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

Good morning, everyone, once again. Welcome to our webinar for the fourth quarter of '23 and for the full year of '23. Here along -- I'm Sérgio Ribas, the CEO at Irani. And alongside, I have Odivan Cargnin, he's our CFO and Investor Relations. Fabiano Oliveira is our Personnel Strategy Management Director; Henrique Zugman, our Paper and Forestry Business Director; and Lindomar, which is our Package Director. Now over -- we are going to share some information on this webinar. We have this public earnings call, so all participants have their mics and videos off. We'll begin with the presentation of the results in the first quarter -- the fourth quarter of the year. And then we'll have time for questions. Questions can be set on chat Q&A or we can open up your mic as well. The meeting also has simultaneous transition to English. And we will also have sign language. The webinar will be recorded and made available in both languages on the company's Investor Relations website. I'll quickly cover the presentation and then soon after, we will be sharing Q&A. Just a moment, having some technical issues here with the presentation. Odivan, could you please share the presentation on your side.

Yes. Just 1 second.

Just a moment. All right, everyone can do the presentation. All right. Sorry for the delay. Okay, so as we get into our earnings for the fourth quarter and for the full year of '23. In the full year, we had -- we reached 1,594,245,000. And our net operational revenue, that's minus 5.5% compared to '22. The adjusted EBITDA of BRL 490 million, which was minus 8.8% compared to '22, a net income of BRL 383,434,000. This number is 1.4% higher than '22. And the investments in the GAIA platform to the 31st of December reached a total of BRL 942,693,000. In 2022, we had a ROIC of 16.6% and a cost of our debt is 14.2% year-over-year and net debt-to-EBITDA ratio is 2.07x. So in '23, we had a year that was good. However, we had an overall market scenario that was more challenging. And we did have drops in our prices in all of our business units throughout the year, which is why we had this revenue that was a little smaller, even though we did have a little more volume in the corrugated cardboard. There was a bit more challenging to our market perspective, but we did have excellent final results. Then in the fourth quarter, we ended with BRL 385 million in net revenue, 5.7% lower than the fourth quarter. The adjusted EBITDA is BRL 111,877,000, minus 6.2% compared to the fourth quarter of '22, a net income of BRL 7,095,000, 91.7% less than in the fourth quarter '22. We're going to get into details about this and then investments that we've achieved in the fourth quarter were BRL 32,011,000. So our revenue had a drop of 5.7% compared to the fourth quarter of '22 and 5.6% in regards to the third quarter. And we -- at the third quarter, we see some seasonality, which makes us have a lower revenue in the fourth quarter and also because of the reduction in prices that took place throughout the year, especially in the corrugated cardboard due to the drop in scraps. And the EBITDA reached BRL 111,877,000, 6.2% lower than the fourth quarter of '22 and 16.1% lower than the third quarter, as I've mentioned, due to the seasonality. Then the net income was 91.7% lower than what we had in the fourth quarter of last year -- of '22, sorry, and 89% lower than what we achieved in third quarter and we reached BRL 7,097 million. When we take a look at the net income at the same pace, excluding the nonrecurring effects and the biological assets in the fourth quarter of last year we had BRL 52 million, in the third quarter at BRL 49 million and in the fourth quarter of BRL 45 million. However, in this quarter, we had some adjustments, especially with the 2 main effects were the impairments of BRL [indiscernible] and also the biological assets, we had a change in the discount rate, and that was reflected in the full year including the biological assets that had already been considered positive. And that's why we had a suggestion of BRL 19,810,000 in the fourth quarter. [ Odivan ] do you what add-on with anything about the net income.

I think you explained that pretty well. But especially when it comes to the biological assets, we had some adjustments. So just to explain this, throughout 2023, we had some quarterly assessments. And then in December, we always have an update that's prepared by an external specialized company and a third party, and then we had a change in the interest rate. It was 0.5% greater than what we considered in an initial analysis. So that's why we had to return to give back part of the positive variations we had throughout the year. So if you take a look at this, in the year, we had a variation of the biological assets that was mainly due to the increase in the interest rates so that captured some international movement and also the local activities and also some tests that the company works on together with some timber funds to understand what's the expectation for the exchange rate. And that's why we also ended up capturing a high expectation from the -- than what the funds are searching for. So that's why we had this adjustment, especially in the fourth quarter where we had this reversal.

