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 with reference to the results of the third quarter of 2024. We have with us Gustavo Lopes Theodozio, Vice President of Investments and Controllership; and Fabio Cefaly, Director of New Business and Investor Relations.
We inform that this event is being recorded. [Operator Instructions] We'd like to also clarify that any declarations which may be made during this video conference with relatives to the perspectives of M. Dias Branco's business are merely -- and goals are beliefs of the management's perspectives based on information currently available. They involve risks and uncertainties and premises as they refer to future events and therefore, depend on circumstances which may or may not happen. Investors should understand that economic conditions in the industry and other factors -- other operational factors may affect the future results of M. Dias Branco, which may differ materially to those expressed in these future considerations.
I would now like to pass the word over to Gustavo, who will start the presentation. Gustavo, please go ahead.
Good morning to everyone. Welcome to our -- disclosed the results for the third quarter of 2024. Starting with the -- a few highlights. The net revenue reached BRL 2.4 billion in the third quarter of the year. When we look at the accumulated for the first 9 months, net revenue has already passed BRL 7 billion. Our net revenue went up to 419,000 tons with 1,000, even though this net revenue, these numbers are below the potential of the company. Therefore, we're taking a series of measures to increase our sales volume, increase our pricing performance and become more adequate to SG&A and optimize our costs of the transformation of the company.
The results reflect a market which is more competitive, a little bit with very little margin for pricing due to the inflationary scenario and the devaluation of the Brazilian real, which has a direct impact on the cost of acquisition of our imported raw material, which in our case, represents approximately 60% of all of our costs. The cash -- closed the quarter with a cash generation of BRL 67.2 million. This brought us to a level of debt, which is very balanced with 82% of our debt in the long term and with a AAA rating reaffirmed by the Fitch for the seventh year in a row.
We continue focused on our launches and new products for the consumer, and we highlight that the malted cookies of [ Dec of Piraquê ], the Goiabinha of Piraque in the pasta market, M. Dias represents the launches, an innovative launch of ramen with 65% less sodium, which is already in our portfolio in the Adria, Isabella, Richester and lots of brands, and we will enter the portfolio of other brands in 2025, also with a distribution in the North and Northeast.
I'm going to now pass it over to Fabio Cefaly to follow our presentation, who's our Director of IR, and I will be back at the end for the session of Q&A. Fabio, please.
Good morning to everyone. Gustavo, thank you for the introduction. Before I go into the details, I would like to clarify for -- about a few adjustments, which were made starting in this quarter in our model of results disclosure. On this slide here, I'm going to show you the opening of this -- starting this quarter, starting with the net revenue, which will start to be disclosed in 3 separate groups or categories. The first group being what we call core products, which includes 3 categories: cookies and crackers, pastas and margarines. The third group -- the second group is the categories of which we call wheat milling and refined oils which includes 3 categories: wheat flour, bran and vegetable shortenings, industrial vegetable shortenings. And the third group, the adjacencies, which are the products with the highest potential for growth with average prices that are higher and higher margins, which includes a series of categories such as cakes, snacks, cake mixes, packaged toasts, health products such as Jasmine products and also sauces and seasonings.
The second adjustment is in relation to the opening of the volume and average price, which will be disclosed in the following net revenue. We put this as the total net revenue of the company, which includes these 3 major groups and the market share and the capacity -- production capacity will be disclosed annually information that will be disclosed in an annual basis. And during the disclosure in the fourth quarter, we will give you that information, these numbers, the market share, the cookie and basket market share and the production and utilization of our capacity. The cost of goods sold, we will start to disclose following this -- the first group will be raw materials. And here, we talk about wheat, palm oil, sugar, cacao, among other inputs, packaging, labor, indirect costs such as depreciation and amortization and the cost of goods sold.
And to finalize this part, the curves with the commodity prices will be provided with the -- with market information at market prices, both for wheat as well as for palm oil. So starting in the third quarter, this is the model that M. Dias will now follow for the following disclosures.
Now going into the results, starting with the chapter of market and net revenue. The first information is with reference to the markets. We're not talking about the M. Dias numbers, but the numbers about the market in general for cookies and crackers in the cookies and crackers market, starting with that market, in terms of value sold, showed stability year-on-year and a growth of 6% compared to the third quarter of 2024.
The volumes grew in both comparisons, 1% in compared with last year and 5% compared to the second quarter. The units sold also grew. The average price in the market retracted by 1% compared to the previous year. And compared to the previous quarter, it was up 1%.
