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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Welcome to the earnings call for M. Dias Branco for the earnings in the fourth quarter of 2021 and the year 2021. We have Mr. Gustavo Lopes Theodozio, the EVP of Investments and Controllership; and Fábio Cefaly, the new Business Director and Investor Relations. We would like to let you know that this event is being recorded. [Operator Instructions] Then after, we will begin the Q&A session for investors and analysts. The broadcasting is also being done simultaneously on the company's YouTube at www.youtube.com/rimdias.
We would like that you know that possible statements that could be made during this conference are related to the M. Dias Branco business perspective although the forecast targets are based on assumptions and beliefs in the company's management as well as information currently available. This involves risks, uncertainties and assumptions because they refer to future events that then depend on future circumstances that may not occur. Investors must understand that general economic conditions, industry conditions and other operational factors could affect the future performance of M. Dias Branco and lead to results that differ materially from those presented in such future considerations.
I would like to pass on the word to Mr. Gustavo who will begin the presentation. Please, Mr. Gustavo, you may proceed.
Thank you so much. Good morning, everyone. Welcome to our earnings call. I will have a quick presentation here on the highlights. And then after, I'll pass it on to Fábio Cefaly as he gets into more details of this presentation. Soon after, we will move on to the Q&A.
On the highlights here, the net revenue growth, 7.7% in 2021 with an increase on the average pricing and a setback in volumes. The company, despite the setback in volumes, continues to be a national leader in the cookies and in the pasta category with 32.5% and 30%, respectively, for participation in the market, recovering this versus the third quarter in 2021.
And moving on, we saw over the year an increase in cost due to the lack of value in the real currency and also the devaluation of the increase in the commodities. As we'll see up ahead, expenses in sales and administrative expenses represented 21% of the net revenue in 2021 and -- with a reduction in the structural process and some efficiency and productivity programs. An EBITDA of BRL 684 million, cash generation was BRL 960 million, with a contribution that's relevant with the working capital release. Leverage continues to be very low, lower than last year, 0.2x net debt to EBITDA.
We also performed in 2021 our first emission of a CRA financial instrument for BRL 811.6 million. We had a demand that was greater than -- 3x greater than the initial value, this AAA CRA as well as green seals.
We continue to integrate for the second consecutive time the Sustainability Index, B3. We have a new sustainability agenda with definitions of commitments for 2030. Fábio will get into these up ahead. We acquired Latinex that introduces in our portfolio some added value items with the potential for growth. We also kept investments in marketing in the main brands of the company, an important highlight to Adria, Piraquê and Richester. And we also continued to launch some products with strong added value, which is the example of the potato snacks at Piraquê, BRL 39 a kilo as the price of sale.
And we continue to be a very much awarded company in 2021, one of the best companies in this category. And we'll be top of mind as well for the 5th consecutive year, receiving the transparency trophy at ANEFAC 2021, best industry -- food industry in the Northeast. And we can start to integrate the ranking of the open start-ups in 2021 due to our connection with the ecosystem of the start-ups.
It's important to mention in these challenging moments, the company has been working strongly to minimize this effect. We continued with some mitigation actions, considering these recurring price increases, such as the downsizing of packaging, robust pricing with our pricing department, leading different markets and the amount of SKUs per region basically in real-time, rationalizing the portfolio, prioritizing brands and SKUs with more attractive margins, expanding our premium brand.
And you'll see the Piraquê brand grew 2x more than the other brands, growth of about 14% in the year of 2021 compared to 2020. We continue to prioritize and we've continued to prioritize some SKUs with -- that are higher than the average of the company.
The acquisition of Latinex also ratifies the company with an improvement in the M&A agenda. And this also really strengthened -- I want to remind you that our commodity and hedge committees are working today, working with big financial institutions, global trading companies contributing to the protection strategies with commodities or currency. And finally, we continue with very tight control of expenses with the efficiency programs and rationalization of our organizational structure.
I will quickly pass on the word to Fábio Cefaly to continue the presentation. And as I mentioned, we go back to the Q&A. Thank you for your participation.