Very good. So now when it comes to the corrugated cardboard business, the market had a significant evolution of 3.9% compared to the first quarter of last year and a drop of 3.2% due to seasonality, and in square meters, 4.6% and a drop of 2.7%. In our case, we had an evolution in tons of 12.1% and an increase of 1.7% in regards to the third quarter. In square meters, we had an evolution of 10.7% and 1.1% square meters. So this evolution is mainly -- is a bit smaller than in tons due to the fact that the increase in sales took place more in the Santa Catarina unit, and there are some boxes there that are a little heavier with [indiscernible] animal protein and that affects the price per square meter. So there was an increase in the weight that was greater than in the shipment in square meters. And the average prices had a drop throughout the year of 10.1% and 4% compared to the third quarter. And in square meters, it was 9%, 3.5%. And these drops in prices are mainly due to a strong drop in the scrap's prices throughout last year. And this, of course, influences the corrugated cardboard prices in some way. And that's why we had this drop of 10.1% over the year. So when we got into the paper business, which are the papers for sustainable packaging, bags and bread bags, paper for exports, et cetera. All of the types of paper that we sell directly to the market, there was a bit of a drop compared to last year of 5.1% and 11.8% compared to the third quarter. But here, you can see the top part of the column, which is related to the paper for flexible packages. And these flexible packages have a drop of only about 1,000 tonnes compared to last year and 11.8% compared to the third quarter due to the fact that we -- because of the seasonality in the third quarter. Then here at the bottom, you can see the paper for stiff packaging for corrugated cardboard, which is something we saw a little less in the fourth quarter due to the fact that we have a very stronger transfer of papers to our package business. So then you have a drop in 500 tonnes compared to last year. And in comparison with the third quarter because of seasonality, there is this difference of 500 tonnes plus. So the average price of packages also dropped 4.8% and 1% compared to the third quarter. The prices for paper are influenced by some variables and the mix, for example, between the internal and experts market. Dollar also has some influences -- the negative influences and also the paper mix. Since it was a more challenging year, we ended up having a bit more challenges for sales. In exports, we had the influence of the dollar, as I mentioned. And -- we also exported to countries that are more distant and have lower prices due to the situation in Argentina which is still not stabilized and that influenced all of the prices. So all of these different variables impacted us. But the nominal prices do not have this kind of change. We actually had an increase in some prices in the internal market. But with the effect of the country mix and paper mix and due to the dollar, we had this drop of 5.8% -- 4.8%, sorry. The prices of paper for corrugated cardboard also dropped a lot more due to the drop in the scrap and 3.3% compared to the third quarter. So here, you can see the strong correlation with the scrap's prices which are the main inputs for paper production for corrugated cardboard. And so in the market, there was a drop of 26.9%. If you're not familiar with this yet, this is the main input we use for recycled paper, which is basically paper for corrugated cardboard, which is the biggest part of our business. So there is a drop of 26.9% and 0.9% compared to the third quarter of '23. And in our case, the drop was a little more significant, 30.7% compared to the fourth quarter of '22 and 2.3% compared to the third quarter. And then that, of course, influences prices. And the Rosin business, we had a very difficult market this year for turpentine and rosin and the demand for this kind of product for exports dropped a lot. So now we're starting to see a light at the end of the tunnel with prices starting to react positively, but last year was really difficult for us with the sales in the rosin business, which represents about 8% of our total billings and revenue. So there was a drop of 28.5% in volume of turpentine and rosin, 1,629 tonnes in the fourth quarter. This is a drop of 28.5% and 4.1% compared to the third quarter. The price of the rosin dropped 42%, then you have the influences of the dollar prices that dropped a lot and 12.8% compared to the third quarter. And the prices of turpentine dropped 40.6%, and there's a drop of 1% compared to the third quarter. And here, when we look at the full year, we see this drop in the revenue of 5.5%. EBITDA dropped 8.8% and a margin of 30.8%, with a drop of 1%, considering a pretty good level, if we consider our business, the net income was 1.4% above. And in the same base, it dropped 26.8%, but we saw some nonrecurring effect. So the recurring effect is the biological asset where there is an appreciation of the a BRL 50 million planned despite the correction and the adjustment in the quarter year, we had an appreciation of BRL 50 million. And the credits were those PIS and COFINS taxes, we were able to win the loss it over. And the impairments that were influencing the results in our fourth quarter of BRL 18 million. So anyways, on the same base of BRL 268 million to BRL 107 million. Then here, when we look at corrugated cardboard, we had in the year, an increase of 0.7% in the shipments. We grew 3.2%. And in square meters, we grew 0.8% in -- and the average prices dropped 4.8% compared to the average price in '22 and in square meters there was a drop of 2.3% compared to '22 at Irani. Then in the paper business, we had a drop of 3.8% in the sales volumes from 98,000 tonnes to 95,000 tonnes in the paper for flexible packaging and for corrugated cardboard from 26 to 25. And the average prices went up 5.2% compared to '22. And as you saw, there was a small drop in -- from the third and the fourth quarter. But in the full year, there was an evolution in the average price of 5.2%. And for stiff packages, which is corrugated cardboard, we had a drop of 11.8% influenced by the drop in the prices of the