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

This transmission is being recorded and will be available on our website with ra.com (sic) [ ourofino.com ] and on YouTube. At the end of the presentations, we'll have a round of Q&A. You can be part. You can write in our Q&A area. We have a legal disclosure to start with. This presentation brings declarations of future events that are subject to uncertainties and risks, and there are press positions and calculations and provisions. Future events include information about our intentions, beliefs and current beliefs. And those are from our Board of Directors. Information and declarations include information about operational results or presumed as well as declarations that are preceded that are followed or will continue waiting, pretending, intending in other words and declarations and statements about the future are not assurance of results. We have predictions because we are talking about future events. They may occur or not. Future results and the generation of value for shareholders may vary differing those suggested hearing. Many of the factors that will determine those results and values are beyond our control. And capacity for forecasting our legal disclosure ends here, and we'll start with the group that will be part of the presentation today. Kleber Gomes, CEO; Marcelo Silva, IR and Financial; and Angelo Melo, Strategic Development and New Businesses. Welcome, all. And I would like to pass the floor to our CEO, Mr. Kleber Gomes. Floor is yours.

Thank you for the great introduction. I would like to welcome everyone that is keeping up with us. I would like to -- a history, if you will. It is a great happiness to have closed 2022 with official numbers of SINDAN, the official trade union of our area. The greatest actually institution of the vet animal area in Brazil. We have great motivation that we have had a sector that in a short term was able to bring us back to the top, showing a lot of the work that we have done in the last 3 years, that has brought a lot of learning. We have been certified by GPTW, a good classification in the awards by GPTW. 2023 nevertheless, we still have to keep up with those performances -- levels of performance. That hopefully will keep us as an outstanding industry company in Brazil. We had 2 launches in Brazil, this semester company, and we also have divested a lot. We have a lot of silviculture last year. Angelo Melo will comment on that. And commenting on that furthermore, we are working hard on ESG. Our sustainability report has been released along with our financial report with a review of the material themes that we are suddenly working not only this year but in the future. The quarter didn't have a net revenue lesser than last year. I would like to start talking about the relevance of the last year's. A sequence of quarters that were very positive growingly with a sustainability, accompanied by great financial indicators, our point of management. And we are stress testing our drivers of growth and the management that is being worked on. The quarter per se is a set of points that is affecting the world and Brazil. We had some additional points in our area. The economy, agriculturally speaking, a lot of uncertainty not only in Brazil but worldwide with inflation, high interest rate, and we are not exempted from that. We are in a situation with capital costs very costly, and that impacts -- we have to adapt, and that has to be done in our management, say, planning for that. In the retail, you have seen declaration statements from companies that are struggling more or others less and retail per se, but our segments, segments that work with more tighter margins and that kind of puts us under a burden. We have less stockage and more margins. It's very objective once that the inventory reaches a certain level. And the dynamics must take us to less procurement and more management in other areas. Other points that have to do with the trade union as well. These discussions were actually clarified in terms of the effect of things that are happening in other segments in Brazil and worldwide. We know of other companies in the pet retail that had better results on account of inventory management. It is healthy, if you think in terms of sustainability of business per se, the distribution that the ends -- especially at this point, when we have interest rates very high. And furthermore, we have a problem with exports of the beef to China due to the mad cow disease. The results among the countries were all affected because there was an embargo. And that affects the investments and the husbandry and agriculture directly, factors that I believe brought a diminishing of the rhythm of the activity in our sectors and in our sector and in other companies as well. We are aware of what we have to do. We are following our strategies play by play with our purposes and our values, knowing that we want to be the top-of-mind company, the company that sells the best product that is strong and consistent. And even when it comes to accountancy and other points as I mentioned, myself. We had quarters that were quite good. But this one was a little more burdening in terms of traction. We will regain our higher tiers. We will do what we have always done, checking our expenses, our structure. We tightened the seat belt, we know that. I apologize. The transmission was cut off for a while. Please bear with us. We'll be back in a moment.

