Dexco S.A. (DXCO3) Earnings Call Transcript & Summary

Good morning, everybody, welcome to, yes, now Duratex Day. It's a pleasure. I am Millena, I'm a journalist in MC, and I have the honor to conduct this event this morning, and you will learn all about the results of Duratex and the strategies of the company for the next years. Also you'll have the opportunity to have a conversation, an open, transparent conversation with the executives of the company. Because the event is separated in 2 parts, it's divided in 2 parts. And I will tell you our agenda. As for now, I would like to tell you how to do this participation. [Operator Instructions] An important thing here is to stress that Duratex Day is an event that usually happens in pleasant manner. But today, it is 100% online because we are following all the WHO guidelines. So here in the studio, only I am not using apron, gloves and mask. And this is to be able to communicate with you. And also the whole technical team here in this studio, everybody is wearing aprons and masks with gel, maintaining the social distance and no -- and all had their temperatures measured to work here today with this transmission. So we're doing everything, taking a lot of care and keeping to the calendar to be able to give the informations on the company, even though the whole thing is 100% virtual. Starting from now until 11:30 this morning, you will better learn about Duratex. It's a Brazilian company, 69 years old of history, leader in the 3 segments, Wood, Deca and Ceramic Tiles. Last year, there was a joint venture with Lenzing for the construction of the Dissolving Wood Pulp. More than 10,000 collaborators, 16 plants in Brazil and 3 in Colombia. It aims to create solutions for a better life. And this purpose was never so relevant as it is today, right? So now I would like to introduce -- I would like to show you the agenda, so that you can organize yourself and know what is going to be addressed here this morning. Firstly, we're going to have an opening with Antonio Joaquim de Oliveira, CEO from the Duratex; and then we have Henrique Haddad, the CFO; and then Henrique Marcondes, Head of Wood; Marcelo Izzo, Head of Deca; Gilmar Menegon, Head of Ceramic Tiles; and Daniel Lopes, Head of IT and Digital Innovation. After the presentation of each one of these executives, we're going to open for Q&A session. We're going to have -- and there, you'll be able to participate with us by sending your questions and answers. You can register too your comment and your question. So please contribute for this transmission because it is what you want to hear. [Operator Instructions] I hope to have your participation. So now is everybody ready? So let's continue with our event. So we will open with this morning's content. I would like to call to the floor for the official opening of this event with more wide-ranging information on the company, Antonio Joaquim, the CEO of Duratex, who is going to tell us what that company has been doing in this period of COVID-19 and the next steps. So Antonio, you have the floor.

Good morning, Millena. Thank you very much. So thank you very much, It is a pleasure to be with you on this day, being able to render accounts to our investors and all the people that follow up on Duratex. I would like to very briefly talk about this year, which was such a challenging year, such a difficult year. However, we had numerous lessons that we learnt. If we do a retrospective of this year, I would like to remind you at the beginning, the first quarter. We began the year very optimistic, believing that we were going for a very positive year. And immediately afterwards, in March, the news began to emerge. When in fact, we suffered the impact of the pandemic, a scenario that no executive, no planner, no analyst could ever foresee. And in this situation, this is where immediately in the first quarter, we had to decide a very difficult decision, which was to begin stalling operations, suspending operations. We began to fuel the plants and all the operations. All stores were closed, starting from the second quarter of March, second week in March. And then immediately, the company found itself in a very peculiar situation. At this moment, our strongest concern was to preserve, first, our collaborators. So this was a decision taken by the Board with regards to -- with investors and shareholders, and then we began to begin a home office regime. We had never practiced it in such a scale. All our collaborators, almost all of them went home, and we decided to not reduce wages. We decided to confront the situation together. At the same time, the company went to the market because, obviously, we had cash, although it was very solid, we were not prepared for what was coming before us. So we could not, at that moment, know if we were going to have 3, 6, 1 year stopped, paralyzed. We -- nobody really knew what to expect here. So we went to the market. We did a strong financial capture, and we were successful. We managed to capture between the -- at the end of the first quarter and the second one, BRL 6 billion, and we consolidated the cash necessary to confront the pandemic. Starting from this moment, we continued with our operations. We tried to observe the market in a very important way. We tried to get closer, even though it was virtual or via telephone, via Internet of our clients, analyze the situation of each person. There was a moment where there was almost despair. And then we -- in the beginning of April, as you can observe here in the slide, around the 15th of April, all our operations were closed, all plants in Brazil paralyzed and our 3 plants in Colombia, too. This was the moment -- for myself as an executive was the most difficult moment in my life, where we had this scenario with paralyzed plants. But as important, as serious of all of this, we had the idea that we did not know just when we would come back. We had to observe the market. And starting from there, we began to prepare ourselves with daily meetings between the executive Saturdays, Monday -- Saturdays, Sundays, holidays. We set up crisis communities, and we began to operate the company vis-à-vis within this new normal. And starting from this moment, some measures, some important measures contributed for us to be able to have -- to prepare ourselves for this. So we have to face the situation, construction material stores, which were our main clients, the construction material sector, was considered an essential activity. So stores began opening all over Brazil, and we began to have a slightly better perspective. And in April and May, we began to recoup our operations. I would say that by the end of April, we were practically going back with all the activities. And the initial expectations we have in terms of results began to revert itself slowly in April, but signaling that we could have good opportunities here. At this moment, we began to work strongly with internally. So what could we do? We worked strongly. We worked costs very strong, commitment of collaborators, and then we began to operate in a way that I had never seen before in the company. It was extraordinary. The sales team worked virtually. All the plants -- all the people came -- went back to plant operations and the scenario began to change. So in May, going towards June, we began to see a recovery. And this would be a traditional type of recovery seeing what the market is, and we never really observed. In fact, we had a very fast recovery. We entered June with a very positive perspective. And at the end of June, we already had 2 great -- the largest divisions Deca and Wood operating practically full speed, full capacity. So this encouraged us. It was very positive. And we arranged with the shareholders. We traced a new forecast for 2020. And really, we prepared ourselves for strong recoup. This recoup, as you -- can you observe in the numbers which was divulged today and that Haddad will give us -- will detail for us. This occurred starting -- very strongly starting from July and allowed us to build during this third quarter to have the best quarter in our history. It was surprising. All the units were operating 24/7, all the plants, our sales, the civil construction segment came back in an extraordinary way. I -- maybe there are 3 reasons here; the first, the drop in interest rates. We are operating with a very low interest rate scenario. This helps the sector contribute to lower costs for credit in terms of the end consumer and stimulates investments that before would go to financial operation. Now the civil construction segment began to develop in an extraordinary way to generate new income. And this affected very positively our Duratex business, and we began to operate in the Ceramic Tiles segment at the end of July, beginning of August with full capacity, full occupation. And with this, we began to work the prices. We were able to recover the margins that were lost. The prices were very low. And so we were able to recover inflation that occurred with regard to input. But as well as low interest rates, this new normal, this new valorization of the home, the place we live in, we saw this in numerous projects, engineering offices, architectural offices, working full time and the sector moving in a very positive way. In this third quarter, I would say that, in fact, we attained OpEx in our operations. And this makes us very happy and very positive with regards to what to expect for the end of the year. Also, we've seen the recoup, a strong recoup of launches in civil construction. All the developers and construction companies are taking up launches again and working in a very positive way. This should give us a scenario for '21, '22. And probably the next 2 or 3 years will be a very positive scenario for there are new launches now, many new constructions. And these constructions have this timing in our products. As you know, they come at the end of the construction works. So we're very positive. And we believe, in fact, that we are going to work and the year is going to be very good. Now I will give the floor back to Millena so that she can continue, and we will come back with the summary and -- of the whole event and then go back to the questions and answers.