Thank you, Gustavo. On the next slide, I'll get into details about the results for the year of 2021. And about the revenue, as mentioned, we had a net revenue of BRL 7.8 billion, which is a record for M. Dias, and this represented a growth of 8% compared to the year 2020. In the quarter -- the fourth quarter, the fourth quarter compared to the fourth quarter of 2021, we had a growth of 27%. And here, we can observe in the graph that there was a favorable evolution throughout the year. We had a first quarter that was more difficult with revenue of BRL 1.5 billion. We moved on to BRL 2 billion in the second quarter, BRL 2.2 billion in the third. And we stabilized at BRL 2.2 billion in the fourth quarter. So the message here is that we had consistent recovery in our net revenue throughout the year.
And while we take a look at the revenue containing the 2 main regions we have in Brazil, what we call the Defense, which are the North and Northeast regions where we have about 60% of the market share; and the Attack area, which is the Midwest, Southeast and South. We've had a growth in the comparison year-over-year, 10% in Defense and 5% in Attack; and a double-digit growth in both regions, 28% in the Defense and 30% in Attack regions when we compare the fourth quarter of 2021 and the fourth quarter of 2020. This is something that's really in line with our growth strategy.
Now about the average price. We've already mentioned that the average price is one of the priorities, not because of the prices and adjustments in the chart but especially through our innovation. So you'll see the evolution on our graph. We ended the year of 2020 with an average price of BRL 4.1. We began the year of 2021 with BRL 4.2. And we ended the year with an average price per kilo of BRL 4.9. This is the fruit of some price adjustments that we had to work on, considering the more -- the highest cost but also the innovation. What you can -- this is something you can notice in the examples. In the first quarter, we launched a snack from the Piraquê brand and another product also from Piraquê in the third quarter, then a third product from Vitarella with an average price of BRL 21.8. So this is a clear sign that our innovation is very present, delivering concrete results and contributing to an increase in our average price and, of course, in our margins.
Now about innovation, as we concentrate a bit here on this slide with cookies, the numbers on the slide really prove a bit of the contribution of the cookie launches. In the past 24 months in the net revenue of the quarter, this contribution in the fourth quarter of 2021 was BRL 95.5 million, 20% higher than the third quarter of 2021, 73% higher than the fourth quarter of 2021 (sic) [ 2020 ]. This is another number that's also a historical record. And just as in the previous slide, we also mentioned the strength of our innovation, especially in the cookies category, which is where we have the highest prices and margins.
So now an example of what Gustavo mentioned in regards to some of the marketing investments that are at higher level than what we had initially compared at M. Dias. We had some initiatives in the Piraquê brand with Piraquê in Big Brother, Batatismo, Comida de Buteco. Also with the Vitarella brand, that's also been present on Big Brother, this TV program in Brazil as well as Delicitá and the Cream Cracker campaign, the true chocolate and Chocowafer campaign. These are 3 of our brands that are priorities for us with a focus on brands that are very strong regionally internationally, when it comes to national brands, Vitarella and Piraquê.
So on the Latinex acquisition. This was something that happened throughout the second quarter of last semester. The closing of the transaction was on November 3. It's a company that is still smaller, of course, when compared to M. Dias. But that opens up important doors. Latinex brings to our portfolio 5 new brands: FIT FOOD, which is a brand with snacks and cookies that are healthy; Frontera with snacks; Taste&Co for sauces; and Smart for salts and seasoning with an average price very good, and it's a new category for M. Dias with high margins; and Tyrrell's that M. Dias now represents here in Brazil. And Tyrrell's is a potato snacks brand, and all products are produced in England. So now we are working on the integration of the company, especially when it comes to the supply chain and as well as the sales force to place these 5 brands and placing this in an important amount of the POS that M. Dias works at.
