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

Good afternoon, everyone. Thank you for being here for another Dexco Day, and this is a partnership with Apimec. Today, we're going to present some of our results for the third quarter and our long-term strategy. [Operator Instructions] Over to Antonio.

Hello. Good afternoon, everyone. Thank you for being here. It's a pleasure to be able to have in-person meetings again after 2 difficult years. It's always better to be face to face and talk, so this is very important for us. So we have a presentation here. Our aim is to show what happened during the last quarter and also our expectations for the rest of the year. Basically, we are celebrating a special moment. We recently completed 1 year since Dexco was rebranded with the new corporate brand. I think you all have the opportunity of seeing how the brand was launched, and we also presented an investment plan for the medium term last year. We also did it online, as you might remember. At the time, we were still under lockdowns. And now it has been 1 year since we started this new journey with the company. The management and shareholders have been very happy about the results obtained by Dexco because this is an important step. It's not only a rebranding, but we're starting a new identity. We're starting with a brand that connects to this moment the company is in and its new business portfolio. It removes duplicities between the previous brand, Duratex, which was the name for a product but also the name for the company. And I think it was a very fortunate decision. I think our clients already use Dexco every day. Brands remain strong, and our company is based on brands. Duratex is our flag bearer with wood panels, but we also have Deca and Portinari that co-exist very well with the new corporate brand. We were very happy about the launch last year. And last year was spectacular, so we continue to follow our projects that were launched under this new brand. This year, we have continued to capture synergies among our businesses. You might remember that last year we started merging especially Deca and Ceramic Tiles. This merge is still ongoing. There are still points to be adjusted. It's a complex process. There are several brands. And we are reviewing the model that we use in connecting to the stores. You'll hear about this soon because we had one kind of partnership in Ceramic Tiles. We had a different kind of partnership in Deca, and now they're being joined together. So this is an ongoing journey. Our investment plan is BRL 2.5 billion. This was announced last year, and this was the budget for 2022, 2023 and 2024. So we've made some adjustments to that plan. The plan is currently close to BRL 2.1 million. So we made 2 relevant adjustments. The first one was that we suspended an expansion plan with new furnaces for sanitary ware. It has been suspended for now. The market is receiving enough from our capacity. So this was suspended for a bit. We've kept our focus of investments in automation and increasing productivity and so on. We also made some slight adjustments to the investments we've made in metals. Especially in terms of production capacity, we had planned to buy more machines than we actually did, so we reduced it from 2.1. So we're still strong on that, and we're continuing to make investments, especially in the new ceramic tile plant in Botucatu, which is under construction, and that should start operations in September next year. All other investments have been maintained, and we're focusing on them because they represent what we want to do in the company in the next few years. We're also investing a lot on servicing clients, trying to make our client service better. Since we are joining different areas, there are some logistical issues in Deca and [ RC ] that we're working very much to resolve. But this is a long conversation. We would need an entire afternoon to show this to you. But we're trying to get closer to our consumers, putting the end consumer at the core of our decisions here in product development and in many other things. That's very important. In the past, we were essentially B2B. Now we continue to be a B2B company. We're still selling through our partners, through retail, through stores, but we have a lot of information on our end consumers. So we are ready to service them better. That's our vision. We're working on our digital transformation. Daniel will discuss it. Innovation is also on our agenda, and we have made continuous efforts, especially under Glizi, in continuing our cultural transformation. If you've followed us for some time, you know that we changed a lot, not only our business portfolio, but there was a major transformation. Okay. So apologies for that. Let's continue. So we had to start this cultural transformation, and it's very important for the company. And it's ongoing. We are now in a new round perfecting many things. So we truly are a company in transformation. So the new snapshot of the company that you see here on the right of the slide shows that we have a company that is focused on 2 or 3 main business areas, 1 involving wood, where we have panels and floors and also dissolving pulp. You recently heard in the third quarter reports, this was our first earnings report with dissolving pulp. So this was a ramp-up process taking place. Raul will mention it when he speaks. And we hope to reach full capacity by the end of the year. We also have finishings for construction with Deca, metals, sanitary ware and tiles. And this area is becoming more relevant in the company. We call it DX Ventures. So we have companies that received direct investments from our funds, such as Urbem, Noah and Brasil ao Cubo. We're very happy about these results, not the immediate financial results but how the projects are continuing. They're doing very well. [Technical Difficulty] I apologize. My apologies. We planned it all, but it always doesn't work out fine. Anyhow -- so as you will see and Haddad is going to show to you the third quarter results, it was difficult because, usually, the third quarter is the one that is best for business. It is usually one of the best of the year. We have an atypical year, but we would like to tell you that we are at a whole different level. You can see that in 9 months we managed to accomplish more than we had accomplished in 2020. Pandemic hit us, and people were questioning. Are we going to go back to the levels prepandemic? No, we have shifted levels. And last year, it was an outlier year. Of course, we had a whole set of factors that were highly positive factors in the entire sector. But definitely, we should have the second best year in the history of the company, even taking into account that we are facing a bit more of difficulties. And this chart shows the evolution that we've had in terms of EBITDA generation and the business resilience. So now Haddad is going to follow through.