Antonio, congratulations for the actions taken. Congratulations. Now we will continue with this morning's presentation. [Operator Instructions] Now I would like to give the floor to Henrique Haddad, CFO of Duratex. He's going to talk from his home office. And he's going to tell us about how these actions reflected in the numbers of the company. Good morning, Henrique. You have the floor. So in a few minutes, we will -- we're waiting to connect with Henrique. Henrique, can you hear me? So I would like to remind you that this morning, there is full of content. We just heard from Antonio Joaquim de Oliveira, CEO of Duratex. And this morning, you're going to listen now to Henrique Haddad, the CFO of Duratex. He's joining directly from his office at his home. And we have Henrique Marcondes, Marcelo Izzo from [indiscernible] Brazil. Gilmar Menegon will be with us too. And then we have Daniel Lopes Franco, who will go -- also will speak to us. So you receive content from all areas and segments of the company, including you are going to get the technology and innovation information. So now, the CEO of Duratex, Antonio Joaquim de Oliveira just made a quick summary. He put this year into context for us. And he is enthusiastic with the next steps that are coming. This last quarter -- that we begin. We're trying a connection. So you have the floor, Henrique.

So I think here, we have a very important growth. And this, I have reinforced this message in a very strong way internally and outside. It's not by chance. This is a result that has been built in time. So now I have commented with everybody all the work that was done in terms of productivity, liberation of capacity, investments focused on growth and other segments, such as Ceramic Tiles now, Dissolving Wood Pulp for the future, but also repositioning operations, are the ones that have been with us for a long time, like Wood, Deca and Hydra. 40% increase in results, referring -- when we go back to 2013. And all the operations with margin over 20% EBITDA, recurring EBITDA margin over 24%. So this is a level that makes us most proud. We are sure that we are in the right path. Another highlight of our operation this quarter is something that has been built in time is cash, operating cash generation. We have attained almost BRL 700 million in cash generation in the year, even going through a process of difficulty like we had in the second quarter. Obviously, we had a moment of great tension in the second quarter. But in the third quarter, we received everything that was done, all the provocations for our clients. And the highlight for the work of the working capital management where we clearly noticed the capacity to generate cash consistently, even in doing investments that were consolidated in the third quarter, LD Cellulose, totalizing more than BRL 520 million a year. We're showing a free cash flow, which is positive, over BRL 100 million. This shows us that structurally Duratex is different. And we are building a situation here. And certainly, this is going to position us to an even better year. The consequence of this cash generation and the work that has been done in managing the debt, we were able to attain one of the lowest debts in the last year. And this is a very important factor because in spite of everything that happened in the crisis, we have been working reprogramming of debt to maintain investment capacity in the short term and also for our needs -- to our growth needs, which is the focus of the organization at this moment. So this is a moment that is most important with emphasis for the result as a whole. And you will see in the other presentations more details with regards to each one of our business units. To close this follow-up with regards to consolidated results and cash generations, I'm going to talk about our Dissolving Wood Pulp, Dissolving Cellulose here. So all the investment necessary has already been done in equity. We did for forests and consolidated contribution with the share of each one, 49% Duratex, 51% Lenzing. And we closed the financing program. We've got investments as a whole $1.2 billion supported by several banks, all the by-lenders. And this project is a reason for much pride. We were awarded -- we were given 2 awards in the Latin Finance Awards, which shows us that this is a very robust structure. It demanded a lot of work naturally, but we are -- we believe, in fact, that the focus is clear. And in spite of all the problems we had in the pandemic, we are in the right path. And also summarizing our agenda. Infrastructure and construction is going at full speed. It is amazing to see the size of the work, the dimension, the -- all the people mobilized in that place. And so we are sure there is no reason to not believe that we are -- we have -- we believe that at the end of the first quarter 2022 to begin operations and have one more very successful operation in the Duratex portfolio. And with this, I would like to close this presentation in terms of soluble dissolving cellulose and go back to Millena to continue with the event.

Thank you very much Henrique Haddad for your participation, live participation. And now we're going to continue with this morning's content. And now we have Henrique Marcondes, Head of the Wood division, a unit that is in full operation. Duratex is leader of the wood panels market. Henrique Marcondes, you have the floor.

