Raia Drogasil S.A.

Ladies and gentlemen, thank you for standing by, and welcome to RD Saúde's second quarter of 2026 earnings call. The slide deck can be found at the company's investor relations website at ri.rdsaude.com.br. This conference replay will also be made available at the website. All participants will be on audition-only mode during the company's presentation. After the presentation, we will hold a question and answer session. 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 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 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 at the RD Saudis studio 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. Raduan. Please go ahead, sir. Hello, good morning, everybody, and welcome to our second quarter earnings call. As always, it is a pleasure to be here with you to delve deeper into our numbers that I'm sure you have taken a look at already. And good morning, Flavio. Hello, good morning, everybody. Good morning, Renato. I'll try to be brief in the beginning of the presentation, try to give you an overview of the figures, and leave some time for Q&A. Before we go into the operational details, I'd like to tell you that we are very happy with the second quarter results. They were very solid, very consistent, both in absolute and relative numbers comparing our company against our previous results and the industry in general. We finished the quarter with 3,287 units. In 12 months' time, We will tell you that we reached 4,000 units next year, but so far the number is 3,687. We opened 76 units and closed three. Our IRR is extremely healthy, and it is contributing to the results. Besides the expansion to 3,687 units, We have 53 million active customers in the last 12 months, almost one-fourth of the Brazilian population, and 119 million tickets in the quarter, with an MPS of 91. Fabio, this number is part of the landscape at this point. It seems like nobody cares about this number anymore, but... Drogasil S.A. And that is also a signal that our plan is working in terms of improving the pharmacy staff and that effort has been recognized by the customers. We closed the quarter with a growth of $12.8 billion, 18.3% growth. And we should remember that last year, the GLP-1 sales put us in a very good position. We already had Monjaro in May last year. So although the sales base was already very high, we were able to grow by 18.3%. And in our mature stores, the growth was 10.9%, almost 11%. Eight percentage points greater than the CMED index. Drogasil S.A. So that's why this result, as I said, is very consistent and solid. And as for digital, we reached almost 4 billion, 55.2% growth, and a penetration of 31%. I was actually doing the math, and of course it is just theoretical exercise. The digital side is so strong because of our brick-and-mortar presence, but... If we were to split the digital from the brick-and-mortar operation, the digital operation would very soon be the first player in the abrafarma industry. and I think that that will happen in the near future. It's a very solid result. And that took us to $1 billion in adjusted EBITDA, 18% growth with a stable margin of 8%. We were able to absorb a lower CMAT inflation adjustment, and we were able to keep an EBITDA margin that is stable. Our adjusted net income, EBT also grew by 33.4%, which is good, but once your profit before taxes grows, what happens is that taxes will grow as well. We had to pay more taxes. Our free cash flow came to $550 million with $1,190,000,000 in total generation. And our financial leverage should be highlighted as well because it is the result of a reduction in our net debt and our increase in our EBITDA. Those two factors led to a reduction of 0.5 in terms of leverage. Now I'd like to... turn it over to Flavio but before that again it is a quarter in which we grew very consistently by almost 2 billion going from 10.8 to 12.8 and 18.3% rather quarter on quarter and year on year actually and again GLP-1 contributed a lot to this growth, but even if we were to exclude GLP-1 and private label, all the categories would have grown at about 13.5%. It is very stable, very healthy. HPC, as you can see here, I told you in the last quarter that it grew by 12.8%, but repellents and sunscreens had not sold so much because it rained a lot. And if we were to exclude that, the growth would have been 14%. And that's exactly what you can see here, this structural growth that I told you about. It's important to remind you of all of that because HPC, It builds credibility in everything that we tell you every quarter. So you can see that the growth was very healthy across the board, excluding GLP-1. Now over to the next slide. Once again, you can see the growth of 18.3% overall and almost 11% in mature stores. We should remember, Flavio, that 11% Drogasil S.A. The customers are recognizing your effort, and the gap between ourselves and the competitors is increasing more and more. And also we have an expansion engine that cannot be replicated by anyone, and that will continue to make that gap even larger. Now let me give you some more details about these numbers, but again, this is old news. We gained 170 BIPs in market share across all regions. In São Paulo, 230 BIPs. In the Southeast region as well, 140 BIPs. In the Midwest, 240 BIPs. Not so much in the South. In the south, the expansion pace is a little slower. We're gaining less share there. And the northeast and the north, we can see a 150 bps expansion. Those are all significant growth rates that are not happening just in one or another region, but across the board around the country. And here on this side of the chart, I would like to highlight this. Less than 40% of our pharmacy footprint is where everything started in Sao Paulo. We are a nationwide network. We're not just constrained to Sao Paulo. Most of our business comes from other regions in the country. And that is important because if we are to grow in the next five to ten years, We already have strong brands and the way paved for our growth in the rest of the country. 