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

Welcome, everyone. We are going to share the results, the earnings of the company in 2020. So thank you very much for attending here today. I'm Juliana Matthes. I'm part of the Corporate Communication team at Ourofino. It's a great pleasure to be with you to lead this gallery. [Operator Instructions] I have some information to read for all of you. So this presentation brings the statements about future events. They are subject to risks and uncertainties. These statements is based on beliefs and assumptions from our administration and information in which the company has access to. Declaration statements for future events include our information, intention, beliefs and the current expectations as well as the Board committee and the steering Board. Exceptions to statements about the future include information about operational results, possible ones, assumed ones as well as statements which are followed by believe, it will be able, it will happen, continue, wait, expect, intends, plan or estimates or similar expressions. These statements and information about the future, it's not a guarantee of performance. We have assumption because they deal with future events, depending on circumstances that may happen or not. The future results and creation of values for our shareholders may differ in a substantial way from what is suggested about the future. Many of the factors that will determine these results and values, they are beyond our control and forecast. Well, to lead the presentation, we count on our CEO, Kleber Gomes; and our Financial Director, Marcelo Silva. Thank you for both to be here. And to continue with the floor, Kleber.

Hello, good afternoon, everyone. It's a pleasure to have you here with us in our earnings results for Q4 in 2020. It was a different year, very important one. I'd like to start giving special thanks to all the employees at Ourofino that faced the challenges during this year and helped us to create the best year in history of the company regarding results. Thank you very much the whole team. Everyone knows we had a planning, strategic planning 2019, and we carried it out in 2020. And the strategic planning had several pillars. And one of them was their governance, and in this context, we had a successor process from our Chairperson, Mr. Jardel Massari. The process that was led in a professional way, led by our Board committee. And we had a specialized consulting company that evaluated internal and external executive. I was renowned as CEO, appointed as CEO in April 1 this year. And we started a trajectory together with the pandemic that was just starting. And I can say that it was a very positive year for us, and we met our goals. When I was -- used to be the CFO of the company. I noticed that there was a need for us to make some changes, mainly to rescue some of our values as a company. And with that, we led a cultural process in the company to show the meaning of the values. This process was really good. We heard all the employees, all the leadership members of our companies, our admin advisers, they could express the values that they noticed at the company at that time and the values that we desired. And based on this work, we compiled all the information at the Board. And then we have these 3 values: play to win, care for people and connect with the world. So these moves the days in the company. We changed our recruitment process, our cultural fit, our performance to view the values. We renovated our head office. We broke down the walls. We created an open plain office to be more creative, innovative and other things regarding the culture. The values were announced in the company in the mid of August. It was a very good event. We had the participation of Bernardo Rezende, our volleyball coach. And he represents these spirit of these 3 values. I can say that it was something really good. The values are well received by the company. Somehow, it was faster than I thought it would be. This helped us to foster other initiatives. In the beginning of my term here as CEO, we promoted a restructuring in the Board with directors, with experienced professionals from the market and professionals with experience at Ourofino. We had changes, successful changes that brought practical results this year. I send out the creation of a new Board. It is for strategic development for new businesses. And we have a Board for the future going after partnership, strategies, alliances and looks at our portfolio and product pipeline. After the restructuring process, we had been living with the pandemic for some time. And for the pandemic, we worked under 2 pillars. First was the health of our employees and the second one was the health of our business. We had no doubt that we should look at both pillars. So we moved away the employees that -- who were over 50 or had any risk factor, such as pregnancy, obesity or things like that. We organized the home office in a quick way and favoring the -- all the security and safety protocols for our employees. We were successful in this mission. And what was more important was the talks that we had in a transparent way and constant way with the whole team explaining what was going on as we were learning things