scrap as we've seen in the previous graphs. In the Rosin business, we have an evolution with a drop in the volumes of minus 20.3% due to a weaker demand for this product mix. First, the average price also dropped in the dollars but also influenced by the dollar by 37.2% and the average price of the turpentine had a drop of 38.5% per tonne at a BRL 11,256 in 2023. And about our leverage, we closed at 2.07x in line with our forecasts and expectations, we kind of completed the investments already in the Gaia platform and our target for leverage is at most 2.5x. You could reach up to 3.5x in investment periods. But in this cycle, we were very conservative and we wanted to keep up our leverage way below the 2.5x. So we ended up at 207, we have a gross debt of BRL 1,618,600,000 in our cash position and BRL 1,017,000 in Brazilian currency with an extended profile of 3% in the short-term debt. And the average cost of debt was 14.2% year-over-year. The ROIC due to the investments and the returns that we still haven't been able to capture through the Gaia platform, we still see a difference with a drop, but there's a difference of 7.2% in regards to the average cost of the debt. After the income tax and social contributions have been a drop of 2.3% and 6.4 percentage points in regards to the fourth quarter of '22. So we ended this quarter with a buyback program, which began in -- on the 18th of August of '22. We had 6,529,000 stocks bought back, and they were all canceled to benefit the current shareholders. And we're also considering a new program to be launched in the next few months. As a policy, we intend to have buyback programs whenever we consider that the stock prices don't represent the intrinsic value of the company. So we're assessing how we could maybe relaunch this buyback program in 2024. And the dividends paid in this year was the fourth quarter had dividends of BRL 16,023,000 and a total 0.06681 and in the year, we are ending with a total dividend of BRL 205 million and a dividend yield of 10.60% feels very good, and we ended up with 0.35 throughout -- BRL 0.85, sorry per stock throughout the year. So we paid 25% of the proceeds and the earnings and 25% after completing that percentage of payout after the year. And we should be finishing this difference of 50% should be paid in the month of May. And here, you can tune overview of the investments in the Gaia platform. So we basically completed all of the investments expected and planned for. We're waiting for licenses for 2 PCHs that are still waiting on some environmental licenses. And we should have some updates on these projects throughout this year so that we may begin this set of investments that are very important for our energy matrix. The 3 main projects have been completed, [ completing ] their performance curve. Gaia 1 is the project that's most valuable where we began the returns from now on. And we have a bigger production of pulp. And once the market is a little better, we'll start recovering some of the returns as well and also in energy, which is the second important segment for returns that we should start obtaining the returns of these investments from the month of March this year. So we had a problem with the turbines but the new turbine for generation, and we should start capturing this from March onwards with energy as well. So Gaia 2, which is in biologics of Catarina and we're progressing very well with that, the performance curve as well with the corrugator. And when it comes to capacity, it's going to be occupied in Machine 2, is also performing very well, where it's almost a new machine. So the other projects are a little smaller, but they're also in completion phases. So with that Gaia 1, 2 and 3 it's already -- they've already been completed, 4 and 5 are in the processes. We still have them begun and the management have information regarding processes involving the 4.0 industry and equipment as well as digital optimization of the company as a whole, which we're completing now and then the amplification of the ETs, the automation of the intermediate stock and we're already in the performance phase. And then the new printer for the Santa Catarina unit -- sorry, in the [indiscernible] unit has already been acquired with the manufacturing phase, and we should be receiving the machine in the beginning of next year. So here, you have the actual physical execution and deployment. We are receiving a few awards. Actually, last year, we received many important awards or some of the best companies when it comes to FNQ management. We conquered the acknowledgment as a company that works with diversity issues, the best company and sector. We also received the Innovative Workplace Award from MIT. We were the Top Ser Humano for the seventh time. We concurred second place is in the best and biggest by [indiscernible] and the third position, also the paper and pulp category. And for the third consecutive year, we were able to achieve the transparency trophy in this category for revenue up to BRL 5 billion and second place in the paper and pulp category for the biggest and best award for ESG, the biggest and best. So in the great place to work, we were acknowledged as the 29th best company to work at in Brazil. So this is a very unfortunate award for us. So when we look at our vision of the future, and we hope to be among the 150 best in Brazil. We're in second place in Santa Catarina and fourth place [indiscernible], 12th place in Sao Paulo, 8th position in the rankings for industries and the 11th position for diversity in category for people -- for the amount of employees above 50 years age. So this kind of recognition was very important regarding our organizational climate that really influences the results and performance of the company. Then here, you can see our team for Investor Relations, Odivan, leading this with André, Mariciane Ítalo, and Daniela that work directly with our investors and are always available to support the market. And our financial team of Marcos and Emanuel. The accounting area of Evandro and for new business, Giovanna. So that's pretty much that we had to present today. And now we'll enter with the beginning of our Q&A session. And will be available to help with any questions that are [indiscernible].

