Empreendimentos Pague Menos SA
BOVESPA:PGMN3
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Empreendimentos Pague Menos SA
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Good morning, ladies and gentlemen. Welcome to Pague Menos and Extrafarma's conference call to discuss the results of quarter 2 2023. This conference call is being recorded, and the replay will be available at the company's website at ri.paguemenos.com.br, where the slide presentation is also available for download. We kindly inform that all participants will be in a listen-only mode during the conference call. And right after the company's remarks, we will open for questions when further instructions will be given.
We also inform that this conference call will be conducted in Portuguese by the company's management and that we have simultaneous translation into English by clicking on the interpretation icon. For those listening in English, you can mute the original audio at your convenience. The slide presentation will be projected in Portuguese, but the slide version -- the English version of this slide is available at ri.paguemenos.com.br.
Before proceeding, let me mention that any forward-looking statements made during this conference call are based on the beliefs and assumptions of Pague Menos management as well as information currently available to the company. These forward-looking statements may involve risks and uncertainties because they refer to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should know that events relative to the macroeconomic environment, [ industry ] and other factors may lead to results that differ materially from those expressed in such forward-looking statements.
Today, we have with us Mr. Mario Queirós, CEO; Mr. Luiz Novais, CFO and Investor Relations Director; and Renato Camargo, CMO.
Now I'd like to turn the conference over to Mr. Mario Queirós to start his presentation. Mr. Queirós, you may proceed.
Hello. Good morning, everyone. Welcome to our earnings conference call for Pague Menos and Extrafarma. We will be discussing the results of quarter 2 2023. This was a very good quarter from the operational standpoint. We had a top line growth of more than 35%. And looking at Pague Menos stand-alone, we also had a very significant growth rate over 11%.
Now as for our EBITDA, we also had double-digit growth. And looking at Extrafarma, and it's fourth -- Extrafarma had its first quarter of positive EBITDA. We had a significant reduction of our administrative expenses due to the capture of the synergies with Extrafarma. We -- our digital channels grew more than 60% this quarter and our private label, when we look at Extrafarma more than doubled year-over-year, and is getting close to the level of share that Pague Menos' private label has.
We had strong growth of our Health Hub, nearly 9% of all the clients that visited our stores, use some of the services of our Health Hub, and this is considering that the pandemic is over. So Renato will explain the importance of these numbers. The type of customer that is loyal to Clinic Farma has a higher ticket than that of regular customers. And unfortunately, due to the high interest rates and the level of leverage of the company, particularly due to the acquisition of Extrafarma, financial expenses are corroding the operational results of the company.
And to address this, yesterday, we announced BRL 4 million in private capital, which will bring our expenses to a more comfortable level. This is a demonstration of trust from our shareholders, which subscribed to 82% of this private capital volume.
And now I'm going to turn the conference over to Mr. Luiz Novais to talk about our financial results, and I'll be back for the Q&A session. Thank you. Novais?
Good morning, everyone. So let's start on Page #4. We have our highlights. Let's start with the highlights of quarter 2. You already heard some of them from Mario and I will give you some more details. So starting on the left side of the slide, we had some important operational advancements. In sales, we had an increase of nearly 36% consolidated and [indiscernible] increase consolidated and a very good level for Pague Menos stand-alone as well. We have been positively capturing the synergies. We finished quarter 1 with an ex-IFRS 16 EBITDA that was positive. And looking at the capture of synergies, we have nearly BRL 100 million of incremental EBITDA for the company.
On the right side of the slide, we have some strategic and important advances in our Health Hub and digital channels. You're going to hear more about this from Renato. The market share also, we had positive news. It's the second consecutive quarter where we have increases in the growth of our market share. We reached 6% in Brazil. And the last box here, you already heard from Mario, when we also communicated yesterday, very relevant fact, which is a point of attention of the market.
For 3 consecutive years, we had very good operational results. But yes, the leverage level of the company was slightly higher because of the acquisition of Extrafarma and now with this increased private capital, we will address this point and decrease the pressure on the operational results of the company, and we can resume expansion in the next year with a commitment of -- from 82% of our shareholders who will adhere to our private capital increase. This is a very healthy combination of same-store sales, 5.9% and new stores contributing with 5.7% of our growth with a total of 11.6% growth for the quarter.
