Profarma Distribuidora de Produtos Farmaceuticos SA

BOVESPA:PFRM3

Earnings Call Transcript

[Operator]

Good morning, and welcome to Profarma Distribuidora de Produtos Farmacêuticos S.A. conference call where we will discuss the first quarter 2019 earnings results. [Operator Instructions] As a reminder, this conference is being recorded.

The audio will be available at the company's website and up to 24 hours. If you do not have a copy of the earnings release published Tuesday, May 14, after the closure of the B3 trading session, you may access it at the company's website at www.profarma.com.br/ri. This conference call as well as the presentation is being simultaneously broadcast online and can be accessed also at www.profarma.com.br/ri.

Before proceeding, we would like to mention that forward-looking statements that may be made during this conference call related to the company's business prospects and forecasts as well as operating and financial targets related to its potential growth are based on the management's expectations about the future of Profarma. These expectations are highly dependent on domestic market condition, the general economic performance of the country and international market and, therefore, are subject to change. With us today, we have Mr. Max Fischer, CFO and IRO.

Now I would like to turn the conference over to Mr. Max. Mr. Max, you may begin.

[Maximiliano Fischer, executive]

Good morning. It's a pleasure to be here with you who are listening to us over the phone or online to present our results for the first quarter of 2019.

Continuing the performance we saw in the pharma industry last year, the first quarter of 2019 also presented a challenge. According to the Consumer Purchase Price methodology by IQVIA, there was a growth of only 4.5% in this industry in comparison to the first quarter of 2018.

Even still, we managed to continue our path towards having operational improvements. We adopted relevant initiatives during this first quarter that will contribute even more significantly to the next quarter's performance. For example, implementing the LEAN management philosophy, starting with the Logistics area, splitting the Supply area into Distribution and Retail with the aim to accelerate capture of opportunities and reducing stock out and lead time besides optimizing the company's working capital, and restructuring the Retail commercial area and splitting it into sell-in and sell-out.

Before presenting the results for the quarter, I'd like to clarify that from 2019, the company's financial statements were prepared according to IFRS 16. Therefore, for comparison's sake, the values for the first quarter of 2018 will also be presented with the old norm before IFRS 16. Considering these results and the consolidated data, the following highlights were seen: a growth of 12% in sales reaching BRL 1.3 billion; an increase of 60% in EBITDA to BRL 14.6 million. Cumulative EBITDA in the last 12 months reached BRL 100.5 million, 90% higher vis-à-vis the first quarter of 2018, a reduction of 24.3% in the net debt-to-EBITDA ratio and a reduction of 1.4% in operational expenses.

Our perspective for the next quarters remains positive supported by the initiatives in our recently implemented strategical plan as well as in maturing the new processes and focusing constantly on optimizing working capital to accelerate an improvement in the net debt-to-EBITDA ratio.

We have to highlight that we are taking this moment in which the annual prices is increasing by 4.3% as approved by the government on March 31. And we are anticipating purchases in February and March, and that will have a positive impact that will reflect in the next quarter.

As of 2019, the results of Profarma have been prepared according to IFRS 16, which generate a positive effect on EBITDA but it has no cash effect when compared to the previous rule, which we are calling pre-IFRS 16. Said that, I'm going to start my presentation by sharing with you the highlights of the Pharmaceutical Distribution. First quarter, we reached BRL 1.2 billion in sales or a growth of 21.3% compared to the same period last year and a reduction of 1 percentage point in operating expenses. With this performance, EBITDA reached BRL 11.1 million, with an increase of 63.6% period-over-period whereas EBITDA margin reached 1.1%, considering pre-IFRS 16 values.

Retail Division has its main highlights, a growth of 2.1% in average sales of mature same store, 7.8% increase in the average sales of store per month, reduction of 0.4 percentage point in operating expenses and a consequent growth of 35% in EBITDA, reaching BRL 3.2 million. In the Specialty Division, we may highlight the growth of 19.5% sales in the first quarter '19 with a reduction of 0.3 percentage point in operating expenses and as a consequence, an increase of 104% EBITDA, which reached BRL 7.7 million.

After the presentation of the highlights of each division of Profarma, let's once again talk about our consolidated performance. CapEx of first quarter '19 amounted to BRL 8.2 million, BRL 6.5 million related to Retail and BRL 1.7 million attribute to the Pharmaceutical Distribution. In the same division, the investments were most directed to facility, machine and equipment. In Retail, most investments were made for renovation, expansion and new points-of-sale.

Our total indebtedness reached BRL 449.8 million at the end of March with an increase of BRL 53.1 million over December 2018. This net debt increase was directly related to our investments in inventory levels because of the price adjustment authorized by the government, amounting to 4.3%, which is 72% higher than the previous year.

Our leverage index reached 4.5x, high -- an increase in the quarter. Our sequence of good operating results year-to-date with an EBITDA of BRL 100.5 million, combined with our capital increase in 2018, are the main highlights that have led to the reduction of the leverage index of the company. In fact, at the end of the first quarter '19, we have an indebtedness level which reached 4.5x what we expected in the first quarter '18, which was 5.9.

With that, we close our presentation, and we are open for the Q&A.

[Operator]

[Operator Instructions] The first question comes from Mr. [indiscernible] from Citibank.

[Unknown Analyst]

So my question is about the EBITDA -- net debt-to-EBITDA ratio, which was mentioned as 4.5x. My question is, is the debt you are considering already deducted out of the leasing values? And is the EBITDA also calculated removing the cash effect from the leasing? So that 4.5, does that refer to that? So that's my question.

[Maximiliano Fischer, executive]

Thank you for your question. Yes, our indebtedness level published is in line with the previously adopted criteria before IFRS 16, which were adopted from January this year in Brazil. So this 4.5x includes the bank debt divided by EBITDA. So this does not include the benefit of a higher EBITDA for the calculation of the indebtedness ratio. It's calculated in the same basis as the previous periods.

[Operator]

[Operator Instructions] If there are no further questions, I would like to hand it over to Max Fischer for his closing remarks.

[Maximiliano Fischer, executive]

Well, we continue to be focused on obtaining the best return on our assets, maintaining really all our focus on the company. Thank you very much, and see you next time.

[Operator]

The earnings conference call for Profarma is closed now. Thank you all very much for joining us. Have a nice day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]