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 video conference of M. Dias Branco, the results of the second quarter of '22. We have with us Gustavo Lopes Theodozio, Vice President of Investments & Controllership; and Fábio Cefaly, Director of New Business and Investor Relations. We inform that this event will be recorded. [Operator Instructions] Transmission will also be done simultaneously on YouTube at the address www.youtube.com/mdias.
We'd like to share that any declarations that may be made during this conference are relative to the perspective of business of M. Dias Branco, their projections and they constitute the beliefs and premises of the management of the company as well as the information currently available. They involve risks and uncertainties and premises as they refer to future events, which may or may not happen.
Investors should understand that economic conditions, industry conditions and other factors or operational factors may affect the future performance of M. Dias Branco and bring to results that differ materially from those expressed as the opinions of the management. I'd now like to pass it over to Gustavo, who will begin the presentation. Go ahead, Gustavo.
Thank you. Good morning to everyone. Welcome to our quarterly teleconference with sort of the highlights. But before that, I would like to start by beginning our team for the efforts and the commitment and for the deliveries that they have made during these last few quarters, it has been a hard -- been a lot of hard work. However, with the efforts of everyone in the company has been able to navigate with masterfully in this troubled sea that we are in right now currently. However, Fábio, go ahead, go to the second slide.
I want to start with the highlights, and then I'll pass it over to Fábio, who will go into more detail. And at the end of the meeting, we'll come back for the Q&A session. Sorry, we're having a small technical difficulty to put up the presentation. Just one moment, please. We're restarting the presentation. Thank you. Okay. We're here at Page 3. We start with the highlights. The first of which is net revenue in the second quarter of '22 of BRL 2.5 billion, a record -- a quarterly record for the company in any quarter.
Our SG&A expenses are below 20% of our net revenue. The important message to the market in the sense that the company has been able to maintain its expenses under control, lower than in the history of M. Dias Branco. In this quarter, we also had BRL 357 million, double in the same period last year. In EBITDA, the double of the EBITDA that we had in the second quarter of '21. Our EBITDA margin, we hit 14.3%, almost 6 percentage points higher than in the same period last year.
In this quarter, we acquired -- it's important to point out that we acquired the acquisition of Jasmine. We're very -- awaiting the final approval of the of the regulators to proceed with that, and we're very optimistic that this final okay should happen by the end of August. We made a strategic alliance with -- important strategic alliance with the generation of clean, wind-driven energy, certified energy. This alliance will represent 50% of our energy needs. It will be from wind energy sources, clean sources. This partnership will go to improve the reduction of the cost of energy in which we spent about BRL 4 million a year, and it's an investment on the order of 3 years. So it was very important for us -- for M. Dias Branco.
And the third aspect that we're going into more detail is the launch of the program simplify, Simplifique, where we together with several consultants to simplify our processes, revising our -- of all of the company's different areas and which will go together with our system. We have a system which is quite old, the operating system, which needs the modernization for quite a while. And now we decided to go ahead and do that migration from our current ERP to the new ERP, Simplifique ERP.
In this quarter, we were highlighted in the ESG question, both in the Exame magazine, we were recognized one of the best ESG companies. Also, we joined the group of ATF , which is in '22, led by the Safra Bank , where companies only can join who have a presence of women on their Board of Directors and in their directorship and in their committees, public health companies in this condition. So it shows our alignment with our commitments, which were published in the last quarters, where we defined that we would have 40% of women in our leadership positions by 2030, together with other commitments connected with ESG questions, I want to remember also at the end of this presentation.
Remembering also our strategy, the first growth pillar is to grow our current businesses, protecting our area in which we have a higher participation which in the North and Northeast, which we call our Defense area and then also to grow in the Attack area, which corresponds to the South, Southwest, Southeast and Centerwest, not only to grow but also to do better with the best to correct portfolio. And what's underway right now, we will also present this -- the results of each one of these 2 areas.
The second pillar is the internationalization of the company. We're going through the process of exportation. We're already exporting to more than 40 countries. It's an area that has grown a lot. And at some point in time, we should move forward in that pillar through either M&A or through greenfield operations. And the third pillar, which is the entrance of the other categories.
The entrance to other categories has been happening already. Recently, we launched the potato chips, Piraque potato chips. Also through acquisition -- there was recent acquisitions in the last 8 months. We've talked about the important brands such as FIT FOOD, Frontera, Smart in line of spices and seasonings. And Jasmine, which is a company focused on the market in the category of integral food, health food, integral whole green food, which will join our network and will give us important scale being able to transform this company into the biggest company as we did with the Piraquê brand.
This is also supported by a program of productivity and efficiency, which began in 2019 and is now multiplied and which went through a restructuring and is now doing the internal revision of all the process of the company with the intention of simplifying them and the change of the ERP giving more robustness, more strength in security, in the operation -- in our day-to-day operations.
