Dimed SA Distribuidora de Medicamentos

BOVESPA:PNVL3

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen. Welcome to to the Panvel Group's Q2 2024 Earnings Conference. This conference is being recorded and will be available for replay at the company's Investor Relations website, where the slide deck for this presentation can also be downloaded.

[Operator Instructions] Simultaneous translation is available both into English and into Brazilian sign language. To activate the service, just click the interpretation button and select your preferred language.

Before moving on, I'd like to stress that any forward-looking statement made during this conference is based on the Panvel Group's administration's beliefs and assumptions as well as information currently available to the company. These statements may involve risks and uncertainties seeing as they relate to future events and, therefore, rely on circumstances that may or may not materialize. Investors, analysts and journalists must consider that events relating to the macroeconomic environment, the industry and other factors may lead to materially different results than those expressed [indiscernible] this conference are the company's CFO and IRO, Antonio Napp; and the CEO, Mr. Julio Neto.

I will now turn the conference to Mr. Antonio Napp, who will begin the presentation. Please, Mr. Napp, you may proceed.

[Antônio Carlos Napp, executive]

Good morning, everyone. I'd like to thank everyone for your attention during this Q2 earnings conference. During this time, we'll have the opportunity to tell you how we did this quarter and how we started the third quarter of 2024 as well. As we usually do, we love to talk about what moves us, our mission, our vision and our values. And the second quarter of 2024 really put all of these factors to the test. We had to provide well-being to people, and we had to act and act fast.

During this time, we had several plates to spin at the same time which we did very well. When we look at our deliveries in the second quarter of the year, we're really happy to report that against a backdrop of unprecedented flooding in the state of Rio Grande do Sul, and we'll be talking more about that, this was a really complex time in the history of that state. But we were able to deliver as Panvel unprecedented growth. We grew by 11.5%. We grew market share. We maintained our level -- or standard of care. We ended the quarter at an extremely low debt level. We had record-breaking results in our digital side, and great results also both from our -- on our EBITDA and in terms of revenue.

So when we look at this group of this set of information, we remained strong during this quarter. And as I said, we are starting Q3 at a very healthy level, growing strongly in the month of July as we'll show you later.

All of these results, we did while taking good care of people. At no point did we fail to take care of our people, of our communities over the course of this quarter. And this was since May when the flooding started. We took a number of steps. We made several initiatives in terms of donation, delivered BRL 2 million only through our Troco Amigo program, served several different communities and made an impact in several different fronts.

On this slide, we share some images, but I think it's important that everyone is aware that for some time, our distribution center in Eldorado do Sul was isolated. We did not have any flooding enter the DC, but we couldn't access it. And our plan is responsible for the manufacturing of many of our white-label products. And about 20 stores were directly impacted, seeing as they were in a place that was really flooded. And it's [indiscernible] after the beginning of May, we were already operating our distribution center in Eldorado do Sul. In 40 days, we were able to come back to our headquarters, reopening all our administrative offices. And in 60 days, our lab was producing again. And in 70 days, every store that had been empty, we would not have done so well or not for the strong engagement of our entire team.

This engagement is clearly reflected in our figures. If you've been to other conferences, you know that Panvel has been showing a compound average growth of over 14% over 10 years. So when we look at the more recent figures [indiscernible] so it's robust growth, even though we did not grow at that same pace in 2024.

Now when we look into what the second quarter -- second half of the year awaits us, and it's important to look at the trend of growth, which is usually outperforming the first quarter. Our average growth in the second quarter is 17%. And as you'll see next, we started the second quarter -- the third quarter of the year at that very same pace.

So let's talk a little bit more about Panvel. As I said earlier, we grew our sales by 11.5%, so very robustly. And I think it's interesting to break down every month. When we look at April, our pace of growth was strong by close to [indiscernible] in the first half of the year, we had grown by over 16%. In May, we suffered a heavy impact of the flooding. So we had low growth by 5.4%.

