M Dias Branco SA Industria e Comercio de Alimentos

BOVESPA:MDIA3

Earnings Call Transcript 2024-Q1

[Gustavo Theodozio, executive]

[Audio Gap] We continue to be focused on innovation, launching new products with higher added value. SG&A controlled at levels close to 20% of our net revenue, as we have been talking with you about since 2020, we're seeing an evolution -- a constant evolution of our margins, delivering the profitability that we had been speaking about. 82% of our debt is concentrated in the long-term debt is long-term debt. We start -- we continue [ by the ] AAA and a lot of discipline in relation to our strategic plan in this direction of growth but growth with profitability. I'm going to pass this along to Fabio Cefaly to look at this more detailed presentation of our results.And then at the end, I'll come back to talk to you some more.

[Fabio Cefaly, executive]

Gustavo, thank you so much. Thank you all. Okay. For 2024, in the first quarter of 2024 and details of the results, I would like to -- Gustavo mentioned a little bit about the principal numbers. What we see here is that the measures of generation of cash and profitability were much better than the last year. The EBITDA of BRL 277 million in this quarter. Since the first quarter, we had a growth of 60% versus the first quarter of last year. The profit -- net profit more than doubled since last year, BRL 155 million in profit.And our cash generation, operating cash generation was more than 2.4x the results of the same period last year. Net revenue was BRL 2.1 billion, well below that, which we registered last year basically for two reasons. One, the situation of average price is lower than last year, especially the categories with less added value such as wheat flour and [ margarines ]. We're a company that -- prices of commodities, which have fallen last year and continue to fall this year. Second factor was the implementation of SAP, which happened at the beginning of January, and this involved an interruption in our operations for a few days.And it is exactly on this point. I wanted to initiate my speech -- at the end of the presentation we're going to invite [ Mauro ], the Director of Technology and information to give us the context of a little more detail about the implementation of the SAP. The first thing I want to mention before we go through the numbers with an implementation, which was successful. We did in less than three months. And so in less than three months, we implemented this SAP. This happened in the month of January.And by the end of the quarter, we were able to recover our growth, recover our margins and gain market share in the quarter compared to the fourth quarter of last year. This implementation involved an interruption of operations from the standpoint of the factory and distribution and sales. At the beginning of January, it was an interruption which was necessary and programmed for the implementation of any type of ERP of this size and it represented a reduction in our sales and tons of approximately 31,000 tons in the first days of January.That was an equivalent of BRL 60 million in contribution margin. So we look here at the first graph on the left-hand side of this slid. Normally in the month of January, we have sales of 110 million tons if we look at the average for the last four or five years. This year we have a sale of 44 million tons. So there's 31,000 tons multiplied by the average price in January of BRL 5.1 per kilo with a contribution margin in the month of January of 37% brings us to an impact -- estimated impact due to this interruption of BRL 60 million. As I mentioned here previously, looking at these numbers, the volumes year-on-year, which were presented have shown a growth -- positive growth from January to February, February to March.So in January compared with last year, there's a fall off of volumes sold of 27%. In February, it was a recovery of year-on-year of the volumes of 7%. And we closed out the semester with 10% in the month of March, 175,000 tons that were sold in March is consolidated in the semester, wound up resulting in a reduction in volume of 1%. However, this result happened only in the month of January. As these volumes grew and the dilution of fixed costs increased, our EBITDA margin went from 3.2% in January and closing the month of March and 16.2%. So the idea of this slide is to show you that everybody understands [indiscernible] on the same page, what was the impact of this interruption, this necessary programmed interruption for the implementation of SAP.And going forward, Mauro will give you a little more information about what the context of this implementation. Here before going into these numbers, I wanted to highlight two things. The first is that we relaunched the repurchase of stock maximizing the generation of value for stockholders and also attending the long-term incentive program. The period of this program is 18 months with closing in October of 25 and the maximum possible quantity that we can repurchase is 3.5 million shares in that period. That will be the maximum repurchase. The other highlight has to do with our process of innovation.At this moment, we're launching a new Lamen, M. Dias Branco Lamen. This is being presented to clients in the APAS and the fare. And we believe that in the -- that the sales will begin next month. It's an innovation, which is -- for the New Year, it's a project which is inserted in our search for levers of growth with products of high added value. The Lamen market in Brazil is a relevant market. It's a market of more than BRL 4 billion, and it's a market which is closing out in the pasta market, and this in the last 5 years, grew 3.5% per year over the last 5 years in volume.In value, we had a growth of more than 10%. It was three years -- the project was three years in the making. We've consumed -- we consulted over 3,000 consumers, and this product of MG is beyond attending two characteristics, which are important for the consumer, which is practicality and indulgence are inherent to this project also brings the healthy factor. It's not fried. It's a technology that is similar to an air fryer, has less salt, less sodium and the same saver. And from the standpoint of practicality is ready in two minutes, being that the most -- the product -- majority of the market works with products that takes three minutes.So we're very confident that it will be an excellent launch. The clients are having contact with this product starting today in the APAS. And in the next semesters, we'll make a better report about the behavior of that. Going into the results, starting with the revenue and market share. The markets, the market information, the market overall biscuits and pastas -- cookies and [ masses ] and pasta. The biscuit market grew by 3% in value and the pasta market 5% in value. Both markets grew in volume. The cookies grew 1% year-on-year and pasta grew 5%. They also grew in units sold and in terms of average price.Cookies went up 2%, and pastas stay with the same price year-on-year, even at the moment of a falloff in commodity costs, commodity prices. The revenue had a retraction of 14%. As I mentioned previously, the principal factor here was this interruption in the sale in the beginning of January, which involved a relevant falloff in the volumes. And here the question of average price -- due to infection of the falloff in commodities, which has to do with the average price of wheat flour and margins. As I mentioned previously, it represents a retraction of 2.1% and a retraction in price of 13%.[indiscernible] market share during the period in the principal categories that we operate in, starting with the market share volume in Cookies at an expansion, sequential expansion of 31% in the fourth quarter to 32.6% in the first quarter. We looked at our back at the same result that we had this time of last year. In Pasta, we also grew from 28.2% to 28.6% and in wheat flour from 10.3% to 11.2%. So when we look, as I mentioned previously about the interruption, necessary interruption for SAP and the gain in market share is evidenced here at the company has been able to prepare very well for such an important transition of operating system coming from the [indiscernible] to the SAP. We've been able to supply our clients at the end of the year in a way that we did not have any kind of stock out for the final -- for the consumer at the beginning of January.So we have recovered our volumes sold to the clients within the quarter, and we assured the availability of products for the final consumers -- the gain in market share. Our market share value is -- had an expansion in Cookies and Wheat flower and a slight retraction of 0.2% in Pasta. The results for revenue for the two regions, MG is defense and attack was relatively similar. In the defense area we had a retraction of volume a little bit smaller due to the average -- the fact that we have had a recovery that was faster after the implementation of SAP. But in general, they were close.The numbers were close. Going from revenue and going to the question of taxes and expenses the first information that we have in relation to these two principal commodities. The red line shows the spot price of the market, both for wheat flour as well as for palm oil, our average cost and our stock. Both wheat as well as palm oil have presented reductions in prices year-on-year. The oil -- the palm oil in the quarter, our cost was below the market; for wheat flour was a little bit above the market, but that's because we have -- with wheat flour, we have a slightly bigger stock in relation to palm oil, which the revenue and the production has a recovery during the quarter.So the expectation is at some point in time in the next few months, our curve will basically come together with the market price. The gross margin was a good news for this quarter. We closed the quarter with 36.6%, above the 27.1% last year in the same quarter. The reduction of variable costs on the curve, we see per kilo and the fixed cost per kilo, the variable costs over these in the first quarter and of the fixed cost, stable fixed cost of 1.1%, seeing that we've been able to absorb the inflation of the period. And these two factors were enough compensate the falloff in average prices year-on-year of 36.6%, BRL 5.8 to BRL 5.2.So we got the positive inflation between the reduction of costs and reduction of costs recovering our volumes to close to 36.6% of gross margin for the period. SG&A, as we mentioned -- as Gustavo mentioned, we closed the month of March with 20.7% -- with sales based on net revenue. For the