60% of our pharmacies, of our brands and teams and inventory located all around the country, which will allow us to grow around the country. And the competitors cannot do the same. We have 13% market share in the Northeast, 12% in the South, 14% in the Southeast. Of course, we are not going to reach 35% in those places overnight. But look at what happened in the Midwest, 25% share already. So we have a great possibility of growing all around the country with the assets that we've built over the years, which our competitors cannot do. Another thing that I like to remind you of is that our EBITDA includes 25% of the stores that are not mature yet, that are not at their optimal level of revenue generation. So we need to take that into account as well. If 90% of the stores were mature, our EBITDA would be higher than that. And now I'd like to turn it over to Favio and I'll come back later. Hello, good morning everybody. Well, let me give you some more details about the digital business. It is a huge success, very consolidated. This is an activity that generated 3.9 billion reals in revenue this quarter. with a 52% year-on-year growth. So although it accounts for 30% of our sales, it's still growing with 52% growth year-on-year. That's very positive, not only on quantitative terms, but also qualitative terms as well. We have our proprietary channel, the app, consolidating 80% of our digital sales. And that also comes from our operating strength with 96% of the deliveries being performed in less than 60 minutes, less than one hour. That is an undisputed strength for us. If you put that together with an 81 NPS and with the access that our customers have to our website and app with 1.1 billion visits that takes us to this incredible success and solid numbers now when it comes to gross profit we came to 28.9% in a percentage of our gross revenue and it consolidates our operating resilience here we have sales gains and lower losses, and they almost offset the negative points because we had a higher share of GLP-1 in our sales this quarter. The CMAT rate was 30 to 40 bps lower than last year, so it pushed our results a little lower, but we have our operating strength, which almost... was able to offset the lower points coming from last year. Now let's take a look at the expenses. Our selling expenses came to 18.6%. We have been talking about that for a few quarters now, right, Renato? We have been talking about how we have been working with our result. The top line can grow by 18% because of the strength of our brand and operations. And in the recent quarters, we decided to propose a different employee value proposition to our staff, and that took our expenses to a higher level, but it can deliver the results that we expect to deliver to the customers. So we are making investments here. It's not really about expenses. And this amount, Drogasil S.A.

lease costs.

Now let's take a look at the G&A expenses. This is a big strength that we have. We changed the structure last year, and we have already captured the effects. We did so in the second quarter last year. We were able to cut off almost 40 bips. in G&A expenses in 2025. And now in 2026, we are also capturing another 30 bps due to our solidity in our management of expenses and the company as a whole, but also because of the dilution coming from the growth in our sales. So this result makes us very happy about the performance this quarter. And Drogasil S.A. Things have been very challenging for retail as a whole, and the second quarter, when we look around to other retail segments, things have been very tough, but our bottom line is growing by 18%, which is just another way of showing how solid we are.

We also have a cash flow that has been very positive if we're looking at this year on year, and they're mostly coming from our line of vendors. We have gained 11 days in terms of gains, and we have two different effects. One of these effects is coming from the ICMS taxes, the drop that we saw in this type of tax in the state of Sao Paulo. So these results in terms of taxes are now coming back to our numbers, and this represents about half of the gain that we had in this vendor line, the supplier line. The other part of this is about our commercial and operational fortress, the negotiations in our trade business, commercial business, et cetera. So this is a very solid result, and it is structural. There are of course some standouts because of our half, but if we remove this question, then this should be able to be kept throughout the next cycles. Thinking about financial expenses now, We have expenses that have dropped 40 bits year on year, so this is a very low number if we compare it to our historical numbers of these 40 bits. Thirty of them are coming because of a decrease in our debt, our total debt, and because of a decrease on the costs that we face of selling those services. This is three-fourths. of the financial expenses, and then we have three bibs that's about receivables because of the for-bio sale. This is something that helps us structure everything else, and we will be seeing effects on this for the next five, six years because of those receivables. This is going to be recurring results for us from now on. When we take a look at our EBT, Drogasil S.A. Now, if we take a look at other details that Radwan had talked about, we had the low light of the results, which is about the increase in taxes that we're paying. We're generating more revenue, which means we're going to pay more taxes. There is taxes in absolute numbers that increased by $60 million year on year. We landed at $118 million. And the growth of this is about the EBT that grew along the way and the JCP that's proportionately a little bit lower than last year if we think about the interest on capital. We saw this in 2025, but it's not as strong in 2026. This was a result that we were expecting. We were not caught off guard by this. But, of course, this is low light due to the increase in the overall number. So we came to an adjusted net income of $432 million with 3.4% on the gross revenue, which is a very solid result. Now, if we exclude the four bio results from our basis this year and last year, we saw a percentage that is being kept year on year. but with a basis that is increasing quite strongly year on year in absolute numbers in terms of cash. Again, very positive. You know, we read a lot of the analyses that were created overnight, and one thing that was mentioned over and over again and that is quite positive is our generation of cash flow for the period. We have now a very solid number with the – 880 million total after investments and then before 550 million. When we add that to the situation of the sale of 4Bio and those receivables, we are now looking at a total number of 1,190,000,000 in terms of total cash for this period. This is a very strong number. Drogasil S.A. reduction, which comes to about a $1 billion deduction, meaning our leverage goes from 1.3 to 0.8 times the EBITDA. So that's another very positive number. And with that, I would like to give the word back to Red One. Now, before questions and answers, we try to anticipate some of the questions that might arise. So we wanted to tackle those. Drogasil S.A. The average added price of GLP-1, this is always... Oh, I'm sorry, I lost my pointer. Okay, here we go. I'm just going to go through this slowly so that we may clear some questions. If we look at GLP-1 in the first quarter, we had the average sale price of all the ingredients and our revenue. We see that the second quarter... Drogasil S.A. If we break this down between semaglutide and terzapatide, we see that semaglutide is where we are looking at the generic medication. Now, in the average consolidated of the whole quarter, if we think about the three months, average price went down by 22%, and that was integrally offset by this volume that I'm talking about, meaning that it brought us to the same gross revenue with an important caveat here. It composed this Drogasil S.A. That is happening between this decreased price with the increased volume, which is leading us to similar revenue. And that's for now. I think, of course, competition will increase, which