So there is a retraction in the volumes of 14% between 2020 and 2021, which is the trough of a readjustment in pricing above market levels, which is a little more evident. In the first quarter, we had a volume of 356,000 tons, which is an important setback if you compare to the first quarter of 2020. But from the second quarter, we noticed a recovery in the volumes, 450,000 tons and 456,000 tons. And finally in the fourth quarter of 2021, a growth of 6% compared to the fourth quarter of 2020. So it was a year of recovery in volumes and an improvement in the average price through innovation and some price adjustments and corrections we performed.
The market share is interacting with the evolution in the volumes that we've done in the last slide. There is a reduction in the market share for cookies and pasta from the fourth quarter to the third quarter. But considering the recovery in the volumes in the fourth quarter of 2021, we've already noticed an important recovery in market share levels, which is 32.5% in cookies, this is the volume market share; and 30% in pasta compared to 29.5% in the third quarter of 2021.
Moving on to a little more details about the revenue. First, when you compare 2021 and 2022, the net revenue grew almost 8% and the average price grew about 25.8%. And the main message is that there was a double-digit growth in the average price in all of the categories. We had a setback in the volumes, especially in pasta and wheat flour, 17% on both. But we had a growth in net revenue in all of the categories, cookies and pasta, which are the main ones, but also in flour, margarine and other categories. And then when you compare the fourth quarter of 2021 and the fourth quarter of 2020, there was also an increase in the average price in all categories, and an important highlight for margarine and fat with 47%, a recovery in volumes in cookies and pasta. And I'd like to remind you that the 2 main categories at M. Dias and also the growth in the net revenue in all of them.
Comparing the third quarter of 2021 and the fourth quarter of 2021, we had an increase in the average price, which is important considering the current cost scenario, an increase of 2.9%. And the net revenue had a slight setback as well, and the volumes went back 3.6%. It's important to remember that we have some seasonality in our business. Traditionally, the fourth quarter is a little weaker, especially due to the volumes in the month of December.
Now just a bit on the exports. We wanted to mention a bigger history here. Starting from 2015, where we were able to see that from 2015 all the way to 2019, our revenue -- gross revenue with exports was at most BRL 62 million, which is due to some strong work implemented by the experts area that also support this business. We changed levels in the revenue in 2020 to BRL 235 million. We kept this at a level of about BRL 208 million in 2021 and a slight drop from to '20 to 2021 of 11% is due to some occasional sales that happened in 2020 to countries in Latin America and Central America due to some humanitarian support programs in the second and third quarter that -- which is also when the pandemic began.
Moving on, the cost and expenses for the revenue and the cost expenses. We start off with the gross margin, and we had costs that were a little higher in the year of 2021. When compared to the year of 2020 and 2019, the gross margin was close to 26% to 30%. We had a peak in that year in the third quarter with 31.4% and a setback in the third quarter to 26.2% due to the increase in cost, especially wheat and palm oil, which explains this, the performance in the year at 32.8% to 28.2%.
The increase in the cost of the 2 main variables can be seen in this graph. The top line provides wheat in dollars and the bottom line, palm oil in dollars. The yellow line is the price in the market, and the blue line is the cost in the M. Dias inventory. What we can see here in the yellow line in wheat is that the price went up, which are up in 2020 with $222 per ton and ended the year with $298 per ton. So it's a fact that the cost went up.
But it's also a fact that when you look at the blue graph, the M. Dias cost was the smallest in the market for wheat in every month ever since 2020. This is a result of our acquisition and procurement processes and the hedges we performed and our policy for carrying out the wheat inventory for about 4 months, which gives us flexibility to take advantage of the best acquisition moment. A very similar situation was observed when it comes to palm oil in most of the months of 2020 until 2021, where we were able to operate with costs that are way lower than market costs. And at the end of the year, October, November, December, while prices were going up, our cost for inventory costs dropped due to our hedge policy and our inventory practices as well.