Okay. So we have Caio with a question here.

So 2 questions for you guys. When we look at the results in the fourth quarter, I think we saw some positive factors, but others are a little more concerning. And I wanted to try to approach this, right, to understand a bit more about the price perspectives for 2024 because the year of 2023 was really interesting when it comes to the volumes and you guys were able to win over a lot of market share, but they kind of give the price on the table as a way to also do this and help with the volume gains, but I wanted to hear from you guys a little more about which perspective you guys have for 2024. And if you guys are expecting to increase prices in line with the inflation, if the data you guys have seen in the 2 past challenging years. Do you think 2024, the numbers could be above inflation or if you're going to be following like a level that's a little more cautious to and prioritize volumes more so once again, price might be a little bit lower? So that's the first point. But the second question is about costs for 2024. I think that this was the coolest point, right, looking at how costs were dropping and in such a relevant way, which is almost 10% year-over-year with some impacts that are very positive of the Gaia platform. So for 2024, how much more of these benefits do you think we'll still be capturing? And how can we consider the cost evolution as a whole? I know that there are many factors and variables in this question, but if you guys could explore these a little more that would be really interesting. So I'm trying to understand a bit more about how you guys have been looking at this and the margin potential on evolutions. Just so you can help us with our modeling?

Okay. Great, excellent questions. Let's separate the business segment. So corrugated cardboard, which is our main business, and it represents 60% of our revenue is following a dynamic that's a lot better than what we imagine when it comes to market volumes in the month of December, had an evolution of 4.1% compared to December 2022, and the month of January, which was very strong was 5.26% above that. So we've noticed this dynamic, which is considered an important indicator for our economic activities. And that's moving along very well. And all of this will make it possible to perform some price adjustments. So we're planning to begin the price adjustments for corrugated cardboard from the second quarter onwards. And so we should see the repositioning of this according to the inflation -- considering that we have the scrap's prices way lower than what we had in 2022. And so the repositioning of the inflation, which will be our main target in this second quarter, which should already begin with the reestablishment of the inflation. But then when we look at the paper market, that we saw directly. We have excellent expectations for papers that are on -- which are the papers on Machine 4. And for these papers, we should have an increase in the prices already in the month of April. So the volume would be smaller, but it's a paper that has excellent profitability, and we'll be able to reestablish prices in the next quarter revenue. For the papers on Machine 1, which are for heavier bags, this market is a little more challenging because of experts. Most of these -- this market is an export market, especially for paper for cement. And at this moment, the Cement segment is not doing that well. But as economic activities get back they'll start reacting normally. And then you have less sales and less competition in the niches we operate in. So the companies that make cement stacks at a moment where the cement market is a little weaker, they end up selling a little more in other market niches, and we normally don't mess with the prices. So we end up losing a bit of volume. But with an improvement in the market, then the situation should be normalized throughout the next quarter. This is a market that's a little more challenging to transfer prices, especially in the short term because of the dynamics in the internal market with the leftover paper and also the experts in a weaker dynamic. But the good news is that the Kraftliner market worldwide had a pretty good reaction. The export of Kraftliners in December and January got better. And with less paper in the internal market, the trend is that this market will also get better. So the Rosin business already has a price reaction. So there are significant losses in the last 2 years. And so in 2022 the year spectacular, there was a drop in earnings generation, this is a smaller business of 8% of our revenue. But we've seen a small reaction, although it is an indication that the market is starting this recovery process throughout the year. So our expectation, and I don't know if I was clear, but in corrugated cardboard, we should be able to increase prices according to the inflation in the market papers that are thinner. We're going to be the one transferring the prices. And the challenge has been with the other papers. And in turpentine and rosin, there's an increase in prices in dollars already taken place. So our expectations is to be positive for the year, especially if we consider this dynamic in the corrugated cardboard market. We see economic activities a little more intense, and this is super favorable for our business. So then the second point was about cost and the returns from the Gaia platform, Yes, we're already working with the 3 main projects, and they've been compete. So these are the projects where we're going to have a bigger return in the Gaia platform. Gaia 1 has 2 main segments. Besides they're smaller segments, but one of them is energy, and we're going to be capturing this return from the month of April onwards with the return of this engine because this is an engine that gives us some problems in the performance curve and it's being substituted. And so then we'll start the energy generation for this new turbine from mid-March, beginning of April. And then the other segment is the mix of paper. And then here, we depend on the market a bit. As the market gets better, we can also improve the mix in the paper sales. So we have a higher production of pulp, and we still have enough in the market so that we don't have any kind of implants in the prices of our paper. So that's why we're being very careful with this event. And this is going to happen throughout the next month. So this is a very important segment. As the market gets better, the mix of countries and the mix in the internal market gets better. And then with this, we have an important return in the revenue applied. So when it comes to costs, I think that's pretty much it. We have not felt much pressure on an increase of prices at this moment. Things are pretty stable actually. We've been negotiating many different contracts. And the main objective is to adjust costs. So not sure if any directors have anything else I'd like to add on to.