So it's very obvious. So we -- so third quarter -- because of the [indiscernible] demand of the -- Duratex had an important market share to be prepared for this moment. So this is a very important moment in this period. When we look at the leverages and what it brings to us in terms of results, it is clear with the efficient management strategy of assets, how we address with commodities, with cost efficiency and how we differentiate ourselves with regard to assets. We have a historical record production and sales revenue. And this quarter, we had an important optimization of the plants, of the industry and forests. We -- this is very effective. We've had a reduction of stocks, which is very important, maintaining satisfactory service levels, which we call OTIF. And we approved the acquisition of new line, a new BP to be installed this year -- next year. We're focused in cost competitiveness. Plant operations is full capacity, working full-time every day of the week. It's doing very well. We've seen several months operating in this way. The accuracy of planning is certainly helping us to have an adequate service to clients. We also implemented immediately after July's historical record. We implemented a transport management system, which is increasing its efficiency here, too. In the commercial, we see maturity in commercial policy. Commercial execution is paying attention to sell-out, which help us understand our clients. Notable products. We focus on differentiation, the assertiveness of the last collections have been acknowledged in the market. And I would like to stress the adherence of this collection of internal materials. Here, we have doubled the volume that we used to sell in the last -- in the third quarter last year, which is a very important quarter for us. The commercial policy has helped us, and we're preparing the collection for 2021. With regards to strategy in numbers, the evolution of the strategy, all this commercial pricing, commercial execution and portfolio has helped with the evolution of the EBITDA as well as [indiscernible] talked about the vocational class, the lean structure, which we implemented in Itapetininga, had replicated to other plants. The S&OP part, which have been integrating the teams and stocks, which are very low, aligned to a good OTIF. And lastly, when we began to look at the assets and EVA improvement, the key divestments of forest assets associated to increase in profitability is already showing us an EVA that is positive in the third quarter. This is historical. And also an important improvement in the financial cycle, cash generation, which is very relevant. So what becomes evident here is to show this comparison between the third quarter 2019 where we had 20% EBITDA and now we're attaining 25% -- 20% EBITDA. And this is the usual price and mix, but also efficiency in costs and productivity and exchange did hinder things a bit. But even so, we have a 25% level. When we look at the importance of volumes, if I compare 2019 with 2020 with the same quarter, EVA has grown 20%. We are growing 38%. So we have a relevant market share gain. We're going from 150 -- BRL 145 million in EBITDA to BRL 252 million. This strengthens the strategy that we are implementing, which is a responsible balance between volume, price and mix. That is, already in the second quarter, we can better understand just how efficient this full capacity strategy is with competitive, efficient that is relevant, strong growth in commodity and price assertiveness. Here, we began to consider what would be the full potential, where we had productivity gains. We continue with differentiation strategy. The idea is to grow increasingly with added-value products, and this is being allowed for by the leverages that we have been implementing quarter after quarter. I would like to thank you. And now I am open to your ideas or questions that you might have.

So now we're going to have questions and answers at the end in reality, in the second part of the transmission, immediately after all the executives have spoken individually. Now we are going to talk about a division that Duratex is leader in, which is the sanitary ware, and it is one of the main producers of electric showers. I would like to give the floor now to Marcelo Izzo, Deca, the Head of the Deca division.

Good morning. It's a pleasure to be with you and have the opportunity to be able to talk about the Deca's strategic agenda and how this agenda has translated into the results for the third quarter 2020. You've seen through Antonio's, Haddad's, Marcondes' presentation the robustness of the set of results we're presenting to you. I don't believe Deca has been as different as the consolidated and partial results in Wood. Obviously, we cannot defy the fact that our performance in the third quarter was impacted by 3 very important factors; one short-term, the other mid and the other long-term. The first one, no doubt, was governmental help in this pandemic, which no doubt, came back, which turned to consumption. Second is the interest rate and at -- which has been at -- which in all-time -- which is an all-time historical low. And the third one is the change of the behavior of the consumer, the way he sees, obviously, his house, his home. So these 3 variables and factors, they affected positively our performance in this quarter. With regard to numbers. So you can see the third quarter, which was the first quarter where you begin operating after the pandemic. It came and according to ABRAMAT presenting real growth rates and not nominal rates. This rate is the true net sales of the industry between June, July, and -- August, September -- July, August, September. So here, the civil construction materials sector presented growth rates. As important here is to see our performance here. And for us, the capitalization, everything we have been presenting and one of our pillars, which was implemented at the end of last year's quarter and in phases this year, which is our commercial execution with excellent leads to performance that is superior to the market's performance. Deca during this whole period in this third quarter, it overperformed the market. So that you can have an idea. The market in the quarter approached 4%. When we look at Deca, this sales revenue was greater than the prior quarter in 20%. If we consider year-to-date, total presents greater trend. DECA has been over-performing in the market in this period. So what happened? Probably, you will see a chart now, which talks about what was presented 1 year ago, which we baptized as a snapshot of our strategic agenda. It's worth remembering that this agenda was presented to the Board 2 years ago. This must have been August, September 2018. And this is where we talked about the pillars that would lead us to the implementation that theoretically where we would have success with the basic criteria, which was shareholder value creation. And this is exactly what we are going for in this agenda. Last year, we showed you the advantage we had, but I also mentioned that out of the 6 pillars we had, it wouldn't happen simultaneously. We would have to materialize some of them, so that we could have structural changes that would allow us to have sustainable development in this period. So what you can see in blue is exactly what we presented last year. And what you see in green is what we have in terms of success during this year, the continuous implementation during 2020. It's important to stress that we began to emphasize innovation pillar. You can see here in the chart, everything that was translated and tangibilized in 2020. This is a consequence of something I said last year already, which was the capacity to reduction of our time to market from 18 to 14 months. And this allowed us to have all of these launches during this year. It is important to stress that among the launches we had, you have the washbasins, which is just another example, excluding stainless steel washbasins, kitchen sinks, which is the asset light. And we had -- we were able to generate revenue in this segment. In this same example for the washbasins, which is another example, entering the brand in a category of which we did not participate in, and we began to participate, generating revenue for the organization through the production of third parties. So this is just one of the examples. Productivity, operational and logistics came to stay. The concept of suppliers of profits that came to stay. Productivity is something that never finishes. The more you delve into productive processes, the more opportunities we find. So there are several examples. In green, you can see what we did during this year, stressing 2 points that are fundamental. Productivity this year grows 25% in the period, 25% over last year. Highlighting the fact that last year was the year for this pillar for the increment ability of our EBITDA in 2019. And this year, we can grow 25% over last year. Another important point is the restructuring of products that we did with Hydra, which allowed our quality to improve and complaints and return index dropped 50%. And this money goes directly to our cash and to our results. However, I would like to stress the pillar where we really did advance this year, which was the commercial execution. I said to you that the second year of the agenda would have this important step that we would take. And we show the amount of steps made with regards to these pillars showing the dynamism that we are confronting. From the commercial execution perspective and highlighting that this has a fundamental role in terms of the generation of the top line of the organization. This implementation of our pillar with excellence -- commercial execution with excellence has the merit, which makes us over-perform the market and certainly are competitive. And I'm very -- and it's safe to say that we're in the right path. How does this advance that we've had here with pillars? How has this translated into numbers now in the third quarter? So you have the idea of our volume, it rose 25%. And also our revenue, our gross margin, I would say that gross -- the importance of the gross margin because it is here that we can see all are advanced in terms of productivity. It goes from 30% to 35%, almost 5 percentage points gain in gross margin, operating in a capacity that is not idle anymore. We're working almost full capacity in Deca, which allows us to have an EBITDA, which is very significant. It grew 65% in the period, making our margins go from 16.9 to 22.2. So I think when I look at all these results, they tangibilize the essence of our strategy. You grow, obviously, the EBITDA through not only generating the top line, but also operating and logistics efficiencies through productivity project. But then you can ask, Marcelo, how do you see the future? I always say -- and recently, I said in a call I had with investors with regards to how -- just how much we trust in our strategic pillars. So this is 1 more year, I go to the Board to say, I fully believe in these pillars. These pillars will lead to our objective of shareholder value creation and somehow has translated and tangibilized results that are very important for us if you see our margin when we began this journey. In our agenda, we had the third quarter 2018, which was exactly when we presented this to the Board and to Antonio. We had an EBITDA margin of around 14% in 2017 -- in 2019, 17% and now 22%, which means that practically, we had 8 percentage points EBITDA margin gain in 2 years. So it is safe to say that this agenda has given significant results in the right -- in the adequate time for each one of the pillars. It's no chance that makes us have such positive results for Deca. It is the consequence of the 3 initial factors that I mentioned in the beginning, but also internal efforts to translate actions into numbers. Well, this is what I had to say. We're going to have a Q&A session, where you can ask me any question you might have.

