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, Welcome to the conference call of M. Dias Branco for the earnings of Q2 2021. We have with us Mr. Gustavo Lopes Theodozio, Vice President of Investments and Controllership; Mr. Rômulo Dantas, Commercial Vice President; and Mr. Fábio Cefaly, New Business and Investor Relations Officer. We would like to employ that this event is being recorded.
[Operator Instructions]
Today's live webcast may be accessed through the Internet's address at ri.mdiasbranco.com.br/br. We would like to clarify that forward-looking statements are based on the beliefs and assumptions of M. Dias Branco's management and on information currently available to the company. They involve risks, uncertainties and assumptions as well as information currently available, and they involve risks and uncertainties because they refer to the future and may lead to other results.
Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of M. Dias Branco, different from those expressed as such forward-looking statements. Now I would like to pass the floor to Mr. Gustavo, who will begin the presentation. Mr. Gustavo, you may proceed.
Good morning to all. Welcome to the conference call of M. Dias Branco for the results of Q2 2021. I hope you are all well and your family members are well too. I would like to begin this conference call recognizing the effort and commitment of all our employees. I would like to say thank you very much for the incredible team that has shown resilience and the capacity of transforming itself in the most challenging times. And capacity it is that is being translated, and we will see in the presentation by Fábio Cefaly, into excellent results for the company, showing a consistent recovery of our sales and also our profitability.
Going on to the results of the quarter, I would like to begin stressing our sequential improvement in sales and margins as a result of the right measures adopted in pricing, commercial expansion, expense and cost management, apart from investments to strengthen our brands, and the launching of products with higher value-added.
Fábio will make a detailed presentation on results, but I would like -- we have some highlights. First, sequential and sustainable recovery of our sales, 5% above last year and 33% above Q1 with an adequate balance between volumes and prices, optimization of expense and cost structure due to initiatives during the last quarters.
Also, sequential recovery of gross margin as a result of price management, better volumes and optimization in the structure. The June margin was 29.7% versus 27.5% in January. Constant evolution, continuity of investments in marketing with hierarchy to the strengthening our main brands, promising results and new avenues of growth, such as e-commerce, partnership and exports.
In e-commerce, we have a double-digit market share in important platforms. In sustainability, we expanded the scope of the Governance Committee for ESG, and then we made progress in the work with the launching soon of our strategic agenda for ESG for 2020 to 2030.
Finally, we have 6 initiatives in our action plan 2021. We made progress in these initiatives with growth and profitability. Here, I'd like to say that we're working hard, taking all the necessary care to guarantee the safety of our employees and the supply to all the population that consumes our products.
We are following a growth strategy in the Attack, Defense and export markets, leveraging in a -- searching for opportunities for productivity and efficiency. On the last Friday, we renewed for another 18 months our plan to repurchase shares with potential for creating value for investors. Thank you very much. And now Fábio will give you the details. Okay.
Gustavo, thank you. Good morning. Please access the presentation. I would like to begin with Slide #6 with the highlights, then we will see some details. Slide #3. Gustavo said we closed the quarter with good -- which shows that we're on a recovery, consistent recovery in our results in terms of revenue and profitability. Gross revenue in biscuits 45% higher than Q1, 55% in relation to the Q2 last year. This is the main category with the best margins and best average prices.
So it's important to maintain a routine of launches, especially the projects with higher value added. The average price was higher to the end of Q1, 5% higher than Q2 last year. Market share for biscuits is -- we have -- we are looking -- we observed and improvements in market share in the short term from March to June, 0.7 percentage points.
And in the category of pasta, we see here an improvement. Now we see here an improvement here. And it's important here to remember that in Q2 last year and Q3, most of the time of -- was in typical as consumers bought more and we have also demand. We also had the aid program from the government, but this became normal in Q4.
So in terms of volume, we have a difficult comparison with Q2, Q3 last year when sales went up. And here, we have the net revenue, which went up 5% versus last year. We had also progress, concrete, in our action plan for 2021, which has the initiatives for growth and initiatives for better profitability.
