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

Hello, good morning, everyone. Welcome to the presentation of the results of the first quarter of 2024 for Ouro Fino Animal Health. I'm Mariana Anselmo, I am part of the communications team of the company, and it is our biggest pleasure to be here with you today. We are going to record this meeting and it's going to be available at our channels, YouTube, youtube.com/ourofinosaudeanimal, as well as our website, ourofino.com/ri. At the end of the presentation, we are going to have a Q&A session, and I would like to invite you all to participate. All you have to do is just send a question at the Q&A icon. Before we start the presentation, we have a disclaimer that I am about to read to you, guys. So this presentation brings declarations about future events that are based on risks and uncertainties. Such statements are based on beliefs and suppositions that our administration and information that the company currently has access to. These statements do include information about our intentions, beliefs and actual expectations as well as those of the members of our Executive Board. The exceptions about the statements and information about the future also include information about possible or presumed operational results as well as statements that are preceded, followed by or include the words believe, might, will, continue, expect, foresees, pertains, plans to, estimate or similars. The statements and information about futures are no guarantee of performance. They involve risks, uncertainties and suppositions because they refer to future events depending on circumstances that might or might not happen. The future results and the creation of value for shareholders could vary depending on the result of the future. Many of those factors depend -- are not dependable on our culture or estimations. So this is our legal disclaimer. So I would like to now introduce you to Kleber Gomes, our CEO; and Marcelo Silva, our financial and -- our Financial Director as well as relations with investors. So good morning, and welcome Kleber Gomes, our CEO. Kleber, you have the floor.

