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

Our yearly meeting with investors and analysts in which we have opportunities to share the results from this quarter and talk about the company's present and future. This is always a very important moment for us. It reinforces our long-term view based on sustainable growth, innovation and value generation to all of you. This year, it's an even more special occasion because we are having this event at Casa Dexco, a concept store that opened in March this year, where we have our brands, the biggest portfolio of solutions for the architecture construction and decoration industries. This is a space that brings our purpose to materiality, providing more solutions for a better living. So having the event here is also a way of bringing you closer to our brands and our assets. I'm going to talk a bit about the event today, which will last for about 1.5 hours to 2 hours. Throughout the day, you'll listen from all of our executives, we're talking about our performance, our innovation solutions that have strengthened our portfolio and our perspectives for the next cycle. But before we start our presentation, we will have a very special moment. We're going to start Dexco Day with the panel on architecture and design with Architect Lourenço Gimenes and journalist Raul Lores. This will be a conversation and opportunity to reflect on how the spaces in which we live, influence our way of relating to others and working. This needs to be at the core of our strategy. And I'll take this opportunity to talk about Raul Lores' podcast with Marcos Lisboa and Gabriel Azevedo talking about migration, people and cities. It's a very deep topic, but it was very interesting. This was published in Brazil Journal. I know that this is a name that you know, so I recommend this podcast to you. It just happened to appear on my Instagram feed. I loved it and I had to recommend it to all of you. Finally, I'd like to thank you for being here and for your partnership. I'd like to invite you the stage, Marina Crocomo, our Marketing Director, who will share this with Raul and Lourenço. Welcome, Marina.

Thank you. Good morning, everyone. Thank you for being here. We received this mission of talking for the first session of Dexco Day about architecture, which is a very important and dear topic to us. It is literally the reason why we exist. So I brought in 2 powerful reinforcements. I had to write down their background information. So Lourenço Gimenes, please come to the stage. He is an architect and an urban planner. He also had his masters from FAU-USP and he founded FGMF, one of the most renowned architecture firms in Brazil. He is the professor at the University of Roma. He also teaches at the grad program a Mackenzie University, he's worked abroad, and he has had time to work at FGMF Lab, a research and development arm with -- that is a non-for-profit, and a [ pro sima ] that promotes diversity in architecture. Welcome, Lourenço. Please take your seat. And also, Raul, he mentioned -- his background, Raul, welcome. He has a journalist, writer and researcher in architecture and urban planning. He is an editor and international correspondent for some of the biggest news outlets in Brazil, like Veja and São Paulo newspaper. He is one prices for architecture, and he created São Paulo nas Alturas, a YouTube channel about architecture and urban planning. So there are 2 episodes from his YouTube channel that I really like, specifically on Paulista Avenue. So welcome, Raul. So first of all, we're very happy to have you here at Casa Dexco. Guilherme mentioned that Casa Dexco represents something that we've been planning for a long time, a space where we can have a very tangible view of our brand's DNA, of our experiences, but also being closer to our consumers and understanding their journey, which is so complex when you're going through renewals and redecorating. And we have to be close to our target audience, which are consumers. One of the biggest challenges for Casa Dexco was finding out what was the ideal location for us. There were many possibilities throughout this journey. We tried many things out. But when we saw this possibility of being in Conjunto National on Paulista Avenue, we understood that this made a lot of sense because of the history that this building carries, the location itself and how much it represents for modernism. So we're going to talk about that because this is the inspiration that we want to bring to you. So to kick us off before we talk about Paulista Avenue and the Conjunto National building. I'd like to hear from you since we are here with people who like projections and looking towards the future, I'd like to hear your take on that, but on architecture, what are the future perspectives for the market for 2026? What will change? What should change faster or maybe slower, but what do you see as the new architecture trends for Brazil?

Good morning. Thank you for inviting me to be here. I'm an optimist because Brazilians are traveling more. We will increasingly be a country that speaks more than 1 language, and we'll start to realize that architecture is the first impression that counts wherever you go. I lived in China for 3 years as a correspondent. And when you reach any of their airports, whether it is in Beijing, the Zaha, Norman Foster or in Shenzhen, that was by Massimiliano Fuksas or in Shanghai, you say, "Wow, that's not the China I had in my mind". And when you go from the airport to any major Chinese city, you don't have to go through an avenue like Marginal Tietê here in São Paulo. You see amazing buildings. I always say that when I lived in China, CCTV, which is their main state-owned broadcaster, they had an international architecture competition that was won by Rem Koolhaas and he presented 3 projects. It's the second biggest building in the world in area after the Pentagon. So he was heading that project and CCTV asked, which one of the 3 is the most difficult to build? That's the one we want. And that's how they built their headquarters. So in the world, outstanding cutting-edge architecture that is ambitious, is at a high. If you ask anywhere in Brazil who is informed who works at free, Malima, who's traveled and who speak multiple languages, to mention a single architect that built something at COP30 in Belém. I don't think anyone knows who designed the City Park that's going to post COP or who created the Blue Zone pavilion that will receive the heads of state or who was the designer behind the airport. If you go to the airport there, you might be shocked. So -- we don't pay a lot of attention to architecture in Brazil. We can see that in Terminal 3 in the Guarulhos Airport. I don't think anyone knows who designed it or who renewed the Santos Dumont Airport and created that blue sauna. I think that shows how we have to raise the bar in architecture quality in order to sell more products from Dexco, of course, but also to create more competitive environments where we take care, we look at the details and where we give value to ambition. I see that happening in Santiago, in Chile, in Buenos Aires despite all their challenges in Mexico City, in Bogota and Medellín. So I think it's about time that all of us who have the privilege of traveling and seeing the world, I think we need to be more demanding with the buildings we live in, the airports, hospitals and schools. Architecture is not just about museums. It needs to be in everyone's daily life. And we have this firm, FGMF, that can help us with that journey, right.