In the pasta market, it grew compared to last year and has maintained stable in compared to the second quarter in terms of value. In terms of volumes sold, there was a growth of 5% compared to last year and was stable when compared to the second quarter. The number of units sold grew compared to last year and fell by 1% compared to the second quarter. The average price fell 4% compared to last year and was stable in compared to the second quarter of this year. This fall of 4% in the average price in pasta compared to a fall in 1% of cookies and crackers is related to the lowering of the price of the commodities, especially wheat, which happened over the last 12 months, and we'll go into details regarding that a little bit further ahead.
Going to the numbers of revenue, average price of M. Dias Branco. And here, we have numbers that are consolidated in our revenue. As Gustavo mentioned in the opening, we have had a sales -- total sales of BRL 2.4 billion in the -- of BRL 7.1 billion, which represents in the quarter a retraction of 12% in net revenue and of 11% year-on-year, year-to-date. The volumes went down by 7% from BRL 400 to BRL 419 million compared in the quarterly comparison.
And in the year-to-date grew by 1%. So there has been growth in volume in the year-to-date numbers. The average price following commodity prices will fall by 6% compared to third quarter of '23 to third quarter '24 and showed growth of 1 -- high 1-digit in the second quarter of '24 to the third quarter of '24. Year-on-year, the average price fell 12%.
Now looking at our costs and expenses. These 2 graphs represent the price of commodity prices in dollars in the market. And on the left is the wheat prices measured in dollars per tonne and then palm oil measured in dollars per ton. We observed here on a longer horizon is that since 2022, starting in June, July, we has presented attendance to lowering until the middle of the second quarter of this year when it went up from $213 per ton to $279 per tonne. And since then, has kept at a level close to $260 per ton. Due to this volatility, this period between March and June and a price of this commodity. Palm oil presented in the last 12 months, a behavior a little bit more regular compared to wheat remembering that palm oil is the second largest commodity utilized by M. Dias. But at the end of the day, in the end of the second and third quarter had a behavior of prices rising.
With the price since the wheat was about 1,200 per ton, and at the end of the quarter, $1,255 per ton. The principal factor here is a combination of factors, but the principal factor here in our vision, where the climatic conditions in South America, remembering that together with Asia, South America is one of the biggest producers -- worldwide producers of palm oil. Looking at the variable costs compared to fixed costs, gross margins and average price over the last quarters and in the year-to-date, what we see in the slide -- previous slide of this -- how the lowering of commodity prices in the last 12 months and increases in the recent months.
What we've observed here is in the first line of the variable cost, which grew by -- in the third quarter of '23 until the third quarter of '24 was a behavior of lowering our prices. But due to the raising in prices of wheat and palm oil and the devaluation of the real, the variable cost was BRL 2.7 per kilo to BRL 3 per kilo. Fixed costs and the measurement per kilo has a behavior of stability of BRL 1 until the first quarter this year, with the volumes that were produced and sold.
In the second quarter, we had -- we were able to dilute further fixed costs. We get into a fixed cost per kilo below BRL 1, but then due to the volumes, as Gustavo mentioned at the opening, which were below what was expected for our potential and a lower dilution of fixed costs, we finished the quarter at BRL 1.1 per kilo in the quarter. This had an impact -- a direct impact on our gross margin.
Remembering that we had a reduction of the variable costs in the last -- the previous quarters and stability of fixed costs, the gross margin increased had small retraction in the second quarter and a larger -- slightly larger retraction in the third quarter due to the factors explained above, in relation to costs and the question of the volumes below the expected amounts and due to the reduction of the average price in the vision year-on-year, BRL 6.1 per kilo last year and BRL 5.7 per kilo this year.
In the year-to-date numbers, the tendency is practically the same with a reduction in variable costs, stability of fixed costs and expansion of gross margins. At the same time, there was a retraction in average costs -- in average prices.
Looking at our expenses in the measurement of SG&A, we have the selling and general administrative costs and relative costs. These expenses represent of the overall cost of the company and also in nominal terms in millions of reals. So looking here, up until the end of last year, we were maintaining a -- an expense in percentage between 20% and 21%. Remembering that during recent years, several initiatives were made for the reduction of these costs of SG&A as a percentage of net revenue and these initiatives resulted in good results.