On the right side, we also see the positive evolution of our mature stores, reaching nearly BRL 690,000 per store. And here, we have the very positive performance of our newest 200 stores, which were not rated in '21 and '22. They are within their expected maturation curve and they're approaching 80% of their sales potential, which proves the efficacy of the expansion model that we have been adopting since 2021. So we're very happy with these cohorts of stores. This result is also driven not just by new stores, but also all our stores because of the lower stock out levels balancing out the stock out levels that we had in the 2 previous years. So after the pandemic, this has been balanced and the CRM actions are also greatly contributing to increase the base of active customers of the company.
On Page #6, we see the sales of Extrafarma. We had same-store sales at 4.5%. Same-store is still modest, but when we look at the migration ways in terms of supply and systems, the right side charts are very exciting. The first migration wave that happened from September to November last year, we had nearly 13% same-store sales for these stores [indiscernible] and the second way is close to 5% and the third wave, we still have lower numbers, but we're very positive about the actions that have implemented for Extrafarma, reinforcing our stocks and CRM actions to gain loyalty of our customers.
So we believe that we will have a gradual increase, exponential increase in the coming period for Extrafarma. We reached BRL 481,000 average sales per store, which is much higher than what we had 1 year ago. So we're very optimistic, and we believe that with the evolution of Extrafarma, not just for sales, but P&L as a whole as you're going to hear later on.
In market share, we're growing organically and inorganically. Of course, that in the North and Northeast, this is driven by the inorganic movement of the company. We have very relevant share in these 2 markets, 19.2% in the Northeast and 15.7% in the North. We have 2 more regions that are growing importantly, the Midwest and the Southeast. In the Midwest, we reached 4.3% share. Same stores and new stores are having excellent performance in this region. So we're very happy with our performance in the Midwest. And in the Southeast, we're also very positive, particularly with our digital channel, which is gaining share quarter after quarter, we have reached 1.7% in this market, and we're very happy with this performance.
On the right side, we see our components of growth. According to IQVIA, both for same-store and new stores. So we're very in line with the market, and we see a very favorable environment to grow our market share now with this increase in our private capital and resuming the expansion of the company in the next year, the newly inaugurated stores already had a positive performance. New stores have a positive performance, so we have a very favorable environment to increase our market share in the coming periods.
On Page #8, we see our sales mix. We continue to have very strong performance in 2 particular categories: Generics and Hygiene and Beauty. We're growing above the average of the company. So we reached 25.4% for Health and Personal Care. So the 2 categories are growing really well, and this is due to the assortment -- the work that we're doing in assortment and pricing for these categories. And when they grow, they favor our gross margin. They help us boost our gross margin.
On the right side, we see the evolution of the same categories for Extrafarma, we didn't have any major changes.
On Page #9. Another very positive piece of news, which is the result of -- which shows that what we believed when we acquired Extrafarma is now becoming a reality. So we grew 15.7% in our private label sales in Pague Menos and we more than doubled the share of private label for Extrafarma, reaching 5.6% of the total sales of Extrafarma. Exponential growth in the past 2 quarters, and we continue with a positive outlook. We have a very nice pipeline of launches planned for the next periods, and this is helping us boost our gross margin.
On Page #10, we have our gross profit and gross margin. Here, we have a very strong comparison basis compared with last year, where we had the readjustment of 11%. And this year, we had a readjustment of 5.6% on average. So this already means a drop in our gross margin of 100 bps, but we could minimize the impact of this reduction. So for Pague Menos, we finished quarter 2 with 30.7% gross profit and in Extrafarma, 32.5% gross margin in quarter 2, very positive news and consolidated gross profit 31%, so this pre-price increase effect was slightly lower. There is some pressure from our digital channel, but we could boost our margin with Generic and Health and Personal Care categories, which -- whose margin is evolving really well.
