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

This meeting is being recorded. [indiscernible] welcome for this meeting for the presentation of results. I'm Juliana Matthes, and it's a pleasure to be here with you. This transmission is being recorded and will be available at our site -- website ri.ourofin.com and our channel on the YouTube. At the final of our presentations, we will have our Q&A. [Operator Instructions] We have a disclaimer to read to you. This presentation brings statements about future events that are subject to risks and uncertainties. Such statements are based on management's beliefs and assumptions of the information of the company currently has access to. Statements about the future events, including the information regarding our intentions, beliefs or current expectations as well as those of -- members of the management Board and company directors. Disclaimers accordance to these statements and the information about the future outlook also include information about possible and presuming the operations results as well as statements preceded by -- followed by or include the words: believes, may, view, continue, expects, anticipates, intends, plans, estimates or similar expressions. These statements and information are not guarantees of the future performance. They involve risks, uncertainties and assumptions because they are related to the future events and therefore, depend on the circumstances that may or may not occur. Future results and value creation for our shareholders may differ materially from those expressed or implied by the statements made about the future. Many of the factors that will be provided, these results and values [indiscernible] of ability to control or [indiscernible]. So to [indiscernible] presentation our CEO, Kleber Gomes, and about our Financial Director and Investor Relations, Marcelo Silva. To start, CEO, our CEO, Kleber Gomes will start to talk.

Good morning, [indiscernible], good morning for everyone. In this meeting today for our results of the second semester, we start to talk about the -- our context. We have our business -- a good business with a good growth in these last years with our markets that continuous growing, and we believe that these drivers, when we talk about Production Animals, we know about some [ technifications ] in the fields and sustainability is important too. [indiscernible] and we talked about the Companion Animals, we talk about the -- treat animals like our members of the family. And this helps to expand these methods in Brazil and outside too. And we are most -- talking about the expansion of the portfolio. But talking about through the International part in the Latin America, and with the Mitsui in our company now, we start to score other markets mainly in Asia in mid and longer term. This year, we are in front of the factors -- difficult factors. A lot of things happened, and this impacted our business. We talked about this last year because this year will be -- was very difficult. And to be honest, we are saw a little bit complicated that we imagined before. This has happened in our scenario, macro then this is stimulate the consumption because the [ inflation ] is very high. Our taxes is high too and this phase for the company -- all the companies are less investments, and this is -- happened with our clients too, they decide to some actions that impacts our sales. And we saw a specifical segments, the new stock, we have a lot of animals in the field. We have problems with the [indiscernible] [ seeds ] in Brazil that stuck our expectation and this need is staying at the internal market. And internal marketing is -- was at the accelerated consumption. And this thing made -- the productor has stimulated to have investments in the future. We have 2 another points to inform that at about the vaccination of [indiscernible] because in Brazil, [indiscernible] should be obligated to have these vaccinations. We don't have the [indiscernible] disease in Brazil. But in 10 states in Brazil that now today has a lot of the quantity of the -- the livestock in Brazil start to [indiscernible]. And when we had this in the past, there was initial obligatory regulations. This is very good for us because the productor used to -- tried to make the vaccine to both the medicine and other the medicines in the field too. Now we have a agreement change. Now we probably reframe, and we don't have [indiscernible] not appear. Talking about the swine culture. We have [indiscernible] because in the past, the default for this kind of animals is less, and now we have a better scenario. In Companion Animals, we had a moment when we saw the food cost is high now. And it's not a case of the medicines for the companion animals. So we don't have impact at this but the prescriptions and -- the prescriptions are treated of the minimum -- at this time. So we have impacted this in operations. So this bring for us at semester that we not -- that we intend to have. So we are now not at the position that we want to be, but we know that this is not a problem will be forever, will be only [indiscernible] problem. But is all this venture brings our numbers not so good we want to have. We did some actions in our companies -- in our company to have less expenses and to control some expenses and expenses more than we had, and this helped to have a little bit better ratability. And about the commercial issues, all the companies is -- suffer with impacts, some more quickly, some don't. We suffer directly the impact to the sales when and if some help with -- work with some distributors, suffer a little bit less. But we're always looking for to be more competitive. In the second semester is a strong semester, and they bring some fares regarding livestock, we have the timing to the production now. In the last years, we had anticipations for the sales that not happen and is now. So this is a big impact and will be happen now. We made the actions -- necessary actions to keep our positions of leadership. Whilst this is a year more difficult, we are in front a little bit growth. And we made our actions to reach the ratability levels is a lot of factors will -- if not -- we believe this not be extended too long. We saw record for this [indiscernible] females, and this is a part of the livestock cycle. But we know that the things will be better because now the taxes were a little bit is not so high. And we know that this is will reach to us a better sales, nothing campaigns, but more regulated. And we are -- we operate to continue growing, that it is -- we are looking for all the time. At this moment, we want to say that our company is very structured -- financially structured, has a good financial [indiscernible]. We have good generation of cash. We are totally -- very calm with our financial situation that allows us to best for this moment, which [indiscernible]. In our final, we continue to believe there are proposed to remeasure the animal health to bring the productivity and they -- in the field and to continue the relationship with companion animals and with our values too. But we are work strong that we development. We -- we have strong -- at our company we have a good research and development is strong, good people working with this. And this year, we continue with these points because we are reorganized like a second company to -- in the agribusiness. We -- I had in a fair in Castro because it's a fair about milk Agroleite, we won premium that about the Agroleite is a sector very important in Brazil. We had a launch at Banni endectocide for cats [indiscernible] about our growth because cats is more -- is growing more than the dogs, and we had another launch Longil because it's additional set of products that we [indiscernible] but now, Marcelo will talk to you about the financial results. We have a revision -- a relevant revision above the triple tier area is also to be mentioned. About the [indiscernible] -- we had a consolidation position, but we have revisions -- about this scenario, and we did a provisionary but Marcelo, you talk about better like it is. And then I will be back here at the Q&A reply, okay? Thank you for now, everyone.

