Grupo de Moda SOMA SA

BOVESPA:SOMA3

Earnings Call Analysis

Revenue and Margins Surge Amidst Expansion

In Q4 2023, the company marked an exceptional all-time high with BRL 1.8 billion in revenue, achieving a 9% year-over-year growth, paired with a robust adjusted EBITDA of BRL 238 million and a net adjusted income increase of 14%, reaching BRL 103 million. The annual figures were also strong, with gross revenue at BRL 6.2 billion, and growth stood at 10%, pushing adjusted EBITDA to a record BRL 809.3 million, and adjusted net income to BRL 370 million. FARM, one of the company's brands, soared with BRL 1.3 billion annual revenue, up 13% from the previous year, and plans to expand its footprint with a target of 150 new stores in the next 2-3 years. FARM Global echoed this growth, with $117 million in revenue, up 24%, and a 30% increase in active customers. The company has also seen a surge in gross margins by approximately 3 percentage points at the onset of 2024.

Improving Gross Margins and Sustainable Growth

Investors may be pleased to note the company's significant gross margin improvement, forecasted at 3 percentage points higher in the first quarter of '24 compared to the previous year. Furthermore, the company successfully focused on cash generation in the latter half of '23, amassing BRL 100 million while adjusting inventory levels to align with brand growth expectations. The average inventory period has been reduced to levels akin to '22, suggesting sound inventory management. The certification as a B Corporation and entering the B3 ISE profile in '24 highlight the company's commitment to social and environmental performance. Net revenue growth of 10.1% in '23 compared to '22 indicates robust overall progress, bolstered by non-Hering brand revenue growing by 13.7% thanks to wholesale performance.

Mixed Channel Performances and Digital Expansion

The company's own channels outperformed with an 18.1% revenue growth, and digital channels continuing to impress with a 23.9% growth and improved contribution margins. Despite facing challenges in B2B channels, specifically in wholesale where Hering's revenue declined by 4.2%, the company has seen a 7.7% adjusted gross profit growth in Hering, with adjusted gross margins reaching 45% and an all-time adjusted gross margin record of 57.5% for the year, a slight uptick from the previous year's margin.

Financial Highlights and Earnings

Impressively, adjusted gross profit reached BRL 861.4 million, a 16.1% increase from Q4 '22 with a notable adjusted EBITDA of BRL 238.5 million, surging by 13.2% from the previous year and reflecting an adjusted EBITDA margin of 15.9%. The adjusted net income witnessed a 13.9% rise to BRL 113.2 million, but overall, the adjusted net income for the year dipped by 3.6% to BRL 370 million with an adjusted net margin of 6.9%. These figures underscore the company's solid profitability amidst its operational challenges and strategic execution.

Strategic Debentures and Debt Management

The company's leverage remained prudent, ending '23 with a net debt to EBITDA ratio of 1.2x. Subsidiary Cidade Maravilhosa was settled in March '24, and future debts have been scheduled with a long-term maturity outlook, complementing the company's cash-flow expectations. Moreover, the net debt-to-EBITDA covenant remained below a comfortable 2x threshold, corroborating the company's capability to meet its financial obligations efficiently.

Strategic Partnership and Cultural Integration

A noteworthy development is the Association Agreement with Arezzo&Co, as it promises synergy gains while preserving the culture and DNA of both companies. This alliance seeks to leverage the complementarity of the brands across women's clothing and footwear, aligning with current market trends. The management is taking thoughtful steps to ensure that the integration fosters a shared culture, benefiting from the best of both organizations.

Looking Ahead: Margin Gains and Restructuring Benefits

Looking forward, the company is poised for continued margin improvements, with expectations of 2 to 3 percentage points gain quarter-over-quarter. The management's focus on optimizing inventory and margins is set to pay dividends, aiming to enhance the profitability of SOMA, excluding Hering, in the upcoming quarters. Drivers of growth include strategic rebranding efforts and leveraging Hering's industry for supply chain enhancements across SOMA brands, aiming to gain margins and roll out products at a lower volume ex-Hering.

Investments in Experience and Operational Adjustments

To improve the customer experience and brand perception, the company plans to expand its network of megastores and reposition the brand strategically. The goal is to reach 100 megastores, favored by their profitability and enhanced customer experience. Inventory management remains a crucial area of focus, with the company’s inventory reflecting future sales projections and a commitment to a disciplined purchase strategy, indicating a more dynamic response to sales potential going forward.

Creating a Latin American House of Brands

The strategic vision of creating a Latin American house of brands is evident, with management expressing a strong desire to mix operations for higher potential and international visibility. Previous concerns over mergers have been addressed, reaching a structure that promises sustainability and long-term collaboration between the leaders, ensuring a focus on brand interests, shareholders, and directors for the foreseeable future.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, everyone and welcome to the earnings call for the fourth quarter of Grupo SOMA. This presentation and the earnings release are already available on our website in the Investor Relations department.This event is being recorded and will also be available on our website.We'll begin with the initial remarks from our CEO, Roberto Jatahy about 2023. And then Gabriel, our CFO will present the operational and financial results in the fourth quarter of '23.We'd ask you to please if you have questions, send them through the platform.Now I'll pass the floor on to Roberto so we can begin the presentation, please.

[Roberto Jatahy Gonçalves, executive]