So now going from the gross margins to expenses. We mentioned ever since the end of 2020 on a series of projects that were underway to reduce the structural expenses, especially administrative and sales expenses. And this is what we noticed in the first graph to the left, where we ended the year of 2021 with 21% of our net expenses when compared to the net revenue. And this is a structural change. It was very important. When we look at the year of 2019, you had 25.7%. And we have the same situation observed as we separate, we look at the expenses with sales and administrative activities. We ended the year at 16.8% with sales expenses compared to 21.7% in the end of 2020, and administrative expenses were 2.7% compared to 3.6% at the end of 2020.
To summarize this, when it comes to EBITDA, what happened with the gross margins and volumes and expenses, EBITDA had a retraction in the quarterly comparison, fourth quarter of 2021 and the first quarter of 2020, especially due to the increase in commodity prices and our costs, a slight favorable effect of the currency, especially due to our hedge and some nonrecurring positive and negative effect that ended up in this process. In the annual comparison, BRL 130 million related to a smaller volume. That leads to a slight operational leverage and commodities that are higher in dollars and the unfavorable effect of the currency in between 2020 and 2021. And in the graph here on the slide, we can observe the evolution of the EBITDA margins, which are in line with the gross margin evolution. There was an improvement over time. We reached an EBITDA margin of 13% in the third quarter of 2021 with a setback of 8.4% in the fourth quarter of 2020 (sic) [ 2021 ] due to the higher costs than in the year from 13.4% to 8.8%.
Now moving on from the EBITDA to cash generation and debt. We were able to have a relevant release in working capital in the year with 2 important contributions. First one is an improvement in the average terms for payment. And we went from 25 days in the fourth quarter of 2020 to 39 days to the fourth quarter of 2021. This would be an initiative to improve gradually in the main working capital accounts. And the second factor was the use of some credits for taxes that we would recover that would also be released into the working capital. And so the net profit and net income led to an operational cash generation of BRL 959 million, 40% higher than the cash generated in 2020 of BRL 679 million. So as Gustavo mentioned, it's a year when the results were negatively impacted by the cost. And through many initiatives for structural reduction in expenses in the accounts for suppliers and others as well, we can protect the cash and generate BRL 950 million per year. In the year, we invested BRL 208 million, 6% lower than in 2020.
We have an important highlight for the unit of Bento Gonçalves where we have the mill and the pasta and cookies plant adjustments in some DCs, especially in Rio de Janeiro, where we have Piraquê and some system investments. We ended the year with a leverage position of 0.2x. We had a net cash position in the third quarter, but this position was then mainly due to the payment for the Latinex acquisition that happened in the beginning of November. That we informed our AAA rating with a stable perspective, that's the highest level that Fitch can dedicate to this. And we also initiated some processes for recovering growth that we saw as an important evolution of the volumes throughout the year and also some other initiatives on productivity and efficiency so that we could really generate cash and we fix initiatives. Recall the action plan for 2021, so this is the last quarter we will be working on this update.
And I'll start off with the first initiative, which is the Green Wave, which is like the set of different actions and measures to accelerate the growth at Piraquê between marketing investments, launches of products with market value, placement of Piraquê in new channels, including the digital channels. And we can see that results came, and the net revenue from cookies at Piraquê in 2021 grew 14% versus a growth of cookies at M. Dias of 7%. Piraquê is a brand that is still concentrated in the Southeast. It's growing in the Northeast. It's growing in all of the different regions in Brazil with an average price that's a lot higher than the average price at M. Dias Branco and with higher margins as well. We are more present in other channels, especially the digital channels. Whereas the sell-out, they grew 166% in the year, 24 different partnerships and the launch of some official stores with the Adria, Piraquê and Vitarella brands in the free market.
And so the exports, as I mentioned a few slides back, kept their gross revenue levels with 9 new countries; 46 countries bought from M. Dias in 2021; 20 launches destined exclusively to the external market, and the cookies category with the best margins that grew 14% in the year. Then when it comes to productivity and efficiency, we had a target of reducing 137 SKUs, which are those that do not have attractive margins and the potential for growth. And we ended up, through all of these analysis, discontinuing 179 SKUs that have the same characteristic. Then when it comes to logistics and the manufacturing plants, we closed 2 of the 32 CDs -- DCs in the year. And in the organization, we were able to conduct throughout 2021 some work that we called redesigning organizationally with a specialized consulting firm. That delivered BRL 80 million per annualized gains that are going to be seen in a more clear way in the year of 2022. This was done especially in the second semester of the year.
