Ouro Fino Saúde Animal Participações S.A. (OFSA3) Earnings Call Transcript & Summary

Animal Health, and I would like to welcome you to our teleconference of the second quarter. Thank you for enrolling. The call will be conducted by me and Kleber. Kleber is online. He's coming back from an important trade show for the sector. And to give you an overview of the market, I would like to invite you to the floor. Hello, clever, good morning.

Marcelo, can you hear me well? Good morning, as Marcelo said, I am here in Katherine, the Barnastate, we participated in the agroin of the largest trade shows regarding their product milk, especially -- we had our team together here with us. It was a really important event. And this is a long journey back to Sao Paulo. So I'm here. And also, we had CRs, this weekend, second semester is full of events. So we were at CA is also big podium -- in Sao Paulo, we had a dedicated team over there. We have Pat south next week for PET companion animals in Sao Paulo. And after we have in also another big event. So we are dividing or splitting our sales be able to attend all these events. And now we bring our results for the second semester. We've closed the first half of the year. We had expressive growth, and we reached some landmarks in our strategic planning our people, and I would like to begin by our brand, our, well, we've commented before that we had a very strong work to bring our brand to more people. So we've developed this slogan, the WellCare. We are cultivating the brand in the second quarter. We began with some campaigns. In agro, we have done some activations. We did it also in some airports campaigns, something that we have never done before, and we are doing it now with this institutional campaigns that are presenting all the events in our daily lives. I am very happy because it really represents our essence. What we really are and people recognize it. So this is this loan well cared for. You are going to hear a lot about it. So we are evolving. We are going to have other activations along the year campaigns in social media. So we've done our homework. We are working well with our brand spread it everywhere, telling everybody about what we are, the care that we have for our teams. So also, we have some important recognations in the second semester. I think I have commented already about the war fee for innovation. We are very happy with it. It was an important landmark to really win this fine award is not something even did this, I think, years ago for the last time, we had one this price once. And again, now we were recognized and this has everything to do with the moment that we are living. We have been supported by Finep always. So this award shows how our innovation and R&D is really working well developing important and innovative products. Also, we were recognized recently, I think, days ago, with the award called Valor Innovation Brazil, but the Epoca magazine, we were second place for the agri business rank and this confirms our good moment, our innovative moment. We are being awarded, so innovation at Ouro Fino is granting the results, the impacts, and it's being recognized by external agents, what makes us really proud. Also, as you know, every year, we submit our company to the -- great Place to Work survey, our rank is very good. Always good grades. We've done our certification. Again, it's a continuous ongoing evolution. We are very well positioned and based on last year, we had an award also from the report of the GPTW, we are among the top 20 companies in Brazil, very good position in this category from 1,000 to 999 employees. And if we care well for our employees, we can well for our business. It's a reflection. So it is not only a good result, it's a result that results from the actions that we take in our daily routine. Well, today, I'm not going to talk about the strategic planning so much but we are advancing. We tend to go into the South can. We have plans established for Argentina, Uruguay, Paraguay, actions are already being taken. We are creating some legal entities working with the regulatory part. So soon, we are going to bring you some novelties. We are going ahead with this strategic planning. So the first half was very positive. When we look at the market, we see the opportunities, the capital market went well, for swine, there was a retraction in the protein price that was strong, resulting from the increase in the production after a very positive cycle. And this put some pressure into the producer. But in our products, we didn't feel a direct impact. But the market, well, it's a pain obtention okay, taking care of the margin, the pet companion animal market was a little bit retracted since the end of '25, the market dropped a little bit. And also, we had a little bit a stronger drop in the first half and in the second, I believe that is not going to be so different. But regardless of these situations, positive for cattle and swine Poultry is going well. In the second semester, we see a good potential. We are paying a action to the question of China, are looking at it. Also we are paying attention to the super elmo that can be critical for the South region of the country after the harvest of the crops, but we are mapping everything and looking at the potentialities and the risks. But I believe in our strong portfolio the launching that have given us good performances. So we closed the first half with growth in the revenues above 30%. Marcel is going to explain the details because I'm -- as you know, I'm in transit here. But these are very good results for our market that is growing small. So these results are a reflection also from EUR million and we continue on the same base. And a long time, maybe we are going to reach normality again. But we have the products. We understand that we still have a lot to explore with our portfolio that has giving us a very good performance. So we had a growth that is linked to the improvement in the profitability indicators with a strong cash generation. Also in the second quarter, profit was impacted by a decision that we made -- we suspended our project of pet vaccines. It had a high value because we had -- we have a very good performance in the swine vaccine. So the plant is occupied by it. So we understood that. Well, with the size of the market, the size of the market was smaller. So we've decided to suspend this project. And this impacted the results, okay? So here is not adjusted. The profit is still growing after the absorption of the impact but this was a national decision for the better usage of our capital. We understood that it was the best bet to take these vaccines for past, they take long for production and looking at the potentials of the market. We understood that priority should be given to the vaccines for swine. If it was not this decision, the results would be the best history of Ouro Fino, but we are happy with the sustainability of those results. And now I give the floor back to Marcelo. Marcelo, with you.

