M Dias Branco SA Industria e Comercio de Alimentos
BOVESPA:MDIA3
Earnings Call Analysis
Q4-2023 Analysis
M Dias Branco SA Industria e Comercio de Alimentos
The company achieved record net revenue of BRL 10.8 billion, marking a 7% growth compared to the previous year. Notably, it closed the year with an impressive EBITDA of BRL 1.4 billion, demonstrating explosive growth of 265% in the fourth quarter relative to the same period of 2022. Net profit also reached a historic high of BRL 889 million, an 85% rise from 2022, indicating robust profitability. This financial strength was bolstered by disciplined working capital management leading to a significant cash generation of BRL 2,126 million.
The company strategically invested approximately 2% of its net revenue in marketing, up from less than 1% in previous years, focusing on its 20 brands. Efforts prioritized the Piraque brand, which now leads Brazil's premium cookies and crackers segment and saw notable growth. This strategic positioning aligned with the company's aim for higher value-added sales, with such categories expanding by 31% from 2022 to 2023. The enhancements in marketing have directly contributed to a surge in revenue from new product launches amounting to BRL 299 million, underscoring the success of introducing items that command higher average prices and margins.
The company's focus on operational efficiency and improving service levels, such as OTIF and case fill rate, has facilitated impressive volume sales growth, with 9% growth in the quarter and 4% for the year. Additionally, it has streamlined costs through strategic initiatives like optimized pricing, portfolio adjustments removing low-profit items, and leveraging working capital to drive volume. These actions have led to a gross margin recovery, culminating at 36.3% for the quarter and 33% for the year. Administrative expenses have been managed effectively, maintaining at 20.5% of net revenue, compared to 25% three years ago.
M. Dias Branco showcased financial prudence by releasing working capital of BRL 825 million and achieving a net cash position of negative BRL 74 million, which is a remarkable stance of nearly zero leverage (0.1x). The company balanced its capital expenditures, allocating BRL 367 million toward maintenance and SAP system implementation. The conscientious approach extended to returning value to shareholders, with the stock value increasing by 9.6% and maintaining exemplary transparency recognized by ANEFAC for the sixth consecutive year.
The company solidified its commitment to environmental, social, and governance standards with an improved MSCI ESG rating of AA and a notable rise in its CDP score from D to A, evidencing a strong focus on carbon footprint reduction. Participation in key indices such as ISE and being recognized as a Great Place to Work further reinforce M. Dias Branco's dedication to sustainable operations and social responsibility.
Leveraged levers such as cross-selling and innovations targeting high-margin segments are focal points for 2024, along with selective brand reintroductions to enhance competitiveness without cannibalization. The acquisition strategy remains poised, awaiting opportunities that align with business objectives and prudent financial multiples. Further margin expansion is anticipated, and the company expresses confidence in achieving EBITDA margin goals of 15% to 20%, while preserving market share gains in a structured and profitable manner.
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Good morning. Welcome to the video conference of M. Dias Branco with reference to the fourth quarter results of '23. We have with us, Gustavo Lopes Theodozio, Vice President of Investments and Controllership; and Fábio Cefaly, New Business and Investor Relations Officer.
We'd like to inform you that this event is being recorded. [Operator Instructions] The translation is available, clicking on the interpretation button. For those listening to the video conference in English, the original audio in Portugese can be muted by clicking on Mute Original Audio at the bottom of the platform. Webcast is also being broadcast simultaneously on YouTube at the address youtube.com/rimdias. We'd also like to let you know that any declarations that may be made during this teleconference with relation to the perspectives of business for M. Dias Branco projections and other operational events are based on projections and estimates that based on information currently available that involve risks and uncertainties and premises as they refer to future events and therefore, the circumstances, which may or may not occur. Investors should understand that economic conditions of the industry as well as other operational factors may affect the future performance of M. Dias Branco and bring to results that are substantially different than those which are mentioned today. I'd like to now pass it over to Gustavo, who will begin the presentation. Gustavo, please go ahead.
Good morning. Thank you. Good morning, everyone. Welcome to our results call. I would like to start by thanking our employees for their hard work during 2023. Always with great deal of dedication and work and especially discipline in the execution. Thanks to this team. And of course, the support of our stockholders, the company has been transforming itself with the delivery of consistently results -- consistent results in accordance with our plan. We are more and more certain that besides the hard journey, we're heading in the right direction, seeking excellence, looking for excellence in the commercial presentation and distribution, an improvement in the level of services and our portfolio, adding more value and new SKUs and also new premium categories, controlling our expense -- the company's expenses and the cash management and working capital, strengthening our brands, efficiency in our production lines and maintaining the quality of our products, recognized by our consumers. Starting off with the first slide, we see the results. I wanted to point out, first of all, record numbers in the history of M. Dias, both in net revenue as well as EBITDA and cash generation. I'm going to pass to each one of them. Net revenue for '23 as well as with BRL 10.8 billion with growth of 7% in relation to 2022. When we look at the quarter, the last quarter of the year, we closed with net revenue of BRL 2.8 billion and EBITDA of BRL 1.4 billion, record from the history of the company. The company had never been more than BRL 1 billion previously. This represents growth of 59% in relation to '22 with a delivery of EBITDA of BRL 442 million, with representing a growth of 265% in relation to the fourth quarter of 2022. The record net profit in the history of the company of BRL 889 million with a growth of 85% in relation to the same period of 2022. The EBITDA growing -- more than the EBITDA, we have in percentage terms, greatly due to the generation of cash, the company's cash generation, the operation of our operational results and also a greater discipline in working capital, something that we have been working on since 2009, which has been very relevant. And the generation -- record generation in 2022 reached BRL 2,126 million, generating cash of BRL 584 million. So the results that we're very proud of, and we're going to describe this in more detail as we go along in a little more detail.