I'm going to talk about some of the sustainable indicators that traditionally we placed in the earnings call. We had an improvement as well in the energy intensity, 24% in the quarter. And the consumption of water got better in the quarter and worsened in end of the year. And this interaction with the setback in the volumes that we're seeing year-over-year, recycling of waste got better. Solar waste generation also had an improvement and also the rate of work accidents produced in the quarter and the year. And we had some other initiatives, sustainability, volunteering program, conversation circles and the launch of a new agenda for sustainability with many different initiatives underway that we've been implementing for quite a while and some new initiatives that we deployed.
And in the annual result last year, that was registered in the last Friday, we had more visibility considering this new sustainability agenda. And we shared with everyone some of our targets long term and commitments until 2030, such as the reuse of 30% of the water consumed, recovery of 28% of the packages post consumption, 150,000 people impacted with the entrepreneurial program and professionalization initiative for the food sector, 40% women in our leadership positions and all of these targets are detailed in our annual report. And so with this, I will end this part of the highlights. And now we can get into the questions and answers.
Thank you. We'll begin the session with questions and answers from investors and analysts. [Operator Instructions] Our first question comes from Mrs. Isabella Simonato.
Can you hear me all right?
Yes, we can hear you very well. Thank you, Isabella.
Great. So I have 2 questions. The first one obviously is about costs and perspectives for 2022. In the last month, the scenario changed quite a bit. And now we are not only discussing an increase in prices, but also the issue with the guarantee of the offer of products with Argentina adding some export restrictions. And I wanted to hear how you're handling this issue, if there's any other mechanism to be able to protect the cost inflation a bit throughout the year. And of course, in exchange for all of this, we have the price transfers as well. And how -- if you could give us some information on how you're setting the price increases with different categories during 2022 as well. So the discussions on the price outlook and perception on the price transfers.
Well, Isabella, this is Gustavo. And Fábio could also contribute afterwards. But the price outlook is really complicated when we look up ahead, especially considering what's going on with this big confusion in the war. That was really not on our radar, between Russia and Ukraine. Last year, we also had some stability with a trend for a drop in the second semester. But with this conflict, everything got a little messier, and it's even more difficult to foresee. When we look at the future, we are seeing a better value.
But when you look at the tons per dollar, still above $400, so it's still an amount that is pretty high. This is how we're looking at this. When it comes to pricing, we've been keeping this very active. And so we phased it out as to not create such of an impact that we had in the first quarter last year where we had a big problem with sales and volumes dropped a lot due to the new price ranges above double digits. Now what we're trying to do is placing some charts that are phased out per channel and regions below double digits, so -- as well as the program for the downsizing of packaging.
And M. Dias, due to the greater manufacturers that are now on Brazil, I spent a little more time to reduce this. And they quickly entered the first quarter of 2022, and we should continue to complete this project. We're talking about an average about 15% to 10%. And when we joined this reduction in packaging, we had a chart -- a price chart in December, but we are mentioning that we started to enter January, February and March. And now we're going to be registering some other price charts that will be valid from the 1st of April on.
And in flour, I think the pricing is basically daily, and then with some price transfers that are a lot higher than the transfers for flour and cookies, reaching more than 20%. So this is how we consider pricing, and this is something that we look at daily. It's an agenda on our -- it's on our agenda every Monday, our strategies are redefined weekly also, and this is considering the current scenario.
