M Dias Branco SA Industria e Comercio de Alimentos
BOVESPA:MDIA3
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M Dias Branco SA Industria e Comercio de Alimentos
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Good morning, and welcome, everyone, to M. Dias Branco's conference call to announce the results of the first quarter 2018.
Today with us, we have Mr. Geraldo Luciano Mattos, Jr., Investments VP and Controllership; and Mr. Fábio Cefaly, New Business and IRO.
We would like to inform you that this event is being recorded. [Operator Instructions] Today's live webcast may be accessed through the Internet access address, www.mdiasbranco.com.br/ [ ri ].
Before moving on, we'd like also to state that forward-looking statements made during the conference call concerning the company's business outlook and also operating and financial targets and projections are based on the company's assumptions in the release and also on information currently available. Those statements involve risks, uncertainties and assumptions as they refer to future events, which may or may not materialize, depending on market circumstances. Investors should have in mind that overall economic conditions, industry conditions and other operating factors might affect the company's future performance and thus lead to results that will differ materially from those expressed in these forward-looking statements.
I now will turn the floor over to Mr. Geraldo Mattos, who will start the presentation. Mr. Mattos, you have the floor.
Good morning, everyone, and welcome to our conference call, M. Dias Branco call to discuss the results relative to the first quarter 2018. I'd like to start with a brief overview of the main event of the quarter.
Our net revenue total stood at BRL 1.2 billion, 0.9% up from the numbers posted in the first quarter of last year. Total sales volume grew by 4.5% across all product lines, a result of our commercial initiatives, marketing initiatives, which we carried out during the period and also due to the evolution in our cost control.
I'd like to highlight a few of those initiatives as incentives granted to sales promoters to accomplish new extra slots; also, promotional campaigns which awarded prizes to Branco's consumers; and the launches of new products, including Treloso Power and Delicitá, both under the Vitarella brand. It's important to mention that the Vitarella brand was elected one of the most valuable brands in Brazil as per a survey announced by ISTOÉ DINHEIRO magazine in April in association with Kantar, reassuring our belief that we have good marketing plans with competitive offers to all regions in Brazil and across all the different consumer profiles.
The average price in the quarter saw a drop of 3.5% when compared to the same period of last year, with a more significant drop in pasta, flour and flour meal -- bran -- reflecting a general price drop throughout 2017 and also a drop in the price of agricultural products, rice and corn. When we compare them to the last quarter of last year, we already see an increase of the average price across all product lines even before the increase of 4%, which was logged at the end of the first quarter, and that already reflects in our results. In the results, we'll see that going forward in the second quarter.
As for profitability, we closed the quarter with an EBITDA of BRL 183.5 million and a net profit of BRL 139.7 million, respectively, 21.3% and 26.2% below figures posted in the same period of last year. The drop in profitability can be explained mainly by the increase in costs for products sold, the reason for which will be explained by Fábio moving forward.
As for our cash position, we closed the quarter with a cash position of BRL 824 million net cash, above that filed in the first quarter 2017 and also above the numbers filed in the fourth quarter of last year, also a result of the BRL 290 million of net cash, which was generated by operating activities.
As for investment in the first quarter 2018, we have invested BRL 67 million, especially in the construction of our wheat mill in the city of Bento Gonçalves to the south of Brazil on top of other projects to expand our production capacity and modernization. We remain confident in the company's growth potential, and we are sure that we're making the necessary investments to expand our sales across the country, always trying to seek satisfaction of our clients and also to generate value to our shareholders.
I'll now give the floor over to Fábio who will go into more detail about our numbers in the quarter. Thank you very much.
Well, thank you, Geraldo, and good morning, everyone. I'd like you all to move on to our presentation to our slide deck so that you can follow along.
Let's start on Slide #3 about net revenues. Our net revenue totaled BRL 1,217,000,000, 0.9% above that posted in the first quarter of 2017 with a growth in volume and a drop in average price.
As you can see on the chart, our volumes grew across all product lines: cookies and crackers, pasta, wheat flour and bran, margarine and vegetable shortening and also other products, which account for toast, cake mix, cakes and snacks.
It's important to highlight that we have maintained our growth pace at a higher level outside of the Northeastern regional review, which is in line with our strategy of diversifying our sales geographically.