Continuing with the presentation, I'm going to talk about results, cash flow and indebtedness. This is what we talk about when we discuss the results of the company. Now talking about results in the third quarter. As Antonio mentioned, it was a very typical quarter. We usually are at the best season at this time of the year. Well -- but this seasonality has been shifting around quite importantly. Anyhow, even if we take into account the market volume that is well below expectations, we are now delivering results that really shows that we are at a whole different level. Revenues, more specifically, we were able to maintain a premium price, and this is quite relevant to us because if we go back into the past, we had greater volatility in prices. So at Dexco, we somewhat lost the price construction because of a more aggressive approach of the competition. And Raul is going to talk about this. Speaking about wooden products, we see a quite different scenario in terms of costs and also in terms of the availability of the forestry. Later, you'll hear more about this. But at the end of the day, [ BRL 460 million ] in the quarter -- at 9 months accumulated. We did more than we did in the whole year of 2020. So we are all very much focused. Our spirit is working on what we can control. I've been repeating this because we are sure that we can play an influence on the market conditions. We may be better or worse than the competition, but whatever is under our control, we keep on investing, we keep on working hard in the cost management to keep on generating results quite effectively. My final remark to you is that we'll now start reporting. It's not everything that you would like to see under [ TD ] LD. So as of the fourth Q, LD will become operational, but we have an idea on the EBITDA, and we have this result on the assets, the equity equivalents. It's not in the recurring results. But in terms of equity, we can see that we'll be able to build the intrinsic value of the operations at Dexco. Talking about the cash, the cash flow. I have 3 points to address with you, something that you saw in the first chart. We had an EBITDA reduction, which reduces the operational cash generation and then something else that is quite relevant. But we believe that it is part of our strategy to keep up the CapEx. So regardless of being in this more challenging mode, we decided to keep on investing. We are doing the fine-tuning of the investments. We want to be sure that we'll make investments that only makes sense. And this really is in line with our commitment as we announced last year, I mean, investing in areas that will really add value to our results, having a differentiated level of return. And this also has to do with our investments in forests. Well, the reforestation investments, if you look at it, we have increased our pace in investing in reforestation. And this is natural because we spent 2 years using our forests even more than what we have done in the past because of 2020 and 2021, the years of the pandemic. We don't think this will last for long. It will last up until 2024 more or less, and then we are going to resume more appropriate levels. And we believe this is highly positive. So although there are some disconnections in our balance sheet, we have room to deal with the instabilities. And finally, it's the working capital on sales volume. While working capital is at 16% today and we think it's quite sound for the organization, we're still adjusting. So we have been working with the business units. And this year, because of the market volatility, we've had pressure on inventory. So today, the snapshot is working capital that is quite reasonable. We even had more than 30% working capital on sales volume. That was 3 years ago. So this results from working -- all of the business operations have worked on that, but we still have to adjust, especially in terms of the stock. So our cash flow is positive for the year, much lower than the one that we had last year, but we still have a quarter ahead of us. There's much happening. And the essence of cash generation has not changed. So we have a positive stance in terms of cash flow. Finally, indebtedness, the debt level. Well, it's natural when you have -- when you face more difficulty in generating operational cash, the pressures on indebtedness. The leveraging is a bit below 2. And if we do the math, it's 1.96. So our leverage level is quite healthy. Some say that it's too conservative, but that's the way we work. We'll keep it up. The leverage will be addressed in a very controlled fashion to be able to support investments. We don't want to change direction now or change frequently direction. We believe that the setup of our debt helps us to be reassuring in terms of the soundness of the corporation. We have an average term that is long. We have reasonable cash flow that is really reassuring for us to pay the debt over 3 years. So recently, we renewed our revolving credit line. It's not a traditional operation here in Brazil and it's done in BRL, so we are quite reassured in terms of cash balance even under more difficult circumstances. And now I'll pass the floor to Marcelo. Marcelo is going to follow through with the presentation for construction materials.