Good morning, everyone. We reached an all-time high revenue of BRL 1.8 billion in the fourth quarter of 2023, delivering a growth of 9% if compared to the same period last year. The adjusted EBITDA reached BRL 238 million and the net adjusted income was BRL 103 million, representing a growth of 14% in the fourth quarter of last year.So when we talk about 2023, we had a gross revenue of BRL 6.2 billion, and we delivered a growth of 10% compared to last year with an adjusted EBITDA reaching BRL 809.3 million, the biggest amount, and the adjusted net income reached BRL 370 million. We ended 2023 with 5.9 million customers in our base, 14 million (sic) [ 14,000 ] wholesalers, and 1,068 POSs.As we performed the channels, in 2023, our DTC grew 11%, considering the strong comparison basis in 2022 reaching BRL 3.5 billion in revenue and 56% of the gross revenue. As mentioned, since last year, wholesale was the channel with the strongest growth, reaching BRL 1.9 billion and a peak of 3%, and a share of 31% of the total gross revenue.The company continues to have important market share gains coming from good quality in the delivery and the maintenance of the sell-out even with worsening of the macroeconomic scenario that affected the wholesalers significantly. And in 2023, despite the strong comparison basis with all of the brands regardless of the size and level of maturity had growth, proving that the platform for brands has been a model that works efficiently with a CAGR of 25% in the period of 2029 to 2023. FARM had significant growth compared to last year's strong base, reaching an all-time high gross revenue of BRL 1.3 billion in 2023, and 13% higher compared to '22, maintaining a consistent growth trajectory.The brand continued to expand its customer base, surpassing 900,000 active customers and opening 15 new stores in the year with 8 stores in the fourth quarter. We ended '23 with a total of 104 stores, and I want to remind you that our goal is to reach 150 stores in 2 years or 3 years. The brand's presence in new locations in Brazil expands its reach, the customer base and opens up opportunities for growth in e-commerce and through new wholesalers.But the entrepreneurial culture never stops. And so we have these 2 processes. The first one is the LATAM project, where we will work with the digital channel and wholesalers. We already have some active sites with MVP in Mexico, Argentina, Colombia, and Peru and dedicated representatives to operate in these markets in the wholesale channel. The idea is that we will replicate a bit of what we're doing in the U.S. and Europe, but a little simpler, using this FARM Brazil collection since the brand awareness is already really high in these countries.We also have an operation that operates in the wholesale channel called Me Leva, which is basically accessories with FARM's DNA. This operation already delivers BRL 120 million in annual revenue as sell-in. And we're going to be rolling this out to e-commerce and physical retail in a primarily franchisee format. FARM Global ended the year with a gross revenue of $117 million, an increase of 24% compared to '22. Our active customer base has also grown significantly with over 190,000 customers, a 30% increase from the previous year.In the U.S., our wholesale channel continues to see a high sell-out turnover in department stores, solidifying FARM's position even more as one of the most desirable brands in the contemporary fashion segment in the U.S. market. Despite challenges with overstocking in most U.S. department stores, we achieved moderate 14% growth in sell-in compared to '22. This growth is important when compared to other brands that operate in the same segment as FARM in the American market.When we talk about physical retail, we continue to register good growth levels with the same store sales of 17% in '23. In Europe, we've expanded our presence significantly, and we have opened several corners in department stores, including Rinascente, Printemps, Samaritaine, and 200 square meter store at Le Bon Marche. In September, we opened our space. That's a permanent space at Liberty with high-profile media activations.And finally, at the end of December, we opened a store in London, a city that is already the second largest source of revenue for the digital channel outside Brazil. Although we had challenges due to significant volumes of marketing investments and some non-recurring expenses, which we refer to as broadly digital tax and operational efficiencies last quarter -- presented last quarter, we are confident now that our European operation will reach break-even in 2024.We are also proud of these achievements and look forward to what the future holds for FARM Global. This year's pipeline includes 4 more stores in the U.S., Melrose, Upper East side in New York, Brooklyn and Washington, D.C. And one in Paris in The Marais. In addition, we'll open 2 franchisees, one in Dubai and one in Mykonos. And this way, year after year, responsibly, we can distribute ourselves around the global market.Now Animale had an all-time 9% growth in gross revenue, increasing its penetration in Sao Paulo, which is a key market for the brand. However, there was a challenge in regards to sales in other regions, especially in Rio de Janeiro, which was lower than what was planned for '23. To address this issue, in '24, our Style Director, Izabel Yunes returned to the brand to centralize the entire creative area. This strategy intends to strengthen the brand's DNA and activate Animale's loyal customer base.In addition, we're going to continue to strengthen styling, branding, and marketing teams. We're working on a new architectural project to renew the entire store network and refurbish them. NV increased its revenue by 12% after restructuring its creative calendar and strengthening its supply chain. However, we still haven't been able to reach the full potential of the operation in the existing stores due to the difficulties to supply stores in the sustainable chain.We have stores to be opened, an underexplored wholesale channel, and low supply capacity when we look at the potential of the operation. This issue has been a recurring problem in some of the group's brands. And we have made the decision to start reversing part of the sourcing to Asia in 2024 for some specific product lines that we have been working with here in Brazil very well. Maria Filo had a significant growth of 25% on the top line and strong margin gains in the second half of 2023 if compared to 2021.We had the first collection of the brand's new creative for our brand. A new architectural project was created, and we were able to renovate 2 stores, Ipanema and Leblon Shopping. We're at a moment of an internal and external turning point for the brand, and we're going to continue with the store renovations for those stores above 100 meters and change small stores to a size that we understand would be ideal for this new moment in the brand, which would be services of about 100 to 120 meters.Cris Barros and Foxton also had gross revenue growth of 42% and 25% respectively, in '23, reflecting the success of the business strategies in these brands.Now for Hering, our gross revenue grew 5% compared to '22, driven by the strong performance of our own channels, which had a growth of 12%. We understand that we have completed the stabilization cycle of Hering's supply chain and now the focus is going to be on repositioning the band, improving the perceived value of the product and consequently, the gross margins. We also believe that we have a lot of opportunities and better management of B2B channels, which we should capture from 2024 onwards.Our megastores and e-commerce continue to be significant sources of growth and profitability. We ended the year with 33 megastores and plan to open between 20 to 25 new stores in '24. In e-commerce, the growth was 11% versus '22. It's also worth noting the completion of Hering's Industry project carried out throughout '23. When we acquired Hering, we had a very positive perception of the industry and how it could become a strong competitive advantage for SOMA, extracting greater profitability for Hering and other brands in the group.In 2022, however, the gross margin was far below what we expected, which made us consider broader discussions on this topic and we decided to start a project to take a deep look at Hering's Industry. We had a consultancy company to support us as we reviewed the entire production structure, aiming to improve the efficiency of the industry. During the review and diagnosis, we captured deficiencies through improvements in the supply chain and delivering healthier ROIC and margins. We were able to have important efficiencies and structure production, including the closure of the Parauna units in the second quarter of '23, leading to a redistribution of the operations in the Goianesia and Blumenau units, and this led to a reduction in fixed costs, efficiency gains and improved lead time in logistics.As a result of this work, we can already notice a significant improvement in the gross margin in this first quarter of '24, which should be around 3 percentage points better than the same period last year.Now into the financial aspects. During the second half of '23, we placed a high priority on cash generation. We were able to generate BRL 100 million in this period in addition to making adjustments in our inventory levels to ensure the company's financial health and align them with the growth expectations for our brands. This approach was crucial in ensuring operational efficiency and financial performance over the long term. As a result of these efforts, we were able to reduce the average inventory period, returning to levels similar to those in '22.In the ESG field, I want to share 2 important achievements that we were able to achieve in our company. Certification as a B Corporation, as we were able to achieve in October '23, and in '24, we entered the B3 ISE profile. So that we're also really delighted to celebrate our positive results in 2023. And I want to thank each of the 14,000 employees in our team for their commitment and engagement demonstrated throughout the year. I also want to express my gratitude to all of our stakeholders, franchisees, wholesalers, suppliers, shareholders, customers, and other business partners who continue with us on this growth journey.And finally, I'll pass the floor to Gabriel to present the financial results.

