Hypera Sa S/Adr

conference call where we will be talking about the second quarter of 2022 earnings. We have with us Mr. Breno Oliveira. CEO, and Mr. Ademario Cotto, Executive Director of Investor Relations, or IRO. We'd like to inform you that this event is being recorded, and you may watch it on the company's Investor Relations website, epera.com.br. We'd like to inform you that all participants will be in listen-only mode during the presentation. Afterwards, we will have the questions and answers session when further instructions will be given. Before we continue, I'd like to underscore that some of the information mentioned in this conference call may refer to projections or statements about the future. They're subject to risks, known and unknown, and uncertainties that can lead them to not come to pass or differ substantially from what was expected. Now, I'd like to give the floor to Mr. Breno Oliveira, who will begin the presentation. Mr. Oliveira, over to you. Good morning, everyone. Welcome to our conference call for the second quarter of 2022. I'm going to begin this presentation speaking about our growth on slide three. This quarter, our organic sellout grew above the market by 25% or 6.5 percentage points. Our leading brands in our portfolio made a huge difference once again, and we gained market share for the seventh consecutive quarter across all business units. Our highlights were our power brands, the more traditional ones from Iberia and the ones we recently acquired. Besides the performance of our leading brands and accelerated launches, our internal raw material inventory policy and our finished products with our clients have been very efficient and have contributed towards our sellout growth. From the beginning of COVID, we decided to operate at higher inventory levels for our main raw materials from China and India. And we kept healthy levels of finished goods with our clients. This has ensured that we have a good supply of most of our products in pharmacies and distributors, and we've managed to grow across our main products, especially during the time in which we had less availability of pharmaceutical products. We continue to innovate to strengthen our market share in the Brazilian pharma industry even more. This quarter, we've invested over $120 million research, and development, and we've had important launches, which I will mention on slide four. We launched the patented estrogen-free contraception drug, AMI, which is a milestone for Imerpharma going into a category that represents 1.7 billion Brazilian reels. Besides that, we launched CURC, EpoClair Todo Dia, our first extension of the power brand EpoClair line, and Buscofem Hot, the first line extension for Buscofem since its acquisition in 2020. We have over 100 products that will add $1.6 billion to our gross revenue when they reach peak sales in five years. The company continues to invest to boost its sellout growth and to go into new markets, And in this quarter, we reinforced our medical board with Dr. Fernando Bacal, who is the director of the transplantation group at INCOR, and Dr. Yana Zogman, who runs the oncology center at the Sierra Libanese Hospital. They will help us in developing our innovation pipeline for the institutional market and also for prescription drugs. We continue to invest on our growth and we maintain our commitment to our business sustainability, paying out shareholders and well-being for our stakeholders, which I'll mention on slide five. This quarter, we advance our strategies to the institutional market. We had a net revenue of $1.8 billion, a growth of 25%. With Mono Globulin providing additional returns, we are still firm on our initiatives to gain participation in our market. Expansion capacity for injectables, as we mentioned in 2021, will be concluded this year and we'll add our production capacity next year. And we continue to advance in our R&D area exclusively for this market to support our innovation pipeline. In the second quarter, we declared interest on own capital of 194 million BRL, or 31 Brazilian centavos per share. And this was published in our 2021 annual report, showing our main highlights and initiatives in environmental, social, and economic standpoints, including our emission reduction plan, which will add value and help people to live longer and better. I'll now pass the floor to Ado Mario, who's going to give us some more details on these results. Thank you, Bruno. Good morning, everyone. This quarter, our net revenue was 26% higher than the comparative period, an organic growth of the company's brand portfolio, and then the recently launched products, which had a significant contribution, nearly 30% this quarter. We also had contributions from sales to the institutional market, which were above $128 million this quarter, and a contribution from net revenues excuse me, two net revenues from the brands acquired from Sanofi. Our gross margins were 64% versus 65.5 in the second quarter of 2021. This is a consequence especially of a higher share of products