No, Sérgio. That's very clear. Nothing else to say at this moment.

Caio, did I answer that?

No, that was very clear, Sérgio. Your statements are all very interesting. And maybe if you'd allow me to memorize this. I think that from the price perspective, we are expecting something that's going to be in line with the inflation and some of the main points, but generally in line with the inflation and your expectation for 2024 is that if Brazil captures some benefits from Gaia that will lead to some positive impacts on costs. And in the other lines, you haven't sent -- felt an increase -- a pressure for increase. So we can imagine that your costs in 2024 are going up below the inflation due to these variables you mentioned. So when we cross over the information, we should expect a margin gain for the year 2024. Does that make sense?

Yes, it does make sense. I'm not sure if we're going to be able to keep costs below inflation, but that we're struggling for days to renegotiate contracts but there's not that much pressure for cost reduction or increase the costs at this point in time. Yes, because it's actually the returns on the Gaia platform projects, which is what we're expecting. So we have a lot of other questions to still. Stefan from Citibank also sent us a question. He asked for more details on how we're seeing the demand for corrugated cardboard in 2024 after a fourth quarter that was very strong in volumes and for flexible paper where you had a fourth quarter, that was more challenging. Then he has another question, which is the cost line had bar of the drop of the scraps. And now in 2024, we're going to start seeing some of the benefits in the Gaia platform. How can we imagine the evolution of the cost considering that prices are going to be pretty stable. Yes, I think that both of the questions that we answered were pretty much the same as what Caio mentioned, and I think the good news is the corrugated cardboard market that's been strong and continued strong in the month of February. So I think we know to say dynamic that's very -- it's a lot higher than initial projections by BPO that was prepared by the -- from the [indiscernible] bag as I was expecting really timid growth for this year. But now the dynamics are a lot more favorable than what we imagined. And of course, accompanying this cycle that we've noticed as well. So we should see a savings -- the domestic savings that's a little more intense than what we imagine this year. And also in line with what [ Angelo ] mentioned, the drop in prices in corrugated cardboard should be remaining in 2024. How do you expect the profitability of this business for this year? Well, it's kind of like what I mentioned. Actually, we could even have that drops in prices in the first quarter due to the bidding and some negotiations as well as an increase in capacity in Santa Catarina, which will be priced a little lower. But the volumes that are big because that, of course, is -- and so there's a lot of productivity in the [ plants ] as well. But of course, there's productivity it's a little better than the medium and small ones. So the big accounts kind of influence the average price. But we shouldn't see a drop in prices. It could be that in the mix there's some kind of a drop in the first quarter, but the expectation of [indiscernible] that will reestablish the inflation from the second semester onwards. So Angelo asked about the scrap's market. Do you imagine a continuity in this level of prices, considering this stability. So do you still consider this to be like a structural movement in the scraps market? Well, I think we're in a structural change due to a bigger offering fiber papers in the market with many recycled paper machines that are substituted by virgin fiber machines, and that, of course, leads to a bigger offering and supply, but we don't see scrap prices pressured that much drop this year. Although there are moments for special holidays and you have some kind of an interruption here and there in the delivery of these scraps, but the market is really trying to -- we don't see the market trying any big price shift. And we shouldn't see pressure in an increase in price at least not in the short term in our vision. We could have some attempt to transfer these prices with some countries -- some companies that are smaller and maybe are a little bit more desperate and could end up granting some kind of an increase. But in our case, we're keeping this, and we don't see strong pressure taking place because there is left over scraps in the system from a structural perspective. So Pedro is also asking about if we think in the long-term 2025 onwards, will be the level of CapEx annually you guys expecting? And for 2024, is there any kind of CapEx guidance you could give us?

Well, our CapEx -- maintenance CapEx as well, we disclosed about 100 -- we're not share what we disclosed to the market. But we don't actually provide this kind of guidance, but you can consider an average of the last 3 years. Yes. So it seems like what took place last year, about BRL 100 million in the maintenance CapEx. And the new investments that we're still granting considering the new cycle of investments so that throughout the year -- at the end of the year, we can disclose this new cycle since we have this deleveraging process already beginning in the next quarters. And that would, of course, give us room for a new investment cycle in the next 3 years. So we're granting -- we're conceiving these different projects in the engineering phases to be able to disclose our next organic investment cycle.