So Raul started as an optimism, but he went very quickly back to criticizing things. So thank you, Raul for that. I think there are historical reasons why we are this way. I'm about 50, Raul, he is maybe 15 years older than me. So we went through a transition, right? I remember hyperinflation. We experienced this at home with our families. And I know that many of you don't even understand what that means judging from your youth. But the transformation that Brazil went through after the '90s also brought in more knowledge for people than we had in the past. And the market is still led by people who live through those moments in which we saw much more instability than we have today. It's fun to criticize and talk about macroeconomic and political issues, and we have many reasons to complain about. But reality is different now. The generation that is starting to lead now is thinking about other things than just planning. Although we live in an unstable country, it's not as unstable as it was in the '80s and '90s. We now have more planning capacity, but our culture was shaped by that survival mode that we had to go into. And this is reflected in architecture, like Raul said, our architecture mirrors our culture. Our culture is still ingrained and that's after a number of generations that overlapped and I had to stand on each other's shoulders. So I think that's an internal dilemma. We need to plan better than we did before, but not enough to be so daring or to be too optimistic or to be so bold as to really create innovation to go into new paths and maybe overstep our bounds. And I think China was very bold to do that. And there are other countries that have been doing that, that are not so far away, like Chile, nothing that reflects our culture. But as Raul said, I see this with a positive outlook. This is something that we need to build up little by little. And this also shows the maturity of the architecture market. Now that the country is more economical -- it's economically stable versus the past, we can do that, in the '80s and '90s, there were many discussions about architecture. At the time, the interior design market had a better capacity to connect to the general audience and create events, start publications, foster desires, set expectations and possibilities for people to improve their working and living environments. And of course, that connects to architecture itself, which goes to a different order of magnitude and values, size and time to build. I think we have been evolving very slowly in the last 40 years, but it's been consistent. Raul mentioned one other thing that I thought was very interesting. Now we have more access to information than we had in the past 30 or 40 years ago. Fewer people traveled, publications were more restricted, there was no Internet. There was only cable TV. People didn't have access to diversity, but diversity doesn't necessarily mean and repertoire. It can be confusion. So of course, we can talk about curating and how careful we need to be about the amount of information we receive. But with that being said, I think our perspective for the future is that we will be more mature, but this happens slowly. So I think we need to hold back our anxiety because this is something that needs to happen consistently, but also with a lot of patience, right?

Right. Since we're talking about evolving and maturity for this market and creating the repertoire. How do you understand consumers, who are the clients and consumers in this high standard market? You're focusing in your firm. Dexco is also focusing on its own work, but what are the main challenges in servicing these clients who are still going through this transition? And what is the role that Dexco and other companies in the industry can play in helping the market to evolve faster?

I'll answer this one. I see consumers has very insecure right now, especially because they now have many references and a broad repertoire. So the role that an architect, an interior designer or even brands can play is to help them find confidence when they make their choices. They should be confident that the professionals involved in the industry or service providers will guide them correctly towards a good solution. Of course, everything is a matter of taste. I'm an architect. So I often say that everyone is an architect. Everyone lives somewhere, it goes to work somewhere, has fun somewhere, goes to the hospital, goes to school. We are in spaces. Everyone is in a space, so everyone understands spaces. Everyone can develop their own taste and have their own aesthetic repertoire, and that's legitimate. There's no single source of truth, especially in architecture. And we have very good professionals in the market. Now we have very good industrial groups as well that can develop this for us. When I talk about confidence, often there's so much information that everyone thinks you can mix anything, and that will make sense. But people who are more demanding base themselves on brands, especially if they have more purchasing power and maybe if they didn't have their own personal cultural repertoire developed before. So going to a certain passport is a way of being in a certain group, in group or being in a building that has a certain brand name, maybe carrying a fashion brand into architecture. That's also a way of seeking validation or having a stamp of approval to the fact that you belong and that you are following the right codes. So again, I think this is all legitimate. It's a part of maturing whether you agree with it or not, it's a part of a continuous process. So the role that brands and professionals need to play is to be able to talk to a still immature and insecure market.

Yes. I think we see our own challenges in what you said, when we talk about solutions for better living at Dexco, which holds brands, it's much more than using brands to create inspiring spaces, but we really need to go into this journey, which is not simple. Usually, it involves a high level of spending that doesn't happen frequently to any consumer. And how do we facilitate that? How do we remove friction and provide better solutions even across complementary segments? Is it's about lowering anxieties, right? And it's about education as well. Architects are not necessarily 100% trained when they graduate. So how we do this in our industry and how do we help them in their journeys? That's not simple.

Yes, and it's always important to underscore that high cost and high standards are different things. We talk about a high standard -- high standard buildings in Brazil, but there are many buildings that have Versace rugs on the hall, but that use cheap construction materials. You know that sometimes the blueprints are not very good. I was recently in a building in Rebosis that carried one of those fashion brands that didn't connect parts of the different building. So it was able for children or for pets to go from one apartment to the next through the balcony even. So high standard should be designed very well with excellent materials that don't age that are truly sustainable. You wouldn't need to renew every year or restore every year. So referring back to what was said. This has to do with education and information. Whenever I go to a city like Buenos Aires, Camboriú, Goiânia or to Belém, you're starting to see apartments that cost BRL 10 million, BRL 20 million, but that were built very cheaply. And that definitely were not talking to Dexco. And that took maybe a handbag brand, a free shopper brand. So I think that architecture and high luxury architecture hasn't reached the moment that Brazilian gastronomy has reached. Again, Lourenço is much older than me. So I'm not going to say that you look very young, but I imagine that some people here in the audience, remember a time in which expensive restaurants in São Paulo used Cantina table cloths, huge dishes and were either Japanese, Italian or French, you didn't have any Brazilian chefs, but it took a single generation of Brazilian chefs who went abroad to study, who learned to use fresh local ingredients, who learned to change the way in which their restaurants looked, who created creative menus and who became celebrities overnight who have shows on Netflix. We don't have Netflix architects despite Lourenço being so elegant. I think he will be one of the first, but we're not at a time in which the well-informed high income audience understands or values architecture. But gastronomy has gotten there. Design has gotten there. You know that a reasonably well informed Brazilian values furniture from [indiscernible] Galena. So we have to start taking that next step. We have to go through the similar evolution we had with gastronomy, but in architecture. Otherwise, it will be easier to get licensed by a brand that is not connected to architecture like Porsche, Ferrari, Enzo. And remember that brands disappear as well, Tonino, Lamborghini. Tonino not related to cars. He's just a watchmaker. But if you don't know how to search that on Google, you might think that, that Tonino Lamborghini is the same as a car manufacturer. But if you spend a lot in licensing, you can save on architecture. So you get an architecture that's not going to be -- or he's not going to specify that they want expensive products because they know that the brand name will carry that sale. So in order to create this chain and to improve quality, we need to educate people a lot, especially the high-income audience. It doesn't carry a lot of information.