However, in the last 2 or 3 quarters, expenses have grown a little bit higher as a part of net revenue -- total net revenue, not as a matter of nominal results, which we see here. Remembering that in the third quarter of this year, SG&A totaled BRL 553 million, a little bit below what was done last year for 2 reasons. There was a retraction in volumes, which also has a direct relations with the variable costs, and also had a series of initiatives which permitted us to compensate or annul the inflation in the period. Due to the fall in average price, the SG&A had an increase of 20% to 21%, reaching 23% in this period. Year-to-date, in nominal terms, it's practically stable with BRL 1,686 million and BRL 1,600 million this year. But due to the difference between average prices, the SG&A increased as a percentage of total income.
Looking at our EBITDA margins, EBITDA margins, nominal margins we wound up with a margin of 9.5% below the potential for M. Dias. Our nominal results and well below -- well was reached last year. In the year-to-date numbers, a margin of 11.8% below the 12.3% of the same period of last year and also a slight retraction in the results in the nominal results.
Net revenue in general terms has accompanied the tendency of the EBITDA both in relative as well as nominal terms, and we closed the period with 5.2% of net margin, BRL 125 million in nominal terms, practically stable in the net margin in the accumulative 9 months to date and BRL 547 million to BRL 470 million in nominal terms.
Looking at the generation -- cash generation, debt and investments -- generated BRL 67 million in cash -- operating cash, free cash flow, BRL 417 million of -- BRL 417 million for 9 months compared to BRL 417 million and the accumulated year-to-date. There was a consumption of working capital close to BRL 188 million in this quarter and BRL 458 million in the year-to-date.
Next slide in what line we had this consumption of working capital. This was basically concentrated in the line of stocks, here the measurement is in numbers of days, 77 days of stock coverage in the third quarter of last year and 84 in the second quarter this year and 108 days at the closing of this quarter. Basically, this higher coverage of stock comes from volumes sold below what was expected and also had the impact of the higher raising prices in dollars and the devaluation of the real, the Brazilian real in that period of time.
On the other hand, the line of suppliers presented improvements in terms of the previous quarter by one day and of 7 days in the comparison to last year. So this demonstrates that we are able to maintain our focus on cash generation and in the improvements which are available both in the results as well as in the cash generation of the company.
So on the line of clients or receivables, it was stability compared to last year and a slight increase compared to the previous year. Looking here at our leverage, our level of leverage -- for the third consecutive quarter, we closed the period at a net cash position in the balance of the third quarter, had more cash on hand rather than as compared to debt compared to BRL 29 million above our level of debt. In gross cash was above BRL 2.1 billion, which was closed at the end of the third quarter.
For the seventh year in a row, we have a AAA rating with stable perspective, reaffirmed by Fitch for the seventh year. Our debt is almost totally in the long term, talking -- looking at 82.7% in the long term and only 26% with coming due in the coming years.
In terms of investments, we invested BRL 85 million in this quarter with our focus on machines, equipment and the principal highlight here, as Gustavo mentioned at the beginning was the ramen -- the un-fried ramen, which entered into the second and third quarter of this year. Investment of BRL 198 million, 12% below last year. Remembering that last year, we made relevant investments in information technology for the changeover -- for the implementation of SAP, which happened in the first quarter of 2024.
We're affirming our strategy of growth with profitability, focusing on other categories which we call the adjacent categories in the new model of disclosure in international strategies like Acacia and Uruguay. And the highlight of this moment was the consolidation of our strategy -- our commercial strategy, which previously was divided into defense and attack. Remembering that the defense areas were the North and Northeast region and the attack was the South, Southwest and Central West and recently, we consolidated these 2 fronts into one single management area nationally. And we maintained a productivity and efficiency program, which is underway in the company.
These are the principal levers of growth. And these are the enablers. We went through this in the recent years -- in recent quarters seeing that the levers and enablers are important for the operation of our volumes, cross-selling prioritizing these brands, Jasmine, Piraque, Vitarella and Finna in wheat flour, innovation in the cookies and crackers and the healthy brands -- good things happening in the healthy brands and in pasta with the non-fried ramen, exclusive brands for cash and carry, which attends the consumers who seek products in a different price level, marketing, commercial excellence, JPB, joint business plan and a very good level of results in our revenue management and all the digital transformation.
Reaffirming that the -- it was mentioned by Gustavo at the beginning, these were results below the potential of M. Dias and what was faced with intense competition, retailers reducing inventory levels, commodity voluntary due to the high interest rates -- current interest rates volatility in commodity prices and especially in the second quarter of this year and the third quarter, together with the depreciation of the Brazilian real.
