M Dias Branco SA Industria e Comercio de Alimentos
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M Dias Branco SA Industria e Comercio de Alimentos
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[Foreign Language] [Operator Instructions] The transmission is also being done simultaneously on YouTube at www.youtube.com/rimdias. We also like to clarify that any mention that forward-looking statements are based on the beliefs and assumptions of M. Dias Branco's management and our information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of M. Dias Branco and could cause results to differ materially from those expressed in such forward-looking statements.
Now I'll turn the conference over to Gustavo. We'll begin the presentation. Gustavo, please go ahead.
Thank you. Good morning to everyone. Welcome to the M. Dias Branco conference. I'm going to start with the highlights in this first quarter. We had BRL 1.9 billion in net revenue, which also represents approximately 27% more than in the first quarter of 2021 with an expansion not only on volume but also of the average price of our products. We increased our market share in all categories based biscuits, [indiscernible] and which means that our pipeline of new products, increased our paid new products with outstanding for wheat flour in the domestic market at a more premium price with several attributes, which Fabio will show us going forward.
We have maintained the gains in productivity and efficiency, which were captured in the last 2 years. We had an expansion, of the EBITDA and the net revenue. We created 2.5x more cash than in the first quarter of the previous year. Our leverage increased in relation to last year, basically due to the [indiscernible]. However, in a levels that should diminish with the generation of cash, as you can see in the company. Our triple A rating is stable with a prospective will be reaffirmed by the pitch for the fourth year in a row. We remind that the -- our commitment to SG&A by 2030.
Before passing over to Fabio, I'd also like to mention our strategy, which is growth with profitability and basically through 3 avenues. One, the growth of our current business, the growth we want to sell more and better in the right channels, at the right prices with the correct portfolio, the right portfolio and with good margins and with a high level of growth in that area, which we already operate.
The second is [indiscernible] is the internationalization of the company for 2 reasons. One, because we have an impact on commodities in Dollar, and our revenue is very concentrated in real but makes sense to diminish this risk, and also because looking at the current categories at some point in time, we could have problems with the [indiscernible] concentration in the market. And the third avenue is the growth through new categories, always looking at margins, profitability, added value, and connections with the consumer. All of this is supported by a productivity program and an efficiency program. We want to grow with more efficiency, ESG, and with adequate ESG guards in a very controlled program so that we can be able to do this always with profitability.
Now I'm going to pass it over to Fabio to continue with the presentation, and then we'll come back for the questions and answers.
Welcome. Good morning. Thank you Gustavo for the introduction. I'm not going to look on the details of our results in the quarter. And after that, we'll open up for the section of questions and answers. Let's start with the growth of net revenue.
So the first information is that our net revenue grew by 27% compared to the same quarter of '21. In this quarter, we exceptionally opened the results of the month -- month by month, January, February, and March to demonstrate that there was a constant evolution -- a significant evolution over this period. The revenue of March was 78% higher than the revenue from January. January was a month which was a weaker month, and we observed a strong recovery over the quarter. The same perspective is foreseen when we break down the volume by volume and by average price in the quarter, volume grew by 5.4%, with an evolution -- a favorable evolution of 46% between March and January and the average price grew 20%, went from [ BRL 4.2 per kilo to BRL 5 per kilo ]. In the first quarter of '22, we also had an positive evolution -- a positive evolution of the average price during the quarter.
Looking at the revenue of first quarter '22 by category. We have some information here, which is relevant. The first, when we look at the revenue by category, we see that there has been growth in all categories, more than 30% in cookies, 23% in spaghetti, Macaroni and [indiscernible], 32% and in wheat flower of 14% in other categories, cake mixes, et cetera, with a growth of almost 50% in [ other ] categories. The average price grew in every category, 19% in cookies, 15% in spaghetti, pasta, and finally in the wheat flower and is growing everything except for [indiscernible], but the increase in prices was more than enough to compensate for those fall off and 13% in volume. Another thing that we wanted to say that is relevant is the fact that the volume of biscuits and pasta grew more than other categories, as a favorable gain in mix, a favorable gain in mix in terms of average price since we have the best prices and the best margins in the categories of cookies and pasta, especially in the cookies category.