Fábio Cefaly, our Director of Relations with Investors. I'm going to pass it over to Fábio now. Have a good day. Thank you all.
Thank you. Good morning, everyone. Before we go into the details of the numbers, I wanted to exemplify and illustrate some of the initiatives that Gustavo mentioned in his introduction about this process of transformation of M. Dias Branco, which we've been going through. So now starting with the upper left-hand corner. This is the first point in relation to our marketing plans. Marketing has always been focused on selling more and better. Selling more means have more volume and better means have better margins and a higher average price. So we've been concentrating our efforts in marketing and some of our 20 brands, which M. Dias Branco has plus highlighting Piraque, which is our principal brand with a premium price. Piraque brand was very well recognized during 2023. It won 2 gold Lions in Cannes. It grew from '21 to '22 -- from '22 to '23. And today, it's the principal brand of premium crackers and biscuits in Brazil. In this price point, the brand Adria, was considered top brand in pasta. And we also had the recognition of other brands of M. Dias such as Vitarella.
So it's important to remember that several years ago, we invested less than 1% of our net revenue in marketing. And today, we were investing 2% -- approximately 2% of our -- in marketing to sell more and sell better. Catching a right on marketing, the highest value-added items, which are combined with our strategy of launches, which has grown at very high rates, what we call other categories, which is beyond those -- which are cookies and crackers and pastas and margarines. This group of categories such as snacks, granolas, healthy foods, has grown by 31% from '21 to '22 -- '22 to '23, a sign that M. Dias Branco is able to add items to its portfolio with higher value-added and have faster growth in markets that grow quickly that grow by 2 digits, double digits year-on-year.
Our core categories such as cookies and crackers have also had an important contribution to the results of 2023. We had a record number in our revenue derived from our launches of new cookies and crackers, BRL 299 million in reference to the launches of '22 and '23. All of this growth is based on the volume of revenue would not have been possible without an improvement in our level of service. Here, we're talking about delivering to the clients who are the retailers in the time and quantity requested, refreshing the OTIF and the case rating, replace to work, which we measure our level of services.
Case fill rate was 84%, and we finished '23 with 92%. And the OTIF, which is the very important indicator, which goes down into the details, we had a 40% rate in and we closed '23 with 76%. But a series of initiatives in the industry, to combine industry efficiency and technology, we call it Industry 4.0, which is about efficiency, gains in product -- relevant gains and productivity for our results. The model of perfect store, which reflects what everything that Gustavo mentioned about the commercial execution perfect in the point of sale. We have very clear metrics tied to remuneration of the commercial team, who are present in stores, represents 70% of our sales of cookies and crackers and pasta and other categories as well. We already have had -- always have -- always heard our stockholders and our minority stockholders, and we increased the payout from 60% to 80%, and our dividend for the quarter from BRL 0.05 to BRL 0.06 per share.
We're known as a Great Place To Work for the first time in 2023. Implemented in the beginning of 2024, SAP, which is very important to give us more strengthening of our systems architecture. We combined our 2 factories for healthy snacks, which is Jasmine and Latinex, in the Jasmine [indiscernible]. We implemented the model of -- commercial model, which is much more collaborative between M. Dias and its clients, which is JBP, joint business plan, which is a model which gives more visibility. We have the visibility of at least 1 year with these questions due to the commercial questions and volumes. And these combined are revisited every 2 months, which is an overview of some of the initiatives that have been executed by M. Dias Branco in the last 3 years, which have been relevant for the improvement of our results from the standpoint of volume and margins.
Remembering that in the 3-year period of '20 to '23, our margins were highly hit by the high increase in the cost of wheat due to the devaluation of the real. And so a lot of our -- this growth has not seen in our results. But now with the standpoint of commodities and exchange being more stable, we're starting to see these structural improvements appearing in our financial results.
So remembering what's our strategy. Our strategy has 3 pillars for growth: one, sell more and better for -- in our current business, which are cookie business -- cookie and cracker business with growth in this area of Center West to South and Southeast, which depending our area in the defense area, which is the North and Northeast. Entering into new categories, which has materialized over recent years such as snacks with Jasmine and with the Latinex brands and Internationally through our exports through the acquisition of Las Acacias in Uruguay, this supported by a continuous program of productivity and efficiency.
Going into the details of our results. I want to look at the area of revenue and market share. The first information -- relevant information here is in relation to the 2 principal markets that M. Dias operates in, which is the cookie and crackers and pastas. Both showed growth in comparison with the fourth quarter of 2023 from 2022 and also in the comparison of the year of 2022 with the year of 2023. In value, the cookie and cracker market grew by 3%, and the pasta market grew by 11%, cookies and crackers and the pasta market grew 5% in the quarter and over the year, grew at 13%. The area of crackers had a slight reduction year-on-year but this is because of the change in our size of our packaging has happened in 2022 in almost all of the large players in the market. On the other hand, the pasta brand showed growth both in the quarterly as well as in the annual vision. In units sold, the 2 markets grew, and in average price, the 2 markets showed increases in average price.