Good morning, everyone. Thank you, Mari, for the introduction. Well, I would like to start by talking about the matter of Rio Grande do Sul that's happening here in Brazil. We are deeply concerned about the situation that's happening here. And we are -- we have been closely talking about it with our team. Our priority was to understand and tend to the safety of our team present in the state as well as our customers. Thankfully, our team is safe. I mean, talking about their safety, of course, all of them have been undergoing deep sorrow because of the situation. Of course, in some regions are in a worse situation than others. We know that many of those people have had losses and there's also an important part of the state that hasn't been affected and are going with business as usual. Obviously, we will try to support our customers and our other stakeholders in the best way that we can. Our company has been creating different initiatives to help as much as we can, even though we were not going to be able to help everyone, we're trying to help the most people as we can. We are making donations directly to our leadership that is present in the region that can help with emergency. So I would like to thank from the bottom of my heart to the leaders present in that state that are conducting a fantastic work, helping -- saving lives as well as helping restructure the state as well as tending to our customers. In addition to it, we have also donated products, along with some logistical partners present in the region. And our union, SINDAN, as long as with the veterinarian association at Rio Grande do Sul are working together to make sure we can also tend to the animals of the area. Ourofino has already donated animals from our pet line as well as other products that can help with cleaning as well as some products for animals of production in the next few days. We are working along with other companies in the animal health sector as well as some NGOs. We have volunteers working. We're working with donations. We have made some partnerships helping with voluntary work. So, basically, we are doing everything that we can to help with this critical and difficult situation we've been going through. We know that Rio Grande do Sul is one of the very first places of work at Ourofino. In our origins, we have so many gratitude for the people of Rio Grande do Sul, and we know that the people from Rio Grande do Sul are warriors and they are very strong. And along with our help, with the help of the private sector, the help from the government, and given there will, we know that they are going to overcome this difficult moment. Now about the financial part, we have more data to disclose about this part. But, I mean, this is just to give you an overview about our initiatives. Now back to our business. As you know, the year of 2023 was not a good year. We were not expecting the results that we had. We, of course, were able to start reacting since the second half of the year. We try to -- we had some cases about some handling changes. We had many external factors acting over our business, and we worked very hard on all of the factors that are under our control. And we were still looking for the results that we had in the previous years that have all been very positive. We made some different -- some changes in our restructure. We have changed the management with pets, for example. We also worked with having more visits to our customers. We also worked with other stakeholders that are engaged in the need that we have for growth. We have as well worked with different cycles and different techniques and now we are having a better result since the third quarter, and we are sure that we are going to keep on with this growth in the next quarters as well as it has always been our history. We're talking about a growth of 16%, which is a great number. But we have also seen an amazing sellout and inventory and our distributors are also going back to the regular results. So we are, yes, glad with the results that we have been facing. When it comes to production animals, we have also been implementing changes in this sector as well, especially now in the year of 2024. The very first thing that we did was create this segmentation for -- of animals. So now we have ruminant animals and poultry and swine animals and pork. We also changed something for ruminants. We have now, Ivan, who has an amazing experience in this area. And we have also changed the structure that we have in the 3 executive managements that we had in region. Now we have a National Commercial Director that is going to allow for us to have more linear actions. We have also changed other practices. So, for example, we started a loyalty program. And we have been working very fiercely on this front, and we could see a growth in the 2-digit area, so we are very happy with that. But there are many other initiatives that we are going to start. We have other practices and the new leadership. And obviously, we know that we are now working with a different baseline, especially when it comes to the program that we have for the foot and mouth disease. So we already know that we had this terrible problem with our revenues, but now that we are working with different products and with this new commercial leadership, we are going to see even better results that we haven't seen so far because we're talking about an almost 13% growth in the last quarter. When it comes to international actions, this year, we had a reduction because, of course, these vaccines have been decreasing in the last month in different countries, especially in Mexico, but we are doing very well in other countries, for example, in Colombia. Even though this is a weaker quarter, we believe that we are going to be able to resume our growth in the next quarters. When we talk about the planning that we started last year, we can see that we are finally reaping the benefits from those programs. We also had some internal changes, both seeking for more efficiency and focusing on generating more value for shareholders. And, obviously, the profitability indicators are looking better. We are still with a very strong and healthy relationship and numbers, we are in a financial situation that is very comfortable. I would even say privileged, maybe. Marcelo Silva is going to present to you, guys, later all the elements to evidence what I am telling you right now. This year, we also launched a new product. We -- by the end of the year, we are going to have other new products, but now we are talking about Herbal Vet, which is the leader in the market. EnziClim is a biological product, a safe product that could be used especially to remove stains and smell, feces small and urine smell of animals, especially removing those smells from carpets, for example. So EnziClim is a new product that is from the line Herbal Vet, it is a biological product that acts through bacteria. It's completely safe for domestic use and it removes stains as well as smells. It has no smell, it has no color. Its mode of use is very easy. So it's an amazing product, and we have started the sales on April, and we were able to have positive numbers in all of the points of sales. That is to show how strong is our brand, how strong Herbal Vet is and we intend to extend this line for this product as well. We also got the approval for 2 other products that are going to be very important for Ourofino. We are currently importing the raw material necessary for the production so we can launch those products by the end of the year. Unfortunately, I cannot talk about the products yet. Otherwise, we are just going to disclose too much of our strategy. But I can tell you that those are going to be 2 very important new products that are going to support our strategy. And we do believe that we are going to see some great results when it comes to those changes that we had in the last few years when it comes to the acceleration of our portfolio in research and development. I would also like to state that we are starting a new strategic planning cycle. We have already hired consultants that are going to help us, and even more so, our team is more engaged than ever to explore new growth avenues. Our last growth cycle was in 2019. And ever since then, we have started with many changes and new initiatives in our business. So it's important for us to see new horizons when we talk about growth in the short, mid and long term. Our products have long cycles, so it's important for us to anticipate future conditions in the best way that we can. So we know that we're talking about a difficult year. So for example, we already know that the livestock cycle is facing difficulties now with the situation in Rio Grande do Sul. Nevertheless, we are prepared and we are certain that we are going to deliver great results until the end of the year, and it's coming from our hard work and from our innovation. So I would like to thank you all who are here spending this time with us in this talk. And now I give the word back to Mariana.

