Profarma apresentação 3 q11 final
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  • 1. 1
  • 2. DisclaimerThis presentation does not constitute an offering, invitation or solicitation of any kind to subscribe for or purchase shares or any other type of securities, nor doesthis presentation or any information contained herein form the basis of any type of contract or commitment.This material should not be construed as investment advice to potential investors. This information is not intended to be complete and is presented as a summary.No trust should be built upon the basis of the accuracy of the information herein and no representation or guarantee, whether expressed or implied, is made as tothe accuracy of the information herein.This presentation contains forward-looking statements that may be based upon forecasts which, as such, are no guarantee of future performance. Investors areadvised that these forecasts are and will be subject to countless risks, uncertainties and factors related to Profarma‟s operations and business environments, suchas: competitive pressure, the performance of the Brazilian economy and of the pharmaceutical industry and changing market conditions among other factors in thedocuments released by Profarma. These risks may cause the Company‟s results to be materially different from any future results expressed or implied by suchforward-looking statements.Although Profarma believes the expectations and assumptions contained in the forward-looking statements and information to be reasonable and based upon datapresently available to its management, the Company cannot guarantee future results or events. Profarma does not assume the obligation to update any forward-looking statements and information.It is summary information not intended to be complete and should not be deemed investment advice by potential investors. This presentation is strictly confidentialand may not be disclosed to any other person. We make no statements and no guarantee as to the accuracy, suitability or completeness of the information postedherein, which should not be relied upon for investment decisions. 2 2
  • 3. 3Q11 Earnings Release October, 25th, 2011 3
  • 4. Highlights in the Period• This year, Profarma celebrates its 50th anniversary and the 5th anniversary of its IPO. Based on its results-oriented culture and practical initiatives designed day by day, the Company seeks to continue consolidating its prominent position in the distribution segment in Brazil;• Profarma has acquired 60% of Prodiet Farmacêutica’s total capital by means of a primary offer of R$ 8.0 million and a secondary offer of R$ 18.0 million, totaling R$ 26.0 million. The remaining 40%, will be acquired in the future;• Net income rose by 80.3% year-over-year and stood at R$ 8.5 million, with a 1.2% net margin;• Growth of 6.5% in consolidated gross revenues, when compared to the 2Q11, totaling R$ 830.3 million;• It is worth highlighting the health and beauty category, whose sales increased for the seventh consecutive quarter. There was a steep year-over-year increase of 63.1%;• There was 4.1-day fall in the cash cycle, which caused a drop in working capital of about R$ 52.5 million;• The positive operating cash flow amounted to R$ 45.0 million in 3Q11, or 6.4% of net operating revenues;• Operating expenses fell by 0.6 percentage point quarter-over-quarter and totaled 6.9% of net operating revenues, the lowest over the last two years;• Sales through electronic orders hit a record high and accounted for 72.0% of total sales in 3Q11. 4 4
  • 5. Gross Revenues Evolution Gross Revenues BreakdownIn R$ MM In R$ MM 830.3 809.8 3Q11 3Q10 Chg. % 2Q11 Chg. % 779.4 Branded 545.9 537.8 1.5 512.2 6.6 Generics 59.2 56.2 5.3 45.7 29.5 OTC 134.7 153.7 -12.3 141.3 -4.7 Health and Beauty 63.0 38.6 63.1 53.9 17.0 Hospitals + Vaccines 27.6 23.5 17.2 26.3 5.1 Total 830.3 809.8 2.5 779.4 6.5 3Q10 2Q11 3Q11 5 5
  • 6. Market Share Evolution (%)* Gross Profit and Revenues from Services to Suppliers (R$ million and as % Net Revenues) 10.2 10.7% 10.2% 10.0% 9.0 9.0 26.8 27.4 27.5 43.3 42.9 43.1 3Q10 2Q11 3Q11 3Q10 2Q11 3Q11*Excluding the similar‟s effect Gross Profit Revenues from Services to Suppliers Gross Profit Margin (%) 6 6