[Gabriel Silva Leite, executive]

Thank you, Roberto.Good morning, everyone. As an initial comment, as we enter Slide 2, we had the growth of our SOMA Group of 9%. When we look at the revenue in the year, we had a growth of 10.1% versus 2022. The gross revenue in the brand portfolio without Hering reached BRL 1,043 billion in the fourth quarter of '23 with a growth of 2.6% (sic) [ 12.6 ] versus the fourth quarter of 2022. In '23, the revenue ex-Hering grew 13.7% levered by wholesale, which was a channel that most grew with a growth of 21.6% right after digital.And then in Hering's numbers, the gross revenue reached BRL 716.7 million, a peak of 4.2% versus the fourth quarter of '22. When we look at the year, the growth was 4.9% in '23. The -- our own channels had really good performance and had a gross revenue of 20% versus the fourth quarter of '22. And our own stores growth was 18.1% with good calendar management, efficient commercial activation, and a constant flow of new products in the stores.Good execution at the POSs was also explained by the megastores and the Hering stores, which we think still have a really important trend with an important same store sale increment and keeping up good levels after the first -- the second year after the conversion. So these conversions also help us increase our profitability in our own stores. In digital, for another quarter, we had an important growth delivered with 23.9% and an improvement in the contribution margin with an increase of top of the pyramid products and full-price products. So we also had a reduction in the ad cost and the optimization of the freight costs. That also improved the reduction of the SG&A.So if on one side, these results are very good, we had other challenges in the B2B channels for Hering. We had a growth of 4.3% versus -- when you look at these channels separately for franchisees in the wholesale, this revenue dropped 4.1% if compared to the same quarter last year. So in -- when we compare the showrooms in autumn and winter, in the first semester, we still see a conservative stance in the purchases made by franchisees regarding the coverage of levels of inventory and the mix of the feminine fashion products.But even so, the franchisee sell-out grew 6.9% versus the fourth quarter of '22, way above the sell-in levels, but we still had a pretty significant dispersion compared to the performance of our company own stores or our own stores. In the wholesale, revenue dropped 4.2% versus the same quarter in '22. In the year, the channel grew 3.6%, considering a timid growth of the active wholesalers that we have in our base and a churn above our expectations, which was also impacted by a slower ramp up of these wholesalers that were added to the base throughout the year.So on Slide 13, in the fourth quarter of '23, the adjusted gross profit reached BRL 861.4 million, an increase of 16.1% versus fourth quarter of '22. The company achieved an adjusted gross margin of 57.5% in the fourth quarter, up 2.9 percentage points versus for the fourth quarter of '22. Even with higher markdowns to ensure the discipline with the reduction of our inventories, especially during Black Friday to healthier levels, as well as some tax impacts with the reintroduction of the DIFAL and the charge -- and the changes and the ICMS rules and the PIS/COFINS basis in May 2023 that took place.In the year, our adjusted gross profit grew 11.3%, recording an all-time adjusted gross margin of 57.5%, a gain of 0.6 percentage points from the 2022 adjusted gross margin.On Slide 14, the ex-Hering gross profit added up to BRL 588.8 million, a growth of 20.5% versus fourth quarter of '22 with a gross margin of 66% and up 2.3 percentage points compared to the same period last year. This number reflects the high desirability of the brands, which kept good acceptance in the High Summer collections and good turnovers at full price. The good performance was able to offset the negative impacts related to tax changes and the increase in Black Friday discounts on all collections to correctly level out.We were more aggressive commercially. And we worked on the older collections, so that we could level out our stock levels by the end of the year. We also want to mention the channel mix effect with a greater share of the wholesale channel and our total gross revenue. When we look at the photo of the year as a whole, naturally, these factors also negatively impacted the 2023 gross margin as a whole. The company had a gross profit growth of 12.3% and had a gross margin in the end of the year of 66.5%, a contraction of 0.8 percentage points versus '22.As we always mentioned, the stabilized margin of the ex-Hering operation tends to be around 67%. At times when the market and the macro scenario are more favorable, we will be able to take advantage of a higher full price turnover as was the case in the post pandemic period and even in 2022 as well as other moments when the sales are a little more pressured due to our discipline in cash and inventory and stocks, which is why we don't stop performing the markdown strategies and margins can sometimes be compressed occasionally, which was the case in the last year.Now on the Slide 15. When we talked about Hering's gross profit, the adjusted gross profit grew 7.7% versus the fourth quarter of '22 with a gross margin that kept a growth path that's really in line with our expectations. The adjusted gross margin reached 45%, a gain of 2 percentage points versus fourth quarter of '22. In 2023, the adjusted gross margin was 43.5%, a gain of 1.6 percentage points versus '22. This is one of our main health indicators for the year. We had a good gross margin performance due to some effects that occurred throughout '23.The first one is the cost efficiency negotiations for the purchase of some raw materials and essential services. And then the efficiency gains in the industry with improvement of some internal processes and also the project we performed, and we're going to get into more details about this up ahead with an improvement of our internal processes and reviewing the cost structures. Then we also had an increase in labor productivity with a better use of meshes and fabrics and correct sizing of the industrial production platform and better balancing between insourcing and outsourcing.We also talked about this quite a bit during '22 that we migrated a lot of this production through outsourcing with the finished products outside of the company. And we were able to balance this out better during '23. And the fifth element is expansion of our supplier base outside of Brazil due to more competitive costs. And then the sixth element is a focus on full price sales with an increase in digital, good management, and markdown -- regular markdowns in the company's own stores, which reflects the success of sales and marketing strategies as well, guaranteeing higher gross margin.And in the fourth quarter, Hering's gross profit was adjusted by the extraordinary write-off event in the amount of BRL 43.6 million. This has no cash flow impact. As mentioned by Roberto, this took place because of Hering's Industry efficiency project. We identified some opportunities for efficiencies and improvements in the production structure. And when we completed this, we highlighted that the industry is really a big strength for the Hering operation with the ROIC and healthy margins.In this project, we also had an important analysis of greater detail of the ROIC per SKU indicating the products where the company has to -- the factory really has to focus on its production to maximize profitability. And in this context, we also identified some leftover raw materials, which mostly come from the pandemic period or with aging of the 2021 fiscal year, which we had been using slowly but surely to be able to publish these secondhand products.And as we manufacture these products for MFO, we were sometimes destroying value. So these products were detractors of the margins and ROICs. And we assessed that the efficient way to capture value in this industry and operation as a whole would consider the accelerated sale of these raw materials or even the disposal of them, which is what happened. So we give us more room for physical space and allow for products with a higher ROIC from now on. We hope we'll be able to keep this evolution in Hering's gross margins. This will be our full focus during '24.And when we look at the first quarter of '24, we can already see that there is an expectation delivered with an expected achievement for the quarter between 44% and 45%, which is already showing a gain of 2.4 percentage points if compared to the first quarter of '23, about 2 percentage points to 3 percentage points gained compared quarter-over-quarter. This is actually an expectation for the year. We hope to have some significant gains in margins throughout 2024 if compared to 2023.Now on Slide 16 in the presentation, in the fourth quarter of '23, the total adjusted expenses added up to BRL 630.6 million, representing 42.1% of the net revenue for the quarter. The adjusted SG&A from one-offs added up to BRL 612.3 million, representing 40.9% of the net revenue for the quarter. The main effects in the quarter occurred in the personnel lines, pressured by expenses with termination of these contracts, which were concentrated in December with a total impact of BRL 7 million in the quarter. And it's a really difficult cycle, but we needed to have this optimization in our workforce and optimize our teams.So we wanted to really look at the budget in '24, and the capture of these savings should probably only be felt in the first