Eternit S.A. (ETER3) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to our conference to discuss the results regarding the fourth quarter of 2024. This conference is being recorded and you can access the recording at the website of the company afterwards. This presentation also will be available for download. [Operator Instructions] Before we continue, I would like to reinforce that prospective declarations are based on the belief of the administration of Eternit and the current information available to the company. These operations can have risks since they involve future events and depend on circumstances that may or may not happen. So everybody, journalists might take into consideration that everything regarding the environment can make that the results are different from the declarations -- respective declarations done here. So with us here, we have Mr. Paulo Andrade, the CEO; Carisa Portela Cristal, the CFO; and Saulo Martini, IR Manager. Now, I would like to invite to the floor, Mr. Paulo Andrade.

Good afternoon. Thank you for your presence here with us and for being here in the presentation of the results of the fourth quarter of Eternit in 2024. I'd like to begin in this presentation talking about our business. We are so proud of our company. It's a company that is 85 years old. We are celebrating 85 years. So we have always been a leader in the construction building materials segment. We have around 30% of the market regarding fiber-cement roofing panels, and we are very proud also of our 1,800 workers that are spread in our different states, several sales offices. Also, we have more than 250 commercial representatives spread out throughout Brazil. And we have a very diversified portfolio. We have a plant of -- polypropylene plant in Manaus. In Ceara also we have the newest plants of the company built in Caucaia, launched in March. We have 2 plants in Goias State, a mine in Minacu City for asbestos and a plant in Goiania for roofing. Also, we have Colombo, a plant in Parana State and the 2 units in Sao Paulo, the Hortolandia plant, Confibra, that we've purchased 2 years ago. And [indiscernible] plant, where we have the concrete tiles. And in Rio de Janeiro, also, we have a plant for roofing and in [indiscernible] our fiber cement plant as well. So we are all over Brazil. We are really a national player. And here are some highlights for you regarding our operations in 2024. We launched the Caucaia plant in March '24. It's a plant that began producing a lot. We have 500,000 tonnes per month. It was a very nice investment done in the Northeast of Brazil. Also, we have -- we had the expansion of our Manaus plant before we had 1,000 tonnes of capacity, and now we are operating with 1,500 tonnes. We consume most of it internally, and we sell the rest to the competitors. Also during '24, we have diversification with the building systems. We've launched a new line of tiles that is being very successful. But we have also a piece of news that is not that nice. We are not continuing with our line of photovoltaic products. We insisted, we've tried to find solutions. So we then began with a product that -- it was the Leaf. It was a Leaf of photovoltaic cells, but even this product that was really much better, we could not compete against our Chinese friends because they have prices that are beyond competition. They are really far from what we could compete against. So we are officially announcing today that we are not going to continue with the production of photovoltaic products in the company. And we are going to focus on the innovation. And we are going to continue with building systems because we believe that as it is in Japan, Europe, U.S., also here, it's going to be a success, you know, in the Brazilian market as well. In the commercial part, we've reached 30% of market share. We are market leaders in front of the competitors. We are trying to repositioning our brand. We are investing in marketing to really be able to make our brands stronger. Also, we have a growth in sales of volume of fiber cement of 2.5% approximately versus '23 and also have an increase of the volume of above 20% year after year. In the financial realm, also, we have very interesting news. I think the main one is that we have really concluded that court-supervised reorganization plan of the judicial recovery. We could do everything according to what was planned. And now it's much easier to operate the company outside this recovery plan. We can renegotiate with clients, suppliers, we can sell assets, and we don't have the bad name because nobody wants to have someone with a bad name in the family. So we are stronger now, leaving this judicial recovery than when we entered in it. Also, we had the conclusion of the Phase 1 of corporate simplification. We are going to have a second phase. So we've incorporated CNPJs to use more smartly, the credits. Also, I've talked about the debt already. We are controlling really, the debt in terms of EBITDA multiples, it's amazing compared to the past. And also, our administrative and commercial expenses, you know we are working on it. We have been -- me, myself, I have been following the company for the last 5 years, first as an adviser and now as the CEO. And we try to keep the expenses in the same level. We haven't had a real increase in the admin expenses. We try to be a smart one. So these are the highlights for 2024, the summary of the year. And now talking about the fourth quarter. We had a net revenue of BRL 286.6 million, is 1.5% for growth. It's small. We had October and November, very nice months. December, it's a month to be forgotten, not only for us, but the whole market behaved badly in December. But, at the end, we had quarter that was better than '23. Our recurring EBITDA was BRL 16.2 million, it's almost 29% below the fourth quarter of '23. And the problem here were the margins. There were increases in raw material that we could not pass on to the market. We did pricing review on the first -- the beginning of the year. But last year, we had already increased prices, 5% approximately, in October. We were successful with at least half of it, but didn't have an effect, really. And we are recovering now in the first month of this year. In terms of sales, it was stable, 165 metric tonnes. And Construction Systems is really growing, really. In the quarter, we had around 22% of growth comparing to same quarter of '23. And also, we are going to pay an additional of dividends. We are declaring it in this last -- in this first quarter. We are going to pay BRL 7.7 million in dividends. And inside the quarter, BRL 12.3 million. So these are the main highlights of the fourth quarter. And now I'm going to invite Carisa, who is going to talk a little bit about the market, the results that we had in the fourth quarter and delve into details. And afterwards, we are going to have a Q&A session.

