Good morning to all, and welcome everyone to Três Tentos Video Call to announce results relative to Q4 2023. Today with us we have Mr. Luiz Osório Dumoncel, CEO and IRO; João Marcelo Dumoncel, Operational Officer; Cristiano Machado Costa, CFO; and Eduardo Motta, IR Manager. This video conference is being recorded and it will be made available at the company's IR website, where you can also find the respective slide deck. If you need simultaneous translation, you can access the tool by clicking on the globe icon on the bottom part of your Zoom screen. For those getting the conference in English, you can mute the original Portuguese audio by clicking on "Original Audio Mute." During the event, all participants will be connected in listen-only mode, and then after that we'll start a Q&A session.
Questions can be made via audio if you click on the "Raise Your Hand" icon on the bottom part of your Zoom screen. To send questions in writing, just click on the Q&A button also available on the Zoom screen. Before moving on, I'd like to state that forward-looking statements made during this call concerning the company's business outlook, financial and operating targets and projections, and the future potential growth of the company are based on assumptions and beliefs of the company's management, based on information currently available. Such forward-looking statements involve risks and uncertainties and therefore depend on circumstances that may or may not materialize. Investors should have in mind that general economic conditions, agribusiness conditions, and other operating factors might affect the future performance of the company, and this leads to results that will differ materially from those expressed in these forward-looking statements.
I'd like to turn the floor over to Mr. Luiz Osório Dumoncel. Please, Mr. Dumoncel, you may carry on.
Thank you. Good morning, everyone. I am glad to once again join you as we share numbers relative to 2023. That's our objective today. Then we'll have some time for questions and answers and comments, or we can drill down around specific points you may have. I'd like to start with a brief overview. I went back to 2020, our base year for our IPO, BRL 3.1 billion; in 2021, BRL 5.4 billion; 2022, BRL 6.9 billion; and now in 2023, we have reached BRL 9 billion. What does that mean? I did the math. That's a growth of 47.3% of growth. Those 9 billion for 2023 are based on an increase in volume.
We know we've been in this market, in the Brazilian agricultural market, for our whole lives, Marcelo, myself, and our team. We've been doing this our whole lives, and that growth in 2023 was driven by a growth in volumes of inputs, grains, and also in our industrial capacity. So Três Tentos managed to reach that growth level, 31%, based on those drivers, amidst scenarios which were, at the very least, quite challenging. We can mention prices, weather, climate. For the past two years, if you talk about climate, we had two severe historic drought periods, 2022 and 2023, and still the company managed to deliver its IPO plan in a very structured way, actually two years in advance to what was originally forecast.
I'd like also to highlight the identification that growers have with the company, the extent to which they recognize and acknowledge the importance of the work we do within this ecosystem, which goes to prove and explain the volumes we have reached. About 2023, I also have to make clear that we are aware of the logistic bottlenecks we have in Brazilian agribusiness as a whole. Três Tentos has, throughout time, along with its expansion plans, been investing in infrastructure, in partnerships, in processes which are already some of them up and running, also many intelligence, so that we can explore this market, which sometimes is more and sometimes less volatile, but in any event, it remains volatile to some extent, and the company has become increasingly more prepared to face that volatility. And that's how we expand in a very cautious and safe manner.
This new growth cycle, 24-30, which we renounced on January 5th, I'd like to comment with you, and then we can explore in more detail. This is just my first remarks, but the company has been preparing itself extensively for this. So when we expand, when we realized that we were going to anticipate our expansion plan as forecast by the IPO, we started to work that would only start in 2024. We started that in 2022, so we pushed it back by two years. And we'll go into more details as we move along the presentation, especially, as I said, with an eye at the company's robustness and safety. Next, please. Some large numbers I'd like to call your attention to the fourth quarter of 2023.
That's a moment where we grossed BRL 3.03 billion, an absolute record in terms of quarterly revenue that, of course, impacts 2024 with our units already up and running, not in full steam, but in a much better position than in the first half of 2023. We have our industrial plants on BR-163 in Vera, this one going full steam, and two plants here in Rio Grande do Sul also up and running. So this fourth quarter of 2023, where we had EBITDA levels of BRL 215 million when compared with 2022, it's difficult to even think about that. I'd like to compare the fourth quarter of 2023 with the third quarter of last year and second quarter and first quarter of last year, and even with the third quarter of 2022, because the fourth quarter of 2023 was extraordinary by all accounts.
Sometimes with price variations playing in our favor, sometimes not, but irrespective of the scenario, Três Tentos has managed to deliver consistent figures, figures that bring about safety reassurance to our partners, especially for a company that works across an ecosystem which continues to grow, continues to bring about new technologies, and at the same time, as I said, presents some level of volatility. As for gross profit, adjusted EBITDA, and net income, I'd like to reinforce that those are indicators that translate the reality, the challenges that we faced last year. At the same time, I'd like to emphasize that it also shows the company's ability to deal with those challenging scenarios, always in a very reassuring manner, as I said. That's what sets us apart in the market, that provides us with a lot of confidence as we look forward.