quarter, the percentage was 24%, but was strongly impacted by the reduction of sales in the month of January and by the recovery in February. So there was here a slight deleveraging operationally in terms of volume per revenue. But as the volumes recovered, we recovered -- we came back to the level of 20% to 21%, which has been our historical average since 2021, as you can see in the four quarters of 2023.As we see in the EBITDA margin for the quarter was 13% higher than the 7% of last year. The nominal EBIT also grew. The falloff quarter-on-quarter has a lot to do with the seasonality factor. We closed the month of March with 16.2%, which shows that the recovery after the implementation of the SAP system. Both net revenue as well as the net margin accompany the same trajectory of the EBITDA and the growth of nominal profit above that of the [indiscernible] is due to the financial results. We closed this quarter with a net cash and last year, we had a net debt. So this benefited our results, our financial results.Going into the generation of cash and debt and investments, we had a cash generation of BRL 138 million in this quarter versus BRL 57 million last year. The increase was due to the growth of EBITDA. And we also had an investment in working capital of BRL 143 million, basically for the recovery of the volumes and the recovery of production. What's proven here was clear from these numbers and I look at the two lines at the bottom on the stock level in clients, we go from 30 to 60 days. There was an effort to resupply all of our clients during the months of February and March.And so several one-off actions conceding more credit, better terms and using our unleveraged balance to offer this for -- to resupply the stocks to our clients. Our stock also increased from 64 to 102 days. This is in finished products, already discounting the environment for the next three months. Our suppliers were an increase of 59 to 75 days. This increase is positive for our cash generation. Basically, there were two factors involved. One is the calendar effect in the month of March. There's also the effort from the area of supplies of [ MGS ] and the other areas to increase gradually this line of suppliers.As I commented previously, we ended the quarter with more cash than debt, and this gives us a net cash position of BRL 0.1 times compared to the net debt, which is when the company has more debt than cash in the first quarter of '23. So it was a trajectory of deleveraging, which was very fast over the last quarters of 1.6 times to minus 0.1 times, and we closed the quarter with a AAA rating from Fitch. More than 81% of our debt is a long-term debt as Gustavo mentioned previously. We invested in a quarter BRL 52 million, 15% more than last year; the focus -- priority focus on the digital transformation area.If you remember now our strategy for growth, which all of you know, focus on our core business, which is the principal, which is cookies and wheat flour. There was a tremendous amount of growth in the last quarters and years. The rest is with the intention of deleveraging the brands of Latinex and international with exportations and [indiscernible], which presented very [indiscernible] gave us the first year, which helped us to maintain the company with growth and EBITDA margins above 10%.As I mentioned in the presentation of the previous quarter, our plan of growth for '24 involves levers and abilitators in the area of attack, Vitarella in the Southeast, Piraque, Jasmine and Finna as our principal brand of wheat flour for the consumer and now with cookies and with Lamen, as I mentioned previously, and the exclusive brands and the Cash & Carry, which in the Northeast has gained traction over the last few months. And this is a bet by the end of the year, an important bet for the end of the year. And for all of this to happen, this is what's happening -- helping to add this to happen -- marketing, especially in the higher added value products.Lemen is and unfried Lemen has received relevant -- when [ raising ] the sales, the excellent commercial excellence with joint business plan with a focus on points of sale with a better horizon of time for our clients. All of the revenue management, which is the details of pricing, service levels, all of the other levers and enablers -- one of them not working so that these products can be handed to our clients at the time and place and quantity agreed on and a digital transformation where Mauro will go into more details. Looking at our ESG, as Gustavo mentioned at the beginning of the presentation, we have an overview of some of the initiatives that are underway in Rio Grande do Sul.The -- this is the donations, which will be put together for the victims. So far, we have 47 tons of food destined for donations. We sent the first part of the 13th salary to the more than 1,100 employees of our Bento Goncalves employees and financial support food-baskets and psychological assistance to the employees. These are the indicators of sustainability for ESG of the quarter in the three pillars of ESG, which are commented in detail in the release.So now I'm going to pass it over to Mauro, who's our Director of Technology and Information is going to go into more detail, especially about what was the environment for this implementation of the SAP.