The question of stocks, M. Dias Branco, which was something that was widely discussed in the third quarter. Since we saw in the third quarter of 2023 a reduction in the coverage and stock of the M. Dias items and our clients, we had the expectation of a normalization of this over the fourth quarter and the reality was exactly as we expected. So from the third quarter to the fourth quarter, we have observed in cookies and crackers a normalization of the coverage of stocks from 34 to 40 days in the fourth quarter. And the same thing was seen in the pastas area from 39 days to 47 days. From quarter end to quarter end, 47 days is the normal level of stock coverage in our clients.
Net revenue, both in the quarterly as well as the annual vision, net revenue showed growth of 0.2% from the fourth quarter to the fourth quarter of '23. 7% in the annual vision, we had growth in the volumes sold, both quarterly as well as annually, 9% in the quarter and 4% on the year. And we had a price drop in the fourth quarter to the fourth quarter of '23. Part of that falloff referred to the growth -- the accelerated growth of wheat especially in the Attack areas to raise the Bento Goncalves flour mill and it's roughly 3% year-on-year. This growth in revenue, both in value as well as in volume has a correlation -- direct correlation with all of the initiatives that I mentioned previously, which are our structural initiatives and which will be executed over -- which have been executed over 2023. Some marketing, which is to sell more and better, today day we invest approximately 2% of our net revenue in marketing. The accelerated growth of higher value-added items grew by 31% on the year and is already BRL 443 million in net revenue, a relevant value observing the total of sales of M. Dias, the reintroduction of brands -- of low-cost brands for the Cash & Carry market, which is a movement, which we initiated in -- between 2019 and 2020, had a pause to revisit these items to structure these brands and at the end of '23, we came back with our value proposition, which was closer to the growth which we expected for M. Dias Branco as these are items of low cost and low price without cannibalizing our existing brands. The size of the packaging, which is a relative factor for the growth of volume. This happened in both pastas between second and third quarter of '22 and for cookies and crackers over 2022, which gave us better competitiveness for our items. The accelerated growth of flour and mill. The volumes in Brazil grew by 10% and in the area, in the Attack area, which is the South, Southeast and Center West, we observed the growth in volumes of wheat, flour and mill of 21%. All of this supported by a process of pricing, dynamic pricing, in line with all the improvements, which have been done, the process of management of the revenue of M. Dias Branco, capture prices in cookies and pasta and the reduction of these volumes in the fourth quarter and the record contribution in the launches of cookies, which came to BRL 299 million in '23.
Looking at the portfolio, we removed from the portfolio items of low profitability such as Ramen Picanha, cookies of vanilla, and vitamin milk cookies. Revisiting our portfolio significantly at the potential for growth with a good margin. The use of working capital to bring more volume and also several promotional activities to leverage these volumes, especially in the North and Northeast regions of Brazil. And to conclude this chapter of revenue, the improvement of the 2 principal indicator services, the OTIF and the [indiscernible].
To look at the simplified their launches in the BRL 299 million in cookies, the price of cookie from M. Dias, a net revenue per kilo added at BRL 6.1 per kilo in 2021 -- 2023 with certain examples of growth where M. Dias.
Looking at the average price and the margins. The malted -- black malt of Piraque, the chocolate with an average price of BRL 28.7 per kilo. All of this work has been on the malted Piraque, which when we acquired had a few SKUs and has a much more complete line of BRL [ 16.3 ] per kilo -- BRL 16.3 per kilo and the Adria brand cookies of BRL 16.5, which was widely discussed in the third quarter of 2023.
Starting here with biscuits. The volume in cookies and biscuits and also pasta, we saw an operation both in volume -- share volume as well as price. We saw a small retraction of share, both in value and in volume. But the 2 categories of M. Dias Branco, which represent more than 60% of our revenue, we had a recovery in share from the third to fourth quarter, both in value as well as in volume.
Looking at the revenue per region, the commercial M. Dias in Defense and Attack, we saw growth in the annual vision, both in the area of Defense, where we have more than 50% of our participation in the market in biscuits and pastas. The growth in revenue, a little higher in the Attack area. This was an increase in average price in both areas and also growth in volume in both areas.
Looking at the quarterly vision. We had an increase in revenue of 1% in Defense area and a slight reduction of 1% in the Attack area. Here, it's important to mention that this falloff in 8% in the Attack area has to do with the mix since our business in flour had a growth of 20% in volume in the Attack area, which brought more revenue and more EBITDA to that region. The area of revenue, we're going into the costs and expenses. The first message here, we saw during 2023 a falloff in prices in both principal commodities, wheat and palm oil. The graphs show wheat and palm oil in dollars per tonne. The red line is the spot price and the blue price both for oil as well as palm oil is the average price in the M. Dias stock. So on the 2 ends of December '22 and December '23, wheat fell by 28% and palm oil by 32%. Our cost, which is very important for the recovery of our margins.
