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Edited Transcript of PARD3.SA earnings conference call or presentation 6-Nov-19 1:00pm GMT

Q3 2019 Instituto Hermes Pardini SA Earnings Call

BELO HORIZONTE Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Instituto Hermes Pardini SA earnings conference call or presentation Wednesday, November 6, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alessandro Ferreira

Instituto Hermes Pardini S.A. - VP of Sales & Marketing

* Camilo de Lelis Maciel Silva

Instituto Hermes Pardini S.A. - Chief Administrative & Financial Officer and Chief IR Officer

* Fernando Ramos

Instituto Hermes Pardini S.A. - Lab-to-Lab Director

* Guilherme Collares

Instituto Hermes Pardini S.A. - COO

* Matheus Torga;Investor Relations and M&A Executive Officer

* Roberto Santoro Meirelles

Instituto Hermes Pardini S.A. - CEO & Member of Executive Board

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Conference Call Participants

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* Bruno Giardino;Bank of America;Analyst

* Frederico P. Mendes

Banco Bradesco BBI S.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for waiting. Welcome to the Instituto Hermes Pardini teleconference for discussing Q3 2019 earnings release presentation. Present with us Mr. Roberto Santoro, CEO; Mr. Camilo de Lelis, Finance and Investor Relations Executive Officer; and Mr. Matheus Torga, Investor Relations and M&A Executive Officer.

(Operator Instructions) The audio and slides of this teleconference are being presented simultaneously over the Internet at the address www.hermespardini.com.br/ri. At this Web address, you may find the presentation for download. It can be accessed at the results central session.

We'd like to clarify that statements that can be made over the teleconference relating to the company's business expectations, projections, and financial and operational goals are assumptions of Board of Institution Hermes Pardini as well as currently available information to the company. Future considerations are not assurances of performance.

They involve risks, uncertainties, and assumptions because they refer to future events and therefore depend on circumstances that may or may not occur. General economic conditions, industry conditions, and other operational factors may affect future results of the company and may lead to results that differ materially from those expressed in future considerations.

I'd like now to hand the word to Mr. Roberto Santoro, CEO. Mr. Roberto, you can please proceed.

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Roberto Santoro Meirelles, Instituto Hermes Pardini S.A. - CEO & Member of Executive Board [2]

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Good morning, ladies and gentlemen. Welcome to the teleconference for Q3 2019 earnings release of the Pardini Group. Camilo, Matheus, and myself will present based on the material available at our website with Investor Relations. Right after that we will open for question and answers, where other directors present will also participate, supplying other details about the specific topics.

We have joining the call with us Adriana Linhares, our Executive Business Director; Alessandro Ferreira, our Vice President for Commercial and Marketing; Mr. Fernando Ramos, Lab-to-Lab Executive Director; Guilherme Collares, Operations Executive Director; and João Alvarenga, IT Director.

I'd like to begin pointing out that this quarter was highlighted by the best financial performance of the company for the period, emphasizing the capacity of the Pardini Group of generating value to its shareholders, whether organically or through acquisitions made so far. Therefore this result is a consequence of the consolidation of the improvement actions implemented throughout the year as well as the growth of our operation and consolidation of operational efficiencies.

Part of this improvement is the result of our Enterprise Project, one of the largest lab automation projects in the world. As we can see on page number 2, this quarter we finished one more relevant stage of this project, which was the installation of the first automated system for sample receivables, contributing for greater agility and more safety in sampling and consequently reducing the time of liberation of results throughout the country. All the flow and volume tests were done on the stairs, and so they are programmed to go into production the beginning of November.

Within the enterprise scope, we have evolved the way we manage our advanced technical nucleus through command center technology, creating a complementary system within a single productive intelligence, besides offering post-analytic safety and security with the liberation of clinical results. Finally, we concluded automation projects in the area of microbiology.

