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

Good afternoon. We're now beginning our earnings call for the second quarter of '24. This is a public call. All participants have their video and mic off during the presentation. And any questions can take place through the Q&A chats or we can also open up your mic by the end of the presentation. The meeting is also being translated simultaneously into English. You can select the interpretation option. And we also have sign language. The webinar will be recorded in English and Portuguese on the Investor website. So as we get into our results for the second quarter, we ended the quarter with an operational net revenue of BRL 393 million, practically in line with what we had achieved in the second quarter last year. The adjusted EBITDA of BRL 118 million, 0.8% compared to the second quarter of '23. And the net income of BRL 40.066 million, 82.5% in relation to the second quarter of '23, which is mainly due to the recognition in the second quarter of '23 of the PIS and COFINS credits on the acquisition of scraps that we had won the lawsuit for. And so this impacted our profit positively by BRL 161 million. The ROIC in the last 12 months was 12.9% and the cost of debt in the last 12 months after such contribution and social pension income. And it was at [ 2.9 ] net income -- net adjusted income. So as we get into the evolution of our revenue, we had a slight drop compared to the second quarter of '23 and we had a peak in regards to the first quarter of '24 with a share of 15% from exports in this quarter, ending BRL 393.459 million. And the adjusted EBITDA and margin, we ended the quarter with BRL 118 million EBITDA and our EBITDA margin of 30%, in line with the previous quarters. And then the EBITDA was slightly above the second quarter and the first quarter of '24. So when we take a look at the net income to have a direct comparison with the results in the second quarter last year, there was a slight drop in regards to the net profit of the operation that recurring effects of 40.8%, which is due to the interest rate, especially and our debt situation due to the Gaia platform and the investments that are occurring that we still have not captured entirely with the returns on invested capital which is why we have this drop in 40.8%, which is really impacted by the increase in interest rate. And regards to the previous quarter was 10.5% less. But when we reduce -- when we remove the nonrecurring effects, we had a profit pretty much the same as what it was in the first quarter. When we look at this, we have BRL 161 million in the second quarter that were the nonrecurring effects of PIS and COFINS and BRL 4.116 million were tax execution of the ICMS in Santa Catarina which impacted our profits negatively. And profits compared to the previous year were very similar. And when we look at the comparison to the previous year, we also had the situation of the financial expenses, but also more depreciation due to the investments like Gaia platform that already began with the depreciation process and a lower variation of the biological assets, which is mainly due to the increase in the discount rates, which were 0.5% last year and another 0.5% this -- in the beginning of this year, which is why we also have this difference in the profit due to these effects. When we get into the corrugated cardboard business and we look at the overall market, this is really good news because we've had a sales volume that is higher than the same period last year, 5.4% evolution -- in evolution and 4% in regards to the first quarter. So it's a dynamic of demand that is quite favorable in the corrugated cardboard business. And in square meters, it's pretty much the same dynamic, it grew [ 15.6% ] and 3.4% in regards to the first quarter in -- when you look at the square meters. And in our case, we had a performance a little bit above 8.4% with 41,874 tons sold and 0.9% above the first quarter of 2024. And when we look at this in square meters, we ended up with 83 million meters sold and 2.3% above the first quarter. And this is above market levels, mainly due to the increase in capacity in the package factory in Santa Catarina. This growth took place throughout last year, and we were able to capture here in the quarterly comparison. The average prices of corrugated cardboard had a slight drop of 7.2%, and this is due to the fact that we had a drop in the costs of our products and with the corrugated cardboard prices also kept up with this drop, not at the same speed, but there was a significant drop compared to the second quarter. And in regards to the first quarter of '24, there was a slight increase, but this is already a pretty good sign because we've begun a cycle for corrugated cardboard and we can talk about this a bit more up ahead but prices were pretty stable. So there was not a drop anymore in the prices throughout the quarter. We began a process to recover our prices due to the elevation of the scraps. And when we look at square meters, the performance is similar. When we get into the paper for packages, we had an important increase in the volumes sold of 8.4%. So the paper for flexible packaging for bags, industrial bags had an increase of [ 22,224 ] and -- so about 1,600 tons more. And when you look at the paper for rigid or stiff packaging, which is for corrugated cardboard results 6,405 last year and this year, 7,300, it's an increase of about 900 tons. And when we look at the previous quarter, we had an increase of 4.4%. So when we look at this, we had a pretty good increase. But when it comes to prices, we had a drop of 7.5% mainly due to the rigid packaging paper due to the drop in scraps prices and now we start a process to readjust these prices. And we also had an impact of more exports, countries that are sometimes a little further, which makes the cost of freight a little more expensive. And this is mainly due to the situation with Argentina, a big buyer of paper from Brazil and the dynamic in Argentina, there is still very difficult with exports occurring at a smaller volume. So the average price for rigid packaging. Here, you can see the paper for corrugated cardboard dropped 6.1% compared to the previous year due to the drop in the scraps. So we already had an increase of 3.5% in regards to the first quarter as we already captured part of the increase in the scraps that took place in the second quarter. So here, you can see the issue with the scraps, which is very relevant for our results in the quarter. We had an increase in regards to the second quarter of '23 of 20.9%. And also in regards to the first quarter, 27.4% with an average price for scrap in the market, BRL 740 per ton. In our case, the elevation was 10.6%. This was an increase of slightly above market levels and 28.8% above what we had in the first quarter of '24. So this is a significant increase, and this has been offset by the increase in prices for packaging, which is already taking place in the second quarter. Now about the resins, we had a slight drop. The market continues to have volumes that are still quite unfavorable. So either due to the dollar or the increases. But that, of course, caused some kind of increase in prices. But obviously, the volumes have been below what we achieved last year and also below the