Well, this is Fábio now, and I just wanted to add on here to Gustavo's speech. When it comes to wheat, we saw that we had an increase in dollars in the year of 30%. But it's always important to remember that this is a commodity and it's quoted in dollar values. And the real has a valorization of about 12% comparing today with the average in December. So it wouldn't make sense, but it does make us a little more mild with the situation of the wheat in dollars. But it's important to remember that traditionally, M. Dias has 4 months of inventory, which gives us flexibility to look at the situation with calmness, serenity and really make the necessary measures at the right moment. So ever since 2020, we started to hedge this when we started initially with the hedging of the currency and also then performing the hedging of the commodities. And from availability perspective, we bought from many different sources. And we didn't buy from Russia or Ukraine. Our main sources are in Argentina, Brazil, the U.S. and Canada, so just to add to this.
And another point, Isabella, about the risks of supply, in our vision, this kind of risk, we're not looking at -- it's not part of a discussion. And we continue to have access to many volumes for the future. And it was never part of our agenda really to consider a risk of supply for wheat. We are now counting on this.
Very clear. If I could have a quick follow-up. When we look at the price of flour in the fourth quarter, it went up 1.5% quarter-over-quarter. And your unit costs were accelerated a bit more. So you have the daily transfer. But in the fourth quarter, I understood that there was somewhat of a lag in the flour costs. Does this make sense? Is there a reason for this or not really?
Well -- just a second, we had an issue, a technical issue here. All right. Here, we're back. In the fourth quarter, we had some initiatives for trading, marketing and closer to around December. So despite the price transfer, the amounts that were invested to leverage volumes contributed a bit to this drop in the margins in the fourth quarter. And Isabella, your observation is correct on the fourth quarter. And just to update this, in a year, the average price of flour, so when you look at the period, it's important to remember that we had this increase of 32.2%.
[Operator Instructions] Our next question comes from Thiago Duarte from BTG Pactual.
I have 2 questions that are really focused on market share, of course, in line with a bit of the discussion you had now. In the last quarter, in the same call, you had mentioned, that was quite clear, that there was a bit of a concern with the size of the erosion in the market share we had seen in the first 9 months. And now on the first quarter, we really see a step back in this trend for the share, although we may still have a bit of a pressure when we look at the price evolution quarter-over-quarter, which was also a lot more smooth. So I wanted you guys to maybe talk about how you are looking at this economy between the share price, where you are versus where you would like to be in the short term, especially considering all the price concerns that Gustavo mentioned in the -- now for the first quarter. And I think this is an interesting discussion to consider where we would imagine M. Dias prioritizing these 2 price share positionings.
And the second question is just to clarify. When we take a look at the market dynamics nationally and volume related that you disclosed, I wanted to know if the trend to the loss of share in the first 9 months and some recovery in the fourth quarter. It seems to be a trend that can be applied when we look at the regions for Defense and Attack. So if you would imagine that the share recovery in the fourth quarter and losses there in the 9 months before would also be applied to both regions or if in these 2 regions, we look at one of them, maybe there's a bit of a different dynamic? These are the 2 questions.
Thank you for that question. I'll start off with the second one. I'd say that the recovery, yes, it does apply in both areas, Attack and Defense. And I'd say that it's a relatively sustainable recovery. We've been keeping up with the numbers, as I mentioned to Isabella basically daily. And this recovery is very much -- well, we've seen competitors get into action. We were a bit ahead last year, especially some of the competitors for pasta that didn't really work on pricing at the same speed or amount as M. Dias Branco. It's already starting now where pricing mix got back to some levels that were smaller than what we had seen. And that's the first point. But when we look at cookies, we lost a bit of our competitive advantages when our competitors started reducing packaging before M. Dias. So we were a little bit behind in this, and then they were able to gain market share. And this entire process happened around the fourth quarter. I'd say that by June, we're going to be full with the packages that are pretty much the same as our cookie competitors. So this give us more of a competitive advantage at M. Dias Branco.
