Raia Drogasil S.A.

The slide deck can be found at the company's investor relations website at ri.rdsaude.com.br. This conference's replay will also be made available later at the website. All participants will be on a listen-only mode during the company's presentation. After the presentation, we will hold a question and answer session, but further instructions will be provided. Before we begin, we would like to inform you that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the company's management's beliefs and assumptions, as well as on information currently available to the company. Forward-looking statements do not guarantee performance. They involve risks, uncertainties, and assumptions, as they refer to future events and therefore depend on circumstances that may or may not occur. Investors should understand that overall economic conditions, the industry's conditions, and other operating factors may affect the company's future results and lead to results that differ materially from those expressed in such forward-looking statements. Today with us are Mr. Renato Raduan, CEO, and Flavio Correa. Head of Investor Relations and Corporate Affairs. I'd like to turn the conference over now to Mr. Badoin. Please, Mr. Badoin, you may proceed. Good morning, everybody, and welcome to our company's first quarter 2026 earnings call. Again, it is a huge pleasure to join you once again to give you more details about our results. I'm sure we are going to have a very rich one hour, one hour and a half together this morning. Flavio, good morning. Good morning, Renato, and good morning, everybody. Thank you very much for the partnership and the patience for waiting for the results that were published last night. And now we are ready to give you more details on the results and answer your questions. Okay, as usual, let's talk about the highlights first. Very briefly, I'd like to touch on 4Bio. Last Monday, we signed the closing and finished the deal. We are very proud of 4Bio and its success, but now it is in the past and it is no longer part of the continued operations. And this is how we are going to address the results from now on. In the quarter, we finished the period with 3,614 units in operation, opening 68 and closing 1. We continue to pursue the plan of 330 units. to 250 openings according to our guidance, but our extension is still above 20% IRR, which is the minimum that we expect. We reached 53 million customers, and those 53, 52 million customers in this quarter, we served them with 111 million tickets. And what we take the most pride on is the fact that we were able to sustain an NPS of 91% despite such high number of tickets. It is not easy to keep such a high NPS with over 3,000 units all around Brazil with so many tickets sold. That's why we are so proud of it, and that's why we have been so successful in our results. Excluding for bio, our gross revenue came to $12 billion, 20% more year on year, a significant growth. It means that we grew by $2 billion in revenue quarter on quarter, and that was accompanied by a growth in mature stores of about 12%. Considering our expansion, you can see how solid this growth and how solid this result was. And also, we had a very significant market share increase with 150 bps We had already had that increase in the previous quarter, but you should remember that we had a very solid, very good Black Friday compared against a Black Friday that was not so good. And still, without the Black Friday effect, we were able to gain 150 bps. across all regions. And on the digital channels, we reached 3.6 billion in revenue, 66% growth, and we exceeded 30% share in retail. And that led us to an adjusted EBITDA of 821 million, virtually 32% growth in our EBITDA. Our EBITDA grew by 200 million Brazilian reals. Our net income came to 300 million, actually 299.8 million, 70% increase. It's 120 million added to our net income and a free cash flow of 285 million and 136 total cash generation. In our perspective, this is a very solid, consistent result that consolidates cash recovery that we showed all throughout last year but it is important also to have a second quarter with the same level of results to be able to show you that we are indeed consolidating this type of performance in our company. We went from $10 billion in gross revenue to $12 billion. We grew by $2 billion then in 12 months. Most of that growth came from the brand name drugs, the GLP-1 drugs are included here, Wegovy, Ozempic, Monjaro. And if we exclude this, if we exclude those drugs, the brand name drugs are still growing very strongly. And we can see here that HPC grew by 11.7%, and I have a highlight here. It rained more than usual in the south and southeast of Brazil. If we were to isolate the growth of repellents and sunscreen, the growth in HPC would have been 14.2%, in line with a healthy growth and above inflation. So if we exclude repellents and sunscreen from this number, the rest of HPC grew by 14, 14.5%, which is very consistent as well. As I told you, we grew by 20.4% in total, with 12.8% growth in mature stores. And there's something that I should mention here. It is a 12.8% growth, yes, but