Moving forward, on page 2 I would like to point out that this quarter we finished the acquisition of Solucao Laboratory. That will enable us to expand not just our sales force for Lab-to-Lab in the south area but our productive capacity in support to our clients throughout the entire south of Brazil.

We also concluded the acquisition of 49% of the company that produces the forensic toxicology tests, totaling 100% of this company now. We also received the equipment to increase our productive capacity -- our own productive capacity for toxicological detection of drugs, as you all know.

Therefore we will have a reduction not just in production costs but the time for clearing the results, qualifying us to be one of the largest national players in the production of these forensic tests.

Going to slide number 3, continuous evolution of our processes has led us to reach a new volume record, about 9 million tests produced in the month of August. This increase is the result both of our operations at PSC as well as Lab-to-Lab.

At Lab-to-Lab, our continuous efforts in the sense of improving the service level and client experience got us to reach 87 points at the ACSI. It's the acronym for the American Customer Satisfaction Index, which is one of the most respected methodologies for measuring business to business client satisfaction around the world. And we are pioneers in the implementation of this in the health industry in Brazil.

At PSC, we present a continuous growth of test volume throughout all of the areas we do business with, both in imaging as well as clinical analysis. Highlighting the quality of our brand and our efforts in improving service and the welcoming at our units, translating in NPS, Net Promoter Score, much higher, close to 80 points.

Moving to slide number 4, I would like to point out other operational -- relevant operational points for Q3 2019. First I point out that our R&D area has implemented 13 new tests for the Pardini Group tests. Five are new exams, 3 are improvement in processes, and 5 we have internalized tests. Besides, we have 100% approval of everything that was -- all of the papers sent to the AACC, and one of them reached third place in the category Tumor Markers and Cancer Diagnostics Division.

The Pardini Group was also recognized as the Company of the Year by the Business Development Minas Award, and we were amongst the top 3 innovative companies in the use of information technology, an award given by IT Midia.

In personalized medicine, we are working strongly in our new activity. In the last few years, we have invested over BRL 150 million in the acquisition of reference companies in their areas, which enables us to, first, increase our portfolio of tests in the oncogenetics and rare diseases area; second, increase our clinical body both for personalized medicine with national reference professionals as well as international professionals in other areas also oncogenetics, oncology, and innate errors and clinical genetics.

Third, we have restructured all of our positioning in pathological anatomy, focusing on improvement for services and specialization of the tests menu, focusing on molecular pathology, linking with the personalized medicine business unit.

And lastly, we implemented customer service in pathological anatomy area to improve customer service as well as support to physicians and HMOs. Besides, we were also present in several congresses of the medical community on this topic. In October, we put together an event with over 70 key opinion leaders in Sao Paulo to discuss over the topic of personalized medicine in a partnership with Valor Economico.

This emphasizes our commitment in this business area as an important approach for the present and the future of health in Brazil. It is worthy to point out in October we reached again a new record of clinical analysis tests. We inaugurated a new unit in Rio de Janeiro.

I would like to hand the word to Mr. Camilo Lelis, our CFO, who will talk about the financial highlights for Q3 2019.

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Camilo de Lelis Maciel Silva, Instituto Hermes Pardini S.A. - Chief Administrative & Financial Officer and Chief IR Officer [3]

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Thank you, Roberto. Good morning, everyone. In the next slides, we're going to present relevant aspects that have impacted our financial performance of Q3 2019. Bear in mind that, in terms of comparisons, the following figures will be presented without the IFRS effect 2016.

We reached the best third quarter of the history of Grupo Pardini. This record is the result of operational efficiencies captured by the Enterprise Project. The excellence brought us a reduction of disallowances as well as the digitalization process, improvement of internal services, Lab-to-Lab, and integration of acquisitions.

Slide number 5, besides the excellent financial result, I would like to point out that in October we had record of test volumes. This increase in volume reflects the recurring growth of clinical analysis services of PSC in Minas Gerais and Goiania as well as in Rio de Janeiro and Sao Paulo, besides the Lab-to-Lab strategy of defending our market share.