together and making it clear that we would make an all-out effort in order not to reduce their wages, not to dismiss anyone, but we had to go after the sustainability of the business. The team understood it well, and we were successful. I'm really happy today to say that we haven't dismissed anyone because of the pandemic. And we didn't -- we haven't reduced wages. We promoted -- fostered promotions. We paid a bonus for all the goals that were fulfilled and an additional salary at the end of the year for all employees who helped us deliver these results, even within the pandemic. We also had the development that was really good inside the team. We are going after agility innovation. We brought meet-ups with experts in the market in several line of business. We had several initiatives going after respect. Regarding diversity, we took much information to our customers on how to help them during the pandemic. We worked with the distributors for pets and production animal segments, and we had a great conversion of our business. Our great fortress was the access to the market. We converted it into virtual actions. Meanwhile, we couldn't pay visits to our customers. We were successful in that. We did a lot in that year. It's a year that makes us proud of all the initiatives. And together with that, of course, in the beginning of the pandemic, we had bad months, mainly April, May. This month that we had 20%, 30% of the sales budget because everything was standing still, was slow, nobody knew how things would be like. And right after this period, we reaccelerated and we overcome our goals. This shows the strength of the drivers behind our business. And in this macro scenario, I will highlight Production Animals with the feed the world, we produce food and somehow, this is an essential activity. Agribusiness and livestock haven't stopped. We had an impact in the reduction of internal consumption of meat because of food service, and this internal consumption loss was compensated by export mainly for -- to Asia, specifically to China. It is the country that bought more meat from Brazil. So it was -- we had a shortage of animal in the field. It was a record for the livestocks. And to meet this demand, we need to adopt technology. So it was a year very positive. We grew substantially in the market in Production Animal, mainly. And about the pet market, pet animals, we know about the humanization of pets, and they are very important for their tutors. It's a psychological support and people are getting married less and less, living longer, and they want a pet and they treat them as a member of the family. And these animals, they live longer and get -- fall sick more often and they need treatment. Pandemic reinforced that even more, and people started to be in their houses and live with their pets. It was their psychological support point. So you see the importance of the pets in society today. And with that, the market accelerated a lot at the end of the year, and the company followed -- caught up with this performance and overcame its market expectations. Last, but not least, let me talk a little bit about our international operations in other countries in Latin America. Countries such as in Mexico and in Colombia. In both countries, they suffered a lot with the pandemic. They had strong lockdowns there, and we also had the favor of the exchange rate, and we managed to cover our goals. It was a year of many changes in the company, changes that are directed by our strategic planning and directed to all the goals that we have. So now I'm back. So changes that were really important for the future of the company and the consolidation for our market, showing how our market is strong, resilient and how the company is prepared to capture value in these markets. We also had advancements. Our portfolio management, this is a line that we were going after, and we are very strong in strategic alliances, partnerships, and we launched products, important products to help us on portfolio. We have dermocosmetic, moisturizer, Maxicam oral solution. It's targeted in cats. It's a market that is growing a lot in that segment because of the independence of the cat on a daily basis and also showing our possibility of getting to adjacent markets such as dermocosmetic. It's a biz line. It's serums, shampoos with the merged technology for helping the treatment of skin problems, skin care. This is just the beginning. Of course, we are going to have more products ahead of us and many partnerships, alliances, merge innovation. We also did the digitalization of the company like digital transformation projects, and we have been working on that. And all of this is together with the historical record in earnings, profitability in its history. So for the complex year that we've had, we were really successful. I'm talking about what our team bought, all the ideas and everybody together throughout this way. Of course, we are going to have 2021 even better. The market conditions, they are really positive. We started looking at good results since the beginning of the year. So it's a continuity of work that is getting stronger and stronger and bringing good results. Now with the floor -- so now with the floor, Marcelo Silva is going to present the results.