As I mentioned earlier, we had close to 80 stores directly or indirectly impacted, which definitely makes a difference in our sales. In July, with over half of our set of stores reopened, we resumed growth, reaching 11% with Panvel. And in July, we grew by 15% overall, coming back to Panvel's regular levels and breaking 2 records, Panvel's highest monthly sales [indiscernible] like December and January of last year. And we also reached BRL 700 million in average sales in the month of July, which is to say we are on a strong rebound path.

Now I also wanted to talk about the Q2. When it comes to average sales, this is one of our main KPIs and one of our great focus because it's by looking at our average sales how we unlock productivity. So we are following a strong path in terms of increasing our average sales in the sense that those stores selling less than 300,000 are going down quarter after quarter. And those selling over 700,000 are growing steadily as well. We also capped that pace as we showed the highest average sales in the area, as I showed you before. And as I said, you can expect a lot more in Q3.

Now this is based on 2 different building blocks. First of all, the excellent performance we're reporting even in a pressured second quarter on same-store sales and mature same-store sales. And same-store sales increased by 11%, and in mature stores, 5.1%. So outperforming inflation.

If we exclude it from our store base, those that were impacted by the flooding, so just over 80 stores, growth would be even more robust, and very similar to what we reported in the first quarter of the year. We would have grown 11.4% in same-store sales and 8.4% in mature sales. So these are very robust figures, which are driving our expansion to between 11% and 15%.

Looking ahead and talking about another significant lever. This quarter obviously saw a delay in store openings against what we had planned. So our plan was to open more, but we opened only 8 stores, but we are still committed to opening 60 stores in 2024. So we are focusing our efforts on opening 40 stores between Q3 and Q4 2024. And we are doing very well on that.

Another important point that we should stress is that in Q2, when we look at the stores that were directly affected by the floods, and I'm talking about 20 stores or so, we noticed that in 10 of those, it wouldn't make sense to reopen because these were stores in the metropolitan area of Port Alegre with low average sales and the -- and low prospects of new returns. So once they were flooded, we realized it no longer made sense to invest in them because we need to be very disciplined in our capital allocation. This also proves all our other indicators. So we did a good cleanup. All of these stores were on our road map in terms of transfers, and we took the opportunity to expedite that shift.

Another important thing during this quarter, we grew our market share in spite of the situation. And I think it's important to stress that much of our focus had to shift to Rio Grande do Sul where the largest part of the impact was. We had a distribution center that was isolated for over 20 days, but we lost nothing in the states of Santa Catarina and Parana. And we could also grow our share in the southern region of the country, and capped our market share in Rio Grande do Sul, growing exponentially in Santa Catarina and Parana by, respectively, 0.8 and 0.4 percentage points.

We are at the third consecutive quarter growing our market share, which is founded in the greater market share for medications. This is what we've been doing. We are still growing our market share in generics and branded medications, which is in line with our mission of providing health and well-being.

Another critical foundation where we did really well in this period and continues to break records is our digital channel. Panvel is still the most digitalized network in the country. And when we look at the first quarter, and here we broke down just as we did with sales because we had an impact on the share of digital in our sales, we expect to have closed this quarter, far over 20% in June and opening July with over 21% of our share in digital.

So a record figure, the highest penetration in Brazil. And we did this because we, first, have delivery capacity that far outpaces the market, whether it's program deliveries or fast deliveries, and we delivered over 50% of everything we separate in under 60 minutes. And unlike our competition, we are talking only about deliveries. And there's a great importance in the work that we do and how much we take care of our app at our site.

Not coincidentally, our active customer base in our apps has grown by over 42%. And we have an MAU, monthly active users, in our app of 43% of our active customer base. If you look into it, you'll see that no other competitor has the same MAU. Because if you use the Panvel app, you can see that it delivers great value, which is why we continue to differentiate ourselves on our digital channel.