However, from the internal point of view, in recent months, within this context, we did not achieve an adequate balance of price volume and margins. As was mentioned in the slide, which we showed of net revenue, volume and average price.
This is the actions which are already underway for the recovery of our volumes sold and of the profitability and structure of the company. The consolidation of the commercial team into a single national leadership, discontinuing the approach of attack and defense. It doesn't mean that we will no longer exploit opportunities for growth accelerated in the attack areas where M. Dias Branco has a participation in that market below that which we have in the defense areas which are the regions, North and Northeast, optimization of the commercial structure -- organization structure, which is something which is underway right now.
We put this in our release, the reduction of several positions in the company and having between company labor and third-party labor, the creation of our team, which is totally focused on the food service market which is a field where M. Dias has a lot of opportunities for growth, and we're going to go into that area, in this market in a very organized and focused way. The adjustments in the logistics network for production and distribution, to be able to reduce our costs of transformation and also of the delivery of our products, the allocation of the revenue management team which includes pricing under the vice presidency of the investments and controllership under Gustavo's leadership and the revision of our price policy, the strengthening of our exports, principally in the markets where M. Dias already operates.
There's lot of opportunities there for leveraging our revenue. The consolidation of a team totally dedicated on this commercial excellence, which is the principal market -- is our go-to-market strategy, how do we get to our clients and all the coordinated effort for the reduction of SG&A.
Starting with the agenda of ESG. These are the principal indicators, consumption -- water consumption, reuse of water, waste -- waste products, leadership with positive results, reduction of labor accidents, purchases from local suppliers. And here, it's worth mentioning that we had an increase in the consumption of water in the first quarter -- in the quarter compared to the previous year because it has a total relationship with the lower level of volumes sold and has an impact also on the volume of production. So when I'm diluting this -- we had a higher dilution of this indicator due to the volumes sold.
I'm going to close here the part of the introduction. And now we can go to the question-and-answer section.
[Operator Instructions] Our first question comes from Guilherme Palhares from Santander.
First of all, congratulations for the courage to do a restructuring in the release even in a quarter -- in a challenging quarter such as this one and looking at the question of the highest level of information to try and establish competition which is more equivalent in the sector. So congratulations for your courage to do that at this point in time. Chris, due to this restructuring of the attack and defense zone, why have we decided to change that and try to understand a little bit as Fabio mentioned about the development of the market of food service market and what do you see as opportunities in that area and where the company is today? And why make this move now?
Here is Fabio. I would like to also thank you for your comments. We already implemented this new model of disclosure for the good of the company. And here, the interests are totally aligned with the company, between the company, the controlling shareholders, the minority shareholders and the executives. So we have a lot of confidence that this will be a movement, which, as you mentioned, demands focus, courage and which will be beneficial for all the public who accompany M. Dias and who invest in M. Dias.
With relation to the restructuring, in terms of defense and attack regions. The first point is what this does not signify. It doesn't mean that we're going to not take advantage of any opportunities for accelerated growth outside of the old North, Northeast defense region, where we have a market participation, which is above 50%. We have lots of opportunities in Sao Paulo in the states in the South, Central West.
However, we understand that we need at this point in time more than having 2 major regions is to understand and diagnose each in market in a way that is a little bit more granular. And through this understanding, this major division of having -- instead of having 2 commercial regions, we wind up losing -- maybe I'm not making so much sense. Now I'm going to pass it over to Gustavo who is going to add to that.
Thank you for your questions. There was a change in the model. We had been wanting to do it but it's more difficult to do it when you have a quarter when the results aren't that great. However, I think that is a step has been taken and also to complement what Fabio mentioned, the idea is to optimize the structure of doing that. We're able to standardize the process, the commercial strategies, and we have both areas unified, and we gain more agility and the implementation of a service model and we also understand that this change will simplify somewhat, the company is betting a lot on the acceleration of this project -- product. The success model, which has already been implemented in the defense area should flow in a better way with the same manager operating in the other regions, something around there.
Going into the food service question, I think we gained a lot. We brought a new director with a lot of experience in that area from one of the 4 largest trading companies, global trading companies with lots of specific knowledge about that market. We understand that M. Dias works with several products that have a great fit for that type of market. We have the fats, the [ margarines ], the pastas, wheat flour itself. We have a gigantic market still to be exploited by M. Dias. Since we don't have a specific area we end up not focusing on that market -- in this market demands. It's a very relevant market and a lot things change the dynamic of pricing. We can't price the branded items with more industrialized with our brand and then price it, fats for B2B and wheat flour.