Thank you very much, Marcelo Izzo. We're going to have this question-and-answer session immediately. [Operator Instructions] Now we have the Head of Ceramic Tiles, the newest division of Duratex with Ceusa and Portinari. He is going to talk directly from [indiscernible]. Good morning, Menegon, you have the floor.

Good morning. It's a huge pleasure to be with you even in a slightly different way than compared to last year, but always very close. My name is Gilmar Menegon. I am Director of Ceramic Tiles, and we have worked with Duratex Group for 3 years. We come to talk about the results of the third quarter 2020. Sectorial analysis & data pointing to high recovery of the market starting for July, growth of the invoicing in Ceramic Tiles industry in the order of 20% in the third quarter this year when compared to the same quarter last year, elevating view. So the plant capacity in the third quarter 2019, 76% to 80% in 2020. And better when comparing the second quarter of 2020, where the use of plant capacity was around 39%. So with Duratex Ceramic Tiles, we have strong prioritization in the added value strategy. We managed to leverage the sales volume, 47% in the third quarter 2020 when compared to the third quarter 2019. The focus and improvement of mix highlight a better functioning of the brands, allowed us to elevate our net revenue by 57%, BRL 178 million in the third quarter 2019 to BRL 275 million in the third quarter 2020, allowing us to be able to have full use of the productive capacity by 93%. This allowed for effective gains in operating margins. Our adjusted EBITDA had a growth of 118%, going from BRL 31.9 million to BRL 68.2 million through volume, mix and productivity and price. These results were attained with several actions done in this 1 year of integration between Ceusa and Portinari, focused on operational excellence and synergies capture. Many initiatives were done in the industrial field. The transfer of the militarized unit to Santa Catarina, and the reductions of 5 -- from 5 to 2 DCs. We had a strong user processes in plant, aiming for greater gross profit per unit in each plant unit. We also had a start-up of the expansion project in the [indiscernible] with Industry 4.0, the first true 4.0 industry in Brazil. And now you will have the opportunity to watch a video and see the size of this project. [Presentation] The way of creating changed. The way of producing has also changed. Portinari and Ceusa, 2 Duratex brands, presents to us the evolution of the way of doing tiling. So this is the best way of a new industry. The first one in Latin America to operate with a 4.0 concept. Industries 4.0 means 100% digital control with your tablet or mobile in hands our professionals can access information with regards to daily production. Check quality and performance indicated and give remote guidelines to the whole team. 4.0 means automation of delivery. There are several equipments that are entirely operated by robots, which guarantee production process that is much faster, efficient and safe. Industry 4.0 is also much more of a sustainability factor. It reduces water, gas and energy consumption in each productive process. So you use resources with responsibility. This is what we call the future. It is what is most modern operating to develop perfect environment offering product with seasonality with the exact dimension and also with large visual unit. The way we are producing Portinari and Ceusa changed -- has changed, has changed for the better, has changed for you. Industry 4.0, the highest technology at the service of delicacy and art as administrative. This occurred through several initiatives. Among them, we can trade the unification of administrative, commercial and trademark teams, also unification of sales teams, promoters dedicated for each brand to use one single commercial policy for Ceusa and Portinari. And lastly, unification of the export channel with Deca channel, which strengthened data for both businesses. Here we managed to have the ramp-up of our expansion process. With regard to brand synergies, we could discontinue the Cecrisa brand with low-end products, focusing on high-end products in Ceusa and Portinari. Also, we focused replicating all technical differentials of Ceusa to Portinari such as monotone, mono-caliber and also the strengthening of the Ceusa brand in digital leaders. Leveraged by Portinari, which is leader in the segment in the planet. It has a greatest number of followers in Instagram with Ceramic Tiles. Another action was the launch of our smart store, which we're going to present to you in a video and our entrance to the e-commerce area. [Presentation] So following the omnichannel retail trends, we present smart store, a future store. At smart store, it's possible to experiment instantaneously tilings in their own environment. When emerging, showing this in a screen, you can choose the brand where you want -- that you want to simulate. And then you can project in the screen, the pictures that you took before in your environment. You save that in the gallery of your mobile. And then afterwards, you mirror this, and then you can try out all the tiles available in different colors and formats. This part, it is possible to see the specifications of the project such as finishing and place of use. In the samples in this space, the clients can see the design, fill the sectors of the tilings selected -- the panel selected. And with the use of technology, smart store facilitates its choice and purchase of products. All of this in a very pleasant experience. The experience becomes even more complete by sending images to very special people who will experience unique moments in this future environment, a true revolution in the way of trying out the tilings. In the future, talking about our strategy, it is based in 3 pillars; operational excellence, commercial and strengthening of the brands. In the operational excellence, the strengthening and modernization of Industry 4.0 would lead to other industrial units, focusing high industrial performance. Also, we're working the evolution of S&OP service level. At the end of the year, we're going to have the goal off of the SAP [indiscernible] System, which would certainly lead us to another information management level. With this SAP, we are going to restructure market intelligence, strengthening our commercial policy with Ceusa and Portinari and also prepared to ourself for e-commerce. In the brand strengthening pillar, we will invest strongly in relationships programs with professionals and also the journey of the consumer consolidating our smart tool, which is an infinite corridor for opportunities, which will lead us to e-commerce. With these strategic actions and the strength of the Duratex brand, we certainly are going to build the greatest ceramics tilings company in Brazil. I would like to thank you for the opportunity, and I am at your disposal for any questions you might have during the Q&A session.