[Technical Difficulty] especially for parasites, influenza, that brings actually concerns. Cost of grains are more expensive. We have an exchange with the agriculture. Some were more comfortable, some others less. But that was important to remind you that we have the [ Ahoba ], which is a measure is currently 270. There wasn't a drop. The cost in the proportion was actually eye to eye. So some collaboratives were actually giving that on deleverage. We had some situations that were very developed, [ Rio Grande ], especially some of them. [indiscernible] for instance from Rio Grande, a scenario that was more complex and potentializing, or in other words, potentialized by political problems and political scenario in Brazil. We are expecting and regaining of the growth in the second semester. We had a great harvest of rains, output, inputs. We are actually expecting to overcome the diminishing in sales in other areas with this growth. The first quarter of the second semester might be better, but the second will certainly be better. Some other important points is that the company is very solid. Capital structure, that is very comforting in a scenario that is unfavorable economically speaking. We had cash flow generated in a very good level. We have healthy levels of financial leverage below the SELIC rate that allows us to keep on growing and investing in our business. We are going to the evolution of the revenue and the gross margin, a drop of 17.4% in the first trimester of '22 compared to 2023. But we expect growth and the drop from 44.9% to down to 44.3%. We have less gross margin for products and the fixed cost less diluted avoiding the voids in the -- for the production -- for manufacturing floor. We have more production. We have a lot of what is happening here, our forecast for the semester. Besides the macro perspective, we have lines that were growing a lot in the last years, RTF -- IVF, artificial fertilization. Now we have a husbandry in low levels, diminishing reproduction, protocols, drop in numbers, semen market diminishing in this with a drop off of minus 8% in 2022 and is slightly higher now in 2023. That affected by the embargo. And the need to bring relief for OpEx, especially for retail. Nevertheless, there was a growth and a better profit. The gross margin down to 36.7%, down from 44%. We are looking at those projects with less cuts. Company animals, we started talking about those in retail. We have cash flow with better performance that can be healthy for the health of the whole chain. Nevertheless, we have to look at certain points specifically. Purchases will be probably more nevertheless, less volume that will leads us on to looking at OpEx from a different perspective because this is a sector that is impacted by the macroeconomics. Since last year since the first or fourth trimesters, we have pre and post pandemics. We have habits that are coming back. The consumption of services and goods that actually starts giving more traction to the markets, the humanization of the pets and the care of those pets such that will bring more needs for health care, animal welfare. And we see ahead a robust line of product supplements. The sales, animals that need to live more and that has to do with the company, developing subsegments with this need, greater needs for welfare. International operations, we had a mix less favorable in this semester with a drop in the gross margin in Colombia. Colombia is going through months that are changing politically and economically that affected the evaluation. Appreciation of the local currency, the American dollar as well that is a unit that brings -- promises growth with Mexico, Colombia and other countries, launching new products with the filing and registration of products that will increase our portfolio. SVA of the trimester didn't suffer any drop, [ 87.20 -- 87.8 ] and the company is working with consumption with the body of our councils and the index of profitability, we are looking at our EBITDA rates, always looking for continuous development and excellence in our operations. We even with the unfavorable scenario, we had R&D that kept on developing new products. We have 2 new products that have been announced. We have been maintaining a tier of 7%, 7.5% of revenue, 7.8% down to 7.4%. That due to less sales but normally, face value, we have the idea of decelerating our agenda of products. The combination of less sales flow, less floor plan costs brought costs of BRL 3 million gains BRL 30 million of last year, that was a major job, and the company is working hard to take EBITDA back to its previous values. We are maintaining the sustainability in terms of cash flow, more favorable capital generation compared to the first tri of 2022. We had a growth of 30%, BRL 70 million, a generation of cash flow of BRL 30 million. We ended the semester with BRL 34 million. We are growing. That shows a growth, and we aim to keep on growing in this sense. We have OpEx, we have the average receipts levels we commented on previous semesters during the pandemic. We had investments -- additional investments, especially when it came to considering India and China, we are working with a scenario that is more favorable. We didn't have problems with resources or any other problems. Therefore, there is a more favorable period. It promises growth during the first and second trimesters of the second semester. There was a generation of cash flow, very robust that contributed to the net revenue, EBITDA growing very comfortably, [ 0.94 ] in the second semester with capital costs higher than last year, still below CDI that is below [ 295 ]. That gives us a comfortable position. It doesn't concern us financially. Our investment is in innovation in new products. We have the resources to invest in new products and new launches. Capital structure still all that, 73% in the longer run. And a major part of that actually planned over a period of 5 years strategically. As to the end of my presentation, we have results that surprised -- caught me by surprise. We expected initially an opening of the market of a greater order, but it didn't happen. We were looking at our clients, the trade union, other companies of the sector. But we are working solidly to regain the growing numbers, looking at the strategies, maintaining our sales force engaged. We are very successful 4,000 clients in [ Fortaleza ] monthly, a line of products with a coverage that is very comprehensive, a portfolio of products with a nexus to the market that is very differentiated. And we got to major properties. Company animals, just on a final note, we had accommodation of inventory, and we expect more in the second semester, Mexico, Colombia and the increase in the coverage of -- in terms of products in the market. Financially, we are well structured, structure of capital. And in that meant -- in the long run, which is very positive. Mariana, floor is yours.

Thank you, Marcelo. And I reinforce the invitation for you to send your questions in the Q&A. The room, Mr. Kleber Gomes, if you would please lead to this moment.

Can you all hear me now?