Another important thing is that there's a necessity to think about new products to attend specifically that channel. It can't just be something that's standardized. There's a lot of things to be developed together with the clients, the composition, the formulas, even the packaging itself, which we have to send for transportation were specific clients in the B2B. So it's a different business and requires a different type of operation. That's why we understand that, in fact, the company wants to take advance of the opportunities and specialize a bit more. That's the idea that's behind the creation of this food service area. Fabio, did you want to add anything?
No, nothing to add.
Just make one quick follow-up. Today, I imagine that this channel is being attended by the cash and carry stores. What do you see in this model of direct service? Or do you think that will there be routes -- direct routes in the company for this channel? And if you could see a little bit what you see from the standpoint of your relationship with the channel that already exists. How much you will be cannibalizing your current market and give us some insight on that area?
We understand that it should not have any cannibalization because that's why we're doing this change a little bit further ahead, a very big connection with the weekly meetings between our Head of Food Service, Daniel, with our Director of Pricing, Dias Branco, who is responsible for the mills because the dynamic of pricing is totally different.
We look at food service, these are products with lower added value and more connected to the commodities market. This involves correlation with the cash-and-carry market. However, it's a market that not necessarily buys from the cash market. For example, the industries. There are large industries in Brazil who can buy directly from M. Dias, who do not necessarily buy from the cash-and-carry stores.
Once again, there's a lot of formulation that we need to do. And in fact, we were not able to do that with the cash and carry buyers. So we need more specification. We have to bring these clients to the company evolve -- to develop recipes for the food service market. It's a series of services tied to this channel which they won't find in their cash-and-carry stores. Beyond this, all of the characteristics are very distinctive compared to what they will find in the cash, cash-and-carry and there's a specific pricing and very carefully done exactly. So we'd go into this process of cannibalization of our current market there, our current customers.
Next question comes from Isabella Simonato from Bank of America.
I wanted to speak a little bit about the diagnosis that you have done to design these measures, which you're announcing as measures that have to be done to put the company back on course. Principally, this discussion of the lack of net revenue -- bringing net revenue in line with price and volume. What was identified? Where were these -- the failures in the strategy? Reading the competition, the channel, understanding the channel, stock in the hands of the retailers? Where do you think there has been a failure in the composition of this correlation of revenue?
And then within the measures that you've announced caused a little bit of a tension on our side. First, the change in the vice presidency, which will run the strategy of the price strategy of the company leaving from the commercial area and going, Gustavo, to your side, is this a permanent measure? Are these sporadic measures? What is behind this decision, the taking of this decision? That's my question.
Isabella, thank you for your question. First of all, let's start at the end, if it's a permanent measure or not, we have no commitment with making mistakes. So if we understand that we should revisit this process, we're going to revisit, its part operations. I would not say -- I wouldn't say the word failure in our strategies because it has nothing to do with failures. We're looking at the evolution, the natural evolution. The market continues -- the company continues to understand that there are opportunities in growing more in Brazil, in the South and Southeast and Central West regions, we understand that there are opportunities to enter into new categories through research and development. We have no restriction about that. There's lots of things evolving, lots of products being launched, which you'll be finding about as we go forward.
There are other opportunities in new categories. We understand that this is the way forward and going forward, not now, but further ahead, I understand that it makes sense to start a process of internationalization, all this following our idea of growth with profitability. I don't think it's a question of failure in the strategy. I think that there are several corrections -- course corrections due to a market which is much more volatile. As you've accompanied the macro questions, the fluctuations in the exchange rates, inflation eating into buying power in a market which is more sensitive, we've tried to pass through prices due to the increased costs, we end up hitting on BRL 6 when last year, we're below BRL 5. So that's an important effect. And today, what we're seeing is a more difficult market. More elastic and more sensitive to pricing.
The radar here is much more precise in this process. I think it's basically that. It's much more with this vision of evolution, be attentive to rethink our processes and no commitment to making mistakes with mistakes made. It's more a question of repairing what is separating what is strategy from what is execution.
If we look at this function in the commercial side, things winding mixing a little bit obviously, when you separate the 2, you create a certain amount of independence, and then you're able to, in our case, for instance, do things differently, we have better control of our investments. Talking about commercial investments with the commercial budgets, bonuses for the clients based on the sell-out performance of our clients, doing an evaluation, a deeper analysis of our channels, revisiting our mix.