Let me interrupt. I think there is an important point that we can discuss, issue borrow names or the endorsements, I think that are good and bad endorsements like Tonino Lamborghini on the facade of a building as a sales tool, I don't know if there is any developer here with that type of project or Alex Hanazaki to sign a product. I think there is a bizz between the 2. The 2 have to do with endorsement. But one is legitimate curatorship, valuing quality and not glamor. These are different things.

It makes sense and being optimistic about what you said, we have to understand that we have a long way to go in the development of that market. What design is facing now. We have less than a generation since architecture started developing and Dexco also had a play in that. I wanted to change gears a little and start with Raul. I'll start with a subject that is dear to you which is the revitalization of Paulista and Conjunto National. I started talking about this space, our decision to be here. When we speak about the revitalization of the downtown area of São Paulo, what can be done on São Paulo and Paulista and how Conjunto National is a symbol of the city? What is yet to come? And what has happened either too? And how do you see the Dexco house on Conjunto National can influence that market?

I'm very optimistic, not only because I lived here, I walked here, I recommend if you can. And Bradesco Insurance is leaving Alphaville to come here. They will take 2 buildings with hundreds of employees. Petrobras is now in the center mall. Right next door to us. Bank of Brazil, will use the enormous building on Paulista. Spotify that could pay the rent of any building on Faria Lima decided to come to building a design field next door, and they voted. We don't want to go to Faria Lima, I apologize those on Faria Lima, but Spotifiers wanted to be on Paulista. I think Paulista has urban strength -- the young generation already understands, and that's why I'm optimistic. The young population want at the end of their workday, those still working in person not to get stuck in traffic. They want to have the right, the sacred and constitutional right, of having a happy hour you can walk to and not just take your car to go to a pub or to go to the movies or to go to a museum, a theater by car. So Paulista has dozens of options. And you have a subway operating until midnight and you can ride your bike on Paulista. It might be the first generation over the past 40 years where people can drink and they prefer to ride an Uber after they drink, they are not dying to buy their first car. They work as nomads, they might be working Saturday 11 p.m. and they might be watching me on YouTube on Monday at 3:00 p.m. So it's a generation that enjoys the city. They enjoy Carnival, who might have dreamed that São Paulo would be the capital of São Paulo. Who would have thought that people would jog on Minyoung, people practicing yoga on the streets. And Conjunto National is the catalyst of that because it started as the authentic Rockefeller center in São Paulo designed by an architect, who is 26, younger than you guys in this room, 26 a lot younger than you, half the city is younger than you. So a 26 architect designed this building for a developer that hadn't concluded high school, a taxi driver that managed most hotels in São Paulo showing that São Paulo was a Shanghai in the '50s. And there is no good architecture with our good managers, good inhabitants, good management. So I also think that Conjunto National is being rediscovered because after decades of misuse, we saw blue note, CasaCor, new restaurants. Cinema, it's a rare cinema where you still have good leg room. So although Casa Dexco is enormous, we need other companies in this building. I think you are in the right place, where there is a good flow of people all week long because if you were elsewhere, there would be nobody on Sunday or in the evenings, on weekends in rush hour, everyone would run away from your. And if you come to spot or blue note, you know that the night never stops you.

Let me just add a few components to what you said. I think Paulista in the past few years became a cultural center. It was already a vocation but it was consolidated with the arrival of the [ Mauro Rosales ] Institute with Japan House, the revamping of the FIES building, the new [ sask ] building the new Museum and Itaú Cultural. There is another bank that will come to the San Luis building. I think there is a cultural and a market movement, everyone is gearing their attention to Paulista. I think São Paulo tends to -- tended to grow horizontally in the 20th century. And we are now feeling the consequence. People want to live close to their work, not only because they can walk, but it's a matter of physical and mental health as well. All those factors end up contributing though not revitalization because Paulista was never dead, but renewed interest in Paulista that ultimately will affect people's opinion about the city center because there are so many beautiful buildings that are begging to be revamped. I think the occupation of Conjunto National. And when CasaCor came here for the first time, how long ago was that 3 years ago, Olivia invited me to create a master plan for CasaCor. And she said, we want to do it at Conjunto National. What do you think? I didn't even know what the first floor looked like and Barbara or Fatima, my business partner. I usually call her Fatima Bernabe. I didn't even know what was on the first floor, it had been closed for over 10 years. It's an enormous area. So I came here with the CasaCor team and I told them, don't touch it. It's wonderful. I wanted to live here the way it was. Just -- I just needed to sweep the floor. It was spectacular. And you as a partner to CasaCor wanting to occupy this area. I think that plays an important role. We have [indiscernible] Itaú Cultural and a new one to our commitment the commitment of the group as a whole to take care of this urban space has unprecedented value.

Nice, Lourenço. When we found this part, it had all the symbolism that we needed. What you said is very nice because one of the assumptions was to respect the history of the building, and we have a lot yet to do here. I wanted to thank you both. Unfortunately, our schedule is tight. But it was very nice. Thank you so much for your time and availability. It's been an honor.

The honor was ours. Thank you very much.

We will continue our presentation, but I thought this was absolutely great. I don't know if you paid attention, but there was so much wealth in what Raul and Lourenço brought us. I had high expectations, but they went far beyond my expectations. Very nice stuff, culturally speaking, that explain a lot. The gastronomy, I was optimistic. It's the next step compared to China. We are light years behind them. The Chinese product today is 10x better the second best. But Santiago, Bogota and Buenos Aires took important steps in architecture. That makes me optimistic because we're not comparing ourselves to China but to Latin America. But look at the potential that we have. Everyone knows about soccer players. When we learn about the names of architects, we can do a lot more. It will be incredible when we reach that level of culture. We have -- thank you, Raul and [ Alexandre ]. I was really impacted, as you can see, it was very enlightening and encouraging to realize that when architecture takes a step in Brazil, you will have Dexco, Dexco as a partner. We are a leader and it's our obligation to do that. Marina and her team do that as all future Dexco stores will be major drivers of that journey. So once again, thank you very much. I would like to invite our Executive Committee, but Lucianna, our new CFO, to introduce herself and along with Raul, Marina, Adaji. Lucianna?