What we've seen also in this slide here. The variable cost went from BRL 4.1 in '22 to BRL 3 in '23, but the fixed cost was basically stable. The average price also was quite stable with a slight retraction from the second to third quarter. And then the inflation between variable costs and fixed costs, the recovery of the volumes over 2023 and the management of prices brought us to a gradual recovery of our gross margins to close the year in the fourth quarter of 2023 with 36.3% of gross margin. And for the year, it was 28.5% and for '23, 33%.
The administrative expenses during 2023 in a rate of between 20% and 20% -- 21% of net revenue, and we closed the year at 20.5% of net revenue. 3 or 4 years ago, M. Dias Branco had a level of SG&A close to 25%. So in this 3-year period, our increase in cost volatility, devaluation of the real, the company was very well prepared. We didn't sit there and want. We made a lot of internal improvements, which are now appearing in the results and we've been able to maintain our SG&A in the level of 20% to 21%.
EBITDA was record as we mentioned in the beginning. We had a 16% margin. Remembering that in the third quarter, we had 16.1%. In the fourth quarter, usually is seasonally disfavorable, but due to all the improvements that have been done during the last periods and the recovery of our volumes, we were able to deliver a margin -- an EBITDA margin in the fourth quarter close to that of the third quarter.
We closed the year with BRL 1.4 billion in EBITDA and a margin of 13.2% for the year. The profitability have followed the EBITDA performance. We had a margin above the -- in the fourth quarter above the third quarter of 12.3% for the fourth quarter and 9.5% in the third quarter. BRL 342 million of profit, a record and also closed the year with BRL 889 million of net profit, a record for M. Dias Branco. Going to the cash generation, debt and investments. We generated BRL 2.12 billion cash for the year, a historical record for M. Dias due to 2 things: EBITDA of BRL 1.4 billion and the liberation of working capital of BRL 825 million in the quarter. We also had the release of working capital close to BRL 100 million. Here is the detail of the 3 principal lines of working capital: suppliers, clients and inventories. For clients, we had an increase of 5 days from 55 days in the third quarter to 60 days in the fourth quarter, which as we mentioned in the beginning, we had several initiatives, onetime one-offs to offering better periods to certain clients with a counterpart with the volume. And so -- but it's more than compensated by the management with suppliers, which went from 50 days last year to 59 days this year. Remembering that 4 years ago, we had approximately 20 days period term from our terms from our suppliers. And the other one of the other areas where we developed a great deal over recent years.
Our inventories went from 85 days to 64 days in 2023. Due to the growth of our EBITDA, the growth of our revenue, the growth of our EBITDA and the liberation of working capital, we closed the year with a net profit -- a net cash position of negative BRL 74 million, our cash position of 0.1x, which gave us a AAA rating from Fitch, which is the highest Fitch rating. And that we have 76% is long-term debt. I mean rest of this year, BRL 367 million in CapEx part, in maintenance and another part related to the implementation of the SAP system, which happened in -- which already began in the beginning of 2024. M. Dias went up 9.6% the value of our stock, went up by 9.6% and for the sixth year, we were recognized and won the Transparency program of the ANEFAC for excellency, which is for all analysts and all investors who accompany the company. That it's a guarantee that our financial reporting are excellent, clear, transparent and quality. Looking at the ESG chapter. There was a series of improvements over the years. In 2023, we ended the year with an MSCI and ESG rating of AA. In 2019, we had BBB. And for the second year in a row, we are now -- we have a AA rating. The ISE, we're in the portfolio ISE for the fourth year in a row. The first year was 2020. CDP, which is an important indicator and in relation to gas -- greenhouse gases, we closed the year with an A score. In 2020, we had a D. We are also looking at the ICO2 of the B3 and other important indexes of diversity, women in leadership, IDIVERSA B3 and also we entered into the Great Place to Work of the B3, known as a Great Place to Work company for 2023.
These are few of our sustainability indicators, which we accompany quarterly related to the 3 pillars of sustainability of M. Dias, caring for the planet, believing in people and strengthening our partnership, our alliances, all are explained in detail in our report.
So before passing it over to the question-and-answer session, I'm going to talk to Gustavo to close this part of our presentation. Gustavo?
Thank you, Fábio. We conclude here, it's important to remember that the levers that you have been accompanying over recent years continue in 2024. Talking a little bit about these levers, we have work, the scaling of the brands, recently acquired brands, which we call cross-selling was Jasmine as well as Piraque and Latinex together with the brands that we previously -- we had a very strong presence in the Northeast and are expanding into the South, Southeast and Center West, such as Vitarella and Finna in the case of domestic flour. We also continue with an arm of innovation, which has been a very, very important work that we've been doing within M. Dias for the last 3 years with several launches during the years, prioritizing higher value-added and better margins for the company. Also, we continue with exclusive brands for the cash and carry market, a model that's slightly different, that a little different than the 2019 model beyond low price, we are making product exclusive products, low-cost items, for instance, both by the packaging. We changed the packaging. We've changed some formulas compared to our local competitors, the more popular priced local brands and consequently, getting to the shelves for the consumers in a more accessible price point and a more competitive price point.
Remembering that the strategy of exclusive brands, again, different from 2019, this implementation was not done for all of Brazil. It was only done in certain regions very surgically where we needed to fight against some local competition who is using more popular priced brands.