Remembering that, as I mentioned on the previous slide, the Piraquê brand is being a picture of how the operations of -- Piraquê operation is doing. When we look at the revenue, we grew by 44% quarter-on-quarter. We already have a penetration in Brazilian homes of 25%, a growth in the Defense area of 87%, remembering that Piraquê is a brand which is very well known. However, it's a very large in the state of Rio de Janeiro. It's basically a Rio brand. And after the acquisition by M. Dias after 2018, it's been a job of deconcentrating the sales from Rio and growing them in other states and regions. Remembering that it's now all over Brazil, starting with the adjacent states, Minas, Parana, Espírito Santo, Rio and scaling up for the South, Southeast, Centerwest, North and Northeast of the country.
The Defense area, we remember is the North, Northeast, an area where we had very little presence of the Piraquê brand and which is now a brand which has a strong presence, a very relevant presence in all of the sales points -- point of sale in the Northeast, which gives us the growth of 87%. It's also a brand, which has been a focus in the exportation area. Lots of value-added margins that are well above the average margins of the company and has been a focus of exportation, especially in the Southern Cone.
We're talking about Uruguay, Paraguay and Argentina, where there's a lot of relevance in the market of these 3 countries. We continue to invest in the brand, both in advertising campaigns as well as in other regions beyond Rio, but also through investments and launches such as the Duplo. This line is always the best seller of the Piraquê brand. It should grow this family of products of cookies once it's been launched this year, being month this year in the second half of this year.
It's also important to mention that this brand is from 2018 has grown in sales 4x its capacity in sales, which is the capacity of M. Dias to scale up companies that are acquired using all of our net distribution network, our large number of DCs and all of the synergies with our 15 factories in productive areas and also our very expensive sales force and trained marketing teams. Beyond the Piraque brand, we have also want to point to our next brand, which is a recent acquisition. We acquired Latinex in October to be closed at the beginning of November.
Since then, it's grown 197 -- 195% through our distribution network through our commercial team, and we continue to be very optimistic and hopeful about what can be done with these 5 brands that we see here of Latinex. FIT FOOD, Smart, Frontera, Tyrrells and taste&Co. We mentioned that the fruit of this revenue has grown in the number of points of 234% in the numbers of point of sales. We worked in -- we're now entering into important supermarket chain, showing the strength of M. Dias Branco as such as . And we understand this will also be done as soon as we can -- the closing of the Jasmine deal, which we expect, which we plan to do with our distribution capacity in Brazil wide distribution capacity.
I'm going to pass it over now to Fábio Cefaly, who will give you the results and he will go into more details of the results from this half, and then we'll go back -- and then we'll open for Q&A. Fábio, please.
Gustavo, thank you all. Enter into the details of the results, and then we'll pass over to the section of questions and answers. Let's start with the revenue and market share numbers. Starting here with the revenue, which we had BRL 2.5 billion in net revenue in the quarter with growth -- sequential growth in volume and a gradual increase in prices, which is what we have foreseen in the graphs -- in these graphs, 27% growth in year-on-year from BRL 1.9 billion to BRL 2.5 billion in the quarter -- in this quarter and the accumulated this year growth of 27% year-on-year over the year, representing BRL 4.4 billion in the first half. The volume had a fall off year-on-year of 7%. And on the accumulated sales, a small fall off 2%, while the average price went up 36% between second quarter of '21 and the second quarter of '22 was a gradual increase over these quarters. And in the accumulated increase, we've had a growth of 29% in the average price.
Looking at the details in this vision of revenue. First, with the vision quarter-on-quarter from second quarter '22 versus second quarter '21, on the right-hand side, we see the growth of -- double-digit growth in the average price in all of our categories, cookies, spaghettis, macaronis, flour and margarines and fats. 4.6% in cookies and an increase of 12.2% in the others category, specialty items, while our revenue had growth of high double digits in every category.
So it's important to mention a few highlights. The good highlights in our cookies area, which represents half of our sales, where we have the highest prices and the highest margins as prices and highest margins. And the other highlight is the category of others, which includes with a series of other categories, snacks -- small cakes most recently, the acquisition of Latinex. So it's important to point out the strong increase in average price, 57% year-on-year and the strong growth of revenue in that area of 77%, which is totally in line with what Gustavo mentioned in our strategy section.
We are looking at opportunities in other categories. And most recently, we made the acquisition of Latinex, which is already consolidated in our numbers and the consolidation of Jasmine, which we had the expectation of closing that deal by the end of this month. And the quarter-on-quarter vision in a high cost scenario, we were able to increase our prices and 18.7% in the first quarter to the second quarter, an increase of double-digit increases in the principal categories, biscuits, macaronis and pastas and flour.
The recovery of volumes in the same group, in margarine and butters and growth in revenue and in all of these categories. Highlighted, especially all cookies section, which grew almost 40% quarter-on-quarter. In the accumulated numbers, we have a growth of double digits in every category and revenue also with strong growth of double digit -- strong double-digit growth. So it's important the contribution of innovation. We always focus on the cookies category, which is where we have the most launches.