Thank you, Paulo. Good afternoon. So I would like to begin my presentation talking about the market and the building segment as a whole. It is impacted by the economic situation of the people and the capacity of Brazilian families. And with the rise in interest, with the default levels, this all can influence significantly, the demand. And we have been perceiving this. And the demand has decreased. It impacted the prices of the company. And now on Slide #7. We perceive that even facing this challenging scenario, Eternit sales had an increase of 2.5% in the sales volume. So we've utilized BRL 633 million in the year, but we have a retraction in the quarter. And also with the increase that we have in the services prices, the increase in the labor cost and also with some other things, we had our fiber cement margin, a retraction of 7 points compared to the same period of last year. And well, now to the right, you can see that we had a record in sales. We had almost 1,000 tonnes of sales in the quarter. This is an increase of 20% in the volume sales, and we believe that dry construction systems is the future for the country, and we expect to be in the forefront of this market, always presenting new solutions. Now the performance of chrysotile and concrete roofing panels. In '24, we had some operational problems that impacted the mining of chrysotile, impacting the -- in the reduction of the export volume that decreased 11.6% in the year, 37,000 tonnes in the fourth quarter. But even so with this reduction in volume, we had an increase in the gross profit because the operation of chrysotile was favored by the exchange rate, creating a gross margin of -- that was high. It was above 1.3 regarding '23. And now talking about concrete roofing tiles. We see that accumulated in the year was okay, but the gross margin was 15.7% with a retraction of 3 percentile points impacted really by the average price. And now we have the financial performance BRL 1.160 billion and BRL 286,000 in the fourth trimester (sic) [ quarter ] In the internal market. So it was impacted by the sales of building systems and the improvement in the average price of chrysotile. Here to the right, we see the gross profit with a retraction of 15% in the year. In the fourth trimester, it was BRL 49 million. The reduction in the gross profit and gross margin in '24 is mainly because of the price stability and the increase in the cost of the sold products with an increase of 9% totalizing BRL 914 million in the year. The increase in costs are concentrated in the fiber cement segment and is related to the increase in labor costs, services costs and the increase in depreciation in the period. And now, as Paulo has already commented about, I mention again our commitment with the surge performance in our processes. So we have 0% practically in the increase of admin and operational costs in '24, in the fourth quarter. We see a small increase in these expenses because we had some concentrations regarding legal and attorneys' fees. And now I present the recurrent EBITDA of the company. This EBITDA excludes the nonrecurring events. So, in the year, we have BRL 79 million in the year and the fourth quarter, BRL 16 million. So this reduction is due to the compression of the margins from the fiber-cement segment. In the net income, we have BRL 38 million. It's a reduction in the profit. And additionally, the profit also was marked by some nonrecurring events; the sale of the Goiania land; also, the provision of the discontinuity of the photovoltaic segment that we are announcing today. And to make -- to face this event, we have a provision of BRL 17 million. That is going to be part of the results of 2024. Also, we had some positive issues, some smaller indemnization costs and also deferred taxes, we had some differences that were not recorded in the previous periods. Now I bring you the picture of the debt of the company. We have BRL 110 million net debt, a reduction of 12% regarding '23. This reduction is due to the lower recovery of short-term debt. We had a controlled leverage at the end of the 2024. We had a longer-term recovery of CCE of BRL 17 million that was given to the investment to SAMA for mining. None of our debt -- I mean, our company is constantly assessing the structure of capital to improve the results. And now, to conclude my presentation, I would like to mention that we continue stable at the lower -- at the highest level of governance. We have 24,000 shareholders in March. As Paulo mentioned, we've announced a distribution of dividends. So, during the year, we've totalized BRL 7.7 million of distribution of earnings, $0.12 per share per stock. And also, we are going to pay -- the company forces to pay 25% of the net profit, with payments concentrated in the month of March and September. Paulo, the floor is yours.