I'd like to turn the conference over now to João Marcelo, who will go into more detail about the numbers. Then Cristiano will take over, and then at the end I'll be back for final comments or questions you may have. Thank you. João, over to you.
Good morning, everyone. I'm very happy and excited to be here this morning with you to share with you numbers relative to the fourth quarter and the year 2023. To emphasize what Luiz has just mentioned, of course, always paying attention to this challenging scenario we faced last year in agribusiness, and a special emphasis on the south of Brazil with this crop failure that we had, drought issues we had both in 2022 and 2023, it's still great numbers.
A main highlight I'd like to share with you all is an increase in revenue we had, especially around grains and industry, especially coming from higher volumes. That's very important for us. As you know, it's an important driver. Revenue, as you can see in inputs, revenue was sort of flat. That, of course, was an offsetting of volumes when we took into account the dropping prices across all inputs. Then under grains, we saw an important growth in revenue, which was even higher, driven by an increase in volume as well. Also under industry, even in the last quarter, we had Vera's plant being ramped up that justifies the results. That shows the strength of the company in terms of market share.
Três Tentos, with its positioning being recognized and increasingly more consolidated across traditional markets, but especially across those markets which are new to us, and that can be shown by this increase in volume. That is clearly an increase in market share, talking about new areas and a more share in already mature areas. So the strength of our units, our sales team, our value proposition, they are increasingly more powerful to our customer, and that's our recipe, if you will. People ask us, how can we grow so vigorously, occupy so much space where other players cannot, at least not at the same pace? That's driven by our value proposition, which year after year, as we consolidate in the market, it becomes more and more acknowledged by the market.
Then it also shows, when you look at inputs, sorry, when you look at the different segments, inputs, grains, and industry, as Luiz said, the strength of the synergy across all our businesses. Três Tentos, as we mentioned, that synergy along the ecosystem translates into great numbers. In the next slide, if I may, we looked further back in the past to analyze gross margins to see what kind of insights we could extract. Looking at this snapshot, going back to 2011, we see that industry starting 2014, and then the other two dimensions going further back, 2011, we can see that margins and businesses have seen variations, of course, but we have managed to keep a certain level of stability as each pillar complements the other. That's what provides the strength of our results.
So we can clearly see that for inputs, the inputs saw higher variations than the other segments in 2023 specifically, but we know that we have this post-pandemic effect, this scarcity of inputs we suffered in 2022, especially late 2021, early 2022, and that reflected 2023, of course. But as Luiz has already mentioned, the fourth quarter of 2023 has already shown some recovery around inputs, resuming historical levels for profitability in that dimension, showing that the company is doing its homework. We have the lowest inventories for the last 10 or 12 quarters in a row in terms of input inventory, which shows that the company is ready to start a new cycle. This will, of course, bring about even better numbers, numbers that will take us back to historical levels.
As for grains, in the middle of the page, we are around our historical average, but we could highlight that could have brought an even better result, especially on wheat. The 2023 crop for wheat in the south saw a failure because of excessive rainfalls late in the year, which coincided with the harvesting of wheat, which affected quality and volume for wheat, wheat which historically has contributed significantly. But still, the company was able to maintain stable profitability levels. Under the industry dimension, we also have a positive forecast, especially as we start our plant in Mato Grosso. We were very active in the fourth quarter, working at close to full steam, showing the strength of the company has now as we reach full capacity in industry.
We can dilute costs, we can improve profits, we can have better access to markets, and that's all reinforced by this forecast of having a good crop in the south, the B14 for biodiesel, good expectations, and of course, the strength around this ecosystem, as I mentioned, which will help provide even better results. I'd like now to turn the floor over to Cristiano, who will give a little more color on the financial figures. Cristiano, over to you.
Good morning, everyone. I'll be talking about this breakdown. We're talking about the year, and we saw a drop in the adjusted EBITDA margin driven by two factors mainly, which lead to this drop or this reduction. Number one, João Marcelo has already touched upon that, which is a drop in gross margin.
The breakdown is the following: we lost something 3.6 percentage points, 2.1% of which come from a drop in gross margin in adjusted terms, led or driven mainly by lower margins in the input segments and also a little bit in grains, as João Marcelo mentioned, because of the wheat issue, especially the fourth quarter, which was just mentioned. For inputs throughout the whole year, it's important to say that Três Tentos did its homework, reduced inventories, was able to weather this moment, but the market as a whole is still very competitive. A second element or component to explain this drop in margin is an increase in our sales expenses as a proportion of expenses.
I'd like to please move to the next slide, if we may, so that you can see a breakdown of those numbers, the SG&A numbers, which already reflects a bit of the impact on logistics in Mato Grosso. That includes longer distances to be covered and also a higher volume being shipped. In a scenario where we saw a drop in prices, this decompression, if you will, of prices throughout the year had an impact on SG&A as we have higher volumes within an environment of lower prices. That also reflects an increase in freights, but we expect all of that to reflect an increase in gross margin.