Thank you. Good morning. I'm Lucianna Raffaini. Today, I'm celebrating 21 days since I came back to Dexco. I had the opportunity to work as a controller from 2019 to 2020. And I'm very happy to be back as a CFO. I understand this is a moment of challenges, but I also see a sea of opportunities. I'm very happy to be here. Thank you. So let us start talking about our results. Let me give you an overview of each division in Q3. First, ceramic tiles, where we have high inventory level in the industry, and that has put pressure on prices impacting the performance of our business. Metals and sanitary ware, there was positive performance, driven by improved product mix, cost reduction and a successful price implementation. Besides, it's important to mention that in Q3, we had value share gains in metal ware and sanitary ware. In our Wood division, wood still has high demand for panels. And year-to-date, we have record sales and EBITDA in that division. It's important to highlight that in this quarter, we achieved these results. Without considering forestry, LD Celulose has below performance results, but heavily impacted by the scheduled downtime of our plant. So we are delivering net revenue -- recurring net revenue of BRL 2,128 million, a 5% loss compared to last year and year-to-date BRL 1,152 million. Gross margin. It's important to say that this drop we observed of 8 points in the quarter and in the year is driven by the lack of the forestry business in the update of the biological asset that we had last year as well as the sale of standing forest. And when we look at last year, there was accelerated demand because of the floods in Rio Grande do Sul. All of that gives us an EBITDA result of BRL 567 million, out of which -- with our LD Celulose, we have BRL 445 million, a year-on-year drop which was sustained by the impact that we had on revenue that is reflected on EBITDA. But year-to-date, we are BRL 1,870 million, an increase of 5%. Speaking about our net results, we had a negative semester by BRL 43 million, which was impacted by Dexco's performance and also a reduction in LD Celulose, which was impacted by scheduled maintenance. Year-to-date, we are positive at BRL 71 million. Continuing with cash flow. At the end of the quarter, we had positive cash flow of BRL 45 million, but we are still looking at the year-to-date figures in which we consume BRL 346 million in cash. This has been impacted by 3 main things. First, as we know, we have our working capital, which consumed BRL 363 million based on 2 main drivers. First, we have high inventory levels, especially with ceramic tiles. And since the second quarter, we have been carrying some risks, which consumed a part of our working capital. We already have an action plan to correct this from now on. Another point is the high financial flow, BRL 296 million, impacted by the high interest rates. But this is all within expectations. Finally, we also saw some outstanding CapEx consumption. Of course, it's BRL 20 million below the levels we had in 2024, and we also have fewer projects on a year-to-date basis, but this is still high level considering our current cash. We'll now discuss one of the top priorities for the company, which is indebtedness. At the end of the quarter, we are at BRL 586 billion in net debt, which puts our net debt to recurring EBITDA at 3.48x, a slight increase of 0.09 versus the previous quarter, but this is still in line with the expectations we had for this quarter. We have an average maturity of 4 years with an average cost of 107.6%. Considering that this is one of our priorities to reduce our financial leverage. It's important to state that on October '25, we had an issue of BRL 1.5 billion in debentures which basically has 2 goals. First, to reduce the company's cost of debt. So we are paying the most expensive ones and improving costs. So with this debenture loan, we will go from 107.6% to 107.1%, and the debt maturity will go from 4 years to 4.3 years. This slight increase in net debt is part of our focus and it will also be impacted by the end of the investment cycle. Still on indebtedness and now focusing on deleveraging. I want to share with you how we're dealing with this across several fronts, especially now on the fourth quarter. As I said before, we have ongoing initiatives such as the debenture issue, which met our goal, and we also renewed our revolving credit to the amount of BRL 750 million, extending the term from 1 to 2 years. This has already been done. What is ongoing? We have operations to monetize land, and in fact, this was executed in the third quarter. We sold [ Mensolis ], which brought a BRL 43 million benefit, and we continue to monetize these assets. We're also monetizing tax credits, focusing on selling land. We have 2 or 3 pieces under negotiations. So we're at the end stage of that. And we've also been exploring sales leasebacks. Last but not least, we have to say that we are assessing opportunities related to our operational and nonoperational assets. So in the fourth quarter, we are reassessing and reviewing our business in depth. Raul will continue, and he's going to discuss some of our results in ceramic tiles. Thank you.