And from the first to second quarter, an increase of 20% in revenue, which was the result of the launched products in the last 24 months with growth also year-on-year growth. Slightly lower than in the third and fourth quarters of '21, which also have seasonality as these launches are more concentrated in the second half of the year. Average price continues to grow gradually. And in the second quarter, with the real per kilo of our products went from 6 to BRL 6. So that comes from readjustments.
But another important part also comes from innovation and mix. And here we bring a few examples. For instance, the most recent, the Chocowafer of the Amore brand, which went up to 1 -- by BRL 1, 28% was the price per kilo of the average price in M.Dias. We had a growth both in the accumulated year numbers as well as in the quarter-on-quarter, in the 2 Attack areas, in the Defense areas, which is the North, Northeast and in the Attack regions which the South, Southeast and Centerwest.
We had important investments in marketing to strengthen our launches for the construction of brands and also the highlights in this quarter were in the Richester brand, were with the BoraExperimentar space in Fortaleza and a series of initiatives in the Vitarella brand, which is our principal brand in our consolidated results of M.Dias and also in the cookies area.
We also returned to our participation in important food fairs in the APAS. Our stand was in second place in the mega stand sector with important growth and all the efforts of the company, especially of the marketing and commercial marketing teams who has dedicated a great deal in the construction of this event, Naturaltech, which is an important fair of natural food, FIPAN, which is an important food and confection fair, very like -- this is an -- important part of our business is the flour and flour products, which is important for this industry and also our participation in fairs outside of Brazil. For example, the World Private Label fair in Amsterdam.
E-commerce, which is a new channel for M. Dias, which we have initiated online sales in 2020, it's a channel which has shown a lot of growth. We've had a year-on-year growth of 64%, making new alliances and investing also in the official stores, which has -- I'm going to go into the section of market share, beginning with the categories of spaghettis and pastas and domestic wheat. We had a growth in share volume quarter-on-quarter. It shows that we have a positive evolution of our share since the third quarter of '21.
We're recovering a share, gradual share recovery, but consistent. In wheat flour, we closed the quarter with a participation in the Brazilian market by volume of 9.2%, almost double which we had in the second quarter of '21. This represents a series of initiatives, but principally, the increase of the volumes sold in the Attack region, which is a new market for M. Dias in this category. In the category of cookies, we had a retraction -- a share retraction from the first to the second quarter. And here, it's important to point out 2 points that help us this retraction. One, in relation to the adjustment of prices, it's important we may have some effect on volumes, but we observed in this quarter is that in general, entire market puts price -- when we raise prices, the adjustments, looking at the scenario of high costs, M. Dias did a little more, and this contributed to a growth of market -- a retraction of market share.
We also created an adjustment in the size of our packages for certain items, especially cookies. Here, we have 2 examples of Cream Cracker and Maria Maizena. And the 400-gram package was reduced to 350. And this process -- this transition happened over the second quarter -- during the second quarter, and it's normal also to have -- the company to have an impact, an unfavorable impact on volume at a moment when this transition goes into effect, which is what we show here in these 2 graphs here. Using as an example Maria Maizena, here we show the curves with the unit sales. The sales by units of the larger packages has diminished over the quarter. Our units of the smaller units increased. So this added unfavorable situation -- temporary unfavorable situation for the volumes, which also has an impact on market share.
Exportations maintained a good rhythm of net revenue. We closed the quarter with BRL 40 million, 24% above the previous quarter and almost the same level we had in the second quarter of '21. Here are -- looking at our cost and expenses. We had a strong recovery of our gross margins in this quarter due to the increase in price. Not only the pass-through of prices, the adjustments done in the packages, the mixes, the results. Here, we have a group of levers, which permitted the gradual increase of prices, of our margins and also the cost of commodities which for M. Dias were below those practice by the market.
The combination of these 2 elements raised our gross margins from 26% -- 27% to 34%, which is above the 27.8% that we saw last year and accumulated from -- went from 27% to 30.8%. Here just to make an example of what we showed on the previous slide in relation to our costs below those practiced by the market, we're talking about commodities. It was the fruit of the management of purchases, stocks and the hedge policies. Remember that this political -- this hedge policy was relaunched in June 2020 after approved by the Board.
These 2 graphs show here. On the left is the wheat and on the right is palm oil. The red line shows our market prices and the blue line is the average cost in our M. Dias Branco stock. Wheat flour grew over these months, this is the month from January to June of '22. Our costs also went up, but much less due to the management practices, we've been able to control our costs and work with a favorable gap compared to the costs of the market. The same thing is true of palm oil, which 3Q was 22% below the market and palm oil 12% below market prices, our costs.
Our administrative dispenses, as Gustavo mentioned, at the beginning of the presentation, result of all of the projects that were done since 2019, we were able to reduce structurally the level of SG&A for M. Dias Branco and we closed the second expenses with -- in the second quarter with 22.5%. The EBITDA doubled in relation to closing this period with 37 and a margin of 14, which is close to our historical level and accumulated over the year, an expansion -- nominal growth of 10.2%, above the 6.2% of last year.