first quarter of '24. So the prices we had a slight drop in regards to what we achieved last year, but we had a substantial increase which is due to the increase in the dollar prices and even the dollar itself going up 25.8%. So the expectation is that the prices would continue to have a slight increase, but a trend for stability and recovery of the volumes throughout the year. So we had the gross debt of BRL 1.644 billion (sic) [ 1.666 billion ] and a net debt of BRL 1.051 billion. And this was obviously in line with the scraps and the investments on the Gaia platform. We should have an increase in leverage until the end of this year. And that's when we would start deleveraging process by the beginning of next year. So foreign currency, 98% is national currency, and this is an average cost of debt of 12.4% a year, 91% of the debt in the long term, 9% only in the short term. Then the ROIC was 12.9%, 4.7 percentage points above the cost of debt. And this drop is due to the investments in the Gaia platform. And on recovery of these returns, our estimate is also that we would start a recovery in the ROIC by the beginning of next year. Then the buyback program for '24. We have begun this on the 25th of March with a term for 18 months. Our acquisition limit is 10 million. And we bought back till the 30th of June, 585 (sic) [ 585,800 ] common shares. And the buyback program is still very strong in the next quarters. Then we have highlighted the payment for dividends. In the last 12 months, we had a dividend yield of almost 8%. And a payment of BRL 0.74 per share in the last 12 months. In the second quarter, there was a payment that was pretty high due to the results in the last year, which was the payment of that installment of 50% additional payout and the closing of the exercise and also the payment related to the actual quarter before which reaches BRL 103,959 million. And the total dividend in the last 12 months with a dividend of BRL 0.70 and a yield of 18%. So we're talking about the investments in the Gaia platform. We have the main investments complete basically. And the total investment till now approved by the Board is BRL 1.152 billion. And in the second quarter, there was not much more to be done. But the investment -- the gross investment performed was BRL 966 million. When we look at the projects, the main Gaia I, Gaia II and Gaia III projects, they've been complete in the performance curve as we capture returns. And for Gaia I, the main return lines with the reduction of variable costs and energy costs as well as the increase in pulp production, this is already being captured. But one of the main return lines is a mix for papers. We estimate that we'll be having all of machine 1 with fiber papers. But due to market issues, we've had an oversupply of papers are dedicated to be used in industrial sacks and bags, and there's a super supply in the market due to the reduction of exports from the main players. So most of the volumes of our competitors goes to cement bags, which is a sector that's recovering still in Brazil and abroad, which is why you have an oversupply. And so as the cement market grows and there's a natural reduction in the paper supply and we can operate with a mix for machine 1 that's more adequate. And we can capture the dollar returns for Gaia I. Gaia II which is the refurbishing of machine 2. We've already completed the investment and the performance of the machine has actually been better than what we had estimated in this project. And this is the machine that is dedicated to papers for bags, which has been a segment that has been having very good performance. So for Gaia II, the expansion of the [indiscernible] Santa Catarina has also been completed and the additional capacity has already been occupied. We already have sound performance with the corrugator, but that's mainly within what we had expected in the capturing of these returns. And so we have an evolution curve as we look into the capacity of the corrugator to be able to reach the estimated volumes for the project. Then Gaia IV and Gaia V, the licensing process, which has been extended more than we would like it to, but it's already in the environmental agency. And we think that till the end of the year, we'll be able to acts the license to begin the repotentialization of Cristo Rei. And then we should take another 6 months maybe to the end of the year. So maybe 1 more year to have the licenses and perform the investments. And for Gaia VI, which is the system to manage information and processes, which is pretty much complete. Only one unit we haven't reached D-Day for yet, but we're working on the automation of our processes in the operations, and we're doing super well. We already have this project pretty much installed in all units. We've expanded DET as well already and the automation of the intermediate stock, which primary [indiscernible] Sao Paulo been complete. And then when you consider the performance curve, this is an important investment for the Indaiatuba packaging factory. And all of this stock took place with the systems where we also have -- with the conveyor belts, and we can also have all the connections with the printers so that it can be done automatically. And this process has a performance curve that we would like, that we're experiencing at this moment. So we should reach the estimates for the project more towards the end of this year. The new printer for the unit in Santa Catarina, we'll receive the machine in the beginning of next year. And then with the refurbishing of machine 5, we should be going through the investment phase and engineering phase and we start the project in the next months. So the only project that is still under execution, which is the management process, the management system for processes, all the rest have been completed, and that is being approved later on and also the PCH, which we just mentioned. So this quarter, we had three important awards. We were among the Best in Brazil from Humanizadas, it's a research that assesses the performance of the organization when it comes to the main stakeholders, customers, investors, suppliers and governments throughout the communities. So it's a multi stakeholders' perspective, very interesting research and there is an interesting partnership with the management school -- the Sloan school of management and then it assess the socio-environmental commitments. And we are in the A rating with an important highlight among the biggest companies. So we were also occupying the fourth position in the GPTW, Great Place To Work in the regional ranking for Minas Gerais. And for the second consecutive year, we were able to conquer the Época magazine for diversity, equity and inclusion as a highlight for the paper and pulp sector. And then our team for Investor Relations, which is always available to meet the needs of our investors and Odivan, which is leading the financial management department and André as well, and our team, which includes Mariciane, Ítalo, and Daniela. And the financial team, Marcos, Emanuel. And the accounting team, Evandro, Alex, and of course, Giovana from the new business area. So our team is available, of course, to meet the needs of our investors. Great. So now we can open up for questions. I'll remove the presentation here and feel free.