So the strategy is very well defined and which places us in the search for growth of market share as we've been commenting during these last quarters. Beyond this, we have the habilitators, the enablers, such as the marketing in the last 4 years -- 3, 4 years, from -- we went from almost 2% with effective results. In relation to the brands, Piraque, Vitarella, which are clearly recognized from the view of the consumers and through the research we've been showing during these quarters, prioritizing the excellence -- commercial excellence, the number of defect, the assortment, pricing, correct pricing, merchandising that's well adjusted all of this closer to the retailers and to the confection of the joint business plans. We also through revenue management and pricing in areas, which are new -- relatively new, experimented, tried by M. Dias and also at the high level of service, which is an important enabler for our growth both in a better mix and more qualified mix as well as regional expansion.
So we're doing all of this through an office -- transformation office, giving more speed and agility to this process. This transformation office has the Presidents or Vice Presidents as well as a consultancy, which we recently hired to help us in the quick prioritization of these actions and the control towers and guaranteeing the capture -- effective capture of these values. We're also coming this all hands on deck for 2024 based on regional expansion to Attack area and the execution of our portfolio, we're adding more value and also offering more impact in the margins of the company. Summarizing the journey is only beginning. We still see many opportunities. It's -- we're in the beginning of the trajectory. There's a lot of upside to come. And with these improvements that you've been accompanying continuously in the hands of the company. So I'm going to pass this over to the Q&A. Fábio is here with me. And once again, you're all welcome to our call and the session of questions and answers.
[Operator Instructions] Our first question comes from Gustavo Troyano from Itau.
Gustavo, Fábio. There are 2 points that I would like to exploit with you. The first is in relation to the share, which you reported in the quarter, and trying to relate this with the price reduction that we've seen. Also looking more at the biscuit, cookie and cracker area, what is the -- what's the price list and the mix and the sequential thing that you mentioned.
If you could give us -- also repeat a little bit about the launches of the exclusive brands for a cash and carry if it is already in the P&L. If you could explain this price reduction with this new mix or if it's something that will come more into the first quarter of '24, understand this dynamic of mix and table in the cookie and cracker area. M. Dias is in the -- which was a little bit above the industry, if you can explain a little bit of this variation. If this is tied to the egg or we see a convergence of these prices with the cost of M. Dias is falling as we go into the first quarter to see these prices of M. Dias converging with the spot market.
Gustavo, thank you for your question. This is Gustavo speaking. As we have been commenting, we have done this movement of looking for market share in a way that is very granular and without making any development in crazy. There has been no reduction in price lists in the fourth quarter. We should see, in fact, a retraction of prices in the first quarter of '24. This average -- lower average price is a question -- is a result of mix. And I'll explain what that represents and a few actions, promotional activities, which are surgical in certain regions without compromising our margins, the gross margins of the company, margins, which, as you have seen, which was improved and then it wasn't -- it was better this quarter than it was in the third quarter. So let's look at the mix question first. We need to point out that the evolution of the exclusive brands, they've already had an effect on the P&L in the fourth quarter. We already have 4 principal brands in the principal cash & carries and 1 specific cash & carry, regional, an important regional cash & carry. Objective, once again, to fight against the low-priced local brands. And here, when I talk about exclusive brands, private labels, they're very much related to the categories, the higher volume items, SKUs, which generate market share or a loss of market share. So to be more specific about crackers, Maria crackers, Maizena crackers and in the case of pastas, the common pastas, the day-to-day pasta. So there's an impact on these sales of higher-volume items of exclusive brands and also the impact within these categories with the companies -- the categories, which have most grown are those with lower prices. So this has an important effect on the mix.
With exactly these categories, which made it a possible for M. Dias to lose market share. An important point is that these sales these categories were higher, but they did not represent a reduction in the other categories. We continue to grow in the higher value-added categories, both in the Piraque brand as well as in certain specific categories such as the wafers. However, the volumes of these categories in the exclusive brands was not enough to compensate the growth of the premium brands. That's the first point.
The second point is there was, in fact, a higher sales level of sales in the flour area even though it has a margin, which has a healthy margin, it still generates an important effect on the mix and the P&L of the company compared to other categories. Talking about prices, specifically, there were several actions in this point of sale in the fourth quarter, which were higher than in the third quarter. However, looking forward at the price level -- price list, we have not added any price list reducing prices. On the contrary, we've already had a first list in 2024 with the increase due to several ICMS levels going up in several states. And so we see this effect affecting prices in the first quarter of '24.
Going into the subject of the cost of wheat, price of wheat, there's no signal. There's no yellow signal. There's no specific worry this -- we should see some of the timing of the path of the cost -- this cost through the P&L. And you should see this average price in our inventory converging with the market price in the next quarter. There's no change in mark importation -- mix of importation from other countries as that we have not been reporting from previously. So it's now time for harvest in the Southern Hemisphere so these purchases are being made here in Brazil and in Argentina and new purchase coming from there, for example.
Next question is from Pedro Fonseca of [indiscernible] XP.
Gustavo, Fábio. I want to go into a little bit at the point of the level of services. We see an evolution, a very significant evolution in the free rate, especially in the OTIF. Fábio mentioned that there were several measures that the industry took, but it would be interesting if you could give us a little more color of the principal drivers of this and thinking about '24, how much these indicators still have to go? How much room is for improvement and a number of -- what's the potential in volume that the improvement of these service indicators can bring thinking about '24.