Another foundation of our leadership, and we are still leaders with wide margins over the runner up, is services. And this is very important. We are absolute leaders in market share when it comes to services in the Southern region with 26% and over share with regard to our position. And when it comes to vaccination, we have close to 40% of the market in the Southern region.

All of that because we provide services in 380 clinic stores, 95 vaccination rooms and over 180,000 appointments in this period alone. We have the highest share in services. 1.2% of our sales was based in services. When we compare that to the competition, we far outperformed them.

And why do we believe this so much and we'll continue to believe in services so much? Because it leads to recurrence. Customers who look for the services of our clinic has a higher average ticket. They go to our stores more often, and this helps us also to tangibilize our provision of health and well-being. So this is another building block of our differentiation in a far -- in a very competitive environment, which is the drugstore market.

Another important building block is that of Panvel products. We have great white-label products. If we look at the market, close to 35% in of the private label products in the market of the region is Panvel products. Of course, we had an impact during this quarter. Our share went to 6% in Panvel and 5% when it comes to beauty products.

If we look at all our private label brands, Unipar, Viva and Sanitas, sales approached 7% of Panvel's overall sales. This figure has been affected this quarter, particularly because, as I said at the beginning of our presentation, the floods greatly affected the Unipar Lab. Our plant is located in Port Alegre, and it was underwater for over 20 days. So in addition to not producing, we lost much of our inventory, which caused a disruption. And therefore, the sales of Panvel products suffered during this quarter. Lefar production has also been restarted, and sales should return to normal in the next few quarters.

And this is very important information which we also mentioned because we faced this situation over the second quarter with many restrictions. There were restrictions in operation, a number of associates, electrical power, and we did not fail to serve our customers, keeping our NPS 80 points during this quarter. We are still our clients' favorite drug stores. When we look at the reviews, both in Reclame Key and the App Store, which goes to show where our focus is and how well we were able to balance how we serve our communities as well as our customers.

Concluding our sales part, going down one line, let's look a little bit at our gross margin. In this case, Panvel's gross margin. The gross margin for retail in Q2 was affected by at least 3 factors. One of those was shared by the entire pharma market, which is the reduced adjustment in prices. Last year, that had been about 5.6%, and this year, it was 4.5%. This element shared the entire pharmaceutical retail.

But we, at Panvel, also suffer pressure from 2 other points, which were seasonal and are, therefore, waning in the third quarter. One of them is we had to compromise a lot more when it comes to discounts to sell our products in both May and June, particularly medications and staple products to be able to release all of those donations.

So one way that we were able to support the community was to offer product set costs with more aggressive discounts. Another pressure was because our distribution center was on a standstill for some time, the supply of our stores was provided, in part, by our San Jose Pines distribution center and, in part, by purchasing from third-party distributors. And by doing that, there is a pressure on our COGS because those purchases cost more than it cost to buy directly from the industry. And this is explained by why we had the pressure by 0.9 percentage points. However, this is now in the past, and we expect healthy gross margins starting in Q3.

When we look at our expenses, to us, this was one of the most significant impact the flood has caused. And in the next few slides, we'll talk a little bit more about the direct and indirect impacts, but it's important to remember that we lost a lot of our operational leverage seeing as, on the one hand, retail sold less than it should have sold in May and June, and we calculate that this loss was around BRL 37 million. And our retail did not sell, not in May, not in June. So 0 sales. And this impact in sales was close to BRL 77 million, which is to say BRL 114 million short in sales, it's only natural that we were not able to dilute our expenses.

However, as you can see, our nominal expenses with sales was the lowest this year. So it is still very much under control. And have things been different [indiscernible] we had in 2023. And the same can be said for administrative expenses. Our nominal expenses are still flat with no additional pressure, and we sold less so it has gone up. Now these effects begin to ebb starting in the third quarter, seeing as these pressures were restricted to the second quarter of the year.