quarter of 2024 onwards. The second line that was impacted in the quarter was the occupancy line due to a bigger amount of our company own stores. So we opened 20 stores in '23, 12 of these that were specifically in the fourth quarter, and there are stores in their initial ramp-up phases.And another line, which is also important was freight because we had a pretty significant increase due to digital channel with significant growth in the quarter. And finally, the others line that excluding the non-recurring effects with the provision for the bank consensus, which added up to BRL 112 million, which is explained by the negative effects of FARM Global's operation carried over the course of 2023.And these effects should be strongly minimized for 2024, recovering good margin levels in the international operation this year.Moving on to Slide 17, where we analyze the company's adjusted EBITDA. In the fourth quarter of '23, the adjusted EBITDA added up to BRL 238.5 million, an increase of 13.2% versus the fourth quarter of '22. And the adjusted EBITDA margin was 15.9%, with an increase of 40 basis points compared to the fourth quarter of '22 comparison. And in the year-to-date, we had an adjusted EBITDA of BRL 809 million with an adjusted EBITDA margin of 15.1%, in line with 2022.If we exclude the FARM Global operation from this account, when we look at the EBITDA margin in the Brazilian operation, we would have an adjusted margin of 17.8% in the quarter, compared to 15.2% in the fourth quarter of '22. So an effective gain in the fourth quarter. And obviously, here, we have the full year vision with a comparison of 16.2% in the EBITDA margin '23 compared to 15.2% in the EBITDA margin in the Brazilian operation. So overall, we have a summary here of our advances in the company's profitability throughout 2023.Now on Slide 18, we have details here about the adjustments, and I'm going to talk about the non-recurring impacts that we adjusted to our results in this quarter. These are significant impacts, and they deserve an important highlights at the micro level. So starting off with the Hering impairment. It's important to highlight that this is a purely accounting write-off without any cash effect. So as recorded by CPC 01, the company is normally submitted to test the recoverability of its assets. So up until the fourth quarter of '22, we had a carrying amount with the value of the assets accounted for in relation to Hering, adding up to BRL 5.7 billion and a total goodwill of approximately BRL 3.7 billion.So it's important to mention that for the accounting rules, the amount accounted for the Hering acquisition would only take place in the PPA, which happened after the closing with a part of the payment made through stock and the stock value went up between the signing and the closing, there was BRL 5.1 billion. That was considered as the assessment in the acquisition, which also had to be corrected. For accounting purposes, the impairment has an economic and financial assessment looking at the goodwill at the position of December 31, '23 without considering future effects.So if we talk about the use of goodwill for the incorporation, this is not considered in the economic and financial assessment, which actually identified the need to adjust the accounting value and the book value, considering 2 main effects, which are political with important tax impacts. The first one is the approval of Law 14,789 on the 29th of December '23, read it almost near the end of the year, which defined that the subsidies for investment should be considered in the tax calculation basis, which is basically income tax, social contribution, and PIS/COFINS.And this is valid from the 1st of January '24, which is super relevant for the company. And the second big effect, which is also the approval of the Tax Reform through Constitutional Amendment 132 also at the end of '23, which extinguishes the tax benefit within 10 years. So from 2033 onwards. It's important to mention that impairment has no impact on the ability to use the goodwill for tax purposes. It's just an accounting or book value adjustment. But this is, of course, impacted by 2 important changes in the laws, which affect the company directly when it comes to tax aspects.Now Slide 20 here talks about -- very quickly, we talked about the write-off, BRL 43.6 million, which were adjusted to the gross profit.On Slide 21, we can see the highlights of the DIFAL provision, adding up to BRL 71.4 million. This is mainly due to the sentence by the Supreme Court on November 29, which decided to apply the nonadjustable anteriority concept. So since we had not provisioned this amount in '22, it was necessary to recognize this expense now in the fourth quarter of '23 as it was a sentence from the Supreme Court. And actually, we adjust this to the EBITDA.Next slide here about the ILP, the long-term incentive plan, which is something we always adjust in our EBITDA, adding up to BRL 8.7 million with no cash impacts. And finally, the Santos Bank adjustment where we highlight the reversal of some accounting provisions related to Hering's lawsuits against bankruptcy estate and Banco Santos. We already talked about this in previous quarters. But just to remind you all, in October '23, we ended the terms for any kind of claims or attempts towards this lawsuit.And on the 30th of October '23, we had the document certified defining the final sentence. So we reversed all of the accounting provisions for this topic, which are net of any payments to lawyers. And it's important to remember that the payment of this agreement, which is about BRL 43 billion had already occurred throughout the first semester of '23. So no cash impacts in the fourth quarter of '23.Now on the next slide, as we move to the bottom line of the company. In the quarter, the adjusted net income added up to BRL 113.2 million, an increase of 13.9% versus the fourth quarter of '22. It's worth mentioning that in addition to the impact of our capital gains on depreciation and amortization expenses, we also adjusted the impacts on our income tax and CSLL on the adjustments we detailed in the previous slides. The adjusted net margin reached 7.6%, expansion of 0.3 percentage points versus the fourth quarter of '22.We ended the year with an adjusted net income of BRL 370 million, down 3.6% versus '22 and an adjusted net margin of 6.9%.Slide 25 now. Cash generation. And you can see the company's cash generation net of any funding and amortization costs led to a relevant evolution throughout '23. In the fourth quarter, we had a cash generation of BRL 59.9 million in the quarter. And when we look at the second half as a whole, we had a cash addition of over BRL 100 million. Throughout '23, we had an important effort to adjust inventory levels and align them with the expectations for sustainable growth in each brand and ensure the financial health of the business.As part of this effort, the company was able to reduce the average inventory lead time and achieved a financial cycle. That was more optimized with 179 days returning to levels that are similar to those in '22 with an improvement of 3 days compared to the previous year.Now on Slide 26, we're going to talk about the issuance of our -- third issuance of debentures in the beginning of 2024. These are non-convertible debentures, and they were an important guarantee for CRI operation through our subsidiary, Cidade Maravilhosa. And this operation was settled in March '24, adding up to BRL 625 million with the full exercise of the additional batch of 25%. The demand for the stock was significant with a total of BRL 1.5 billion in 3x book value.The high demand for this bond besides the full subscription of the additional batch led to a significant compression in the indicative ceiling rates with a weighted total rate of the operation of CDI+0.82%. So very attractive.Now I also want to congratulate all of our internal team for the excellent work performed in an extremely collaborative way. And this transaction represents a significant improvement in the company's debt profile with an extension of the duration and a reduction in the weighted average cost of debt. It's also worth mentioning in January 2024, S&P released a report assigning a AA+ rating to Grupo SOMA with a stable outlook.Slide 27 provides a net debt-to-EBITDA ratio excluding IFRS 16, and confirming our commitment to not increase the company's leverage levels. We ended '23 with that operating level leverage level of 1.2x net debt to EBITDA adjusted for the IFRS. We also have the schedule of the maturities of the future debts in the company after the third issuance of the debentures for Cidade Maravilhosa with a flow that's more adequate to the cash generation expectations with 75% of our maturities in the long term.It's also worth noting that the schedule as of December '23 had a different view of the balance sheet, considering that from an accounting perspective, 2 debts in the subsidiaries, Cidade Maravilhosa were reclassified to the short term. This took place because of the net debt-to-EBITDA covenant was below the 2x threshold due to the impairment loss related to the test performed on Hering's goodwill. It's a strictly accounting entry without any impact on the financial capacity of the SOMA Group to meet its obligations.The company was able to have waivers for the aforementioned debts. As a result, the original schedule represented on the slide is really faithful to the company's expectations.So I'm finished with my part of the presentation. I'll pass the floor back to Roberto, so we can talk about the Association Agreement with Arezzo&Co.