In terms of average ticket Lab-to-Lab, we have witnessed a stability environment, with an average ticket presenting a lower decrease when compared to the prior period.

Another important aspect is the reduction of our production cost. A relevant part of that reduction is the result of the efficiencies of certain test lines, which have been transformed to the enterprise production model. As a result, this gross margin of the company has been presenting continuous evolution, reaching 31.5% in Q3 2019, which means 310 basis points higher than to the gross margin of 2018.

In that sense, we confirm our strategy of not losing clients to the competition and compensating the losses of price with greater internal efficiency. Finally, the nationalization of pathologic tests through the acquisition of Labfar will impact strongly in the cost reduction currently indexed in foreign currency.

Besides the effects of migrating to the enterprise production model, I would also like to point out the positive effect of PSC in the company's gross margin.

Slide number 6, I point out the improvement in PSC performance in all regions we do business, considering that in Minas Gerais and Goiania we have recorded an increase in market share. In Sao Paulo and Rio de Janeiro, we recorded increasing volume with greater participation of the clinical analysis mix.

In terms of disallowances, we continue to work to seek greater efficiencies. In Q3 2019, we kept disallowances in lower rates than 0.1%. In the 9 months of 2019, we were able to reduce disallowances 44% when compared to the first 9 months of 2018, even considering that in this period we have already gained a reduction of 65% compared to the 9 months of 2017.

There are several implemented actions under the scope of the corporate efficiency project that impacted operational deficiencies. The admin expenses, excluding the effects of acquisitions, have decreased from 13.7% of net income in third quarter to 12.8% of net income in 3Q 2019.

The EBITDA and net profit were records. In terms of EBITDA, we have reached BRL 79 million, increasing 15.5% compared to the same period of the prior year. Net profit has increased from BRL 35.1 million Q3 2018 to BRL 44.2 million Q3 2019.

I would like to point out that in September we announced the payment of BRL 9.6 million of [JTP], and in November we approved BRL 9.4 million to be paid on 30 December, 2019.

Now I'd like to welcome Matheus Torga, our new Investor Relations and M&A Executive Director, who will talk about the financial results.

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Matheus Torga;Investor Relations and M&A Executive Officer, [4]

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Thank you, Camilo. Good morning, everyone. I would like to emphasize that we have reached the best financial result of this company's history, a record of net income, gross profit, EBITDA, and net profit. This performance is the result of our capacity of generating value organically and through strategic acquisition.

As you may observe on slide number 7, the net income has reached BRL 1.1 billion in the 9 months of 2019, with a significant increase of 12.4% when compared to the same period of 2018. That growth of gross income occurred both in Lab-to-Lab as well as PSC.

At Lab-to-Lab, the increase was a result mainly of the acquisition of new clients and the income coming from acquired companies, with a highlight for Pardini Toxicology. In terms of PSC, the increase in gross income happened mainly in Minas Gerais and Goiania. And in Sao Paulo, we continue growing mainly in clinical analysis.

Moving to slide number 8, I want to point out the improvement of growth drivers, where we have recorded the increase of the number of clients who generate revenue in the third quarter of 2019 totaling 5,570, an increase of 80 clients when compared to third quarter 2018, reflecting the good performance of our commercial team, even more focused in improving our clients' experiences.

And I would like to point out the attributes of differentiation of our brand in the marketplace. At PSC, the net income per store Q3 2019 also presented an increase, reaching BRL 1.54 million, which means 6.4% higher than same period in 2018. That increase in gross income reflects mainly the introduction of clinical analysis services in Rio de Janeiro and Sao Paulo, and actions that we are implementing to improve customer experience.

Slide number 9, we point out that net income increased 9.4% Q3 2019 compared to Q3 2018 without having relevant variations of taxes, disallowances, and other deductions of the gross income.