This evolution -- this positive evolution in the first quarter represented a recovery of market share in the [indiscernible] categories in cookies, pastas and wheat flower, this in the perspective that which should be sequential, in the fourth quarter of '23 and fourth quarter of '21, we recovered share and then in the fourth quarter of '22 in all 3 categories. In cookies, we also had a growth year-on-year that is close to 33.5% share volume in the first quarter of '22 compared to 32.5% in first quarter '21. This expansion of share within the fourth quarter of '21 and the first quarter of '22, in the categories of cookies and pastas affected what we call our attack areas, which are the regions of the South, Southeast and Centerwest as well as in the area of defense, which are the regions in the North and Northeast.
What's evident here in the next Slide #8 is that we see that the revenue in the area of the [ center ] area grew by 29%, and the fact area grew by 27%. In other words, the growth of revenue for our average price and volume was very consistent. It was not concentrated in not in any single region. It was some that happened in the entire country. Innovation, as in the previous quarters has presented a contribution, a very positive contribution for our revenues. Looking here at the -- specifically at the products, the new launches of cookies, there was a growth of 25%. This value of BRL 59 million represents gross revenue and the result of cookies released in the last 24 months. So this reinforces our focus that the launches have an average price which is attractive in the majority of cases above higher than the other products, which are already in our portfolio with margins at least equal to the margins, the equivalent products in our current portfolio.
Another example mentioned by Gustavo in the introduction, looking at the category of wheat flour was the beginning of sales in March '22 of Adria flour, which is a premium brand, which strengthens our strategy of expansion in the attack areas, remembering that Adria is a brand which is very relevant, especially in the area -- in the attack area, in pastas and cookies and toasted cookies and also goes into the domestic market of wheat flour. It brings the important differential purity. It's a very -- very clear, very white extra fine and enriched with vitamins -- the average price followed the tendency in the previous quarters, closing at the or higher than the previous quarter, [ BRL 4.248 and now BRL 5 per kilo ].
Beyond the readjustment of prices which were necessary during the last quarters to recompose our margin due to the high increase in costs on the new products, we have also had an important contribution as we demonstrate here in these examples. Snacks, with the Piraquê brands, which were launched last year, cookies covered with Chocowafer with the Piraquê brand cookies with the Vitarella. And cookies with Piraquê brand is a renewal as the motor to increase our prices and consequently, our margins. We continue with the plan of investment in marketing, focusing on the principal brands. Here are just 2 of them, 2 examples, initiatives that happened in the first quarter with the Piraque brand and Vitarella brand in various media and traditional media, digital media and other events as well.
In channels, it is important to remember that NDS operates in all formats of retailing, and in 2020 -- with the second and third quarters of 2020, we had a team that was 100% dedicated to e-commerce, which is a channel which has even though it's very relevant in our results, the market share that we have in the traditional channel is the same as our market share in e-commerce. So if this -- the channel grows in Brazil, which we believe at some point in time will happen, our brands have shown to be very competitive in this channel. In the variation year-on-year, our revenue went up 80%.
We added a new partner in this period and we have a plan which is very bold and very well structured for growth in this channel. Our exports continue at a high level. And when we look at a horizon -- the longer horizon of 5 years or even more, we are structuring a business for export in 2015. So we have results that are much higher than at that point in time. It's grown by double digits every year. And its first quarter, we sold BRL 32 million, which is a little below than last year and a little bit less than in the fourth quarter, basically due to certain factors. The first is the question of international freight, which is much, much more expensive. We're facing much higher prices, which are holding back to business.
