Hypera Sa S/Adr

Good morning, ladies and gentlemen. Welcome to Ipera Pharma's earnings call for the second quarter of 2024. We have with us Mr. Breno Oliveira, CEO, and Mr. Adomario Couto, IRO. This event is being recorded. The video can be seen at the company's investor relations website, ri.ipera.com.br. We would also like to inform you that our participants will be in listen-only mode. We will then have a Q&A session. Further instructions will be given at this time. Before we proceed, I would like to reinforce that some information in this conference call may contain projections or statements about future expectations. This information is subject to known and unknown risks and uncertainties that may cause them not to materialize or to be substantially different from what was expected. I will now turn it over to Mr. Breno Oliveira. Mr. Oliveira, you have the floor. Good morning, everyone. I'd like to thank you all for being here for our earnings presentation for the second quarter. I will begin discussing our growth on slide 3. Our sellout went up 6.3% this quarter, boosted especially by our performance in chronic and preventive treatments, which is increasing its share in our portfolio. We are strengthening our position in this category with some launches that will make our portfolio more balanced between acute and chronic use medication. Performance in respiratory pain and fever and influenza medication, which is about one-third of our sellout and 10% of our market sales, was negative by 1% for the company and 2% for the market. This was the only reason why our growth was below the average for the entire market this quarter. Our performance in these categories is a consequence of the high temperatures we saw in the first quarter of the year, still above the levels seen in 2022 and 2023 due to El Nino. Other categories unrelated to influenza represent about two-thirds of our portfolio, and they represented 12%, which is in line with the rest of the market. Our highlights were cardiology, nausea, women's health, gastro, and vitamins. Sell-out growth allowed us to reach a net revenue of $2.2 billion and a record operating cash of $624 million, which was also benefited by a significant reduction in our inventory, which Adal Mario will discuss during his part of the presentation. we are making significant investments in research, development, innovation, and in expanding our production capacity. And of course, without forgetting, shareholder payouts. We have invested about 7% of our net revenue into R&D. In this quarter, we have launched line extensions for leading skincare and consumer health brands, and also new products in vitamins, endocrinology, respiratory system, cardiology, and gastrology. Our main CAPEX projects have been advanced in Goiás and São Paulo, internalizing some of the production for the acquired brands. We're also expanding our distribution center and building a new plant for oncological and biological products for the hospital market. Our interest on owned capital was 185 million or 29 cents per share. This is all in Brazilian reals. And we also published our 2023 annual report, which is aligned with the UN sustainable development growth, excuse me, sustainable goals. following GRI and Reporting Council guidelines. We'd like to invite you to read our reports as they present our main initiatives and sustainability. Finally, we were selected once again to the FTSE for Good Index Series, one of the highest sustainability indexes in the market. I will now pass it over to Mr. Adel Mario, who will present more results from this quarter. Thank you. Good morning, everyone. So let me discuss the main figures in our results and discuss our cash flow. This is one of the main positive highlights for the second quarter and for the year of 2024. Our sales were close to 2.2 billion, a total net revenue of over 4 billion, around 47% of our revenue guidance for this year. We'd also like to highlight that last year we had strong revenue growth, about 18%, with a lower sell-out level. When we look at a longer timeline comparing the second quarter of 2024 with the second quarter of 2022, our net revenue growth was 16% and our sellout grew by 15.4% during that same time. So it was very close. This shows our portfolio's resilience, even facing a more challenging scenario for anti-influenza. We have maintained a healthy portfolio and have had a significant increase from the new launches, which already represent 26% of our net revenue or one third of our total revenue when we exclude the brands acquired in the last five years. considering profitability. Price increases in April and reduction in idleness in our plant were not enough to offset the negative contribution from the higher share of generics. and the reduction in the first quarter. We also saw an increase in commercial discounts during this time. So despite our gross margins being pressured, we are more efficient in SG&E, especially in marketing expenses, making our EBITDA margin 34.5% this quarter. Our financial results had lower expenses by 45 million, due to the company's reduced debt and a reduced cost of debt, with cuts from the CDI rate and lower spreads in new issuances. So, at our bottom line, we had a net income of 491 million Brazilian reals from continuing operations. On slide 5, we see some of our highlights. First, an 8% growth in operational cash flow, representing 80% of our EBITDA conversion into cash generation. This is the highest level ever reported by the company in the second quarter. This increase in cash generation came from a better performance in working capital and our inventory reduction policy. In the last quarters, we have been able to reduce our inventories consistently, and this goes for finished goods and raw materials. We are close to 200 days inventory now. Optimizing working capital in higher capital generation has allowed us to make all necessary investments to keep the company growing sustainably. Investing in R&D, innovation, production capacity, and our free cash flow was nearly $460 billion. Our financing cash and flow included issuing debentures and new financing plans through BNDES and FINEPI, coming to a total of 1.7 billion and payments of nearly 1.2 billion. And the latest highlight was a reduction of 165 million in the company's debt this quarter. Our leverage is now at 2.4 times the expected EBITDA for this year. I will now pass it over to Breno again for his closing remarks. Thank you, Adomario. So the influenza, respiratory pain and fever market where we are exposed had a very slight growth in the first quarter due to higher temperatures in the first half of 2024. El Nino has lasted from July 2023 to July 2024, and we are already seeing the market growing in July at about 10% versus 0% in the first quarter. We're confident for the second half of the year, which should have a higher sellout than what we had in the first half. And so we're pursuing the guidance that we have published for 2024. Besides