The company net profit accompanied the tendency of EBITDA. And we closed the quarter with BRL 233 million more than in second quarter of '21 and a margin of 9.4% with normal growth in margin in the accumulated over the year. Going next to the generation of cash and investments. Starting here with our cash on hand. We had a consumption -- cash consumption of BRL 70 million, which is explained by a variable, which are our stocks. Looking for competitive costs in relation to the market and improved service levels, we increased our coverage level of stock in the second quarter, which had nominal -- it was a nominal increase of BRL 560 million compared to the first quarter of '22 with the second quarter of '22. So we had an increase of raw material, finished products and other areas.
Others we have, for instance, packaging, imported material, et cetera. If it hadn't been the increase in the level of stocks, we would have several hundred million more in cash. But we did this as a strategy of going into the third quarter with competitive costs. Our investments both in the quarterly vision as well as in the annual view have grown by 25% with highlighting of the Simplifique program, which was explained by Gustavo at the beginning of the call and the -- will highlight the digital transformation area.
The leverage in this quarter was 1.3x EBITDA. Net debt divided by EBITDA below the 1.4x in the first quarter and above the leverage of the second quarter of '21. This increase in leverage year-on-year is explained by 2 factors. One is that in the first quarter of '22, we had the payment of the extraordinary interest on investment distribution and an increase in the -- an important increase in the level of stocks in the second quarter. And we maintain for the fourth consecutive year, our AAA rating with a stable perspectives issued reaffirmed by the Fitch -- the highest rating of Fitch.
Now going to the last channel, which is the ESG chapter. Here in line with the strategy -- ESG strategy, which was recently enunciated. And we also have assumed several public commitments. We have -- we're informing them and publishing and explain these indicators looking at the 3 pillars of our strategy, which is caring for the planet, believing in people and strengthening our alliances. So we have all the indicators, the consumption of water, residue generated, lost in the process and waste of products. Women in leadership, which is an important factor mentioned by Gustavo, we will go into the Issued by the Safra Bank and the Alliances.
Other important initiatives happened in this quarter, such as the campaign for the LGBT community, donations, collective financing and the Environment Week, which is important for the involvement of our employees. So we'd now like to go into the question-and-answer section. We wanted to share with you our agenda of IR until the end of the year. We have the call today and later on, we'll have the modeling, we'll be in Rio tomorrow. Conferences in Sao Paulo, in New York.
In November, we will meet again for the third quarter call and other conferences up until the end of the year. So the objective was to go more -- a little more into the details and results, and then we can go to the question-and-answer session. Thank you very much.
[Operator Instructions] Our first question comes from of Rodrigo Almeida of Santander.
I wanted to ask you about a few points. The first was talk about the pressure of prices and the competitive environment, especially in the cookies area. I noticed here that the pass-through of prices that you're doing during the -- especially during the third quarter, how can we look at prices going forward and a little bit more about the sector? How the competitive environment is, how the consumers behaving in these pass-through of prices, especially with those help which you talk to the volumes? So I think through it came out in the mid-year, you have a satisfactory volumes going into August in the correct levels?
And beyond that, I also understand a little bit of the effect of the downsizing of the packaging, which Fabio mentioned here, how do you think this will go going forward? Second point, I wanted to explain a little bit is the question on mix. And the Piraquê question, you put some very interesting information about the Piraquê growth by itself, growing at the rate of 44% versus the growth of 29% in cookies overall. If you could give a little more color on that, two things. First, the effect of Piraquê has on the average prices overall and also understanding from you how Piraquê has today an effect on consolidated margins compared to the rest of the company? These are interesting points.
And finally, the third point which I wanted to talk to you about is talk about your cash generation, which you said was impacted by the stock formation that you have a higher average price for wheat and other raw materials. So I wanted to understand a little bit more about you the point about volume and others see that you have improved your stocks and your volumes. If you could explain a little bit more about that strategy and also talk a little bit about the exchange rate hedges that you've done if this has had any impact on the second quarter? And how should we look at the exchange rates going forward, and how this will affect you going forward? That was -- that's all my questions.
This is Gustavo. Thank you for your questions. Let me start, Fabio, help me here. Starting with prices, what we perceive is that this semester, I said this is half, but actually, this last quarter, more specifically, we've been able to conclude all of the process of downsizing of packaging, which we had commented. And M. Dias is a company -- in terms of cookies is much bigger than our competitors. We have 15 factories. Most others have 2 or 3. It took a little bit longer to conclude the entire downsizing -- product downsizing project, but this was concluded now. So there's been a capture, an important capture, which came from this process of downsizing.
And also the pricing, together with the downsizing, we see that all of our competitors moved forward also in the question of pricing, and it's made it easier for the market to grow as overall. Pricing is a -- was much easier in the last year with the competitors going forward at the same rate as we did in price increases. Talking about cookies, when you change the packaging size, the supermarkets expect to wind up with a -- to use up their old packages to begin to offer space on the shelves with the new size, which is an attempt and that creates confusion in the mind of the consumer.