So when you look at the year, and please I'd like to call your attention to the right-hand side in the bottom of the slide where we select SG&A as a proportion of logistics, personnel, and other expenses, and we see that we closed the year with an increase of 1.6% in SG&A as a whole, but the breakdown is the main increase came from logistics, 1.9%, and for personnel and other expenses because we had an operational gain, actually. So the increase in SG&A is closely linked to logistics, but as Luis mentioned, it's important to look at how we have evolved from the third quarter to the fourth quarter. Then we can compare operations which have been ongoing in Mato Grosso apples to apples, Vera, meal exports, and the shipping towards the north. So we see an increase in SG&A logistics from the third to the fourth quarter.
We move from 4.3%- 5%, and we see an increase of 0.7% only in our SG&A in logistics. So we're looking at the adjusted gross margin for the third quarter of 2023. As we move to the fourth quarter, we see a gain in gross margins of 3.4 percentage points. What do I mean by that? We are covering larger distances, we are growing our revenue and growing volumes, but our gain in gross margins more than offsets an increase in logistics expenses. So the questions, or the question we have been asking ourselves is, does this SG&A at this level in the fourth quarter, 9.8%, is it here to stay or is it temporary? So we have temporary elements, components in the fourth quarter.
We had some components for that amount which brought about higher expenses than plans because of the Northern Arc, as we call it, and logistics issues. But in our view, whatever the increase in expenses going forward, it will be more than offset by a gain in gross margins. So that's how we see the future, and we pursue that target every day. We pursue efficiency every day, given that in other areas of the company we do the same and we have delivered those efficiencies. So we are now trying to break this down. That's the first time we do that, to explain that whatever increase we see in expenses with logistics going forward will be, as I said, more than offset by gains in gross margins. And we'll work to bring those costs down, of course, as a function of revenue.
Early on in the year, we have already observed reductions in freights and other tariffs that might bring about a drop in SG&A for logistics as early as in the second quarter. We can move please to the next slide so that you can have a better look at the final result. We saw a drop in the EBITDA margin, but overall the company fared really well financially throughout the year. We generated cash, we had a reduction in inventory which translated into cash, we had growers delaying grain purchases. They expected a higher valuation appreciation, so they delayed the purchases, and that led to an increase of higher cash generation. We closed the year with a net debt in consolidated terms of only BRL 46 million. That's 0.1% of our total revenues.
So that's a very, very low figure which places us in a very reassuring position as we start a new growth cycle. And it's important to say that throughout the process, throughout the year, we were able to not only reduce net debt, we also decreased the rates of our fundings, and we have extended our debt. So very good debt management despite all the challenges which were mentioned by Luiz and João. We closed the year with a net debt over EBITDA ratio close to zero. We have extended our debt, and we have a cash position which is ready to kick off this new growth cycle and also, of course, to meet any commitments, obligations we may have with partners and suppliers in the coming six months. That's when we're gonna be harvesting this new crop.
We are confident in this new crop and any improvement we can see in the overall scenario that we can already be seeing in Mato Grosso. But to talk about the future and outlook, I turn the floor back over to João Marcelo, who will complement my presentation. Over to you, João.
Along the same lines, just a highlight on January 15th, we talked about the new growth cycle 24-30 that, of course, reinforces our strategic commitment to grow across our ecosystem. So our business model is very much based on this ecosystem. As we start to work in a new region, which will replicate not only what we do already in the south, but the whole ecosystem of the company in the Vale do Uruguai where we are now starting with the corn ethanol industry, the corn ethanol industry as a main pillar for this ecosystem in that region.
That's a strategy which is in line with what the company already does. The reinforcement of a market has been proven to be quite resilient and vigorous, and which is also complementary to our other businesses, vegetal proteins and biofuels, also in line with our logistics expectations with a JV with Caramuru at the port terminal in Miritituba, which also complements our investments and logistics, our focus on logistics, also industrial expansions, which will lead us to an important growth of about 60% of our crushing capacity for soybeans. And of course, very efficient CAPEX. We're talking about complementary investments, as I said, always seeking to optimize and lead those industries to increasingly higher or increasingly more efficient levels in terms of production capacity.
Of course, the new stores, the stores are an integral part of the ecosystem's expansion, especially in this new region, but not only there, in other regions as well. As Cristiano said, we start from a very robust financial position with our feet on the ground and ready to continue to grow. And to do that, we have to reinforce what we have always done. We are a growth company, a results-based company. As Luis mentioned early on in the call, our CAGR, our cycle CAGR, I have already mentioned that CAGR, the more recent numbers of the post-IPO phase is even higher than our 10-year average. It's from three to nine in 3 years, and that pace will not slow down. The plan is quite well designed, well consolidated, and we have proof of our power, our ability to accomplish and deliver all of that.