means our gross margin will increase as well. And then on the other side, we're looking at Terzapatide that showed a small decrease in the average price. I think there were discounts and incentives. There's a mixed effect. Drogasil S.A. You know, because of data from the market, and we read your reports, there are good estimates that approximately 70% of the market is terzapatide. And terzapatide is completely bulletproof in terms of this loss of patent in the short term and from generics. Its price is going to be kept. The challenge of terzapatide is about how you attract a parallel market before And then you take care of the black market, and you want to make sure you migrate those clients to us. We see that if we bring some elasticity, we will get demand. And then semaglutide, which is 30% of the market, which is where the price is dropping but being compensated by volume. I said this during the last call, and this is something that we've been very transparent about. GLP is about 12% for us, and in the second quarter, GLP had a higher share than in the first quarter. So, again, higher in the second quarter. Of those 12% that I mentioned, we're saying that semaglutide is about 30%. Then it's about 3.5% of our total revenue that is resting on semaglutide. 8.5 is on Terzepatide. Those 3.5, as we know, they don't operate at a margin of 30%. They're operating at a gross margin of 18. So the contribution of semaglutides of our revenue in general is about 2%. I think this will keep. I think that competitiveness will improve our gross profit based on what we see in other countries. Even if that doesn't happen, we're saying that this 2% could be 1.8, 1.7. Sometimes we may be projecting a doomsday scenario because of prices and competition. But, again, we are thinking about 2% ballpark number of the contribution of our gross profit in the company. It has shown to be elastic, and it's not going to be deteriorated further with competition, with new products. We are going to see this being kept, and again, terzapatide is bulletproof. There is very little migration from terzapatide to semaglutide because of a lower price. There is legitimate concern, of course, but we have to put things into perspective in terms of how much that is applied. We have been focusing a lot on this. I was just trying to give you some perspective of the impact. And we are not looking at triseptide enough, which is going to keep its patent for a long time. There's a lot of market to gain of the parallel informal market. And in addition to that, we will have other... Drogasil S.A. in terms of GLP-1. So having said that, of course, you are welcome to ask any questions about this. Another very important point here, and I want to talk about it further, is the strength of our digital channels and how much that has become a fortress to us. It is a tool that is helping us accelerate our gain and share, but it is a defense tool that is very important for new players and digital players that may be coming in. Drogasil S.A. Of course, we've been able to create this digital forecast because this is sitting on a very important physical structure that creates a unichannel, that it is one single asset, and platforms that don't have their brick and mortar cousins can't do that. Drogasil S.A. Drogasil S.A. because of the NPS of 81 that we've come to. And more than that, Flavio, it's more about what clients do than what they say. And we're seeing that clients are increasing their recurrence of purchases in digital channels. In the past, under 60% of our clients were from recurring customers, but now that number is increasing more and more. So clients are coming in, they're buying, they like the experience, and then they come back. and that has been creating this fortress, which we believe is very important. Sometimes we have lots of debates, like it's, you know, an MBA, we're looking at company A, company B, and we forget about the client, and it is the client that will decide who will be successful. And for a company to leave a company where they feel well-assisted and go to another, someone has to be offering something that is much better than what we offer. Nowadays we have, you know, proximity. We deliver very quickly in main capitals. We deliver in 30 minutes. If you see more downtown neighborhoods that can be down to 15 minutes, we have competitive prices because we have good purchasing power. We deliver that with a well-known brand with good reputation. It's Drogasil. We are not unknown. So we have a very high value proposition. Is it unbeatable? Well, no. Nothing is unbeatable, right? But for someone to be able to persuade a client to leave us and go somewhere else they're going to be having to offer a much better value proposition which is not an easy thing to do. Another important thing that I like to mention is that in a sector where there is consolidation where you have two, three consolidated players any external events Drogasil S.A. We are seeing interest rates that are high, persistently high, that is hurting the small business, and that helps us. If tomorrow there is different legislation in labor laws and staff becomes more expensive, companies that have higher payroll expenses have lower financial capacity. They're going to be hurt more. If we have companies that don't have good digital journeys, they're going to have a harder time as well. So because we're well consolidated, macro events can help us more than hurt us. So I think that is something important to keep in mind. And now just the final thing before we go into our Q&A. Starting on Wednesday, 10 in the morning, I would like to invite you to Raya Conceito, which is a flagship store that we're opening. It's a symbolic moment. There are some moments in a company – S.A. Last year we started to listen to our clients based on the challenges we faced with HPC and we were understanding how much our clients wanted to have a multi-brand store where they could have an in-person experience with consultants and they felt that they didn't have this option in terms of pharmacies in Sao Paulo. We then visited Saudi Arabia and different international locations we talked to vendors who became our partners for this and in a year where we were elaborating this new baby of ours we are now coming up with this store that is adding more depth to beauty more premium beauty cosmetics we're bringing a lot of new brands 50 new brands and it will be in the neighborhood of Itaim Bibi, very close to Hoya Lima, our financial district. It's easy to be visited. Starting on Thursday 10 a.m., we will be open. We know that this is a necessity. It is a demand that we've been hearing about, and we are excited to create this sensory experience. Pictures are beautiful, but the store is actually even more beautiful, and the cherry on top is our people, our staff. who have been trained for this. They're not part of the picture, but if you go and you visit the store, you will be surprised that it's even more beautiful. You're all invited to join us, and thank you very much. We will now open the floor for our Q&A, and we can then go deeper into different subjects.