So good afternoon, everyone. Thank you for being here. I have a couple of comments that I have to make on Antonio's -- on what Antonio said. One of them is the new level in which Dexco is and the challenge to understand the external environment and how unfavorable it was for our results. From now on, we're going to go deeper into the sectors we are in, especially in Deca, ceramics and how it affected our results. So starting with Deca. That includes metals and sanitary ware. ABRAMAT has some information on how the industry is doing. It's not only reflecting the categories where we are. This is the extended industry, but we can see that in the last 3 quarters there was a reduction in deflation. When you look at the last few quarters, the first quarter had 10%; the second, 7%; and the third quarter, 5%, showing that year-on-year, it has contracted by about 7%. Of course, this impacts our business, starting with volumes. So what happened to our volumes at Deca and in the first 9 months? As we said, in the first quarter, we had a challenge. Our volumes contracted by about 24%, which means that, in the first 9 months, we had an 18% contraction of the volumes sold. So what variables explain this? First, sellout of our categories in retail, which reduced by double-digit levels, this is offset by our share of the market. But we had a significant impact on inventory. In the last 9 months, they reduced their inventory by 30 days, and that creates severe consequences in our ability to sell. In the 30 days that were reduced in the last 9 months, 15 were in the last quarter only. With the price policy that we've been using and with our mix, which we believe is much better now, we had higher unit revenue. And it went up by 18%, 25% of which was in the last 9 months. So this is a clear consequence of our policies and what we've constantly been talking about, our strategic, call it, pillar, our excellent execution and continuous improvement, how strong we are at implementing price realization and improving our mix. It means that our revenue went down by 5% this quarter, but with a slight growth of 2% in the last 9 months. Of course, with this size, when your volume goes down, your EBITDA is significantly impacted. When you look at the quarter, we are at 47% of our EBITDA. It's a significant drop, but I can say that the 2 main drivers for this contraction are the lower volume and an impact from how our direct labor was diluted, and that impacts our costs. So basically, the main drivers for the negative performance of our EBITDA was due to our volume. When we look at the 9 months, our EBITDA went down 12%. As a reminder, in the first quarter, we were growing by 20%. So this third quarter was tough, and our performance turned around from a growth of 20% in the first quarter to an accumulated result of 12%. When we look at Ceramic Tiles, looking at the sector environment, this is a simpler analysis because we're comparing data head-to-head. Differently from what we saw in ABRAMAT's data. We saw that the contraction of the industry has taken place across all quarters. But in Ceramic Tiles, it's a bit different. This is data from ANFACER that refers to retail. We can see that there was a higher contraction. The volumes contracted around 19%, meaning that the last -- in the last quarter, they had a reduction of 17% and in the first 9 months, 14%. How does it affect our performance? From a volume perspective, let me just remember the figures here because I can't see the slides from where I am. Just a second, please. This is why we need a screen. So our volumes went down 18% in the first 9 months and in this quarter, 26%. And this is basically due to a simple reason. The main drivers are the market. When you look at our performance in the first quarter, our share of the retail market was flat. We did not lose any market share. We basically had reduced volumes because the market itself was reducing. In the third quarter, we had a 1.1 percentage point reduction in market share. And in the third quarter, this was right after June, we were impacted by the inflation on gas and energy. We tried to raise our price. And for some time, we had a price gap that led to a lower market performance. So basically, this volume is lower because of a sharp drop in the entire sector. You saw that in the last month of this quarter in September there was a reduction of 19%, but we did not suffer in market share. So that means that we had a 0.3% loss of market share, and the main driver was in the last quarter. Our revenue went down 5%, similarly to Deca, but we had a growth of 2% on the first 9 months. EBITDA went down due to the volume, as I said. I can guarantee that our driver for EBITDA is our reduction of our volume, 19% this quarter and 2% on the first 9 months. So I hope I made it clear how our quarterly performance was affected and what were the drivers. Now let's talk a little bit about our strategic pillars and how we want to continue with our agenda in the future. How do we see our strategic pillars for the next 5 years for this business unit? As you know, Antonio mentioned this in his presentation. We made some recent changes to our 2 business units, Deca and Ceramic Tiles. And we started creating a strategical growth agenda defining what role each business would have. Our aim was to maximize value for our shareholders, so this is our strategical aim, maximizing values. Of course, by allocating resources, and I mean human resources, financial resources, we are doing it to the businesses that we believe will leverage value for our shareholders. Of course, we have some homework to do. We have a commitment for the next 5 years to create a business unit that has the lowest level of claims for the construction material industry. This is a huge ambition that we have. And in order to do it, we need to maximize value for our shareholders with higher service levels for the entire industry. We believe that based on these strategic pillars, we will achieve it. Without a doubt, excellence in supply chain is a key driver to make it tangible. We've talked about this before. We've -- we will continue to have operational efficiency, meaning that we will continuously seek productivity and efficiency. And the industrial renewal that we presented to you in Duratex Day in June 2015 is a part of our innovation process. All of the new assets that Antonio just mentioned and the investments we are making are also a part of it. One more pillar is how you use the sales execution platform to support your business? We need to be efficient and productive in generating sales and for the results for our business area. We are also consumer-centric. That's an important step. I don't think there's any innovation projects currently, at least in this business unit, that is not having any collaboration from our clients and our consumers. One of our metrics is that, all of the launches that we'll have next year, 75% of them should be based and validated with consumer insights and by the consumers themselves. And that's the direction we're headed towards. It's an important step that the company is taking. As Antonio said, this is a drastic change. We are becoming a consumer-centric company. We're getting consumers to help us and make decisions every day. Of course, people are one of our pillars. Glizi is going to talk about the cultural transformation we're going through, how we're looking at our human capital. It's a part of my initial comment on how we allocate human resources correctly so that we can maximize shareholder value. And finally, our last pillar is growth through M&A or in asset-light companies. Regardless of what it is, this is a pillar that we're always looking towards in categories that can complement our portfolio, but we are paying special attention to the investments that we announced so that they become tangible as returns, as we expect from these projects. So I'll pass it over to Raul.