on top of a sales base that was already above 1 million. In the previous year, we grew less than expected, but it doesn't mean that the base was low. The sales were already very good, above 1 million in mature stores, and we were still able to grow by almost 13% on top of that. Our mature stores are selling at around 1.2 million. Again, very strong results. Before I turn it over to Flavio, I'd like to draw another comparison. Of course, comparing our results against our own results, we are very happy to see what we have done. But when we compare ourselves to the rest of the market, we are very happy to see that we gained 150 bps in market share. reaching almost 20% of nationwide market share. In Sao Paulo, the lead was very significant, 31.6% to 33.8%, so 120 bits of market share increase in Sao Paulo. And that is the result of a very good mature store performance, but also expansion that we accelerated here in Sao Paulo. You can see here the share of the states in our year-by-year extension. The darker color indicates the expansion in Sao Paulo, and we can see here that we sped up the expansion in Sao Paulo over the past two years. In the southeast, 160 percent, 160 bps growth, rather. In the south, it was a smaller growth. In the Midwest, we went from 22.8 to 24.5, and here you can see that green accounts for our growth in the south of Brazil. It used to be 20%. It is now 13%, then 10%. So the market share increase there was smaller. And in the south, we have the most saturated pharmacy region. It is the most saturated region in Brazil. and we had a very solid market share gain in the northeast, 130 bps, and then 130 bps in the north of Brazil as well, although we slowed down our expansion in the north and northeast. And still we gained market share because of the growth of the existing stores that grew above the average. The nationwide average was 12.8, but in the Northeast it was even more than that because of the expansion that we had there. And that's why we had such impressive market share gain there. So we can see that the top line sales were very strong. And that is the voice of the customer telling us that they are choosing us more and more. That is great, Renato. Again, this just shows that the customers are happy and choosing us. And that's also the result of the digital channels that are stronger now. They are really the powerhouse of our business. It is an activity that accounts for about 30% of our sales. It is an activity that in one queue alone received 170 million accesses, which is very significant. We have a recurring base of customers coming back to the apps and website to find good opportunities and engage with us. The digital activity was already strong last year with 20% to 22% share in our business, but it still grew by 66% in the period. which is extremely positive. And the activity is consolidating itself through the app more than any other channel, which accounts for 83% share in our digital channels. We should remember that the app rewards customers for their recurrence and long-term loyalty. It's not just about the volume. It's also about the quality. The digital channel embraces many ways of engaging with the customers. And the app is by far the biggest store that we have in our business. But also, we serve our customers from mobile and desktops and laptops. And we also have the super apps accounting for 5% of our sales. It is important to highlight that the marketplaces are systems that bring together a number of customers and page views, and we are present across all of them. Of course, we are providing good services to the customers through those channels, but it is not the preferred channel that our customers go for when they come look for our products. Now, the mix of deliveries, we have the click and collect. which is a very important channel for us. 95, or actually 97% of the deliveries right now are done in less than one hour, be it with click and collect or home delivery or when we deliver the products to the customer's workplace. And we are very proud about our app delivery. NPS, 81%. There was a slight drop in the delivery service, which is related to the inventory of certain categories. Sometimes when they go there to get the products, the products are not there. We had that instability with GLP-1 drugs. But it is going to normalize as the inventory goes back to normal, and we are very proud about the fact that customers are showing us that they are happy with our digital journey through the NPS. Now, our gross profit, we have a stable margin of 28.3%, but a nominal growth of 20% year-on-year. And here we are talking about over 500 million in growth year on year, which is positive as well. We started from a margin that was under pressure due to the GLP-1 drugs that caused a pressure of 40 bps. but that was offset due to the write-off of some losses and other commercial gains, including partnerships and relationships. Now let's talk about our SG&A. This is a very solid part of our results. We can see here the sales expenses going from 19.1% to 19% in the period. These selling expenses will dilute themselves Although we had a strong capture