Expenses fell in a structured and sustainable way. We talked to you in the last quarter about many initiatives such as the multiply program that gave us concrete result, BRL 170 million. And close to -- and in this quarter, we have a positive [indiscernible] in sales [indiscernible] net profit 849% versus Q1 '21. Business 253% higher versus Q1 '21 and minus 26% versus 2Q '20.
EBITDA margin was better than that of the previous quarter. It's still a little low in comparison with last year. Net profit, same as EBITDA, substantial growth in the beginning of the year and a little below last year. The recovery of sales allowed an improvement in the capacity and the production better than Q1 and a little below last year due to the higher demand that I already explained.
Now let's go more to the details. Moving on to Slide #4. This slide summarizes as well what Gustavo mentioned in the introduction. We observed here in the first months of the year, a recovery, sustainable recovery, gradual recovery, consistent and sequential recovery in our results. First line is gross margin, and we see that as of April, we see an improvement and this improvement is due to 2 factors shown here on the graph, sequential and gradual recovery in our volumes and [indiscernible] versus volumes [indiscernible] we have the launching of products and many levers in addition to the readjustments.
Now Slide #5. Here we see the vision of the quarter. And here we observed net revenue 5% higher to that of Q2 2020, and remembering that it's difficult to compare with this period when there was an increase. And we see a growth in revenue of 33%.
Here average price went up only 5%. And 5% -- and the improvement in volumes still below last year, but we see a certain improvement, and this is what we will see on Slide #6.
We begin once again from the left to the right. So net revenue, a consistent recovery and sequential recovery. In June, we see here revenue 52% higher than January. Same can be observed in average price. In January, 3.9% (sic) [BRL 3.9] per kilogram; in June, BRL 4.6 per kilogram, 17% higher. Here, this due to a more consistent management and launches, sales volume have produced sequential growth and 30% higher in relation to January.
Slide #7, here we see the revenue. So on the left, we see a growth of net revenue 32.7%; sales volume, 26.3% increase; average price, another 5% increase. Now the main categories, cookies and crackers maintained the price and had a growth of 42% in volumes and a growth in revenue, 43% [indiscernible].
The same situation observed in the same category in pasta and flour, a small drop in average price compensated by better volumes. And net revenue went up 9.5% in margarine and vegetable shortenings. We increased prices by 11.4% and sales volume dropped, but was sufficient to compensate the volumes. Other categories, this -- we had an increase in average price and the sales volume and net revenue of 24.7%, an increase.
And we searched for an adequate balance in a challenging scenario and with commodities [indiscernible] the next slide, explained the comparison. Here, we see there was a drop in volume between Q2 '21 and Q2 '20 because of very high demand in the previous year. And we see here an average price increase of 24.7%.
Looking at the category, cookies and crackers, average price rose 15%, sufficient to compensate the drop in sales volume. In March, the revenue dropped here in pasta and flour grain, margarine, vegetable shortening, we had an increase in net revenue 25.9%.
Slide #9, market share. On the left, we see here cookies and crackers, but the market share, we saw a drop in market share in March 2021 and then a reaction a little above the market, especially in relation to 2020.
And pasta is a little weaker in the beginning of Q1. On the right, we see 2021 and we see that in both biscuits/crackers and pasta, we see a recovery -- signs of a recovery of market share here, 30.4% in March, 31.3% in June.
And we see 31.3%. Now Slide #10. Here, we see our performance in terms of revenue by region. On the left, we see Q2 '21 versus Q2 '20. There was growth in Defense, North and Northeast and in the tech, which is Southeast and Midwest.
On the right, in comparison with Q1 '21, accelerate double-digit growth in the 2 areas. The exports had a drop. And I will explain this net revenue variation, minus 46%, in exports. I will explain this.
Slide 11, on innovation, we had the launching of biscuits -- launches in the last 24 months. BRL 68.9 million of our revenue from these launches. And 55% above last year. And we're well above what we recorded until 2020. Now the launches, from left to right, wafers. We placed here the average price per kilogram -- and BRL 27.9 per kilogram -- and it was BRL 12.5 per kilogram, crackers, 10.5% per kilogram and [indiscernible] 9.1%.