We already have that credit with the market because of the IPO. We delivered the plan in two years instead of five, and that gives us all that confidence in the future scenario. Of course, the market will have its ups and downs across the years, but as we look to a broader scenario, as we look at the company's structure, the company's financial solidity, and if we look from a perspective comparing with the market, we can only be very excited and very confident as we look ahead for 2024. So it's a new cycle, as I said, a new growth cycle, and that's the main lever, I could say, to this as we transition from 2023- 2024 and we take the first steps for this new cycle. 2024, as Osório said, will continue in our favor.
At 2024, coming from we expect a normal crop, 22 million tons, combining the crops of 2022 and 2023 together, all of that in one year, 2024. So good numbers, crops are looking good, poised to be harvested, providing excellent results for our local growers. Our farmer partners have already invested, and they are now finalizing the management for this year's crop. As we have a normal soybean crop, much, much better in corn than we had last year, we can already see those results in January. And Mato Grosso, which is contributing increasingly more for the company. So as we continue to expand our areas, continue to open new stores, we are focused on recovering margins not only for inputs, but also in terms of inventory management with a higher productivity level.
As we increase our share in the market, we are very happy to see that happening now. As for margins and industry, for industry and grains, we are focused, as it was said, on logistics improvements. I'd like to emphasize before we close, we have started the year, January 1st, with the three industrial plants and working in full capacity. Today we're crushing 6,600 tons of soybean a day, most of which originated from growers, partners. I'd like to repeat and to reinforce how important it is to have an ecosystem in place where our client sees value in the work that we offer and deliver, and our technical assistance, our technicians out in the field providing all the support they need in management, combined with high-quality products that lead farmers to produce more per hectare, or at least they are able to mitigate climate risks.
We are there hand in hand with growers, helping them manage and produce more. Those clients are our, you know, suppliers of raw material for those industries. That becomes even clearer when we're able to mitigate risks and work around volatility issues in the market and pricing conditions. We are quite confident we can now at least move to the Q&A. Thank you all for your attention. I remain available for questions you may have. Thank you. Over to the operator, please.
We will now start the Q&A session. Questions can be made via audio by clicking on the raise your hand icon on the bottom part of your screen. Right now, a prompt will appear for you to unmute your mic to send a text message.
Just click on the Q&A icon, also available on the bottom part of the screen, and click in or type in your question. Our first question from Matheus Anger from UBS. We will now unmute your mic. You may carry on, please. Matheus, over to you.
Good morning. My first question for retail margins. I'd like to understand where can we expect that margin to stabilize. We understand some difficulties faced last year, second, third quarter, but we were expecting a margin recovery in the fourth quarter and for 2024, which may not materialize. When you look from a seasonal standpoint, the company had a margin of 12.5% below average for fourth quarter in retail. I'd like to understand the breakdown of that lower margin for the fourth quarter in retail.
How much of that can be chalked up to seasonality issues, and how much of those 12.5% come from the fact that in Mato Grosso those margins are lower historically? And as we look to 2024, how much of that can be addressed, or if we should expect lower margins for retail as we move forward? And then a second question. I'd like to repeat the question I've asked in the past to earnings calls. As I try to understand the speed of normalization for margins, not only for retail now, but also margins for the industry pillar. We saw margins being pressured in logistics and retail, and some of the company's remarks were about initiatives you're putting in place.
But I'd like to understand the pace at which the company understands you can deliver or go back to historical leverage, especially for retail, and what would be the timeline for a more normalized logistics cost, if that's the case. Can you expect them to see at a level of 5% below revenue? Those are my two questions. Thank you.
Thank you, Matheus, for your questions. I'm gonna make an initial remark for the retail margin, then I'll turn it over to João Marcelo, who will give you more information. 80%, 80% of the company's revenue from inputs come from Rio Grande do Sul. In 2022 and 2023, we had terrible years in terms of climate, as you know. Of course, products were not used in January, February of those years by local growers because of weather conditions.
Of course, that translated into a mix of issues where fertilizers accounted for more of the share, and when you include seeds, fertilizers, and crop protection products, fertilizers have a lower margin. That's my contribution for your first question, but I'd like Marcelo to complement my answer, and then we can move on to your second question as we talk about the pace of normalization for margins going forward. João.
Okay, Matheus, thank you for your question. The point raised by João, or by Luiz, sorry, around the mix is very important. In addition to climate issues, those were two years, as I mentioned before, two years which were quite impacted by the sudden variation we had in prices. First, a hike in prices, lack of some products, some inputs, and then after that, a drop which was also sharp in prices.
A hike and then a drop which made managing inventories a very challenging task. So that's the scenario that came about, especially in the second half of 2022, maybe in 2022 under a more positive bias, and then in 2023, a more negative bias, 'cause that's when prices resumed or dropped really fast. That caught companies off guard having higher level or higher cost inventories. Mato Grosso, to your point, Mato Grosso is structurally presents lower margins. But that's not the margins we're working with. That's not the margin levels that we understand as being normalized. The recovery we saw in the fourth quarter of last year already shows or sheds some light on a larger recovery you expect to see.