Well, good afternoon, everyone. Just a minute. We already have a few questions here, and I'm going to start off with a question from Stefan. He asked -- he sent this by e-mail. These are two questions, the paper and EPO market. So we're expecting a positive seasonality in volumes with second quarter even with such a strong first quarter. Do you see possibilities beyond prices for flexible papers and corrugated papers? And the second one is scraps from Gaia I. What do you expect for the evolution in pricing for the second semester? Could you talk about this a bit more and give us a bit more of the performance curve on Gaia I for the second quarter, and what are expectations for the rest of the year?

So the scraps had a peak that was very relevant in the quarter. We are noticing that there's a slightly smaller pace in increases. We were transferring about BRL 50 per 2 -- every 2-week period, now it dropped to BRL 30. And we expect to stabilize this in the current value throughout the next months. This is our expectation. It's going to really depend on the market dynamics, but we do feel that there's slowdown in this pace. And when it comes to the volume of corrugated cardboard, things have been doing really well in the month of August as well. So we should keep up with the same dynamic of the same period. And we should keep up a pretty strong pace, which would allow for price adjustments. It's not trivial. And I think this is important because it's important to have this favorable dynamic but we've also had the inclusion of many new capacities in the market and in some way that can maybe make the price increases even more difficult to excessive capacity but we have seen a high level of acceptance that's really good considering the price increases at the moment. So I'm not sure if Lindomar has anything else he would like to add in regards to this.