So finally, we come to our overview of our EBITDA. And I'd like to talk a little bit about the effects we suffered so that everyone leaves this call understanding very well the remaining impacts and what we should no longer see. Our adjusted EBITDA was BRL 49 million or 4% of our gross revenue.

Now what did we adjust within this EBITDA? First of all, we looked at the direct effects of the floods. So what are we talking about? Every effect that we recognized in Q2 relative to all our fixed asset base, meaning every loss we had in our stores, DC and Lefar plant, all the effects on our inventories, including a lot of write-downs in Lefar itself. We also reported many nonrecurring expenses with donations, with the support to our associates, expenses relative to cleaning, safety and maintenance, precisely so that we could have our stores up and running again.

So if we combine all of these effects and deduct all of that from what we could recover via our insurance policies, the direct impact on our DRE was by BRL 15.2 million. So this was the first direct impact, and it has been fully recognized in the second quarter of 2024. There are no impacts to recognize in the following quarters.

Another important fact that I'd like to share, which also dovetails with what I mentioned before is what were the indirect impacts of the floods? Well, they translated into our sales loss. As I said earlier, when we look at Panvel, considering a very conservative sales pace, we left about BRL 77 million on the table on those 80-or-so stores that were impacted. In wholesale, we left about BRL 77 million as there were no sales in either June nor May.

Looking at the gross margin alone that these businesses would generate and considering these expenses because obviously, had I sold more, I would have spent a little bit more as well. As you can see, naturally, our EBITDA should have been a lot closer to 4.8% or 5%. So an absolutely healthy EBITDA in keeping with what we had been reporting before and which would show very clearly, the dilution of expenses compared to previous quarters seeing as we had a lot of pressure in our gross margin. Later, we can dive deeper into this during the Q&A, but we also left that information available in our press release so that you have a basis for comparison.

Moving forward, and this is something I'd like to call your attention to because this is very valid and helps us to explain some of our figures. When we look at the retail EBITDA, and by retail EBITDA, please understand this is the margin from retail, the results -- sales results of our sales, excluding depreciation. Notice that even with the pressure of 0.9 percentage points in gross sales, our stores productivity and maturity of our new sales was enough to mitigate a large share of the impact, and our store was pressured by only 0.4 percentage points. This really reinforces that our store operation remained healthy even in a quarter that was so challenging as the one we had.

All of that is concluded by showing you our adjusted net profit. The same impacts we mentioned for our EBITDA are true here. So I won't mention them before. We ended with BRL 20.1 million. And even in that situation, we were still the company with one of the widest adjusted margins in the pharma retail marketer. This is expected to continue in Q3. And once again, every possible impact has been recognized during this period.

Another important point to close on the figures and another great highlight. All of this that we did supporting our community, our associates and the company, driving results by -- while also focusing on our cash, there was a great highlight. Obviously, our curves are nonrecurring. However, our inventories were uncovered for 2 factors. We had merchandise stopped for a long time. And also, as I said earlier, in both May and June, we had significant sales losses. So it's only natural that inventory -- unsold inventory would go up.

On the other hand, by negotiating with our sales partners who really supported us, we renegotiated maturity or payment terms, and we were able to mitigate our inventory days with longer payment terms with our suppliers. Seeing as we do not sell on wholesale, we extended our receivables in the market with longer terms.

All of these initiatives, combined, allowed us to generate a free cash flow that was positive in the second quarter. And it's important to remember that this is very unusual and ended the quarter with a debt to EBITDA of 0.84x, the lowest of every listed company in our industry.

So this concern with our cash and with a solid balances, nothing new to us. We only had the opportunity to exercise it even further, and this is definitely a competitive edge for us because looking ahead, we do not see -- we do not envision a scenario of declining interest rates. So having a low level of debt gives us steam to continue to invest without hurting our profitability. So this was another very important delivery.

