do with the values that we define. We really believe that what moves a company forward is its culture. So we stay strong with our purpose of reimagining animal health to revolutionize this sector with the vision of being recognized as the most admired animal health company in Latin America. And now we're guarded by 3 main pillars, which are: play to win, so we think our owners, we are good -- we are better as a team, and we only get satisfied with superior and sustainable results; care for people, so which means that we're very passionate about what we do and we go beyond to take care of people, and people in their most widest significance, our customers and our partners and so on; and the third core value, which is connect with the world. We are a technological company and we have to be up to date all the time, following what's going on in the market, with open innovation, with alliances, digital connectivity and continuous learning. So these are 3 core values. They are very well defined. And from the day of the launch of these values for the whole company, I felt a good energy of our entire team, which makes us sure that we're on a right path here. We're also moving forward strongly to develop our leaderships. In this short period of time, we have assessed 100% of our directors, managers, executives and so on, and we've worked with all their personal development plans. We're accelerating the digital work. We're conducting this with consultancies that specialize in this field. And we believe that very soon, we will have new digital solutions for our customers, clients and partners. We also had several events of our company during this period, bringing recognized lecturers in their sectors and their segments, both for the [ data ] platform, women leadership, inclusion and good management practices. Next Friday, we will have our first national leadership meeting. It will be an important landmark of this new moment of the company. We're moving forward with our [ geological ] program. It's a complex program, as you all know, but we expect to have new products, new launches, new introductions in 2021. These projects will be launched over a longer period, but we will have some introductions in 2021. Regarding therapeutics, in the second quarter, we launched the Maxicam suspension for companion animals. And now in the third quarter, we launched a cosmetic line for dogs and cats, as you can see on screen. And Bris is a shampoo, some [ serums ]. Regarding our alliances. We established a partnership recently with a national company, which has values that are very close to our values. And we're also launching, now in November, 2 new nutritional supplements for production animals, which will all compose our portfolio. So we're moving strong forward. We will resume the launch of products because we're the company that's always launching products in the market, and we're strong to move forward with this. Regarding financial aspect. We generated some cash, which has been significant even with the pandemic. We reduced significantly, even more, our leverage, which was relatively low. But this allows us to trace new plans for the company. We have elongated our indebtment, in very good conditions for the market, and contracted more financing, about BRL 180 million. It's contracted, but it's not been released yet. For next product development cycles, Marcelo Silva will bring more details about this operation. Our results for the quarter has been very positive. We are very happy with the results of our work. This shows the strength of agro business. We know that the country, in many moments, has a support of our business. And in the pandemic, this has been shown, again, as one of the pillars of our economy. But also, the strength of the Companion Animal segment. After the first moment when the shops were closed and veterinarians were still afraid of what was going to come, we resumed strongly. And we understand that the pandemic got owners and their animals closer together because people are working at home, so they spend more time with their animals. So all the care also intensifies. So we have seen a good -- the resume of this segment has been very good. And I think this is good for our business. The same thing happened for -- with international operations; has been benefited from good exchange rates, the dollar is really strong now. These results were very good, and we understand that the fourth quarter will also be very positive. We see macroeconomic conditions that are very positive for the fourth quarter and for 2021 as well. And in a way, we understand that the fourth quarter will be a more normalized result, not as high as the growth of the third quarter. But we are sure, even -- we still have only 2 months for the end of the year, but we're working strongly to end this year with very good results, considering everything that has happened, but very strong results overall. We're following with a lot of work to do, a lot of discipline and inspiration for our employees. Now I would like to call our CFO and IRO, Marcelo Silva, as he's going to talk a little bit in more details about financial results.