As for our average price, as can be seen on the chart as well, with the exception of an increase on average price in the cookies and crackers line, we saw a drop in the other product lines, also reflecting the drop in the price of wheat throughout last year also due to the competition on products that replaced pasta and flour/bran, respectively, rice and corn, and also a very fierce competitive environment that we saw last year.
It's also worth mentioning that average prices filed in the first quarter of 2018 do not reflect indiscernible] the 4% readjustment, which was levied at the end of this quarter, the first quarter of 2018.
Now let's move on to Slide #4, still revolving around average price. The chart on the top part of the slide, we can see the drop line of our average prices for our remaining product lines throughout 2017 with the exception of the cookies and crackers line. When we compare the first quarter of this year with the most recent results, in other words, the fourth quarter of 2017, we can see an increase in average prices across all lines, which can be visually seen when we look at the chart in the bottom side of the slide.
On the left, we compare prices in the first quarter of 2017 with the first quarter of this year. And then on the right, we compare average price variation with the fourth quarter of last year where we see an increase in average price across all product lines.
Now let's move on to Slide #5, if you will, where we talk about volume. On top of continuing to grow outside of the Northeastern region of the country, 2 different initiatives carried out in this quarter deserve to be mentioned. We offered incentives to our sales promoters to gain extra sales points. And we also launched marketing campaigns with price promotions to end consumers. Both initiatives focused on including sellouts.
Now moving on to the next slide, Slide #6, and talk about our new launches. We launched products, which are consistent with our growth strategy and also introduced higher added-value products in our portfolio, including Treloso Power and Delicitá cookies and crackers under the Vitarella brand and also the Antenados cookie under the Estrela brand, on the right-hand side of the slide.
Now moving on to Slide #7. We have maintained our national leadership in the pasta, cookies and crackers lines. And we compare our numbers now with the most recent numbers, those posted in the fourth quarter of last year, we gained market share and volume and value in the line -- in the cookies and crackers line, and we saw a drop in the pasta line. We also would like to highlight the leadership in our wheat flour line in the Northeastern region with a 28.6% in market share.
Now moving on to Slide #8 about cost of products or goods sold. As can be seen on the left-hand side of the slide, total costs increased as a percentage of net revenue. When we compare numbers now with the first quarter of 2017 and also when we compare numbers now with the numbers posted in the fourth quarter of last year, an increase in labor, manufacturing. Also, those numbers reflect collective vacations and a slowdown in the production base for us to readapt inventory levels. And that can be seen on the right-hand side of the slide.
I'd like you to please move on to Slide #9, if you will, where you see a slight drop in the vertical integration of wheat flour due to a higher need of wheat flour in the Southern region of Brazil. And also, this was affected by purchase from third party. The vertical integration of shortening, you see a drop because of an increase in the production capacity starting in the second half of last year.
I'd like you all to please move on to Slide #10 where we see a snapshot of our operating expenses. It's important to mention that starting in this current quarter, in order to meet CPC 47, the new technical pronouncement, a few transactions, including commercial initiatives and extra slots in sales points, the opening of new stores, among others, which were until now recognized as commercial expenses, now they are going to be recognized as an item of gross revenue reduction. The effect of the change amounted to BRL 11 million or 0.9% of the company's net revenues. In this way and emphasizing that the numbers on that chart are accounting numbers already including that change or the effect of those changes, commercial expenses [ as a movement ] those posted in the fourth quarter of last year.
Moving on to Slide #11. EBITDA when compared with last year's first quarter, we see a drop in the nominal EBITDA and also a drop in the EBITDA margin.
Now let's move on to Slide #12, still talking about EBITDA. We can see the drop in margin when we compare numbers now with last year's first quarter. The drop was driven by an increase in costs and by a drop on average prices across different lines, which has already been mentioned.
As we move on now to Slide #13, we can see an increase in EBITDA margin when we compare numbers now with the fourth quarter of last year's figures. The difference was driven by an increase in average prices and a flattening of expenses even as we are going through a scenario where we have a fixed cost because we are readjusting our inventories.
Moving on to Slide 14 about net profit or net income. And you can see the same behavior that we saw in the EBITDA curves. And we compare this year with last year, nominal drop and also a drop in net margin.