So [indiscernible]. Well, he's asking if we could give more details about why the biological assets dropped and what were the prices and demands like how well is the discount rate? Would you want to answer this one?

Yes, sure. Okay. So as I mentioned, Jinan when Sérgio was sharing the slides throughout the quarters, we've already always recognized the variation of the biological assets using the assumptions which is always at the end of the year. So in 2023, the company updated the market conditions and incorporated this increase of 7.5% to 8%, which is 0.5% of the main assets. And so then, of course, we had an increase in the rates of the price of wood in the market. And although we don't sell work, the calculation is done based on the price of the market in the region. So it's a technique to calculate the valuation of the biological assets according to the accounting practices that are big bone in Brazil and all over the world. So that's where this increment in the interest rates took place in the last quarter, as we had been considering this in the last quarter. We reversed this and then the value of the biological assets in 2023 increased but they increased more in the first, second and third quarter and the fourth quarter, we had to make an adjustment to close this value and incorporate the annual results of this third-party company. So that's why it dropped. It went up during the year. But in the fourth quarter, it dropped to be able to incorporate this new process that reflects the conditions of the market, but also requirements for some of the timber funds, which is the technique with the return rates of -- managers for us, then this rate went up a bit because of the work done by the company. So the biological asset -- is a variation of how much the asset [indiscernible] reflects the value of the market. It's not the discount rate from Irani, but what the market incorporates and the returns I think market expects to be able to have a transaction with the kind of investment. So that's why there was this modification and it was incorporated in the fourth quarter.

Very well. I think that's pretty much it. Now we have [ Guilerme ] with 3 points here on his questions. First, what's the environment for the price demand in corrugated cardboard? And could you also talk about the competitive environment for this market? So we -- and then I cover one by one. The year of 2023 was separated by the development of the Gaia platform with an improvement of operational performance. Can you give us more information on how to expect the returns for 2024? Could you also talk about how the cost reduction is expected for this year? And the last point is, if you could also talk about the problems faced with the floods in Santa Catarina and [indiscernible] this continues to affect the segment for paper, rosin in the first quarter of 2024? So we talked about the market issues already with corrugated cardboard. And the competitive environment is always very strong. So one phenomenon that took place in the sector is the increase of new capacities due to excellent performance that the market has in the sector and companies have invested in increases of capacity, which, in some way, provides us with some challenges -- additional challenges. So as the market grows, we probably won't have any more difficulties with sales or transferring this amount, at least for the inflation in the next quarter. And the other point well, about the Gaia platform, the reduction of costs. And yes, so as I mentioned, the main return with this mix of papers. And then we, of course, rely on the improvement of the internal markets, especially when it comes to the cement segment that impact us directly because the companies that produce papers for cement bags when the market is not doing well, they said -- they solve for other purposes and also in exports. So for these kind of papers, we depend on this dynamic a bit. But for the corrugated cardboard, this is a pretty positive dynamic. And then the second segment is the return of the energy, which is something we're going to start capturing from the mid-March or April. And so that should lead to an impact in the cost due to the higher production of energy. And the last one is about the impacts of the floods. Yes, I can leave that to Henrique.

Great. So the impact of the floods actually, they are already starting to be reduced. We're starting to notice a period of drought, and there's still some waste that will be shipped from December and January. But our expectation is that from the second quarter onwards, this impact will already be a lot smaller for the exporters in [indiscernible] Santa Catarina.

Well, what Henrique is mentioning is about the impact in the ports, right?

Yes. In the operations, we didn't have an impact. What we're mentioning here is just in the exports where the port is full of loads and they can't ship that and that happens from 1 month to another. This happened with many exporters and then you have some kind of traffic at the port and then it takes like 90 days to normalize. So it's a really abnormal situation.

Well, now we have 1 more question from [ Xing ] and [ Fouju ] which is the same -- he is asking about the nonrecurring impairments? And if you could give us some more details on what happened? I think [indiscernible] could you give us a quick explanation about what are going to be these impairments? Yes, do you want me to cover this? Sure. So the impairment is basically where we had the properties and our balance sheet [indiscernible]. And we have some assets there, the rosin factories there. But the urban properties in the coast of [indiscernible] the last year, they were in the balance sheet ever since 2014 in this operation, and they stopped in [indiscernible]. And we tried to monetize these properties, selling them in the market to have some kind of -- I'm sure this is not our core activity, but due to many environment restrictions, we can see that this property doesn't have an economic value. And so we noticed we would be able to operate with these -- we noticed this. We decided to -- if there is no possibility for possible cash generation and that assets should be eliminated. And then we cleaned out our balance sheet with assets that could actually lead to cash generation in the future. This was approved in the Board. And so -- and this was recognized in the fourth quarter. And we always have to be precise and careful. We don't carry over anything on our balance sheet that will make sense. So as soon as we discovered that, we had no way to sell this than we had this. We deduct this from our balance sheet and we've registered this. This is what we call the impairment. So we have nothing beyond this with other assets in this kind of situation. And at this moment, we have nothing else like this that could suffer with this kind of impairment in the future at least as far as we know. I don't know if anyone else wants to add something to this.