[Roberto Jatahy Gonçalves, executive]

Thank you, Gabriel.I wanted to quickly update you all about our association ship with Arezzo&Co. So I think a lot of you guys know that me and Alexandre have this desire in common to create the largest house of brands in Latin America with international relevance. So these are many conversations that took place over the past 2 years, assessing huge upsides and possible issues associated with the transaction like this.And then finally, at the end of last year, we found a safe model that could provide us with all of the synergy gains, preserving the culture of the companies and the DNAs of the brands, of course, and the potential gains are unquestionable.So we start off with the complementarity of the brands. So this is very important in this deal. With Grupo SOMA having dominance in relation to women's clothing in the A and B public, Hering is in a more democratic public. Arezzo&Co has women's shoes and other accessories as well for AB public as well and AR&CO with men's clothing and footwear.So when it comes to culture, we're very attentive to absorb the best in each company, creating a company that's focused on growth, with high level of engagement and obsessed with increasing better -- increasingly better results. We understand we need to build a culture with the best from both sides and that there's already strong alignment to make this happen. Both Alexandre and myself are aware of the success of this association and how this will depend more and more for both of us.The synergies are obvious. The potential that the company will have is unquestionable. And we are humbly recognizing our differences and our complementarities to be able to have a harmonious and perennial corporate relationship. After all, this has always been our big dream.This is now the end of my speech, and I would like to pass it on to Q&A.

[Operator]

Our first question comes from Pedro Pinto from Bradesco BBI. His question is, if we think about the combined companies, could you explain a little more about how Hering's impairment should impact monetization of the goodwill and also potential payment for interest on equity, well, JCP?

[Gabriel Silva Leite, executive]

Well, I think we already talked about this in the release and in the call, and I want to thank you all for the question though. But the key point here is that we had 2 effects that were noncontrollable by us, and these 2 effects came due to government policies with the entrance of the provisional measure that became a law that taxes are our benefits, our fiscal benefits. And of course, the Tax Reform considering the perpetuity when we look at this flow that's projected considering a 10-year flow remaining after this.So it brings important impacts for our forecast. And these 2 combined effects were the causes of this impairment. So when we mentioned this, we have no kinds of effects for future amortization. If we look at the tax purposes with the deduction of the income tax in the future and when we look at JCP, naturally considering that we reduce our base and also reduce our base for distribution, which, of course, one thing is connected to the other. But overall, I think the company did not come to distribute JCP in the last few years.So we created this buffer, and this buffer will be perpetuated from now on. So these are the 2 key points in regards to what you mentioned.

[Operator]

Our next question is Irma from Goldman Sachs and Pedro also from BBI. They asked the following: about profitability and EBITDA. When do you think the European operation will be cleaned out from the one-offs and greater marketing investments? What would be the FARM Global profitability like in 2024?