Thank you very much, Gilmar Menegon. So in a few minutes, we're going to begin with this questions-and-answer block. Now we have the moment of talking about the future. Now I would like to give the floor to Daniel Franco, Head of IT and Innovations at Duratex.

Good morning. My name is Daniel Franco. I began in Duratex in 2016 as strategic mergers and acquisition strategist. I'm responsible to innovation. I'm responsible for strategy. And before I talk about this digital transformation, I would like to remind you of a small key point vis-à-vis this context of transformation strategic redesign, our purpose, solutions for better life. It is true our purpose that we positively impact the lives of millions of Brazilians in Latin America through the solutions portfolio for a better life. No doubt taking well-being, comfort and much good experience to the homes of these consumers. What is it important to talk about a purpose? Because the purpose is what's going to lead us to our choices and battles to build this technology and digital transformation road map. It's one of the purpose. It is important to understand the concept, context we're living in. From a technological point of view, more specifically, I would like to talk about civil construction, refurbishing and decoration. This study promoted by Accenture and Gartner shows that civil construction is positioned among the statistic least innovate in terms of technology and digital transformation. If I remember well, it only beats the fishery sector. So imagine, we have been fishing ever since the -- same way ever since the Roman Empire. And it only beats fishery here with regards to digital transformation. Is it good or bad? I see it as very good because starting from here, we can understand that opportunities are just infinite. It is a sea of opportunities that can allow Duratex to protagonize this moment of transformation. Another point that I find important, and it's important to have in mind because we can mirror ourselves in some sectors that are well beyond both in terms of innovation, digital transformation, so that we can parting from this impression choose projects at a certain moment, not necessarily add that to a business model at Duratex, but as to how it does its business. Many examples of the consumptions and logistics industry can be replicated in the way we buy products or sell products or even how we interact with the end consumer. So not necessarily do we have to have as 1 single source of inspiration, that is that directly linked to our segment. But since we have a very transformational and ambitious journey, it is important to begin to choose our battles. We set up a multidisciplinary group with executives from all business units. We mapped 20 trends that you can see. From these 20 trends, they're grouped in 4 clusters. The first one is new demand; second, modernization of the value chain; third, digital technology; and fourth, innovations in materials. So once we understand how these trends will impact the refurbishing civil construction and decoration sector, we have a driver where in terms of the choices we're going to make with regards to the elaboration of our digital transformation strategy, not only a digital transformation strategy. It is important to note that these trends affect the value chain and demand. This is the reason we began 2 years ago a very interesting work to come closer to the entrepreneurial ecosystems through 2 acceleration waves, Garagem Duratex to speed up business with scale-ups that have solutions for the main problems found in the refurbishing, civil construction parts and house impact with the social impact. That means, how can I have more well-being and humanity to the homes that are in very precarious situations? The approximation with the entrepreneurial ecosystems helps us to understand how we reinvent all of this. We have noticed increasingly that entrepreneurs are challenging constructive methods that are still very archaic in Brazilian market. And the way that this is reinvented changes our commercial relationship with channels and these entrepreneurs. And we cannot forget the importance of digital technology in this journey. However, vis-à-vis so many -- so much information, it is important to understand how we will choose the battles? What are the projects that will be more relevant and have more impact in the strategic development of Duratex? How can we -- or how are we going to be able to materialize our purpose in a more efficient way through technology, be it soft or hard? The answer goes through an understanding of the journey of the consumer regarding construction, refurbishing and decoration. This journey begins at a moment the consumer decides to buy his own house or do or build his home. And after sometime, this new property or used one goes through a refurbishing period. And after this, products are damaged and they need to be repaired. So this is a long journey and very costly, and there is a lot of market behind this journey, which helps us, which is associated to products and services. So a good understanding of this journey can lead us -- can help us in the process of prioritization of projects. It is important to understand the consumer alone cannot do much in this process. He needs to have professionals. He needs influencers, physical or digital. And the understanding of the consumer with these professionals can also help Duratex solve problems, where a process which was going to be a very pleasurable moment is the process of pain and suffering. Who hasn't gone through refurbishing, which escaped the budget. It wasn't the way we wanted, and it was delayed. And this is the reality for millions of Brazilians and Latin Americans. But there is a way of changing this reality, which is through offering digital products and services that are even more modern, connected to trend, and this is how we can change this process. Speeding up the desire of the consumer for more refurbishing, not making him procrastinate decisions which should be good. Today, the Brazilian person waits for the last minute to decide upon on a refresh. Something that was good is avoided, unfortunately. Coming closer to professionals can help us change this reality because most of the problems of the consumer happens by -- when he chooses a more qualified professional for the service, sometimes an architect, a decorator with a key source of inspiration. Through technology, we can change the relationship that Duratex has with this influencer and also the consumer. So an important thing to consider to are the physical channels in this channel, there are many channels here. The process of buying a home is very representative in the lives of the people. Brazilian person saves 40% to 60% of the savings to buy a home. And it's obvious, he's going to research and a lot before such a desired property, even before refurbishing this asset. So when you know that this importance is key, the physical channels begin to exert a fundamental role. And the use of technology and digital transformation together with physical stat points can change the reality here. It is through this combination between technology and current channels that Duratex intend to change the reality of this journey and how this happens. It's also very important in the prioritization program to understand the human's -- the consumer's [ humor ] in each one of these stages, decision process he makes and the relevance of my product portfolio in each one of these journeys. Once I understand all these things, we can be more assertive with regards to choices. For example, nobody buys an apartment or a verity of people buy an apartment based on a decision processes to what sanitary ware is there. The decision process of purchasing a property goes beyond the products that are there. In the case of a refurbishing the relevance of our solutions is more feasible. In some environments, some rooms of the home, Duratex is 40% of the average ticket there, like the bathrooms with regards to refurbishing the product protagonizes the decision. If a faucet breaks down, it has to be changed. And the perception of value of the client in relation to the product together with the repair services has a whole other proportion opening to the opportunity of creating value together with entrepreneurial ecosystems or other part that fits supply services. Vis-à-vis this clear understanding of the pains of the consumer in this journey, Duratex decided to choose 5 task forces in the process of the building, elaboration of the road map. The first, entering the digital retail, a movement that began in 2020 with the Deca store, which is already in a -- invites mid next year. All the other brands will be using the same digital channel, aiming to improve the relationship with the end consumer, offering a much -- a great alternative so that he can have fast access with better service level than he would have had through other channels. And now the other task force is improvement of the experience of the sales processes for our direct channels. We have to consider our channels in a more structured way with regards to the improvement process of the consumers' experience. And so this, a basic pre-requirement is how do we improve the relationship with my client? How do I make this relationship more digital? How do I use data analytics and artificial intelligence to propose to my clients, something that is more assertive with regards to what has greater conversion potential. Important information of geo-location of a certain product or query. We can understand through heat maps, what are the projects that are more researched in each region. This is information and intelligence to help us with the digital transformation process. A great moment to talk about the third task force, data analytics It does not only aim to try to meet the needs of the journey of the end consumer, how we improve relationships with a client, but an internal eye, which is the fourth pillar, Industry 4.0. How do we use information from our equipment so that we can make increasingly faster decisions oftentimes? Monitored by artificial intelligence, algorithms to better standardize temperature pressure parameters here, so that we can become even more effective with the use of all the raw material and energy, impacting the planet less and less. We have a last task force, which is services and solutions. We cannot maximize the experience of the end consumer, if we don't offer everything to the client. The last image that he's going to have of Duratex is the product. The way he idealized in this architecture or decoration project. So these are the 5 task forces chosen in the road map, through the road map of this technology. This is a very huge battle. We are in the beginning of this transformation journey. I hope to count with you with the Q&A session. I'll be available to answer any questions you might have. Thank you.