Thank you, Carisa, for your presentation. And well, what can I tell you? This was really a challenging year with a lot to be done. A year in which we had to run after the margins. We had increases in prices. And we think that this is a cycle that the building market is going through. We see it all over, our competitors also are experiencing very strict margins, also in the other subsegments of the building material area. But even so, I think we had a lot of important things that also happened. We concluded the judicial recovery. We did our new plant. So in these last 5 years, we had a lot of investments, BRL 500 million. Part was done with the own capital, part was done with the increase in capital with the shareholders. So this was a very interesting cycle for the company. And we believe that from now on, we are going to start reaping the fruits. So part of our strategy is to use the capacity that we have now with all the investments that we've done, it's almost 100,000 tonnes, and we are using around 60%, 70% of the capacity. And we have this potential to use this capacity in a country that we believe that are going to continue growing, and we are going to ride the wave of the improvement of the economy. Well, thank you all of you. We hope to have been very clear in our explanations, and now we open for Q&A session. Saulo, can you please help us with it?

Good afternoon. [Operator Instructions] We've received 2 questions from [ Fabio ] of [ Virtua ]. I'm going to pass them on to Carisa. Carisa, regarding the finishing of the photovoltaic line, I think it was correct. It is difficult to compete with this technology here in Brazil. Can you detail the BRL 70 million accrued due to the termination of this line?

Thank you, [ Fabio ]. Yes, indeed. What is in this provision. The main values refer to the equipment of this production line, and the other is guarantee provision in case it is necessary to do some repairs in the projects that were sold. Also, we have a provision in stocks of raw material and finished products that can be used in an eventual reposition. And also, we had to terminate the team that worked for this line.

Thank you, Carisa. The second question is for Paulo. Regarding the asbestos operation, can we return to the 45,000 tonnes per quarter soon? Can you detail which were the operational problems that we had in the last quarter?

Saulo, thank you for the question. [ Fabio ], thank you for it. Yes, you're right. Our budget is 45,000 tonnes of production per quarter. We search for 190 tonnes of production. And so we need more production to have a mix for selling because we have 3 types of fibers, the short, the average and the long one. So we have to have this mix for our customers, mainly from Asia. So what happened last year so that we could not reach the 180, 190 tonnes that we aim to reach. Well, we began the year with a very heavy rainfall. We had floodings in our mine. So we had to pump out more water. This delayed production. And afterwards in the half of the year, more or less, we had a fire. It was not severe. It was an electric panel in the outside of the plant. But this affected the input of energy to the initial part of the fabrication of the ore process. And well, we were lucky because we were able to replace the panel. But even so, we lost 1 month, and these were the 2 problems. But apart from this, we invested in the maintenance. And after the fire, we had a good year. The last quarter was very good. So December, we had 18, 19 tonnes of production. So we bet that this year, we are going to reach 180,000. And in January this year, we had a downtime. And so now the sales in January and February were not that good, but from March on, we have no planned maintenance. So we are going to speed up production, and we are going to reach this 180 tonnes.

Okay. let's wait to see if we have any more questions. Just a minute.

Meanwhile, regarding photovoltaic, it's nice to see how the market is perceiving this. It's really a challenging segment. We have -- we know about some companies that try to do the solar panel, the commodity in the market, and everybody is close, even these big companies. So to dispute the market with the Chinese competitors is complicated. It's difficult because you have to spend a lot of money during a lot of years. So it's nice to see [ Flavio's ] perception. I think also that we made the right decision. So we put all the provision of [ BRL 17 million ]. But we had already provisioned BRL 9 million before. So it's the equipment that we've bought that we are not sure whether we are going to be able to sell them. If we sell them, we're going to decrease this value, but we are being very conservative regarding the provision. Do we have any other questions?

Yes. From [ Luis Parduch ], regarding the trial in the Superior Court of Brazil regarding chrysotile. If there is a prohibition, what is the impact for the perennity of the company?