In other products, this is the category with average prices here -- for -- in this category. Going on to Slide 13. As we mentioned in the last quarters, we had investments in marketing. Short term -- we saw scheme in the medium term. Here we have our main brands, Vitarella and Adria.
Vitarella which lose success in sales and Adria with the relaunching of the [indiscernible] noodle line for use of the visual identity of the brand new line, new shapes, new visual identity, new packaging, new colors and exclusive materials. Adria is a brand where we have dedicated many efforts.
Slide 15. I would like to focus on new avenues of growth. Here, we see the avenues of growth. And this, our brands are growing fast and gaining relevance in e-commerce platforms.
They are very good for these channels and M. Dias Branco has a relevant share and even leadership in some of the main e-commerce platforms with double-digits share, for example, in pasta and biscuits.
Slide 16. Here, I will explain the results of exports. Structurally exports gained relevance in our revenue. The down -- we had double-digit growth, but there was a downturn versus Q2 '20 due to the -- because of the pandemic -- some points -- We made some efforts, especially in pasta and flour, wheat flour in Central America -- Latin America.
And structurally, we see here what was done in 2021. And also the exchange rate had a contribution, but not only at the exchange rate, we had an increase in volume, new clients and new countries for M. Dias Branco.
Slide #17. Here, we see the sales channels. We didn't have great changes in channels, a very diversified mix. And here, we can see distributors -- and we made investments to increase capillarity. And we know that all these channels are important, retail, wholesale and cash and carry, industry clients and others, which include exports and e-commerce.
Going on to Slide 18. Here, we have a transition from revenue to profitability beginning with EBITDA margin and EBITDA. The main highlight is the improvement, structural and consistent improvement of margin between Q1 and Q2 in trend in the results and still below last year. And we have increased in costs.
Page 19. Here, we show commodities. These graphs show wheat, and second, palm oil. The evolution of the pricing commodities in U.S. currency. The blue line is M. Dias and the green line is the market.
Here, we see an increase in prices between 2020, 2021. We see that the prices of M. Dias were lower than those of the market, especially wheat and palm oil. And we are making an effort to mitigate this impact.
Going on to Slide 20. Here, explains the variation in EBITDA. The first comparison with Q2 '20, we see the operational effects, then the exchange rate, nonrecurring gains, expenses with COVID-19, restructuring and defenses. We had a negative effect of BRL 26 million and drop in the volumes, minus 16% in production volume. And minus 15% of sales volume.
The exchange for [indiscernible] BRL 46 million. Sub total nonrecurring effects, [ 29.630 ]. Recurring effects, BRL 14 million, which is nonrecurring with tax credits and expenses with [indiscernible] restructuring expenses.
Slide 21. Here, gross margin -- here profitability, the improvement from Q1 to Q2. Slide 22. Here, we have slightly -- numbers. We had a drop between March and April, but from April to June, a substantial improvement, which places us consistent routes of improvement.
Here, positive effects, an increase in sales volume and negative commodities in U.S. price, weak price in U.S. dollars and palm oil price in U.S. dollars. Here, the variation in the cost average price and margin in reals as the costs -- Here, this some of favorable and fixed costs went to 14%, especially due to the increase in price in the commodities -- 7.2%.
Here, we see the net profit. And we had this increase, 26% here. Going to Slide 23. Now talking about expenses. We have many initiatives beginning last year. And we have had good results, operating results and recurring results in decreased expenses. On the left, we had an important drop, it is from 22% to 17.5%, and a drop also in comparison with the last 4 quarters.
And the same thing with administrative mega expenses, went from 4.3% to 3.5%. And Slide 24. Here, net profit. Here, we see the same trend as EBITDA, a little below last year due to the price of commodities. Better in comparison with Q1 '21.
Slide #25. As we said in the previous conference call, we have an action plan. We want to share with you until the end of the year, the progress for making this serious. We will begin with, of course, the green wave of Piraque.
Slide 26. We had important actions, launching items with higher value, especially in the Piraquê brand. We maintained the initiatives communicated and we strengthened the Piraquê brand in e-commerce. Next slide, also partnerships with market place, sales began in May with Piraquê.