And I'd like to reinforce a guidance we provided in the first quarter. We believe we will end 2024 with an even lower leverage ratio. Our challenge is to reach -- to go for something between 0.4 and 0.5x our EBITDA, and we seem to be on track to achieve that.

So this concludes our results presentation. And we will now talk a little bit about our strategic building blocks. Later, we'll talk a little bit about the third quarter and what we should expect in the second half of 2024. But we always talk about expanding. Why are we still so confident? Because our growth levers haven't changed at all when we look at the Southern region. And this slide shows this really well because it provides all of those elements that explain why we will continue to open stores and why we reinforced our guidance of opening 60 new stores in the second half in the year and why we aren't changing that.

Well, there's a lot of room for consolidation. You see that we are still not 50% of the market, meaning there is huge room to grow. In addition to that, the market in the South is outgrowing the Brazilian market. And Panvel is outgrowing the market in the South. Not coincidentally, we have been growing our market share for 17 consecutive periods. And this is because not only is the Brazilian population aging, the southern region of the country is aging even faster than the rest of the country. So continuing to invest and continuing to focus on the Brazilian south is healthy. And this is growth that is already in our road map.

Along those lines, we continue to invest on our format. We reinforce we will open 60 stores this year, focusing on the Southern region, especially the smaller cities. Of course, we will open in Sao Paulo as well, but most of our stores will be opened in the South, mostly in the standard model and popular model as well.

The region has been prospected by 100% for this year, and we are starting to prospect for 2025, where we have prospected 33% of those areas. And when we look at the south and thinking about the population, it's very interesting. We have a strong footprint in large cities, those with over 200 people, but there's still room to grow there. But there's a particularly large room to grow in cities with between 50,000 and 150,000 people.

We are opening in new cities such as these with very good results, as you can see on this screen. This is something we do every quarter, and we make a point of doing this because it reinforces how healthy our investment has been and the growth we've reported every [ quarter. ]

As you can see, the stores open in 2023 are, on average, generating an EBITDA of [ BRL 63.4 million ] in [ 2022 ] [ 5, ] and those mature are at around 11.6%. When we look at the states, every quarter, Santa Catarina and Parana are approaching Rio Grande do Sul, which is only natural as our store base increases. And Sao Paulo is growing fast as well, even though the margin is narrower. This margin was once negative, and it is now growing at pace. Sao Paulo is a market where our averages are over BRL 100,000. So every store we open responds really fast.

Now looking at this chart, we are very confident that we are on the right market. We have the right plan, and we are executing this plan really well.

We've talked a lot about our brick-and-mortar operations, and naturally, brick-and-mortar is a building block of everything that we do because if we have a strong digital channel, that's because we have a strong physical channel as well that delivers fast to consumers.

Our brick-and-mortar base allows us to be closer to our customers. However, we never -- we were never negligent with our technology side, and we are always bringing news always looking to our customers, which is why for over 1 decade, we have a leading digital channel in the market because we were always able to provide the best options. And it is no different right now in a world that's being flooded with artificial intelligence.

This is only one example, but amidst that challenging third quarter situations, we launched and we're pioneers in launching the first generative AI service, the first generative AI service, which is Sofia, the artificial intelligence-powered pharmaceutical guidance service. It is plugged to all our point of sales and allows our associates to talk to them, asking about appointment routines, medication interactions and regulations as well.

The interesting thing here is that we can teach more and more to Sofia. It is a teaching resource to our associates, and it ultimately benefits our customers as well. So we're preparing Sofia to maybe later on, interact directly with customers as well.

And it doesn't stop here. We're a company that's focused on the artificial intelligence in -- on the data side, looking for solutions, both for our internal productivity and for customers as well. We have a great head start here, and we are already reaping the benefits.

And another building block that we've been remiss not to mention and which we work on very intensely, especially now in Q2, is our sustainability pillar. I'd just like to remind you that in July, we published our second sustainability report about the year 2024. So I'd like to invite all of you to scan the QR code on the screen and spend a few minutes reading and looking into what Panvel has been doing in this realm. This has been a differentiator of our group. And as I said, this was critical during this period that was more challenging this year in May and June.