of our EVP, we're talking about 50 bps here in positive impact with compensations to our team, and still we were able to offset that with our expenses, bringing the selling expenses down by 10 bps. And G&A. Our DNA has been stable, nominally speaking. We had 294 last year, and we're standing at 296 this year, which is very difficult to maintain. But still, we had a very strong dilution in the period by 50 bps. when we performed a few adjustments last year in the first and second quarters, there was some doubt in the market about our ability to keep that level and if it wouldn't be necessary to hire more people. And this is the proof that that was not necessary and our movements were correct and sustainable. And the number will increase. be maintained at this level over the coming years. And that takes us to our EBITDA. Every time we talk to the market, to the investors and analysts, I always say that this company is working to increase profitability, as expected, of course. And that increase will come through the dilution of SG&A, then from an increase in the gross profit. And That works both ways. It causes us to be more efficient on the expense side and also keeping our competitiveness with stable gross profit. And as a result of that, we can see that our EBITDA reached $820 million in the period, a $200 million increase or a 32% increase year-on-year. and an increase of 60 bps in the period, as you saw in the previous slide. Our cash cycle is another very strong part of our results. We had a drop of 10 days in our cash cycle in the period, and that drop was caused by a decrease in the inventory level, We had a drop of eight to nine days in our inventory cycle. And there was an effect here related to the taxes in the state of Sao Paulo, related to some categories of drugs. and HPC as well, but we are talking about here a drop in three days in our inventory cycle just because of that. And the other indicators are very positive as well.

And then when we look further into it, we see that the adjusted financial expenses are stable at 1.8%, with the base interest rate being high at this point, so it's challenging, but we're doing well. And the... income tax is at 0.4 percent and the adjusted net income is 180 million and it has been growing year on year here there is an 120 million increase at 2.5 percent of the result this is quite positive we really wanted to highlight here in this breakdown what 4Bio was, what the positive results of 4Bio were. We have 13, 15 million here from 4Bio, and 4Bio was the reason why we sent our release a bit later last night, because we really wanted to show this breakdown, excluding and including 4Bio, and we really wanted to show that 4Bio is no longer an operation that we have, but it's a discontinued operation of ours. But the resources that were generated that are discontinued from a net income perspective, they now are going to be part of our result in the financial expenses with the payments of the sale of the company. So we have the results of the past and the results of the future as a discontinued operation of 4Bio, so it's easy for you to compare both situations. That's it, yes. When we look at our cash flow, there isn't anything special to say about it. Our cash flow improves our adjusted EBITDA in 200 million reals, so this is sustained throughout. We also see the 4Bio effect in different line items. with the resources, the proceeds from the operations. So I think this is quite well explained. There is stability, and we end this period with a total free cash flow of $130 million and $112 with four bio. And this can also be seen as a stable net debt, considering the size of our company, and a financial leverage that is 1.2 R EBITDA. And before we open up for the Q&A, back when I was an engineer at the Engineering University, we needed to answer exercises where there was one result and you had to get to that result somehow else and prove that that was the right answer. And this is what we see in RD Day and We really show how the snapshot of the one or two quarters doesn't really represent the future potential of this university, pardon me, of this company. We're really improving our competitiveness, our value proposition. We have a superior value proposition. Our sales and market share gains with superior performance and investment power. So 200 million in EBITDA, 120 million in net income. And that allows for more investment in the value proposition. And this flywheel had already been seen with very strong assets. The results from the previous quarters is really what we wanted to show with this flood. These assets are going to get stronger and stronger. I think the only thing that won't change here is our founding date, right? But the NPS is 91 right now. We'll soon look at it and it's going to be higher. We are among the 20 most valuable brands, most recognized brands, and we'll soon be among the 10 most valuable brands. And we're going to continue to increase. We're going to continue to increase. The number of customers are 84 million. They will be soon over 100 million. We'll soon have 4,000 pharmacies, and we have 30% retail sales, and it'll