Very good point, Luis. This is a concern. The mine really creates cash flow to the company. And what is happening? We're having the voting inside the Superior Court in Brazil, we have judged that are voting for 2 years of continuity of the mine, some judges are voting for 5 years. The final result forecast to be released on Friday. And we believe that they are going to follow the law of the Goias State that says that the termination of the mine operation is going to be after 5 years. And also, this can be done with responsibility. We can then recover job positions because we have more than 400 employees in the mine, in the plant. So this is why we are telling the Superior Court that it's very important to have these 5 years. We are filing for this 5 years so we are going to have enough time to recover everything. And during this time, we are going to bring new revenues, new segments to the company so that the company can continue with the same type of governance, okay? Because we are very responsible. We do a lot in the ESG area. So we are going to do some adjustments regarding costs, but the idea is also to put some type of business to substitute to replace this, okay? That's it.

Paulo, now Max Bueno is asking how -- what is the size of the market of building systems inside of the company?

Good question, Max. So we have forecast that it can reach a lot. The increase, the growth is 20% per year in the last 3 years. And for this year, we believe that is going to be even higher. We have several orders from construction firms that are building several houses all over. And so they want to be kind of an assembling firm like the automotive plants. So today, they have to do the floors, the walls, the roofs. So I believe that we really can enter in this game because we are very efficient. So the size of the market is huge depending on the substitution of this Construction Systems. Nowadays, we sell 3,500 tonnes per month. So it still is small, the amount of the volume of sales inside the company, the revenues are better because the added value is better. We're talking about 5%, 6% of the volume, but the revenues are poor. But we believe that in the future, more than half of the revenues of the company can come from this. Because today, we have a capacity of 100,000 tonnes. And I'm selling 65,000, 70,000 tonnes. And so this machinery can be converted to build cement panels. So, I can use my assets that I have today to put that to produce these products for the market. Okay? Okay, we don't have some other products regarding to [ GIST ] and metal panels, metal frameworks. But regarding the cement, we have a lot of capacity. But this depends on the economy of the country. So if you really have a good economy boom, you are going to have this strengthening in the segment. Any other question?

Thank you, Paulo. Lincoln Oliveira is asking, as a shareholder, as an investor, the results were beyond what we expected. How can we see the 2025 year?

[ Lincoln ], well, the result was beyond expected due to the sales. But I can tell you that we expect a recovery in the volume of sales in this year. January, February already signalized very positively. And also, we had difficulties in '24 regarding the pricing. The updating of prices in the market. But we don't think that we are going to have this type of difficulties in '25. So this is going to be good for us. Of course, we are expecting also on the economy of the country. And regarding chrysotile, we had this problem in the operation, but we are back to our 108,000 tonnes per year with the exchange rate positive. This favors the business. So we have good expectations for 2025.

I think, Carisa, you mentioned everything. We see that the beginning of '25 is better than the finishing of '24. The segment is better. We have this theory because our segment, it doesn't have audits. But in 2021, 2020, during the pandemic, we have already ideal capacity there. Because at that time, nobody was traveling, nobody was going to restaurants. So the money was applied in electrical appliances and the renovation of the houses. Everybody doing renovation extensions, expanding the homes, and there was this boom. And since we had ideal capacity, we sold a lot of fiber cement, roofing tiles. And the yearly -- the monthly market is around 200 tonnes per month today. But during the pandemic, we sold more than -- in the market as a whole, more than 350,000 tonnes per month. And so when you do this, then you do a renovation in your home, you don't really spend money again on these. It takes some years. So this is why '23 and '24 were bad years. But now in '25, it's going to be better because also we had the heavy rains and winds. So people need to replace, maybe, the roofing. So in 2025, we believe that we are going to have an increase in volumes to follow this up in our market share. So expectations for '25 are good. And our thesis is that in '23 and 2024, we had bad results because during the pandemic, the results were really too high.

Thank you, Paulo. Thank you, Carisa. [Operator Instructions] We have another question from Lisa from [ the BV ] Bank. She asks what is the capacity of production of building systems today.

Well, in the company, in our specific products, we have around 30,000 tonnes for roofing tiles, okay? The machinery, when it is converted to do walls or to do floors, then you don't have the same yield, you have a reduction in the performance of the equipment. But I would say that with additional equipment that we can buy in the market and with increased labor also because we need labor. Maybe we are going to be able to do 15,000 tonnes with the equipment that we have today. And sometimes, when the tiles are not really occupying the production line too much, we can convert the line to make cement panels. So today, without big investments, I believe that we could reach 15,000 tonnes with some additional equipment only. But if you put more investment up, then the sky is the limit. And so we have to pay attention to the interest rate as well. So far, everything that we've invested was okay. So our products are in the blue. We can think about doing new investments to increase production in this segment very easily.