Thank you, Kleber. Before Marcelo will talk, [Operator Instructions]. Now Marcelo Silva is our Financial Director. Good morning, Marcelo.

Good morning, Jule. Good morning, Kleber. Sorry because I have a flu, but let's continue our meeting. We have a cash generation happen -- and this shows our capacity to [indiscernible] at the times when the sales is difficult. The company has the flexibility to revisit the project and provides the actions we talked about this before because we made our action to reduce their stocks because at the pandemic time, we -- we had a good stock on the principal product set. But now we have a reduction in stock. We have a generation of cash, about BRL 165 million. We have a reduction of leverage for 0.8x of EBITDA. And we have like a strong point, medium cost of capital 10.9% that combined with account closure EBITDA. Debt in the long-term, and this [indiscernible] 30% above 5 years. We have -- we have a possibility to continue to grow. And above this growth, we can think about the launch of the new products. We are all in the face of the market share to act better in the field and the fares and the events and looking -- always looking for our clients. because we're always looking for the clients. Talking about the Kleber -- that the Kleber talking with you. The company has to use this benefit above the tax -- income tax. But at the April 26. They conclude that the benefits for fiscal income tax and the reduction [indiscernible] will be excluded in income tax. If we observe the complementary law that -- and this made a change. The ratio is [indiscernible] support security should -- but consider this as a change in the [indiscernible], the company had communicated the market this in [indiscernible] April about the decisions. And considering that this judgement had happen before the first [indiscernible] and our experts, didn't have the opportunity to assess and -- at that time, we don't have a reason to change the possibility of gain -- [indiscernible] possible. And we will have the provision in that semester, but we made executive note, saying and explain all the reasons and the 2019 until 2022. The most -- we made executive note, the most effect but in June, these one publicated. And we [indiscernible] our experts revised this post initial -- this position and the position of the second semester, we have BRL 82 million, BRL 69.8 is income tax and BRL 12.5 million is monetary actualization. This is a period end before between 2019 and 2022. These parcels [indiscernible] 2023, these numbers in release is adjustment about these effects but is present in the results -- financial results in the company. The company keeps security document and this prognosis results and the provision -- the accounts position. So we keep this security [indiscernible] security. Any news, I will inform you about this thing. Any questions? If you have any questions, we have a lot of information. [Operator Instructions] About our consolidated resources, -- results talking about their receipts. We have good performance to sales when you compare with the last year. When comparing this year the first semester, we have an operation of sales. We closed on the semester. We have 70%n minus, but we have an accumulative of 8.8% regarded with the net revenue. We have a [indiscernible] gross margin because we have 43.5%. And the company has some actions to don't have this most gross margins with -- regarding the structure of the logistic supply chain, but we have reflect about this in the second semester. In the Production Animal, and three -- the result is 3.3% less regarding the last year, the impaired and accumulated is 11.1%. The sales -- the problem of sales is north of Brazil. The problem is there because there that we can saw about the [indiscernible] that's not obligated anymore. And we -- the client is working in the reduction of the stocks because the taxes is always really [indiscernible] during the year. The first semester, we have impact regarding the rain because it's not raining in the first semester, but now with the turn of the raining is good for us. And about the profit -- gross profit was a little bit predicated. When we compare the same period of last year. Company Animals, we have a growth around 3.9% semester, and we understand about this is growing is reflected the segment and the same because it's a macro market adjusted market growing because the way of life from [indiscernible], it's changing and accumulated at the year, we had a loss of 4.9% obviously, and factors of the reduction of the progress. In operating -- International Operation, we have a growth of 3.4%. But looking at the Colombia, grow a little bit more higher. But we have a visualization of the peso, Colombian. Mexico, we haven't grown not so high but a -- not so good performance of sales for other countries. And when you compare the year last year, 9.2%. This reflects the mix in commercial side and the period. SG&A of the company, we had in the second semester a scenario of sales, a challenge because in a good show of expenses, and we have the impact of the second semester and these impacts will be we see at the other semesters, but we had -- we talked about [ '28 ], but SG&A is growing 4% in the period is less than our reflection and reflects the better sales, and there are actions too because we have made some actions to reduction this. So we understand that the second semester will be better, the things will be better. Regarding our actions. We keep our -- the schedule about the investments and R&D. The less better here about 2022 is not referred about the restoration is connected more than with the stage of the product because they are not the same in the period, but they work in research and development is [indiscernible] because they generated value for the company. The adjusted EBITDA is a little bit less than last year. In accumulated in 6 months, 49.2%. Generation of cash, we have BRL 165 million of generation of cash. In this period, I [indiscernible] generation to get a growth in the generation of cash. In capital structure, we have leveraged reduction when we compare in the last year, this in part. We keep the structure of capital that is very aligned with our investment agent schedule is natural that we have a relevant parcel about the funding -- about this topic. And the structure of capital, we have saturated, we have 75% in the long term, and this 75% is a relevant [indiscernible] from 5 years is we took actions -- talking always about this. Thank you for your time. [Operator Instructions].