[Unknown Executive]

Good morning, everyone. I'm [ Mauro Constant ], Director of Technology for technology for M. Dias Branco. As I mentioned -- as Gustavo mentioned, and Theodozio, we are here to comment on our sales -- our digital sales in the project for the implementation of our new system. In the first quarter of 2024 was a historic moment for M. Dias Branco with the implementation of the new SAP 400. And it's an important jump in business processes, where we focus greatly on the simplification of our processes and the utilization of a standard, the best practices in the market.With this slide here, which I presented at the M. Dias Branco Day in December of '22 is of the main enablers of this -- for the -- we're trying to internalize the E-team with great capacities, technical and behavioral aligned with our business, the retention -- attraction retention of talent, focus on value creation and also maximizing and bringing more return on the investments in technology, technologies which touch our returns, the great enablers and our strategy. Also on the program of innovation -- we continue to advance connecting with several start-ups seeking challenges in the business, looked at by our Committee of Innovation.We're looking at methodologies and agile technologies so that our company the size that we have is able to react quickly to any major changes in the market. And the last point is the democratization of technology, where we try to find our sales through digital agility, the non-tech people will assume this technology in low code and RPA technologies, the development of panels, analytic panels. Talking about the problem -- the project is simplify project, the implementation of the SAP. It was the modernization of the change of our Oracle EBS, which was set up in 2007 when we did our IPO and now we've changed it to a latest generation SAP, the newest and more scalable, more secure.The only thing that is used in the only will be used in Uruguay and any other unit with our capacity for organic and inorganic growth, both in Brazil and outside and it's also in line with our ESG agenda, where we try to optimize our technological resources focused on sustainability. So today, the ERP is running in a big public cloud, the AWS, a market which is highly available with two data centers in Sao Paulo and also in Southern U.S. guaranteeing the continuity of our business. The project went way beyond ERP, which we started in 2020, where we wanted to change the dehydrating the -- we had -- it was 80%. It was 75% customized.And we took our 80 legacy systems, taking -- adding and accelerating the implementation of the new ERP via SAP, minimizing the customization and using as much as possible the standard use. We look at the numbers of the project in the next slide. We can see the size of this project. The strategy of implementation was greenfield. In other words, we started from nothing integrating the new ERP with 27 existing systems and our -- and beyond the greenfield, we also utilized the strategy of big bang where we put all of the units at the same time so that we would be able to utilize -- since the beginning of the fiscal year, the same ERP, one ERP to manage all of our operations, looking at the complexity of data caused by the use of two different ERPs.For the implementation of this ERP, we had a blackout of three days from the 1st of January to the 3rd of January, we took advantage of this period to migrate all of our data, integrate the systems, do the tests and from the 4th to 7th January, piloted three units. And from the 8th to the 10th, we had a ramp-up of all of our units. This explains the impact on the month of January of the 31,000 tons that we did not produce because the units were not yet with the ERPs as was mentioned by Fabio Cefaly.And this slide here, we said that where we did the centers of distribution, 27 centers of distribution, more than 700 people were involved on this team, both for M. Dias Branco as well as our partners, 320 business process mapped out, which were implemented in the new ERP, 7% -- only 7%, 23 processes were customized with a new report, new functions because the ERP did not [ attend ] us. We talked about the Big Bang. We had to train all of our users and employees in the new ERP, we had more than 16,000 participation in training, connecting 47 legacy systems and managing more than 20 different suppliers, technology supplies, 20 different technology suppliers.Looking at the forward -- we will see how do we look at these waves of digital technology. The first wave we call the debt technological bet, where we have to advance connectivity with WiFi in the cloud with Microsoft 3.6 bringing agility to our employees, we executed the second -- the first wave in parallel with this digital transformation, while the debt [indiscernible] debt was implemented in planning systems and platforms, which are structural, and we accelerated the digital transformation for the 38 system that I mentioned.And now with the implementation -- successful implementation between our ERP and our SAP for HANA, we started the third wave, which is called Efficiency, Digital Efficiency where we seek efficiency in our core processes with the use of tools which is such as a life cycle level product, the modernization of our ITP, which is our tool of integrated management. The final adjustments of our ERP, which we did and the use of intelligence, generative AI, which was a co-pilot, and we want to become -- turn our employees and our employees of M. Dias Branco super employees.So we're in development of certain questions looking at the finance -- just to create a road map digital intelligence, generative AI, and we seek to increase the efficiency of our sales force and our employees, and we try to democratizing the company and the governance of these tools with artificial intelligence. This is aligned with our innovation team with diverse areas for analyses that are prescriptive to become a more agile company in the facing our challenges compared with our competitors.So that's what I have. And I'm going to pass it back over to Gustavo.

[Gustavo Theodozio, executive]

So that's it. We're going to open up the Q&A session here and then we'll come back for any -- for a final comment.

[Operator]

[Operator Instructions] Our first question comes from Thiago Duarte of BTG Pactual.

[Thiago Duarte, analyst]

Good morning Gustavo and Fabio. It's a good opportunity to speak with you as always. I wanted to bring two questions to discuss a little bit more. First of all, the question of volumes, Fabio in his presentation said and it was a little bit -- that volume that was stronger for the fourth quarter. It was in anticipation of the clients to take advantage of the adjustments and the implementation of the SAP.And on the other hand, over this quarter, you showed that month-on-month the acceleration of volume, when I look at the volume of March, it looks very strong for one month, considering that the recent history, the recent past where your monthly volumes -- average monthly volumes when you look at the average monthly volumes of the company. So I wanted to see if you could qualify for us this volume in March is also a little bit of the reconstruction of stock by the clients so that not only in anticipation of the fourth quarter, but also during February and March, trying to understand a little bit more -- qualify this very strong volume in March, which you have shown us here. Also in the discussion of volumes, it's very clear that what the company has done, there has been a very strong concern.There's always been a very strong concern for the recovery of market share, which was lost during recent periods. So we wanted to see if you could qualify for us how comfortable you are with the current level -- this seeking a recovery of share is at what level? And where do you want to get -- you're trying to imagine when you consider your market share to be fair, it was balanced for the company. And also, finally, if I could extend my question, if you could tell me a little bit about the average price.I remember that in the last teleconference, where Gustavo mentioned that he had even an expectation a recovery of prices, average prices in the first quarter, which did not happen. So obviously, there -- you're talking -- you mentioned in the release, there are questions of mix -- the falloff in prices in commodity prices. If you could elaborate a little bit more for us going forward, what space innovation has -- whether it be price or mix be able to deliver an average price that we don't see in the first quarter. Those are my questions.