Thank you. Thank you for coming. It's very nice to have you all here with us in person after some time, right? So that's my fifth quarter with Dexco leading the wooden panel division. It's interesting to see how the scenarios have been changing. But it -- what's quite clear on what Antonio and we said how the company shifted levels. So I'm going to show the results of the quarter, and I'm going to show you the fundaments and why we strongly believe that we have been able to materialize the operations at a whole new level. Wood sector environment, so compared to 2021, it seems to have a drop, an important drop of 15%. That is the wooden panels for the domestic market. We've had a higher volume of exports, 30% higher, so all in all, 10% difference. But at MDP and at MDF, we see similar drops. MDP is used for furniture. So furniture, they have a quite important impact. So we believe that this segment could suffer more, and it happened. So the pace of the drop, so we began with a higher drop at the MDP segment, 17% [ other ] year, but this last quarter, it reduced less. So it shows a slow recovery in this segment. It's promising. It should be in a better level from now on. Well, this is what we see in panels. We see a reduction of occupation in the sector. This was very much concerning in the past when we had lower rates of occupation. Today, we are not that much concerned because ourselves and the sector understands what's the optimal capacity, I mean, operating at the right capacity to provide the best return on the assets. So we have been practicing this, and we have been reaping good results. So one of the key fundamentals -- and we have been extensively addressing this. Antonio was one of the first who was talking about the blackout in the forests. Some things we believe that will happen, they never happened. This blackout, people talked about it, and it seems it is now materializing. From '21 today, the price of the wood in the South, where we have more competitors, the price has doubled in little time. If we take the long term and we analyze 2019, 2020, it grew threefold or fourfold. So that's a very important increase because we use this wood to manufacture the panels. And it's also a fundamental condition because it's not only about price. It's about availability as well. With the new forestry projects in Brazil, we see a very high pressure on prices. And we see pressure on availability as well. It's not a matter of willing to buy wood. You have to be able to purchase wood. And this is why we see the prices sustaining, I mean, sustaining the same level. In our case, there was a slight improvement, and this was led by the mix. This is a long-term strategy that we have implemented using the premium mix, more added value mix. So this is what we have for wood, but it's important to bear in mind that this will be a recurring topic. For those of you who track pulp, you will see the most pulp projects, they are not 100% self-sufficient. With pulp, we need to work at full capacity, and buying 5% of what's missing in the margin to fill up the capacity eventually accounts for consuming wood from so many other companies that are our competitors. So it is a highly important topic. And I would like to draw your attention to the Northeastern region. We have a growth plan. It's a new forest frontier. We are thinking about the future. We have less competitors there. It grew less than in the other sites. So we have very good yields if we compare to the yields that we have in Sao Paulo today. So Northeastern region is a quite promising area for us to keep on developing the forestry projects. Plans, we're going to discuss later. These are the results. We have been sustaining the volume. There was a reduction of 7%, much lower than that of the market but with a very good level of occupation, especially bearing in mind that we've had stoppages, we've had downtime in the plants in the third Q. Maybe if we had not had them, we would have had more productivity. MDF was above 90% in terms of capacity, which really shows our strategy of differentiating in MDF. So revenues went up. The gross margin went up as well. The prices have been capped. So we were aggressive to scale up prices over 2021. This was important for us to start this year at a good level for us to support the same level with a slight improvement because of the mix. Well, this could not live up to the acceleration of costs early in the year. This really deteriorated our margins because we didn't have the appropriate environment to promote high price increases over this year. Anyhow, with our mix and with the cost level, with our strategy to distribute with the go-to-market strategy, so we were able to keep the levels that we are showing to you here, 7% less volume, as I mentioned, as compared to the 9 months of 2021 with the 9 months of 2022. Pulp. Pulp is quite interesting. Many of you have been speaking about dissolving pulp. We are quite curious to know