Thank you, Marcelo. [Operator Instructions] Kleber, [indiscernible] to you about these questions.

Thank you, Jule. We have 3 question, 2 from Alex Espionelli and 1 from Anna Paolo. Alex is asking on actions from the ESG, the company. There is nothing in the presentation about this thing, so important. Yes, Alex, the EGS is very important for the company. We made a lot of actions related. And I want to talk about our sustainability if [indiscernible] was a winner ABRASCA prize in 2022 regarding 2021. And 1 is closer together with information -- financial information, and there are a lot of information regarding this topic. The company adopted the better practices. And in the point of view -- the environment of view, we're always looking for actions to mitigate our carbon point, and we have a lot of actions that we made our compensation -- totally, it's 3% of -- total compensation about the package in the market. So we have a lot of actions. We use energy funds from renewable -- and there are social points take care of people. We have a lot of actions. And this year, we have a voluntary group -- big voluntary group that made a food campaign, clothes campaigns for winter, for milk campaigns, blood donation campaign, beside the company. So we had a lot of actions and projects to supply the location of the majors that going should [indiscernible] school. We have an internal project with these teenagers. We had a lot of actions and the actions are disclosure at our regulatory of sustainability, and we talked about this last year at Ourofino Day about the maturity of teams, it's 6 teams. I don't talk about the details from each one. But all of them is very productive at our [indiscernible] and we always looking for this team and our company. Your company is the investments in R&D is related about what unit of business? It's all of them. Production Animals mainly the cows, and swines, companion animals, dogs and cats, but we have a big work -- regarding the register the products in the outside of Brazil. We operated in [indiscernible] with challenges -- sanitary challenges like in Brazil. So we developed these products from the Latin America. And we continue to register with other companies and the products that we developed. We are made expansions of work now to register outside Brazil. And we are investments in these countries in Latin America. Well, thank you for your questions. We have 1 question Anna Paolo. What is the market share of the company? The company at the end the year last year -- and in the other areas we had in the fourth place. But now the last year, we are at third place and we have a market share 9.95% and when you look for everything. But we have our products and markets, and we have opportunities to develop new products, mainly in biological products and this -- will be continue growing. I will talk about, for example, for the production and the artificial insemination at a fixed time for the [indiscernible]. And we -- and we finished the year at the leadership in this segment. The [indiscernible] medicines at this moment, we have last -- we have a less use because parasites vaccinations. But we are a leadership in this market around 50%. But this is the bigger challenge in Brazil. The parasites be always be here existing, but this is more than regarding about the regularization and the companies that sales and the medicines. But this is a little bit about the our visions. If you -- any question here, I will be available to reply. But if you have any questions, you can ask to us any time. How is the beginning of the second semester? Is it's possible to see some signals to this sales [indiscernible]? Yes, this thing is better. The second semester show us [indiscernible], not so -- not closely that we want to see it but it is showing us a little bit recognition. I don't believe that is all elements will be sold in the second semester. But as I told you before, regarding marketing and the production time -- the rainy time and the parasites -- and talking about the parasites too. And as July, we saw something better. And we continue believe that continuing things better and the continuity of this year. We have some actions -- say actions by plan. No, we don't have. We have always evaluated this, but now we are looking for our strategic point as our cash is -- now we prefer to have a conservative cash, so any actions open.

Thank you, Kleber. As Kleber told us, our team are -- is available always for you for questions or doubts. But remember that -- these transmissions will be available at our website, ri.ourofino.com and our YouTube channel at Ourofino Saúde Animal. I want to say thank you for everyone, for the present here. Remember that our company is open to lead our better together to you and Kleber, will be here to say to you.

As you saw, in some moment show a good work, a hard work, everything that we did is talking about the ratability of your actions. And we know that the trust with you because we trust with us in this last year, and now we have a [indiscernible] about the sectors, but it's a [indiscernible] that we will have a strong actions and good visions and made the [indiscernible] and all the things working hard. We have good expectations about the market, and we have our drivers are growing. We see the award. We helped the mental health and the people regarding the company animals. So we continue here with a good work. And thank you for everyone. See you.