  • 7. Operating Expenses - SGA Ebitda and Ebitda Margin(R$ million and as % Net Revenues) (R$ million and as % Net Revenues) 7.5% 7.1% 6.9% 3.1% 3.2% 2.7% 48.6 49.5 48.5 21.5 20.7 19.2 3Q10 2Q11 3Q11 3Q10 2Q11 3Q11 7 7
  • 8. Net Financial Expenses Net Profit(R$ million and as % Net Revenues) (R$ million and as % Net Revenues) 1.3% 1.4% 1.2% 0.8% 1.0% 0.7% 8.8 9.5 8.5 6.8 5.4 4.7 3Q10 2Q11 3Q11 3Q10 2Q11 3Q11 8 8
  • 9. Cash Flow Cycle IFRS Basis(R$ Million) 3Q11 3Q10 Chg. % 2Q11 Chg. % 3Q10 2Q11 3Q11Cash Flow Generated / (Used) in Operating Activities 45.0 62.1 -27.6% 50.0 -10.1% Accounts Receivable (1) 43.3 39.4 39.9 Internal Cash Generation 18.5 9.5 94.9% 19.8 -6.8% Inventories (2) 43.9 53.1 46.1 Operating Assets Variation 26.5 52.7 -49.7% 30.2 -12.3% Trade Accounts Receivable (29.5) (50.8) 41.9% 37.3 - Accounts Payable (3) 38.4 32.0 29.7 Inventories 24.1 (10.2) - 46.3 -48.0% Cash Cycle (Days) * 48.8 60.4 56.3 Suppliers (4.0) 120.7 - (48.7) 91.8% Other Items 36.0 (7.1) - (4.6) -881.7% * AverageCash Flow (Used) in Investing Activities (2.5) (1.5) -66.1% (1.8) -37.3% (1) Average of Gross Revenues in the QuarterCash Flow Generated / (Used) by Financing Activities (30.3) (43.8) 30.8% (51.0) 40.6% (2) Average of COGS in the Quarter (3) Average of COGS in the QuarterNet Increase / (Decrease) in Cash 12.2 16.9 -27.5% (2.8) - 9 9
  • 10. Indebtedness: Net Debt and Net Debt / Ebitda* Capex(R$ million) (R$ million and as % Net Revenues) 2.2x 1.7x 0.3% 0.4% 0.2% 0.8x 157.1 2.5 119.8 1.9 1.5 75.1 3Q10 2Q11 3Q11 3Q10 2Q11 3Q11 * Ebitda = Accumulated last 12 months 10 10
  • 11. Service Level Logistics E.P.M. (Units served/ Units requested) (Errors per Million)90.4% 337.0 89.8% 88.6% 157.0 93.03Q10 2Q11 3Q11 3Q10 2Q11 3Q11 11 11
  • 12. Profarma Corporate Overview 12
  • 13. Company Overview Financial Highlightso Since 1961, Profarma has been distributing pharmaceutical, personal hygiene In R$ millions 2007 2008 2009 2010 and cosmetic products to drugstores and hospitals in Brazil; Gross Revenue 2,596.4 2,940.4 3,041.6 3,132.8 Net Revenue 2,268.9 2,535.5 2,578.3 2,626.1o The only publicly-held company in this sector; Gross Profit + 249.7 270.2 301.5 281.4 Revenue from Services to Supplierso Profarma is one of the leading distributors in Brazil; % Net Revenue 11.0% 10.7% 11.7% 10.7%o It distributes its products in states that account for approximately 93.5% of the EBITDA 80.1 78.7 110.7 79.9 pharmaceutical product consumer market in Brazil (June 2010), and holds 12 % EBITDA Margin 3.5% 3.1% 4.3% 3.0% Distribution Centers: RJ, MG, ES, SP (capital and upstate), PR, BA, PE, CE, RS, Net Income 47.0 31.6 53.2 34.4 GO and DF; % Net Margin 2.1% 1.2% 2.1% 1.3% Net Debt 124.0 149.4 118.1 108.7o About 18.0 million units per month are sold to 31,000 points of sale, in a total of Net Debt / EBITDA 1.5 1.9 1.1 1.4 60,000 points of sale in Brazil; Shareholders‟ Equity 443.4 467.4 485.4 518.9o Compound Annual Growth Rate of 14% (CAGR 2004-2010), whereas the Total Assets 924.2 922.1 1,070.6 1,011.9 market recorded a 12% CAGR for the same period. Cash Cycle (days) 66.0 52.7 48.8 49.0 Operational Highlights Timeline Acquisition Operational Metrics of Dimper GO DC (RS) AcquisitionOrders per day 17,000 of K+F Hospitals Minas Hospitals in SP Gerais São Paulo DF in RJ CE AcquisitionService Level 90.1% Espírito IPO of Prodiet Santo Bahia PEItems Offered 8,500 Paraná VaccinesCustomers 29,500Distribution Centers 12Geographical Coverage 94%Representatives 270Employees 2,300 1996 1998 1999 2001 2003 2004 2005 2006 2007 2009 2011 Distributor Center / Service Service 13 13
  • 14. Overview of Profarma New Business Division Geographical Coverageo Since 2003, Profarma‟s operations have focused on the hospital segment and, as of 2005, also on the vaccination segment. Currently, it also operates in the medical procedures segment, which led us to create the New Business Division;o Supplementing the pharmaceutical business, the New Business Division currently accounts for 5% of the Companys business;o In the hospital segment, the business mainly focuses on the distribution of supplies to the markets located in the states of São Paulo, Rio de Janeiro, Minas Gerais and Bahia. As for the vaccination segment, supplies are distributed countrywide;o Profarma operates with some major laboratories in Brazil, such as Sanofi Aventis, Johnson & Johnson, BMS, MSD, Pfizer, Novartis, Roche, Bayer, GSK, Ache, Boehringer, Cristália, União