Moving to slide number 10, we have another record reached in this quarter. Gross income totaled BRL 108.8 million, an increase of 16.5% compared to Q3 2018, so it was an increase of 193 basis points compared to the gross margin in Q3 2018. We're on the right path to go back to gross margin at historical levels, compensating the loss of price in 2018 through greater internal efficiencies.

Moving forward to slide number 11, I want to point out that we continue to obtain gains through the Corporate Excellence Project as well as through automation of processes. As we can see on the spreadsheet, the expenses with general sales and admin, excluding DLE, Labfar, and Toxicologia Pardini, have decreased from BRL 44.6 million Q3 2018 to BRL 41.4 million Q3 2019. That way the percentage of SG&A expenses over net income has reduced from 14.4% Q3 2018 to 13.4% Q3 2019.

Slide number 12, EBITDA; adjusted EBITDA totaled BRL 79 million in this quarter, an increase of 15.5% in terms of the same period of 2018, and a record for the company. The adjusted EBITDA margin for the period had an increase of 121 basis points compared to the same period in 2018.

Moving to slide 13, I would like to point out that we concluded Q3 with a reduction of the company's leveraging. We have reached a comfortable level of onetime net debt over EBITDA LTM. So Q3 2019, we reached a record of BRL 44.2 million in net profit, an increase of 29.6% compared to Q3 2018. As a result, we reached a net margin of 12.8% for the period.

In the 9 months of 2019, net profit was BRL 117.5 million, an increase of 21.3% when compared to the 9 months of 2018. In the following slide, we can observe that ROIC without the company's balance was 31.1% in Q3 2019, a spread of the ROIC without the actual and the debt 27.3 percentage points, reflecting the high capacity of the company to generate value to its stockholders in a consistent and growing way.

Thank you for your attention, and we can move to Q&A now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Thiago Macruz from Itau BBA.

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Unidentified Analyst, [2]

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(inaudible), actually. First, I would like to talk about Lab-to-Lab volume. The growth of 3.6%, could you break it down? What was the contribution of PSC and Lab-to-Lab?

And considering volumes, in Lab-to-Lab we saw a bit more growth in terms of the client base. Can you share with us the breakdown? Is it a stable churn or more robust actions with clients? We saw an increase in expenses for sales.

And a second question about the gross margin. We saw again a substantial improvement considering the initiatives you implemented. So I'd like to understand a bit of the gross margin per segment, how it evolved throughout the quarter both for PSC as well as Lab-to-Lab.

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Alessandro Ferreira, Instituto Hermes Pardini S.A. - VP of Sales & Marketing [3]

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This is Alessandro. I am going to begin the answer on volumes and Fernando Ramos will complete. We are not going to open details of the breakdown of growth between PSC and Lab-to-Lab, but what we see was a significant growth in both segments.

Lab-to-Lab growth came from capturing 80 new clients, as it's been made public here, and the maturing of certain relevant clients that had been captured in prior periods, which is the work that is done in the Lab-to-Lab management of pulling in new clients and then the commercial team growing within that new client. And with that, we can optimize the results. The result of growth within our portfolio is better than just the new client. There is a cost of system implementation and so forth.

PSC, we see the growth in all regions, all areas. PSC, specifically to mention to make it clear, we restructured the whole commercial team. There is new management. Executive management of PSC has more a profile of prospecting and closer to HMOs also. And we started seeing results in all areas.

The growth driver has been declared by the company, growing in clinical analysis. That falls into our strategic goals. And we have seen that in literally all the locations. Even where the number of lives has not grown, impact generally been growing, which means that we are taking share from competition.

So in a general way, a general sense, that's the main data. And Fernando is going to add in for Lab-to-Lab.

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Fernando Ramos, Instituto Hermes Pardini S.A. - Lab-to-Lab Director [4]

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Thank you, Alessandro. In terms of Lab-to-Lab, I think it's worth to add to what Alessandro has mentioned. When you look at growth, it's very much associated to new clients' entry and growth of the share of wallet, which is the revenue generated within our clients.