There are structural changes in the pricing process of margins in wheat flour with a commodity vision, weekly meetings, investments in the market based on the client loyalty, we're identifying these questions of price using market tools [ UF brands ]. But I would say that the principal point is -- gives us some dependence on this product and leaving the commercial area clearer for the execution in the day-to-day of their market. I think that's a little bit the idea.
Fabio, do you want anything to add?
Our next question comes from Gustavo Troyano from Itau BBA.
I have 2 questions from my side. First, about these corrective actions, which you mentioned in the results and then focusing more on the time period during which they will happen. I want to understand at what point in time you perceived with the end of the second quarter, the beginning of the third quarter, when you saw that you need to make these corrections, to understand if this is incorporated into the results of the third quarter or if we can expect results more in the fourth quarter?
And also based on this question of corrective actions, I wanted to understand what are the next steps to be able to understand, up until when will this adjustment period go and this more intense adjustment? I think it's a process of continuous improvement but the major changes will happen in 2024. Can we expect this for 2025? That's my first question.
Second is related to the stocks in retailers. This dynamic of reducing stocks in retail has also happened last year. You opened up a series of days of stock that you had with retailers. I want to hear from you if the magnitude of this adjustment was comparable to what we saw last year or if we were to differentiate between what we saw last year from this year? And based on that, to understand if there's a scenario where the end of this year will be in the negotiations with the retailers, if you see in any way a readjustment of the channels and stock in the retailers will be more relevant going forward.
Gustavo, this is Fabio. I'm going to start with your second question first. In fact, with relation to our stocks, as you mentioned, we have seen certain signs that retailers were operating with lower levels of stock inventories. This has a relevant connection with the scenario of interest rates. It's early to say if this level is similar or will be similar to what we saw in the third quarter of last year. However, the fact is that we have seen a clear signs that this was happening.
When we have any additional numbers if you'd like it makes sense, then we'll be happy to share those at the correct time. Also on the question of the actions, the corrective actions being taken, when you take a year, we had a retraction in the price of commodities. We had a retraction in the average price. There was an important retraction.
On the other hand, when we look at the gross margins, at least on year-on-year, it expands. However, in our case, is the retraction of the net revenue, several things became unproportional for example, SG&A, if you remember that our project of '20 and '21, we brought the SG&A of the company, which is already close to 26% of net revenue and at some point in time, we realized that we need to review that. We brought this SG&A to something closer to 20% of net revenue. However, something happened and the scenario changed? The revenue went down and the SG&A speaking absolute numbers lower than they were. We don't have -- it's not that we don't have any control, but we need to adequate the SG&A to a new level of revenue. Once this -- the market improves and revenue improves, then we're going to have more freedom to invest in the lines of SG&A, and there's a repercussion to that.
This is the concept, a more challenging quarter than it was in the previous quarter, we weren't happy. We're satisfied with deliveries since the previous quarter. You can see that our G&A also went down quarter-on-quarter, generating a little bit of what we saw in the second quarter to this quarter. However, it's obvious that the biggest changes will happen going forward. I would say that in the fourth quarter and in the first quarter of 2025, there are some things we can't yet mention, which are still underway. However, in relation to the timing that you asked about, yes, we should have more of a reflex in the adjustment in SG&A in the quarter and in 2025 as well -- fourth quarter as well as 2025.
Just to add one thing, the actions that we mentioned in the presentation, 100% of them are already underway. However, looking at the level -- to give you an example, we also froze 100% of our positions in the company. We have postponed or reduced expenses, discretionary spending, third-party expense consultancies. We have aligned our investments in marketing up without losing the focus on the new launches among the healthy products on the non -- un-fried ramen and the Piraque cookies. Looking at the current scenario of prices and we've optimized our structure. So just to pass this along to you, some more concrete examples of things that are being executed currently.
Next question comes from Lucas Ferreira of JPMorgan.
My first question is with reference to raw materials, as you mentioned in the beginning of your presentation, there was an increase in the amount of stocks of inventories, and this is all basically in raw materials. And my question is if this is due to price raw materials going up. If you're also increasing your inventories for strategic motive because you're able to buy a good price? And how do you see the line of costs in relation to these costs? Due to that, the revenue question. Talking about the new level of revenue, this might not be a short-term thing. I think this is a function of the consumer inventories are low and it should go up? Or do you think that the prices should recover at the moment that the company will go a new round of price increases? Where do you see this recovery of revenue on the question of volume? What's the driver? And if price could be also part of this recovery process.