when this market will be understood and priced and taken into account in our results. The most important information here is not only about the results. But actually, the pulp price has been maintained. Dissolved pulp is more resilient. There are fewer players. We work in a more specific market with more added value. So the pulp prices have had even a slight increase, much better than the prices that we took into account when we made decisions about this project. Good information. Good news. And in Brazil, in dissolving pulp, we have the best cash cost. And our plant, it is very close to the forests. So the cash cost level is highly competitive in this case as well. And the most important information in this slide, and Haddad spoke about this, we have recurring net income. This starts to affect the EBITDA. But the most important information is on the upper left corner. As of the fourth Q, we'll consider this operational earnings. So we are ramping up. Actually, the ramp-up has been concluded. And the key information is that, on the fourth Q, not only are we going to be very close to the full capacity of this plant, but we managed to identify superior quality, which is key. High quality, way above what we thought, which is key for us to sell at premium prices. And we can see that this plant may produce more. As any pulp plant, there is a [ creep ]. We've tested the sanitary processes, and it can yield even more. We tested the engineering process of our partner, which is very much appropriate, and Lenzing, who's our partner, so they are delivering high-quality results. So Henrique and I, we were in the Board meeting with the joint venture today. So there's a very good outlook for the future. And we see this as an operation that is no longer just a project. It's going to be within the operations. Just to close now, a little bit about the strategic pillars. So the sentence on the left, as you can see, we are amongst the companies that best develop forests in Brazil and in the world as a consequence. It is a key competence that Dexco has in Brazil. So Dexco is a sound leading company in panels, but we're also paying attention to forestry products with the aim of leading the market where we operate in Brazil and Colombia. That's the path we're going to follow. So on the left, we call it leading the game, winning the game and building resilience. So we depend on this commodity. We have a market that is not very much concentrated. There are many competitors in the market, so we have to lead the game by building resilience and the best costs. And we have good plans. We have the size of our assets, the historical investments in forestry and in self-sufficiency. For a long time, it has been challenged. But today, it is an important competitive edge for us to ensure our best costs. So we are integrating the chain, downstream, upstream. We have been cooperating with the clients. We have been getting information. We have been working vis-à-vis the vendors, working on contracts with a very good level of interaction. And we have the appropriate allocation of capital, so we build new plants. Building new plants in wrong moments, that could really hurt the results of the company, right? It could really hurt the sector even. So in this case, we make interesting investments, investments with a high return, really differentiated investments at the same time that we invest in increasing capacity with operational competence, removing the bottlenecks and also instilling new capacities. So over the last years, in terms of capacity, we earned a whole line, the equivalent of a whole line. That would be 10% of the investment. So we do the proper allocation of capital. Forest is the future. If we want to have a good future, we should keep on investing in forests. That's a very important topic, and this is about building resilience. And here, we have been shifting or the change of the rules of the game. So when you play early, you play better. You are ahead of the competition, anticipating trends, looking into products, checking the consumers' behavior, the market behavior as well, working to be the preferred brand. And it's not simple. There are 2 additional steps of the chain that we have to cross. We are not B2C, but we are able to play an influence on those that make the decision, so we offer differentiated products. The brand surveys show that our brand is the most favorite brand, the top-of-mind brand. And as I said, we should leverage the essential competencies and diversifying. Something that is obvious, we are exporting more, and this is how we diversify. We see a great deal of opportunity in the export markets. So the Brazilian panels, with the current forest conditions, which is also complex around the world, so we do have a value proposition that will enable us to grow importantly in our exports together with the other panel players in Brazil as well. So Daniel, I think, is the next one. So I'll pass the floor to Daniel.

