Hypera Sa S/Adr

Good morning, ladies and gentlemen, and welcome to Ipera Pharma's earnings presentation for 2023. We have with us today Mr. Breno Oliveira, CEO, and Adomario Couto, investor relations officer. We'd like to inform you that this event is being recorded and you may access it on the company's investor relations website. ri.ipera.com.br. We'd like to inform you that all participants will be in listen-only mode during the company's presentation. After that, we will begin the questions and answers session when further instructions will be given. Before we continue, I'd just like to reinforce that some of the information contained in this conference call may have projections and considerations about future expectations of the company they are subject to known and unknown risks and uncertainties which may make these expectations not come to pass or to be substantially different from what was expected i'll now pass it over to mr breno olivera who will begin his presentation go ahead sir Good morning, everyone, and welcome to our earnings presentation for the fourth quarter of 2023. I'd like to start on growth on slide three. Our net revenue went up 6% in line with our sellout, excuse me, 3% in line with our sellout in retail. This sellout performance was lower than our initial expectation for the year, and it was impacted by a couple of factors. First, a reduction in 3% in our sellout in flu respiratory categories, which represent about one third of our total sellout, versus 10% for the market. In second place, we had decreasing inventories in independent pharmacies, especially in the fourth quarter, due to the lower level of credit given to these retailers. These two factors made for a deceleration halfway through the year, which also reduced our sellout. Our sellout in unrelated categories to flu and respiratory drugs was about 12%. The main highlight was the ones related to chronic and preventive care, such as cardiology, central nervous system, and women's health. In our innovation pipeline, we have several projects for these categories. Our IQV growth for the next six months is higher than the remainder of the market. We finished the year at 8.5% market share in retail versus 8.8% in 2022. It's important to highlight that we maintained our market share across categories in four years, and this was the result of the higher relevance in the flu and respiratory category for Ipera in comparison to the market. Even in a challenging scenario, we have added four brands to our power brand portfolio this year, as I'll show on slide four. Vitaminas Neoquímica, Simple Organic, Colfex and Flavonid were some significant line extensions and good investments in marketing these brands. The 25 power brands that we have right now show how diverse our portfolio is. They represent about 55% of our sales in retail. We have leading brands, We continue to invest in production, and this is essential to capture the main growth opportunities for the Brazilian market. In 2023, we invested over 600 million in research and innovation and 550 million in production capacity, and this includes that Behringer acquisition in Itapecerica da Serra in São Paulo. Continuing on slide six, we launched around 90 new products across all of our business units, and this includes line extensions in consumer health and skincare, as well as probiotics, vitamins, and medication that is focused on chronic and preventive care. both for prescription and generics. We also had new antibiotics and anesthetics launched in the national market. The average growth for recent launches has been surpassing our expectations. The products launched in 2022 and 2023 contributed with nearly 400 million in our net revenue. We also started to be part of the food excuse me, FTSE for Good Index Series in the London Stock Exchange and eDiversas in B3, meaning companies that have gender and racial initiatives. We are also part of the ISC B3 and the S&P Global Sustainability Yearbook, that includes the most sustainable companies in the world in the pharma industry. We launched two substations to increase energy distribution and reduced by about 20% direct CO2 emissions in our manufacturing complex. With this initiative, we are strengthening our energy infrastructure and our commitment to fighting climate change. Finally, we declared interest on capital of 779 million or 1.23 BRL per share, a dividend yield of 3.8%. We also posted record cash flow generation, 2.4 billion last year, and an EBITDA to cash conversion of 87% and a growth of 18% year on year. I'll now pass it over to Adal Mario, who will give us further details on the last quarter's results. Thank you, Breno. Good morning, everyone. With the deceleration we saw in market growth during the second half of 2023, we saw a reduction in retail sales in the fourth quarter. This reduction was seeking a higher alignment between sell-in and sell-out in the last months. Our net revenue was 13% lower, making our growth 5% for the year, as we heard before. We have to underscore that our income for retail and sellout are aligned according to the company's policies since 2019. Our sellout growth and net revenue growth are the most important indicators for the variable remuneration for the company's leadership, along with EBITDA targets, free cash generation, and employee turnover. In 2023, as in previous years, sell-in and sell-out growth was close. Sell-out grew by about 6% and sell-in grew by about 5%. Even with the deceleration of the market in late 2023, we were able to conserve the company's gross margin for the quarter and for the year. Maintaining gross margins is the result of the price readjustment that we carried out last year, and also the valuation of the Brazilian real versus the dollar. So that offset the increase in price for raw materials and processing last year. Marketing and sales expenses went up 3.6% versus net revenue last year. There's a lower dilution of fixed budgets or expenses and marketing expenses were about 16% of our net revenue, which is similar to 2023. The main marketing investments for the year were to expand our sales and