Well, I think that's perfect Sérgio, seems exactly right.

Well, and then for papers for flexible packaging. We've already had an increase in prices for machine 4, which is the one -- the thinner papers. And this had an increase of 6% in the general market. It's already been complete. But the papers for machine 1, which are the papers for industrial bags, we have not seen much of an expectation for an increase in prices, at least not for the next quarter because the market is -- has an oversupply and we've had to direct a huge volume of these papers for exports. So they're having an increase naturally due to the currency rate increase, and it's important because the currency rates almost 7%. And however, in the internal market, the prospectus for the increase in the papers for machine 1, which are the papers for bags, based on virgin fiber, we believe it will be close to about the fourth quarter where we could assess transferring this possible increase. Henrique Zugman, do you want to add on to anything?

No, that's it.

Okay. Perfect. So then about the exports, we've also been exporting a lot, a bit more than the previous quarters, and that's probably because of the internal market situation. We have this positive to not reduce prices. So we become a little more vulnerable at the moment where there's an oversupply, but we do prefer to keep things this way because if you reduce prices, then after you're going to head to another level to increase prices. And we know that this is not a good dynamic. So we try to keep our prices in the internal market. We accept some possible volume losses, and we calibrate these sales with more exports knowing that the market will be recovered naturally. I'm not sure if I answered everything. Well, just about the performance curve for Gaia I, I think that's missing. Yes. So I talked about the project, Henrique can also help me with this, but we've been capturing the energy, which is completely functional with the new turbo generator, and of course, within the expectations for the project, but now the cost of opportunity for energy is smaller than what we had estimated for the project. So however, we've been capturing a reduction in the cost of energy at a lower level than what we had estimated in the project. But -- and of course, this is because we work with an average price and so that tends to obviously become closer to the levels of the project. And so we're also capturing a reduction of variable costs for -- so the [ vapor ] and other costs, we serve one line, which is the main return line, which is a mix for paper. So we stopped producing papers for corrugated cardboard and we had sold a bit of that in the market. And we started transforming this into virgin fibers, which have more added value. But of course, we depend on the market dynamics, right? It could be a little more favorable for the papers in industrial bags. So machine 2, which is for the papers for bags, the dynamic in the market has been good, and there could be a slight increase in prices throughout the semester due to the increase in scraps costs, but it shouldn't be in the second quarter, probably only in the end of the third quarter and beginning of the fourth quarter most likely.

Great. So now we have Guilherme Nippes. Guilherme be free to open up your mic, if you like.

I'm Guilherme Nippes from XP. And we have two questions here. On the first point, you mentioned about costs. You -- we noticed a pretty good performance and the costs throughout the second quarter, even with the impact in the prices of the scraps. But I wanted to hear from you a bit about the expectations you guys have for a slight reduction of scraps for the third quarter and what we could expect as a reduction that's greater throughout the quarter. And what would be the potential impact in the cost for you guys? Would there be a significant improvement in the costs? And the second question is about resins. The volumes kind of call their attention more to the negative side. We know the market is very volatile and you gave us a pretty good explanation but prices were surprisingly positive. So maybe if you could just talk about what we could expect throughout the third quarter when it comes to volumes in this segment as well. I think that's what I had to say.

Well, about the cost reduction and more control costs, that's mostly because of Gaia I and careful management of the costs we worked on and we controlled specific consumptions, but the scraps costs should lead to a slight increase because it came at a growth curve that was relatively significantly important. The average price was BRL 716 per ton. And the trend, however, is at the average price in the third quarter should be higher because we came into this growth curve. So we haven't seen a drop in the scraps prices. We think they're going to be kept pretty much at this level because the companies have a big difficulty in the second semester to have regulating stocks or inventories, so stocks are relatively low because the production of paper is high due to a demand that's stronger. Now on the other hand, the scraps will force companies to adjust prices, mainly because of the increase in the scraps and also the inflation of about 18 months where you don't have price adjustments for corrugated cardboard, almost a bit more actually, where you don't have adjustments, and there was a pretty downward curve last year due to the increase in capacity in Santa Catarina and also the drop in scraps. So -- now there's this movement for the repositioning of this inflation where you have these drops. And also, could you re-establish the scraps from the peak we had, no. So we see scraps a little less pressured and do you have volumes that are a little lower at the beginning of next year, but that's a typical cycle, right? So that's where we see the beginning of the second semester, and they started their increased cycle in the month of May and June. And now these months are going to be the months where we have the highest seasonality with capacity is pretty much full. And that allows for this movement with adjustments. So not sure if I answered all of the points, sorry Guilherme.