Thank you, Kleber. I would like to remind you once again that our Q&A session is open. So should you want -- should you have any questions, please send them away on the Q&A icon. Now we are going to introduce our Financial Director, Marcelo. Marcelo, you have the floor.

Good morning, everyone. Thank you, Mariana. Well, just like our CEO mentioned, this year, we were able to deploy many different initiatives to increase efficiency in our operations, including process review, project review, internal restructuring. And we were able to deliver in this first quarter a growth of 6.7% in net revenue when compared to the same period of last year. Among those restructuring actions and a pursuit of more efficiency, we were able to build results with higher profitabilities as well as revenue. So we were able to increase our gross margin by 3.1 percentage points as well and as well as our EBITDA with a growth of 11.8 percentage points. We also grew our revenue, we were able to improve our financial indicators, especially when it comes to cash flow and leveraging. We already had a low level of leveraging of our EBITDA, which was 1 -- 0.9 and now we reduced it to 0.5. So we are in a very comfortable situation when it comes to our investment proposal, which is basically investment in R&D. We have long-cycle projects, just like Kleber mentioned. So 76% of our debt is a long-term debt, and we were able to close the month of March 2024 with an average cost of 7.7% a year. So we are talking about a capital structure that is quite upper to our investment profile that is highly focused on innovation. Now in the next slide, specifically about our consolidated results, just like I told you, we had a growth of 6.7% in our net revenue and a 5.7% increase in gross margin. So we are going to 85.6 million in this year. And we do believe that the year of 2024 is a transition year. In 2023, it was an adjustment year. And 2024 is going to be this year where our results are going to be consolidated and improved, specifically about the results of our business units, about the production animals. We were able to have an increase of 12.7% already caused by the changes that we made in the structure. We also had a recovery in gross margin. It was 37 -- 36.7% in the last quarter, and now we have a result of 43.3%. It's the best result we have ever had, which means that this year, we have more efficiency in our operational structure. We also have more favorable scenarios when it comes to our raw materials, which is due to a very hard work that we performed in the last quarter. So we had best results when it comes to gross margin as well as net revenue and this is due to changes in our structure and a better and more favorable condition in raw materials as well as increase in sales and reduction in fixed costs. So we were able to grow our margins even more than last year when it comes to these production animals. Now for pets, we had the bigger growth. We're talking about a growth of 16.3%. Those results are very positive in terms of sell-out, and it shows us that selling is -- it indicates that selling is also going to keep growing in the next quarters. We had a lower gross margin, partly because of favorable mix of products. So for example, in supplements. And even though they are growing, their gross margins are lower. However, we do believe that this unit is going to increase. Therefore, we believe we will be able to have better gross margins in the next quarters. Now for international operations, the first quarter of 2024, in comparison to the first quarter of 2023, we can see that last year, we had a better quarter because of the vaccine program. So we're talking about 7 million of revenue because of this vaccine program, especially in Uruguay and Paraguay. And in this first quarter, we didn't have the same sales, that's why we have lower numbers. We also had a problem in Mexico because they are facing a drought, and this is also harming the sellout of our products. Nevertheless, we are working to remain growing in international operations. Therefore, keeping our commitment to the Latin America because we do believe that this region is an amazing growth avenue of growth for us, and we are going to keep increasing our portfolio in all of many countries. Last year, we started selling to Chile, and we also intend to be more present in all of the countries of Latin America. Now, about SG&A. In the second quarter of 2023 as well as the first quarter of 2024, we have been deploying many initiatives. So now in 2024, we went back to the same level of SG&A that we had in 2022. So a total SG&A of 59.3 now compared to 58.3 in that region. So when we compare with inflation, we can see that we have reduced volumes of expenditures when it comes to staff. And we also accommodated inflation. So we had basically the same level of SG&A that we had in 2022. And this is something that we tend to keep in this year. We still haven't captured the full reduction of costs in 2024, but we started this year with our lessons learned. Well, we didn't change our agenda of investments in R&D. Given the schedule of execution of the project, sometimes we have some variation in this investment. And over the course of the year, we are going to keep investing. Last year, we were able to invest 78.6 million in R&D for the development of new products. And our relationship between revenue and investment is going to be capped at the same levels as last year. And just like Kleber mentioned, we also expect to launch new products that are probably going to aggregate revenue in the third or fourth quarters of 2024. The EBITDA is in 24.2 million, which is amazing. Last year, we didn't have such a good level on EBITDA, given all of the problems that we had last year. So we were able to make this good adjustment for the first quarter in 2024, which tends to be the weakest quarter of the year. Regardless, we were able to grow our EBITDA given the improvement of our gross margin as well as reduction in the cost of the company. Moving on. We were also able to generate a cash flow in a very robust way. We generated 67.5 million, which also helped us improving our cash flow situation. So we left the last year with $204 million and now we are at $249.3 million. So we are in a rather comfortable situation to keep our investments strategy. Now since we had better margins and more cash flow, we were able to reduce our leveraging. So we have been decreasing our leveraging over the course of the last years. So we could see that in 2022, we were at 0.3. Now we are in 0.1. So we are coherent when it comes to our investment strategy, and we have been improving our leveraging over the course of the last years. And the challenge is to keep this level in the next few years when it comes to our agenda of R&D. We were able to end in 7.7% and the interest rate is 9.6%. So -- I'm sorry, 11.3%. So we have a rather comfortable position when it comes to leveraging as well. And in addition to all of those factors, we can also see that our capital structure is basically a long-term debt. And we also have a good aging level. We're talking about a 5-year plan, for example. So we don't have any relevant or high volumes of that in the next years. Now I'd like to finish my speech by thanking you all for trusting our work, and I would like to also reaffirm our commitment to keep on working hard in improving our indicators. I'd also like to pay my solidarity to our brothers in the Rio Grande do Sul. We are here to help you in the best way that we can. We want to help our partners and our customers. And I would like to give the word back to Mariana who's going to conduct our Q&A session along with Kleber.