Generally speaking, it seems to be our understanding competitors finally -- with the prices now, we were able to equalize the market packaging. This level of market share, we continue to prioritize profitably. As you can see, our margin's dropping a bit at the moment, but I am sure that the strategy will always be focused on recovering those margins. Market share is something we control and look at, but we always say that these levels currently are still quite comfortable. So I just want to remind you that when we look at pasta, 30% of the national market, our second competitor has about 12% when -- approximate numbers, right? And at this moment, when we lost a bit of market share, they reached -- they went up to about 14%. But the difference is very big, still. But when we look at cookies, then the position seems to be a little more comfortable. We have 32.5%, and our second competitor has 8.1% and our third one has 7%.
So Thiago, generally speaking, we look at this and we've been closely monitoring it. It's a trade-off between price and volume and market share. We're not going to give up market share. So on the fourth quarter, we -- this is one of the questions Isabella had. We had some initiatives with trade and marketing that were quite occasional to avoid some situations that we consider to not make too much sense. But generally speaking, the company is quite comfortable with this level of market share and the search for profitability, placing the price chart phased out constantly.
[Operator Instructions] Our next question comes from Lucas Ferreira.
Sorry, guys. I was on mute. I wanted to start off with a clarification here about the phased out charts you mentioned and up to the reduction in the size of the packaging. So Gustavo, if you were to add up everything, how much do you expect as an expectation that we could implement for a price increase now in the first semester? Just so we can have an idea how much you can offset costs that we are seeing on the chart. Do you still expect to be able to protect the gross margins when you look at the year as a whole?
Do you think consumers -- when you look at the elasticity of these consumers, do you think there's room to be able to protect your margin? Another follow-up here is in the hedges, so the currency hedges. So how much do you have as currency exposure approximately in the first semester? And what's the average currency that you think you can have as well so we can try to calculate your costs?
And finally, if you could maybe mention how the crisis that were going to change the company's strategy to dilute the exposure to palm oil or maybe even accelerate the categories, considering reals per kilo that are a lot greater, so that you can improve the volatility of the cost. Does this change the company's priority a bit? Or does this continue to be the same?
Well, thanks, Lucas, for the question. About the pace to protect margin, no doubt, we definitely do see the opportunity. I don't see anything that's very different from what we had practiced at the most challenging moment. But we've been working on many structural changes in the company. You've seen some of these programs. And this has helped the company be a lot more prepared for the market that are a little more stable. And this, of course, helps us.
It's difficult to discuss this in an earnings call and consider our pricing strategy, when to price and what's the percentage of the chart that we should consider because it's quite complicated to disclose this kind of information considering that some competitors could also be hearing us. So what I can tell you is that we will keep the target of keeping some of the annual margins and over time. And until December, about 60% in the first quarter, we -- sorry, the first semester, we reached about 80%. And this is because despite having many opportunities, we've been monitoring this closely.
Currency reached 96%, 97% and we really take advantage this moment to establish some relevant currency position. But when we look at the more long-term hedges, the bank spreads are still quite high. And so we've been very careful about this. But I'd say that we have a composition that is quite comfortable, in first quarter, about 80%. The average price of the currency is also information that we wouldn't make sense to share here. But it does give us some comfort to go through this moment of uncertainties, especially in Brazil with the elections in October.
The second -- the third question about the dilution with the wheat supply chain, yes, it's part. And -- but I just want to remind you that those 3 pillars are grow more and better with more profitability, going through the Southeast, and then you have the internationalization of the company. And the last pillar is getting into new categories. So we have no issues with wheat. It's important for us to have a bit of this dilution as well. And this is what we started to do, not only through acquisition, which is the case of Latinex as well, but also when it comes to internal launches when you look at the potato snacks we've been launching and some corn items as well. But yes, it is on our radar in our mindset. And when you look at the M&A agenda, we do have things that are out of the wheat segment. So the company should continue to follow a -- not an exclusive pathway, but to enter some categories that are out of wheat.
Lucas, this is Fábio. I just have a quick contribution to add on to your first question. It's important to mention that this scenario is very volatile still. So when you take a look at wheat, Argentine wheat reached $430 per ton, so a few days ago. And today, it's below the $400, which are also having some growth of about 30%. So in this volatile scenario, the game will be played month by month. And I'm insisting on this point here, since we have 4 months of inventory, we have a hedge policy, and it's being executed. We're accessing wheat in different sources. We can look at the situation carefully and take on the better -- the best attitude. So I just wanted to highlight this point.