Thank you, Kleber. Well, continuing here with the financial results. So the context that Marcel has already explained. Also, we would like to highlight that Ourofino grew more than the market in the semester, even compared to the global leaders with a relevant market share gains even for pets, pets for companion animals that is a more pressured market because of the several factors that impacted it. So we grew more than the global players, even in the hardest segment. So even in this more competitive environment pet grew, cash generation was sound with a reduction in leverage. This impacts, they are not recurrent. So they were registered in the quarter without impacting the cash of the company investments were already done. And the R&D investments, they are long term once we make decisions looking like 5, 6 years ahead and well, some other things happened during this period of time. And the company have to make some adjustments. But even so we don't have any impact and this doesn't change our journey. Our growth is supported by our innovation, our growth and the strengthening of our portfolio. So now here you have in this table the results, you see a 30% growth in net revenue and accumulated 31%. So give us a comparison of the products that are comprised in this revenue, and these products they have been only recently introduced in the market. So they have potential to still grow even more, okay? We can grow, expand margin EBITDA in this half, first half was 54%. This is a result of 1.2 bps and also in the margins and a reduction in the expenses. So commercial expenses were diluted in that mean expenses, they were according to inflation. So the company is growing and the performance is being kept with doubt having to increase the headcount. Gross margin also grew a lot. Net income grew a lot and forecast with no impact for the cash because investments were already done. It was not adjusted. If you adjust it, you see that the profit is relevant. So adjusted net income expanded EUR 41.7 million with a increase in the gross margin and the EBITDA margin. Now I have a graphic showing the results, net revenue consolidated grew 30.7% profit, even with the impact in the second quarter is still above accumulated, we see this continuous growing. We left 48.24 to 49.4 even absorbing some loss in stock that we reported in our leases. This is not common in this regulated segment, okay, that we have to do provisions for losses of stock but this did bring the losses. It didn't compromise the growth of the company in this first half of the year. In production animals. Here, we have cattle, dairy cattle, you see a relevant growth in the cumulated we have the semester started 3.1% net revenue. So we gained market share. We expanded our gross margin, and we are now in 45, we had almost 44 in 25 and now we closed the first half in 45.2, so it's a growth in revenue, but also in the margins with the efficient usage of our resources. Companion animals, very relevant growth 44.8% growth in the semester. Remember, I talked about this more competitive and challenging scenario. So we have the impact of the launching of the products, but also we have to keep the sell-out, okay? So a lot of efforts. We are one of the companies that have the most complete portfolio in this segment. So we can explore alternatives in all segments. And revenue growth is followed up by the margins growth. So we have there 70.2% of gross profit. This shows that the return on the projects in which we are investing with the expansion of the portfolio innovation, so the return is really relevant. And this justifies our agenda of innovation, R&D. Regarding international operations consolidating Mexico, Colombia operations, we had this relevant growth of 30% accumulated in 6 months, almost 18% of growth, drop of margins compared to last quarter, but it's aligned. Here, we also looked at the financial reports, Mexico good performance. Colombia, keeps also a good performance, but the quarter in '25, the second quarter in '25, we had more exports to other countries in Latin America and Central America. And this first half, this exports were a little bit lower because we are programming to do the shipments in the third quarter. So if we compare this is a little bit lower, but the operation is performing well, growing their 18% per year. Now a little bit of color of the composition of the margins without mean expenses that were diluted in this first in the second quarter. Now we have 29% of the net revenue. So the company is doing the needed investments, campaigns, the rebrand and also trying to keep costs controlled to gain margin through the dilution of this expense. This is why we have this growth in our gross margins. Investments in R&D and innovation are recurrent. They are not linear. It depends on the phases of the projects in which we are but the strategy is aligned. We want to invest 6%, 7% or even 8% per year in innovation apart from the investment in machinery and other types of investments. So if we add the investments in technology, equipment, apps, we reached more than 8% really. But this is our strategy. We want to have a very important and significant technological basis. Well, the EBITDA in 6 months, reached almost 80% is the best margin when we look at the last 2 semesters. The EBITDA is above gross profit. We have this dilution in the costs of operations, as I said, and the company is working to keep this profitability indicators healthy. So sometimes when we have a strong moment of growth, we have pressure in the margins and on cash. But I think for the third year in a row, we are growing and expanding margins at the same time, improving our profitability. Cash, this translates our strategy of growing with expansion of margins at the same time. So we did EUR 183 million in cash after payment of taxes, interest, the first semester well, usually, the cash generation is relevant. And also, we have the launch enough products and the company closed the first semester or the first half with a very comfortable position with the cash totaled BRL 369 million. So this brings a positive consequence, the reduction of the operational leverage. So if we have that debt. So after the payment of dividends, we reduced our financial leverage with debt composition very comfortable with ROI that is comfortable as well. So even with the Selic of 14.5%. And apart from this low leverage, the cost of the debt being very compatible with our profile and we review our portfolio constantly. So we have 87% of our debt in the long term and the aging is also elongated. So the cash sometime generated in the first semester is sometimes even smaller than the have to pay. So I close again, mentioning the importance of our investments in projects that results in solutions for the complex problems of our agri industry with the commitment of trying to grow always with the expansion of our margins and giving returns to our investors. So I give now back the floor to Clever.