Thank you, Renato and Flavio. Now let's open the floor for a Q&A. The first question comes from Louise Buenais with BTG Pactual. Hello, good morning, Renato and Flavio. I have two questions. First, in the same vein of what you said, Razuan, about the elasticity, I would like to know also the margins about the LP1 drugs and your negotiations with the industry. Still about margins, if you could give us more color about the HPC margins because HPC was a big highlight in the quarter. We saw a sharp growth in the quarter and we know that you have been working very hard on pricing and repositioning due to the pressure from e-commerce. So if you can update us on the negotiations with the industry, that would be helpful. Thank you very much. Now let me ask you, let me answer the first question about GLP-1 margin. It has been very stable over the past 9 to 12 months at about 17, 17.5, 18%. Yes, things evolved. In the beginning, we had smaller margins, and then we started receiving desepratide products, and then the margins improved. and since the margins have been stable. Now, looking forward, according to my opinion, I think terzapatide should continue to be the same as it is right now because there's not a lot of competition. Now, with semaglutide, I think that similar drugs will come and there is a trend for lower margins. Of course, we have to insist on origination, so Drogasil S.A. S.A. The performance that causes trouble a few months ago now is bearing fruit. This new pharmacy that we just opened came from that need that was created in the past, thinking about different things that we could do. And also, we started to understand how to acquire more competence and try to work on the margins and also promotions. We know that Black Friday was not so good last year, but HBC margins have been stable, too. Directly address your question. Thank you. Thank you for taking my question. No, thank you. The next question comes from Joseph Giordano with J.P. Morgan. Hello. Good morning, Raduan and Flavio. My question, I actually have two. The first one is about cash conversion. It has been very strong. I would like to understand a little bit better what the supplier dynamic has been like. I understand that ICMSST tax is affecting another category now, so it will cause structural changes moving forward. And we are going to see some distribution centers maturing from now on. So maybe you will have some optimal inventory in some parts of your operation. I'd like to know more about that. Your market share gain has been significant for many quarters now. I would expect 100 bps, but now it's closer to 100 bps. So I'd like to know your perspective about the competition in a high-interest scenario. Raduan talked about closing smaller units. So how should we be thinking about that, especially on the side of suppliers? You became a safe harbor for suppliers, but some wholesalers might be struggling. I'd like to know more about that. Yes, it's surprising for us even to see 170 BIPs increase year on year. But most of the shared gain does not come from GLP-1. It does help, but it doesn't even account for 50%. But, of course, as the GLP-1 base grows, it's getting closer to 12, we expect the gain in market share to become smaller, less than 170 pips. But we are gaining share in sell-in and sell-out. We can see the networks. the chains advancing and gaining market share from the independent stores. And that happens due to high interest, of course, but also because these smaller chains are not taking so much advantage of the GLP-1 drugs. Only the larger chains are enjoying that benefit. But when we look at the sellout side, when we look at the big chains, We can see that we are also gaining market share and I don't think that's due to any financial difficulty of the other players, but also because we are offering higher performance and experience, a better experience, including in the digital channels. We are evolving more than they are and that causes that gap. We are not facing hiccups and struggles, which is natural. Five years ago, we had a number of issues on the app. For example, excessive traffic during the Black Friday period. It's natural. That happens. But you need time and also a lot of money to invest to overcome those challenges. That part of our history is behind us. Now we have a very solid app. So the big chains have been losing market share to us because of the experience that we provide. Now about the cash cycle, the result has been very solid, as we said, with 11 days. We expect that result to be recurring looking forward. And the big issue here is ICMSST tax. The tax substitution is not going to happen anymore. We are going to start paying tax from the moment we sell the product and not when we buy the product. So that ICMS inventory, if you will, that was retained with the government will come back to the result. And that accounts for six days in our cash cycle. So it's going to be a benefit for us. And also the ICMS ST tax. is going to bring some benefits in our inventory. The inventory will go down by three days. It is going to cause an effect in our inventory and it is going to affect the COGS and the inventory. And it will affect COGS faster than the inventory. So the inventory line is a bit polluted because of that. That one day gain that we see in our line in the inventory line, it is actually more than that, that it is minimized because of the tax substitution effect. But that situation is there to stay. It is not a one-off effect on our result. The tax substitution will be removed from our base. So looking forward, that result will be perennial. That same level will be kept from now on, and that's a major strength for us. So the conversion... should be easier for us looking forward. Thank you, Joseph. The next question comes from Bob Ford with Bank of America.

Please go ahead.