So you will buy the same price -- the same product with 2 different size packages. So this delay, you lose a little bit of volume on this switchover that explains a little bit our thesis of the market share for cookies. The second phase is the phase up of the downsizing, as we've seen, it's a specific action of an important competitor in 2 categories. We are talking about Cream Cracker and the Maizena crackers, which are items which are very -- lower profitability, but have high volume. We decided to not get into this price war with them. We understood that it's an unsustainable temporary situation that it should go back to levels -- previous price levels with this promotion of our competitors.
Talking a little bit about mix, it has a relevant effect. The margin of Piraquê is 400 basis points higher than M. Dias and so this means that Piraquê is helping to improve the profitability of the company, pushing the profitability up. And also as a question of stocks, our stocks are both due to the policy of storage as well as the hedge position we've taken, we started to do a hedge, not only for exchange rates, but also for the principal commodities, and we're looking now at wheat, flour and palm oil, the strategy has worked well. Our stocks are that we used for this quarter have very attractive average prices compared to the previous prices prior to the Ukrainian -- Ukraine-Russian war.
And so in this aspect, we -- it has worked very well. As Fábio mentioned here, our cost of stock for the quarter versus the cost of the market. So we've been able to maintain our costs lower, substantially lower than the market value of these items. Another point that we have discussed greatly is the inefficiency and productivity and level of service. So one of the things which we see -- which I've focused on a question of service is one of the ways to improve this -- the visibility of our products on the shelf in the supermarket is to guarantee a minimum stock out level. And for this to happen, we have to have a level -- a high level of stock -- finished stocks. It's a trade-off to be the best, you improve your services, you improve your revenue, but the investment in stocks and working capital is a little higher, especially in inventories of finished products.
So this explains the increase in stocks is the fact that, recently, we hired a new client of -- Director of Operations came from Solar Coca-Cola, very much with this idea of the execution of growth in that area, spending and growing in the Attack area. And for that, we need to have a level of service which is adequate. This increase in finished products is the fruit of our intention to expand with a high level of service, taking advantage -- maximum advantage of the available shelf space in our superstore and supermarkets for our products.
Looking at the exchange rate hedges, it has worked well. We have implemented a policy since 2020. I would say that the internal process is very mature with the committee working well, meeting once a month with the participation of the banks. And we would also like to say that we are -- have a situation that's very, very adequate up until the end of the year, basically, with 70% of all of the exchange necessary already hedged at a good level of per cost. So we're talking between $5 and $4.80, our dollar exchange rate on our stock of currency And so with our provisions, looking at the capacity to do these changes, through buybacks, et cetera, when the market -- should the market change.
However, this has worked well, this policy of commodity hedges and exchange rate hedges. Any additional points?
Just to make one quick comment in relation to Piraquê. You say how much it represents in the increases of our average prices. To give you an idea, we have invested greatly in the brand, not only in Rio, but also nationally, and has grown quickly in the state of Sao Paulo and in the Northeastern region. And we observed that the sales in all of these regions have maintained that profile since the moment when we acquired Piraquê, which is a brand of products of high value-added products, a portfolio of very, very strong portfolio.
And with all of that is being maintained. To give you an answer -- a more objective answer to your question, Piraquê represents a little bit more than 10% of our total sales of M. Dias with a price that is double the M. Dias average price. So as I presented here in the first slide, the average price is BRL 6 and the Piraquê has an average price of BRL 12. So the more, we make Piraquê growth with its price level double at our M. Dias with the margins that Gustavo mentioned, which is structurally superior to the other brands of M.Dias products. This has a direct contribution to the profitability of the company.
The next question -- our next question comes from Pedro Fonseca from XP.
Congratulations on your results. I wanted to make a follow-up on the question of volume. With this question of images and competitors who are anxious to raise prices, but how do you see the question of the recovery of volumes? If you can give us a little more granularity in this quarter, even also region by region for our Attack regions and our Defense regions? And also the question of the recovery of market share in these points, which you've had a growth in market share in this quarter -- in this third quarter as well as compared to the rest of the year?
Pedro, thank you for your question. Our volumes, as you see in the presentation, have grown in both areas -- both in the Defense area and in the Attack regions. And with all of the pass-through prices which have been done, reflecting higher costs, we had lots of doubts about the elasticity, how these volumes would behave in phase of the new price levels. What we've seen is that we still have a very strong demands in the categories in which we operate and cookies. The downsizing has helped the cookies market a little bit to maintain the accessibility for the consumer who lost a little bit of its income due to the impacts of inflation on the economy. So it's been -- it's been a positive surprise for us.
We're going to have to surprise the option of M. Dias since the beginning of the pandemic, which generated all this confusion with commodities and afterwards with the Ukraine war, we have sought to monetize the company, and what we're talking about between 15% and 20%. This is our target, and we're working for that. But the volumes continue strong, and we see that -- in both regions, usually, when you have these special government aid programs, it's destined mostly to the poorest -- most neediest part of the population, which is concentrated in the North, Northeast. And usually, when this happened, we have an increase -- natural increase for M. Dias since we have a market share of almost 50% where we operate much higher than in the South, Southeast. But the fact is that these volumes also did very well in other regions.