sales points, increasing our medical visits team, and to distribute free samples to face the launches that we had in the company's prescription portfolio. To offset that, we had a reduction in seasonal campaigns such as anti-flu medication. A higher dilution of fixed operational expenses impacted our EBITDA margin, which remained below 33%. For the year, it was 34.5%, a small reduction of 70 basis points versus 2022. net income was 1.6 billion a reduction of three percent due to the higher operational profitability and also an increase of 307 million in financial expenses considering the higher level of debt we had last year continuing with cash flow This is the biggest positive highlight for 2023. We have record cash generation and a conversion of about 90% of our EBITDA in operational cash flow, which is far above last year's levels. We are still optimizing cash flow, reducing our raw material inventory, and we've been able to reduce it by over 200 million in the last year. Due to the deceleration in sales in the last quarter, our finished product inventory was higher than our expectation, and this will be adjusted throughout 2024. Our expectation for 2024 is to have an even higher conversion of cash flow into EBITDA as we adjust our inventories of finished goods and raw materials throughout the year. Considering that we didn't have any relevant acquisitions last year, and since we're working at a lower capex level, we were also able to generate a free cash flow of nearly 1.5 billion. which was more than enough to cover the cost of our debt and our interest on capital distributed to our shareholders. So gross debt at the end of the year was 7.4, excuse me, net debt. A leverage of 2.5 times EBITDA. In terms of liability management, we've been able to extend our debt very well with a reduction of the cost of debt. We had two issuances recently, a debenture issuance of 600 million with a total term of five years and a new line from BNDES for R&D investments, 500 million with an average term of seven years and a cost of TR plus 2.20 for the year. So I'll pass it over to Bruno for his final remarks. Thank you, Adomario. so growth on a quarterly basis was very volatile last year for the pharma industry this was impacted by what affected the flu and respiratory categories and also due to changes in the retail environment late last year despite that we grew with an expansion in volume showing the resilience of this industry in Brazil, and it should continue to grow on the medium term in 2024. The behavior of the pharma industry created additional challenges for our business, but we were still able to conserve our alignment between sell out and sell in and our market share in the categories we have besides that we also boosted the conversion of our results into operational cash flow and we continue to invest on our leading brands innovation and expanding our production capacity we understand that deceleration in market growth and in flu categories were temporary. They were not structural. For 2024, we are confident in the performance of the pharma industry and in our own growth. We've been seeing increases in sellout, low double digits in the first quarter, and this is in line with what we expected for this time of the year. Yesterday we published our guidance for 2024, which are net revenue around 8.6 billion, EBITDA from continuing operations around 3 billion, and net profit from continuing operations around 1.8 billion. We can convert this EBITDA into operational cash flow in 2024, reducing our inventories of raw materials and finished products. reduced sales in the fourth quarter were done to balance sell in and sell out. And that meant that we had a higher inventory of finished goods than we had initially foreseen. We will continue in reducing inventories in 2024 to boost our operating cash flow growth and free cash flow growth. We're confident in the potential of the Brazilian market and we're the company best positioned to benefit from it. We're the only one that is present across all segments of the pharma industry in Brazil. We are in 100% of the Brazilian pharmacies with a portfolio of leading brands, of which 25 are power brands. We also have an innovation pipeline with over 500 products to be launched in the next few years. and we have the biggest manufacturing complex in the pharmaceutical market in Brazil. All right, we'll move on to the Q&A session now. Thank you. Thank you. We will now begin the questions and answers session for investors and analysts. If you'd like to ask a question, please click on the raise hand button. If your question has been answered, you may leave the queue by clicking on the same button. Please hold while we poll for questions. The next question will be asked by Vinicius Figueiredo from Itaú BBA. Go ahead, sir. Good morning, everyone. Thank you for taking my question. I'd like to ask about something that Breno mentioned. We've seen that the industry has been growing at a higher pace than before. Generics are highlighted that. So you mentioned low double digits sellout in Ipera. So I just like to know if we will see similar makeup to the rest of the industry, or if you have some OTC segments that are rebounding after a week or year last year. And my next question is unrelated, but I'd just like to ask about institutional products. This quarter, you didn't mention them in your release. So if you could tell us a little bit about its growth, how much you've gained in margins and that vertical as well, that would be great. Thank you. Good morning. to answer your first question. Growth mix. We're very balanced this quarter across business units, so we haven't been seeing, at least in our portfolio, higher growth in generics, which tends to be impacted by gross profits this isn't what we're seeing we know that month-to-month growth levels are very volatile so we like to look at a longer period like a quarter or even more but we haven't seen that as much we are seeing a rebound for the otc category and respiratory products which uh were detractors last year I don't think anything changed in institutional products. We're