Hello. Good morning, Rajwan and Flavio. Congratulations on the results. What are the updates about Zerpatide and GLP-1 drugs and compound pharmacies. And what are you doing independently and also in partnership with the sector to raise awareness among users? And I would also like to know about your perspective of the factors that will sustain your market share gain in terms of GLP-1. Is it going to be... Drogasil S.A. Trisapatide market right now in terms of units in the informal market is even higher than the formal market, but in terms of revenue it is at least the same. And there's also the compound part of the market that may be the same size as the other two. We believe that The informal market is even bigger than the compound, but we think it is distributed like that. And that is a very worrisome issue for us in terms of public safety because people don't know where the product comes from. If they even knew that the product is... and it is high quality, that wouldn't be so troublesome, but it is also a healthcare risk for the users. We have been conducting campaigns on our Instagram page trying to raise awareness about the risk Drogasil S.A. We have always talked to Abrafarma about the campaigns, and all members of Abrafarma are very much engaged in fighting the informal market. So we have been doing whatever we can. We're trying to understand what makes people resort to that. And it's clearly about the price difference. people need to have access to those medications and since hepatite is not affordable for a big part of the population and there's also an issue related to getting the prescriptions. So that's what we have been doing about this, but we have still a long way to go in terms of winning this battle. Now, if we can do that, if we can make those medications more accessible and affordable, and if we can raise awareness about the risks and make that migration, there's a lot to be gained. And as I told you, GLP-1 is very important for us in terms of market share, but it's less than 50%. We have been expanding. That's always on our minds, and we have been very successful in that effort. So the market share gain comes from the expansion that surpasses the expansion of our competitors, not only in the pace of the expansion but also the quality of the points of sale. And also the digital channels have been growing. And it's also about the solidity of our operations. We finished last month with the lowest inventory stock count that we had for many months. We were able to reduce that, but also we've done many other things, including working on our NPS, adding more staff in our pharmacies, So it's very hard to put our finger exactly on what factor made the biggest difference. All of those factors are important. And many of those factors are structural ones. And also, Raduan, one thing that I would highlight is that there is no informal market for any other molecule in Brazil right now. The only case in Brazil is GLP-1. It is abnormal, completely abnormal, and we believe that happens because there's a desire on the part of the population for this product, and there's also scarcity on the side of supply, and the average price is still very high. Looking forward, In this category, we should move to what happens in other categories, not having any informal market or anything like that. And things should go back to normal once we address the scarcity. We are going to see a more volume of these products coming to Brazil due to the high interest in them. And the price is going to go down as well. And serazepatide and semaglutide are very important molecules, but also in this quarter, Avisa approved other five products in the semaglutide segment. And we expect to see another seven products being approved by Anvisa until the end of the year. So the supply is going to increase and the average price will reversely go down. That gap of 22 points in the average price happens because of the new semaglutide molecules. And Bob says, Also, what I can tell you is that with the new competitors, they should balance this category. And we can see the increase in our market share quarter on quarter. And we grew with a decrease in our prices of about 20 points. That average price was surprising to the entire market. We received many calls about the price of this new product, and we believed that the price would go down at some point, but it happened much earlier than we expected. So, indeed, it impacted many players in the whole chain, And on our side, well, we are retailers. We buy and sell. If the product can be bought at a good price, we are going to sell it at a better price as well. So it's good for us. And right now, we believe that we are by far the best player in the GLP-1 segment. Our market share is extremely significant in this category. The market is growing and we are growing as well, so much so that this business is growing as a share of our operation. And one positive aspect that I would highlight is that the market is has been very anxious about that. It is the big wave of change in healthcare in the pharmaceutical sector, and everybody is looking at things from a short-term standpoint. But actually, the margin right now for the products is not that relevant if you think of the big picture and the potential. That's very clear. Now, about the consolidation, considering the pressures in the segment, do you think that that can cause an acceleration in the consolidation movements? Well, if you look at recent data, you can see that that is already happening, and I believe it will continue. I don't see anything changing. The interest will continue to be high. Some categories are exclusive to the big chains. There are some things that can be more difficult for the independent units, so I believe that the consolidation movement will accelerate. Thank you. Thank you very much for your answers and congratulations. Thank you, Bob. Now the next question comes from Mauricio Cepeda with Morgan Stanley. Please go ahead.