that, as I mentioned in our latest call, our goal for 2024 is to increase our operational generation at a significantly higher level and our operational results. We have been very strong in our leading brands, our position has been resilient, and our innovation pipeline is growing. making us the best prepared pharma company to capture the growth opportunities in the brazilian market for the next years we will now continue with the questions and answers session 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 can lower your hand. The first question will be asked by Joseph Giordano from JP Morgan. Go ahead, Mr. Giordano. Hello, good morning, everyone. Thank you for taking my questions. The first question I'd like to ask you is about how we should understand the comparative basis for the second half of the year. You've just mentioned the guidance. So looking back, what was the effect caused by the reduction in inventory levels? I mean, considering the guidance is still the same, I'd just like to know what we should expect. And I'd also like to ask about the new growth avenues. What have you advanced in non retail markets in sales and especially new products? What you have been developing? What has been approved? You mentioned immunoglobulin. These are major products, so I just like to understand a bit more about that. And finally, with cash generation and inventory levels. What should we consider? about foreign exchange. We know that the Brazilian real has reduced its value in the last month. So how does that affect your hedging policy and what impact may that have on your results? Are your high inventories reducing that impact for the second half of the year? Thank you. Hi, Joseph. Good morning. I'll answer your first question and I'll let Breno answer your second and third questions. But referring to the performance that we had this year, comparing the first and the second halves, It's what we mentioned in our call. The variation that we were going to see in the first quarters this year would be significant, especially because of our comparison, right? Our comparison is much stronger in the first half of 2023, especially when it comes to sell-in. And the second half of 2023 was much weaker, especially the fourth quarter, where we saw a double-digit revenue decrease. So we believe that if sellout is... And as Breno said, our levels in July are a good indicator. We're seeing some growth. So this is a time where influenza medication is still significant. So we saw there was some recovery in that category, which is very important for us. So July is in line with what we were imagining. The second half of the year is starting off on the right foot and we'll be able to resupply our clients inventories throughout the second half of the year so that we can reach our growth guidance for 2024. I'll also answer your third question about. Cash flow and the impact of foreign exchange to our costs. The current exchange rate is above what we had imagined for this year. We had estimated it would be about 5.10. Differently from what we did in the past, before, besides hedging our purchases, we were also hedging our estimated purchases for the rest of the year. So that increased our hedging. And as of the end of last year, we stopped doing that because of our higher inventory levels. Since our inventory levels are still above what we would like, we're seeing a smaller impact for an exchange to the results that we'll have in 2024. But in 2025, we will probably see some more of that impact. On the other hand, we have been seeing a reduction in... us dollar costs in some of our main apis so we are at a much lower level in purchasing these apis so that helps us to reduce the impact from the higher exchange rates And if this level is sustained, we'll need to adjust our prices for next year. So it is not a concern for 2024. It will probably not impact us significantly. But next year, we will see some other factors that may affect us and see what the impact will be. Hi, Joe, this is Breno. Let me answer your second question, which was about the institutional market. We talked about the institutional market and the company's plan during our Hype Day 2022. Since then, we've been following our plan. It continues our business plan, and we're very pleased with its performance. Sales for portfolio products have been going as we expected. The portfolio we acquired from Takeda and Buscopan has some institutional products like injectable Dramamine and Buscopan. So we've been able to standardize it in hospitals. We were able to increase production capacity for Dramamine, especially in our new injectables plant. So besides that, we've also been Expanding our team, creating a dedicated team for the public market, for bid tenders, and this market is doing very well. And considering new products, we're starting to see some dedicated and specific products for the institutional market. There were projects that we started in 2021. We recently launched Propofol, and injectable pyrocoxib. Next month, we're also going to launch enoxaparin, which is a very important molecule for the institutional market. So it's all going according to plan. Our goal is to reach 1.4 billion in revenue by 2028 in the institutional market, and we have been on track. That might mean an additional growth of about two percentage points per year. So, we are on track.

Perfect. Thank you very much, Breno and Adalmario.

Great. Thank you, Breno and Adalmario. The next question will be asked by Mr. Luca Biasi from UBS. Go ahead, Mr. Biasi. Good morning, Breno and Adalmario. Thank you for taking our questions. We have two. The first is on working capital. What should we expect for your working capital, considering that inventory reductions were a bit lower than expected? My second question is about plant idleness. If you could tell us what your idleness level is, How much of your margin pressure has come from that idle capacity? Thank you. Hi, Luca. Good morning. To answer your first question on working capital and reduced inventories, we have been working on this for some time. As we said, we're starting to see results. This quarter, we had significant results, but We're still working on improving this. The process will be adjusted by the first quarter of 2025, but most of it has been captured this quarter, or a good part of it has been captured this quarter. About idle time, I think there's another factor that we need to comment on. which is the flip side of this reduction in working capital. By producing less to reduce inventory, we end up having a little bit higher idle times. So that's basically it. The plant has been running. We have been offsetting a part of the idleness with being more aggressive in the generics market. So this is a market that is very price sensitive. And the plant's occupation rate is about 70%. It's operating in three shifts, depending on the production line. Of course, each line is different, but on average, we have 70% occupation rates.