You mentioned churn. I would say churn played against the result that we presented because we lost 2 relevant clients in the last 12 months, as it's been announced. And when you exclude those 2 clients, what we see internally are the ones here are much more representative now than the ones we lost. So churn playing against us, but on the other hand the entry of new clients, and especially the increase of revenue within the already existing clients, now they have been presenting very thrilling results.

Okay, (inaudible). As for the gross margin, we do not publicize the gross margin of the business anymore. But we can say that we have had substantial growth in all business units, even at our conference we mentioned, driven by the Enterprise Project cost reduction and the growth of revenue.

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Operator [5]

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Our next question comes from [Evgenio Cavaledo] from JPMorgan Bank.

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Unidentified Analyst, [6]

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What we have seen of the results in the Lab-to-Lab competition is very much moved by price, and we also see lack of organic growth in this segment. So I'd like to understand how you see this trend forward. What should we expect in terms of organic growth for Lab-to-Lab if the competition continues driven by price?

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Alessandro Ferreira, Instituto Hermes Pardini S.A. - VP of Sales & Marketing [7]

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Alessandro again. Despite the fact that the Lab-to-Lab market still presents a high level of competition, we have some strategic drivers. We have been able to comply and meet those prices. As I answered in the prior question, the growth of Lab-to-Lab is given not just by acquisition of new clients, but as well as growth within our existing client base.

This is work that Pardini historically has done very well. And the growth within our client base enables for better results in terms of percentages of margin rather than new clients coming in.

Something else we have been doing is improving service levels substantially for Lab-to-Lab. And this can be shown by ACSI has a significant increase, more significant than the prior quarters. And Pardini has this driver. We have a driver of continue growing within a sustainable pace with a controlling is disallowances and defaults, focusing on profitability of our portfolio.

That's not the strategy of all the market, but we have been constant with that. And we have this driver of sustainable growth, increasing service level driving profitability. And we have been able to improve results throughout the year. As you mentioned, the Lab-to-Lab has been affected by price. If you look at our average ticket in the last months, it has been stable.

And Fernando Ramos, who is the head of the business unit, is going to complement.

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Fernando Ramos, Instituto Hermes Pardini S.A. - Lab-to-Lab Director [8]

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Thank you, Alessandro. When we look at the competitive environment, I agree 100% with what was said. We have difficult competition, a hard market, but we have seen greater stability in the degree of competition. We have not seen our larger competitors taking actions that are very different than what they had already been practicing throughout the year.

You asked about the perspective, the outlook. When we look at the support segment, myself and the team are very positive about the perspective. As I mentioned in the first question, the figures we have been presenting in the last quarter, they are still impacted by the 2 clients we lost. They are still in the client base, but from now on we have an expectation of significant improvement of those indicators, not just because of the comparisons but considering all actions we have been taking within the company to bring volumes and facilitate the lives of our clients.

So it's worth mentioning something that Roberto mentioned in the first part of the call. It has to do with acquisition of the solutions lab in Itajai. This is a strategic acquisition for us. We had been stating our intention of having a technical area in the south region of Brazil to improve our service level, improve service, reducing significantly the deliveries, the term of delivery to our clients. And so the acquisition of Solucao was a very -- was bull's-eye for the south region, so it's a very favorable outlook for the coming quarters.

When we look at organic actions, we've got a number of activities, ongoing activities. The goal is to improve the experience of our customers in support. Two of them are well known and they are already bearing fruit. Customer service has been improving significantly. The resolution that we can bring to our clients, this model has just been extended over to the pathological anatomy businesses.

Another point that has been commended by clients is that the MyPardini platform has been going through continuous improvement thanks to the partnership we have had with the technology area. That has been making it much easier processing requests for -- urgent requests and dispatches.