Good morning. Thank you for being here. We're going to talk quickly about this area, so we have more time for questions. But I'd like to start off by giving some color on this dynamic that we're having that is Dexco Day at Casa Dexco. I was in this role for about 6 months, and we thought that we needed to do something different. We often tell investors that we needed to use this space that we have of selling luxury goods being close to specifiers, architects and designers. So that resulted in this investment in Casa Dexco. That's one of the main initiatives we have. So we wanted to warm you up with this panel, and I think that made it very clear what we want to do, for sanitary ware, metals and ceramic tiles to deliver what we want to deliver. We want to gain space in consumers and specifiers minds. We cannot be an industrial-only company that has excellent products and quality. But having a good brand is an essential pillar. Being a home brand across several segments will catalyze this initiative so that the company can deliver the results, it needs to deliver. In 2025, we're basically leaving behind the main structuring elements of the finishings market. Of course, we have to keep an eye on the market very closely. But all the results you're going to see here and all of our future plans are not counting on the Brazilian market growing. We're extremely focused and determined to manage the elements that we can manage to bring our results to the next level. So ceramic tiles will certainly be the most important battle in order to do that. This is the business that Dexco has invested in the most. We went from having no presence to having a significant presence in this market with 3 plants, a lot of invested capital, and we still haven't seen the results in this sector. We're facing some challenges when we look at the market. It's important to state that we're starting to see a bounce back in demand to the standard we saw in 2019. The industry went through an investment cycle. Everyone along with Dexco saw the demand that we were having in 2021, and we're now about 20% below that level in 2025, and we have excess capacity. So naturally, the market is tougher. We start seeing an increase in capacity utilization. That's very relevant, but that's more related to capacity management. At the end of the quarter, I told you that we had reduced our capacity. And the entire market went through a similar process. So having more efficient new capacity during this last investment cycle, we're starting to replace our older capacity. But this is insufficient. Looking at the market growth. This year, it has been low. And taking a retrospective view, this is equivalent to what we had in 2019. So we will need to continue the structural changes for some time. But as I said, we have to manage what is within reach. So we reduced our capacity. At the end of the second quarter, this process was still ongoing. We stopped a few lines. And now we have closely matched the demand. We are seeing a lower volume. This is a part of our decision to not participate in sales that have prices below our cost because it wouldn't make sense to demolish our value. So we reduced our size, our head count and the fixed cost of our units. And after doing that, we have a production more closely matching the demand that we're receiving. In September and October, we're starting to see more solid results, selling higher end products. You'll see many of the effects from this. So reduced head count, downtime, suboptimal production, but 2026 will have a closer match to our capacity. At the end of the year, we're going to stop all lines to adjust our inventories and working capital to sell our inventory and prepare our plans for the next year. Looking at metals and sanitary ware. With metals, I think we found our path forward. We've been gaining market share, in the luxury segment, our services have improved, and I think clients are starting to recognize that. Revenue has also increased, especially in the premium segment. And we also made a decision, especially in sanitary ware to reduce our participation in the super competitive segment, which looks at price first, and we need to protect our portfolio in order for others not to go into the premium segment, it's not a very competitive sector, but we reduced our offer in a number of parts. We stepped out of the electric showers industry last year, but also we reduced our participation in sanitary ware, which is a very competitive segment. We've been improving our margins significantly, and this is only possible if you have all the rest in order, good service level, ability to deliver, quality, if you are close to specifiers and our customers. So we're starting to see sequential price increases, which haven't been fully reflected in this quarter's results. But we have a lot of potential to see that in the fourth quarter and especially next year. There's a significant lag between the raw material price increases like copper until we can pass this on to our products. So we're starting to see Deca, which is an absolute market leader taking its space in metals and Deca sanitary ware now has a good share and a good mix. In sanitary ware, we have to make a big effort in reducing costs and recover our plants. We now have 2 plants after closing one in Paraíba. And with these 2 plants, we can make about what we made with 5 plants a few years ago. So there was a silent effort of creating efficiency, improving our assets and industrial footprint. And we've been also making an effort to rebuild our competitive capacity. With that, Deca is posting similar results to what we had last year. Metals have a much better result than that, and sanitary ware is still rebuilding its results. We've seen the same running rates in October, but in November -- and we expected in November. But in December, we're going to have holidays downtime for maintenance. So we will start seeing better deliveries on a quarterly basis in 2026. Occupation is not very relevant when we're talking about cereal production where you can increase and decrease it very quickly. But I just want to say that sanitary ware has improved significantly. We are at 66%. There's one piece of equipment stopped in Recife, but we can start to back up when the market grows. So there's a lot of equipment that can be rebuilt and we can also bring in imported goods to recompose our portfolio. So with the same industrial structure we have, we can grow in metals and in sanitary ware. The advantage of the investment cycle that we're finishing this year is that the company is now prepared for any growth it needs to have, and adjusting our utilization to the lower demand is very important in order not to burn cash throughout this period. So adjusting our demand to the supply or our supply to the demand is essential in order to pilot the business and drive it forward. And that concludes the toughest part of the presentation and Adaji will talk about the Wood Division, which is following its plan very well and posting very good results.

Hi, everyone. It's a pleasure to be here with you again. There are many of you I haven't seen in person for a while. Let's get started. Talking about the Wood division, just to give you a market overview. This is still a solid market, and it has been advancing gradually. We're finally reaching a point in which we are understanding our seasonal pattern, we have lost that reference. The second half of 2024 was very strong. And what was normal in the past became unstable for a few years. In the domestic market, we're still seeing a small growth, which is okay, considering the circumstances, this is very positive. And we saw a reduction in export volumes. This is impacted by the U.S., but not -- it's not only the U.S. With improved profitability in the domestic market, naturally, the wood panels industry is looking towards the domestic market and trying to balance things out. We know that there are logistics bottlenecks in Brazil. And unfortunately, that affects us. With MDP and MDF, we have been advancing strongly. In our operation, Duratex and Dexco Wood, the highlights, and again, we're working at high capacity utilization rates. And that is very relevant. You might remember were times in which we were at 60% to 70% capacity utilization. And it's very hard to extract value from that, especially in an operation that has such huge assets and so much invested capital. We've been making price readjustments systematically, which is also a good new thing in the market. The competitors are becoming more rational and we have as well, but this is not by chance. Costs are higher, wood availability generated a lot of pressure. The huge variations that we saw in the past are no longer happening. Naturally, we see a lot more competition. Everyone is fighting for the same market. But people are being more rational and logical, which makes it easier for us when we try to profit from our portfolio. Another significant highlight is that despite the fact that there -- was it any standing wood sales operations that were significant and that became common in the last few quarters, the basic changes. So producing forests, cutting and transforming them into wood panels and flooring is generating the same operational results, which is very positive. Our EBITDA is healthy, and we're not seeing those extraordinary results. We will keep on working on opportunities, as Raul said, but we are happy because there was a significant difference in the foundation of our profitability, which is something we believe is being adjusted. As you can see, we have a smaller volume as compared to the market. Basically, we are talking about exports. We are favoring the domestic market. There is a difference between MDF and MDP. The furniture industry is really rocking, lots of expectation about Black Friday. Retail. Wood retail is picking up the large stores like Bahia and Magalu once again, focusing on the assets of the retail business, furniture, household appliances, trying to focus on what sets them apart. We see very relevant activities like the partnership between Casas Bahia and Mercado Livre. A big surprise to me, showing interest in looking for alternatives, our industry customers working actively on e-commerce, some of our large customers are among our top 5 operating 100% of their sales via e-commerce. That means more health and less risk in their operation. So we're very pleased. Our #1 challenge now is to maintain those results and to evolve as we have said earlier. Productivity, what we can control, improved mix, and that is happening. Some activities are not that obvious to the market because they are tactical moves. So we are emphasizing added value products, and that has made a difference for us to preserve our margin. Additional information, another excellent piece of news. We have here the operation for LD Celulose. First, I'd like to say that we are very pleased with their operations, the operating results. Lenzing and Dexco, each with their expertise brought a winning formula. So we are working with a capacity above what we had designed in our business case. Obviously, we were faced with a number of challenges in the construction of our plant because of the pandemic, because of increased interest rates, we know it's a leveraged operation, but the work that was done to restructure the debt, to reschedule our financial flow and mainly the operating delivery, situation is very positive. When we look at the numbers year-to-date, even with the maintenance downtime in July for 10 days, we show a larger ship volume. Because of that downtime, we may have lost about 5,000 tonnes, which is not that significant. That shows planning. Unlike that, where we have scheduled maintenances in the same quarters. The maintenance cycle in the cellulose industry in the pulp industry is longer. It doesn't necessarily match the quarter in the previous period. It might be 15 or 18 months. It depends on the need, but it's not every 12 months as we have for panels. Another highlight, we had a slight exchange FX variation since last year, nothing that significant. I could say that the big point of attention, if I may say so was the amount earmarked for general maintenance. So we conclude the wood market performing solidly, and we expect the year to be very strong and positive in order to support Dexco in our turnaround. With that, I turn it over to Raul to conclude with the outlook for the future.