And the [indiscernible] with potential to expand to other states. Recently, we made a partnership with sales in -- for other channels. Now exports, we opened 2 new countries, 10 new clients, important launches in private label for exports.
And we activate -- we began sales in Chile and Uruguay. Slide 29. The last quarter, we announced optimization of the number of [ presentations used ] in improvement in margin, enabling greater profitability, efficiency and execution, simplification and optimization of the portfolio. And also we are optimized, made these actions in many brands.
Slide 30. Concerning the adjustment of the industrial and logistics footprint. We announced the closing of 2 of the 32 distribution centers during the quarter. And products are being set directly from the factory to customers, which improves our level of service, and we have lower costs. We're renegotiating commercial conditions with logistics operators. And we announced, on the right, that we would concentrate our production of pasta and biscuits in -- going from 113 to 106 active product lines for cookies and pasta.
Slide 31. We have in progress a project with organizational redesign work with support from the [indiscernible] consultancy. We remain confident that this transformation will be an important source of inspiration with the best management and productivity practices.
We have a more and more efficient company. Slide 32, on working capital. Looking at the right -- please look at the right. Days payable outstanding. Days of sales outstanding, average storage time per days payable from 20 to 34 days. This is -- we see here a drop in days of sales outstanding. Your average storage time went from 73, went back to 71. So what happened? We had -- in 2020, we had lower numbers. And now we have these numbers. Things went back to normal and now inventory went back to normal.
Slide 33. Here -- we have here investments year-to-date, 8.7% last -- in relation to last year. Slide 34. Here, we see the leverage in the last 12 months. Net debt and leverage, we had a leverage very close to the previous quarters. And thus, we have continued with the tradings AAA.
Now Slide #35. On the left, we see sustainability, the main indicators that were shared with the market in the quarters, and a drop in some indicators related do the volume produced, which is below that of last year, channeling the deleverage.
And especially the energy consumption, water consumption, but we trust that these indicators will get better due to the initiatives and progress and the recovery of volumes sold.
Slide 36. Sustainability strategy, very important for us. The Board of Directors decided to expand the scope of the Governance Committee for ESG, demonstrating its commitment to the environmental, social and governance issues. We have in progress the review of our strategic sustainability agenda for 2022 to 2030. Soon, we will share with you the proposed thoughts.
We have also products. We -- from January to June, we donated BRL 19.6 million in food equivalent to 30,358 tonnes, benefiting 128 institutions in 18 states in the country to strengthen the sustainability culture. We held the sustainability meeting with the company's employees encouraging everyone to engage and play a leading role in the ESG theme.
So these are the main highlights of the quarter. And now we can go on to the Q&A session.
[Operator Instructions]
Our first question is from Mr. Roberto from Bank of America.
I have 2 questions. When we look at prices, we see that you had an evolution. But when we look at the 2 main categories, biscuits and crackers, the price, especially in terms of crackers, continued the same. Can you tell us about the evolution of price in the 2 main categories, pasta and cookies and crackers?
And how -- and if you expect price increases in these 2 main categories? And the SG&A -- in sales where we saw a great benefit from the measures you took and also SG&A. Could you give us more details of the measures? There was an important effect in this semester. Can you talk about the measures? And how sustainable they are for the future? We see this -- Is this what we can expect since -- when the volumes recover?
This is Fábio. I will begin with the answer and then I'll pass the floor to Gustavo. Beginning here with the use of the price, when we [ took ] average price, it's not only pricing places. This involves work on packaging channels. And we have been working on this since 2019 in -- so it's not a lead price increases.
Now -- so if you look at both years, 2021, 2020, if you look at Q1, we had increases in January -- I'm sorry, we're having sound problems. Internet problems. Looking -- the increase happened in January.
So the average price of Q1 had an impact. In Q2, we had another price increase at the end of the quarter. So we should see this more clearly the effect in Q3. So we see, as you said, a price stability in biscuits and crackers in 2 quarters.
So the average price of Q1 already contains the effect of the price increase.