Our next question comes from Gustavo Troyano.
Can you hear me? Well, perfect. We have 2 questions here. The first one is related to efficiency and productivity initiatives, but then especially about SG&A, considering the cost pressure that could come now in 2022 due to the commodities. I wanted to know if there's some efficiency that could still be attracted throughout 2022 to be able to partially mitigate the externality for the commodities. In 2021, we saw the level of SG&A, mainly due to the Multiplique, the organizational redesigning process.
But I think it would be interesting to reexplore if we can see the level of expenses dropping in 2022 as well and try to compare the magnitude of this potential gain in 2022 and 2021. And the second question about capital allocation, even with the adverse scenario on the cost front, we understand that the company still has a solid balance sheet and leverage is quite healthy. So could we maybe expect some inorganic expansion movement, so maybe at a moment with other companies that have more difficulty? And so do you understand that now will be a moment to weigh on some more visibility before you perform any movements in this direction?
Thank you for this question. When it comes to initiatives, there's a lot going on. Work has not been entirely complete and it goes through many different areas. Just recently, we went through some rationalization in the industry. We reduced the layer. We had a national production manager and also the plant production managers. We cut off a layer of the regional players and we -- as we had already mentioned, manager for the cookies and pasta as well. And with this, we reduced almost 20% of the production managers.
We eliminated some divisions. And considering the administrative area, it was close to legal and compliance and risks. And we had also the administrative area. In HR, we had 2 managers, organization development and compensation. We transformed this into a single. And this year, due to a setback in the volumes, this is already disclosed in February, I think, where we were able to unite the pasta lines. We had 1 in the factory in Maracanaú, in Fortaleza as well and another 1 -- and another production line producing the same pasta in the factory in Fortaleza as well, a few kilometers away from each other.
We decided to deactivate this temporarily due to the capacity for production in the factory in Fortaleza. The factory continue to operate because it produces other items such as the cakes and the healthy snacks as well. But there's a lot ongoing when you consider the unification of the lines in Maracanaú and Fortaleza. So I'd say, yes, you will continue to see some initiatives for greater efficiency and productivity. However, the inflation impact is very big. So last year was already pretty big. Inflation is about 10%. But even now, on absolute numbers, the company was able to reduce expenses with sales and administrative expenses, general expense, generally speaking.
So expenses are smaller. And the efforts and delivery was really significant. This year, with the inflation pressure, that will be stronger than 2021. I don't imagine major growth. But not sure if these efficiency gains, we'll be able to reduce this even more. So as I take on more of a conservative projection, I would not consider this level we've disclosed in 2021.
Now when we get into the solid balance sheet, no risks for rating. Our leverage actually got better year-over-year. Cash continues to be robust. We had the capacity to perform extraordinary distribution, which is a long-term demand from shareholders. And even so, we have a cash position that's quite robust. We continue to have an M&A agenda that's quite active. And we've been anticipating anything in the rate that would be transformational, but considering M. Dias' direction for greater margins, new categories, and so yes, we can expect some inorganic movement. It is a moment -- as you mentioned, you use this opportunistic moment here. I think there may be some business opportunities that were maybe not in our pipeline before in the crisis. We saw many companies taking a while to price. And at the moment, the bill arrives, right, so eventually, you have to account for that. And so I say that we're constantly talking to all of the banks and investment institutions, monitoring the market closely. And we're very in tune with M&A opportunities.
Thank you. The Q&A session is ended officially. And now we would like to pass on the word to Mr. Gustavo for his final remarks.
Well, I want to thank you all for your participation in our call. And I want to tell you once again that our IR team, me, Fábio, Rodrigo continue to be available. And please count on us if you need more information. Have a wonderful day, and thank you so much once again for your participation.
The earnings call for M. Dias Branco is officially ended. Thank you so much for your participation, and have a wonderful day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]