Thank you, Kleber. Good afternoon, everyone. It's a pleasure to be here to talk about the earnings, the results for Q4 2020. It's a very challenging year, as Kleber said, but we were really successful to carry out our strategy and also advancements of front-end that helped us achieve excellent results. So this is our retrospective. We started 2020 with positive indicators. We had a first quarter at 23% growth compared to 2019. Right after the second quarter during the pandemic, we evolved almost 3% compared to the previous year. And in the third quarter, we had a strong recovery in fee, showing the strength of our business. The drivers that base the protein market, well-being for animals in exports, and we manage it to have an unprecedented quarter. And the fourth one was to add 12% at BRL 221 million compared to BRL 197 million compared to the previous year. And we reached 50.8% in net profit. So we have 18% of net profit, BRL 130 million against less in the previous year. So the growth, followed by earnings improvement. We reached 51.2% of net revenues compared to 50.3% from the previous year. So this margin improvement is because we are passing on the price, favorable mixing and all the field that helped the international initiatives. Going further in the business units, mainly in Production Animals segment. This segment was the most resilient during the crisis. It almost didn't feel anything the second quarter, and our recovery, a rebound here in the third and fourth quarter. Livestock production motivated all the investments in the health of animals, and we had engagement and effort of our commercial team, our sales team with teams that mitigated the impact of the pandemic mainly during the social distances to maintain the customer activated. We grew by 16% in 2020, and the -- without this margin growth and net revenue. So the pet animals, this one had a bigger impact. We had above 26%. It was -- the sales performance, we did 20%, 30% of what was forecast for the year. In the third quarter, we grew by 45%. We are delivering growth of 26% in the fourth quarter and, at the end, reaching the net revenue of BRL 100 million. We had a good recovery in Q3. This reflects the increase of household animals and the empathy between the tutor and the pets that was intensified during the pandemic, engagement of commercial team, mainly generating demand with the vets. We kept health level of stock, both in the industry and warehouses, sell-in and sell-out, to have a growth that is sustainable and the cash flow preserved. We had good growth sale here. We reached 71.3% in Q2. So -- and we recovered by the end of 2020. Had a good performance throughout the year in the countries that we work on, Mexico, Colombia. We had a good performance in the distribution of other countries in Latin America. We grew by 19% in the quarter, 35% in the accumulated part of the year. This growth was benefited during export, and we advanced in local actions, mainly in countries such as Mexico and Colombia, strengthening the demand part and more proximity with the customer. The gross margin in the quarter and accumulated one, we have a more favorable mix and a positive exchange rate during this period. Throughout the year, we worked very strongly without the administration team to do the best for our shareholders to bring the best results. We worked very strongly containing cost expenses, but we didn't stop the investment level for strategic planning. Different during the pandemic period, growing strongly during the revenue. We decreased the SG&A to 38.2%. And we're segregating, as of 2020, the SG&A. So the admin, commercial expenses, research and development, so the investor can evaluate better all the expenses regarding the earnings and the costs and the future costs that will happen in the investment and development of new products. So the combination of growth and margin combination and expenses reduction, we got to an EBITDA of 45 and then second quarter, 41. And we are accounting this additional bonus is included that Kleber mentioned, an additional salary, because of surpassing our targets. So the EBITDA, 17.3% in 2019, and this result in 2020. So the financial result of the company was favorable compared to the previous year because of the reduction of the SELIC index, so the result of 2020 was better than 2019. We have the financial result. In this period, the company did all the renegotiation process for short-term debt, indebtedness. And in March, we worked on liquidity to develop our activities smoothly. And then we worked on our renegotiation to postpone the debt with favorable taxes and rates. Concerning the cycle of our operations, in this period, we hired a strategic fund for R&D. It's BRL 180 million with [ fines ] for 12 years to be paid and TJLP index that is at 5.04% a year. And we ended the year with a reduction of the net indebtedness to BRL 149 million. We leveraged to 1.4x EBITDA. It means growth with cash flow generation and a higher profitability of our products. You can go back one slide, please. So the cash flow generation was unprecedented, okay, BRL 136 million of operational cash flow generation, and then we closed the year with BRL 226 million. And in general, we increased our sales, generated cash flow compared to the previous years. And this combination allowed us to reduce our leverage and improve our net profit in 2020. As I had mentioned before, the company maintained the investment on R&D. The total investments, all the expenses and relative shares totaled BRL 48 million, 7% of the net profit during the period. I'd like to conclude my part here, the result forecast, leaving the positive points of the company. Because everything that we have to present in 2021, a strong net profit, cash flow that is very robust, that allows the company to forge ahead in the strategy for 2021. Everything aligned to the strategic planning that Kleber mentioned in the beginning of his presentation. Thank you very much, everyone.