And the second point that I wanted to mention, to take advantage since you speaking about Gustavo's question, how is the market responding in the first quarter? These price increases that you mentioned in the question of the ICMS increases in terms of volume and market share. And if in the first quarter, also in the fourth quarter of the recovery of inventories, which we saw in the fourth quarter on the part of retailers, how is that going in the first quarter? Those would be my 2 questions.
Thank you, Pedro. Logistics, for example. It's a very -- it's being done for some time and we've been talking about this consultancy to look at some improvements in that. We have -- we see it as space for improvement in the level of service. Basically, everything begins with this integrated offering of supply/demand, production costs and that is to correct the product in stock and the adequate mix in the correct BC -- the correct DC and the items of Sao Paulo as far as it has a demand for this item, even in [indiscernible]. The first big evolution starts with integrated planning of production, distribution in [indiscernible] area. That's the way in which these items that come from the purchases in a more assertive way than the stocks that are being distributed.
So there's an important change also in the logistics operators who were not delivering at the levels, which we thought was correct. We look at that in that sense. And it's still -- there are 2 upsides. One is level of service. The preview, as we mentioned in previous calls, the provision -- the projection is that at the end of this journey, we will be able to bring in one more sale this year, more sales to volume this year between BRL 801 billion over a horizon of 5 years, we said last 3 years -- last 2 years as well as the last 3 years so there is 2 more years to go. Beyond this upside in the majority and the level of service and consequently, giving more availability on the shelf for our consumers of our items. There's also a theme with the company has not pressured. The focus is service levels and is also a theme of the optimization of costs -- of logistics costs. So that will be for the second level, the second part of this project.
First, we're going to improve the services and then we're going to look at the costs further ahead because a little bit what we have done in the area of services. Remember that all of this comes around because of the qualification of our -- we have Leonardo Prado, the Director of Logistics, who is in Australia. Recently, we hired the Supply Chain Vice President, who is in the back who went through the [indiscernible]. We have a whole team of planning, which came together with these 2 professionals. So we've seen a relevant restructuring since both in the line of people and processes and also technology with new systems, rotors, roots routing and so forth, which is starting to show its effects, but it all begins with people.
Looking a little bit answering your second question. As far as how these new prices have been received, we don't see any pushback from consumers needed from the trades. They've had to -- this improvement of the ICMS rates is a middle class, depending on the region, on category with close to 2% as the average pass-through in prices, nothing so relevant, but the volume is very stable and we see no pushback from the industry, from the stores. So this new price list should go into effect with no problem over the first quarter of 2024.
Very good, Gustavo. This is Fábio. Just to add one thing to Gustavo's information and the second point about pricing. We have not seen in the market any pressure for the reduction of prices, which is a little bit of what we've seen in the IPCA of biscuits and pastas in January. We shared at the beginning of the year, as you mentioned, we've already seen in cookies and crackers, and we continue gaining share as we gain share from the third to fourth quarter. And from the fourth quarter to the beginning of this year, we are continuing to expand our market share position in cookies and crackers.
Next question comes from Thiago Duarte from BTG Pactual.
Gustavo, Fábio. I wanted to take out of this discussion, which covers a lot of the discussions about a better agenda of services, a good point of service, as Gustavo mentioned to increase sequentially these prices in the third to fourth quarter. And I use this continuous deflation of costs that we saw during the last year and to the space to continue. And the measure that as much as you can, if you could open up for us a little bit, I understand your expectations in relation to, as we've seen in February, can we imagine with all that's happening that we've seen you brought a lot of favorable vectors for the profitability of the company in this call so far. Can we imagine based on that, with some conviction, sequential improvement in margins in this next first half of 2024 as we saw in 2023? I wanted to see what you could tell us about that.
This discussion as far as the continuous search for recovery of market share, if we can hear your opinion on these 2 items, both on share gains as well as additional margin gains. My second question is about the question of cash flow. Are you well set up in relation to last year with the lower level of leverage, as you mentioned, as you completed the year. We wanted to hear a little bit more about the question of growth at the end of December. But you imagine to expect the separation of payout, the question of M&A, any relevant M&As that are on the horizon? We have in this M&A area that gets heats up and then it cools off, I wanted to hear with you how you look at that in that aspect.
And finally, just one last follow-up of this discussion of the reintroduction of several brands in the Cash & Carry area. I wanted to understand if at the end of the day, this means an increase in the number of SKUs of the company, a reversion of this tendency that you have announced in the program of adjusting your portfolio in the past or no? If this is just a onetime or one-off that we can continue to think about the number of brands and SKUs offered by the company. Those are my 3 questions.
Thank you, Thiago and we'll start with your last question. We will increase the number of SKUs. These are new brands. And so as I mentioned, we've done differently from what we did in the past. This introduction of the brands is being done in a different way, a change in packaging and of the weights of these packages, the size of these packages, SKUs with traditional brands. So there is an important change to make the company more competitive in that market. And also, as such, naturally, we have an increase in the number of SKUs. This doesn't mean that the company is not continuing to be concerned with the utilization of SKUs that are adequate for its operation. It's an increase, well thought out, which is being managed closely. Remembering that together with the introduction of these exclusive brands, we have the JBP done together, the joint business plan together with the retailers, which has a rule. These will be additional volumes. The addition of these new SKUs cannot steal volume from the current SKUs. There's a whole series of business plan and the point of sale. You have extra points islands close to the checkouts, which will help us to leverage additional volumes, which is what happened in the fourth quarter with no -- not in detriment to our margins in general -- our image in general.