[Roberto Jatahy Gonçalves, executive]

First of all, I think, just as in the previous calls, we spoke a lot about how we've been operating in Europe and this MVP model that we really believe in, as we try to discover new territories. Obviously, this leads to some inefficiencies from a tax perception. And we had also some inefficiency when we closed down e-commerce in England without the VAT tax reimbursements. And of course, besides this, we had significant efforts in the marketing front, which is, well, we know how to do very well.We love doing. So that's what we did in the U.S. is really having a strong presence with authority in a market we're not well known yet. This is what we followed in 2024. And I think that it was a success. When you look at the top line, of course, you had an impact in the bottom line considering the marketing efforts, but we really believe and are confident that from 2024 onwards, we will not have any other types of effect like this and that we should recover the margins in the operation in Europe, aligning these margins with the operation that is active in the U.S.So this is an EBITDA margin that's actually higher than Grupo SOMA as a whole.

[Operator]

Our next question comes from Pedro also from BBI. And he's asking about the impact of -- the personnel termination impacts. Is this an impact that's immediate and what's the possible gain for this in 2024?

[Gabriel Silva Leite, executive]

I think we talked about this in our last earnings call about the work we've been performing to take advantage of the budget for 2024. And I think this work was very much in depth looking at the last 5 years in the company and this budget in '24 was probably one of the most in-depth processes ever in the company. And this work to review our portfolio and our personnel had an impact in the fourth quarter, but there's an important gain captured very quickly.And our expectation is that we'll have BRL 15 million to BRL 20 million of savings with the reduction and also important work with expense reduction in other lines as well. And as I mentioned last quarter, we expect to have a bit of a dilution in our expenses during 2024. So 100 basis points to 150 basis points when we look at the percentage of the company's net revenue.

[Operator]

Well, our next question comes from Luiz Guanais at BTG. And he is thanking for us -- thanking for the question. And he says how about, I want to know if you see closer relationship with the sell-in and sell-out at Hering.

[Roberto Jatahy Gonçalves, executive]

I think this is a very interesting topic because first of all, I want to tell you all about a fact that happened 8 years ago at SOMA, which is when we tried to sell more. And in this process, we were betting on different possibilities for the wholesale sales, and we always had like 20% margin or buffer left to have the replenishments in the collection. So you had an order, you would build that and possibly with good results, we would be able to have a stock buffer.This process was retrofitting itself, and then we started thinking and noticing that we were migrating from wholesale that's order based to wholesale that's like immediate delivery, which increases the risk levels in the company. And so when we talk about Hering, when we started to understand after the entire cycle, with the stability of the production chain and everything, when we started to get into the actual policies at Hering, we noticed that there is the same behavior. Hering was working on the showroom and then they issued a purchase, but then there was an additional 25% for replenishment that we call in season, which is almost like an immediate delivery.So that's when we were able to understand that we had a big difficulty to grow our showrooms for sales. And however, afterwards, we were able to capture the sale and these bets with the stocks for immediate delivery. This generated major risks asymmetrics in this relationship. So we were a lot more exposed than the franchisees. And the idea is that we should be balancing out this risk between both operations. And we started to tighten this up a bit and provide more information about the in season replenishments and being closer.And we've been working on this process in some showrooms. And so during the end of the year, we had a same store sale and a sale that was very significant with Hering. And then when we were able to have the franchisee network request these replenishments. And we're going to continue to not having these items because this leads the company to a distortion in a wholesale model and a franchisee model. And our main objective is to actually have more of a made-to-order format and not bets that could lead to leftovers.That also impacted our gross margin at Hering because these leftovers would take place, and we had to address them in our channels. But of course, we've been reducing this and restricting this possibility to replenish in season in some way so that the franchisees really have to buy within the showroom period. And so this is a fact, and that's pretty much what's going on. The Hering franchisees are kind of undersupplied. And we also didn't have a bigger result in our wholesale channel because they were behaving in this way as well.Maybe we have to go deeper in the sell-in until people can understand that this procedure will not happen anymore throughout time. So just to give you an overview of the timing, we're imagining we think that from the second quarter onwards or the third quarter onwards, we'll see the sell-in a lot stronger, even stronger than the sell-out adjusting the stock levels of the franchisees.

[Operator]

[ Vinicius ] has also sent us another question, which is how we can expect -- how can we expect investments of marketing throughout '24?

[Roberto Jatahy Gonçalves, executive]

Well, I think the marketing investments are standard normally with the SOMA Group margins, we consider 3% to 5% investments in marketing. In the lower brands, it's a little cheaper, like 3%, but there's no player or pre-operational factor that could pressure the marketing line as FARM did in Europe. So we should keep up with the same standards or levels that we had seen before in 2022 and '21.

[Operator]

Our next question is coming from Tales from Safra. And he's asking the following: could you talk about the expansion in the gross margin at the SOMA ex-Hering?

[Roberto Jatahy Gonçalves, executive]

I think we spoke about this a lot during the call in regards to this item. And we understand that it's a restructuring process and Grupo SOMA without Hering should have margins about 67%. But in a more favorable scenario, if we look at the macro conditions, which was the case after the pandemic and from 2022 onwards, we started to get a little closer to the 68%, 67% considering that we are able to increase the full price sales.And in scenarios that are may be a little more challenging, we can see the margin operating at kind of 50%-50%, which is the case also in 2023. So this is the structural margin, and we should be around 67%. We consider this in 2024 as well. So we, of course, should remember that despite many impacts that are non-planned which is the case with MP 1,185 converted into a bill that considers the PIS/COFINS into our calculation. We've already transferred this to our prices when we priced our products for 2024.So this is kind of already protected for 2024, and we're going to be able to keep this margin at the same level from now on.

[Operator]

Tales has also asked about the selling dynamic.

[Gabriel Silva Leite, executive]

Roberto has already explained this a bit, but the selling dynamic pushed the results downwards in the fourth quarter. What's the dynamic now like in the beginning of the year? I think this question is sometimes confused with the question that when I submitted. But basically, here, I'm just going to reinforce that when we consider good supply, what we can see is that we have a weaker sell-in in physical stores and e-commerce that are doing pretty well, but we haven't really seen the same results take place in the franchises.So we can currently see this process, which is quite cultural for Hering of having like a replenishment buffer. So we've been correcting this operation to avoid risk symmetrics with the franchisees.

[Operator]

So our next question comes from Joao Soares. The first question he had is if we already solved the issues with the inconsistencies that we had considered.

[Roberto Jatahy Gonçalves, executive]

And I said, yes.

[Operator]

Well, then his next question to Roberto is what are the perspectives at FARM Global for 2024 in regards to the growth in margins?