In a nutshell, what do we have? Nothing very different from what we have been saying. We need to speed up our deleveraging operations. We've been at 3x our EBITDA for quite some time. What makes it difficult for us to accelerate is the cost of this business. We work a lot to get to 100%, but the problem is the foundation. There is always something like 15%, and it's very high, taking away our ability to generate cash. Lucianna already gave us some color in that regard based on what we can say, but -- that's why -- that's the point number one, deleveraging. We have key activities in product portfolio in ceramic tiles that will simplify for customers to choose products as industrial efficiency. We're taking 600 items out of about 1,600. So we will be left with a 1,000 products. It's a large portfolio. It simplifies life for the plant. It makes it easier for us to manage focusing on products that can deliver margin that are different, that cannot be found everywhere, and that will allow us to sell a stronger mix. We are recovering margin, and we are no longer building inventory. Our downtime had that objective in mind not to build inventory. I've said a few times that our production capacity is in line with our sales capacity. We have an eye on it. There is no point building stocks. We will stop for maintenance in sanitary and metal ware divisions in Q4. It's important to do that so that plants are prepared for next year. Unlike continuous production, you can choose when to stop. But obviously, there are non-absorbed fixed costs that will impact Q4. But everyone goes on vacation. We sell inventory. So that will be important. We believe that demand for panels will continue strong. We have seen discipline in the sector, even in the competition, the cost of wood reduces the cushion we have to go wild in our prices, Dexco has a policy to defend its market share in line with our capacity share. So we have seen that whenever we make some price adjustments, the competition does the same. Whenever there is a cost increase, and we have done a good price exercise. LD Celulose has found its production model. It's been gaining production capacity. We built it for BRL 500,000. We are way above that. This downtime -- there will be several quarters without any downtime. Prices are recovering. I think our prices are less volatile than market pulp. This year, we saw price drops, but more linear, the price has been recovered starting in Q4, we will see better pulp prices without the cost of downtime. So we are paying careful attention. If there is an interest, we will start thinking about dividends next year, but this is something that we must develop along with the partners and productivity and operational efficiency, Haddad mentioned a few times, we should control what we can and there are countless efficiency activities. What we did was to remove what hurt our performance. So our performance is in line with the market on the industry side for ceramic tiles just like in wood. So we have to keep on using well the assets we have available, the collective intelligence that we have, but the cost that a sophisticated company like Dexco has to be paid through different initiatives like digital and cost reduction. And I would like to conclude with something important to us. We celebrated 75 years in 2021. We changed our name from Duratex to Dexco, creating a robust plan, and we are about to celebrate 75 years, it's going to be next year. So among the initiatives to prepare Dexco for those 75 years, we launched that structured transformation plan. Our objective is simple. There is nothing super different from what we had been doing. As I have said, consistency is key. Focus is vital. But under that umbrella, we will have an office with structural transformation with dedicated people with incentives tied to prioritized projects, we will guide the organizations towards -- the organization towards a focus. We will do this and not much more than what's not here. So to run well business as usual and spend our energy here and not develop new different things that we would drain our resources. The current times require focus above business as usual. And this transformation plan beginning with financial deleveraging with strong activities. We have several nonoperational assets, tax credits, stake in other companies and operating businesses that can be reassessed to accelerate this transformation go-to-market. We already see some results in Q3 with a better mix. We have to look at channels where we sell better to understand the role of our retail initiative. Next year, we will start with 12 franchises that are store conversions. How are they performing? To what extent will we accelerate that next year? We want to capture margin and gain market share in the retail market, the tiles turnaround is still a key topic. Apparently, we have found the ideal size of the operations, but there is still a lot to be done. 1.5 million, 1.6 million in total capacity for tiles production. That's the demand, what we need to do is to reduce our inventories and the capital employed, but we should focus on the production of this new mix to accelerate products that we just launched, Botucatu started now. We started evaluating products there. We ended -- we will end 2025 with a concluded ramp-up of the plant. From that plant, we will get what we need in our go-to-market to recover market in the premium segment. Wood, we are very pleased with what the Wood division is doing, looking at all its capabilities. It's an innovation machine looking for efficiency, creating increasingly successful performance plans. But we can fool ourselves in order to attract new talents in order to give more space to the existing talents and to build the future, we must design the future of wood. There are several initiatives in R&D, benchmarking initiatives what can we do better in our ability to develop forest. Dexco is the most efficient company in forest development in the world -- well, in Brazil. But as Brazil, is the most efficient, Dexco ends up being the most efficient in the world with a good implementation cost and with enormous competence. What can we do with that? One of the things is to look at the forestry business as part of our business, as Haddad mentioned. It's important to say that there is no wood left. There are no more forests left for us to have great deals, but we have opportunities to buy, sell, trade, develop forest. And drive the business, should there be a weakening in the demand for panels. Our core, our forest, we turn forest into panels very well, but what else can be done? What else can be done with the panel, lighter panels, more durable, more resistant with other configurations. We have 20,000 hectares of forest in Alagoas. So that's a ticket to growth with a yield comparable to what we have in the Southeast. So this market won't stand still. They will still be a big locomotive for quite some time, but we have to see what needs to be done in the future. Our Deca competitiveness, metal ware has been gaining market, recovering market share with good volumes, good mixes, but margins falling short of what we need. What do we do with our industrial footprint? Do we add imported products to our portfolio, what do we develop in new products in-house? What segments can we tackle with what footprint? So there is a lot of room to gain competitiveness and to have a business with consistent margins. Deca above 20 in the 2 divisions, tiles between 15 and 20. These are ambitions for the midterm where we need consistency. I think that was it. That's the idea for the 5-year plan to drive those 75 years very well for Dexco to get to 80 years in a different shape. They are phrasing Abel Ferrara, who said that 90 minutes is a lot in soccer. A year is a long time for us at Dexco. We have a lot to do.