[Gustavo Theodozio, executive]

Okay, Fabio. I'm going to start here and then Fabio can thank you for your question. I'm going to speak with you again. Let's take one step back to go into your question about March. What in practice has happened is we had done a planning to have a relatively high security stock in December because with the implementation of the program was going to mean that the factories are being stopped for 8 to 10 days in January, we raised our stocks in December, so we'll be able to cover the market during January. The problem is that the fourth quarter came very, very strong.The very strong sales in the fourth quarter wound up consuming more of our security stock. So in January, I didn't start off with the security stock that I wanted. It was lower than we thought. So we love stock out in January and since I only ran in the second half of January, my factories running. February was also affected by not being able to form these stocks to build the stocks to be able to attend the demand of all my clients, the sell-in. So this happened in March, which happened in March.So I gained market share, why because they were supplied due to the strong sales in December, they were able to be supplied for January and in some cases, for February with a little more protection of M. Dias. In March, I would say that the normalcy came back with the stocks to levels that are acceptable and the [indiscernible] diminishing. If you look forward looking at the data of the market, it's good news. We had a question of -- it was an interesting question. As Mauro mentioned in 2007, we implemented Oracle, it was time to do a migration due to the way that the company -- the size of the company has become a much bigger company, much more sophisticated with more operations in the States and with the most recent acquisitions.And so we saw demand to have infrastructure, our data infrastructure which is better, which is part of our agenda of transformation -- this was normalized in March. When we look at the market, we don't see March as an outlier. We're at the beginning of May, and the sell-out continues strong. The first quarter was only not better due to this lack of stock on hand which we tried to form -- just protect us during this transformation. But the market has recovered well. We've seen this in the Nielsen data, and we see this growth. Theoretically, it's a good problem. It's easy to resolve because it's all in-house -- and the process of implementation is passed.So now we're capturing this volume, diminishing the stock out and rebuilding stocks and preparing for the second quarter, which is what we're seeing. So obviously, the volume continues strong. Market share, we could say below one-third of the market is something that we -- market share below one-third of the market is something that we don't really like. Anything above one-third is already on the balance between market share and profitability.But anything below one-third of the market is something that we would be worried about. We understand that we're recovering, as we've said, this market share with responsibility. We operate market share without losing our margins, recomposing our EBITDA margins and our net profit margins, and we've seen a growing -- we've seen this growing quarter-after-quarter. You see that February was 14.2%. March was 16.2%.

[Fabio Cefaly, executive]

[Foreign Language] Why cookies because it represents half of our revenue, and it's a category we have the biggest margins. So we had a reduction in average price in the fourth quarter for the first quarter and about 1.7%. 90% of that of this falloff was in mix. So it's practically no reduction in price and mix in the lines, as Gustavo mentioned, we started to grow more in a more accelerated way and in the categories of cookies, where we lost the share over recent years. Like as Maria Maizena, cream crackers, which are products in volume, which when they grow, they improve the dilution of our fixed prices, which is positive also for the evolution of our margins.

[Operator]

Our next question is from Guilherme Palhares from Santander.

[Guilherme Palhares, analyst]

I want to thank you also for the donations you're making for the southern region. Situation continues very difficult. So I wanted to take advantage to mention that helping for employees and helping all your employees, they are safe and will come out of this [indiscernible]. I have two quick questions following what Thiago mentioned, if you could open -- update us on -- on the stock in the chain do you see any stock problems? Is there a stock-out problem or will be normal at the beginning of May -- in terms of stock in the chain due to this dynamic of sellout, which apparently was higher than you imagine. And the second point when talking about the price lists this has happened in all segs, new prices as that applied in all segments and the level of intensity of these prices

[Gustavo Theodozio, executive]

How are we doing today in terms of stock? We imagine that the limit of ideal stock to 90, 93 days. We closed well below that. And we look today at our stocks in middle of May, our stocks have all been rebuilt. We should not have any more problem relevant problem in stock-outs. And we see this in the month of May. And we should close with the same perspective, no type of problem of supply basically for the sell-in for June.The plants are running at levels that are higher than last year, basically due to the movement that we've seen in the strong sellout. The stocks are being rebuilt. No expectation of stock-outs for May or June. We had a little bit of a rupture in May, not relevant to [indiscernible] stock-outs in January and February. But we now -- we're fully aware of the problem and should have sold completely in May and June. So we should back to our volumes of stocks should be well normalized in May and June.