Marcelo, thank you for your presentation. Can you hear me well? Yes. So let me read the questions that we have now. Congratulations for -- this is an anonymous question. What is your strategy or proving the visibility of Ourofino. Well, we all know that we have a low slow is 59% of our shares are with the controllers. We have Mitsui with 99 participation and other funds, the funds concentrate and interesting of the action of the share. So it's difficult to have this strategy for the long term of visibility of the shares. And so what we are doing is this nice work showing the results practically. Of course, the company has this low visibility for analysts because of our low flow. Another question. Could you please explain the strategy for the increase of exports for the next quarters? Well, in terms of strategic planning, we are focusing on our exports for Latin America, especially for the South Cone. We are already very well positioned in Brazil that is half of Latin America in terms of markets and results. We have operations in Colombia, doing well with cattle. We have Mexico operations that is expanding. Now we still are working on Uruguay, Paraguay and Argentina. We have a small operation in Paraguay, we are trying to work harder there are no having tried plans for the other countries. The other, the remaining countries. Our strategy is expansion through distribution. So we are working strongly to anticipate penetration in those countries and we are trying to anticipate really everything that is possible even using some regulatory windows. We want to have our local teams. They are working for generating demand. So we are penetrating. We are working for this to penetrate in Latin America. Also, we have some products that are important and have been calling the attention of the world. So we are searching for some strategic alliances. We look to capture value with this global potential products. So another question. Can you give us some color about the sales in July and August? And the second question, I think I have answered all right. So let me talk about July and August where we don't give guidance. But Historically, the third quarter is really strong for our company. We always say that we have the straight fares, the trade shows. We were in the mesotheagrolatship here. And we have summer coming when you have more pas -- so it's time for selling antiparxides. Also, we have the reproduction season. So we big volumes. So we are working to expand our revenue in this period. Another question, what about the dividends? How is your provision for payouts? We don't give guidance but we tried during this period with a lot of analysis, responsibilities. It's also possible to make a payment above the minimum mandatory. Let's see how it behaves this year. Another question. Congratulations. I would like to add understand the vision of the company about the stock provision. The questions of the quarter, if there are residual impacts. And also the second question about the dynamics of the expenses with sales. The investments and the pressure of the freight logistics. Well, regarding stock provisions, Marcelo said, this is normal. We had giving up of the PET vaccine, this suspended also we had some losses in stock normal and we understand that this is resolved and we have been paying attention, okay? We have a team that is working on this because quality is something negotiable. We don't like to open the details because they are the daily life of the company. So but regarding investments, our plan is to control our costs, but looking at the future of the company, we do the investments needed for the growth and the revenue generation with our commercial and marketing operations. We have been investing in training and marketing campaigns, and we want to be an exceller in sales. So regardless of the launch strength, we want to be the best in terms of marketing sales. So we are investing. We are bringing experts, key accounts, product managers to work in the categories. So this is a line in which we do our best investment with this expansion point of view. Another question here. What about the future of the international operations? What about the Asian market. Well, I've just said that the South Cone is important for us, Argentina. We have concrete operations. And I can say that we are advancing with the strong steps for Asia. Well, this is ahead. We can explore the potential of some products like vaccines and the newer products that have global potential. But this is not short term because this demands partnerships and the regulatory bias in those countries.

Last question. Congratulations for the results. Can you give colors about the provisions for stock losses?

I have explained it. We had a loss pet project suspension and some losses with the stocks, but we have overcame problem. And the last question, again sorry that I am here on a precarious way here. I'm so sorry because I am on a gas station. I would like to thank to the Ourofino team for their commitment that is in a go shale, I would like to support our investors, the management bodies, fine that supports us always and we are happy with the results, and we are aware that we have continued with this great job to deliver even better results in the future. So let's go ahead. The second semester is challenging in terms of volumes, risks that we have to keep an eye on them. But we understand that everything is under control and we are monitoring everything. So Ourofino's well cared for. Thank you. And Marcelo, the floor is yours for your final comments.

Thank you, Kleber, and now the questions are over. I would like to thank you for your trust. We are going to continue working hard for delivering good results, and we want to have a good semester ahead. Have a nice day.