And in 2021, we had some sales of wheat flour into other countries in North America, with the category, which is doesn't be very promising, but still doesn't have the same constancy as the cookies and pastas. So this retraction was more [indiscernible] and structurally something which will continue to grow and has shown itself to be very promising in terms of revenue and margin.
Going then into the revenue and looking at expenses and costs, starting with the gross margin. We closed a -- going to the slide -- the right-hand side of this slide, we see the quarter with a gross margin of 26%. The result, which is very close to the same period last year. It's important to show here that the positive evolution during the quarter. Just as in revenue, where we had a March, which was much better than January, the same thing happened with our gross margins. So beyond the higher volumes of master in January, we were able to equalize the situation of the increased costs and price adjustments to compensate these increased costs.
Our expenses are very much under control and at levels which are inferior to those observed in 3 years. We closed the quarter with administrative expenses and sales expenses with 21% of net revenue compared to 25.9% in the same quarter of last year, a level which is very close to what we saw in the last 3 quarters of 2021. So we maintain, as we were asked in recent calls, that if we really believe that this reduction of the level of costs has come to stay, we said yes is the result of all the effort which has been made by [ MGS ] over the last 2 years with a series of projects would have reduced the structure of our expenses and costs.
The evolution of the EBITDA margin has accompanied the gross margin, and we closed the period with 4.7% of EBITDA margin above the same period last year and a favorable evolution also during the quarter, closing the month of March with 10% of EBITDA margin. But looking at the generation, debt and investments or generation of cash -- operational cash went up by 2.5x, closing the period with BRL 27.9 million [ cash ] noting that the principal lines of working capital improved year-on-year in payments, an average payment period of 42 days from 35% to 42%, a slight increase in receivables with an improvement quarter-on-quarter and an average period of stocks went down, our inventories went down and is lower than same period of last year.
If normal to have a consumption of working capital between the fourth quarter and the first quarter of the following year. We invested BRL 30 million in CapEx, an amount which is 23% above last year. Our leverage measured by the net debt ratio -- net debt-to-EBITDA was 1.4% in this quarter. As Gustavo mentioned this increase of leverage was highly influenced by the distribution of [ JSP ] extraordinary to distributed and paid in the first quarter in BRL 500 million. It's very under much under control. It's a low level of leverage. And we believe that with the generation of cash, which is typical of M. Dias Branco, this leverage can reduce itself in the next -- in the coming months.
Then to close our presentation, we'll go to the chapter about ESG. In the beginning of this year, we approved in the Board and we published through our annual report, our new agenda of sustainability M. Dias, which represents a new cycle. Our first agenda was designed and communicated in 2014. And last year, we revisited our agenda, and we included several teams. It's always good to revisit this and to refresh our memories on this subject because there are themes that have evolved with new teams that come up. We decided to prioritize 15 different subjects, which by 2030, these 15 subjects will be organized in 3 basic pillars: care of the planet, believing in people and strengthening our alliances. Water, climate change, waste -- finding waste, diversity and inclusion sustainable chain of supply, and we looked at all the goals in the new report, which was published a few weeks ago.
Here are the principal indicators, we have following this dynamic looking at the 3 pillars indicators, new indicators such as the reduction of waste of finished products, [ lots of ] inputs in the broader women in leadership, serious accidents and buying from local suppliers.
In the quarter, we're going to continue to be primarily to these indicators while we're following this new dynamic. There's a few other highlights in sustainability that has happened during the quarter. We adhere to the Brazilian Business Council for Sustainable Development of food partnerships with [ Dena ], we received the seal of the sister company for the work done, donation made to [indiscernible] and the health program and the work safety programs that were implemented. So here we close this introduction -- and now we can pass to the section of questions and answers. Thank you.
[Operator Instructions] Our first question comes from Guilherme Palhares.