Let's now move on to Slide #15 where we talk about our investments. In the quarter, we invested BRL 77.1 million (sic) [ BRL 67.1 million ], equivalent of 5.5% of our net revenue. That includes the construction, which is in progress, of the windmill in the city of Bento Gonçalves. We also expanded our storage capacity at our distribution center in the city of Maracanaú in the state of Ceará and also the upgrading of our silos in the wheat mill in Cabedelo in the state of Paraíba.
Now moving on to Slide #16, we talk about some of our recent HR changes. We have implemented the Oracle Human Capital Management software from Oracle, which will give support to performance management and development of our associates. We also conducted inventory of greenhouse gas emissions for all of our 12 industrial units. We saw a drop in labor's accident rate when compared to the first quarter of 2017, a drop of 21%. And the relative water consumption dropped by 4.3% also when compared to the first quarter of last year.
To wrap up the results, I'd like that you all please move to Slide #17, if you will, where we see cash generation, which was one of the main positive highlights of the quarter. Our net cash totaled BRL 295.9 million, above what we saw last year, both in the first and the fourth quarters where you can see an [ importation ] of accounts receivable and inventory.
On the Slide 18, we see first quarter for this year with a net position, cash, of BRL 824.8 million on the right-hand side. In other words, cash above debt.
On Slide 19, we see that for the past 2 months, the company's stock presented a performance which was below that of Ibovespa.
Well, thank you all for your attention, and we can now move on to our Q&A session.
[Operator Instructions] Our first question comes from Mrs. Isabella Simonato from Bank of America.
My question is about an increase in prices of the -- or over last year, 4%, you mentioned. I'd like to understand if that was uniform coming across all categories. So a breakdown of that, cookies and crackers, pasta and wheat flour. And how has that been playing out throughout the last couple of months? How have retailers welcomed, if you will, that increase? And how much more do you think you need to increase prices when -- as we see with prices going up going forward?
This is Fábio speaking. Thank you. The increase was levied in March, so it does not have any reflect on the results of the first quarter. We have started invoicing using the new prices only in April. The increase was slightly higher in wheat. The -- we can say that, that figure, 4%, was quite uniform among all the other product lines. Our interpretation today is that, that number, that figure, the increase was well received by the market. And now we are doing the math to try to get a number for another increase probably early in the second half. It's too early to try and quantify that increase. We're trying to interpret the market. We're trying to understand what kind of increase you can expect. We -- the valuation of the BRL, we have to factor all that in, and we probably will see a new increase early in the second half of the year.
Next question coming from Mr. Thiago Duarte from BTG Pactual.
I'd like to -- picking up where Isabella left off the previous question. I'm not really sure if you could perhaps quantify how much you expect you'd have to increase prices vis-à-vis today's prices in BRLs, wheat prices, I'm talking about, so that we could see the company at a level of a more comfortable margin. That's the first question. The second question is about the Piraque manufacturing company. I was expecting you could mention the expectations in terms of synergies. This new company you have purchased, what kind of time line can we expect in terms of integration synergies? Can you share that with us, perhaps? And a third question is about the channel mix. For this series of quarters, we have seen a growth both in real wholesale and in cash and carry. And as we just saw that happened to the expense of the retail channel, could you perhaps briefly, if you will, if you could briefly give us some more color on what kind of impact that might be having, especially on average price levels? We know that the retail channel was -- has traditionally had been the cash cow for the company, especially in the Northeastern region. So I would like to see how the dynamics plays out as you move forward with wholesale and cash and carry.
Thiago, I'll start. This is Fábio speaking, by the way. I'll start talking about price and the channel mix, okay? As for prices, it's still a bit early for us to try and figure what kind of increase we will see. We are now in the middle of that process. But moving forward, we'll let you know, all right? As for the channel mix, we have seen, you're right, an increase in the share of the cash and carry channel. In the past few months, we did see a drop in margins for that channel, cash and carry, maybe driven by 2 different reasons. Number one, for pasta, for example, we saw a faster growth for common pasta, which is cheaper and also has lower margin. That kind of pasta has a good sales flow under the cash and carry model. That's one of the reasons. The second reason, which we just recently observed, is that there might have been some disconnect, some mismatch between revenue and sales incentives that might be something isolated. So I cannot give you a structured answer right now in terms of saying if you are going to continue to see lower margin in cash and carry. That hasn't been happening. Margins were pretty much the same. But in the short term or more recently, we did see a drop in margin for that channel, you're right.