Now moving to the end of the presentation. The idea is to share with you a little bit more about what we are expecting and what we're seeing in July and what we expect for the third quarter.

Well, the first thing I'd like to stress is we started Q3 really, really well. This is a data point I showed you earlier in the presentation, but the trend for every second half of the year is stronger growth than what we report in the first half. Historically, we've reported, on average, 17% growth. In July, we've already delivered 15% growth, the highest nominal sales for Panvel on record. The highest average sales figure, BRL 700 million. Strong growth of mature sales, [ nearly ] 10%, and we also delivered a record participation in digital -- the digital participation in sales of 21.2%.

As we move forward, you'll see more of those effects and market share and so on and so forth, which is in line -- which is in line with our expectations.

So what can we share with you already? First of all, Panvel's vision for 2024 doesn't change at all. Our overview is still positive, including on Panvel side, higher revenue. So we understand we are poised to grow between 15% and 17% in the second half of the year. This is something we're already working on and is already coming to fruition. We have our expansion plans. We're starting the second half very well with our new stores as well as our existing stores. When we look at our gross profit, excluding those impacts I already mentioned, the distributors' negotiations and the sales are also ahead us. We will grow our branded medications which could have some pressure, but we're also growing in generics and OTC. OTC, which by the way, is a category that hurt really bad in Q2 and is now growing again.

On expenses, it's only natural now that as we begin to sell -- begin to return to normal in sales, expenses will continue to be diluted as we -- as expected, whether on the logistics side or otherwise. The same will be set for administrative expenses, which will naturally lead to a healthier EBITDA. As I said, our indebtedness perspective doesn't change at all. Quite the contrary, we expect to end the year with a lower leverage ratio.

And lastly, when we talk about wholesale, starting in the second half in July, wholesale is sailing again, but selling within a new model at lower levels and higher efficiency. This trend of changing -- of shifting the mix with wholesale sending less and retail selling more is positive for the group's margins seeing as the EBITDA margin in wholesale is higher than that in retail, which means this will also drive our margins in 2024.

So on that, I conclude this part of our presentation. And again, I'd like to thank everyone for your attention and tell you that we're available for your questions.

[Operator]

We will now begin the question-and-answer session for investors and analysts. [Operator Instructions] Our first question comes from Kelvin Decin with Itau BBA.

[Unknown Analyst]

We have 2 questions here. First, about your wholesale operations. You've just talked a little bit about this new model of operations, and we saw that the decrease in revenues this quarter ultimately led to an operational deleveraging. And I just wanted to understand if this will offset the decrease in Q3. Should we expect a deleverage effect in the next few quarters following this operation?

And my second question is about your branded medications. Could you update us on how your strategy has developed in terms of chronic diseases? And when should we expect a positive impact on your revenues from this initiative?

[Unknown Executive]

Thank you for your questions, Kelvin. Let's start by talking about operational leverage. Indeed, in Q3 and Q4, we expect to see improved wholesale share and increased Panvel sales as well. The growth in Panvel share will partly offset the decrease in wholesale sales, and the other part will come from the group's margins, which will grow bigger, which will allow us to have a larger EBITDA margin ultimately as well.

So now we're going at rising curve in sales where operational leverage will not show that much in expenses but more so in our gross margins. But between the end of Q3 and Q4, that equation will be rebalanced. Yes, and it also begins to show in logistics because this new model entails separating the merchandise in the same shift in wholesale and deliver with what we call D+1, which is actually 2 days after the order is made.

So this will lead to important logistical savings because wholesale was operating with its own logistical costs because they had their own separation shift at night, which will no longer exist. So we should see a decrease in costs there.