[Fabio Cefaly, executive]

Okay Guilherme. Answering the second part of your question in relation to our price list. As Gustavo mentioned previously, we made an increase in the month of April in cookies, Pasta's and wheat flour. There was a percentage of increase in these categories of 2% to 5%. There are some variations in sub-categories and regions, but it was something between 2% and 5%.

[Guilherme Palhares, analyst]

Just to make one follow-up question. I imagine that and the question of M. Dias having the visibility, how is your turnover in retailing and the capture of this [ preference ] price list?

[Gustavo Theodozio, executive]

Guilherme, you're correct -- we're talking about stocks and we're talking about M. Dias. The indicators of sales attending our orders from the retailers, the [ DIF ] show us that we are supplying within the time -- correct time and the correct mix, the retailer. I'm not -- I don't have here today the data for retailing, but I can get that and [indiscernible] can send you that following up.

[Operator]

Our next question comes from Pedro Fonseca from [ XP ].

[Pedro Fonseca, analyst]

My first question is about the channel perhaps more directed towards Mauro. Because you explained to us that the recovery of Cash & Carry coming from the change of the ERP was quicker. Is there was any motive for that -- specific motive, more operational? And this represented a growth in the Cash & Carry sales, but it's also a channel which has already been growing quite a bit. So my question is, is the tendency for us to expect this to fall off in the next quarters as activity or maintaining the actual -- current levels?What can we expect in terms of share in Cash & Carry? And also as far as Cash & Carry it would be interesting if you could tell us -- share with us a little bit of how is the performance of the exclusive brands? This is something that we talked quite a bit about in the call of results as how you guys are performing. And the second question, forgive me if this is already answered, but when Gustavo was answering the first question, I got a little bit cut off here. The sequential prices in past that have any effect from mix? I'm talking about mix of channels or was that a -- was that the falloff in the category as a whole?

[Fabio Cefaly, executive]

This is Fabio speaking. I'm going to start answering. And then after that, if necessary, Gustavo and Mauro will join in. The first question on the Cash & Carry, it represents 30% of our sales in this quarter above the fourth quarter of last year. And what happened in practice was since it's a volume-wise a channel, which is a high-volume channel and represented a recovery of the orders more quickly than the other channels. We're also able to attend this channel in a way that was a little more accelerated -- there was no change in strategy or focus or commercial focus.It was much more a question of a context of the first quarter due to the interruption that Mauro described here in the details and afterwards, after -- later than that the recovery. So as Mauro commented [indiscernible] here, this has to do with -- since the volumes are higher and the distribution is simpler because these are large closed cargoes. This was the category that we sent the first cargoes due to the volume that they sell.It's much more a question of prioritization due to the simplified delivery process, then eventually, the problem of definition of the system, implementation of the system, etcetera, has to do with distribution the simpler distribution in everything leads in a closed truck makes this process more simple. So it's just that, excuse me, Fabio. The question of the exclusive brands, which today there are three brands for three large Cash & Carry clients. We started to -- in the first quarter, we had -- and afterwards, we gained traction month-on-month.So we have products with lower average prices. They do not compete with the other brands of M. Dias. And this model is very, very much connected with our clients. So obviously, we monitor this cannibalization, but this is not a theme that it's not a problem that we see today. These are brands that have added volume to our revenue. The expectation is that these three brands will gain traction over the next few months. In relation to the price of pasta's, there was an impact, a mix impact, which is much lower than in cookies. There was, yes, some adjustments in price. It was a little more competitiveness in certain items in this category.

[Pedro Fonseca, analyst]

That's very clear. Just to confirm one point, this sequential falling in the price of pasta, combined with the Cash & Carry increase -- and the launch of the exclusive brands, private labels, does this explain this falloff in prices? Just to confirm that.

[Fabio Cefaly, executive]

Within pasta, there are several subcategories. There's Lamen which has a lower price in the market and also the price of wheat fell in recent months and the price of the common pasta has accompanied that commodity price. So yes, there was a reduction in price in the subcategory of products.

[Operator]

Our next question comes from Gustavo Troyano from Itau BBA.

[Gustavo Troyano, analyst]

I wanted to come back to another question that when you mentioned about the increase in the price increase in price lists in February. There was a convergence of your costs with the cost of the industry, which is running a little bit below the price of acquisition, but I wanted to see is that we see an increase in prices with a reduction in costs in the second quarter. This is second half of the year and there's months up until now.And the second question is based on that is how do you look with the -- how do you see the industry behaving in relation to this dynamic? It'd be interesting to understand within the pasta and cookies how you see the rationality of prices. If the industry has accompanied the prices that you have listed and how is this dynamic of market share in the second quarter right now -- in the second half of the year in the second quarter?