[Roberto Jatahy Gonçalves, executive]

Well, about the margins, I think this was already discussed a bit. The biggest offending factor was Europe due to the pre-operational costs, inefficiencies there coming from this new market we were entering. Then when you consider this margin, we have no types of concerns up ahead. And when it comes to our target for growth, we can see the perspective for 2024, growth in margins, and we always focus on a target of 25% growth in dollars.

[Operator]

And he also asked about the Nordstrom issue, actually with shoes? What's the potential that we have to increase this accessories category after the agreement with Arezzo?

[Roberto Jatahy Gonçalves, executive]

Well, I think in the American market, and we have this situation with this efficiency with any brand in the U.S. has this share of 25% to 30% in accessories and footwear. And so this supply chain is mostly in the South, which is very where Brazil is very dominant. And so we had been provoked. And so that we could have this accessory product line from FARM.So we have the condition to stop right now. And this is one of the many levers we have as synergies in this deal. And this is also considering our investment thesis, which could, of course, increment this by 20%, 25% in the wholesale channels. But also when we start noticing this work and consider this product line that's been designed. But also, we understand that capacity Arezzo has to provide this kind of product with cost efficiency.And we already have a fully designed product line with accessories that's going to be most likely produced by Arezzo.

[Operator]

Our next question is from Dani and she's asking if the channels with -- the B2B channels have more difficulties at Hering. And what are the main levers to possibly already consider Arezzo's expertise?

[Roberto Jatahy Gonçalves, executive]

Well, I think our skills and capacity to operate our own stores and digital channels is undeniable. But of course, when we talk about those questions before, the 2 channels are completely well supplied with the correct recommendations for purchases, which leads to this dispersion in the results between brands. So I believe that we are not -- despite the fact that we operate a B2B, this is a completely different model.If we compare Hering and Grupo SOMA when it comes to our representation numbers, and we believe that Arezzo has the knowledge embedded that's a lot higher than ours considering their experience. And obviously, in some way, they will adjust this channel and that will obviously bring some opportunities for us to capture.

[Operator]

Dani is also asking about FARM Brazil. And so she's asking if we could talk about the reactive adjustment processes. And what's the performance in this quarter? And what are the main changes and evolution we can expect from FARM in 2024?

[Roberto Jatahy Gonçalves, executive]

So when we looked at the changes and which changes these are, we actually had a perception that they could lead to this impact. And so this is going to continue to be captured in the next few years. And this revolution in our creative aspects doesn't intend to increment the revenue, but to have the long-lasting desirability of the brand. So this is going to happen, as we already mentioned, in cycles.And this happens in the rebrandings, to review the different processes which is all part of a company process that desires to have long-lasting perennial brands. So we consider this to be a natural process.

[Operator]

And Dani, and you mentioned also a pilot project for some of the Foxton and FARM products that are already being produced at the Hering industry. So he asked us to discuss this a little more. And if we expect to roll this out to other brands. And what are the gross margin gains we can already share about this project?

[Roberto Jatahy Gonçalves, executive]

So this project is a pilot project still. Initially, we had ever since the beginning of the acquisition with Hering this kind of thesis that was a lot -- that was in our minds, really, which is the possibility of being able to use Hering's Industry to be able to supply the brand, especially Grupo SOMA brands. So we've been working on this initiative through Foxton and FARM. We had a smaller volume there due to the volume of the operation. FARM has a bigger volume.But we do hope now that with all of the certainty that the Hering Industry delivers a ROIC that's very interesting. And we hope to roll this out to the other brands in the group that when you perform the rollout, you gain margins because you increase this and you deliver this product at a lower volume ex-Hering.

[Operator]

Our next question is coming from Maria Clara from Itau BBA. And she wants to know a little more about the trends for the quarter. SOMA was positively surprising with improvements in the days of the stock and inventory days. And she wants to know if from now, we should see a recovery in the profitability also of SOMA ex-Hering in the next quarters.

[Roberto Jatahy Gonçalves, executive]

First of all, our inventory is definitely our main focus, and it's a constant process. We look at this always almost monthly, and we're very closely focused on this. So whenever we understand this, we always have -- we see that this is something we're going to constantly search for with the optimization of these stocks. And of course, with the focus on optimizing margins, we don't want to buy too much. And we also don't want to have leftover of stock that could have a bigger full price turnover.But of course, we're going to leave too much money on the table if we have the stock out. So the idea is that we'll balance out the correct coverages and eventually, we'll bet more on these. And in others, we're a little more conservative. And so when we consider the SOMA ex-Hering brands, we maybe had a more conservative approach than what we saw throughout 2023.And the budget for 2022 kind of left us with some lessons learned, and we use this to be able to budget this. So what we're going to see this year is a trend for a shorter coverage and a healthier stock level. And then we consider that we're also going to be understanding if there's demand for this product, and then we'll be a little more reactive. So we're going to search for products and not run after the customers, right? So that's going to be a dynamic that will be inverted if compared to 2023.

[Operator]

And Maria Clara is also asking about at Hering, do you see potential for the margins to reach levels of 44% to 45% in the first quarter of 2024. So she would like to explore the levers that should sustain this improvement. And if we expect gains in regards to this level of margins throughout the year.

[Roberto Jatahy Gonçalves, executive]

So I would actually extend this question a bit more. When it comes to the scenario, we have in the short term to capture all of these gains that we consider would lead to results. And this is going to be very interesting. So this shift I was referring to in this policy for in season and pre season and not have these leftovers, as mentioned, with 20% to 25% more to then be able to have direct delivery to these wholesale brands.Of course, this would lead to leftovers and that would hinder our margins. So this is another important lever for an improvement in gross margins. And finally, something that we were not able to achieve is what I consider to be the biggest lever for improvements, which is repositioning the Hering brand and where you don't compare Hering with magazines and you start comparing Hering with a specialized operation and providing us with more room to have price point adjustments.So this is something that transforms Hering, and this is one of the biggest levers that we have in the mid- to long term.

[Operator]

Our next question is from Melissa from Bank of America. And she's asking about how you noticed that there was a more conservative approach to purchasing. How has the performance been in these channels in the first quarter of 2024 and what's the quality of the stock like in these channels?

[Roberto Jatahy Gonçalves, executive]

Well, we talked about this a little bit, but a little more of the same stuff here. But we do hope that -- well, we can see there's some resistance with most of the franchisees and really the resistance of the wholesalers to try out some female products with price points, especially for girls when we consider the product pyramid. And we can see that we've had results that are very interesting in B2C channels, not only when it comes to supply, but also the quality of the supply, which is something that we were not able to get adherence to with higher price points, but we do hope that over time, through -- we'll be able to demonstrate so that the franchisees can start adhering to this recommendation.