Good afternoon. It's a pleasure to be here with you to tell you a little bit about our innovation and corporate venture strategy, but I want to give you some context on what we're saying. Last year, as was said, we approved the project that was very ambitious with BRL 2.5 billion. We adapted it now to the current market situation, and in that context, this investment package included 3 fronts. All of our investments were organic, inorganic and M&A. And at the time, we mentioned investments in innovation. So that's what we're going to discuss today. It involves about 10% of this package, but these investments are focused on -- have different focuses than traditional investments. Here, we're allocating a part of our capital on seeking movements that can create a disruption to 1 of these 3 journeys, which are the journeys that our consumers are now taking. You have all either gone through or are going through one of these journeys. So civil construction, refurbishment and decoration, repairs and maintenance, these are journeys that offer incredible opportunities to disrupt business models and how we service these consumers. And they are very relevant markets, too. When you add up the entire market with the materials and services used in this journey, we will have more than BRL 200 billion. So this is our battlefield. This is where we're seeking opportunities. Our strategy was to come closer to the entrepreneur ecosystem. We have on our radar over 800 [ cost through tax ] and [ in of tax ], which are making a huge difference in this market, growing at 2 to 3 digits a year and some of them growing sustainably at 2 digits a month and generating cash. So now that we know where our battlefield is and where we're seeking opportunities, I want to share a little bit about our thesis to seek investments in these models. These areas that we are interested in, not only are they long-term financial investments, we don't expect any returns from these investments short term, but we expect to have strategical returns in the short -- strategical returns in the short term. So how can we leverage our business by going closer to these businesses, especially in Dexco's core business? So the first line of our corporate venture thesis is that we believe civil construction, as it works today, will not stay the same. When we look at work sites, construction sites and the amount of waste that the construction methods are generating and when we look at the carbon emissions, we have to remember our sustainability commitments, which Glizi will discuss soon. So construction has very relevant carbon footprints. So Raul mentioned the biggest strategic advantage that we have, which is how our forestry park is competitive. So not only do we remove carbon from the atmosphere, but we also have one of the most competitive parks in the world. So for it to be revolutionized, we need to industrialize construction. So how do you replace construction sites for -- with assembly lines? That means having to use materials that are industrial in modular construction. So we're looking at 2 things at the same time here. Innovative use of forest need 2 investments, so 2 areas, and we have Raul and [ Jose Carlo ] on the Boards of these companies. So they're looking at how they are evolving. And we have executives from Dexco developing strategic projects with them and accelerating them. Let's talk about Urbem. Urbem has just launched its first industrial plant to produce CLT and glulam, which is engineered wood, and it will allow us to build apartment buildings with over 10 floors 100% made out of wood with better properties than the current methods that we use. In Canada, they have 30-story buildings made 100% out of wood. This plant has the biggest installed capacity in the Southern Hemisphere. And even if the Brazilian market is not developed enough to take their production, Europe is one of the biggest consumers, and our forestry assets are so competitive that these products can be exported until these materials are used here. Investments in Noah include a very relevant point. Noah is one of the bets that we're making to try to create a culture for using engineered wood in construction methods. They are a building developer. They had a recent launch, if you like, the neighborhood of Vila Madalena in Sao Paulo. We're going to build 6 houses there with CLT. And if you'd like to hear more, maybe we can sell you a house. We have 6 units that are still up for sale -- oh, excuse me, I just heard that we only have 2 left, so you better be quick. But it's a wonderful project, and I can give you some more details later on because they will be examples for the next projects that will be used in this technology. And the perfect combination is how to make it modular. We're talking about a raw material supplier, a company that wants to create a concept to use this material, but we needed to conclude the transformation process to have a company that would be able to have combined use in industrialized materials, wood and steel, which are the best friends of modularization, through an efficient building process. Brasil ao Cubo is a company that can create a 10-story building in 100 days. It's like those videos you see in Instagram that they do in China. They are building like that in Brazil already. These are high-standard buildings, which can be built in 90 days from when the project is signed to when the house is delivered. So this is what we're seeking. If you'd like to hear more, we can give you the website for these companies. But it really is amazing. It's very exciting to see what they do and how it links to our business. So here, I was talking about construction. But another very relevant journey for us is refurbishment and decoration. Whenever you sell a new piece of real estate, the first thing that happens is that it's refurbished. And that can be very traumatic. It often involves unprofessionals, fights between married couples. So there are many start-ups trying to make a difference here. When you look at the strategic pillars that we showed, our bet is that we want to be closer to our clients. And many of our clients, I'd say 80% of them, are using them for refurbishments. So how do we change it? How do we create a good capability for that? I think that's the first step because you cannot change the consumers' experience without hearing them. We need them along with us in this journey, and they play an essential role because they're the ones who talk to the architects, to the consumers. So our role is how we can -- is thinking about how we can bring in more tools to help our clients to be better, to be more omnichannel, to have more excellence in logistics and maybe having a physical environment. We are still using brick-and-mortar stores. People don't buy tiles online. They want to see the product. They want to feel it. They want to have recommendations from a trusted architect. So when you look at ABC da Construcao which was one of our biggest events in acquiring these capabilities, we realized that this is something that we can learn and share with our clients, the digital experience that they can provide creating brick-and-mortar stores into showrooms that will give the clients and the architects and even entrepreneurs a different experience. And they really have excellent logistics. So these were our bets. These were the investments we made. As I said, 10% of the allocated budget for disruptions, and we are very pleased about how these companies are moving forward and the projects that we are running together with these scale-ups. So I'll pass it over to Glizia now, who will continue talking about our ESG agenda.