Selling expenses, also positive news. We were able to dilute 10 bps compared with quarter 2 last year or stand-alone and a very relevant reduction compared with quarter 1, 80 bps. That we had already announced in quarter 1 that we would invest more on marketing -- that we had to invest more in marketing in quarter 1 due to the seasonal campaigns that were planned for the year. And when we isolate the effect of same stores, our selling expenses grew only 2.1% in same stores, which helps us control our expenses, control our costs, and we see an evolution, a positive evolution on our expenses this year because of the drug inflation of 5.6% in April and the IPCM around 4%, the [indiscernible] is negative. So we see a positive trend of dilution of our expenses in the second half of the year. Contribution margin is a combination of gross profit and selling expenses. We finished the quarter with 11.8% consolidated. It's important to mention that we consolidated Extrafarma starting in quarter 3 last year. So we don't have a good comparison base for quarter 2 last year.
On the right side, we see a reduction of 70 bps for Pague Menos stand-alone, 12.7% to 12% due to the reduction in the gross margin due to the pre-price increase effect. And in Extrafarma, we see a positive evolution reaching 10.8% contribution margin. Here, we were already able to eliminate 2/3 of the contribution gap between Pague Menos and Extrafarma. When we acquired the company, it was 3.3 percentage points and now it's 1.2 percentage points. So we're very optimistic about the evolution of Extrafarma and we believe that 1 year from now, we will be much closer or we will even have equalized the contribution margin for both banners.
On Page 13, also good news in the quarter for G&A expenses, we had an important reduction both for stand-alone -- Pague Menos stand-alone and also consolidated. This is also due to the capture of synergies from Extrafarma. We are a larger company now. We can better dilute our expenses. We also had a reduction in our administrative structure of about 200 headcounts right after the acquisition of Extrafarma. So this means we finished quarter 2 with Pague Menos stand-alone at 2.5% G&A expenses and consolidated 2.7%. Quarter 2 had a positive effect due to the sales effect. We had a slightly higher level of sales than in the other quarters of the year. So we don't think that 2.7% should be a stable number until the end of the year. It will be closer to 2.5%, but we are seeing positive results in terms of reduction of our G&A expenses for Pague Menos stand-alone and consolidated.
On Page 14, we have our adjusted EBITDA. On the IFRS16 page, reduced from 6% to 5.7%, so 30 bps. We were able to dilute this effect with the reduction of our expenses of 50 bps reduction of our expenses. So the EBITDA level is very close to that of last year. We had record breaking numbers last year for our EBITDA. And for Extrafarma, we say that we went from water to grape juice. We still have a significant way ahead until we get to wine, but we had a positive evolution in our EBITDA margin, a complete turnaround with a company that is now operationally positive in generating cash. As I said two slides ago, we believe that one year from now, we will be much closer to the margin levels of Extrafarma -- of Pague Menos with Extrafarma and consolidated also will show positive numbers in the coming periods.
On Page 15, we have more details about the synergies being captured. In our understanding, we are 2 quarters ahead in terms of the capture of synergies. And we have an annual BRL 100 million increment in EBITDA, which is more -- which is close to the potential that we announced of BRL 180 million to BRL 200 million. Last quarter, we finished the most critical part of the integration in terms of systems and store supply. We also closed 23 Extrafarma stores. And now in July another 9 were closed. So we are finishing the cleanup process for the Extrafarma stores. We already switched the brand of 11 stores from Extrafarma to Pague Menos. Some of these stores had a more than 40% increase in their sales, and we should have more brand conversions until the end of the year to boost the capture of synergies from this new company that we acquired.
On the right side, the BRL 100 million, the main -- the largest part of the BRL 100 million comes from the SG&A expenses, then the gross margin, 30% of this capture come from the gross margin, which is based on commercial conditions and the evolution of private labels. And the other 2 elements here, logistics and sales increment. Sales increment is still at a low level, more modest levels. But we're very optimistic as we talked about in the beginning of the presentation. We're very optimistic about our migration wave. So we're very positive about the capture of synergies from Extrafarma.
On Page 16, we have the adjusted net income. We went from minus -- a positive BRL 56 million to a minus BRL 10 million for Pague Menos stand-alone, we had a variation of nearly BRL 50 million, which is mainly due to the higher level of leverage of the company. But this was strategic and important as we just heard the acquisition of Extrafarma. We're very happy with the acquisition. But of course, there was a negative impact on our financial expenses, which was already being addressed with the improvements in our cash cycle, operational improvements or the level of indebtedness of the company. We were working to normalize and normalize the cash cycle. And now the increased private capital will accelerate the reduction of our leverage, so we tend to have to see better results in the coming quarters.