And I would say that a large part of this is due to the market as a whole. I would say that we didn't come out first. But we launched at the same time as our competitors with the same levels of prices and very few changes. So I think there are 10, 12 players, and it's always between one or another that didn't come in, didn't join in a specific proportion. But in general, as a rule, the principal of players are navigating in the same price levels as us, which has also helped. We're very much competing as equal with our competitors in terms of price.
Our next question is from Lucas Ferreira from JPMorgan.
Congratulations for your strong growth. Two questions. First, related to the costs. Apparently, your costs are falling, palm oil and wheat. And I wanted to see if you have already been able to monetize these price drops? Have you been able to purchase more cheaply? Or if you think this will only happen in the next harvest that you'll be able to buy volumes at better prices?
Then also, my other question is with prices going down at the store level, what do you think is going to happen with these prices? They already implicate there is already involvement of fall off in prices and cost for you? Or do you think via that graph of the market that the market is doing a catch-up? And do you think that there'll be a stabilization or even a growth in your prices during the next half of the year? When we talk about prices, we're talking about the question of costs. How do you see your margins of your competitors in the industry? Do you have a hedge structure which is mature? If this fall in costs and exchange rates doesn't bring in some way, some type of difficulty for you since to continue your price increases seeing that there's even a higher probability of a price war?
And Gustavo, just one quick follow-up about the graphs that you showed in the third quarter. Is there any carry forward? Can you give us any more information about these changes, downsizing price increases? What you've already implemented this quarter, how much impact this will have on the average price in the third quarter?
Okay, costs. What we're seeing is a stretching out of prices, which has not yet been completely absorbed this tendency, we're talking about suppliers -- physical suppliers all around the world. And basically a large part of our analysts know that Argentina -- comes from Argentina and Brazil. These are harvests that begin in October, more or less. So it didn't -- we haven't yet hit the final price. The price has fallen, but the other costs have gone up greatly.
But in these predictions, the costs are looking -- are heading downwards. We understand that we can, yes, have a positive effect still in 2022 of that movement. Talking about the next quarters, we don't talk too much about guidance -- in terms of guidance, but we can expect an increase in costs because we still have the stocks, which have recently joined with price increases -- with prices older than this -- have before this of reduction in prices and the Ukraine war has been able to export its first ships in accordance with Russia.
But looking at the highway -- the grain highway and the opening of the grain in the Ukrainian ports with the permission of Russia. But the foundation -- the fundamentals have not changed. We're still in a situation -- we're still trying to be optimistic in relation to the question of food and grain prices in the conflict zone. So it has -- it will arrive at us -- at our level at the final purchase level, but hasn't arrived yet in an objective way.
We'll still have increases in this quarter in the short term. And we'll also have new pricing levels. The pricing is already happening, have since last month. A good part of this protocol, it has 30 days to go into effect. It will go into effect now in August. And apparently, it has come in without any problem and the volumes continued strong. So it's a scenario that was very positive in a sense of recovery of margins generated from some increase in costs of some commodity. This is due to the fact that we do not yet see the reflection of this new package of increases coming from the federal government and the Congress.
We continue very optimistic. But we know that there's still a lot of money, which is going to wind up coming in up until the current moment. We are still looking at margins compressed to -- a certain amount of margin compression with this fall in prices. However, and our vision, it will also be determined by these price increases. There are 2 increases that were done in the previous quarter. So we see these benefit programs, which has already been done in the downsizing and the simplification process.
Our next question is from Gustavo Troyano from Itaú.
I'm going to take advantage of one of the comments that the previous call mentioned, thinking about the volatility of commodities. Wanted to look at the -- for the pass-through of prices if you think that the same intensity that you've done over the quarter? Or what's your input of your perception in terms of the relativity of the price of M. Dias in relation to the industry? The industry already passed through these prices, but I want to talk about the size of this pass-through, especially in the pastas and cookies, which have a gap in prices of the M. Dias products for the rest of the industry?
And beyond that point, if we can look a little bit at the vision of the company in relation to the levels of profitability, thinking of the trade-off of market share and profitability, consequently, if the level of market share of the company in relation to the business plan, but it makes sense to work more on the recovery of market share of cookies and looking at the granularity of that idea.
And the last question here is these mix of channels, we see that cash and carriers and distributors have gained in sales of the company, both retail and have fallen a little bit. So I wanted to ask you about your Attack and Defense zones and your mix of channels. Is there anything in relation to the Attack zone? Or if this also happens in Defense zone as well?
Gustavo, thank you for your question. Market share, first of all, we understand continues to be a comfortable market share for M. Dias in terms of the market. This fall, especially in the cookie area, does not concern us. We're gaining from the downsizing. It means that we compete on a kilo price. When you reduce the size of the package, you're selling the same package of -- packages, but less kilos. So has an important effect on the market share and volume.