No, I think that's fine.

Great. So Frederico is also sending a question.

So I have 2 questions here that are more related to the returns. First, about the ROIC. I think that in 2022, we had a ROIC that was really high in my perception. I think that it was a ROIC that is on the top of the cycle, but at the same time, now in 2023, we had a big drop. And I think you guys has already explained this due to Gaia. So I wanted to understand from now on, in the mid to long term, what would be considered a sustainable ROIC for the company? And the other point that I also have is about the buyback program. I want to understand your rationale to perform the buybacks besides just the stock price.

All right. Do you want to take that one?

Sure. Well, the buyback is a financial issue. We're here to -- our main activity here is to -- one of the ways to generate capital allocation in more efficient ways are, of course, to buy back its own stock, as Sérgio mentioned, we look at the stock price, now does not reflect the value -- the interesting value of the company. So as long as we can use cash and the returns, and we can see that the returns on the stock we can -- is higher than we can execute the buyback program. Sometimes we leave this open, but the fact that we leave it open allows us to operate quickly in the market. So at this moment, we don't have any program, but we're thinking about maybe proposing a new program soon. So that's a way to improve capital management. And another point about the ROIC, we have a target for ROIC, and we always search for this. We, of course, can't disclose guidance, but we understand that our ROIC, it's navigate to the levels that it had been in the last quarters. But of course, in investment periods, it will drop a bit due to the mathematical processes. But sometimes this doesn't appear in the return to this capital. So as the tier becomes a reality, then you start correcting this number over time. And so we hope to keep them at levels that we expect in the last [ couple ] quarters.

Well, we have something else here, someone's anonymous here. I have a question on the investment thesis. I think the investment thesis is very clear. We can see the trends maturing over time. But however, what we've seen in the external scenario of new business possibility, new thesis and efficient, what do we see in the external scenario, new possibility, new thesis and which of these strategic options are being looked at closer by Irani and what can be the updates on the Irani investment thesis? Well, I think the investment thesis is very clear where we want to take advantage of some of the structural changes in the paper market due to sustainability issues and papers consider the raw materials that's most noble today or most sustainable and also e-commerce growing at double digits. We had a strong growth in the pandemic and shift in behaviors from consumers, but then it dropped a bit at its pace. But last year, we already had growth once again at double digits for e-commerce. So this is a trend that's extremely important in these 2 trends. And with this, what we can -- what we've been focusing on is, of course, in the growth of our paper production, as I mentioned, in Machine 1, which is mainly coming from this potential growth in the use of fiber papers and that's the way it's going to happen over the years. But even in the corrugated cardboard and the use of papers in the Machine 5 for other purposes. So we already have some volumes for Machine 5 being sold for some other applications and some niches, which also will be occupied by paper packaging that are plastic are substituted by paper packaging and the challenges really the main barrier. So we can keep sustainable products. So that's really -- we want to make sure that the barriers used in paper are not barriers that are oil or petroleum-based, but vegetable based or biologically based. So we want to develop barriers in the market so that we can substitute plastics. So our thesis is still the same. Of course, this is a trend, a very strong trend for the use of paper. The Machine 1 is expanding the sale of papers in the market. And in the next cycles, we also have the thesis is kind of supporting our investments that are going to be disclosed in greater detail by the end of this year after the engineering and the definition of the projects and the returns are more clear. So I hope I answered that. Okay. Perfect. So then we have one more from Matias. So now that most of the investments of the Gaia platform have been paid off. And if yes, how advanced are these studies? Would they be more focused on increasing capacity or efficiency and cost reduction? Well, as I mentioned, we are conceiving this new cycle, we have the Gaia platform that has one kind of concept, which our investments performed in the current Irani platforms for competitive gains. The next cycle was really focused on an increase of capacity, which is what we're working on now. We are at the engineering phase, and we should be prepared to announce this new cycle to the market more towards the end of this year.

Then [indiscernible] also asked me, if you could talk about the follow-on that he heard Sérgio talking about in an interview a few days ago.