Química, Biosintética, Distributor Center / Service among others; of Hospital Segment Service of Hospital Segmento Profarma holds exclusive units for the hospital segment, through which its support via call center, sales representatives and logistics is provided by specialized professionals; (*) Distribution and Service Business of Vaccination Segment is countrywideo The Company is accredited by all major hospitals in Brazil and by the relevant certificating bodies. It is through the accreditation letters provided by the laboratories that Profarma corroborates the reliability, Operational Highlights quality and origin of the medications that it markets, thus ensuring the traceability required by major hospitals in Brazil. Operational Metricso Quick quotation structure, which ensures quick responses to requests for quotations. This allows us to save Orders per day 300 time when negotiating; Items Offered 2,000o It boasts state-of-the-art equipment to store medications, complying with all “cold chain” management Customers 1,500 standards set up by WHO and Brazilian FDA (Anvisa); Distribution Centers 1o Delivery logistics with control of tracking lot, temperature and service, which ensures safety of goods from Representatives 15 DC shipment to their destination. Employees 55 14 14
  • 15. Brazilian MarketPharmaceutical x Hospital 15
  • 16. Brazilian Market – Pharmaceutical x HospitalThe Brazilian pharmaceutical market increased by 14.0% in 2010, totaling R$ 36 billion, maintaining the strong upward trend from previous years.Over the past seven years, this market CAGR reached 14.0%. In comparison to the R$ 36 billion Pharma market, the Hospital market (Public +Private) amounted to R$18 billion in 2010. Brazilian Pharmaceutical Market Hospital Market In R$ billions In R$ billions 46.0 42.4 39.1 20.0 36.0 18.0 30.0 16.0 26.1 23.2 20.9 10.0 18.3 16.6 14.4 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012* 2013* 2008 2009* 2010 2011** (*) The big difference from 2009 to 2008 is due to an increase in the(*) Numbers were projected by IMS in Dec/07, prior to Abradilan inclusion. measured base. (**) Growth projected by IMS between 10% and 13%.IMPORTANT: all market figures mentioned herein are at factory price, but there is a structural difference between Pharmaceutical and Hospital markets as far as discounts practicedare concerned. While IMS indicates about 15% discount in the Pharmaceutical market, the Hospital market accounts for 50%, which leads it to R$ 9 billion in 2010.Source: IMS 16 16
  • 17. Prodiet Farmacêutica Corporate Overview 17
  • 18. Prodiet Farmacêutica Overview Geographical Coverageo Prodiet Farmacêutica was incorporated in 1990;o The Company operates in the product distribution to the hospital segment;o The Company is headquartered in the city of Curitiba, state of Paraná and holds five distribution centers in the states of São Paulo, Distrito Federal, Pernambuco, Porto Alegre, besides Curitiba;o It operates in the states of Paraná, Santa Catarina and Rio Grande do Sul, with a portfolio of more than 3,500 customers including hospitals, clinics and municipal governments. In the public sector, its business extends throughout the national territory – therefore the Company has a Bid Center, which solely serves this segment;o In 2010, Prodiet Farmacêutica recorded revenues in the amount of R$ 200 million, distributed between the public and private sectors. Gross revenue compound annual growth rate for the 2007-2010 period was 37% p.a.;o The Ebitda margin in 2010 was 4.6%;o Acquisition of 60% of the Company for the amount of R$ 26.0 million, being R$ 8.0 million through a primary offer and R$ 18.0 million through a secondary offer; Distributor Centero The EV/Ebitda multiple related to the acquisition of the initial 60% was 4.6x (2011E), which Service units to hospitals, represents a 29.2% discount in relation to Profarma „s multiple; clinics and city hallso Equity holders non-competitiveness commitment for a 5-year period after their departure form Service units to public sector (procurement) the Company, as entailed by contract. 18 18
  • 19. Strategic Advantages 19