[Interpreted] Thank you, Kleber, for the kind words. Thank you for everyone who is joining our call here. I'm going to talk a little bit with more details about the consolidated performance. On this first quarter 2020 (sic) [ third quarter 2020 ], we had BRL 225 million net revenue, a growth of 46% in respect to 2019. The total for the year is BRL 510 million, a growth of 20% in respect to the 9 months accumulated from '19. So now the details of the business units. Also here, this good consolidated results shows the resiliency of our segments, both Production Animals and Companion Animals as well. Plus the efforts of the management has had very good performance in this -- all these segments. And large -- many efforts as well to contain expenses and to keep the profitability. So this is an important point of 2020. Both the second quarter and third quarter have its own specificities. But if you look at overall, the consolidated here is the expectation is a good year for growth and also to resume our operations. Regarding Production Animals. The net revenue was BRL 174 million, 45% of growth against BRL 120 million last year. And the accumulated for the year, we have BRL 381 million, a growth of 20% in respect to previous year. It's a positive scenario. Investments have continued and even in the moment of pandemics, our commercial team has been engaged to use the digital tools and keep contact with the customers. And engagement with the customer this year, in August, we have an important fair, which is Expointer. And this year, we didn't have it because of the pandemics. But we kept our teams and achieved the results expected by means of meetings, the webinars, and this has been a very good opportunity for the commercial team to bring the training and the technical knowledge to the teams. And so this is a point that has to be emphasized for Production Animals in view and the context of pandemics. We also had an improved gross profit, both for the third quarter and for the total -- for the year, the accumulated total for the year. We had some prices that has been [indiscernible] last year and some impacts with some segments. Regarding Companion Animals. Kleber said very well, the importance of these animals during this crisis because people are closer to their animals, more people are adopting animals or maybe get a female dog or cat to compose their family. We had a good performance in September and a very good recovery curve in the end of the third quarter, and we achieved a growth of 47% in net revenue, BRL 29 million against BRL 20 million in 2019. In the year, a growth of 9%, BRL 68 million against BRL 63 million from the previous year. In terms of gross profit, we had some recovery in the third quarter. We still have a slightly lower gross profit results because of some specific items and inputs. Regarding International Operations. This has been the greatest growth of the company. We have good performance in strategic companies -- strategic countries, excuse me. And also good performance regarding exportations for other countries in Latin America. Some companies where we don't have local operations, but where we act as well. So the growth has been 49%, reflects the performance of the commercial team and also the favorable exchange rate, which has helped us with our sales. The accumulated total for the year is a growth of 43%, BRL 60 million of net revenues against BRL 42 million in the previous year. And also improved gross profit, was favored a lot because some changes in prices in Mexico and Colombia, mainly. Another important point that I said before of our presentation is still going on. The entire management has been working hard to contain expenses, especially nonstrategic expenses and costs. We had some [indiscernible] from SG&A and accumulated for 9 months, we have from 39.8 -- 38% to 31.5%. During this period, we have some expenses with projects and in R&D. That if we consider and adjust those events, we understand that they're not recurring, we would have some reduced expenses in the third quarter of -- so in release, we will open this in detail a little bit more to open the figures. So we have a very positive impact of BRL 57 million, 104% in respect to the previous year. And the EBITDA margin also accumulated for the year more -- 19.8% against 14.8% in 2019. We have as a positive effect as well reduced financial results, which lowered debt cost and also the financial leverage, like Kleber commented. Regarding income tax. We had lower income tax this year. It's calculated according to fiscal basis, and this has some variation. The net profit of the third quarter was BRL 46 million, more than 20%, very interesting margin against a margin of 8% in the third quarter of '19. And the accumulated for 9 months, 11.3% against 5.2% in 2019. So we had a net profit of BRL 58 million. I think that one important part is the generation of cash. We grew, especially containing expenses. And we didn't have to change our conditions to sell more like extended periods. We grew in a healthy way. We have 60% more than the cash generation from last year. So we had some resources that we raised in the beginning of the pandemics, and we've had this elongation. We had some amortization in this period as well. CapEx, it's BRL 19 million of investments, still containment of some projects that haven't been considered strategic, but we have maintained them. So we ended our cash position with BRL 169 million on September 30 against BRL 45 million on December '19. Regarding indebtedness. Combining both, we reduced leverage of EBITDA, for 1x EBITDA at the third quarter in 2020, and as commented, a reduction in the average cost due to the drop in [ CDI ], and this is a very important point at this moment of the year. Having this growth in revenue, this allows us, as Kleber said, to look for new opportunities, new horizons, new investments. In the beginning of the crisis, I'm talking about the first quarter, we had some operations of BRL 120 million of -- we knew that after this first stage, we would have to elongate this debt. This was concluded in the third quarter and basically, it was BRL 130 million, of which, most is a reconsideration of operations that have already been contracted. So we had also, in October, a new operation of BRL 40 million. This is funds that is going to settle some operations from September and March of 2021. So the total value was BRL 130 million. And then the important thing is that, looking at the strategy for the company, is that we were able, in the third quarter now, some strategic funding that we contracted to invest innovation. We have a process of innovation, which is renewable. It depends on it, continue to grow, and we had our operations BRL 137 million. And this year, thinking about the characteristics of our projects, a lot of efforts in the biological segment. I think for the companies, we've got a very good classification, the best for the company, which brings to the company a very good funding in terms of periods, a total period of 12 years at TJLP cost that is very good. So we have a strategic fund that we contracted. We extended our debt. We concluded with good cash. And the balance, which was considered a more short-term debt, was solved. And now we have an innovation fund to use these investments. In terms of investments -- of R&D investments, we see it's almost 7% of the revenue. But we didn't retain any of these investments, with a focus on the future of the company. And now I open for Q&A. If you -- anyone has. Thank you again.