And Thiago, this is Geraldo. Just as a complement to Fábio's answer, speaking of Piraque, the company we purchased. Just to let you all know, as a recap, on the 29th of January, we announced the purchase. We were signing the contract on that day, and we did mention that there were some conditions that needed to be met, one of which was the consumer design stages, which was approved; and other conditions which depended on the sales force; something which depended on us, which was the approval by our General Shareholders' Meeting, which did happen earlier in April. And we are now waiting for the final measures on the part of the sales force, which are included in the contract. And I'd say that in the short run, in the near future, we will conclude the transaction, and we'll inform the market, of course, when we do close the deal for good. And once that is done, we'll also hold a special event to make the announcement and, of course, present numbers, data concerning this transaction, specific figures, talk about the synergies, as you mentioned. So we hope to be able to do that soon in the short run. And of course, you'll all be invited for -- as I said, for this specific event. Again, we are in the process of concluding the transaction. It's all under the contractual schedule, which was announced back in January. So everything is in the right track at the right speed, the expected rhythm. Most of the concern will be moving forward and towards the closing of the transaction. And again, you will all know about it when we come to that. Thank you.
Next question from Mr. Fernando Leitão from Royal Brokers (sic) [ HOYA Brokers ].
Two questions. One was partly answered with the one about Piraque. As a recap, no financial resources have been disbursed or at least maybe very little. Anyway, and the second question has to do with the search and seize warrant by the federal police. I know that the committee was put together to analyze that search and seizure event. Is there a scheduling deadline for that committee to present their results?
Fernando, this is Geraldo speaking. As for your first question, no disbursement, no payment has been made concerning those people. Payments that were made were not very high. But as for your question, I know you're talking about the purchase itself, the payment of shareholders who are selling their participation, their stake. No, the answer is no. Our payments will happen starting in May when we have the final closing of the transaction. When we announce that, then we will be able to say when those monies will be paid out as contemplated in the contracts. As for your second comment about the event, which happened in April 10, we announced a material fact on that day. We put together an independent committee to deal with that made up of very credible professionals coming from the market. This was all done in record time. We immediately started hiring specific consultants, specific aides and legal help, everything, which was needed to tackle the situation. So I mean -- and we put together a work plan, which was also defined by the committee. And the committee is in close interaction with the company's board, so we are quite reassured as to that. As for deadlines or schedules, Fernando, of course, we have been talking about that event. But if we set a deadline that in a way affects the committee's independent autonomy, we expect things to be solved within a reasonable period of time. We don't want this to take too long, but it's such a large company, this one, as ours. So we do need a minimum amount of time for these people to do their work in a free, independent, autonomous manner. So there is no deadline, a fixed deadline. We have been providing all the necessary support to the committee so that the situation, the issue will be addressed in a reasonable -- or within a reasonable amount of time. So in summary, there is no set deadline for them to finish their work.
And I agree with you, Geraldo, Fábio. When -- speeding up the process would be counterproductive. But I also agree that if it takes too long, it slips us back, right? This was an important event. But I understand your point. I understand when you say you do not have a deadline.
Yes, I think we are in agreement. If taking too long is bad, speeding it up is also not good. We know this cannot be hastily approached. So we will continue to provide support. We're following up. I can tell you the job is being extremely well done, well conducted. It is a type of work which is fitting with the company's size and reputation.
[Operator Instructions] Next question from Isabella Simonato from Bank of America.
Geraldo and Fábio, as for the working capital figures, it's an important increase in the number of days for receivables, 10 days when compared -- more -- when compared to the first quarter last year. I'd like to have some more color on the explanation to that increase. Was it because of an increase in prices, some kind of purchase agreement, which was different now, or some kind of structural change, client profile? So to have a better understanding of that change in number of days.
This is Fábio speaking. Isabella, part of that was driven by a faster growth of the cash and carry channel because the work will take slightly longer number of days when compared to the other channels.
[Operator Instructions] This concludes the Q&A session. I would like to turn the floor back over to Mr. Geraldo for his closing remarks. You have the floor, sir.
I'd like to thank you all for participating in our conference call, your attention, your questions. We're glad to be able to clarify some important issues, and we hope to see you in our next calls. Thank you.
Thank you. This concludes M. Dias Branco's conference call. You may now disconnect your lines.