Irani Papel e Embalagem S.A. (RANI3) Earnings Call Transcript & Summary

[Foreign Language] [Interpreted] in situation to the market. So we also felt in this quarter, we can explore a little more in the Q&A, this situation in Argentina, which is a big buyer of paper from Brazil, and we had to export paper to other markets normally with lower prices, and this affect the average price of paper as a whole. And for rigid packaging, we've been very much connected to the price of trim. We had a drop of 13.6% and 6.3% in comparison to the second quarter, lower volume of papers that we had in the market, and has a connection with the price of trim. When we got to the trims, we noticed that there was an important reduction in comparison to the quarter -- second quarter in '22. There's been drop in the association that consolidates the data from trim market, and we have 27% drop and another drop in the second quarter. So that's a value of BRL 60 per tonne, and we had an even higher drop, 20.7%, and 13% from the second to the third quarter, with a lower rate for trims than in the market. When we get to the business of resins, it's a smaller business. It represents less than 10% of our revenue currently. We had an expressive reduction in sales volume both in the third quarter as, in regards to the second quarter, a drop of 52-point -- over 50% because the market situation is a very complex situation of this market in the world, both in Europe, China, which are the main markets that buy these resins. And with that, there was an important impact on prices, a drop in dollars and in reals, pointing out a drop of 40% in regards to the third percent -- and 13.2% in regards to the second quarter of '23, closing an average price of BRL 5,000 -- over BRL 5,000, and other resin, even a higher drop of 45% in regards to the third quarter, and 16.5% to the second quarter. So this is a business that we really have to reflect a lot. It's a business that we've been quite a while and it's volatile because it's international commodity, is subject to this demand, especially from China. From the financial standpoint, we closed, as I said, with leverage 2.1-fold for EBITDA, the debt of 1.5, and the cash flow net debt of BRL 1,044 million, with the biggest part of the investments of the Gaia platform. Our average cost of debt, which is 14.4%, we have an operation -- sales of the debenture that we had at a higher cost, and so took adapt a little lower cost in this quarter, and the action of reliability management. So this reduced the costs in the 2 -- well, the last 12 months, all the debt in domestic current, and we have it in the long run of only 1% of the short-run debt. The repurchase program we started in August '22. We had a limit of acquisition of 9 million shares, and we bought 6 million -- over 6 million shares. In this quarter, we didn't have any repurchase because of the good performance in paper in the period. Dividends payment, we keep the payment. Our policy, remember, we pay 50% of the annual profit of dividends and 25% in the closing of the fiscal year. During this quarter in '23, we paid BRL 0.23 per share, BRL 54 million total value. And in the last 12 months, we paid 2013 -- 213 [indiscernible] 11.4%, which was a yield, very important yield, on the profit and the valuing of the shares. We had the first cycle of the Gaia platform. We're going to go into details, the main projects, and Henrique is going to present during the Investors Day. But the Gaia platform is comprised of projects, Gaia I, II and III, basically concluded in the face of capturing the return that we are going to notice especially in the next quarters and especially over 2024. Gaia IV and V is 2 hydroelectric thermals that we have in Santa Catarina. This finish in our original schedule because especially the licensing, environmental licensing, that we have to meet the whole time frame following the environmental agency. We're going to have this licensing happening over the next 2 years, and we're going to make these investments. And with these investments, we are self-sufficient in production of energy. We also have a second cycle of investment, Gaia VI, VII and VIII, which are in the final parts. Gaia VI, VII and VIII and IX, and Gaia X last generation we're going to install in 2025. Well, now the Gaia platform is basically that we invested so far BRL 1 billion on gross investment, this semester of BRL 48 million, and in total, BRL 910 million investment -- gross investments, made up to September 30. So we have a difference here of BRL 172 million still on investments that are going to be made in the next quarters in Gaia platform. Here a view of the time frame. As I mentioned, we have Gaia I basically concluded in performance curve. Gaia II concluded, Gaia III concluded in performance curve. These Gaia that I mentioned are the ones that depend on environmental licenses. VI, VII and VIII on final phases. Gaia IX in execution phase of the projects, automation of our unit Indaiatuba. And Gaia X, we acquired the printer, but it's part of manufacturing, and we should install it in the beginning of 2025. Here a view of the physical execution of projects. And here, some of the awards that we had in the third quarter. I think it's worthwhile mentioning that our first award, we were among the best places to work in Brazil, great places to work. This was an aspiration we had. We had the 29th position in the ranking, in the national ranking in Brazil. Recognition that we value so much. And it's a journey that we've been for many years attempting. And we were 12th position in the State of Sao Paulo and fourth position in Rio Grande do Sul and Santa Catarina and Minas haven't been published yet the rankings. For the third consecutive time, we were recognized with the transparency award from ANEFAC with best financial demonstrations on the net revenue below BRL 5 billion. The silver trophy in packaging from ABRE, second place. And the Best and Biggest from the Exame, first place. We were again in the top 3 of the ranking open start-ups, the companies that have connection with the innovation, open innovation systems. Some of the recognition that happened this year, and our team according to the investment, Odivan and André, our Investor Relations Manager, Mari, Mari, Ítalo who is here with us. Please, Ítalo. Dani is here. Also Emanuel is with us. Where is Emanuel? And Evandro, our account manager. Also Alex. And also Giovana. Okay. So everybody is here and everyone is going to be available to talk to you during our break our investors may get in contact with all of them to clear out any questions that you might have. Well, about the third quarter, basically [indiscernible]. So it was a great quarter with good results. We are very satisfied with the performance of the company, even though the market is not showing demand right now, we are able to deliver a good performance in a steady way, just because, of course, due to the cost, but also by started capturing our returns from the Gaia platform. So now I would like to invite the other directors to the stage so we can answer your questions about the results from the third quarter. And then we are going to have a Q&A session about -- specifically about the Investor Day.