Hi, good morning. Thank you so much. So I have two questions. The first one is very financial about capital allocation. You have an adjusted leverage at 0.8, and you have an expectation to generate cash that is positive in the future. What is the leverage bracket that you want to be at today? And considering that you are below what you have been historically, how do you plan to allocate this capital? Would you accelerate organic expansion or with repurchase or dividends, etc.? Buyback, what would you suggest? And the second thing is about those benefits of GLP-1, etc., Are you ready to capture opportunities that go beyond the medication? Are there any strategies for complementary products, medical devices, supplements, scales, perhaps a service for health care, monitoring? I don't know if this is something that could be expected from the GLP-1 Success Program. thank you so much that is a both great questions so to start yes we are deleveraging so we are creating investment capacity for things that we believe will give us return now that interest rates are very high we are not going to accelerate organic expansion too much not because we lack the resources but because we want to make sure that quality comes first we want to expand at that rhythm of about 10%, as we have been saying, which is proving to bring the appropriate return. We have the resources there. If we think we should push further, we can. Now, when you think about buyback and shares, et cetera, those are things that we are analyzing all the time, and we may at any time choose to do those things. It's important that we know that we are deleveraging at, at a time where costs are very high. Knowing that, we can contribute to the end results. Number two, we know that that gives us space so that if we understand that there are projects where capital allocation makes sense because it will give us a better return, then we will do that. There is no one theme that I could talk about today to specify. The second question is good. We talk about GLP-1, but GLP-1 is one part of a whole care journey that goes through other products, other services, et cetera, and we've been focused on that quite a lot. We are developing internal solutions. Sometimes we are developing things with the industry that is more specialized than we are, in terms of the weight loss journey. And we think about how we serve our patients during their journey, continuously speaking, so they understand what additional products would make sense to complement their weight loss journey. We can monitor side effects, how to treat those side effects, how to have professionals close to them. And we are trying to engage our clients during this journey, not just in terms of... Drogasil S.A. The pharmacy that we are going to inaugurate tomorrow, you will see a full section of supplements. It's very robust. You will see other devices that are there to help patients monitor their own health, and those are all there. Thank you very much. I will be there. Thank you so much. Thank you very much, Mauricio. Our next question comes from Talis Granello of Safra. So please go ahead with your question. Good morning, Red Rumpel. Good morning, Flavio. Another question about GOP1. Would you have to share with us the percentage of migration that you saw from your client base going from Ozempic to the generic brand, the ones that we've been offering? And of new clients... How many clients of Ozizi are new clients to you, individual clients? Thank you. Well, these are preliminary data, and we have to be careful. Every time a new product is launched, we have to be careful. So it does need a prescription, and we keep that prescription. So if someone is using an older product, do they have to go through however much they have at home before they change and migrate to this new offer? I think preliminary data sometimes are not representative of what they will be once this initial cycle is over.

I say that a little bit above 60% of OZZ were new.

We are seeing very little migration from terzapatide to semaglutide, even though semaglutide is becoming cheaper. Within semaglutide, we have this new medication, Ozivi, by EMS, and 60% of the clients were completely new to the category, and the others were migrating. We don't know where that is going to plateau, but this is... Drogasil S.A. having found out that there are cheaper products and are now talking to their doctors, et cetera, and started a treatment. I think that that's what we're looking at. But again, you know, we need to wait for doctor appointments. We need to wait for prescriptions, people who are midway through treatment with a different product. I think we still need some time to understand how this is going to play out. Just Drogasil S.A. That only happens after the industries talk to doctors and create loyalty, et cetera. And it takes a while for this cycle to be stabilized. Volume will grow with demand, with prescriptions, et cetera, but then it will plateau at some point. Great. Okay. Thank you very much. That was very clear. Thank you, Thales. Now we are going to hear from Vinicius Estrano with UBS. Please go ahead, Vinicius. Good morning, Redwamba. Good morning, Flavio. I have two questions for you about combo promotions with Monjaro. How do you see the impact of that in terms of demand? You showed a graph that had some of that relativity after Zepetide. But I think that was throughout the quarter. So I wanted to understand that at the end of this quarter. Also, thinking about the gross profit with Drosepatite, we still were looking at something that was very, very high. I think volume will upset that. But I want to understand your view on that. with this specific medication. Now, thinking about gross margin still, how do you evaluate the level of losses now compared to historic numbers? If there are opportunities to capture improvements in terms of losses, perhaps a reduction of theft now that the product has become a little bit cheaper, et cetera, and shoplifting was also an issue. So let me start with the last question. Things that have improved from last year was that we had a reduction in losses that was due to several initiatives, not only shoplifting prevention, but a whole management of inventory that reduced losses and that showed a significant drop. Drogasil S.A. and we'll get closer to normal levels. With semaglutide and terzepatide, which was specific, month on month, every time the average price drops, regardless of what the dosage is, the volume will always offset that and our revenue is better. We saw that within the quarter and every month as well. If the price goes down, It is always, always offset by the demand. And it doesn't matter if it's the more expensive product or the cheaper products. We still see this elasticity. We're not looking at the contribution margin of the specific product. We have GLP-1 that represents 12%. We... Drogasil S.A. Yeah, unit profit of semaglutide box should go down. The unit profit of terzepatide with time should go down as well to generate accessibility, generate migration, but in aggregate numbers, because of volume, that will be offset. So we are very attached to the aggregate view of this. We're not going to be too worried about that unit price. I think an important point here in terms of combos is that was also talked about, you know, there is still a lot that is related to the experience of the product. The formal market of GLP-1 products is 1 million boxes per month. We're talking about 70, 80 million people. There's a lot to explore, and we're at the beginning of this journey. So it's about the discovery, the experimentation, and then we look at the engagement process on a whole journey of weight loss. This combo is a very solid access channel to start this journey. When someone is using it for more than a month, for recurring periods, that, of course, will make losing weight easier and it will facilitate the journey of the doctor who is following up on this patient. It is a cycle that self-feeds in a very positive way. We are seeing these combos, promotions, that are coming in because of the recurring purchases. Our clients are now buying more often as well. Wonderful. Thank you so much, Flavio. Thank you very much, Vinicius. We will now hear from Irma's guest from Goldman Sachs. Please go ahead with your question. Hi, good morning. Drogasil S.A. But there is a gap between brick-and-mortar stores, which has an amazing MPS, and the digital channel. So what do you think we're missing, digitally speaking, thinking about the journey for our next years where we have room to improve? It's a great question, and it is actually really hard to answer. If there were a silver bullet, we would have used it by now. But Drogasil S.A. There could be a problem or not, but a human is there to guide you through this, whereas online you don't really have that. Maybe you're just trying to get a refill or something. You're not going to have that person right there who's there talking to you, answering questions, showing that they care, that they are worried about your health and not so much about that specific transaction. So we notice that this additional human factor, the warmth, the eye-to-eye conversation is something that makes a difference, and it is for sure something that explains part of this gap. That doesn't mean that we are not going to go for 98 NPS online. We want to do that. We want to try to warm up the experience as much as possible so that we can bring some of that human warmth there. Maybe we could have an assistance and we could make several improvements of that journey to improve the digital channel experience. We are fortunate. that more than 20% of clients that purchase there do answer our survey. And those that see any pain points, they tell us about it. And based on what they tell us, we know what we need to improve on, what is the backlog of new features, what are the topics that we have to improve on, and we compare ourselves to other players. Of course, it is baby steps, but we are focused on improving that We were at 50. Now we're at 81. So we improved a lot. But, you know, from 50 to 81 is easier than from 81 to 85. Still, we are still working. Everything that is structural is ready. The heavy part in terms of the digital channel for modern architecture, infrastructure is there. I know we did it all. And you asked us, why are you investing so much? in digital. Why is the GNA so much higher? And here's why, right? That's why we have an app now that represents 85% of our online sales. There's no silver bullet, but there is still the same drive to slowly improve the NPS that we've achieved. Thank you.