Still about organic actions, we have a number of initiatives to improve and reduce turnaround time for the tests. So for the coming weeks, we expect the conclusion of the last stages of the Enterprise Project, and then benefits of the Enterprise Project will be even more -- will be easier to perceive. We hope to have a relevant impact in the clients' perception as well as in volume.

Besides that, the decentralization of the productive model, so we had the 2019 -- the Sao Paulo technical area now producing support tests. And we are working strongly to have a technical area in the northeast area of the country.

And finally, it's important to point out that Pardini has, in our tests menu, a much higher specialization level than our Lab-to-Lab competitors. These tests, specialized tests -- we want to point out, as we mentioned during the presentation, personalized medicine.

We have a highlighted position of something different than what the competitors offer for Lab-to-Lab. It's not the same traditional competition, so they're more profitable tests. So Pardini uses all of these options, strategic options we have, besides the improvement that's been mentioned by Fernando. So we've been able to reach especially our profitability goals.

Personalized medicine are lower volume, higher ticket, higher profitability tests. And they have a direct impact over the physicians and the HMOs. So besides having the improvement in our results, we can have a very positive impact within diagnostic medicine industry. So it is a strategic mix. We believe that in that way for the coming quarters, even with the market having tough competition, we will have good results.

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Operator [9]

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Our next question comes from Fred Mendes from Bradesco Bank.

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Frederico P. Mendes, Banco Bradesco BBI S.A., Research Division - Research Analyst [10]

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I joined in the middle. If I repeat my question, I apologize. I have 2. Actually, the first you mentioned in the last answer. I'd like to understand, in the capturing of new clients and the volume with enterprise done should increase, was there a negative impact while you were implementing at the operational level? If there were negative impacts in this quarter, maybe growth was a little lower. You said the trend is to improve.

And in costs, also a positive highlight, I understand that a major part has been captured. The project is almost fully implemented. I'd just like to understand if now, in the fourth quarter when you conclude it, is there room for more for 2020? I know you're not going to give me the specific figures, but if you can talk to me about the trend maybe.

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Alessandro Ferreira, Instituto Hermes Pardini S.A. - VP of Sales & Marketing [11]

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Fred, this is Alessandro. Regarding impact over the Enterprise Project, it is running as expected, above expectations actually. All of the issues are well planned; a multidisciplinary team, not just from Pardini but from several other companies, participating companies.

So if you notice the data we have there to demonstrate, in this Q3 it's the final phase of the Enterprise Project. That's where we got the highest ACSI score. So it's a clear demonstration, auditable, that our customer satisfaction level is high. The perception of satisfaction has been improving throughout the year and adding to make it more tangible.

One of the actions that have already been implemented via enterprise is the technical area from Sao Paulo. Thanks to enterprise, now it can be used by the support clients to produce a relevant part of the portfolio in Sao Paulo, which improves our logistics significantly and turnaround time. And so we've noticed positive impacts for clients that have had their tests sent to Sao Paulo to speed up the productive process, considering more favorable logistics.

So just to make it more tangible, some of the benefits that clients have already started feeling, I'm going to share the word with Guilherme. He is going to talk about the second half of the question.

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Guilherme Collares, Instituto Hermes Pardini S.A. - COO [12]

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Thank you for the question. Adding to what's already been said, the project was extremely well structured. As we evolved along the stage, the fact is we made all the changes in methodology. And this has brought results to us in terms of those changes in methodology, but we have not come with a full production yet.

It will bring even more benefits to our clients, whether in speed and safety, but in ease of use of Pardini as a support lab. Any need of repeating a test, of asking for one more test, this will happen automatically from the use this flow or treadmill flow starting now in November. From this moment on, clients will truly have the perception of the speed, the safety, and the simplicity, how simple it is to use the platform.

So now we've gone over the hump of risks. We've captured most results related to the methodology. We have not captured results yet regarding automation, process automation, productive processes. This will start in November and from there on.

When I mentioned this has to do with simplicity of process, increasing people productivity, because only by the use of our conveyor system this will be gains for the next coming months. And clients will have the perception of the improvement in our production system with the progressive implementation of this conveyor system.