And on the right side, we see the net income bridge. We still have negative results, close to BRL 19 million. But as we are in the previous slides, we are also seeing a positive evolution when we will have better results in the coming periods.
On Page 17, on cash cycle and indebtedness. As you heard, in quarter 1, we had a higher pressure in our average stock times because this was about logistic integration with Extrafarma. Now we already had a normalization of 9 days in the average stock time, so this corresponds to about BRL 300 million of demobilized stock for this more acute integration phase. We still have another 5 days reduced, which will be implemented in the coming periods. This reduction is not seen yet in the average payment terms. We intend to increase 3 or more days in our average payment terms and the reflect of the [ PME and PMP ] will help in the operational cash generation of the company.
We already started to recompose our customer base. We went from 9 to 11 days in terms of the customer payment terms. And we are near our total customer payment term. We talked about the stock time and the payment terms, but this is also accelerated by the capital. So 13.1% net debt over EBITDA. So operationally, we would now start a reduction cycle. And with the fundraising, we will get to a net debt of 2.2x and next year, 1.7x net debt over EBITDA as we had announced previously.
And finally, here, we have more details about private capital increase. This was a point of attention. We were being unloaded by the market, and we were already aware that due to the acquisition of Extrafarma, we had a higher leverage level. So now we are addressing this point by reinforcing our capital structure, which will help us reduce our financial expenses and allow for the resumption of investments and opening of new stores and infrastructure investments. As I said, we have a favorable market now to increase our market share in the future and we already have commitment from 82% of our shareholders to participate in the offer. We announced BRL 400 million, but it can get to BRL 533 million with a subscription bonus, which can be used by the shareholders that adhere to this capital increase.
I stop here and now I'll turn it over to Renato, who is going to talk about our Health Hub in digital channels.
Thank you, Luiz. Good morning, ladies and gentlemen. I'm here to talk about 2 very strong levers of the company, our Health Hub and our Omnichannel strategy. So I'll start with one that was on the spotlight in the last few days due to Visa approving the user point-of-care testing at drugstores and pharmacies, I'm going to talk about our Health Hub.
So let me go back in time to explain a little bit of our strategy and how far we've come and how since 2016, we were pioneers in implementation of this service in our stores. At the time, our goal was to have a convenience model. So bringing walking customers to the out-of-pocket model. In 2020, we were 100% prepared. And once again, we pioneered the offer of point-of-care tests in Brazil. Then after the COVID pandemic in 2021, 2022, the COVID test decreased, but customers found out that in Pague Menos' stores, we already had more than 60 services being offered. So they started consuming these services, particularly high ticket patients, which are chronic patients and polypharmacy patients.
Then in 2022, we started to pivot our convenience modeling to a recurrence model. So we went to a B2B2C model with partnerships with large companies to bring their employees to be tested and vaccinated in our stores and also partners in health plans to offer private care services. So we went from the convenience model to the recurrence model. So we -- our focus is to become a one-stop care shop. We became a reference as a one-stop shop to ensure the loyalty of these customers who as I said are high-ticket customers.
So this was a very well implemented strategy, which brought us very good results. We have nearly 1,077 pharmacy clinics, Clinic Farmas. Before, we only had vaccination or injectables clinics and now it's becoming a complete health hub. So adherence to our health clinics has reached a very satisfactory number of nearly 9%. So of the total customers that visit our stores that have the Clinic Farma service, 8.6% acquired at least one service in our Clinic Farma. So you can see the quarter-over-quarter comparison, showing that we have very good execution, very strong focus and a very good adherence of our customers in connection with the strategy.
And conversion. Conversion means the total customers that bought at least one product after receiving a service in our Clinic Farma. In the last quarter, it was 50%, now it's 75%. So quarter-over-quarter, it was a 25 percentage point increase in the total number of customers that after receiving services at Clinic Farma bought at least one product in our stores. And this reinforces why are we supporting this strategy? Because this is our main customer. We're talking about polypharmacy customers and high-ticket customers as you're going to see on Slide #22.