Next question comes from Leandro Bastos with Citi. Thank you. Good morning, Raduan and Flavio. I'd like to know more about the margin factors for the company. For many quarters, your real growth has been very consistent, and you also enjoyed a lot of growth in your revenue. And now we are going to see a more difficult scenario for GLP-1 medications in the second half of the year. And I would like to know what we can expect from margins looking forward. Of course, I'm not asking for any guidance, but if you can give us more color, that would be great. Well, we believe that there is a possibility for us to get marginal improvements in our gross margin with a number of factors. We have a project with Simon Kusher in terms of pricing so that we can generate more Drogasil S.A. Not excessively great. It is at the sweet spot right now. But we do see space for incremental growth in our growth margin. And also, we also see possibilities of improving our expenses. We want to adopt AI more and more in the company's processes. Drogasil S.A. the volume of sales as well because we want to continue improving our value proposition. We want to be the best company in the pharmaceutical segment for the customers and for our staff, our people. And we can also use AI to gain productivity in the internal processes to make our lives easier so there are investments to be made on that front as well our ambition is to continue advancing year after year in the profitability of the company I always say that the best days are still to come our result is great very solid but the best days are still to come Raduan talks about our 20% market share growth, but when we look at each state in Brazil, we can see that we are leaders in one-third of the states, nine or ten states. In the other states, we are number two, three, or even four. So there's a lot of room to grow there and a lot of gross value to capture. And we can also capture value from the customers. We have been investing in the customer journey and recurrence. If we look at our customer base, many of them go back and forth between Raya and Drogasil, the two brands in our company. So the fact that we are there for the customers either way is great. and also with new molecules, new launches, all of those things are going to add to our top line. When we think about profitability, considering the top line scenario, I usually say that our focus tends to fall on improving profitability by diluting SG&A expenses and not so much from increasing our gross margin. Of course, we can do that by decreasing expenses to a better level, but I would say that the biggest levers are much more related to optimizing SG&A expenses. And of course, our mature stores are growing by eight points above the inflation. We should remember that a lot of our expenses happen because we are expanding. We are opening 350 stores per year, 10% of our footprint. If we were to stop that expansion, then our EBITDA would grow by 50 or 100 pips. which is still a lot so the fact that we are growing ends up consuming the profitability that we could be delivering to the market of course at some point that expansion will reduce our plateau we are going to have 4,000 stores at some point but that 10% growth year over year will not will stop accelerating and we are not going to consume so much cash. And on the other hand, we are going to have a smaller percentage of non-mature stores. So the levers for growth are here. The biggest factor that we can tap into is the availability of levers and our commitment of them in comparison with the other players in this segment that are more valuable In our case, the population is aging. We are talking about an aging process that is going to last for 30 years. We are going to have 1 million people reaching 60 years of age every single year, and that is great for us. So that's why I say that the best days are still to come. Now the next question comes from Lucas Estevez with Santander. Good morning, Raduan and Flavio. Congratulations on the consistency of your deliveries. I'd like to ask another question about your appetite. I do understand the potential of that, but I would like to know if you believe that the average price of this hepatite is going to go further down and do you think there's going to be an excess volume because that combo is going to anticipate the treatment because you have to buy the treatment for a whole month in advance, right? So I'd like to know the impact of that. And I have a question about your flagship store. I know that you are still testing the waters, but do you think that that can impact your HPC mix going forward? And how much of that can impact your 10% expansion for the next years? Well, our competitors gave you a lot of details about the combo to justify poor performance, and now you're asking specific questions about that. The average price is going down but not significantly. It is not related to the decrease in prices of semaglutide. On average, it's dropping by 4% or 5%, and the average price is being more than offset by the volume. We don't see a hangover, if you will, because the customers bought more of that. They are not going to buy anything for two months, but they will come back eventually after they run out of the combo products. And we have not felt any impact yet. on the demand because of that. But I don't want to give you details about each dosage or anything like that, but I do believe that you are interested in that. But we have not felt any of that hangover effect, and there are dosages in which the average price is higher and not dropping so much. And since there is a 1% penetration, we would have to give you so many details about something that is not that relevant. We are very optimistic about the new format, the new flagship store, to address your second question. In a company that has almost 4,000 units and 1 billion in EBITDA, we cannot afford to launch a new initiative at the whim of the management. Of course, if we're doing it, it is going to bring benefits. And we expect results that surpass the sales that it is going to deliver. We want to learn from this experience. We want to use it to understand what can be done, for example, in the units that are located in shopping malls. We want it to generate value, and we want it to help