Before we open for questions, let me reinforce a few messages. As Lucianna said, and you should remember that, this quarter, we generated positive cash flow. The consumption of the year is still large, especially because of projects. But in terms of operations, and even projects we generated BRL 46 million in cash. Is it enough to lower the debt? No. But it's a sign of what is happening in terms of operations and EBITDA management, BRL 1.5 billion of debentures, we can run from the 2026 window. We no longer need to raise money in election year. We know that in an election year, the market is more volatile, so we can escape that. It's Important to have competitive cost debenture, it increases the average maturity of the debt, it reduces costs. On the financial side, as Raul said, Deca is at a different level. In Q4, there are things that will affect the result, but the level we achieved in Q3 is what we will consider for 2026, possibly blanket vacations, maintenance in working days of lower sales in December will be affected by October and November is just like what we had in Q3. Our big challenge is in tiles, there will be a recovery, but a slow one. We have inventories. And over 2026, we need a recovery with a new footprint and new production volume. We will find the way, wood, as Haddad mentioned, we're solid, robust. Our estimates show that we've had consistent results, margins above capital cost. We can generate value to shareholders, and we are opening a new front. What is our biggest strength? Dexco's strength is our forest. We have an opportunity to explore more our forests. What else can we do with our forests? That's very important. And the last point, the transformation plan Raul alluded to is very relevant. These are fronts that are going to give a lot of value to the company in the next few years. And we're working to make them tangible to give more numbers and more color about this. But this is what we can say for now. And I'd just like to say that the order of the day for Dexco is the sense of urgency. We have a lot of urgency, and we know that it's hard to grow. So we need to take action. You've heard about deleveraging. We've told you what we can tell so far, but there's a lot happening. There's a lot on the pipeline, and we have a huge sense of urgency.

So we'll continue now with the Q&A if anyone has a question. So I'll start with Marcelo and then Ricardo.

My name is Marcelo Arazi from BTG. My question is for Raul. One year ago, we were at Dexco Day and you introduced yourself to the market. And you mentioned that you were focusing on reducing costs and deleveraging the company now. Looking retrospectively, what were you able to deliver in this first year and also your future outlook? What is your main pain point today, what do you spend your time on the most? Finally, what was the relationship with Itausa like in this first year? And if I can also ask Lucianna a question, we know that selling assets is a hot topic. Everyone asks about that. So we've been speaking to the rest of the market about this as well. And we talk a lot about the operation in Colombia as a possible asset to be sold. So I'd like to hear from you how you balance these things, having the possibility of selling an asset that generates EBITDA versus the cash benefit that it could provide in the short term?

I can start off. That was well remembered. I took over this role 6 months ago, and I had been named for it about a year ago. And the challenges I found are still the same. I don't think a lot has changed. I was already in the organization. I had already been working in the Wood division for 2 years. I also worked for 2 years in the finishings area. So that gave me an understanding of the battles to be faced, and they remain the same. And there is a relevant topic here, which is the fact that any turnaround happening from now on needs to resolve things on the short term, of course, I think that's what keeps us up at night having a company with this cost of debt and that removes possibilities for growth, for investing. So the entire machine that we have prepared for investing is unable to run because we are limited by these things. So indebtedness is an important factor, but we need to reduce indebtedness without compromising the company's future. What I mean to say is that we are keeping our eye on the ball without compromising our future. And that's how we've always done things. The 2 main challenges are certainly indebtedness and everything related to deleveraging will involve -- looking at our possibilities very carefully. We have a large number of small levers, which build up to a positive result. But there are some large levers that have very clear trade-offs on the short and long term. So this is the first topic. We're always looking at that. We're starting to gain traction with nonoperational assets, many things will happen from now until the first quarter of 2026, which will relieve us but not resolve everything. But of course, they will allow us to make structuring choices with a lot of grounding and calm leap. That's the first part. The second part is that in ceramic tiles, there have been some changes. I thought the market was that it's the lowest last year. And then during the first quarter, and I thought that the second half would have a healthier demand, but that has not happened yet. So we have this plan to reduce capacities until the middle of the year. But we had to do this quickly because the demand did not bounce back as we expected. So we're still waiting. I mean it's not possible for a market of this size to lose 25% of its volume in such a short amount of time. A part of it was because a lot of the demand was advanced during the COVID pandemic, and that demand was not structural, was not constant. So I think they advance a part of that demand. But I think we need to see growth levels, at least matching our consumption. Now inventories are more closely matched or better adjusted. Capacity is being adjusted by many players in the industry. So we can expect that this will be better, but we can't expect that we'll have a lot of growth. What scares us is the aggressiveness in price, which is only possible if you're selling no margins. And so we will need to accelerate our share of the premium segment. So these are the 2 main elements for me. Deleveraging and doing it right, doing everything we can do to have a bit more tranquility, but of course, also keeping an eye on structuring alternatives but of course, understanding the trade-offs very well. When it comes to Itausa, contrary to many of the other companies that we've invested in. We have people on the board who were already in Itausa. So we've got many of the inputs firsthand, but we have been creating a closer relationship with them. Itausa has a lot of intelligence and can help us throughout several processes. And we have a very healthy relationship. We're very close and consistent, and I don't think it can be any different. The company turned 50. Dexco will turn 75, Itausa will turn 100. So this is a part of a group that is very solid and has a long-term perspective, and that believes in Brazil. So no surprises there.

Good morning, Marcelo. Thank you for your question. So in line with what I stated during my presentation, right now with the sense of urgency that we're having with deleveraging and the cash generation that we're pursuing, we're reassessing all of our assets, whether they are operational or not. So right now, there are many studies on our table, but we haven't decided on absolutely anything right now. And this is important to share with you. For the sake of transparency, yes, we are assessing several assets, operational or not. But right now, we haven't decided on anything that we can share with you.

I'll hand it over to Ricardo from Safra.

My name is Ricardo Monegaglia from Safra. I have 2 questions, and the first is for Lucianna. Still speaking about debt and leveraging, I know that this is a reset thing and it might not be ready, but what are your goals? Or how do you imagine they will be for the future? For leverage, gross debt, net debt, do you have an ideal EBITDA to cash flow conversion rate? Or what is the cost of debt that you think Dexco should have? That's my first question. My second question is for Raul. On several occasions, we talked about return on invested capital, and there are 2 ways of going that. You've done both more in some segments than others. So what would be the next steps? Are you at the right -- are you at the optimal return levels, if you can break this down per sector? And what will be your next steps? Do you think that this is still relevant to re-rate your shares or not?