So who is this customer? As I said, of the total customers, it's 8.6% of our customer base, 30% of these customers are heavy users. And what is a heavy user customer? Heavy user customer, it's a customer that spend up to 6x more than a regular customer. They have 4.3x more frequency -- more frequent visits in our store and the average spending is 6x higher. That's why we're going to invest more and more in this strategy because we believe that by gaining the loyalty of this high-ticket customer, this heavy-user customer, we will generate more and more value to the company, and we will be able to keep the loyalty of these customers, which is our ultimate goal.
On the next slide, we have our omnichannel strategy. We have nearly 61% growth in the revenue of our digital channels. These results are consistent. So quarter after quarter -- quarter-over-quarter, when we compare, we show that consistently our digital channels are growing. The Pague Menos brand, although it seems that it's moving horizontally, it had a very strong growth because in our strategy with the Extrafarma going from 3% to 8% share. This means that we are being able to consolidate the 2 banners, which was our initial strategy, reducing costs, increasing our capillarity, increasing the number of stores that can deliver products and reducing the delivery time.
That's why we had this integration. So Extrafarma goes from 3% to nearly 8%. Pague Menos, it looks like it's moving horizontally, but it's not the case because Pague Menos' customers are receiving from Extrafarma stores and vice versa. So when you look at the consolidated numbers, the intermediate line here, we went from 8.3% to 11.4%. And this is focused on profitability because when we look at our digital channels, we see that we could work on the channels that are much more productive, faster and cheaper for the company.
So I stop here and I hand the conference again to Mr. Mario Queirós.
Thank you, Renato. Thank you, Novais. And now we can open the floor for questions. Thank you.
We will now open the floor for questions. [Operator Instructions] This question is from [indiscernible] Santander.
Can you please tell us more about the performance gap between Pague Menos and Extrafarma? The increase in the profitability of the Extrafarma operation is clear. But can you talk more about the short term, if you see a potential increase in the sales of Extrafarma stores.
And the second question is about the synergy. Do you see any possibility of any changes in the guidance that you had provided us with previously?
Thank you, [ Peter ], for your question. I'll start with your second question. We considered that we are actually ahead of what was planned, but this is just in anticipation of the volume of the synergies that we were expecting to capture. So there's no change. There's no possibility of changing the guidance in terms of the volume of synergies. Next quarter, we will probably make some adjustments because of the inflationary level, the inflation rate just like we did last year. But what we see is that we are being able to implement all the actions, we are implementing them actually faster than planned. So that's why we're capturing the synergies before what was planned. But the volume of synergies will not change. It's just in anticipation. Of course, time is money. So if we can do it faster, it's an increased value for the company.
Novais, I don't know if you have anything to add. But as for your first question, we still see potential to increase the average sales of Extrafarma. We implemented a lot of actions relative to assortment. As Novais showed you, we had ways of migration, particularly when it comes to the supply. So we had to supply the DCs of Extrafarma because these DCs were not just supplying their stores, but they were also supplying to Pague Menos stores. And in order to do this, we couldn't immediately switch and have Extrafarma's DC supplying Pague Menos stores in the lane, which already had a better level of service, so that would be harmful to these stores. So we had to first ensure the supply from Extrafarma DC and then migrate the stores.
Now regarding the migration, the migration of course, had an impact on the stores. As you heard the first wave, which was [indiscernible], we already had a very good level of performance, nearly 3% same-store sales. And the latest wave which was [indiscernible] we still see modest numbers. They still suffered this quarter because of the systems migration and also the supply migration, but we still see potential for growth. We're talking about nearly BRL 200,000 difference in the average sales, Pague Menos' BRL 688,000 and Extrafarma BRl 488,000. So of course, there is potential to increase the average sales in Extrafarma stores.
I would just add, [indiscernible] that when we acquired Extrafarma at that time, we were not considering that Extrafarma would reach the average sales of Pague Menos in the short and midterm. So the level of BRL 500,000 is already very close, and there's also some upside compared with the model that we established when we acquired Extrafarma. So the capture of synergies comes from the dilution of our expenses. We still have some space to improve our margins and to improve and to increase sales. But the BRl 200,000 gap is more in the mid- to long-term because we need to reattract the customers, and this is more in the mid and long term, but the potential synergies is already at the level or above the level expected.