A level of stabilization in a number would be premature to give you a number, but I am quite confident, the company's confident, that the recovery that we saw in the fourth quarter will continue the norm throughout the year, 2024. Because of the reasons I've mentioned, an improving product mix, an improving the crops, which of course influences the mix and adds to the mix higher added value products, and also more regular, more managed inventories in a more stable price dynamics in terms of purchases and resale. That's the main restructure. And also, I have to mention our technological package that we are now delivering to growers. This will be reinforced, and that's why we're not pessimistic about margins in Mato Grosso. Maybe in the first or second years, as we start, growers are not yet recognizing that value offering.
That's a strength that we have that we've shown, which is our value added in terms of tools, technical assistance, barter, all that connection with our whole ecosystem. As to your second point, if I may, and then I'll give it back to Luiz, in terms of margins across the other segments, especially industry, I see that that growth, that the Vera plant being ramped up, of course that brings about a cost, an expense, which is natural to start to starting up a plant, and this will take some time to dilute. We start with higher costs, or full cost, if you will, as opposed to a volume which is not still full, and then efficiency levels are still being still in need to be fine-tuned.
Again, what we saw in the fourth quarter and what we'll see in the year 2024 will be completely different in terms of efficiency and in terms of cost management. This of course will bring a different light to the industry dimensions numbers. I'd like to add, Matheus, that we had an increase in logistics costs in Brazil early last year and by mid last year, and as we were still, we didn't know that the failure in Mato Grosso was not defined. Mato Grosso will harvest 40 million tons, so we'll still have more than enough volume to meet our obligations for the industries to run and to export, but there was a significant failure when compared to what was initially forecast. With that, logistics costs were appreciated, or appreciated, and then that cost was adjusted.
At the same time, we saw a drop in commodities prices for soybeans, corn, and wheat. When we saw that, logistics did not come at the same pace, logistics costs. So when you talk, when you ask, when is this going to be normalized going forward, third quarter, fourth quarter going forward, we see that normalizing seeing in the near future, and we see a fourth quarter with an industry presenting a margin of 16.5% going back to a normal level. That's where we believe we will be in a normal normal levels. Again, without intense volatilities that we saw during the post-pandemic periods or as the war in Ukraine was starting, those were very volatile moments. But today, we see a more normalized period going forward. Thank you.
Next question comes from Pedro Fonseca from XP. Mr. Fonseca, you may carry on.
Good morning. Thank you for taking my question. I have two questions. First, about logistics. Do you believe that the drought in the north has affected logistics costs? If so, could you quantify how much of that drought has impacted logistics costs? Put a number on it. And if you could walk us through new contracts for transportation in the north. Also, still about inputs. I'd like to hear from you. Where do you see inventory levels for the industry, for the sector as a whole? You've done a great job in inventory adjustments. You have reached very low levels, but if you look at the sector as a whole, do you have any idea, any color around the inventory level for the whole sector? So when can we expect margins for the business to go back to normal? Some sources say that the historical levels would be 15%.
What can you tell us in relation to that? Does that make sense? Thank you.
Good morning, Pedro. Thank you for your question. I'll be sort of mediating the debate, and I'll turn the floor over to those who I think are more prepared to address the different questions. So about your first question, Cristiano will be able to help us out in terms of logistics and then the drought in the north, how much has that affected our business in the north? I do not... If you could repeat perhaps your comment on the partnership we had with Hidrovias. I didn't hear that question well. If you could repeat that, Pedro, please.
Yes, Luiz, sorry, my audio is not really good. If you could walk us through the contract that you have with Hidrovias. I can talk about the take-or-pay contract with Hidrovias.
The contract or the agreement is ready, signed. I'm not gonna be mentioning numbers, of course, but it's a great partner we have, as we are good partners of T39, Rumo, or TRO. Because we are located on BR-163, as the north meets the south, we are able to negotiate well with those transportation partners, and we are working very close with those logistics companies. So our exit to the north using Hidrovias and then to the south via T39 and Rumo, those partnerships are well designed. And not to mention Rio Grande do Sul, the port of Rio Grande and other terminals also doing well.
Our relationships go back a long time with those partners, but as to your question about the impacts of the drought in the north, I'd like to ask Cristiano to help us out, and then João Marcelo can complement to talk about inputs. Well, Pedro, as to the Arco Norte, the north, we were impacted in October and November by the drought. There was a moment we could not ship through that route. We worked the routes going direct from Barcarena and other ports in the region, and that of course had an impact. Out of that 0.7 that you mentioned, when we look at the number five, logistics and SG&A have two components, right?
One coming from expenses, which are costs involved in rerouting those shipments, and at the same time another component, which is a decrease in revenue because of the crop failure in wheat, which historically has very good margins and would of course drive our revenue, and of course the added logistics costs. So from 4.3 that I mentioned in the third quarter to the fourth quarter, of course, brings that temporary component that should not be repeated. As for the Hidrovias agreement, I was talking to our logistics colleague here. What we can tell you is that we have met all the volumes we had agreed upon with Hidrovias, so Hidrovias has been a great partner, and nothing changes on that front. You had also asked about those contracts, those details.