Once again, there was a specific action of a competitor, specifically, which gave a heavy promotion to high-volume categories, and we opted to not follow him. So we believe it was a onetime thing, and we believe in a recovery of the market share of the cookie area, closer to market prices.
Looking at the data for biscuits -- for cookies and pastas, when we look at cookies on the -- in the quarter, we grew by 15% in price. And I would say 1, 2, 3, 4 and roughly 10 competitors, only 3 did not reprice in the same level as us, below 10%, in the level of around 8%. The others have all come together with the same price increases as M. Dias.
When we look at pasta, we raised prices less than our competitors in the second and third quarters. We're looking at that the competitive company -- competing companies are raising their prices about -- around 10% lower than -- more than the M. Dias. When we look at the market, the volumes in the market, this pricing which we've done was not specific for M. Dias, and it doesn't concern us too much in terms of market share and volume because, as I'm showing you here, the market is coming together, unless there's some other player with a specific issue. In terms of market share, it's that. Nothing else that concerns us at this moment.
So Gustavo, in relation to the mix of channels, quarter-on-quarter, year-on-year, the revenue has grown in all channels and in every region. The question that you put up the cash and carry, which wound up gaining space in the mix is much more due to a recovery of the volumes of this channel. And this works together with Gustavo's answer in our prices, in our readjustment -- price readjustments, both in pastas as well as in cookies, is that in line with the market, differently than what we saw in 2020, in the middle of 2021, when the increases of M. Dias were much above the market.
And some competitors had not done increases in categories with volumes that are very high, which are those categories -- important categories, such as the cash and carry, you have a retraction in volume. But at this moment, we see the recovery in this channel in the 2 areas -- the 2 commercial areas, both in the Defense and Attack regions. In their distributors, there was growth in the volumes of the distributors quarter-on-quarter and year-on-year, which talks to our strategy of gaining capillarity and distribution in the Attack area.
What we've done in the last quarters, partnerships with several distributors in these regions, and this has brought very good results, both in volume as well as in margins.
Our next question comes from BTG.
Just a follow-up from Gustavo's last answer, which is my last question. When you talk about -- when you compare the prices of M. Dias with the competitors in this quarter, just to be clear that we're talking about the same comparable basis. When I look at the increase in prices quarter-on-quarter in -- of 8% in M. Dias and the 15% that you mentioned was the effective repass to the price list, a difference which is close to -- related to mix, price changes in size, packaging changes. The same is true of pasta, the 16.7% sequential price increases compared to 9%, I imagine. I wanted to make sure that we're talking about the same -- comparing the same basis.
The second question is in relation to -- might help us to summarize the discussion about market share and price. I'm not sure if you're able to speak a little bit with us, we have the data that you reported about market share volume if we're able to have -- if you can give us the same -- a little more granularity about the share value in these 2 categories, especially in the cookie and pasta markets? In a certain way, this would give us an additional clarification about that. Those are my 2 questions.
Just to clarify these numbers, these are the sellout numbers. These are the numbers we have to compare with other players. There's a difference between these numbers, one is sell-in and the other one is sell-out. The question of market share, the tendency is very similar to what we showed in market share volume. However, the falloff in cookies is a percentage of this value.
The adjustments of the price list, which happened during the second quarter. If you can talk about this third quarter, which Gustavo already mentioned, and explained by other factors such as the downsizing of packaging, mix and et cetera.
Okay. If we look -- we're not going to open in detail because we prefer to maintain this information just internal. However, what I can say is that the change in the price list happened at the beginning of the quarter, and that has been implemented during the quarter, it's a change which happened at the beginning of the quarter. Without a doubt, it's an important factor. And the other factor is also contributed, growth -- accelerated growth, such as Piraquê, as you mentioned in the first question, which was from Rodrigo, which represents more than 10% of the company with an average price, which is double the average price of M. Dias, they have 12, and we have 6, and it's the brand that has grown the fastest, more than the other brands of M. Dias.
So it's also an important factor. The reduction of the packaging size is something that happened gradually over the quarter, as we showed in those 2 graphs of Cream Crackers and Maria Maizena, especially in the category of biscuits -- of cookies. So here, I have to add favorably to the third quarter. The discounts are basically stable when we look year-on-year and quarter-on-quarter.
The last factor is the growth of the net category, others. We have the contribution of Latinex and the contribution of Jasmine. So it winds up being a group. However, the price readjustments are important and differently than what the clients saw at the beginning of '20 and '21. As you can see that the market is heading in the same direction very well.
One last question, if I may. On the question of costs and the composition of stocks, which was already discussed at length. When we try to -- when we look at this variation of stocks on your balance of inventories, on your balance sheet in comparison to your opening of prices -- average prices of the principal raw materials and your stock is the impression that the volume of stocked material has grown quite a bit in the second quarter in relation to the first quarter.