Okay, good morning. Can you hear me well, Fábio? Looking -- So we -- if you compare Q2 '20, Q2 '21, looking at biscuits the average price went up 15.1%.
Looking at pasta, 42.9% price increase. So actually, prices did not remain constant. They disagree with that. You can see that they went up. And margarines and [indiscernible] 26% -- 26.4%.
So -- yes. Okay. First, I would like to go back to the previous workers and what we said about the multiply program. So we see the numbers and BRL 438 million in total. This includes improvement in our expenses with sales and also what we did in administrative expenses.
Looking at some events in the last 2 quarters, which is -- which was the expenses with sales -- sales expenses, especially with key accounts. I mentioned some other points. We are delivering now in some cases, directly from the plant to the clients without going through the distribution center.
This is an optimized. This will optimize and lower expenses. Increases also in -- we had increases in productivity. A decrease in the number of trips, decrease in [indiscernible]. Definition of goals and for each, there is no silver bullet. We have many actions in the last quarters, which involved many initiatives.
Similarly, we mentioned on the multiply program. We're seeing the results now in Q2. So the question is it sustainable? It is sustainable. We may have some variances but all the work done is helping us in lowering expenses. To -- continuing to your question, sales expenses. We have 3 components: marketing expenses, marketing and sales. And you saw these, so all the expenses that are discretionary, they were optimized, and the expenses related to the strengthening of our brands, [indiscernible]. These expenses were reanalyzed.
So we are renegotiating contracts, prices. And doing [indiscernible] sustainable. Yes, the idea -- important to remember is that all the work done is shown in these calls. We also reviewed our footprint. This work is in progress. It should go until December. We have still some improvements to make.
[Operator Instructions]
Our next question comes from Mr. Gustavo [indiscernible], Itaú BBA.
Concerning the sequential evolution in the gross margin, we noticed that gross margin, in terms of cost, we see it going back in June. What is your forecast, in terms of the evolution of margins in Q3? And can we say that the worst is over?
Gustavo, Fábio speaking. We can't go into details about Q3, but I can talk about the factors that allowed us to continue with this gross margin. The average price is an important factor. It's important to highlight that it's not only price increase, we have packaging involved and many other variables.
So this should help to contribute positively for our gross margin, also improvement of our leverage. So we -- capacity used was 65%, better than Q1, but lower than our historical levels. And we should have a positive contribution in terms of fixed cost during the next quarters.
Now in terms of costs, we have to be cautious. I would like to remind you that we launched a hedging policy for commodities and for currency. This has allowed us to have better prices in commodities. And this allows us to have a better calculation of these prices.
Without going into details of Q3, our vision -- the scenario has volatility. We are being cautious but we believe we're on the right track, improving gradually and sequentially, the margins, beginning with improvements to gross margin.
The worst is over, certainly. We're imagining [indiscernible] just see comps in some areas. Palm oil, a drop in prices we begin to see. Trends -- a downward trend for palm oil, as I said, better prices -- when we do get leads, we expect it to have some opportunities to buy wheat at lower prices. So wheat should continue with these levels.
So I believe the worst is over. But it's still not clear how we will have a decrease in cost in the future. We're monitoring, looking at pricing more consistently and gradually.
We cannot have clients' price increases. We are working gradually in places to preserve sales. For example, freight. Price of freight went up. So these things we're translating into new price increases per channel, per brand, per type and product. So what we're seeing, still in Q1 -- So we are working on these points. So we are doing things gradually in phases to avoid comps in volume. The message is the worst is over. And now we're working on improving profitability.
Since there are no more questions, I would like to pass the floor to Mr. Gustavo for his final comments. You may proceed, sir.
It was a great pleasure to be here. I'd like to ratify that the company is growing both in volumes and better margins. We have had many actions in 2021. And we should continue with improvements in volumes and margins.
Thank you very much, and we're available for clarifications through our team, our Investor Relations team. Thank you very much. We wish you a good day. Thank you.
The conference call of results of M. Dias Branco has concluded. Please disconnect your lines, and we wish you a good afternoon.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]