We're not gonna go into details, of course, but what I can tell you is that we have met all the provisions in terms of volumes, and it was a great partnership. Those challenges in the north, we do not expected to be repeated. We know the effect, as I said, it is present in those 4.3. We cannot say it's not because it is there, but that should not be repeated. Okay, Pedro, anything else you'd like to ask, João or Luiz, anything to add? In terms of inventory, the inventory, the overall inventory levels for the sector, I wouldn't know what to say. What I can tell you is that we have been working hard to manage inventory, to bring inventories down, and oftentimes we ran risks in the past because of specific moments. We had higher inventory because of different moments, but this is past.
We're now going through a new moment. Our inventory management intelligence has been improving, improving year upon year, and that of course reflects in our current numbers. As for the inventory levels question, Pedro, of course the whole sector has been working to adjust inventory levels. We do not have numbers, of course, overall numbers for the sector, but we can see when you look at the market offerings, we can see that that pressure is no longer there. Now it's more a pressure coming from normal, regular, competitive pressures, no longer driven by untimely higher inventory levels. I'd say inventory levels are adequate in the sector right now. Maybe one or other company may have an issue, but they're all converging towards a more normal inventory levels. In our case, as I mentioned, we had climate issues in the south.
So as Luiz said, 80% is in the south. It used to be higher than that. So we had expensive inventory and difficulties in diluting because there was no consumption or a reduced consumption because of climate issues. But that also in Rio Grande, as we move forward to a new year with a normal, quote unquote, crop, expected good rainfall levels, good demand levels, so the whole sector I'd say is well positioned, well adjusted to healthier inventory levels. Okay, thank you.
Next question comes from Gabriel Barra from Citi. We're going to unmute your mic. You may carry on, sir.
Thank you for taking my questions. Two questions on my side. We talked about margins. We talked about SG&A levels. We saw very high return levels at the IPO moment.
Those numbers fell short of what was expected throughout investment cycles, perhaps due to specific difficulties faced last year. So if you could help us better understand that number, what would be a more normalized level for ROIC returns for Três Tentos? We've only had two quarters having contributions from Vera. We see volumes increasing. It seems to be a turning point in terms of returns. So I'd like to understand what would be, in your opinion, a more normalized return level for 2024, 2025, in terms of, again, in terms of ROIC. Also, when we look at the sector as a whole, when we compare you with the other players, we've seen a default risk quite high, but for you guys, it seems to be a very low number. Even if it increases, it's still significantly lower than default risk levels we see in the competition.
So I'd like to hear from you. Am I reading this correctly? Does that create opportunities gaining more market share given potential difficulties the competition may be facing? Those are my two questions. And if you could, a follow-up on margins. There seems to be an offset when you compare sales and gross margins. I'd like to understand if there is a trend, a long-term trend. So the idea is not to offset it, correct? To have a positive number when you compare both lines. Is that the case, or have I gotten it wrong? Thank you.
Okay, Gabriel, thank you for your questions and comments. Of course, we do not want to offset. We want to have a positive figure for sales, and we are confident in that.
About your first question on margins, their relationship, return on investment or invested capital, I'll ask Cristiano to talk about that, but I'd like to reinforce that we have been discussing thoroughly about that. ROIC and ROI, they are the company's main strengths. That's what reflects the work we do as a team, and Cristiano will address that. And then as to your second question, I'd like to ask João Marcelo to help me out. He is the one who's focused on that for the last 29 years, to be frank. We never disconnect the commercial and the financial fronts as we walk hand in hand with growers, but João Marcelo will address that. Cristiano, over to you.
In terms of ROIC, thank you for your question, Gabriel, for your question. I think you have 4 questions, if I'm not mistaken.
I'll address the first one and give it back to João to talk about default and credit. As for ROIC, we have to be careful, right? We cannot give any guidance, but of course ROIC for this year was affected by the challenging year we had. We expect that going forward the company will resume its historical levels in terms of returns. Of course, we cannot give you a number or a date of when that will happen, but we have Vera being ramped up. We'll be running the first half of 2024, which was not the case in the first half of 2023. That's the first important point to take into account.
Also, all our Mato Grosso stores, which are now moving from a first to its second year, those stores will be maturing towards a full capacity running in terms of sales, market access, market share, and this will only mature in 2 years, 3 years. So we have expanded fast throughout 2022 and 2023, and that of course has an impact. Our export program is just getting started. We had this challenge in the north, but we have a plan in place to reduce SG&A, as we've said to your last question, that it's not a trend to offset. We want to recover gross margins, not to offset losses. Also, on the inputs front, we saw, as I said, a delay in Rio Grande do Sul because of a delay in planting late last year.