Thank you, Marcelo. [Operator Instructions] We have a question from [ Glauber ]. He asks, in the 4Q report, you mentioned that the pet animal sales were affected negatively because of the restriction to mobility. However, pet shops, they were considered essential services. And as people spend more time with their pets, these sales should have been affected positively. How do you see this scenario?

[ Glauber ], thank you very much for your question. So these evaluation happened in a very short period of time, and there was a retraction in the beginning. The pet shops, they closed down. My dog was sick at this time. We couldn't take care of my dog to take him to the vet. Only one person at a time. It was really hard. For a very short time, there was a retraction. Even the distributors team that visit the stores, they were working in home office. If you remember that in the beginning, the pandemic and the assignment of essential services, there was a certain delay. And after that, there was also the fear of professionals, the pet shop stores to be exposing themselves in the beginning of the pandemic. This lasted 1 or 2 months. Looking at Brazil as a whole, and right after it happened, what you said, this positive action, positive initiatives, people started working from home office, and they noticed some problems with their animals, their pets and the year ended in a positive note. So this is the period of time that we mentioned that in the beginning, there was a retraction and after the growth in fee, as it was said.

Eugenia Cavalheiro from JPMorgan. Is there any news about M&A strategy? Could you explore a little bit this pillar?

Hello. Good afternoon, Eugenia. Thank you for your question. Yes. we can say that we have strategic planning that foresees alliance, partnership. Marcelo reported well that the company has a cash flow, liquidity leverage that makes it possible to advance in our strategic actions, but we don't have anything to mention, unfortunately, at this moment for you now.

Now [ Paolo Morais ]. Is there any expectation that to rebuy -- that was announced that can be different from what is announced from what was carried out in the previous year?

We implemented this year a long-term incentive for administration and alignment action with the strategic initiatives and also what is expected by the company. And the payment of shares, our plan has 2 purposes. The first one and the most basic one, which is to rebuy shares and to satisfy the long-term plan. And of course, we are paying attention to the position of the stock, the shares. The price is very competitive now, and eventually, we can do something considering our current liquidity and the stock price. But we don't have any action defined, apart from the one that was announced.

The next question by [ Juliana from Estado Agency ]. To what do you attribute to the growth in investment by the side of productor? Is it because it is more capitalized? Or because they are after more efficiency given -- because of the increase of costs?

Thank you, Juliana, to bring this topic. So there are many factors. As we said before, let's start from the basic. Brazil provides protein. It's one of the biggest in the world. Brazil has low rate and low productivity, yet we know that there's a path to advance, to get ahead. And during the productivity, the producer, they have to invest in animal genetic, in nutrition and the health of the animal. Looking at the year, the producer came from a good condition of profitability. They are capitalized and they brought better prices. As I said before, there was a positive pressure because of export and lack of animals in field. So they had to produce more animals and then comes in to [ forest ] technology. And the producer who had more money, they were encouraged to use more technology. It's a group of factors. The year was very positive. And we noticed that the inputs increased because of dollar, the commodities, soy, corn and also marginal other inputs. But we can see a very good position of earning profitability for our producers, and they will keep on investing. Thank you for your question. It was very good.

Do you have any other questions? You can say it on the chat on the Q&A if you have any questions. So we wrap up this Q&A session. Thank you very much for being with us on this day. And our company is always hoping to experience our values together with you. To wrap up, Kleber, the floor is yours.

I'd like to thank everyone. Going back to our team, we have been doing a very good work. I'm really glad with the results that we obtained. I'd like to thank our founders at the main Board for all the trust and support throughout 2020. And we continue now in 2021. I'd like to thank our investors that add value to our business with questions, different point of views. And I'm really confident that we have a good journey ahead. In the year of 2021, we are going to continue at a good pace of growth. And there are many things sold for this future in a consistent way. Thank you very much, everyone. See you soon.