[Interpreted] Thank you, again, Marcelo. I would like to thank Kleber as well for participating. So we're open for Q&A. [Operator Instructions] So we have, I think, the first person who would like to participate is Luciana de Carvalho from Banco do Brasil.

[Interpreted] I have 3 questions to ask you. The first is more related to the perspectives for the future. What can we expect for the future? We know that fourth quarter is going to be a little bit lower than the third quarter. But I want to understand what changes from the results -- the positive results within the third quarter? Any trends for the segments? Or we can consider that this change in efficiency and SG&A are not going to happen from now on? Just to understand a little bit the margin and the profit -- the profit that we can expect for future. Second question will be the expectation for leverage for the next months. You showed some very positive leverages. So you're very comfortable now. And do you believe that with this level, you can continue nonstrategic investments? And also, thinking about 2021, and Marcelo said [indiscernible] what did you observe? Will this be sustainable for 2021 as well?

[Interpreted] Luciana, I want to answer 2 questions, and then Marcelo answer the third one. About future investments. You're following the market as well. We have a very positive perspective, and we have seen -- we had an event of planning for 2021 last week. We brought some market experts to talk to us. And what you see from the index for our livestock and -- very positive for 2021. We know there's the demand for beef, and Brazil has been supplying this demand by mean of exportations to the world. The price of beef has record prices. There's a little bit of pressure from commodities and grains, but still maintaining a good profitability relation with other countries. So what we see is positive events and positive trends. For the fourth quarter, when I look at the third quarter, we had a growth that is a little bit weaker than when compared to 2019. And this has brought us some strategies. We had some price increase, we have some situations that we understand -- that we anticipated a little bit more, maybe this process. But we see the fourth quarter as very positive as well, with a little bit normalized growth figures to end a year that it can be considered is really positive. So in our opinion, this will consolidate our work and the work that our team has done on a daily basis and their commitment with the new management and with the company above all. The leverage, it reflects of this good cash management that we had. It's a big concern of the company and has always been. And we expect to maintain this and [ don't ] have any obstacles from the investment perspective. And we're always analyzing the best allocation possible. So we have this intention and have no restrictions at all. And the company is really ready for any investment that is required. So we have some fundings and also the financial strategic funding that is ready for any investment that we can -- we need to do. I'm going to ask Marcelo to talk a little bit about the other -- your other questions.

[Interpreted] So regarding working capital, we monitor our portfolio constantly every month together with the sales team. One of the tools of the commercial area, and we were able to grow. And this growth of 45% recovers a little bit of what happened in the second quarter. But we're able to have a good sales flow without extending the average debt -- the average period. And also, default levels are all normal. We have been monitoring this constantly. At the beginning of the pandemics, there were some concerns. But we mitigated this risk, so we have no problem with stock rupture or anything. But we don't need our stocker to have too big of a safety buffer. So we're going with the working capital. And in the next 4-month period, a we have some vaccination campaign. This can increase the gross profit of the fourth quarter. But it's not as relevant over the whole revenue of the company. We don't see a lot of changes regarding our investments so far.

[Interpreted] Okay. So now, we have Eugenia Cavalheiro.

[Interpreted] Hello, everyone. Can hear me?

[Interpreted] Eugenia, just give me a minute. We're clearing -- we're opening your mic. [Operator Instructions] Eugenia?

[Interpreted] Can you hear me? Okay. Yes. You can hear me. Okay. I'd like to try to understand a little bit more the moving of revenue. Any cutoff of revenues from the second quarter to the third quarter of this year? And if there was something similar to the second -- to third quarter of the last year? Just to understand the basis of [ operation ].

[Interpreted] Eugenia, thank you for your question. We don't have any significant difference in terms of cutoff during this period. What happened, and our understanding, is some recovery of what we had left behind in the second quarter, which composed the third quarter. So we had a very -- our sales were really below in the second quarter -- on second quarter. In April, May, we had probably 40%, 50% of our normal levels. So we're seeing this recovery. And for Production Animals, we're having a better year. 2019 was -- has been an excellent year, but production animals was a little bit below. So we understand that now we're having this recovery. So we don't have any extraordinary cutoff events or anything that would impact the other quarters in a different way, but thank you for your questions.