in the hospital channel from our product mix. We also had some specific inputs at higher costs due to a higher demand during this period. This impact we received from the gross margin in an institutional market does not affect our EBITDA margin much, considering we have a lower relevance there in marketing investments and in sales in this market versus the retail market. As Breno mentioned, our power brands had another strong quarter in growth, contributing to dilute operational expenses, especially marketing expenses, which went up 5% year on year, above 300 million Brazilian reals this quarter. This also... had a dilution from acquisitions, which continued to impact our expenses positively. There was a reduction of 3.3 percentage points on expenses versus net revenues. Expenses and sales represented 10% of our net revenue this quarter, which is similar to what we had last year. And they were benefited from the dilution of our DQs, used during this time. This quarter, we also received a benefit of $11 million from Les Deux Bains. When we include the amount capitalized as intangible assets and the total investments in R&D, they were 6.5% of our net revenue this quarter, or nearly two percentage points above the comparative period last year. These R&D investments consider all the efforts we're making to develop the product pipeline in the institutional market. As we said before, we've mapped over 70 projects with an addressable market above 12 billion Brazilian reals. In SG&A, we had a reduction And this reflects the synergies captured in integrating the brands acquired from Sanofi. With that, EBITDA margin from continued operations, excluding the others, was 1.5 percentage point higher than the second quarter of 2021, reaching 35.6%. And net revenue Net income of continued operations was 455 million Brazilian reals this quarter. There was an impact from financial operations, nearly 138 million, given that the company needed to take some debt for the acquisitions, and debt now has a higher cost. Now continuing with our cash flow and debt in this quarter on slide 7. We had record operational cash generation for a second quarter, $535 million, even considering the initial investment of $47 million for the working capital and for the brand portfolio acquired from Sanofi. This quarter, we invested 38% of our net revenue in working capital versus 36% in the second quarter of 2021. This higher variation in working capital was due to increased inventory days for raw materials, and this is in line with our strategy of having a higher safety inventory, creating a buffer for the most strategical inputs. After the CAPEX investments focused on expanding production capacity, a new lab and a pilot channel for the institutional, we had a free cash generation of $364 million. We also had a net output of $435 million in the financing cash flow. with an amortization of $230 million and the remaining for interest rates. Therefore, our cash position at the end of June was $1.5 billion BRL and our net debt above $6.5 billion, or 2.5 times the EBITDA considered in our guidance for 2022. We're also working in new ways of capturing funds to expand our debt terms and to keep an attractive and low spread. With that, We maintain our commitment to the company's main financial goals, protecting liquidity, increasing cash generation to deleverage our balance, and reinvesting any excess cash to support our organic growth through our product pipelines, our production capacity, entering new channels, and our digital initiatives. That's it for me, and we'll now return to Bruno, who's going to make his closing remarks. Thank you, Adelmario. So to conclude, I'd like to restate that we're very happy about the company's results for the first half of the year. With the gain in market share that we had during this time, we became the biggest pharma industry, excuse me, the biggest pharma company in the Brazilian industry. So I'd like to thank our employees for their work and their collaboration, but also our clients, partners, and consumers. For the second half of the year, we will continue focused on generating cash, integrating the portfolio we acquired from Sanofi, and expanding our sellout. We are still confident about the guidance we set out for 2022. And I'd like to invite everyone to our hype date, which will happen on September 1st. We will send you further details soon. Thank you. And now we will continue with the Q&A session. We will now begin the Q&A session for investors and analysts. If you'd like to ask a question, you can click on the raise hand button. If your question has been answered, you can lower your hand again. First question will be asked by Bob Ford from Bank of America.

Mr. Ford, your microphone can now be turned on. Mr. Ford, you may now turn on your microphone and ask your question.

Thank you. Good morning. Congratulations at El Mario for your results. I'd like to ask about market share improvements during this quarter. How do you see your market share and how much should we consider for the future?