Well, that was perfect. But the other question I had was about resins. Could you talk about your expectations for the third quarter?

Well, the increase in prices is already demonstrating that the market is a little better than what it was last year, and headcount really downward when it comes to the lower demand from China, from Europe and lower economic growth. The harvest in China was also a little better but prices dropped a lot. So this increase in prices comes from a market scenario that's a little better and also the dollar. And then in regards to our volumes, it's because the market really hasn't recovered all the way yet. And we also have the actual harvest situation that's starting off now. In the third quarter, we have an actual drop in volumes and recovery of these volumes by the end of the year, beginning next year. So anything to add on Henrique?

No, I think that's it. Just to highlight that part of this volume, we were even able to sell, but Rio Grande do Sul had some flooding problems, and that's where we suffered a bit because of the shipments, and so we saw some shipments that are delayed that should be taking place in the next quarters, but this is the dynamic that Sérgio mentioned for the third and fourth quarter.

So our next question is from [ Evandro Santos ], and he says good afternoon. The world is headed towards the third world war. And how Irani positions itself in this moment that's so critical.

Well, we will continue to perform our investments as long as we can have return rates that are adequate. We have been granting -- we have been approaching a new growth cycle for the company, and we're always very careful about all of this with the adequate returns. We understand Brazil has a competitive advantage that is extremely important when it comes to the production of paper for packaging because of the wood cycles and also because of the quality of the Brazilian company. So it's quite difficult, right, to have like a forecast for this war scenario because we are not specialists, right? But of course, Brazil due to the geographic conditions and geopolitical conditions will probably be affected even positively by a possible external conflict when it comes to exports. But of course, the result of the third world war is horrible for the whole world, right? And I do hope that doesn't happen.

Great. So the next question is from [ Antoine Jonquière ]. He's -- Antoine Jonquière, you can open up your mic.

Congratulations on the call on the results. I wanted to ask Sérgio. If in the current price, if you can, of course, disclose this, what would be the buyback program like and do you expect to have any buyback plan at the current levels?

Well, we have been working on the buyback program. We understand that these shares do not represent the intrinsic value of the company. They don't capture the returns from the Gaia platform that are already taking place. And that's why we have been keeping up buyback programs because we believe that the value of our shares are still way below what they should be. Now at what level we will start buying from this is information we can't be releasing to the market, right? Yes, exactly. At the end of the day, it's a capital allocation decision. We have some projects to implement that have really good return rates. But sometimes the price of the shares lead us to having a return rate that's even better than some of the other products we have to invest in in-house. So we have to look at our leverage position. We're in this period where we're close to about 2.5x, which is our limit, our target, let's say. And so it's a decision for capital allocation really at the end of the day, sometimes we look into seeing what the parameters are like for the financial policy, return rates and opportunities to allocate resources. And so, of course, we look at this, but we don't disclose the price we're going to be buying back at.

The next question on the chat is Angelo. How is it going Angelo? And his question is, well, do you guys see the operations for imports for scraps could be maybe an operation to bounce out this? Is this part of [indiscernible] strategy?

Well, yes, it has been part of our strategy. And we've been searching for the possibility to import scraps and moments where we have more scarcity or where we have a real increase in our internal prices, we always keep the shadow open, and we understand that it can mitigate some speculation from the internal market. So basically, we've been doing this recurringly with some level of imports, not with the objective of supplying our operations directly. But with the secondary objection, of avoiding speculation and avoiding that the scraps reach such high levels and difficult to transfer this to the end customer. So I hope that answers your question.