I have 2 questions here. One, speaking about the average price. When we look at the performance, and we see that the prices have gone up and you go to a little more detail what really has been through price to the retailer and the client compared to mix and the strategy of the size of packaging and how much this in fact is bringing and helping to the performance both in volumes as well as revenue? Second question speaking about costs, we saw your costs, especially for -- we went up really with the curve of the market. But in March, we saw the price went down from the highest of February, but it's still stabilizing at a much higher level than it was pre-war. What do you imagine in the way of catch up of prices in the wheat market... And also the comment on [ best of loyal ] for the rest of the year. How much more margin compression in cost pressure can we expect over the next 9 months before this scenario?
Okay. Thank you. This is Fabio. Thank you for those 2 questions. I'm going to start here -- looking at the question of price -- and price readjustments. The 3 -- all of 3 were important because of questions -- strategic questions. We don't open all the details. What was the contribution on each area. But I can say that all 3 had an important role. The question of packaging is still going is happening. It's still happening, especially in the category of cookies, it's a process which is being done in a way which is gradual and rate costs -- so that we can really address a question of accessibility for the consumer and also protect our margins and our average price. However, it's a process, which is still underway. It was never finalized. The mix has already had a role, an important role in this quarter. Looking at this year-on-year, total volume of [ MGS ] grew by 5.4% and the volumes in cookies and crackers 8% and the pastas set in at 7%. This shows the strength of our brand and our power of reaction. We've had quarters, which were more difficult in terms of volumes at the end of 2020.
In the beginning of 2021, we started a process of recovery, generating positive results both in price and volume. Those reinforces that our strategy is getting the results we hope toward, and we're on the right road. The last variable that you mentioned, the question about pricing, price table is also a tool, an important tool and necessary. It's being used in a very gradual way to avoid any type of disruption in the volumes. Definitely from the first quarter of 2021, and we had an increase in prices, which was more concentrated in the beginning of the year -- this year, due to the volatility, which is still present in the market where the increases are more sequential increase in terms of sub categories and channels. So look... the increase of average prices, just to close this point, it didn't come from one of these variables, it came from all of them.
And I would add even a fourth, which is innovation. We know we had several semesters when we focus on innovation in product of greater volume added with higher average prices with margins that are smaller or the same than those that are equivalent in our portfolio of equivalent product in our portfolio.
Just going to the second point of the cost, the week, you do not except any more big spikes in the prices. However, the prices are still under pressure. And so we don't see like an improvement during this war scenario last week on Friday. -- we [ English India barred ] exports through internal inflation. They were 6% in Chicago, in Chicago. You'll see some volatility, but in this level, nothing like what we saw this like started the beginning of the war in the beginning of the pandemic. This is our vision, both for wheat as well as for palm oil. To understand when you talk about there will be no more spiking in the market prices or in your average prices average cost the average cost for the first quarter? Do you think it will remain stable? Or do you think the on have a discount related to the market prices.
Now we have -- today, we have 2 projections. One, our capacity to stock, raw materials and the others are the hedges that we've done over time in the Chicago Exchange, which has protected us quite a bit and palm oil in [indiscernible]. So this does not eliminate the impact on our costs. You can protect yourself a little bit, delay a little bit, but you but we do expect to have increases in prices and costs over time. We have had a -- still working with stocks from [indiscernible]. The new harvest are starting to come in the end of the first quarter in sweet prices continues to -- prices need to go up and palm oil continues to go up as well. The average cost of our stock -- we'd also fill this tendency of going up, not in a very highway that we saw last year. But yes, they will go up following the tendencies of the global market.
One last point on this subject. How much longer do you think that your coverage, especially on the weak at this level, with a little bit more comfortable. Can you give us a little detail on that?
If we had not -- if we didn't have to buy any more in wheat, we would have we will have enough to go through the next quarters. It depends a little bit because the wheat from Argentina, the revenue is not the same as the wheat in Canada and the United States. We should have new products coming in at higher prices starting now, May and June. This will change slowly this average cost. So we've got a lot of stock, but I'm going to have new material new inventory coming in, starting in May. And so we'll see this cost slowly rising until the end under the second meter.