New times require a revision of our culture. This is how we began the second season of our way of being, our way of doing. So last year, we engaged all of the employees. We promoted many discussions with the Board, with the Executive Committee, and we repositioned the behaviors of our way of being and way of doing. There are 6 behaviors that really talk about people. They talk about processes, I mean, being customer-centric, consumer-centric and also differentiated results. So we do that because we believe that the culture should be at the service of the strategy. So when we repositioned, we also needed to leverage with new behaviors, new attitudes. So we have been working strongly on ESG. We have repositioned our sustainability strategy. Now it encompasses 3 environments: the consumer, the company and the society. And we work on 3 pillars: well-being, impact and caring. So for each of the intersections, we have a clear action path. And this culminates in some commitments and targets that we have taken on publicly. So last year, when we introduced Dexco to all of you, we took on 3 strategic commitments that is facilitating our journey for construction and refurbishing. So Daniel gave the examples on the new competencies, the new partnerships that we have engaged into. We need to ensure sustainable growth with a positive carbon balance. So today, we have this strength that is the wood sector, but there are many opportunities, many projects in terms of ceramic tiles in replacing our energy matrix, and we have been investing in that and also promoting health and well-being in all of the environments. So with that, we defined 3 public commitments with target. First, investing BRL 140 million in initiatives that will promote the conscious reform. Our carbon balance should be positive by 2030, with all of the new projects and unfoldings and 35% of women in leadership positions. So these are the targets that we have set today. There's an online system to track what happens in the company. And the Executive Committee, we have an ESG Commission. We have there all professionals and representatives of the business areas, plus the Sustainability Committee that tracks that via targets. The ESG targets, they are part of our individual targets, so this will impact our variable pay as the C-suite. And there are many affirmative actions, a structured action plan that has been devised for us to reach our objectives so that we can instill this new culture. So this is how we can contribute and support this new moment of the company following up the evolution process that began with the first revision of culture that was done in 2015.

Very well. Now closing the presentation, and then we'll have the Q&A. So it's natural there are questions about the scenario, what are the perspectives, the short-term outlook.

So we can do the bathroom fixtures very well. I don't know about the mics. Anyhow, so as I said before, traditionally, the third Q is very positive. But this year, as you might know well, we've had many external events that are shaking our economy, shaking our country. We are in the final lap for the presidential race. So the election environment stopped the country in the last 5 months. This generates a great deal of uncertainty in our clients. Well, the retailers, for example, they work with stocks, they've all cut down their stocks. They've all prepared for a more difficult moment, and it's natural. And there was a certain settling after the pandemic. People are now spending with other things, traveling, for example. And our business, overall speaking, just like any other big company, our businesses were affected, albeit indirectly. And Brazil has muddled through the crisis much better as compared to the situation in Europe, there it's tough. It's been 2 years. And then the war in Ukraine. And things only got worse. Maritime freight pricing, for example, skyrocketed. The levels are not acceptable these days. Well, the exports, they have been doing well, but now we see other trends. We see many companies suffering from that. I recently came back from Europe, and we saw companies that have had their gas bills increasing tenfold, electricity bills likewise. So they're stopping their assembly lines simply because costs are too high. They cannot cover their costs. So the revenues will not cover their costs. So we see the volatility of the electro scenario. This will accommodate eventually whatever the results are. We see the economic scenario, as curious as it may seem. We have 2 options, but the scenarios are not that different. We should have a more reassuring moment right after the elections no matter what the new administration is. There'll be new transitions and new plans in place. So we are going to leave 2 things behind, 2 things that really affected us this year. The inflationary profile, quite strong inflation. Now in the last few months, we've had an important reduction in the inflation rate. I'm talking about the inflation on our inputs. So in the final quarter of the year, the inflation scenario is under control, although prices have risen. And we can also see the contraction of the interest rate. We believe that in the first half of next year, we'll see the interest rates stabilizing, and I believe there will be a cycle with good results. This year, we'll have a GDP that is higher than the forecast, and expectations for next year are slightly better than what had been foreseen. So this effect of the interest rate is quite relevant in our business. So we have businesses that demand credit. And if we have lower interest rates, it's better for us. So there is this important point. Well, sometimes people compare a difficult year with the crisis that we faced in 2019 -- '18, '19, especially in the construction sector. There is no comparison basis. At that