However, I wanted to understand as far as the average level -- historical level, looking at a longer period, if today at the end of the second quarter, if M. Dias in terms of volume of stocks and inventory is much more -- have a higher inventory than it historically has carried because we get the impression that you had -- have had smaller inventories in the first quarter and during 2021 until the first quarter of '21. And now you have come back to a volume of a level of inventory closer to the historical levels. I wanted to know if that's correct my reading of the situation.
Fábio, can help me here to add, let's divide this question. We had increase in finished goods. We had increase in inventories of raw material, which -- the strategy that we mentioned, the raw materials, the strategy of costs -- below market costs, both with the physical stocks as well as with the hedged stocks. In the case of raw material, we see that the increase of inventory is greatly due to the increase in costs. It's more expensive. The finished goods are more expensive compared to the previous periods. It's due to the higher prices.
When we look at the stock of finished products, this is volume -- this is really volume. The growth has had important growth quarter-on-quarter because, yes, we understand that we did not have level -- stock levels -- inventory levels that were adequate for this work up growth of level of service and the this point -- and making greater availability on the shelf to the investments. So it's been a big investment we've made on various fronts, planning, integration, systems, fleet, distribution centers, but also level of finished stock -- finished goods.
These are the 2 main differences. One, much more connected to the increase in the cost of our inventories, which grows in value, and the other is volume itself.
In fact, I could just add one thing to what Gustavo said. The principal objective here was to start the third quarter with objective pricing. Costs that are competitive. When I look at the inventory in the prices, considering the inventory that I have here in-house, my inventory and our clients in the cookies and pasta categories is below our historical levels. So as Gustavo mentioned in his answer, we see a scenario of demand, which is favorable. I look here and I see a stock level below the historical level for the clients. And I want to stocking things a little bit more to take advantage of several purchase moments in commodities and transform them and become more competitive in the third quarter.
Our next question comes from Isabella Simonato from Bank of America.
I have two questions. First is still a little bit along the lines of cost -- price costs. If we look at the composition of inventories implies at an increase in cost year-on-year looking at the second half. So I wanted to understand the price in this case, when you announce these increases in the third quarter, if we still need more price increases to recapture your margins during the second half of the year?
And also a little bit the level of competition. You said that the competitors run with inventories below average, and we're at an inflection point, perhaps due to the commodities market. How do you imagine this return in the cycle in terms of pricing of the industry? The competitors historically are a little more volatile in their strategy.
And if you could pass the price volume of around close to the cycle, not only wheat is going down as well as oil and other products? And to understand a little bit of this question, looking at the medium term, you said that your objective is to come to a margin of 15% to 20%. What's the principal driver of this? Is it the cost -- cost is leveling at a lower level? Or is there any other initiative on your part? You've done several initiatives for cost controls and expenses. I want to understand what's the route for this margin expansion that you foresee, which could even double your margins, looking at the historical numbers that we're looking at today as an average?
Thank you, Isabella, Gustavo here. Okay. The increase in costs, the increase in prices, we don't have any prediction of new increases. As I mentioned previously, we made increase in July -- in June between 6% and 8%. This went into effect in August. New sales are already being realized at these new prices, the volumes continue strong because we're seeing on the shelf several specific categories, which are moving forward with specific because we have some difficulty in margins. There's a big fight in the North, Northeast with the margin companies who operate in the margin sector. So it's been a little bit more difficult to price our margins and also a little bit in the wheat flour area, the industrial flour.
Other than that, the principal categories of pastas and cookies once again, the price has reacted well. So we understand that we should consolidate even more the price that I mentioned with the arrival of this additional government aid, which was recently -- once it is released at the consumer level. So looking forward, we don't see any more prediction of new price increases going forward. Now the world changes, nobody expected this pandemic, nobody expected this war in the Ukraine. And we've had to rather to dance with the music.
If everything continues now as we see it today, this should be our last increase of the year. That's what we can say. Looking at the driver of what we've done, we're not looking at expecting only a price -- a falloff in prices -- in costs, but that's not the reduced costs, which are going to increase our margin. We continued rooting for that to happen so that the cycle will go down to lower historical levels, pre-pandemic and pre-war levels.
However, we have several levers that are important in the creation of margin. New products, expansion of the Piraquê brand in a new -- with its higher added value and the question of company management with higher margins than the averages of M. Dias, such as Latinex, for example, which we acquired, and Jasmine, the question of the qualification of sales being in the right channels with the right brands, which we will do -- sell at better prices. And we get a perception of quality which is higher for the consumer.
And obviously, with the control of expenses. However, expenses has a limit. Sooner or later, you wind up reaching a point there's nothing else you can do, when destroying value or affecting the company. So it's important to maintain this trajectory in this 15% to 20% level.
The question-and-answer session is now closed. I'd like to pass the microphone to Mr. Gustavo for the final thoughts. Gustavo, please go ahead.
I want to thank you all for your participation. The company continues at your service, at your disposal for any other questions or doubts that you might have, the IR team is complete here and count on us for any eventual future questions that may come up. A big hug, and we'll see you in the next conference. Thank you all very much.
The M. Dias Branco teleconference is now closed. We thank you for your participation, and have an excellent afternoon. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]