Yes. Moving on. [ Alexandria Safi. ] Could you talk about the expectation dynamic for which [ Carazinho ] and the fair value of the biological assets? Could you talk about the main variables that influence the biological assets.

Precisely, I mentioned with the discount rate that was higher. We had an increase in the discovery, which was 0.5%, it was higher. And so this assessment is set by a third-party consulting firm. And in their assessment, they suggested an increase in the interest rate by 0.5% last year and 0.5% this year. So that's why you had a natural drop in the value of the assets. We have a formula and a theme, they have like an average of price in wood for the past 3 years in Rio Grande do Sul also since survey. So we consider this an average of 7 years. You have overhead costs, you have the discount rate which has been coming around ever since interest [indiscernible] And for all of this, we can calculate the variations quarter-over-quarter. And annually, we hired the AFRY report, the international consulting firm, it's acknowledged worldwide. And we just split this variation between the quarters according to the quarters as they come in and out. So in this quarter, what most impacted us was the price of wood and the rate of discounts, which reduced a bit of the biological assets. So of course, that increased this. So in regards to the previous quarter, there was a variation due to the discount rate. So yes, the main impact, of course, you don't have major changes, but the biggest impact is always going to be the discount rate. Yes. And then once again, it's always positive, right? How is it varies positively? And at the end of last year, a very less than previously because the price of wood went up so much in the end of '22, but there's always this positive variation. So yes, you have longer averages so that this doesn't lead to such acute changes. And so you always have these averages of like 3 years and when it comes to Gum Rosin 7 years.

Well, Angelo has asked another question and seeing if the virgin fiber competitors are not suffering much of a pressure due to reduction of costs, how do you view this competitive dynamic with the reduction of prices versus the relative stability in [ graph ] paper?

The virgin fiber producers also have -- you have spur from West Rock, where you have a significant percentage of recycled paper even when clubbing. So of course, this is of their interest to replenish these costs. But of course, actually, since they have a virgin fiber par and a more stable cash flow, they have a competitive advantage. But the increase in prices is not only related to the increase of the scraps but also repositioning of the inflation from almost 1 year where we don't have increases in corrugated cardboard. But so the companies by what we've seen in the dynamics in the market are also going through a process to try to increase but there are some side players, let's say, which is the virgin fiber situation wherever has more exposures, more position, and also the new capacity. But since the demand is very strong and we had 100% occupation, this makes the price transfer take place in a more easy going manner.

Okay. And then [ Xing ] also has another question. Well, what is the ratio of the net debt to EBITDA after capturing all of the returns from the Gaia projects?

Well, we can't release projections. But what we can say is we can -- is that we estimate the deleveraging process would start from next year. And from a more strategic perspective, you can see that there's a leverage target of 2.5x but we understand that 2.5x is a leverage that is healthy. And it keeps the credit rating in the company, and it potentializes the returns to investors so to shareholders. So it's normal and is in our financial policy, we should always try to have leverage that is close to 2.5x because that would increase the returns to shareholders because of this leverage effect. So if after Gaia, you have a drop in leverage, and it's natural that we would have other investments to try to deleverage the company, and that would always be close to the initial value.

But [ Maris ] also has another question with the floods and the impacts in the cost of scraps are pretty high. Does even -- you didn't have any expectations to return to the levels that had been commercialized in the next quarter. Do you think you're going to return to what it was before the floods in the next quarter?

No. This is very difficult to foresee. The scraps market has its own dynamic. But by our experience, it's not very probable that the scraps are going to drop at least peak months in the second half of the year. But we do hope that they had this drop in the beginning of next year. That's what we're expecting. But of course, whether they're up or down does not necessarily determine the profitability. What determines the profitability is the price if we have the capacity to transfer prices which is something we've been able to do quite firmly, we should have an expansion of profitability in the business. So the fact that the scraps are pretty high, does not necessarily mean that the profitability of the business is going to drop. The capacity to recover prices, yes. So then the best margins we had were when one scraps had issue, that was about BRL 1,100 per ton, right? So then after we were able to have the best margins really. Yes. And in this sector, you have this main common knowledge, which is when the scraps are high in transfer prices and have better profitability, especially after there's a slow or dropping period and trend where the prices don't drop at the same speed. So basically, that's why there's this correlation, but it's not direct.