[Fabio Cefaly, executive]

This is Fabio speaking. Your comment in relation to the relations in price and cost is correct. When we look at the curves, these are moves at a very gradual principally due to cost factors. There is an expectation, as you mentioned, yes, but it's something that will be very gradual. In relation to the dynamic of prices in the market what we've seen is a dynamic that is rational. I'm going to use some public data. When we look at the [ IPCA ] of cookies the price is practically stable.Over the accumulated for this year is falling less than 1%. Pasta the same thing; Wheat Flour, the same thing because it accompanies the commodity. But when you look at the short term, the dynamic of March and April, it looks at a scenario which could have some increases in prices, commodity prices. There is a possibility of some increase in commodity prices, which opens up space for a change in the prices of the [indiscernible] as we commented previously.

[Operator]

Our next question is from Isabella Simonato from Bank of America.

[Isabella Simonato, analyst]

Thank you Gustavo, Fabio. I'm going to come back to this discussion of market share and the price, especially the price of Pastas. You mentioned that you have a comfortable level of share in both categories. And first of all, I wanted to clarify if we're talking about volume or value, see if we're on the same page. And then independent of that metric, when we look at pastas, is still a little bit above this level when we talk about the cookies.And so that in this quarter, you're a little bit more promotional than the rest of the market. And even so unless you have -- if I'm reading this correctly, but I see that you had an answer in share, which was a little bit slower. So in reality, I wanted to understand when we talk about the strategy of Pastas and the focus of the company in general, on innovation and adding value -- how does that apply -- so the category of pastas specifically of masses which is always a press -- it's something that showed the movements and prices of investor competition. So first of all, I wanted to clarify -- I want to tie this all together. Taking in mind what you're planning in terms of share over time.

[Gustavo Theodozio, executive]

Thank you, Isabella. I'm going to start here Fabio, and then if you could add on if you feel. We're already talking about market share volume -- margin market share, one third in volume. In terms of market share, if we look at the most recent quarters -- I was starting to point out there's a question of well concentrated. In the common Pastas [indiscernible] in the Northeast the biggest trouble was not to offer prices, discount prices. It was much more the re-adequation of the product profile.And then I'm not sure it was the last call or the second to last call, where [indiscernible] new brands with lower price -- but differently from the other time when we came in with the private labels -- so now we enter instead of just low price we look at low cost. So there were changes -- internally changes in the formulation strategy of different packaging so that the product will be not only less costly, but also become more cheaper with very lower costs. So the margins continue at a growing level.So this is a little bit of our strategy. We're not to promote brands that were existing. I increased the volume of the brands, the exclusive brands. So that was the principal strategy for this gain in market share in the short term, which we saw now. It's very much concentrated in Pasta [indiscernible]. The strategy of the company, even though we are not comfortable when the market share is below one-third of the market. And I'm going to ask you to give me a little color the program of the company, looking at the -- looking forward is growth.The three dimensions of growth more and better in Brazil, entry in new categories, nationalization. But the first pillar is growth in Brazil. Very much run by the accompanying opportunities that the company sees in the Southeast. So we still have a trajectory -- a very big trajectory that goes through marketing. We have increased the investment in marketing. It goes through a better level of services in the South-Southeast. We don't have the same level of service that we have in the North-Northeast yet. It goes to the points of sale, the biggest bargains with certain regionals in the South-Southeast.So we have a very robust program. If we look at the strategic plan in the first pillar, we have had the several consultancies to look at the operation. What we've done recently in common Pastas is a tactical plan for the recovery of market share. But even in the long term, we're talking about growth, but once again, growth with profitability. No, not going to do anything crazy. We're going to -- we have a position that's more conservative to grow, taking one step at a time so we don't have to step backwards. This is our trajectory in that direction.

[Isabella Simonato, analyst]

Thank you for the explanation. And for the question of Pedro and his question of exclusive brands can you quantify what that means inside of the category of pastas and also orient us a little bit more the average margins that you're looking at compared to the rest of the portfolio of pastas? The higher numbers above and little bit of the delta between what it is now and what you would like it to be?

[Gustavo Theodozio, executive]

We have become a category which is more relevant, as you mentioned, one of the drivers of strategy is where we can contribute. We need a little bit more of color than what we're seeing. Still very small this volume. I'm talking about a price that's 10% or 20% lower in the exclusive brands. As I mentioned, we have the cost -- the lower cost, but it's still very much concentrated because we're doing this to -- for some Cash & Carry, is still very much concentrated in the Northeast -- we started with three or four -- it was four now and three.So it's still a small volume -- during the negotiation with these players to guarantee that these volumes of these brands, which are already existing that are already in the market, we're not diminished. We're not -- we won't be cutting that back. We're going to deliver these brands, the exclusive brands that you'll be able to bring a flow to the stores. This cash flow, this sales flow to the stores. Price is lower to the consumer, but the guarantee that we're going to maintain the historic volumes of purchases of the other brands. We're doing this with great cautiously. You're not going to see any crazy things growing in a crazy way. It's going to be consistent growth but slow. It won't be tremendously relevant.