Okay, that's perfect. Just to remind you that all of the results are already available on our company's website. So for those of you who would like to download the report, it's already available. So this first Q&A again is going to be about the results for the third quarter. We are going to alternate between the questions that we have been receiving from the people connected online and also from you guys.

So the first question is, is Irani going to announce dividends this quarter?

Yes, of course, since we are -- since we had profits, we are going to pay 25% of our net profit. And we are going to pay for dividends, of course.

Okay. Guys, can you hear me? Okay. That's great. Okay. Now the last one also about dividends. The next is from [ Fulvio Silva]. The first one was from [ Evan ], and now from [ Fulvio ]. Good morning. I'm a shareholder for 4 years, and I would like to know if there is a possibility for the net -- for the EBITDA to reach the limit of 2.5 in any moment and harm the payment of the 25% of the dividends? Could you please let us know about the evolution of your debt? And congratulations.

Well, we are close to the leveraging peak that we had first thing in the project. And from now on, we should still see an increase for the next quarter because we are finishing the investment on the Gaia platform. And then, of course, after that, we are going to start the natural process of deleveraging for the next year.

Okay. Great. If you could ask your question, go ahead.

Good morning. This is Caio Greiner from BTG Pactual. And I would like to ask something about the results, and then I'm going to ask another questions more related to the long term of the company. Well, about the results, what caught my eye is that, despite the fact that there was a drop in prices, you had an increase in margins. Of course, it was related because of the trimmings, but I would like to see -- of course, there is also a relationship the benefits of the redeployment of the Gaia platform. But what I would like to hear from you now is for you to explain why you feel in terms of benefits of the Gaia platform, maybe in qualitative terms, but specifically about quantitative aspect, and how can we see these benefits ramping up what we see for the year of 2024?

Okay. Well, the return of investments of the Gaia platform is more up to now. I mean, even the drop in prices is partly related to gains in capacity that we have had in Santa Catarina. And so we have this new capacity, we -- slightly lower prices. So we had to do with newer customers that usually go with lower prices because they are key accounts, they are big accounts. So basically, this is why we have seen that, because we have gains in terms of volume. And as the quarters roll out, the returns that we see are going to be more relevant. For the Gaia I, the main results that we have seen is the gain in energy because we are going to have a generation of energy. We are also going to have an improvement in the mix of our paper because our cellulose production is going to increase by 30%. And also in cost of the raw material, because we are going to have a lower consumption since we are going to start capturing part of this return in the next quarter.

Yes, I believe it's also worth to mention that, ever since we started with the IPO, and we do have some -- the re-IPO actually, our thesis was about this investment on the Gaia platform. And the majority of our return is about the reduction in costs. So 70% of the returns would be related to cost reduction. And it took almost 3 years to execute this plan and start delivering results. But the market moment is, of course, more complex than the one we have been seeing in the previous years. So I believe that the biggest benefit of this investment is dependable on the expansion of our capacity. But delivering a reduction in costs, which is something that is inside of our home already.