Let me start. When we talk about deleveraging, it's important to say that we have a huge sense of urgency. Like I said, there is a lot more management in -- on working capital. We're reducing our inventories and reassessing our optimal inventory level without compromising our operation. We need to be consistent with what we did this year. Our goal was to increase inventories in metals and sanitary ware. So we are not placing our operation at risk. That is not the case, but we are reassessing it. There is some of the risk that we lost since we talked about the IOF tax, we ended up consuming some of our cash. So there are some quick wins with working capital that we have to mention. We're focusing on continuing to have the sense of urgency and controlling what we can control in our operation. When it comes to the indebtedness level. No, we are not happy with what we have right now. Repeating what Raul said, 15% interest rates are extremely high in order to generate cash for the operations. So we're generating cash, but that has -- that comes at a high cost, high financial cost. There is an internal demand to reduce our indebtedness. We don't have a minimal value that we can share with you, but we understand that a healthy leverage would be about 2.5.

Well, you said it. So -- that's true. Most companies don't get scared when they get to 3. But with these interest rates, this is insufficient for what we want to do. So we have a very clear top line element which helps to answer your question on return on invested capital. We're very far from the level that we believe is acceptable for our business. About a month ago, we presented our strategic plan and ROIC is one of the main points for to be executed. So we have 3 main topics for our business, and ROIC is the first one. Some of the initiatives have already started and some will take 1 or 2 years and some will take a bit longer, closer to that 5-year period. But yes, this is a key point for us. I do think that it can be a leverage for unlocking our shares. But yes, there are 2 things. First, we need to generate positive free cash flow. That's our #1 priority for next year, which is to stop any cash burn, recurring or nonrecurring. But in general, we need to generate cash to at least reduce some of this debt. And the second element that will unlock value is to really show concrete actions towards deleveraging. Whatever we can reduce in cost of debt will generate cash. And once we start generating enough cash to organically reduce indebtedness as we grow our top line and generate more cash. Well, that means that we can increase our top line by reducing debt payments. So that will make it more organic or we might need to do structuring work to accelerate this.

Just to underscore on that our focus is cash is king. So if there is one measure that is at the top of our mind that is cash.

Stefan will ask the last question. He's from Citibank, but I want to remind you of what Adaji said when he joined, he had a button that said I love free cash flow, and I think that is our model. In 2016, we also faced a very difficult moment, closing the plant in Itapetininga. We saw that leverage was high during that time, many things happened. There was a COVID pandemic, but again, this is a very important metric, and Lucianna has been bringing this to the center of our discussions at Dexco. So Stefan, your question.

I'm from Citibank. And I'd just like to ask again about improving profitability at Deca. You had talked about outsourcing and other events, and I'd like to know if that front has advanced, if this has been contributing to the improvement we saw in your margins and what we can expect for 2026. When it comes to LD Celulose, we had talked about asset sales if we should expect that for next year, if you can give us some color for 2026 and beyond?

Well, as I said during my presentation, there are several factors that prove that we have been able to advance this investment return cycle. We don't have specific numbers for next year and 2027. But after the operation is stabilized at the current volume, the cost effectiveness. Both Raul mentioned that prices have been more resilient than traditional pulp and especially after restructuring our debt, we expect that we will pay dividends in 3 years in advance. This will be gradual. We're not going to solve cash issues with dividends from LD, but we're very happy to advance it. It's a solid movement. And -- it's the kind of business in which you can't have radical changes very quickly. You're depending on forests. And they are a very complex variable right now. We're fully supplied currently. The last few movements allow us to make bets. And we believe that next year, we will start the dividend cycle, but we need to take it one step at a time.

When it comes to margins, I think there are 2 things that are important to mention. First, you need to improve your mix, operational efficiency. We've been able to do that in our plans, and you need to use outsourcing as a driver for that. Outsourcing allows us to bring in products that our plant is not as able to manufacture. We have a very flexible basis of plants, but -- which makes us a very broad company, and that gives us more competitive advantage versus people who only do outsourcing. If you're buying 1,000 pieces in China, that's one thing. But if you're buying 500,000, that's different. So that allows our service level to be better. We're convinced that selling -- as we're selling for us, outsourcing will be important, except for ceramic tiles, which don't make sense to import, a very competitive in Brazil. And the side effect of that is that when you start a project, that impacts your working capital. So you have a longer import cycle and some of the working capital that you built here was used to build up inventory for outsourcing products as you create S&OP, intelligence and supply chain management, you can bring these inventories to better levels. And that allows us to reduce the working capital at the plan. When you make products abroad, the supplier will carry the copper and the intermediate raw material. So we transformed that process. Besides, we can use financial tools to be able to finance those operations with very interesting interest levels that are more competitive cost-wise with more competitive capital than we have in Brazil. So outsourcing will be an integral part of our business. It's a very successful initiative with the potential to grow, but also with the potential to add products we don't sell today and that would help with Deca accessories and products for mirrors, for a number of kitchen products that we could import and use the Deca brand without immobilizing capital or the plant.

Wonderful. With that, we conclude our Q&A session. I have the pleasure of inviting Ricardo Mertens, Executive President of [indiscernible] to give us one more seal.

Thank you, Raul. Thank you, Guilherme. I would like to thank the whole executive team, the IR team. Thank you for the information and [indiscernible] started out of that need to bring analysts and company together and then develop all that market according to what we needed. It's important to underscore that information is our raw material in the partnership with Duratex and Dexco is part of our 55 years of history, a lot of information, many examples to be followed, many examples and above all transparency. The information, whatever it is at whatever time it is a long-term partnership. We commend you for that. And to celebrate this moment and to celebrate, this is the highest seal, 39 years of relationship.

We would like for everyone to join us in this celebration. One more important day next year, it's going to be 40 years that we have -- we will have been with you.

Before we conclude. Special thanks to the Dexco house team that welcomed us on behalf of the Dexco employees, and on my behalf, thank you very much for having us this wonderful house that you offered us. And I want to thank everyone for joining us today, saying that Executive Committee and the IR team will always be available to answer your questions.

We have the security team that will prevent you from living through that door. You have to go through the store and buy something. [Statements in English on this transcript were spoken by an interpreter present on the live call.]