I also want to add one thing to what Gustavo said. The impacting margins is the relationship of these 2 questions. Price and cost and this year, what we've seen is that we have a better balance between the 2 variables. The cost came in Friday before the prices and this year, we're not -- we haven't been able to address this, making the increases movements at the right time with the changed rate hedges with our stocks on hand taking advantage of the opportunities that have appeared -- both... I would say that the results were more balanced in relation to these variables.
We mentioned an important point here. I'm talking about price and about costs as an important component of profitability. I would say that for MDS, the biggest component is volume. If you look at it historically, this first quarter is a much more challenging quarter than the others. So when we -- we have a quarter that's bad in volume, the second quarter gets much better than the third, better yet. And then you have fourth quarter, which is more or less. So -- since as a company, which is highly verticalized with different levels of productivity and has important fixed costs, when you start to see an increase in volume, the dilution of these costs or these fixed costs are doing 2 NGS structure. This has a direct impact on our margins. So obviously, the relation cost price relationship is always more relevant in this composition of gross margin. However, in our case, volume is a game changer. It's very important to have the third variable as a point of attention. We just look if we just look at the history of the company.
Thank you. This is Fabio. I'm going to read the question that I received from Felipe, an analyst from Scotiabank. This is a question with 3 parts. The first, can you speak about the disposition of the controller of NDS to allocate capital for the purchase of stock, both the repurchasing of stock as well as the purchase through family vehicles where the valuations team attracting from compared to historical levels? And second, does the company see this as is an M&A that adds value and how do you equili-balance the meaning of powerful message to the market. And the third part, the controllers exploit the possibility of closing the capital of the company, bringing it private? Or do they see are they going to be dedicated to maintaining it as a publicly held company?
Thank you, Felipe, for these questions. First, the controllers, the purchase of stock by the controllers, the company can't speak about that. We understand that this is happening due to the price and the evaluation of the controllers and of the company, the price -- the current stock price does not reflect the potential of the company. So what's happening right now, we imagine is having on the controller side, and we can imagine it's coming on the company side because we have also a plan or repurchasing plan, which is active and have operated in the market, with a certain frequency.
The idea of reducing the free flow -- the company continues to fit, and in the rules of the Novo Mercado rules. If for any reason, we no longer qualify, we have tools to make it happen. -- whatever way we will correct any at the right moment. If this should happen, that we will no longer fit into the requirements [indiscernible] market. And the agenda of this going private is not under consideration. There's no internal agenda, no discussion underway, no provocation, not on the table. Just -- however, with the price is very low, there's always some partner or another system. But internally, the company is not considering, we will use the equity markets, the financing markets as the source of resources. So we do not have the agenda of going private internally.
[Operator Instructions] Our next question comes from Lucas Ferreira.
My question is about the [indiscernible] year demand. It goes along with the volume. This is an important variable. When we look at the monthly numbers that you've shown, it's implicit that we're going to have an improvement in some margins, I am not sure that a 10% in the second quarter or there will be more, but will it be increased going forward. When you mentioned that the costs are going up, what is the scenario for you to be able to repass these costs to your prices? Do you think you still have capacities that prices long over the medium to long term to cover the costs? And how do you think the consumer will accept it? How do you think that the competition will pave, last year is a more complex, you raised prices per share and then share has grown now. How do you see this dynamic for 2022?
Okay. Thank you, Lucas. We haven't seen any elasticity in relation to these increases. The elasticity that we've seen is totally related to our competitors. -- [indiscernible] this elasticity is not very clear. If one goes in and doesn't go, then it's clear, as we saw last year and [indiscernible] went ahead, the price in before our competitors and the fact that the level is higher than our competitors did last year. At the end of last year, the company had good pricing. We saw this clearly through the Nielsen prices and MDS to operate to gain market share. So it's very much related to the moment of the competitors -- we did have a great deal of [indiscernible] probably coming from the consumer in this direction.