So we have a combination of elements that allows us to believe that 2024 will be a better year in terms of margins and results as a whole. So when you mentioned turning point, that's how we see it. That's a turning point, and we expected to see that happening late last year. That was hampered because of the wheat situation, but we're coming close to that, to this turning point, and we are tirelessly pursuing, recovering those margins. So our perception is that we'll improve ROIC levels throughout the coming few years. So back to João Marcelo for him to address default. Our team has been working hard to address defaults, and João, over to you.
As Luiz said, Gabriel, liquidity and collection, that's been a priority at the company. They have a very strong focus on that.
We have a very well-prepared team for that, working hard to do that. With all the commercial team involved, our commercial team is not disconnected from our credit/collection department. Of course, it is a challenging scenario with dropping prices, a crop failure. Of course, that's a given. That's the scenario we have in place. This started last year, actually 2022, when Rio Grande do Sul, right, actually. So now looking at the whole country and see this dropping in prices, but what we see going forward, as we said, that's an opportunity, two key points for the success of our company in terms of low default. We work very close with our clients, and our value proposition, our offerings, which are all integrated, all of that combined explains our low default risks.
That gain in market share comes exactly from those opportunities linked to our efficiency with our closeness with growers, with farmers. So we see a challenging scenario going forward, but we see that as an opportunity for Três Tentos.
If I may complement João, in terms of ROIC, in all the numbers we analyze, we have to include investments relative to this new growth cycle. So we'll have two years, 2024 and 2025. We see that ethanol plant being ramped up. This was presented in January, the size of the investment and so on. That's the same account. It has to be clear, right? We'll see impacts coming from this new plant being ramped up. So 2026, we have a new plant running, and this will be reflected only in 2026, okay?
Also, João, the growth in terms of the competition, his third question, João.
I think it's all good. We are, our time is almost up, and there are a few questions still to be addressed. I think, I think we're good unless Gabriel wants any other comment.
No, it's all clear. All good, thank you.
Next question comes from Isabella Simonato from Bank of America. You may carry on, Miss. Good morning.
Thank you for taking my question. My question has to do with profitability and returns. If I could rephrase the question which was asked, you are on the verge of starting a new growth cycle, as you have announced. You announced last month.
Speaking specifically about what you already do, both in retail and in industry, and based on what you've seen for the past two years, what lessons were learned from Mato Grosso and from the challenges that may have caught you by surprise, the fight for market share, logistics issues that were surprising? What caught you off guard when you think about the pace of the expansion plan? When you think about ways to position yourselves in the market, acquire new clients, what were the lessons learned for the past two years that could be used for the coming years as we see a more normalized margin level being achieved sooner than later? What kind of margin levels can we expect? How do you see that two years down the road now as the new cycle begins? Thank you.
Thank you, Isabella, for your question.
I'd like to ask João to answer the question with me, but before I turn it over to him, profitability and returns, those are topics we've been working on. We've been seeing improvements across those indicators. In the fourth quarter, we see EBITDA going back to levels above 7%. I'd like to go back to the price volatility issues that I mentioned that led not only inputs but industry and grains to suffer, if you will, some margin loss. So there are many takeaways we have accumulated for the past 29 years, not only two years, but 29, but especially after the IPO, when we started really to expand the company, we were able to execute phenomenally, I'd say. And there's still a lot of ground to cover in terms of structuring new areas and getting things to work.
In terms of being caught by surprise, we were caught by surprise by uncontrollable, unpredictable things: war, the pandemic, of course, not controllable. But the facts lasted until last year, as we know, but that is a page which was turned in our view. Lots of learnings for us to continue to grow, bringing in results, but especially, Isabella, that makes us ready to enjoy the positive moments that we know this industry provides. We have good demand. We have a captive, if you will, market. As we go into a new region and talk to new growers, all of that remains a challenge for us, but a challenge that we have embraced in terms of creating value, delivering value to those farmers, those who have placed their faith on us.
And I'd like to reinforce that this is happening, and that can be seen through our volumes. They continue to grow across all the company's sectors, but João Marcelo has something to contribute. Over to you, João.
Just as a compliment, if I may, the main takeaway we have from the past years is that we are confident in the company's resilience in our management ability. We, as leaders of the company, we are sure that our model is resilient and profitable. If we look at the numbers when compared to the market, to the sector, I think we stand out, no doubt. The company has once again delivered over BRL 0.5 billion in results.
So when you compare that with all the challenges we faced, some coming from uncontrollable sources, not only the war and the pandemic, but of course the climate as well, weather, we weathered through all of that, not only with strength but also providing, delivering good results. So we are confident in our model, and we will deliver as we start up our efficiency, our gains, yields. And we have already shown that, and we'll see that happening throughout 2024. I remember our motto here, which is, "The best is still or is yet to come." So the best is yet to come also in terms of numbers, okay? Thank you.
Next question comes from Henrique Brustolin from BTG. You may carry on.
Good morning. I have two questions.