Thank you very much, Daniel Franco. He close this block of individual presentation from the Duratex executives. Before I call Antonio Joaquim to go back to the stage and make his consideration, his comments, I would like to remind you that you still have time to send your questions and comments. Just click on the button, send your questions. You can access the site of the event by via QR code or key in www.duratexday.com.br. So all you have to do is click the button, send your question. And now Antonio Joaquim, please come back to the stage so that you can make your comments, your final conclusions with regards to everything that was said here, before we open to questions and answers.

Thank you, Emeliana. So you saw that we certainly tried to -- we showed you all the -- we tried to show you as to why we reached this result. I would like to stress, of course, we are going through a very positive moment in the economy, specifically in our sector. It's in all newspapers. You can all see this. So obviously, we are serving this moment in a very responsible way, but also we have a high demand, low stocks in the chain, as everything that was said. So I'm very happy, very happy with the results of the operations in all divisions, business divisions. And also I am very encouraged with the fourth quarter. Obviously, we have a situation where we reached -- we closed the month of October. We've come to the end of October and we have a very good idea of the fourth quarter. It is going to continue very positively. And this encourages us even more. I would like to stress this point, in spite of us going through a very positive moment in the market, good part of what we -- of our results is the results of the works we've done in the last years. I would like to stress 2 very important fronts. When we set up the Duratex Management System, which began with FALCONI this year, we continued working strongly with McKinsey. And really, we are delivering results that show a long term work. More than 5 to 6 years, we've been working in terms of costs, cost structures, how to increase productivities. Since we see the results here in all the divisions. With regards to Ceramic Tiles, we -- it's been a year, 1.5 year from the acquisition of Cecrisa, we were able to execute a search of synergies in a very fast way. And now we are at the levels that we expected to obtain in terms of the business case. So it's a very successful integration. Now with very longly -- I would like to stress this, cost and productivity. And I also would like to draw your attention to the work, those that monitor Duratex is a cultural transformation work. I believe many people ask me, I believe that if it didn't have all this culture process, if it so well developed, like would have been much more difficult in such a challenging year. Our values and culture, here -- everything was essential here. Also I would like to try to draw your attention to this work in this new Duratex, this process, the importance of our values are way of being, of doing the importance of the strategic pillars, strengthening people, processes, results, clients all this, collaborate for us to have a solid delivery so that we can, in fact being -- having such important results in all the sectors and all the positions we work in. So you've seen here in these last slides, all this key aspects of our values, the delivery and also with [ SNG ] field, this whole thing is very relevant. Sustainability for example, the team of deliveries that are in keeping with our clients' needs and stakeholder point. So I will go back to Emeliana. And now we are going to the Q&A, and this will allow us to be able to interact more.