Thank you, Paulo. [ Suzanne Benton ] asks, which are the main competitors that would change the perspectives of Eternit?

The competitors are the same. We try to be better than them. You know all the competitors, Grupo Saint Gobain that has a market share that is similar to ours. We have regional competitors. I think really the national players are us and Saint Gobain Group. I think that we have much more competence to do this. We are fast. We are the player that understands better fiber-cement roofing tiles. We are very well distributed, very pulverized. We have a list of customers that we sell to them regularly. So I think that in the market, we are really the ones who are closer to the dealers. So we can really serve the wave that is going to come now with the recovery in the economy. And I don't think that the competitors are going to threaten us, okay? Thank you for the question.

So we don't have any more questions. So please -- no, no. We have another question from Lincoln Oliveira again. He is asking about the short-term debt. Is it bigger than the long-term debt? Do you have any intentions of changing the profile of this debt?

Lincoln, I think it's important to comment that the debt of the company decreased 12.5%. And well, I would say that we have 55% of the debt is in the short term, the rest in the long term. And we -- the debt is balanced. We have 1/3 of it is BAZAR, is a debt with a fixed cost of 7% per year. The other is FINAME, linked to [indiscernible] of 4.9% per year, the cost. The other 1/3 is a CCE, it's a CDI, 5% cost average. So this is a very balanced debt with different indexators. And one of our concerns really is to look at the opportunities to elongate the debt, trying to search for that with a lower cost, of course, is a big challenge. The SELIC rate, interest rate is going up, the inflation is rising up. But even so, we are trying to maximize the debt of the company.

Carisa, let me add something. Our debt historically is short term. Because the -- we have the ACEs usually. We sell in dollars, so we can do this. So, historically, if you look to our reports, you will see that short term is bigger. It's easy to do, it's cheaper, and we are trying also to redefine our debt. We are talking to BNB, a partner of ours. So we had these investments in the Northeast done with own capital. So we are talking to them. We are trying to reprofile the debt, we get this value. We've commented already about this conversation in other releases.

The idea is if we have this operation with BNB, everybody knows that is always challenging. BNB, they have a lot of people wanting from them, but we are doing this, and this would be -- this debt would be linked to the Caucaia plant to help with the development of the Northeast region. So this is why we are going to have this loan with BNB, and then we are going to be able to change a lot of our debt that is indexed by the SELIC rate. And then we would improve the profile, better the profile of our debt. Because when we talk about the BNB, we are talking about 10 years term.

Now we have a question by [ Keveli ]. With the conclusion of the judicial recovery, do you have the perspective of debentures or other issuances in the market?

I think that this is something that the company really doesn't do. We don't have historical of strong debentures. But after the judicial recovery, we are going to study this, yes. If we have an equity store, strong future, forecast is strong, yes, it makes sense to think about this type of operation.

And if we don't have any more questions. Well, so now I'd like to invite again Paulo to make his final comments of the day. Paulo, please?

Thank you, Saulo. Well, I'd like to thank everybody that is here with us in this webinar, in this teleconference. It's very nice to talk with our shareholders. We know that 2024 was not a good year. Of course, debt in the past, we were under the judicial recovery, we had not a good profit. And now we are having profits, of course, not at the level that the shareholders expect, but we are trying to be Spartans in controlling the expenses. We are not spending any tents, you know. If it is not aimed to create profit for the company, we are really working hard. We think about our debt. We think about our cash flow all the time, we are working closely on it. This is very critical for us on our daily lives, and we are prepared. In the past, we had this old plants, equipment that were not updated, but now we have everything that we need to meet the demands of the market. And we are ready for it. We have the challenges of the margins. Of course, our suppliers, they are putting some increases in the prices, in the -- the last year, we were not able to pass these increases to our products and to our customers as well. But we are going to recover the margins. And with the mine working well, we have this perspective of doing 180,000 tonnes per year. So trust on us. We are taking care of your company the best way we can do. We don't even sleep because we keep on thinking about what we can do to really achieve the best results for you. So well, that's it. Saulo, would you like to say something?

No, thank you, Paulo. Now, I invite our operator, that is going to make the final remarks.

Thank you. The videoconference of Eternit is finished. We thank you for your participation. Have a nice rest of the day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]