From the consumer the moment, as you can see in our materials here, we've changed quite a bit our strategy of pricing, contrary to what we've done in the past of having very few lists with big increases being a phased way now, a little bit of an increase here per month, per channel, per region, but it's a more balanced approach without being ruptures in price [indiscernible] perceive is that it's worked very well for us.
In fact, right now, what we are seeing is that prices have arrived higher before cost have gone up due to our strategy of stocking and hedging. So -- we understand that the relationship of this cost today, even with the commentary, as we said, where we continue to rise, we understand that the pricing will follow the same rhythm to increase or improve even more our prices in March. We're very confident in the strategy of pricing. And with these volumes, we understand that historically they have been very different from the first quarter there is a big improvement in the coming months. So Gustavo, looking at April -- and what we have for May, you're maintaining a profitability close to the levels of March by depending -- price defending margins and so forth. We don't like to talk about the future, but [ within ] 2 months, we are already in May, and since the months have been coming very strongly. We're doing very well. Thank you.
Our next question comes from [indiscernible].
2 questions from my side. I would like to hear a little bit more from you about what caused this change in volumes and margins, especially at the beginning of the first quarter, thinking about top line in January. And then along this line thing, but the market share is growing even with a more weaker volume in January and February, there could be a difference to sell-in and sellout, but how do see the industry, broadly industry in the beginning of the year? And how do you think that end deals will compare to the rest of the industry in the case of the selling side?
And my second question, the prices of flour and [ meal ] and quarter-on-quarter, it seems that you've fallen behind even though it may be more commoditized that the price and the price -- with the wheat price comes to quicker -- this category specifically could hurt your -- your consolidated margins and what do you see in the way of -- industry-wide in that area?
Okay, [indiscernible] thank you. Speaking a little bit about the market in the first quarter, it's a market with better volumes where you have usually a lot of big costs at the beginning of the year. Sometimes when they put their products, [ volume ] are lower for everyone. It's not a phenomenon of MDS. We have people traveling people on vacation. All of this brings the market to sell less so much so that even though the [ volume ] has been smaller than in the fourth quarter, MDS ensured, with proof that it's not an MDS question. It's a question of the market of a market dynamic. In relation to wheat flower and meal, these are 2 categories that MDS prices almost daily. We've a lot of volume in the B2B market, which is a much more dynamic market because we will not sell for prices that are -- that will hurt our margins. What we see is some moment is -- not pricing at the same velocity as MDS. We think that since we've had the use of this flour for other products with higher added value, it doesn't worry the company as the strategy doesn't worry us.
The question-and-answer session is now ending. I'd like to pass it over to Gustavo to make his final comments. Gustavo, please go ahead.
Just thank you all for their participation. Once again, our IR team is at your service and we're very trusting that in execution of our strategy. We have no doubt that we're on the right road -- and we had a quarter that was a little bit weaker. As I mentioned, the volume has impacted greatly on the gross margins of the company. But we are certain that the strategy is working well. The self of richer mix, better mix is going well, especially for our brands like Piraque, and these other brands as well, also selling our average price, as you can see, month-on-month, growing month-on-month is not a growth that's coming only from pricing, but also from the day-to-day operation. We have constant analysis, and this is very much due to the portfolios today. We have a direct link with our salespeople, with our strategies and the product, and changes in packaging sizes, which will become realities in June.
We have a strong cost control with a good hedge back in SG&A at levels at the minimal levels of MDS. We've done a lot of work in 2021, [ which ] were questioned that we would maintain the same level of SG&A. We are maintaining it, reducing slightly, but things are going well. We're moving forward on as much as possible with a right mix, expenses under control. So once again, we think that we're very optimistic in relation to the operations of the company in the future. Thank you very much, and we are at service, and we will speak shortly. Thank you very much. Have a good day.
The M. Dias Branco conference is closed. We thank you for the participation, and have a good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]