Next question is from Daniel [indiscernible]
My first question is about the Extrafarma stores. You talked about some of the migrated stores that are having good performance, so please can you give more details about the economics of these stores and what you're expecting from them and what you have already met out in terms of the next steps? And also about Extrafarma, can you please share with us your expectations in terms of closing of the year? What can we expect by the end of the year in terms of the cleanup of your stores, still in 2023?
And my second question is about the integration. Can you please tell us more about the main levers of acceleration for this integration? You showed your curve, and we can see that it's above expectations. I don't know if it's just the speed or the volume as well. But where can you see more space for acceleration? And what would be the time line, the time frame for that? When can we expect Extrafarma's margin to be closer to the number of Pague Menos?
Novais, I'll leave the question about the synergies for you to answer, but I'll talk about the store conversion. We have been doing some tests and services. And it's very clear to us that the marketplaces of Para, Maringa, Amapa, Ceara are markets where Extrafarma is very strong, particularly when we talk about branding. And in the other states, we are already feeling more comfortable about the migration. We did in [ Pernambuco and Bahia 4 stores in each, 2 stores in Sao Paulo and in Paraiba 3 or 4 stores. So we plan to advance more in these states where we already feel more comfortable about the acceptance of the migration. We will be starting our pilot our tests and the other states that I mentioned, Ceara, Maringa, Amapa, and Para.
I'm sure Novais can share more about the economics. But as you heard from some of the stores are approaching 40% increase in their sales. And as for the expenses, there's no major change. So it's about the sales. That's how we're going to dilute the expenses and increase the contribution margin. Now as for the gross margin, as you heard during the presentation, Extrafarma is more than 32% gross margin.
So when we look at the consolidated numbers, Extrafarma has a gross margin that is higher than that of Pague Menos, but it's about the location. Pague Menos in the states where Extrafarma is present, the gross margin is very similar. So we look at the South, Southeast and Midwest where Extrafarma is not present. That's where Pague Menos is -- needs to invest more in pricing. So that's why our gross margin is lower in these states. Extrafarma's margin is higher than that of Pague Menos in these states.
And about the closing of stores. Well, we still see a lot of opportunities to increase our results in Extrafarma. We have different levers here that I can mention. For example, in terms of expense dilution, there's some strong work that we have been doing, reducing our expenses with rentals. We see that the average occupation -- occupancy expense of Pague Menos is much higher. We also have private label and digital channels. Extrafarma still has a lot of potential to increase the share of these elements, which will help improve the margin and the EBITDA.
In terms of margin, we still see a lot of opportunity to grow this margin because the stocks in normal conditions with Pague Menos, the turnover is not complete. So we're still realizing stocks that were bought at the previous prices, more expensive prices. So there's still opportunity to improve our stocks. Store operation also [indiscernible] team and the operations team, they're working hard to improve store operation. They're already at a very good level but there's still room to improve. We have some items relative to pricing, so we have a lot of fronts in which we can work to accelerate the capture of synergies. We still have a lot of good things that will happen in the future.
In terms of closing our stores, we closed 23 stores, Extrafarma stores. We actually -- we closed 23 by June and another 9 in July and the start of August, and we're still planning to close some more. The numbers will be very similar to the initial plan, about 40 stores. I think I answered your question.
And about the synergies, will there be any changes in the guidance considering the speed at which we're capturing the synergies?
Well, as Mario answered to Vitor, the guidance of BRL 275 million, we still believe this guidance, although we're seeing a faster pace than expected, but it's more about the time line and not so much about the volume, at least for now.
Thank you question is from Mauricio Cepeda, Credit Suisse.
I have 2 questions. The first is about the sales mix. We see that branded products are accounting for a smaller share of your mix. So do you have any strategy trying to maximize brands or even -- branded or even similars to improve the average sales per store? And my second question is about your share growth metric. I see that you use the IQVIA data at the consumer level, so the CPP data. And in your report, you talk about 9% year-over-year. But when we compare that with the PPP which is the pharmacy level that is communicated by Epara and Sindusfarma, the growth is about 13%. So what is causing this difference between the CPP and the PPP, is there any [indiscernible] what is the share by region if we consider the PPP logic?