Yes, there were some increases in capacity, one of them in the Machine 2, which is the machine for the protection of paper for packaging. So this is a gain that we have been having since last year when we started operating the Machine 2. And the idea is, of course, to increase its performance over time. And the other thing is, again, about the capacity of paper in Santa Catarina. We had an increase of 56% there. And it is related -- and of course, there, we have a sector that is specific for the [indiscernible] sector. So we are going to work on that. And that's why we had this drop in prices, because of this diversification of the mix that we have there.

Excellent. Now back to our questions on Zoom. A question by [ Angelo Membasi ]. Good morning. You have mentioned something about the improve of the margins because of the trimming. Do you believe that this condition in the trimming is going to remain the same or what do you foresee in the situation?

Well, the situation, which remains different, because it's a structural question. We do have an input in the Brazilian market that is definitely higher than the ones we have seen historically. The 2 new [ scrubbing ] machines that are for the production of KraftLiners and the second one for carton paper and kraft line are producing mainly for the national market. Because the production of kraft line globally is not doing so well. So there has been a replacement of recycled paper by fiber paper in the market. So there is a bigger availability of trimmings, which makes it a good situation on the short term. So right now, we don't see any pressure on the short or long term. Quite the opposite, actually. We can see Brazil in basically the same situation as in the United States that has the high availability of trimmings, and then therefore, a high exportation volume of this good.

Okay. Good morning. My name is [indiscernible]. So first of all, congratulations for your results and congratulations for this event. I believe we have already talked a little bit about the spread, but I have a follow-up question. It is related to Gaia platform. So when you have the financial expectations set, do you also see the possibility the share the profitability or the evolution in prices, especially for trimmings? So do you see a possible reflection on a lower price? Therefore, impacting the profitability rate that you're going to see? And another question now about the demand. You have mentioned the gain in market share in the first quarter. So I guess it is partially because of the Gaia project. But I would like to understand how you can foresee the demand between the segments where Irani is more exposed to compared to the market. So if you could talk a little bit about that. Is it going to be for the fresh market? And how has been the behavior of the market share comparing the first and second quarters to now considering the exposition of the market as a whole?

Okay. We definitely measure the returns from the Gaia platform in a systematic way, so we can see, of course, how we are doing on returns. The price for packaging is definitely something that we monitor. We always consider the market price. However, we have a management system that is related on the margins per tonne, because there is a big variation between the price of trims, there is a natural selection. So we manage by the profitability. And the profitability, even though we have this reduction in price, we can see that it's been stable, with a slight trend for increase in the past few months. So we have been keeping a profitability per tonne that is pretty similar to the ones that we have been having over the past couple of years, which is the trend given the recycled paper trends in the past decade.

Yes. And it is not part of our base case to share the profitability with the market and compare that -- our profitability with the market. We have our investments, we're definitely going to try and deliver this return. And we don't believe that we have to share this profitability with the market whatsoever. Yes, but anyway, we always monitor that. And we have been having returns even better than the ones that we had first thing for all of our projects. Yes. In our [indiscernible] about the sectors, we are well positioned typically in these 3 sectors, even though the economy right now is not as heat up as it used to be. So all of the sectors in Brazil are increasing. They are presenting a real increase compared to the last year, specifically in Santa Catarina, but also related to the profitability of the sector as a whole. The food sector is, of course, being very strong. It is a resilient sector, even though there was a drop in the previous quarter. But it is a sector that is facing a deflation this year actually, and it doesn't necessarily affect the business. Quite the opposite, it, of course, increases the conception on the lower economic...

Good morning, guys. Despite the comments that we had about the exportations to Argentina, we could see that the volumes were strong in the last quarter. So I'd like for you to explain a little bit about the prices, that is no -- if the prices are better in returns to the exportations to Argentina? And now that the elections are done there, if you foresee an increase in exports there.

Well, Argentina is a very important market to us because they have adapted in production of paper there. However, the macroeconomic conditions of Argentina actually made things a lot harder to export there. And the prices in Argentina, given the partnership that we have, given the loyalty and guarantee of supply over time, because they are old customers that we had, so they end up having better prices than selling them on spot to Asia for example. But since we are currently not exporting to Argentina at the same levels that we have in the past, we are selling in other markets at lower prices. Other points that also affect the prices is the dollar, of course. And another point is the market -- internal market, the national market.