Well, she has another question about leverage as well, do you think you could reach the level of 2.3x net debt to EBITDA in 2024?

Well, our strategy is to keep our leverage below 2.5x and that's our mission really. And it's in our policy, and we really believe we'll be able to fulfill our strategy.

Well, then you have an anonymous questions what you expect for the margins in the second quarter of -- in '24? Is there any improvement in the margins even with the cost of scraps going up?

Well, the total margin will definitely get a lot better because the second semester in the semester with more significant volumes in all of our businesses. So we'll have the results and which end up being bigger, especially for sales and the margins, of course, rely on this capacity to transfer prices.

So [ Guilherme ]. Well, about the dividends. We have -- do you have a constant process for the next period?

What we had a structural drop in the net income, and that was because of the increase in the interest rates, right? But our expectation is to keep this payout of about 50%, 25% throughout the quarters, and another 25% in the closing of the period, as we've done this, this year. At this moment, the trend is that the profit should be a little bit lower than what it was in the period where we had a little less leverage. But as you mentioned, we should begin a process for deleveraging in the beginning of next year. And, of course, we'll have to always be at this target of about 2.5x, which is the optimal strategy and structure in our vision. But eventually, this leverage could drop a bit below until the beginning of the execution. So because of the investments and then the assessment out of the biological assets and the financial expenses only impacted about BRL 3 million and it wasn't the biggest impact in the second quarter. But of course, we are working towards growing the net income. We're here for this, and that is to really help the business perform. And then the returns also on the Gaia platform, which will reflect on higher net income throughout the time but we're in a real economy and variable income, which is where you have the circumstances that affect the performance of the company. So the net income as we can guarantee because this is the dynamics the companies have and the business has with investments in shares anywhere you go. So -- but our work is to always, of course, improve this, and that's where we have the biggest cash generation, which allows us to have future investments even and 50% we distribute and the 50% we reinvest. So the more the profits, the greater capacity of investments.

So then Guilherme Nippes. We have one more here. On the [ Naos ] platform, would you have any updates on this project?

Well, at this moment, we actually left a workshop. Yes, we're talking about the strategic plan for the next 10 years, and we review these for every 3 years. And one of the access is this [ naos ] platform, right? So we'll be disclosing this as soon as we get more clarity on this, and it's approved by the Board but it's we're elaborating for sure. That's the good news.

She has another point here, which is biomass is that going to be sold in a recurring manner? Or is it more occasional?

Hi. Well, biomass, we don't sell. So not sure if we understood your question. It's probably due to the carbon credits. For the carbon credits, yes, but well, yes, it is recurring, but there's -- it also may happen every month. So we accumulated an amount and -- but it is a recurring value. So yes, we have a few more years of the projects headwinds.

Okay. One more here that's also anonymous. What's the magnitude of the price increase that you guys are searching for in each business line? The recent news showed that competitors increased prices by 6% in certain lines.

Well, what I can say is that we increased 6% in our -- on the papers from machine 4, which are the thinner papers. We increased 6% in the internal market and in the external markets in our current case where most of the sales to [ Marcos ] were reduced, then the prices are spot on, but we had an increase of because of an increase in the dollar rate, which helped in the exports. And we've really tried to increase prices to help with the repositioning of this inflation. But of course, that's another actual real gain. So it's about repositioning Irani, not necessarily the market as a whole. So eventually, the percentages would be above the official inflation rate.

Well, she has another one. Do you guys think that after the Rio Grande do Sul event that there was a rupture in the scraps prices compared to the history? And why was the volume in Rio Grande do Sul last reducing the offering.