Thank you for your question. For your first question, the share has to adapt to 100%. So if one category increases, another one will decrease. And it is not that we are minimizing our investments and strategies in branded. No, it's actually the opposite. We're investing a lot in generics. We have a lot of promotions in generics because we still have another share in generics. So there's a lot of potential, and this helps compose our gross margin. And we are also investing in promotions for Personal Care or Hygiene and Personal Care, which is also increasing its contribution. So when these 2 categories increase, the other ones have to decrease.
But we continue to be very strong in branded drugs when we look at the Pague Menos banner in Extrafarma. This -- there was already a gap because of assortment and availability, so they chose to invest more in generics. And we continue to invest in generics with Extrafarma, but we are improving our assortment for all categories of products. And as a consequence, there was this difference in the growth. But our focus is particularly increasing the profitability and the gross margin of the company in generics, which is what we have been doing in the past quarters.
Now as for the IQVIA question, this is the metric that we have been using for the past 12 quarters. For comparison purposes, this is the metric that we have always used. I don't know if Novais knows about the PPP base, but this is the metric that we have been using.
To add to what Mario said, I don't know if I understood your question right, but we didn't see any increase or decrease in the prices or discounts of the industry in retail in terms of what is passed on to consumers. The adjustments that were passed on to retail, we were able to pass on to our final prices in April. So in our metrics, there was no relevant change in terms of discounts and promotions. What we do see is that the basis will change, the institute will update their basis for the previous period. So IQVIA in quarter 2, looking at quarter 2 only, we saw in Pague Menos an increase of nearly 8% when we adjust for prices and we grew 11.6%. So when these comparison basis are reviewed, we sometimes can see some distortions, but in the mid- to long-term, the distortions will be neutralized.
So in our latest report, we show the consolidated numbers for the first half of the year. And as the volume growth that is seen by IQVIA and Pague Menos is more in line. But what I can tell you is that we didn't see any increases or decreases in the discount rates in the industry that would justify any difference in the 2 methodologies that you talked about. But we will continue to investigate and if we find something, we will share with you.
Next question is from [indiscernible].
My first question is about your private capital increase. This seems to be very important to accelerate the deleveraging of the company. So I want to know how you're thinking, of course, that it will depend on the final amount, but I know you have other levers to deleverage the company. So we're also now starting to see the interest rates decrease. So what do you plan in terms of new openings? You talked about resuming your new openings next year, but are you testing any new openings this year?
And I also want to understand if with this increase in your private capital, do you think you will have addressed the -- your plan to open 120 new stores next year and reach the guidance of 1.7x that you established by the end of this year? And a very quick follow-up about Extrafarma. I think you have the very interesting data that you're communicating [indiscernible] about same-store sales due to the takeover waves But I want to understand the stores that were migrated later, are they reaching a curve that is similar to that of the first migrations?
So as for your first question, we will maintain the guidance of 120 stores next year. I don't think we will open more stores. It's not impossible, but it will be difficult to open more stores this year because the process of opening new stores takes 7 to 9 months. What we are starting now, we will only inaugurate in January or February, unless we have stores that only require renovations or maybe a store in a shopping mall, which takes less time. But I don't think we will be opening new stores this year. Our guidance is for next year, and we maintain the guidance of 120 for next year. What we could do is maybe anticipate or expand the banner migration. So some of the Extrafarma stores have a potential to switch to Pague Menos, so that we could accelerate.
Novais, I don't know if you want to talk about the performance of our migration waves.
Yes, we do see that the behavior of the latest migrations is very similar with that of the first migration. So we're very positive with the sales evolution of the different migration waves and not just due to the sales component, as we said, we are also positive about the other P&L lines. We already increase our sales a lot. We still have room to increase even more. But considering what was planned, we're very close to what was planned for this time of the integration and we're now working on stock turnover and continue to decrease our expenses to advance capturing more EBITDA.
We believe that from now on, the increment in our sales base and the reattraction of customers will happen gradually step by step. We won't be seeing any leaks. It will be more gradual. And about what Mario said about the new openings, I think that our shareholders have shown and our Board has shown that we are having good control of the company's indebtedness and cash management. We still -- we will maintain the guidance of opening 120 new stores and we are now at a very important moment in terms of increasing our market share, but we're very focusing on managing and controlling our cash management and the company's indebtedness.