Thank you for your question. It's a very important point. And just to correct one thing, not a new level, it's the current level. We have the current level, then we have to raise that -- include those numbers. We believe so. The SG&A will be normalized. There are certain questions. There's a question of as Fabio mentioned of the retailers. The retailers are pressured by Brazil costs is interest rates have gone up, and this is very clear. Our negotiations are more and more difficult, especially with retailers that are publicly held. We can see that in December. So the concern is higher and higher. There's a retraction in the sell-in. The good news is that we're not seeing anything in the sellout and also no retraction in the sellout.
As you can see, the market has grown, the cooking tracker market is up by one and the pasta market by 4. So -- but the sellout is stable. This is a good news for us. As with the sellout retracting is much more concerning big volumes, but no retraction. However, there's a market, a consumer market, which is more price sensitive, and this is also more and more clear. The need has grown when we price that in. As we're doing a review of our entire pricing process that it can be more assertive in this relationship of price and volume. So there is 2 questions, retailing retail costs, which are more restrictive in financial costs. The consumer is more sensitive to prices. So these questions of price have to be done much more carefully.
The company can still evolve greatly in its execution. The opportunities are very clear. Yes, we're creating the control tower client channel program was totally integrated and growing quickly with organizational structures, we're reviewing the network of factories. We have the problem with the retailers. We have a problem of sensitivity with the consumer. But there's a lot of things to be done at home too, which we see as huge opportunities. So I think it's a little bit of all 3.
This is Fabio. The second question is stock. There has not been any change in our policy of our stock coverage, both in raw materials as well as [indiscernible] materials. What explains this level of coverage in the third quarter is -- are the volumes sold below what was expected and what was planned. And this consequently has caused an impact on the raw materials, principally in the volumes. That's the first factor. The second factor was the increase in the price of wheat flour, wheat, both in dollars as well as reals between the second and third quarter. No alteration in our policy of inventories.
Next question comes from Pedro Fonseca of [indiscernible] of XP Investments.
I have 2 questions here first about SG&A. You can remember that we've already discussed this a great deal in the -- we look at the potential savings of millions by the end of the year. We've seen an improvement -- material improvement in absolute numbers in this quarter. And my question is, if eventually we can expect a potential savings of BRL 200 million being reached by the end of this year. And if this BRL 200 million is already included these actions which were announced in this quarter if this is -- could be even something even bigger in the medium to long term. That's my first point.
The second question, follow up as you're mentioning about the price of commodities, especially in terms of palm oil, we saw a very high strong run-up in prices, palm oil as we saw in the quarter, and even more with the closing of this quarter and Fabio mentioned that there was no change -- no structural change in the policy of acquisition of the company.
My question is what the company might be able to do to mitigate this increase in palm oil prices. And if you can share with us how much palm oil could be substituted by other oils, if it's possible. And according to Fabio's comments, a revision of the formation of cost. So my question is if there could eventually might be discuss the revision of revenues on the portfolio product, looking at the possibility of holding back this palm oil in price increases, which seems to be a more structural issue.
Thank you for your questions. Question of the levers of the SG&A costs, these are underway. They began. A lot of them already were initiated were raised in the previous quarter. The execution continues strongly. All of the directors are -- have assumed a commitment and everyone is working in a very robust way to make these deliveries. There have been other opportunities beyond those mentioned in the second quarter, which should still improve our deliveries, not for the fourth quarter, some things there won't be time but also for 2025. It's important to have in mind that this entire route maintains the SG&A, which is already representing something close to 20%. I think that's the principal thing that the principal guidance that we can give.
In relation to the palm oil question, we have a flexibility especially in the fats to utilize in the margarines, especially 35% substitute for soybean oil. We're already doing that. This account of parity with each purchase of one or another commodity. It's already being the substitute already being made by the company. And we still have a series of other levers that we can use in terms of our manufacturing lines and looking at -- working on the cost of transformation because truly the commodity prices, there's not much we can do. We can't control that. In the case of Brazil, it's even more difficult because of the depreciation of the real.
Beyond the increase in prices, which was so drastic. Was it some -- it was an increase, which compared to the beginning of the year in August hit the floor and then it's been going up. But then we look at both palm oil as well as wheat looking at the projections -- we have a small deficit, a global deficit of 8 million tonnes. It's a gap between consumption and production.