The first, looking at your trading margins, especially when compared that quarter-over-quarter, which has not grown despite the higher wheat volume, which were the main offenders? Any specific driver that may have impacted the trading margins? And also about working capital. You closed the year with a working capital level, which is very low, cash conversion cycle very low. How do you see that going forward? Considering the business seasonality, of course, when you think of the cash conversion cycle on an annual scale, should we expect that to continue at the same level? Thank you.
Good morning, Henrique. Thank you for your questions about the trading margins. I'll start, and then I'll ask João Marcelo to complement the second question.
We had several impacts that led to a drop and a lower drop in logistics costs when compared to input costs, combined to climate issues that we mentioned, especially in the north, as mentioned earlier in this call. And as to your second question, I'll ask Cristiano to also jump in about the working capital issue, cash generation, and so on. And we, of course, are always working to maintain those indicators at a high point. Please, João, over to you.
Henrique, as to your fourth Q margins around trading, of course, corn had an important impact, was a sales conversion that I mentioned because of logistics issue around corn. The second crop in Mato Grosso saw a change in sales, a CIF for FOB swap, and that, of course, affected margins. So margins were lower because of that.
For the corn business, we sold FOB, and part of that did not add the freight amounts. And especially because the wheat issue was a main contributor, a main offender, because of the crop failure in Rio Grande and the drop in quality also. The wheat, which was actually produced, was not a wheat good for bread making but for feed making. So the added value was lower, right? That was stressed by Russia and Argentina coming back to the wheat market at a strong level. So that brought about more competitiveness late in 2023, which was much higher than at the end of 2022. So quality, more competition, and corn being converted to FOB and the sales entry.
I can address the question about the cash management.
Yes, go ahead, Cristiano.
Thank you, Henrique, for your question. Yes.
Henrique, we want to have the idea is to have a good year. There are several drivers. As I mentioned, farmers have delayed in planting. As for input retail, we have a sales mix with a lower payment term, higher cash payments, in other words. And we have another cycle for the first half of the year where we have farmers planting more to meet their obligations, and we also have our strong relationships with our partners. And so we have prepared for that, but cash generation is happening, and we expect this to be one of the main engines for our performance throughout 2024. So we can continue this process of having debts under control, to have a good inflow of resources, of revenues as planned as we start our new growth cycle without the need of paying higher rates and so on.
Cash generation, cash management, receivables, payments, we see all that combined as a main strength of the company. So our intention is to continue to meet the plan. That's what is within our budget. So that's what our strength is, right? Debt management, cash management. Thank you.
Okay, thank you. Next question from Larissa, Itaú. You may carry on.
Good morning.
Good morning, Larissa.
Thank you for taking my questions. A quick follow-up, the last questions. One of the main strengths of the company is a very resilient cash generation. Very positive numbers for 2023, especially as you plan to expand, right? So within this context, if you could comment on CapEx and what can you expect in terms of taxes payments for 2024.
Thank you for your question, Larissa. I'll go straight to Cristiano.
As for the CapEx question, thank you for the question.
As for CapEx, we do have a plan in place to expand for new stores. As we start the company, start the works in the new ethanol plant in Porto Alegre do Norte, this will unfold throughout the year. As we announced last month, we have planned to raise funds and then to raise incentivized funds so that we have an interesting grace period early on in the process. The idea is that the CapEx will come from 30% of own cash generation and 70% through debt, but a debt line through long-term adequate rates process. We see no risk around that. That's all within our CapEx planning. We work really hard under João Marcelo's lead to define our CapEx expenditures. Your second question was about taxes. Taxes.
We'll start having cash disbursements now, which we didn't have, but we have fiscal losses to be incorporated and other benefits on it. We are working to minimize cash disbursements, but we will have some. There is a predicted volume. Just to give you a glimpse, we are working with an effective rate of around 22% when compared to the previous year. And part of those 22%, which is not cash disbursement per se. So we are doing other tax studies. Our tax team has been working hard to minimize those costs. There were accounting teams as well so that we have no need to disburse high amounts of cash throughout the year. This should not have a negative effect. So it's a very good question. Thank you.
Thank you. This concludes the Q&A session. I turn the floor back over to Mr. Luiz Dumoncel for his final remarks.
Over to you.
Just to thank you all for participating in yet another earnings call from the company and a final message. It would be around our commitment with our shareholders, our commitment with our clients, suppliers, with the market as a whole. The company has a team of over 2,000 people in-house, highly committed, highly trained to deliver our numbers, our figures, our results, our team that is in continuous training, continuous improvement, a lot of grit, a lot of passion. We continue to grow, to work, as I said before, in a sector which is key to society, that is food and renewable energy, right?
That's the core of the company, the core of a team that stands out, that does a professional, serious work with a management that focuses on safety, on risk management, and the word solidity would be perhaps coming out in the first line of our definition. We are confident in the company, in the industry, in the sector, and let's move forward. Once again, thank you all for participating. Have a nice day, everyone.
3tentos earnings call for Q4 2023 is now over. The IR team remains available for questions or comments you may still have. Thank you for participating and have a nice day.