Well, actually, the scraps started this peak cycle a little bit before. But of course, with the episode in Rio Grande do Sul Ukraine there was a rupture. And just to give you an idea, 30% of the scraps in our Santa Catarina unit came -- would come from Rio Grande do Sul, we had to buy these from other markets, which caused, of course, a bit of inflation in these markets where we were going to search for these scraps. And so we've already adjusted this dynamic and the south quickly returned. But this peak cycle was retrofit because at a certain point in time, the stocks in the companies went up to levels that were pretty low as they attempted negotiating prices. And that also made this process kind of retrofitting itself in this big dynamic. It's a bit of a dynamic when you consider the scraps. If you have a retrospective analysis, you have drops and peaks, but you never have like 2 months of peaks. You normally have a cycle that lasts maybe 6, 8, 10 months, even of small increases and then you have a drop cycle. So of course, the rupture in Rio Grande do Sul really accelerated this peak pace. But when we talk about the scraps market, our vision is that structurally, the market does -- should not black scraps in Brazil. So the offering of papers and virgin fibers increased in a bit due to the new West Rock and clubbing even the volume of paper that's been operated with virgin fiber, which has been higher. So from a structural perspective, we think that there's no reason for you to have -- because the supply should even over commonly demand. But when you have this kind of event, extended holidays and natural disaster like Rio Grande do Sul, so then that it could cause a growing trend or peak which is capped for such a period of time, but we don't see like a structural reason for the scraps to keep up with such a high cycle. That's what we're estimating at the beginning of next year. So the scrap should start a dropping trend or even in the end of this year.

Well, we have [ indiscernible] has a question. So the logic of leverage according to maximizing value for shareholders when you saw the reality with high interest rates, et cetera but with possible in capacity, to transfer prices in more unfavorable markets or scenarios isn't a leverage relatively high as volumes is always a little bit lower than the ceiling. Is that always what you desire?

Well, no, if we perform a retrospective analysis, our capacity to transfer prices is complete. We could have some setback about 1 or 2 months, but throughout the years, when you look at a 20-year analysis, you could see that we had transfers and payments that are even above inflation. In the last cycle, the payments were pretty high and way above inflation. So this condition is inherent to the sector and the business. And of course, you could have at a certain point in time, in an economic crisis, some recession, but it would be maybe a little more difficult to transfer these amounts, and that could lead to a difficulty possibly. But we understand and frequently analyze the financial aspects of the optimal capital structure considering the interest scenario we have at the moment. So the 2.5% is a leverage ceiling in our vision. If we consider the current interest rates in Brazil, of course, if the interest rates drop, then -- and of course, at levels that are a lot smaller, you could possibly have a leverage that's a little higher. But in our perspective, 2.5% is great. Well, [ Joe, ] as you mentioned, that is what we look into and you see the rates of interest rates in Brazil that we historically go through are even during the pandemic, another period where they operated at lows, but then increased and had some peaks. But historically, the actual income regime -- so if we look at the interest rates today of 10.50% by Selic, you can have a calculation, and you can understand how much this interest payment would consume as cash flow. And if you increase the risk level in the company, it doesn't only increase their cost of credit, but also the returns expected by shareholders. So this calculation, we work on reaches 2.5% as a ceiling. As you mentioned, they capture things fairly well with the [ AGS ] here, where we don't want to leverage the company too much because that could lead to a higher cost of capital and make the company have a free cash flow that's a little tighter.

Well, we have one more here from Xing. He confirmed his carbon credits. She asked about what the monthly carbon credit generation pace.

Well, do you want to talk about this one?

We actually perform the carbon credit sale like once a year. But yes, the pace, it's not that relevant at the moment. It was in the past, but before we sell a lot of carbon credits, the prices were higher, and the amount of credits were a bit greater. Today, the methodology change and the credits have a smaller amount. We're in a regulated market. So Irani was the first company in the sector to sell carbon credits in Brazil and second in the world back in 2006. So we looked at this period, which worked pretty well. And then that's where we had the Paris agreement in 2015 and the -- that's where we went to the voluntary market. But to answer your question, it's not that relevant. It shouldn't go over BRL 500,000 per year when you add up everything we generate and sell.

So this is the last point here. And I think we have Carlos also he asked to open up is mic. Carlos, feel free to hop in. Carlos you can open up your mic. Yes. I think he's done with his questions already.

Okay, great. So we -- do we have any other questions?

No, no. We've covered everything. And no one with their hand raised.

So we've covered everything, guys. Wonderful. Thank you so much for your time and attention. We are here working firmly to produce and deliver results that are even better daily. Thank you so much. Have a good afternoon. Bye-bye. Thank you.