Last time I saw it was 105, it's very close production and consumption. We're close, but there's also a surplus of wheat. There should be no big spikes as we saw in the -- due to the pandemic and the war but the price which is close to what it was the beginning of the year.
So it's a little bit of that. So what can I do to reduce my cost of transformation, optimizing my processes and whatever I can do in the way of mix of oil, looking at a better parity. We have some flexibility than some industries, for instance, in margins and this has been our playbook here internally.
Next question comes from Thiago Duarte of BTG Pactual.
I wanted to go back to the question of Isabella talking about the diagnosis that you make or have made, anybody discussed quite a bit on this call about the elements, which explains the results for the quarter the initiatives which you have announced. Have you brought anything but some things which talking about the politics -- the policy of stocks for retailers. And at the same time, we also -- you've also announced in the quarter like this, a series of measures seeking efficiencies, pricing, commercial pricing, strategies, et cetera. It's not clear to me how much weight you have given to these factors, which are more external and how much are internal in execution or strategy. And perhaps a way that we could line this, and I would ask you this question to think in relative terms because when we look, for instance, at the data, which you have given us relation to the market and sell out and so forth to give us an idea of how that -- how the demand is going in the categories at the end of the line.
It doesn't seem that there was anything big -- there's no big changes in that area. Thinking about the volatility of commodities and exchange rates, it's not the first or the second time that the second sector has gone through volatility at this time. It isn't too long that we see magnitude which even higher. Now we saw in this case, a very important retraction even with high relevance to the average price. So I wonder if you could tell me what -- how you understand the performance -- relative performance of the company in this quarter in relation to competition, principally invasion to competition.
Thiago, this is Fabio again speaking. Let's start with the answer to your question. I think that, obviously, this is not a mathematic equation, so I said it just one factor from another. As you mentioned, what's external and what's internal. And our vision, looking at in the recent quarters, there is a higher weight in what is internal and Gustavo has identified a series of opportunities that we have in the execution of our plans, both from the standpoint of commercial questions. Pricing and the opportunities for reduction of transformation costs, logistics, et cetera, a series of lines which impact both our results as well as our balance and in parallel, what we've seen in results in the last 2 quarters in the second and third quarter of this year, with our previous margin.
Now what we'd like them to be, what we've delivered in the second half of last year give the volumes and margins close to 16%. We didn't have any question -- no structural question, either in the market or in nothing relevant structurally in the quarter between these 2 periods. From the standpoint of our execution, have a series of opportunities, which have already been worked on and recaptured. So in our reading at this point in time, there's a retrospective in the second -- in the short and medium term, questions that are more internal rather than external. Naturally, these external challenges are there. It's not the first time that we've had volatility in these prices.
However, there has been very strong volatility accompanied by a devaluation of the real between the second and third quarters, which created a huge additional -- an additional difficulty at the same time with higher interest rates still high. We've noticed that our clients are more cautious in relation to their management of their working capital. And so they put another pressure on the system. This is conjunctural or structural. We're not sure. We're going to have to wait a little bit to make this affirmation. However, we observed yes, that there is a conjuncture that has brought elements -- not new elements, but combined combination of elements in a very short period of time.
And this wound up unlocking a series of plans, which were already on our radar but the improvement in the commercial execution and cost of transformation. I hope I've answered your question. We're not able to answer putting all of this in a mathematical equation. It's very difficult to isolate these factors, these elements. However, that's our reading of the diagnosis, which was made in recent months.
Just focusing on this -- understand that the fall in volume is a variable primary variable in this discussion. When we look at the sell-in with lower volumes stressing this question of the retailer stocks, do you understand that the share of M. Dias in the sell-in has changed much in this quarter compared to the previous quarter? Or do you think it's just a reduction in volume, which has affected the market overall?
I can answer you with -- in terms of share of selling because we don't have that information from the competitors. So that I really can't answer.
The question-and-answer session is now closed. I'd like to pass the microphone back to Gustavo to make his final comments.
Well, thank you all for your participation. Once again, it's a pleasure to be with you. We continue available with the IR team to continue our conversation. If you have any other questions, any specific questions, we're now seeking the optimization, adequation of our SG&A and the increments on our volumes to increase our volumes. We'll see you again on our next call. Thank you all very much.
Video conference of M. Dias Branco is now closed. We thank you all for your participation, and please have a good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]