Thank you, Marcelo. Now, once more, we would like to thank you all to send questions. I am going to wait for a couple minutes. And also, this session is going to be available at our YouTube channel, youtube.com/ourofinosaudeanimal, as well as our website, ri.ourofino.com. Well, we don't have any questions. So I would like to go back to Kleber Gomes so he can end this meeting.

Okay. Thank you, Mariana, and thank you, Marcelo, for your amazing presentation. Like I said, this is a work where we're going to have a lot of work. Our work is cut out for us. So we have been seeing this situation with livestock, we are going to see results by the end of the year with this. We are confident that we are going to deliver better and better results, especially for 2025. And we have a very important matter about investments in livestock. And we know that the livestock costs are lower. And when producers don't invest on care for -- on health care for their livestock, it increases their costs. Therefore, I do believe that all of the actions that we have been performing are going to bring us good results, positive results. Obviously, we know that there's a lot to be done in to improve over the course of this year, but no doubt, we are going to be able to deliver them. Once again, we are going to pay our solidarity to Rio Grande do Sul. Ourofino has been following and helping as well as we can. I am very moved to see how much our team has been helping. And this is Ourofino, we play to win. We care about people and we are connected to the world. I would also like to say that when we talk to connection with the world, I went to Japan, to Europe, to China. And in the midterm, we do believe we are going to have some amazing results given the work that we have been doing with those regions. Once again, thank you to our Executive Board for being -- helping us so much. Our founders, Mr. Jardel, Mr. [indiscernible]. Thank you very much. And even in this moment, so critical moment, they have been helping us personally with inputs and insights as well as our management organisms or assessors and especially our shareholders who have believed in the management of this company so much. So thank you, and let's keep going. Thank you, guys.

Thank you, Kleber. And now we are going to close this meeting. Once again, our Investor Relations is available for you throughout the entire year. Anything you shall need just please contact us in one of our channels. Thank you very much and see you next time. Thank you. Bye.