soon be more than that as well. It's great to see our beliefs translating into numbers. The work of the 75,000 people in operations in the pharmacies, in customer relations, in the corporate world, department, all of us creating these results together, leading to this satisfaction. We're going to have more time for the Q&A today, and then I will have my final remarks at the end, of course. Thank you, Radwan, and thank you, Flavio, for your explanations. Let's now start the Q&A, and we have Joseph Giordano starting from J.P. Morgan. Hello, Raduan and Flavio. There are two points I'd like to ask about. You already spoke about the top line, the slowdown that we had because of the calendar effect stemming from Black Friday, which we don't have in the first quarter, and Raduan has really detailed the HPC. weren't enough for these effects, the performance might have been much better. When I think about GLP-1, we understood that the supply was a bit tighter. There was some quarter-and-quarter stability. There might have been an expectation that it would have risen. Is there any change when we get to the end of the quarter? Is there a change in the supply? Is this going to be carried over into the second quarter? And when I think about HPC, we have less seasonal effects in the second quarter, I assume. Can we adjust it more, excluding the seasonal events? So that's my first question. The second question has to do with the gross margin. I understand that it should have been better or more neutral. And you think about trade allowance has been normalized in the industry, price warrants, NHVC. So how do you see opportunities to improve the margin in the category that is growing the most, which is GLP-1? And considering that there is a potential opportunity for new generics in the coming months. I'll talk about GLP-1 and the margin. All of your assumptions are correct. GLP-1 hasn't had restricted availability or unrestricted. Monjaro 2.5 and 5 was more restricted. That caused GLP-1 to be more stable from the first to the second quarter. It's higher than the... It's two digits, but it's low double digits, and it's quite stable there. As of the second quarter, starting April... we understand there'll be more availability in our inventories. And the generics start to gain more traction, and that will reduce the average price of the whole category. So there are new, yeah, the newer generics, they're gonna be joining the category. there was a lot of apprehension in the past around the generative who was just going to bring down the price of the category and allow more people to access the medication, but no one really knew how this access was going to be. I think everyone now understands how big the parallel market is, be it compounding the drug or importing it. It's natural, now that everyone understands how big the market is, that there should be a migration from the parallel market to the pharmacies where you have a more reliable origin of the product. I think in the long run, there is a chance that they'll be a share that is over 12%. We see McKenzie and other studies showing that. And I think that the growth pace should be slowing down. GLP-1 increase in the course of 2025, I think it will continue to accelerate, but at a slower rate. Our gross margin is growing in this segment. When there is a monopoly, there's one single player, they have more pricing power. If there's a second player joining, the first needs to be more competitive already. And when you have generic medication, then you have more of a price war, more competition, and that will increase the retail margins. So we see that our margins are already improving with new similar drugs and drugs. Well, remember that the general margin is 20%, and now we have the brand and similar drugs. So it's not going to be massive, but it's improving what's already good. So even if we had a stable penetration, we would have already increased our profitability because profitability is rising. So we could have an increase in profitability and share in penetration with the new prices. Would you like to answer the HPC bit? Just to compliment on the answer, we always talk about the formal GLP market around one million packages a month. And the informal market is three to four million packages. So when Radwan speaks about the parallel market migrating, so the informal migrating to the formal one, we're talking about something that is three or four-fold larger than the official package. the official market now HPC in the second quarter there's much we can anticipate there's no calendar effect in the second quarter so let's wait and see what the results are going to be like in the course of 2025 we showed we had less promotions than we wished we had we had slightly less than 50% being sold through promotions, through sales. Every shelf in every pharmacy, whenever you're going to buy a deodorant, there's a buy two, get the third one free sign. And HPC continues to be stable. It's higher than 30%, as it's always been. The margin has always been above 30%. And with a 14% growth excluding seasonality. So we don't see the need to invest even more at this level of