us strengthen the digital sales. As we roll out the flagship stores that have an exclusive assortment, we are also going to make those products available online. So the inventory is going to... cover a larger area than that of the flagship store. And we are going to learn a lot from how to manage some categories. And then maybe we can review the assortment present in the other 4,000 pharmacies. We are going to learn from the customer's behavior. They are going to show us where the value is to improve HPC and the other 3,800 stores that are not going to be flagship stores. So we do expect this store to generate a lot of value that goes way beyond how much more this specific store is going to sell. We are very optimistic about this initiative. And, by the way, congratulations to the entire team that was in charge of conceiving the flagship store. Thank you. Thank you very much. Have a good day. The next question comes from Guilherme Dominguez with HSBC. Hello, good morning. Thank you for taking my question. Actually, Flavio addressed part of my question. But it seems to me that RD is starting a phase that is all about capturing market share and expanding, but your growth is now contingent upon the digitization of the sales of some categories that are not so digital still. Can you give us more color about the top line growth and the focus for growth going forward? Well, I think I'm going to compliment what Flavio said. Your question is much more about improving the efficiency of the existing units, which is not easy. The mature stores are selling so much. There's a performance gap that is huge. So to grow on top of a base that starts at 1.2 million, for example, and in some locations it's even more than that, 1.3, 1.4 million. When we look at the customer's behavior, we still can see, low to medium loyalty even the customers that go more often to the pharmacies part of them are very loyal and they do concentrate their purchases with us but there is a good portion of those customers that spend a lot in pharmacies that at some point buy elsewhere And it is very clear to us what are the customer segments that are at the highest value bracket. And we have a very structural perspective about how to deal with this. You asked about expansion and categories, right? We are building a customer-centric company, and we are trying to understand customers. the value proposition for each segment and we want to have a price strategy and a loyalty program that are specific to each segment so that we can become the first choice for each of those and increase the LTV. We don't want to be too specific here but our management approach focuses not only on expanding but on how to use our tools to understand the segments better. And there's a lot of room to grow in terms of becoming the first choice. We believe that we can work on making those customers come back to us more often, and that can bring us a lot of results, especially in the priority segments. Thank you. The next question comes from Enrique Spavieri with Brutusco BBI. Thank you, Raduan and Flavio, for taking my questions. I have two. I just wanted to have more visibility on the profitability levels of the stores in the medium to long terms. You talked about the improvement in your IRR, and in the release you said that 55% of the chain is still maturing. I would like to understand the main drivers of this evolution. Is it logistics or is it the GLP-1 medications that are contributing? And I would like to know if There's space for other leavers to become as important in the next years. I think that you answered the question already. Of course, as we sell more GLP-1 medications, it will help us a lot, but also we want to be competitive in terms of prices. We don't want to have so much stock out, and all of that is going to help the new pharmacists to yield better. Better results faster. But, of course, we need to be very accurate in our choice of locations, and we are very good at that. I try to be as humble as possible, but it's hard to be humble when it comes to that. I don't know if there's any other company in the world that has such an airtight process for choosing locations as ours. We have a very low error rate. We are very accurate in our location choices, and that was not created overnight. It is the result of hard work year after year and also using technology. It's hard to build that overnight. And when we choose the best location and we bring the best logistics, the best team, the best execution and commercial strategy and everything that we do, that helps us sell more. So we put all of those things together to be successful as we are. Our IRR... is never below 20%. It is historically above 20% and is now closer to 25%. And that is very important as well. That should be maintained. And it doesn't mean that we are just addressing the high-income segments or anything like that. No. We are able to maintain that level in smaller towns and also... Drogasil S.A. That concludes the Q&A session for today. Now I'd like to turn it over to Raduan and Flavio for their closing remarks. I'll be very brief. I'm just the spokesperson here. The results are the results of the hard work of almost 80,000 people, and everybody that came before us, we stand on their shoulders. and now with the hard work of the 80,000 people that work with us, they look back and recognize everything that was done before them and they are humble enough to understand that we still have to learn and work hard and that's exactly what they are doing. So thank you very much to each and every one of you working with us at the pharmacies, the distribution centers, the corporate departments. Drogasil S.A. Drogasil S.A. And we hope that we will be able to continue delivering great results in the coming quarters. JLP1 is going to generate value for the segment as a whole and even more to us. The digital channel is a reason for us to be optimistic about our ability to gain market share. Being on the channel is going to be incredibly important for us. And I'm very optimistic, confident, but also humble. I know that we need to continue to work hard to deliver even better results than we have so far. Thank you very much once again. And please go visit our new pharmacy next Thursday. Thank you. Bye-bye. See you next time.