[Unknown Executive]

Yes, perfect. And to your second question, Kevin, about the branded products. This is already underway. We are growing that share very much so. Branded medication has been the great engine of our growth since Q1. And what do we expect in the second half of the year? Well, there are a set of initiatives, first, in a small set of stores and then we'll expand there, focusing on training our associates, repricing store supplies, more technology to make our customer service easier, so that we can grow the loyalty levels among those customers, both those of our accounts and those have continued used medications.

No one has really mastered these customers. We see that they really skip and hop between stores, but we want to keep them more time inside Panvel stores. This project, as I said, has already started. And in the second half, we will be introducing it to a new set of stores. We'll look at the results and begin to expand that to the rest of our network.

[Operator]

Our next question is by Iago Sosa with JL Investimentos.

[Unknown Analyst]

Congratulations on your results. I had to notice the strong growth in the diabetes medications, which grew by 20% year-over-year. This is a significant increase, and I just wanted to bring up the subject because I assume there's a strong impact from Ozempic sales. So I just wanted to hear from you, how do you see this market moving forward, especially on the verge of us getting generic medication. And what do you expect to manage the category?

And my second question, I understand that the climate tragedy, unfortunately, had an impact on many small entrepreneurs, and I'd like to congratulate you on everything that you did to mitigate the situation. But looking to 2025, I understand that a few points of sales became available, especially in lower-income communities. How do you see that situation? Do you believe this may be an opportunity to advance your store openings within this profile of communities?

[Unknown Executive]

Well, let's start by talking about diabetes and Ozempic. We now have the Ozempic substitute, Wegovy. And admittedly, this is, weight category, that's doing really well in Panvel. We have a 27% market share in Rio Grande do Sul alone. So Panvel is absolutely the over -- the absolute over share in that. And the same is true about Santa Catarina and Parana. We have twice as much market share as our runner up.

Now how do we see that? We're still very optimistic about this category, not only because there are new products being launched, but because in practice, demand has continued to outgrow the supply. And obviously, when it comes to the market, we will offer the generic option -- the generics options for this product, but there's still a lot more demand than supply, and we expect it to remain strong moving forward. This should not change in '24, and we believe neither in 2025.

Now when we look at the margins, having the generic option is also good to balance that out. Today, our margins with Ozempic are narrower. We have a higher ticket with a narrower margin. Much of the price remains with the industry. But outside of that, this is a very interesting basket because the basket of products for diabetics, it involves several other products.

So how are we addressing the customers of chronic disease and continued-medication-use patients? Well, this involves what we do and how we are recognized by the market when it comes to diabetes treatment. Yes. And it's important to remember that diabetes has come into the spotlight in the entire industry. So obviously, the generics are coming, but I understand that the entire industry is working to offer better quality of life for those diabetes patients. And we see that not only with the medications, but also with the new devices that are coming up as well.

For example, FreeStyle Libre, which is also virtually exclusive to Panvel, maybe 2 or 3 other networks that sell this Abbott product. And it's -- it is revolutionary in the lives of diabetic patients. So instead of having to needle their finger, they keep the device on their arm, and it automatically communicates with their cellphone.

So that's what's interesting. We're seeing the industry move to give people better quality of life, which I believe is very much in line with our purpose as a company. And alongside that, there is an important growth underway in the market. So once you have better quality of life for the individual, there will be more people looking for these options, and we are ready and poised to be part of that movement.

[Unknown Executive]

Exactly. And your second question was about the closures and the opening of new stores. Now there's an interesting discussion to be had here. Before the flood, we were already seeing, even by looking at our market share studies and looking at the wholesale market, that smaller and medium-sized drugstores are already struggling. We were already seeing a trend of shutdowns and growing debts.

So this was a trend that was already underway and opening up opportunities for us as well. When we look at the scenario after the floods, it's only natural that other small- and medium-sized drugstores will struggle to pick themselves up.

Now from a market perspective, it opens up opportunities for us. And when it comes to new points of sales, we'll have to look at it on a case-by-case basis. Some interesting opportunities might come up, and we're looking at all of them.