growth. Well, if your question has to do with a higher level of competitiveness through other type of competition that we see in the market, then we do not see it. So the competitiveness, or rather the competition we see now is the same that we saw in last year and that we're going to sustain while the market stays as it is. We are operating well, the numbers and the figures are quite positive, so this really leads to good results. Thank you very much, Djigo. Thank you, Yosef, for your question. Now we have Luis Guanais from BDG Pac-12 with his questions. Thank you, Raduan and Flavio. I have a question around working capital. That was a highlight, a positive highlight, and the quarter was higher than what the market expected. How have negotiations with suppliers been doing, especially focusing on the pharma side? You've given more details on HPC, and this was a balance we were seeking and pursuing last year. But when you look at the pharma front, how have these negotiations been going? When you think about rebates and you think about terms, so looking forward, what can we expect in 2026 for working capital, also considering that GLP is going to be growing, maybe not as quickly, but that it should continue to grow anyway. Thank you very much for your question. We talked a lot about how we've been working with HPC suppliers to deal with the price wars in marketplaces, and we had partners here to help us be more competitive But we haven't really spoken much about the pharma negotiations. But that continues to go well. Even though we're very competitive, we invested in prices and campaigns and sales. Even absorbing GLP-1 with a strong campaign from last year, we continue to have a strong margin. But now when you think about the cash cycle, I think the star of the show wasn't receivables or payables. It was the inventory reductions. Inventory reduction was really the start of the show here. That's really the driver that led to this cash cycle. As was said, some of that has to do with the ST leaving, that's the tax changes we had, and GLP-1 with a strong turnaround. That's part of it, but there's a structural part of inventory reduction that comes from a structural analysis, which is the result of the work of supply chain, the commercial department, and operations department working together. They are reducing the inventory and the inventory that we have, and we're reducing also inventory lack of materials in the inventory. We really see that we have a reduction in our inventory. I think this is going to be sustained, and we should see some improvement. And I don't think the cash cycle should relapse and go back to growing. It's quite structured. It's well structured. It's quite solid. We got almost 10 days in cash cycle here. That's an improvement. And we should continue to move forward slowly but surely. And the payment from customers. The payment terms have extended in comparison to what we had because you have high value added products being paid in multiple installments. but we've also increased our payments to customers, to suppliers as well. We talked about this in our last quarter's call. It is expensive to grow. You have to burn cash to generate more turnover. We're a 50 billion company growing 20% a year, so you need to burn cash for this growth to take place. And now we have the second quarter above 20% growth. Now we will have an increased need of cash. I mean, when you speed up, you have more cash being made. But when you steady the speed, then you have a lower cash flow. So we should have a new cash burn level because of this new level that we have established after these two quarters growing 20%.

Thank you, Luis, for your question. Next up, Vinicius Strano from UBS will ask his questions. Good morning, Flavio and Rajwan. I have two questions. First, about gross margin. It was a positive surprise to us. if you can tell us a little bit more about the improvement in the GLP-1 category. And also, if you could give us more color on the drivers of the commercial gains of 40 bps offsetting the mixed effect that you mentioned on the release. And also, if you can be more aggressive on price in other categories, if you can give us more color on that, that would be great. My second question is about the expenses. What should be the impact of the labor law change in which the employees would work five days per week and rest for two days instead of six to one? Thank you. Thank you very much for your question. About margins, there's no silver bullet. It was... many different things that allowed us to grow so much on the GLP-1 category. To invest more in HPC, we were removing or decreasing the discounts on medication in the digital channels, and we were able to do that without harming the growth of the digital channels with 30% share. And also we have to negotiate with the suppliers every single day, which is brilliantly done by the commercial department. And also there is a distribution center in Hidrolandia, which greatly improves the distribution to other distribution centers in different regions with a service level that is much higher with lower inventory. And also there is a tax gain related to