point in time, we stopped the construction sites. We would stop selling. Now we are keeping up the pace of launches. We've had quite strong launches last year. We still have some launches this year. And the segment in which we operate, which is the high-end segment -- I mean the middle income brackets, the high-income brackets, the construction sites that are more sophisticated. So this is still a very strong market. Well, there is something that is quite relevant, and he was talking to you showing the quite conservative figures. I was speaking to Haddad. These are conservative numbers because they're averages. So if you follow up the forest-based companies of any nature in Brazil, you may list them as 10 top in your agenda for the next 7 years because there is an imbalance in the wood supply vis-a-vis the needs for wood. And as a consequence, there will be high prices of wood because there's very little wood available -- independent wood available. This will directly affect -- it is already directly affecting in the next 4, 5 years, the market because there's no solution for this market in less than 6 or 7 years. There are no forests available. If I decide to go to the market and I decide to hire a fund -- and of course, there's money to invest in forests. Let's raise $1 billion. Let's plant 1 million hectares of forest in Brazil. But this will only yield results in 6 or 7 years, so there is no short-term solution for this issue. In the next 6 or 7 years, the wood prices will be high or very high. So you may track that in our balance sheet. Because just in the last quarter, we've had adjustments that were close to BRL 200 million. So we should have new adjustments in the forthcoming quarters because the wood price has been rising exponentially. So our assets should be valued according to the accounting rules, okay? So our competitors, they highly depend on wood and they do not have such availability of wood. So our wood product competitors, they depend on that. They are being affected, deeply affected. They're reducing their capacity. They're making adjustments. And this is very important to pay attention to. So now we hold more than 90% of our own forests, so we may supply 100% of our needs. We meet 100% of our needs. So we are able to operate with an important competitive edge when compared to the market. So that's a whole different scenario. So what happened with the wood market in the past. So if you have been tracking Dexco for so many years, every time when we had a reduction in demand, the prices would go down, would plummet. It was a tragedy. But we had a reduction in demand, but the prices remained stable. There was no price reduction, and we'll definitely have price expansion in the future. Because the costs are pressured, especially for the competitors that we have in our chain, so the base number, wood, early in 2020, it cost between BRL 40 to BRL 50 per cubic meter. Now it costs BRL 200 per cubic meter. So it's skyrocketed, and there is no way back. Sawdust products, well, that's included as well. Cost readjustment and the availability of international logistics, we are working on that. We see the freight costs going down. Container and freight costs to Europe, these prices are going down. They are not close to the previous levels, but they are now at price levels that represent an opportunity to us. So we should resume exporting. We've had strong exports over the year. I don't think we've had a year before with such a high volume. It helps to regulate prices in the domestic market, but we still have room for growth in exports. Therefore, we are quite confident. We are working on all of the required processes. You saw my team presenting to you that we have been working in all of the fronts. So we believe that the fourth quarter will be slightly better. We are not going to have that boom, that spike as we had in the pandemic. There's no reason for that. But there are no significant variables according to our forecast that demonstrates that we would have a worse scenario. Everything indicates that we are going to have a sustainable and slow resumption, reaching good levels in the forthcoming quarters. So we are quite confident on the path that we have chosen. Yesterday, we've had the Board meeting. And next week, we are going to have an off-site meeting. As we do every year, we'll be discussing the strategy for the next 5 years. So we think long term, as most of the shareholder base. These are shareholders that truly focus on the long term. So we are confident, and we hope to continue to deliver consistent results. We are in Brazil, and I was -- just the other day, I was talking to this group of analysts from this large fund, one of the largest in the world. They came to visit us. And then I told them Brazil has ups and downs. It's normal here. So we have to work based on that. But the company is quite resilient. We are quite confident we are at a whole different level now. We do not have yet pricing for the pulp business. Because the market is truly reliable, the prices for pulp are very good with a very good dollar exchange rate as well. But this hasn't been priced in our reports, and we have the Accenture -- this can come as well, but these are investments that are done coherently. It's not just betting. We are not playing with our businesses, okay? And now I pass it back to Natasha.

Well, everyone, before we begin our question-and-answer session, I'd like to ask Mr. Francisco from Apimec, who is going to hand the award.

Well, on behalf of the Apimec Brazil Association, we're very happy and very honored to give you this award for 36 years of presentation. This is an acknowledgment of our gratitude. Thank you.

36 years, that's how long I've worked for the company. Thank you.

So we'll now continue with the questions-and-answer session.