Yes. I think it's more about how the market is opening when it comes to points of sale. Obviously, these are small stores with no parking, which is not the model that we are more focused on opening right now. What we're studying to do maybe next year, even considering the decrease in the number of stores that we've had, is to maybe work with slightly larger number of stores that we will plan to open next year, but we still have to discuss that.

[Unknown Analyst]

Congratulations again.

[Operator]

Our next question comes from Lorissa Summer with XP.

[Unknown Analyst]

Congratulations on your results. I wanted to ask you about your expansion. I think that most of my questions have already been answered. I just wanted to understand what you expect moving forward. And you also talked about the points of sales, but maybe one last question on that issue is what's already in the pipeline? Because of the floods, we understand that a lot has been postponed to the second half of the year. So I believe that there is much of it in the pipeline. But out of these 40 openings, how comfortable can we be about them? How much is already in the pipeline? And maybe if you could share with us what you have for 2025 already, that would be great.

[Unknown Executive]

Well, first of all, I'd like to thank you because you're the third person to congratulate us. And I believe that we really did a good job. I think this was one of the hardest situations that, at least, I experienced in my professional life. And it really is a joy to being able to report an increase in sales in light of the catastrophe that we experienced. And as a result, the company was also able to balance out the -- how it takes care of its people and its business. So the environment is very positive in the company today. We see our associates acknowledging it and being engaged with us because of how much the company was able to support its people. So it shows the human side of the company, which is really important for us.

And in terms of growth, yes, there's been a delay, and it's not the medications that didn't reach people. The construct -- the building supplies were also prevented from reaching our stores. I think we were able to open only 1 store in June. So we're now starting to expand again in July. And there really is a challenge there for the second half. So 40 stores between now and December. But apparently, everything is going according to plan right now, and we are somewhat certain that everything will fall into place. We might have maybe 2 or 3 stores that will be opened in January, but we have a schedule, and the team is very much focused on meeting it.

And within this routine of opening 60 stores, we have about 30 of them that have already been signed for next year. And this is something you should see starting next year. We will focus a lot more in Santa Catarina, Parana and Sao Paulo, those 3 states. We want to not only make the most of the opportunity in these 3 states. In Parana, particularly not only those small cities, but we have some larger players that are struggling with that, which presents an opportunity for us.

In Sao Paulo, we saw great adoption of our stores. Our average sales in the state are twice as much as what we have in other states, which is not easy. We saw many conditions that were difficult to meet. We saw many competitors failing, but we also want to be as we want our dependence or reliance to be -- our reliance on one single state to be as little as possible.

And this has to do with the dynamics in growth. We see the growth that's standing out in terms of growth in the country -- in Santa Catarina. So we want to make the most of these investments so that we can grow with these states and really reduce our reliance on the state of Rio Grande do Sul, which account for 65% of our sales today. So this will be -- this will set the tone for next year.

[Unknown Analyst]

Perfect. It was very clear. And congratulations again for your resilience that emerged in your results.

[Operator]

This concludes our question-and-answer session. The questions that remain unanswered during this session will be answered by the Panvel Group's team later on. We will now turn the conference back to Mr. Julio Neto for the company's final remarks.

[Julio Mottin Neto, executive]

Well, I just wanted to thank everyone for joining us. Once again, I thank the other states for all the help that they provide us, both individuals, companies, governments. We saw many governments helping us. And also, many of our associates helped us. I mean many of them did not have a home to go to at the end of the day, but they were still working, they were still serving our customers. So I just wanted to take the opportunity to thank everyone and tell you that Panvel is back and Rio Grande do Sul is back, too.

[Unknown Executive]

Yes. That's it. I also wanted to thank everyone and wish everyone a great day.

[Operator]

This concludes Grupo Panvel's Q2 2024 Earnings Conference. We'd like to thank everyone for joining and wish you all a great day.

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