Going back to your first question with the perspectives for 2024, as far as the shares and so forth, we see a cost as you're right, it's cooling off. So we should see an expansion of margins in relation to the previous year. No doubt, we can't say too much about future results, but margin expansion should continue. And what we've been saying here is passing through that moment of the pandemic and the -- after they were in the perfect storm globally, -- and in a more stable world, all of these actions of improvements and transformation that we've seen in the company will be more clearly visible in the results. That's what we're going to start to see now and this will bring us to an improvement, a continuous improvement in margins.
We're going to leave that 9% in the middle of all that confusion and we've been delivering at the close of 2024 margins of 3.1%. And our perspective, the company is not going to be happy while we don't deliver EBITDA margin between 15% and 20%. And we're -- we have the perspective in the short term to normalize what was the average of M. Dias, which is an EBITDA margin of approximately 16%. This is our direction going forward.
All of this together, we gained the market share with consciousness with a structured way, coherently and doing it in a way that we will not lose profitability. This is a principal concept. Going to the -- back to the area of cash. The 2 levers to talk about this capital structure is the payout. We've been working hard on that team, subject since 2019. You remember that our payout was 40% of distributable. It went to about 60% and we added a distribution -- a fixed distribution over the quarters. Last year, in 2023, we increased from 60% to 80% the payout and from BRL 0.05 to BRL 0.06 per share in these quarters. So with an extraordinary distribution of BRL 300 million, we're coming this very closely. We can't talk about the future, but it's clearly the company has evolved in that sense. On the M&A question, we talked in the past that we would start the year to do our homework and scale up for companies, organize the structures, the operating structures, as Fábio mentioned. We look at these 2 factories of Latinex and Jasmine, I mean even in the physical space, we returned a structure that was rented by Latinex. And so now just one not a physical. There are no more other physicals going back and forth. So we've rationalized a great deal of that operation. So in the correct route, the scale of these routes, which we see as a huge potential with much higher margins in M. Dias. So the homework, as we mentioned, in 2023 has been taken care of, not done because there's lots to do still. We spoke a little bit about that. But in that sense, yes, it's done.
If it comes back to us in a way that is as the M. Dias way without going crazy, looking -- which has been the story of our acquisitions since 2003, a step-by-step approach, things that make sense and that have price multiples acceptable for our market. This is our way of doing things. When I say a connection -- a total connection with our business plan, eventually, we see which we concentrated in the regions in which we have the intention of moving forward. We're talking about the South region in accordance of the company. Especially for the next few years, it's not the moment for new acquisitions and the market -- the International market at this moment is not something that we've looked at with frequently. The focus is on regional expansion and improvement of the mix.
In the regional expansion, we see an M&A in that direction, which accelerates the expansion in these regions as commented, M. Dias will be a strong candidate to participate on these opportunities. So we're interested in continuing growth inorganically and organically. We have a team, which is the [indiscernible] project, accelerate this process -- organic process, but we're totally attentive to the possibilities that may appear for inorganic growth as well. So this will be very, very important for us, having discussion for any eventual steps that might come along. This idea of heating have been going down.
If we depend only on M. Dias, it will be really hard but we have to be careful and agree that we had to agree with the Russians that it's not always not everything I wanted to buy or acquire for sale, et cetera, or vice versa. So have to be patient, keep our feet on the ground, look at the possibilities without going overboard, without pressure, which is what we've always done in our 70 years, no craziness in that sense.
The next question comes from Lucas Ferreira from JPMorgan.
I hope you can hear me. I have a few follow-up questions, 2 in reality. First, about volumes and prices in this question of revenue. I remember you mentioned that part of your strategy will be to lengthen your terms for your clients during this quarter? And what's your perspective that we can have for the beginning of the year? Do you still -- can you still use this tool of giving longer terms to people to expand your volume? Especially in the Cash & Carry?
But your service units, you mentioned in your last Investor Day that it was a very important item on the table such as like a month of additional revenue, but the volume in recent years, the last 2 years and the improvement in the OTIF, we don't see this volume. Is it being captured? We can see that going forward with better volumes and better in service? Or is this through mix, as you mentioned, what we see maybe is not the whole volume but the better volume because of pricing and so forth. How do you translate that into better revenue?
A part of our plans for this revenue and this concession comes into a higher -- a larger context in the JBP model, which is well known in the market. And we've seen this during 2023 that had its kickoff in an event that was done on the Piraque brand, which we call with some of our clients. And I think you even participated. If I'm not mistaken, the sell-side analyst participated in this model, which happened in Sao Paulo in a space which was totally covered with the Piraque brand. So at this moment, when we can see additional terms to some of our clients, having as a counterpoint, the increase in volume that they purchase was something that was very well thought out and within an equation to generate value. At the same time, we use a little bit of our working capital. We also had a counterpoint of volume and the increase of gross margins. If this concession will be permanent or not or if it will happen again, depends greatly on each one of these negotiations and how we're going to revisit as our clients do. If this happens again, what I can tell you is that we're going to seek a counterpart in the volume and in the increase of margins.