Thank you very much, Antonio Joaquim. Please, you have the floor here in the stage. Before we open questions and answers, while we wait for the virtual meeting at Zoom, Duratex executives out there, so we will open for you to enter this room. And we're going to listen to a message by Lucy Sousa by Apimec.

Good morning members of Apimec and other analysts, [indiscernible] of investment professionals and investors we are here in a meeting with Duratex. It is one of the longest partnerships of the association. 34 years with our association. And I would like to thank the company represented here by the CEO, Antonio Joaquim de Oliveira. Congratulations.

So now we're back here in our studio directly from São Paulo to the whole of Brazil. Just note, we are receiving questions and comments from other countries too. Investors and executive that are listening to this online translation, we have Joaquim -- Antonio Joaquim de Oliveira, CEO of Duratex; we have Henrique Haddad, CFO of Duratex; Izzo; Marcondes.

Once again, I would like to thank you all. Welcome to our virtual meeting. Can you all hear me? Do you have your microphones? Are you ready to begin? Okay, so everybody, we have several questions, some comments from people that are listening to us. We are going to begin with a live participation in Zoom. Leonardo Correa from BTG Bank. Leonardo, good morning. I will give you the floor. What is your question or comment?

Good morning, everybody. Thank you very much Duratex for the event. All the details you gave us, we learned a lot with all the directors, talking about all the initiatives, and there are many fronts that have been opened. My first question has to do with the company's return trend. In the past, we have been seeing a return which was below the one required by investors and the company. For many years, Duratex was a little beyond the potential, was not -- did not meet the potential. And this year, there were several initiatives, several strategic movements for the company to go up and come back to a more acceptable levels, for the sale of our forestry assets, for example. There were several fronts here, mainly at Deca activities. This is a more asset-light model where the market can see. So my first question, just to understand the direction of the effects, the potential that you see for the company from a returns point of view, tell us if it's -- what kind of return is this over invested capital. But for us, it's important to understand the potential. And if you can, talk about the business. We've been -- we saw the acquisition. This new ceramics business, which had an expressive return. If you can tell us about the segment that is most encouraging from a returns point of view. This would be really great. And the second one has to do with volumes. I think to be able to sustain these results, these volumes, growing more than 20% year-after-year and obviously, this is a little inflated because of the stimulus the government has done. So I want to hear from you, the perspectives for next year, what kind of volumes normalization you see? What is the level of volumes that we can see as more sustainable, once you have a normalization year of the monetary stimulus of the government, which has some fiscal problems here? Thank you very much and congratulations for all the data and for one more Duratex Day.

We have another direct question from United States, from Jonathan Brand, HSBC. He also contemplates the second part of this question. So I'm going to place it here, because afterwards, if I leave until the end, it would be repeated. He would like to thank the event. He would like to know the demand for the next 2 or 3 years, and he specifies this, at this moment has been good because the government incentives, interest rate, people spending more time at home, not taking holidays. So he adds to this question. How long should this take? Would this take? And then afterwards, I will go on to another question he made.

Thank you very much Leonardo from BTG to participate with us. So this first block, this first part, as I said to you is the following. We obviously are going through a very positive moment at the moment, but we also see a very interesting possibility here, because when you compare the level of activities that Duratex has worked in now, we believe, yes, it is possible to sustain this activity level for a long time. And I believe now, we are attaining a level that is planned. Even before the pandemic was planned, we had plans. When we did the restructuring that you mentioned, Leonardo telling, forestry assets, closing the activities of a plant, a wood plant in Botucatu, also another ceramics operations plant in São Leopoldo, transferring assets to the Northeast. We took serious protections, where we began to see the results now. That furnace that was transferred comes from São Leopoldo, is operating now in the[indiscernible] city plant. So all of these measures taken, leaves us to allow us to have to sustain these operations, vis-à-vis the levels we are in, with Wood and Deca what most draws your attention is this huge leap in Wood and Wood is going through a very positive moment. We have a strategy that is prepared for -- to sustain these volumes in the next years, we already had a strategic plan, 5-year plan, and we prepared ourselves with. So I'm very optimistic with regard to maintenance, in the short term and the midterm. In the other activities like Ceramic Tiles, we have always operated with a capacity that is very close to the installed capacity. What we are operating now is what we operated with at the end of last year. So Ceramic Tiles will continue. We have 16 production lines. Only 1 is in downtime. We're doing a retrofit of this plant, and it will come back second semester next year. All the other lines are in full operation and this is the play. Also with Deca, with these modifications and these -- and the plant closing, the plants that were closed last year and transformation is the idea is to continue with the same levels, and we have room to grow. I think that we are operating in very positive level. And we have growth -- we have space to grow to improve results in Deca. Ceramic Tiles is very close to the results. Then we also have something to taste, to grow. And in Deca, we have room to grow in terms of mix, in terms of portfolio change. We have a very good work. We have a consistent gain in market share. We are very, very encouraged here. So I would say, yes, we have the consideration to sustain ourselves in the next periods in all businesses. Another point, and here going to the second part of your question, my colleague from United States, Leonardo, how do we see the fourth quarter -- we see in our business is, almost, given, we have questions, we have requests in the portfolio to sustain the operation. And the operation of the fourth quarter should be at levels that are similar to the third quarter. So really, October was a very strong month and we have an expectation to close the year in a very positive way. For next year, going -- if we go back to these conditions, from these conditions that stimulated demand, our profile now -- many of them are conditions that will remain in the next 2 or 3 years. For example, low interest is a consensus among economists. Low interest is low interest everywhere in the world, the United States, Europe and Brazil. So this, in Brazil, would the Brazilian investor is more [ immediatist ] than to European and American investor. So the option for investments in civil construction is given. And this start-up, we did not sell 1 faucet, the new launch that has been done. We would do this in the next 2 years. So the beneficial effect of the civil construction, low interest rate and also, we believe that this process, where there is a valorization of the home, of the environments in the home is in keeping with our business. People doing upgrades in their homes, refurbishing their bathrooms, their kitchens and this is very positive and should generate revenue. So I believe that this will be very good business environment, which should favor us. This is temporary effect. Government incentive, given BRL 600 and now BRL 300, this indirectly affects us. It moves the economy and the owner of the store or those people that has access to our array of products that have a slightly more elevated profile, he can -- this helps. But I would like to say that both main questions, low interest and the valorizations of environment in the home, stimulating refurbishing and constructions here, should remain and we're very optimistic with 2021. We believe that this can present growth with regards to 2020. And we are very optimistic here in these next 2 or 3 years. And even because many companies have already announced that they're leaving their offices, they're reducing office areas, adopting remote type of work. And trips, for example, here, I always say, let's wait for this pandemia to finish. It's important to know we're healthy. I think good part of home office work has come to stay. We are going, for example, there are areas in companies where companies will, from now on, want to remain independent of the pandemia and home office. And this helps us too -- but also, I'm talking about the movements of people. Consequently being able to remote from home. They give value, they're getting into valorize their beach homes in urban areas, in suburban areas. So this is directly -- has directly to do with the products we deal with.