[Operator]

Our next question comes from Lucas Ferreira of J.P. Morgan.

[Lucas Ferreira, analyst]

Just I have two follow-ups. One is about prices -- of the -- prices and my question is about these prices isn't coming just to compensate the increase of the ICMS in those columns in those states that have recently changed their laws. Just given if you have an estimate -- average estimate of how much this increase of 2% to 5% has been announced in this increase in prices? The second question -- when you go to the question of the portfolio is how to make this portfolio more premium -- the premiumization of the portfolio, so to speak such as Jasmine and Latinex -- it was becoming more premium to make this more premium.My doubt is when you look at the strategy of the company, we're looking at two points, but it starts -- it continues to be a strategy of premiumization, but these new brands that you're putting -- that you're launching that I imagine that it will be a good part of the growth of this volume in the next quarter. And the gross margin is -- if you look at the average margin, even with this growth in volume, it's a question of the -- this gross margin grew. So this is my question. If this movement is going to diminish a little bit the gross margins from the standpoint of the strategy, both looking at the premiumization that what we've been seeing.

[Gustavo Theodozio, executive]

In truth, the strategy continues to be the same, adding value. It's what we always say. There's no point to prioritize only profitability. You can't prioritize only market share. In fact, you have to run the company looking at both. There's no magic formula in management. So if you're very much looking only at margins, then you lose share, if you look at only a market share, you'll lose margin. So there's no -- it's not a decision, a simple, easy question.So [indiscernible] implement the exclusive brands, again, re-implement these exclusive brands, as I mentioned, low price but also low cost to be able to hold up the loss of market share and aim at the capacity -- the productive capacity of our factories with fixed costs and so forth, which is a strategy that -- which has done make it unviable to have strategies for gains of margins to the growth that you're seeing with the Piraque brand, which has a high -- slightly higher price, all of our most recent launches, without exception, were launches with higher margins than the average of M. Dias in the -- we have several products in the market but the launch of the non-fried Lamens new prices to air fried Lamens, which will guarantee a pricing, which is higher than the conventional Lamen.We have a question, a very robust plan for the expansion of what's healthy. We have a Director who is responsible for the expansion, who's [ Lobo ] from Jasmine with Fit Food. We have a campaign -- a marketing campaign for the first time for Jasmine looking at the expansion of that company. So there's a lot of things happening at one time. It's not that we haven't stepped back and looking only at market share, no. The grouping of actions, which address both vectors of growth for the company.However, the size of the company, it's important to be concerned with capacity -- production capacity and market share. We're not leaving behind the strategy of the healthy products, helpful and added value products, such as the dynamic that you mentioned of snacks and so forth going forward. I'm going to also pass this over to Fabio, but in relation to the increased price increase in relation to ICMS, specifically, we don't made this change for the states where we pointed out in the last quarter.Some states in the South-Southeast posted some increases. We have several states in the Northeast that are increasing. This price increase also take into consideration this new tax laws. There was the approval of this legislation of certain fiscal benefits, which even though for [ MEG ] doesn't have much effect because we're [indiscernible] company. But we also had an effect on some commodities, a little bit of the mix of cost increases and expenses that we have looked at. Fabio, did you have anything else to add?

[Fabio Cefaly, executive]

Thank you, Gustavo. I just wanted to add to the first part of your question about pricing and premium products, a movement -- we conversed about this in the category of brands. These are not exclusive. One time -- once we see an effort in recovering the volume and recovering market share in the category as a whole, but especially in the simple pastas, which has a huge volume, especially in the Northeast, where at the same time, they launched at Gustavo mentioned of this new Lamen product.We like the pricing of this new Lamen in terms of reals per kilo has a price which is 80% higher than the average price of [ MGs ] masses. So we're able to evolve in [ this tools ] having volume and a better lower prices, and it was benefits to the majority of consumers and looking at our gross margins. We also have the capacity to do innovation, new products, which make -- will be disruptive in the park, which has an average price quite a bit higher, which has an opportunity for health -- for growth, for strong growth. The category within volume grew almost 4% a year in recent years. So to prove what we've said here, these ways for are not exclusive. They end up adding to each other.

[Operator]

The session and answer question is now closed. I would like to pass it over to Gustavo so that he can make his final consideration.

[Gustavo Troyano, analyst]

I like to thank you all for your participation, and we place ourselves at your disposal, myself and Fabio and all of the IR team to clarify any questions that you might have. Thank you all very much.

[Operator]

The video conference of M. Dias Branco is now closed. We thank you for your participation, and please have a good day.