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Frederico P. Mendes, Banco Bradesco BBI S.A., Research Division - Research Analyst [13]

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Guilherme, if we could go back to this last point, considering the changes in the conveyors to understand, you expect an improvement. It comes from top line with this perception of capturing more clients, or costs? Of course both, but where do you expect to have greater gains considering that the conveyors are going to come in full?

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Guilherme Collares, Instituto Hermes Pardini S.A. - COO [14]

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I believe that, from the moment that you have a better service level and you bring more volume in the automated system where most of the cost -- I don't have to increase the structure to perform most tests. Both things will evolve jointly.

We had that experience in 2010 when we had the first lab automation in Pardini, great growth of volumes from the -- based on clients' experience. And we saw better productivity considering automation reducing production cost.

An important point, just adding, it's an increasing competitiveness in the marketplace. The client experience improves considerably. One of the most important drivers for this is turnaround time. So Lab-to-Lab -- we can improve digitalization also in the interface with the client relationship so it brings more competitiveness to the Pardini Group compared to the competition, and we can work more clearly with other key success factors and not exclusively price.

This is the way of Pardini, to work with our clients. We keep a high service level, continuous improvement, great focus on productivity so that we can always see that reflecting in the results, and now consistent improvement, gradual and consistent improvement in client experience. Those are the relevant points.

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Operator [15]

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(Operator Instructions) Our next question comes from Bruno Giardino at Bank of America.

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Bruno Giardino;Bank of America;Analyst, [16]

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First question about M&A, if you could share with us a bit of your strategy along those lines. The second, what can we expect in terms of growth rates for toxicological tests and personalized medicine for next year?

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Matheus Torga;Investor Relations and M&A Executive Officer, [17]

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We continue with several M&A propositions. We have several studies, ongoing studies. We believe in the coming months and early next year we will conclude at least 1 operation. We'll finalize at least 1 operation.

In terms of the areas you mentioned, we do not give growth projection for specific segments, but we go back to saying that those are extremely promising areas where Pardini can have a higher technologic service level result when compared to Lab-to-Lab competition. And these are areas where we have invested, as Roberto mentioned, a significant amount of resources, and obviously we expect it to have the return in the coming years.

Toxicology has different markets, some advantages in terms of conventional health area. And personalized medicine, personalized care has a -- it's been broadened in terms of its usability, the A&S list of tests that can be used. And so Pardini is always ahead of the curve in terms of those tests. We become more relevant, oncology, cardiology, and other tests.

So these are good perspectives, but the percentages we cannot bring up. Toxicology, with the acquisition of Labfar and the production structure, as Roberto and Camilo mentioned, we have an expectation of cost reduction for the operation. And this will make Pardini Group even more competitive and with improvement in results.

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Bruno Giardino;Bank of America;Analyst, [18]

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Just in terms of the first question, we should expect new deals similar to this Solucao Lab, or something -- is there anything else, something different?

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Matheus Torga;Investor Relations and M&A Executive Officer, [19]

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Yes, we cannot give details of our operations, but we will inform you in the future and disclose as we move forward.

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Operator [20]

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(Operator Instructions) If there are no more questions, we conclude the questions and answer session. I'd like to hand the word back to Mr. Roberto Santoro for final considerations.

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Roberto Santoro Meirelles, Instituto Hermes Pardini S.A. - CEO & Member of Executive Board [21]

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Ladies and gentlemen, I'd like to thank, everyone, for participating in our earnings release conference and invite everyone so that you can participate in our Investor Day. In December 2019, 20 December, you could have more direct contact with our projects, the Enterprise Project, visiting and also analyzing and interacting with all of the company's initiatives for the future of our diagnostic medicine. Thank you, everyone.

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Operator [22]

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The Hermes Pardini teleconference is concluded. We thank, everyone, for their participation. Have a good day.