Our next question is from Joseph Giordano, JPMorgan.
I have a few questions. Going back to the last question about the store expansion and the 7 to 9 month term for opening a new store, how many points of these -- how many locations of the 120 new stores that you plan to open next year are already contracted? So I want to understand the phasing of the opening of new stores during next year.
The second question is about the tax reform. I want to know what is the potential -- how a potential VAT that will come in the future could change things for the company in the future, considering that there will be a transition period? And my last question is about your capital structure. When we look at the level of receivables of the company, it's pretty low compared to what you had in the post-IPO period. So I want to understand from you, is this increase of up to BRL 500 million in our private capital will be enough to solve the capital structure problem of the company? Because if you take the ex-IFRS debt and the leverage and you put strong risk and receivables risk, I want to further explore that point, please.
Thank you, Joseph. Thank you for your questions. Your first question about the expansion. We always have a buffer of stores. Our guidance for this year was 60 stores until we revised this guidance and decreased it to 20 So we have about 40 to 60 stores that have already been contracted and they are just waiting for the improvement in our leverage level, which will come with the increase in our private capital, that's when we will resume our contracts with the builders, the construction companies and the tenants.
The phasing, we try to be as linear as possible during the year. So we try to keep it at 25 to 30 stores per quarter. Usually, we will have a larger concentration of new openings in the second half of the year and the end of the year. But the idea is to keep it as linear as possible with a plan of 30 new stores per quarter.
And Novais will answer your other questions about the VAT and the capital structure.
Thank you for your questions. As for the tax reform, we are seeing this simplification movement and restructuration movements in a very positive light. We know the tax structure is very complex in Brazil, so this will be a positive change. We started to do some studies with consulting firms and partners who estimate the effects of this reform, but it's very early to say anything. As we heard, the healthcare sector will have different tax rates, which makes sense, in our opinion. But I can't really give you an answer right now about any impact on the company's P&L relative to the implementation of the VAT.
Now when we talk about income tax and how this will impact our investments, our benefits based on our meeting so far, we are in a very good situation, very well supported in the mid- to long-term. And this gradual movement to reduce subvention incentives will take place in the future, but the horizon, the time horizon is more than 5 years in the future.
And as for the leverage, with the increase in our private capital, you're right to say that when we add the bank debt and what we owe due to Extrafarma's acquisition and the receivables, we would right now be at a level of 5x the net debt to EBITDA ratio. But now with the increased private capital and normalization of our cash cycle, we get closer to 3x because we have demobilized our cash cycle. And now in quarter 3, this will go back to the levels closer normal. So we're close at 2 to 3x. And by the end of the year, we will be closer to 2x because we will have finished paying to Extrafarma. The company will be already generating cash.
And now with increased private capital, the receivables will be neutralized. We have nearly BRL 1 billion in receivables that we do use to make cash and to normalize the cash cycle. But with this increase in our capital and the movements that we have been implementing to improve our results in 2024, we wouldn't be using that anymore. We would have a nearly complete recomposition of these BRL 1 billion in 2024, and we should finish next year closer to 2x the net debt-to-EBITDA ratio in total.
So considering all [indiscernible] and bank debt, which is a very healthy level, considering that we will continue to have BRL 1 billion in liquidity and the companies will help us increase our EBITDA and Extrafarma, starting in quarter 3 will start to contribute positively to our EBITDA. So the comparison base for our EBITDA will be more favorable. And all these points are being addressed and have been addressed, but now we're going to do it even faster.
This question-and-answer session is now closed. Now I'd like to turn the conference over to Mr. Mario Queirós for his final remarks. Mr. Queirós, you may proceed.
I would like to thank everyone for attending our call. And I'd like to once again stress how happy we are with the operational results of the quarter. And about the villain, which is affecting the bottom line of the company, with the increase in our private capital and with the initiatives that we have already implemented, we will believe that we will see improvements in our cash cycle and that we will be able to bring our leverage levels to healthier levels. This will continue to -- this will allow us to continue to expand and continue to invest in strategic levers to grow in the future.
Thank you very much. See you next time.
This conference call is now finished. Thank you all for attending, and have a great day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]