We see what happened in the fourth quarter and it worked. We conceded an additional period of 15 days to some clients. The total M. Dias there was an expansion of terms of average term for 5 days, but we had a counterpart in the increase in volume and increased margins. So in discussed case by case going forward in the environment of the JBP, the joint business plan.
The level of the service levels, as Gustavo mentioned in an earlier question, there is some upside when we begin this journey. The expectation that we had was we have an additional months of revenue and I would say that we're halfway there, perhaps a little more than halfway there, but there are still improvements in the indicators and case ratings and the OTIF to be captured in the next 2 years. So yes, there's definitely upside in relation to the level of services.
When we increase service levels, we don't leave any money on the table because we were able to attend our clients in the portfolio, which they requested and the quantities ordered and in need periods that were agreed to.
The next question comes from Laura Hirata from Santander.
I wanted to talk about 2 points. The first is in relation to organic growth. If you have some extra capacity, if you have space to perhaps to do this in hand, new lines and new items. How are you thinking about this in relation to follow-up or perhaps some specific product and also, I wanted to look at the question of the Cash & Carry. With this strategy that you've shown, entry level brands how has been this both in relation to volume as well as the space on the shelf. For me, that's it.
Laura, this is Fábio speaking. Thank you for your question. Internally, we really like to talk about unused capacity to we call it, reserve capacity, something that we have space that we have for the company to grow. And today, we have about 40% of reserve capacity, looking at all of the different categories of M. Dias from wheat flour and cookies and pastas and margarines and oils. So we really don't have to add any CapEx to follow a strategic plan, at least over the next 4 to 5 years, which involves the recovery of our market share, the growth in volume and widening of margins and the increase in the returns as well.
So we have a good reserve to recover share in the Northeast region and the recovery of share in the Northeast, it works together with the reintroduction of these exclusive brands in the Cash & Carry channel. There are 4 brands: the larger is lead to Estrela, Pilar. Obviously, they have potential for these brands outside of the Northeast. But however, the initial focus in the Northeast region, the growth and expansion of market share in the third quarter to the fourth quarter already evidences, this is the way we've chosen. This we have chosen has given good results as we saw in the fourth quarter, there was a question of volume, widening of market share, the increase in gross margins. So there's lots of value to be captured going forward based on the dilution of our fixed costs and more relevant dilution of our fixed costs.
So I think even Thiago said if there's any upside in the short term, due to the falloff in commodities prices, as Gustavo said, yes, there is upside. But there's also some upside in gross margin by diluting a better dilution of our fixed costs and the use of our reserve capacity is not exclusive for these brands that are low price and low cost. There's a lot of potential to be captured with the growth -- accelerated growth of items of higher value added, such as cookies, wafers and we have the opportunity for relevant expansion in market share and the Piraque brand, which is one of the brands, which has shown accelerated growth in the total of the M. Dias brands, both in the regions that are most the more traditional such as Rio de Janeiro, which are regional areas for Piraque and Sao Paulo, which is important for the growth of that brand but also in the North and Northeast.
Prior to the acquisition, Piraque practically didn't exist in those regions. And today already has almost BRL 200 million in revenue on the Piraque brand in the North and Northeast. So your question makes all the sense in the world. It's something that's priority for M. Dias to use better our capacity, both in the recovery of market share in the lower value-added areas as well as an expansion of revenue and volume in the items of higher value added and one does not compete with the other. Today, we're working in these 2 opportunities in both of these opportunities.
I would like to make a short follow-up as far as the Cash & Carry to understand better how would you be able to -- with these exclusive brands, how has this affected your relationship? Especially quantitatively as well as shelf space, bargaining power with these stores?
This is something very positive. It's something important to remember that M. Dias, we mentioned that M. Dias is for everyone. We have a group of brands, which permits us -- which permits the company to play in all of the price levels in the market, both a brand like Estrela and Pilar, which operates in a lower price level as well as Vitarella in the median price range and Piraque in the higher price range. So when I deliver a complete portfolio to the client, but in this case, for the Cash & Carry client, this tends to be favorable from the standpoint of growth and from the standpoint of negotiation with that type of client. So we've seen this positively, the reintroduction of these brands in this channel. Of course, as Gustavo mentioned previously, there is a learning curve in a way that we have to guarantee that these are products, low price and low cost items with the current value proposition being delivered.
The session of questions and answer is now closed. We'd like to pass the word to Gustavo to make his final considerations.
I want to thank you all for your participation in our call, Fabio [indiscernible], everybody. We know that as we go in this direction of profitability, growing market share with intelligence, expanding margins, focused on processes and execution, looking at the growth of our portfolio and a number of SKUs, revising RPM and the commercial strategy using our factory setup and an increase of our level of services, a series of levers that have already been identified and which are being worked on by our transformation team every single day. So we're very, very hopeful about 2024 and in continuing on this trajectory, which has been successful so far. So we are going to thank you all, and we're at your service to attend any of your needs and whatever you need from us. If you then going to need any further details, please feel free to contact us. Thank you very much.
The video conference of M. Dias Branco is now closed. We thank you for all of your participation. Have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call]