that. So there are many levers, many drivers, There was a loss, and that improved to 0.1 or 0.2, and there's still a lot to be done there. So there are still value generation drivers going forward. We are also starting a process with a consulting firm to help us with pricing so that we use more science and invest in the right places. There's another project, a restructuring project, in part of our commercial processes. So there's still improvement to be captured. But what's most important is that we cannot lose our price competitiveness. We've always said very clearly that it is a non-negotiable, and that is part of the reason why we are growing by 150 bps in our market share. It is a priority for us. And, of course, we don't want the gross margin to go down, but we are not anxious to grow our gross margin so quickly that it will harm our market share. When it comes to scale, and to days of weeks that our labor is going to be like. Our team is already working five days per week and resting two days. 100% of our operation is already operating like that. We were able to maintain and even decrease the selling expenses as Fabio said. Although we increased the number of Pharmacies and staff benefits, our staff is working five days per week and not six, and still the selling expenses are under control. There are very few pharmacies that close on Sundays, and in those cases they have a staff that rests only on Sunday, and they work six days per week then, but that's not even 5% of our staff, our pharmacy staff. 95% of the staff is already working only five days per week. So that has been well absorbed by us. Now, one next step that can impact us is the reduction of work hours from 44 to 40. I believe it is a major change for employees, employers, and the Brazilian economy, and it should have been discussed more calmly instead of having such changes a surprise all of a sudden. Still, there will be a transition period and we will be able to adapt. Most of our pharmacies operate from 7 to 23 to 7 a.m. to 11 p.m. if we're going to have eight hours of eight work hours, and one hour lunch time, people will stay at work for nine hours. If we got here in the morning, worked for nine hours, took a lunch break of one hour, and then I relieved Flavio after that, we would have 18 hours of operations. It's more than the 16 hours that we have right now. So we are going to lose the overlap of our staff in the middle of the afternoon. And in the pharmacies where we have full pharmacy service, we need to have a pharmacy there during the other pharmacist's lunch break. And in those cases, we will need an adjustment in our workload if we didn't want to increase our staff in the pharmacies at all. Still, we are operating from 7 to 11. It could be 8 to 11. But the advantage of having so many stores is that we can choose some pharmacies to operate from 7 to 10 and then others 8 to 11, rather. So there will be an impact, but... It is not going to be a catastrophic change, I think, and I believe that we'll be able to absorb part of that change. But the first step has been taken already. Our staff is already working five days a week. Eighty-five percent of our people approve of that. Three-fourths of our staff preferred to work like that. It's all been absorbed by the expenses. The service level was not impacted. Our NPS is at 91, as you saw, so that first step is behind us. Just as a complement, what happens here is, Shono, and Radwan described earlier, how the staff is working in our pharmacies, and the pharmacies are at a maximum efficiency level right now, and that of course entails cost. Another way of thinking of this is that if the personnel cost is about 10 points of our expenses, or 10 points on our sales, if we have an increase in the hours, it's a 10% increase. In the worst case scenario, we're talking about a 10% in a number that accounts for only 10 points of our P&L. And of course, part of the issue is related to what Radwan said, and most is absorbed, but The part that is not absorbed is bad because it has an impact on the profitability and that needs to be passed on, for example, in prices. But on the other side, on the flip side of this, it is going to give us some value. We are the most efficient player in the chain, and the personnel cost accounts for less of our P&L than the competitors. So that takes the weight off of our shoulders, if we think in relative terms. As for the first question, when you asked the question, maybe you were referring to some comments in the market related to one-off situations that pictured a higher gross margin. Those situations are related to tax changes impacting the suppliers. And as they impact the suppliers, they have an impact on the inventory. So that is a one-off situation. that happens, but again, it is a one-off effect that happens when there's a tax change, and it happens every single quarter. So we don't see that as a situation that pulled the profitability up or down in a different way than it would in any other quarter. and that's just the additional comment that I wanted to make. Thank you, Shanno, for your participation. Next up, Irma Skerz with Goldman Sachs.