  • 20. Profarma + Prodiet Farmacêutica Combinedo Supplementary geographical coverage: Profarma is present in the states of Rio de Janeiro, São Paulo, Bahia and Minas Gerais, whereas Prodiet Farmacêutica concentrates its business in the states of Paraná, Rio Grande do Sul and Santa Catarina. Thus, it supplements the Companys business;o Product Mix: Profarma currently does not operate with some hospital product lines, and Prodiet Farmacêutica does not operate with some pharmaceutical product lines. Thus, there will be synergy gain in both Companies;o Expertise: at present, Profarma does not operate with the public sector, whereas Prodiet Farmacêutica does. As a result from this acquisition, we will enter the public market. Strategic Advantages Geographical Coverage - Countrywide Profarma Among Major Profarma + Prodiet Farmacêutica Companies in this sector in Brazil Supplementary Supplementary in product line the Business Area Distributor Center / Service of + Hospital Segment New Business Service of Hospital Segment Synergy in will represent operation more than 10% of Prodiet Farmacêutica Significant the Company improvements in Market Share Distributor Center / Service Service of Hospital / Vaccination Segment Distributor Center Service units to hospitals, clinics and city halls Service units to public sector (procurement) 20 20
  • 21. Acquisition Model 21
  • 22. Acquisition ModelProfarma will immediately acquire 60% of the total capital stock of Prodiet Farmacêutica through a primary capital subscription in the amount of R$8.0 million and a secondary subscription in the amount of R$ 18.0 million, representing an EV/EBITDA (2011E) multiple of 4.6x, along with thepayment of an additional earn-out, whose calculation is based on the difference between the unlevered free cash flow projected versus the actualfigure. The remaining 40%, when acquired, will be valued at an EV/EBITDA multiple of 4.3x based on the 12-month period prior to the acquisitiondate. The current shareholders of Prodiet shall be fully responsible for occasional existing contingencies or those falling due on a date prior to thedate of execution of the acquisition agreement. Payment FlowPrimary Offer:• 40% paid on the execution date;• 30% paid after 1 year from the execution date;• 30% paid after 2 years from the execution date;Secondary Offer:• 50% paid on the execution date;• 50% paid in 12 monthly installments from the execution date.Earn-out:• Payment of additional secondary offer, over the first five years, of the difference between the projected x actual unleveraged free cash flow, adjusted to presentvalue. 22 22
  • 23. Contingency Cover and Description of GuaranteesContingency Cover:• Current Prodiet Farmacêutica Shareholders are liable for 100% of contingencies arising from triggering events prior to the the execution date.Description of Guarantees:1 – Interest Adjustment via Subscription Bonus:• Beginning on the execution date, a renewable subscription bonus will be issued for Profarma, entitling it to issuing new Prodiet Farmacêutica shares in case ofdefault by Current Shareholders in indemnifying past contingencies. Accordingly, Profarma will be indemnified by adjusting its interest in Prodiet Farmacêutica;• The subscription price of new Prodiet Farmacêutica shares will consider an assessment based on the 4.3x multiple EBITDA LTM for each Subscription Bonusexercised.2 – Retained Payments:• Upon subscription of the remaining 40%, Profarma will retain payments should there be remaining lawsuits, administrative proceedings or arbitration disputespending judgment, or any other fact that may result in a possible contingency. 23 23
  • 24. Analyst Coverage 24
  • 25. Analyst CoverageCompany Analyst Telephone E-mail Javier Martinez de Olcoz Cerdan (1 212) 761-4542 javier.martinez.olcoz@morganstanley.comMorgan Stanley Clarissa Berman (55 11) 3048-6214 clarissa.berman@morganstanley.comMerrill Lynch Alexandre Pizano (55 11) 2188-4024 alexandre.pizano@baml.comCredit Suisse Marcel Moraes (55 11) 3841-6302 marcel.moraes@credit-suisse.com Juliana Rozenbaum (55 11) 3073-3035 juliana.rozenbaum@itausecurities.comItaú BBA Marcio Osako (55 11) 3073-3040 marcio.osako@itausecurities.comBanco Fator Iago Whately (55 11) 3049-9480 iwhately@bancofator.com.brRaymond James Guilherme Assis (55 11) 3513-8706 guilherme.assis@raymondjames.comBTG Pactual João Carlos dos Santos (55 11) 3383-2384 joaocarlos.santos@btgpactual.com 25 25
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