still excited about that business unit. As I said, we're launching some new medication. like some products in anesthetics and antibiotics. So our portfolio is more for the institutional market, but it's still very small. It's still a small part of our portfolio representing about 5% of our total sales. But we're still very excited about it and we're very optimistic about the next few years. Our goal is to reach a higher percentage of sales on the medium to long term. Great. Thank you, Breno. Thank you, Vinicius. The next question will be asked by Leandro Bastos from Citibank. Go ahead, sir. hi i have a couple of questions first about the beginning of this year is cell in more better aligned with sellout this year so how has that been going in 2023 and if you could tell us specifically about adjustments to the channel, or if we're still expecting that middle of the year seasonal pattern to be clear on this part of the portfolio. So those are my questions. Thank you. Hi, Leandro, this is Tom. So we made a huge effort. I think our results show it. Like I said, And Adelmario said as well, our growth for sell-in and sell-out last year as a whole was in line. So that means that inventories are balanced. Just as we started the year, we're finishing the year. You asked specifically about drugs for acute use. We basically adjusted that, but we look at total inventory with our clients. Sometimes we have more or less of a product, and this balance is based on the average for the company. But with that being said, even with anti-flu inventories, sell-in was led by this kind of product. With that, our inventories are well adjusted for our clients. And referring back to your first question, in the first quarter, we expect to see this balance between sell-in and sell-out. For the first quarter, at least. Great, thank you. The next question will be asked by Stella Estrano from JP Morgan. Go ahead. Good morning. Thank you for taking my question. This is a follow-up question, but I'd just like to hear a bit more about the top line. You mentioned that your guidance is 8.6 and revenue a growth of 9%. So how are you seeing that distributed throughout the year? across the four quarters? And if you could tell us about what trends you're seeing for the first quarter? And if you're seeing any improvements in independent players considering their inventories? Are you seeing any incremental demand for antithermal drugs, which are a proxy for flu medication?

I'll answer your first question, Stella.

I think just like last year, we had a distribution throughout the year which was very different across the quarters, especially sell out. We had an impact from more acute products, especially anti flu drugs, which we hope won't happen this year. But how does that reflect on sell-in? Last year, we mentioned that we have to build this inventory, especially with seasonal products. So this is done in advance, and then we have to see how it goes, if sell-out goes according to our expectations. So it's natural that the first quarter of the year in terms of sell-in is usually weaker. and that will be stronger in the second quarter, which is the opposite of what happened in 2023. So we will probably see difference in growth between the quarters and we have to see how sellout is doing in these categories, which are a little bit more seasonal. But once again, we believe that we will go back to normal levels this year. We don't foresee anything too different from the norm this year. And Stella, to answer your other question on independence, we're seeing improvements for the market, but especially for independence. So as we heard before, It was a temporary movement for a couple of reasons. First, credit, which I think was important for distributors to be more conservative in providing credit for independent retailers, but also due to deceleration we saw in the entire market and how sellout is calculated. which is by selling from distributors to independent pharmacies. So there's a reduction. And as they reduce their inventory levels, this will have an impact on new orders being placed. But we do see this improving already. We have data from the first two months of the year, and we can see that there's a growth of less than 4% in the fourth quarter for independent retailers. And it's around 10% for the first two months of the year, which is a very positive sign. It shows that this movement has been concentrated in the second quarter, especially the fourth quarter of last year, as we expected. I don't know if that leaves any questions for you, but unanswered, but. Yes, and what about dengue fever? Have you been seeing additional demands from that this year? Dengue fever has a mixed effect for us because some products, some medication will be affected negatively. so corticoids which are not recommended for uh patients who have dengue but other analgesics like deep your own have a positive will have a positive impact but for now we don't see any major impacts to our portfolio but we have been monitoring this up close we're trying to see how it's evolving and what impact it will have on the company Great, thank you, Breno and Aldo Mario. Thank you. The next question will be asked by Gustavo Mieli from Goldman Sachs. Go ahead. Good morning, Breno and Adalmario. Thank you for this presentation. I have a couple of questions as well. The first one is about the guidance for 2024. If you can help us to understand the top line growth that you're presenting, it's about 9% year on year. So if you could tell us a bit more about what contribution you would get from future launches for 2024 recent launches in 2023, that would be great. And if you can tell us about how much of it will be growth in the legacy portfolio. And I'd also like to check if you are considering PIS cofins on ICMS credits. This is something that's being considered in the tax reform. My other question is also about your guidance, but it's more related to net profits. So what's the leverage target that you expect for 2024? What CDI are you considering just so that we can conciliate the business plan for these cases? Thank you. Hi, Miele.