[Operator]

And Melissa also talks about NV. So about the NV restructuring, is there still any adjustments required? Is it possible to notice some improvements when it comes to sales and margins? Please, Roberto.

[Roberto Jatahy Gonçalves, executive]

Well, first of all, I think NV never had a margin issue. It was probably one of the highest margins in the group. When we talk about this, when we can see this -- we're far from reaching the full potential. So we do understand some difficulties in the supply in Brazil. And so we can see some brands that consider this access to luxury. So we performed major efforts in the last 3 years or 4 years to try to work and invest in some factories and refurbish them so that they could provide these kind of products.But when you consider the pace of growth, plus the acquisitions performed, this was higher than the capacity we had to provide this kind of supply. So the final decision in regards to this topic is a partial or temporary decision in some product lines that are considered strategic when it's outsourcing. And that's really where you have quality and price to work with these characteristics of products.So unfortunately, you have this issue with competitiveness, but you do gain quality and supply.And there's another issue here also about the wholesalers. Yes, besides all of the wholesalers, of course, where we still have like a showroom where Animale has 13 showrooms. We have one only for NV. And we have 17 NV stores, we could have 40. So we really need to unleash this value. It's a product that is more elaborate when it comes to its offering for plane fabrics. And we've been searching for this, and we're going to continue to invest a lot in this project to have an office that's more active and less passive when it comes to really providing the necessary support to certain product lines and luxury access brands.

[Operator]

Our next question comes from Eric from Santander. And he's asking Gabriel about the working capital dynamic with an improvement of 3 days in inventory days. But the stock levels are pretty stable on the year-over-year comparison. What can we expect as a possible additional evolution? Where are the opportunities to explore these up ahead? Please, Gabriel?

[Gabriel Silva Leite, executive]

I think I've already answered this question within the other questions. But just to reinforce this, I think our inventory grew if compared to '22, the company grew overall and will grow again, of course, so the stock or inventory is just a photograph of your future sales. So we're talking about almost 2 years accumulated between our stock or inventory today for the sales of '24, that's growing over '23 sales and so on.So we've been working on significant initiatives. We were very disciplined and careful in 2023. Looking at the scenarios for the second semester understanding that we would have to adjust the sales curve and the purchase curve as well to the same levels. And this kind of discipline will remain from now on. As I mentioned previously, the year of '24 is a year where we will certainly be focused more on a lower coverage agenda, and we should be more reactive as well as we start seeing a sales potential that's stronger.

[Operator]

Well, Ruben from Santander also sent us some questions that were already explored. But then he said, we can answer about the megastore we still didn't discuss in the call. About Hering, it becomes a lot more clear to see the success vision of the megastores. How should we think about this store based dynamic in the next years considering the success of these megastores, considering this gap and success between the new stores and franchisees?

[Roberto Jatahy Gonçalves, executive]

So the success of the megastores won't change our hybrid model of channels at Hering. So we have a lot of interest in operating better in this franchisee model and grow more in the wholesale brands as well. And these channels are going to be preserved and we really see a lot of value in this.About our own stores, what we notice is that it's a better purchase experience. And this is something we have been talking about when it comes to the brand repositioning. So we see the perceived brand value and all of the comparability that we have in our products versus the magazine. So when we have this megastore, we have like a different Hering, a Hering we can exhibit our assortment better.We've also talked about this in other calls, where we are working on the clusterization processes for architecture projects for some stores that are not megastores, but that are in influential zones or areas that are important for opinion making in Brazil. And our business plan is to reach the 100 megastores. And we could actually reach these considering their profitability. So while we don't have this model where we almost double our sales with an increment of 25% cost, it's kind of like a no-brainer to continue this operation.So it really intends to be in the main capitals in Brazil, providing clear signs that Hering we'll be leaving that small store model that's really messy and moving on to a better purchase experience with more structured stores that are -- have a better visual merchandise and better organization that's more attractive to customers.

[Operator]

As we head to the end of our call, we had a last question here from Luiza from XP about this combination of businesses. So can you talk about the timing of this operation and how we should consider the cultural shocks between companies?

[Roberto Jatahy Gonçalves, executive]

Well, the operation's timing does not really exist. What we see is that for the first time, I actually talked about this a few times. There was always a strong desire from both parties, me and Alexandre to have this mix in the operations and really create a house of brands. That could be very high potential and have even higher international visibility, but that it could be a Latin American house of brand.So of course, this is not new to anyone. There were always some fears naturally of a merger. The structures proposed previously thought of by me and Alexandre, they brought -- they would bring some issues and discomforts. And for the first time ever, we were able to reach a structure and model that could give us comfort. So a model that would consider the best exchange ratio, and we are searching for actually something that could be long lasting and perennial. So the co-control structure really gives us a lot more comfort when we think about a deal that should be sustainable.So let me try to explain this a little better. The objective here is that me and Alexandre can send together in the long term, just as we do with the Grupo SOMA assets with a lockup period that's longer. So that we can really ensure the interests of all brands and managers, shareholders and directors in the long term. And in order to keep them all in the long term, I would like and also have this lockup, I would like to have -- it's more important for me to instead of having bigger control, it's really the possibility of taking care of my assets and my equity and together with Alexandre.So this model was a model that brought major comfort to us and it helped unleash something we already wanted to work on for quite a while. So about the culture, while we've been considering a lot. And I think it's important to mention is that today maybe is a big focus of our conversations through consulting companies and the cultural aspects are really fundamental for us. And this experience, obviously, is something we have in SOMA where what we agreed upon with Alexandre is that the business combination will actually be replicating what we are already used to operating with here at SOMA, where we have alignment with the shareholders in the long term and partners and founders.And it really allows the brands to have autonomy. And so initially, we understand that protecting the company is important, right? So not only the culture, but also the brands. And we understand and believe that over time, we'll get to know each other better and search for the best paths and this concern will drop over time.And we'll be able to build a company with a new culture that's really interesting, and that will make us very proud all over Brazil.

[Operator]

So Roberto and Gabriel, I want to thank you all for your questions. We also want to thank all of the departments and areas that helped us achieve these results. The Investor Relations department is still available to answer any questions you may have. Thank you, and have a good afternoon.