Here we have several questions. Things that you mentioned. Before, I would like to give the floor to one more live online participation. We have Marcio Farid from JPMorgan. Marcio?

Can you hear me?

Good morning, Marcio. Welcome. What is your question or your comment, please?

Thank you. Thank you for the time and the opportunity. Congratulations for the quarter and this event. I have some question that has to do with the sustainability of the market share you managed to have in the third quarter, in all business lines, growing substantially over the market with panels, Deca and ceramics, too. So how is the competitive environment today? Do you see some smaller players becoming more aggressive? Do you think the -- once they are able to recoup part of the operations paralyzed, the second quarter and the third quarter, do you see a more challenging market in terms of competition? And following this line, Antonio, you mentioned that you feel safe to talk about the volume for the fourth quarter in a structural way for 2021 in the next 2 or 3 years. And once having said this, aligned with the competitive environment, what can we expect in terms of margin improvements via price increases? How much can we expect with regards to price movements in the Duratex business lines? Secondly, the mix, the different businesses, panels, wood panels, the external-internal market, Hydra versus Deca, how satisfied are you with the mix you have? And how can -- how much can we expect here? Is there anything in terms of improvement of results? Thank you very much.

Thank you, Marcio. This is a very long question. We have to separate things, looking at each business. I would say, yes. This positive expectation, it has obviously, considers the competition. Our competitors today in all the businesses, ceramic tilings, wood, and sanitary ware is operating with great conditions. All our competitors -- Wood competitors. Let's consider the wood market. The competitors are working full capacity at this moment, as there is a huge demand, a lack of panels in some segments. We always say, the most relevant is to try to consider the long term. We have been preparing ourselves for a work that Henrique Marcondes just explained it to you, a differentiation here. I remember last year, we closed the activities in the plant, which is not even an old plant. It was a plant that for all efficiency standards was not so good. So we decided to optimize assets, sell these forest assets. We closed the plant and remain with 4 very good productive plants. I plan -- we had in advance and perhaps, we might have performed better than many competitors in the pandemic process. Yes, it's true, we were very well prepared, and we captured and we came closer to our clients. During the pandemic -- pandemia, when we were suffering with cash, imagine the situations of our cash. We delayed almost BRL 400 million in securities, giving additional credit to clients, meeting the situation for the needs of each one. From this BRL 400 million has come back to our cash. They have been fully paid. So we helped clients. We established long-term partnerships. And we had the opportunity. In fact, for the client to see and know that Duratex is a long-term partnership, it's a long-term and more solid partnership. So I am encouraged with the maintenance of the market share we were able to have with Wood. We don't intend to waiver on this, give up on this. And we believe also with Deca, we had advances here in market share. But the market is slightly more different with sanitary wear, we have a huge competitor that divides the market with it, with metals also, but they're all operating very well. So in the competition front, I'm not afraid. Duratex is well prepared. We have very -- competitor that we do respect, but we want to build our history, our story. And we're going towards differentiation. Our vision is the one. There is a concept here that we've talked a lot, which is the concept where we have more prestigious brands, brands we've designed, differentiated products but with scale. So we have a lot of opportunity to migrate the Deca portfolio going towards more high-end product. With wood, we're investing. It was mentioned here. We're in -- we recently invested BRL 50 million in the new line, perhaps, the great installed line for wood panels in Brazil, and this will start second quarter next year, second semester, always going for the differentiation. So we have a room to grow here strongly and this obviously, can improve our margins. So we still believe, even if we consider scenario with volumes that are similar to what we have now. Price, I can talk about price. It will depend on the conditions, I would say that we were able to recover price. We are doing very specific adjustments to recover from the inflation. Adjustments are being done here in November in the different units. But let's consider, with these price levels, maintain strong points in marketing. Certainly, we have the conditions to improve results with a better mix, with gains, inefficiency because we're working with larger -- with fuller plants. This is the path we want to continue with. So in the second part of your question, I don't know, perhaps, next year. I'm very optimistic. If we have, for example, parting from a price level we have now, we -- if we have -- we will have a good situation, and we will be able to foresee a scenario before us. We still foresee low inflation, where all these adjustments are being done now. And we will have the conditions to transfer this inflation, to work with better prices. But price is the market. Market is going to dictate that, and we are prepared to compete here. But still, I remain -- I'm very cautious. We at Duratex, we are conservative. Generally, we try to work very cautiously, but we do -- we are optimistic because, we know the work we've been doing, the work we've been doing with the client and what we have delivered. So I do believe that we can consider a very positive competitive scenario.

Antonio, is it possible to go back to Leonardo's question to talk about financial return? And then here, we have a question, with regards to wood. Louise Henrique, from [ Solidos]. He is very interested in this panel market. And we're very anxious, waiting to see this launch for next year. I was just imagining, it could be now, right? Because we really want to refurbish the home and everything. So he asks, if it is possible to talk to us about the share in the fourth quarter in the panels market? Do you know -- do you see a lack of wood risk in the short-term because of the demand. And if you can talk about financial returns?