The follow-on I mentioned in an interview was the re-IPO we had in 2022, where since Irani was a publicly held company, although it was an IPO, in practical terms it was a follow-on so with a shift in governance and a migration to North America, the model. So there were some important changes in governance, but it was a follow-on that we performed. And then, of course, in the next investment cycle, one of the alternatives for funding for projects besides debt that the debt market would be also the equity market. So we're always evaluating which are going to be the main capital structures for the next investment cycles, and we are not discarding the possibility of a follow-on. But we still don't have anything defined.

And so another point here is Fabio Pestana was talking about in regards to dividends in 2024, do you guys have any policy established the payout and at buyback. Do you have a budget for this? Actually, in our apology is very clear, and we have a payout of 50% of the net income as long as the leverage is below 2.5x. If it's above 2.5x, then we pay for the minimum dividend of 25% up below 2.5x, which is the current situation we're paring 50% payout, 25% paid throughout the quarters and 25% additionally at the closing of the year. We keep this policy for this year. So in the IR website, you'll find our policy for dividend distribution, then you'll see the clear information on the payout. We are -- try to have of payout of 50% and reinvest of 50% keeping -- of course, what if the average is under control. So what's the expectation of the impact on the drop of the [indiscernible] and the cost of the debt? We expect -- we expect significant reductions in the debt costs this year?

Well, it really will depend on the pace of the interest rates, which most of our debts are indexed according to CDI plus interest rate. And of course, with the drop of [indiscernible], this will positively impact the cost of the debt.

There was another question on the buyback program, I think, about the budget. So I guess the buyback program would have been approved now, right. Yes, then we would establish a budget, yes. Well, another important question, that was a bit of a confusion. [indiscernible] was asking about a question about the fixed asset in Santa Catarina was repriced in case it's obtained by the [indiscernible] Group.

Well, actually, this incentive is not in the case of someone in the case of Santa Catarina, it's in the [indiscernible] coast and it's an asset that was urban initially, and then it came through the incorporation of a company at that time. I'm not -- if I'm not mistaken, it was in a policy in 2013, and it went through a company in the group, and there's properties that ended up driving Irani's balance sheet. But that's [indiscernible]. Yes. So as Odivan mentioned, these are some assets that are not strategic, not related to our core business. And we try to monetize these assets in the previous quarters. But we noticed that there was not liquidity, and that's why we decided to lower these assets. And part of this was sold and part of it was eliminated completely. So we have 2 more questions. One due to the schedule, we have to wrap up soon. But those asking about other expenses and net operational expenses. There were minus BRL 30 million. So please send us an e-mail to Irani, ir.irani. And then the team can answer you this and disclose this. If it's not in our explanatory note, they'll send you an e-mail. So please send this question by e-mail, okay? Thank you so much. And we have another question that's anonymous about how Irani has an intention to be self-sufficient in renewable energy? We've already observed some companies that are in more advanced stages with renewable energy, exploring 3 initiatives: wind power, biomass and fuel and generating wind revenue with these divisions. So this a path that Irani is considering. And what's the buildup for this achievement, which other projects you have in your pipeline? Actually, this is strategic target. We want to have 100% self-production of energy. We advanced a lot with the recovery of boiler and also the rig potentialization of the hydropower plants. And all of our energy matrix is renewable at the moment, either based on biomass or hydro power plant. And with these 2 initiatives, the rig potentialization we have 3 other small hydropower plants, we should be self-sufficient in energy generation with some possible leftovers in the rain periods and then we can maybe sell to the system. But that's not our objective to consider this energy as a business. We could even occasionally sell energy what is left over, but that's not our main objective or target and be focused on having an energy business in Irani's portfolio, but we do want to reach 100% self-sufficiency in our needs.

That's it. Last question here. And any other points that were not covered, you can sent by e-mail, we will answer later on. But [indiscernible] is asking about the future projects that will increase in this capacity, but how to keep up margins with a greater supply of products in the market?

Well, each business has a specific margin. Corrugated cardboard has smaller margins, [indiscernible] higher margins. So the margin really depends -- the final margin of the company depends on the mix -- the business mix, right? But our expectation is to expand margins with operations that are more skillful when it comes to equipment, cutting-edge equipment, scalability, et cetera. So the investments that will come really intend to consider the capacity, place with a greater efficiency in cost than what we currently have. This is always the guideline for the new investments. That's why this is to be very detailed. So is there any other questions? So we want to thank you all. And we want to mention that our expectation for the year was very positive. And this brings us a completely different dynamic than what we were experiencing in the fourth quarter, which is super challenging for everyone and all of the companies in the sector. So I wish you all a wonderful year of 2024. And that's it. Thanks. [Statements in English on this transcript were spoken by an interpreter present on the live call.]