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

Welcome to our webinar for the earnings in the fourth quarter of '24 and the closed numbers for '24. I am Sérgio Luiz Ribas, the CEO at Papel Irani. And next to me I have Odivan Cargnin, the CFO. And we also have Henrique Zugman who is the business head for Paper business. Fabiano de Oliveira, People Director, Strategy and Management and Lindomar, the Director for the Packaging business. Our webinar will begin with the earnings of the quarter and then we'll have time for Q&A as we normally do. We'll try to make this very objective so that we can have space for questions and answers. The earnings will be of webinar where the participants have their mics and videos off. Questions can be submitted by Q&A on the chat. I'll open up here mic. The meeting is also having simultaneous translation to English, just select this option and also in sign language in Portugese language and it's going to be recorded and provided in both languages in the company's IR website. So I'll be sharing my presentation and soon after we'll open up for Q&A. So as we talk about the earnings in the fourth quarter and then in the year 2024, we had a net operational revenue of BRL 1,627,470 with adjusted EBITDA of $475 million and net income of BRL 304.519 million. And our investments in the Gaia platform up until the end of '24 added up to BRL 1,004,271 and the ROIC in the last 12 months was 10.8% and the cost of debt in the last 12 months was 7.4% and net debt EBITDA ratio of 2.26x. Getting into the results of the fourth quarter '24, we ended the quarter with an operational revenue of BRL 424.034 million and adjusted EBITDA of BRL 115.398 million and net income of BRL 186.183 million. And the investments in the Gaia platform in the last quarter were BRL19.529 million. when we get into details of revenue as I mentioned we ended up with BRL 424 million and this number is a 0.5% less than third quarter due to seasonality. And the fourth quarter was a little less active than third quarter because of the [indiscernible]. And in regards to the fourth quarter of '23 we had an increase of 10.1% in the revenue year-over-year. The EBITDA ended up at BRL 115.398 million, this number is 7.9% below the third quarter and 3.1% above the fourth quarter of '23 with a EBITDA margin of 27.2% in the quarter. So when we get into the net income, we ended the quarter with BRL 186.183 million. From this BRL 186 million, BRL 17 million were our recurring profits. And in non-recurring, which is the exclusion of the ICMS in the tax basis, we also had the recognition of BRL 168.248 million in the fourth quarter. So when we compare the recurring profit with regards to the fourth quarter of '23, we had a drop of 30.4%. And regards to the total profit, we had an increase of 2,524.1%. In regards to the third quarter, we had a drop here of BRL 20 million a little less than that. In regards to the third quarter due to the closings in the last quarter of the year and also because of the seasonality, especially in the month of December. When we look at the volume of sales in the fourth quarter, and we look at the market, the paper market and corrugated cardboard market in Brazil, we ended up with an increase of 4.1% compared to the fourth quarter of '23 and a seasonal drop of 3.4% compared to the third quarter of '24.This was a robust growth in regards to the fourth quarter of '23 and 4.1% and when you look at square meters, it's a little greater, 4.7% and a drop of 2.7% in regards to the third quarter of '24. So in our case, we had in regards to the fourth quarter, we had lower growth in the market, 0.4%, and this is mainly due to the price increases we're going to discuss up ahead and that can lead to some drop in volumes and we also have seasonality in December. It's a little more significant than the rest of the market. And in regards to the third quarter, we had a drop of 3.8%. And so we had 0.4% with it. And 3.7% below the third quarter due to the seasonality factor we mentioned. So when we take a look at the average prices, and I think is very important information for the market, we had an increase in regards to the fourth quarter of '23 at 7.9% and versus the third quarter, the average price in the quarter and we have had an increase of 5.5%. So most of these price increases in the year took place in the last quarter. And so it's a growing present curve when we consider the prices ever since the first of the fourth quarter, which made the prices on average go up 5.5%. And when we look at the volumes, we had the paper for packaging and the papers we sell to the market where we had an increase in the sales compared to the first quarter of '23 of 2.1%. And a seasonal drop of 10.9% compared to the third quarter of '24. We sold 23,852 tons of flexible packaging and 5,446 tons paper for rigid packaging. And also paper for rigid packaging, which are the ones we sell in the market for corrugate cardboard. So it's a small sale because most of the volume for these stiff papers are transferred to our packaging unit. So the average price of the papers for bags and sacks had an increase where we have this increase of 4.8% and in the third quarter to the fourth quarter, an increase of 7.5%. Here, you have the average market price with the dollar effect, it's a little higher in the first quarter and also some price increases that took place in the month of December for some papers. When we look at the papers for packaging, we had an increase of 6.3% and 14.9% in the year due to the increases in scraps we're going to see up ahead which really impacts papers for corrugated cardboard in the market. When we look at the scraps, we had an increase of 82.5%. So the challenges here was really to reposition this cost inflation we've had with the increase of the price of scraps and a drop of 0.4% in the third to fourth quarters, and here, we're taking a look at the market as a whole with the data that Anguti disposed. And then when it comes to Irani, we had an increase a little lower of 73.1%, an increase compared to the third quarter of 0.8% with BRL 938 per ton FOB. So then for Rosin, we had a volume of sales that was 31% higher and 24.6% higher than the fourth quarter of '23. And also prices also because of the higher dollar and the increase of the prices of turpentine which are one of the products involved in the Rosin and Turpentine production processes. So we ended with this price increase and a bit of recovery here in the last quarter. We started the year with a more favorable condition than what it was like during '24. When we look at the closed numbers, we had an increase in the revenue in regards to 2023 of 2.1% ending with BRL 1,627,470 and then we had a drop of 3% in the EBITDA, which is mainly impacted by the increase in scrap costs and we had a drop of 3% and an EBITDA margin of 29.2%, 1.6%, below the margins we had in 2023, mainly because of the increases in scraps and also the reestablishment of the prices taking place in the last quarter of the year. And in net income, we had BRL 304 million, where BRL 168 million are nonrecurring, and that's due to the exclusion of the ICMS in the tax base. And this was under judgment in last quarter, and we had a recurring profit of BRL 103 million, 45% below of what it was like in 2023 due to the increase in the scrap prices and the price adjustments took place in the last 2 quarters, right. So now we have this drop of 20.6%. And also the PIS/COFINS credit, which is another issue we're discussing where we also have this recognized in 2023. And then we also had some impairments of $18.627 million, we do not repeat themselves in the closing of '24. So when we take a look at the volume of sales in total for the whole market in paper, there was an increase of 4.8%. So the market grew a lot when it comes to volume this year, and it was real vigorous growth throughout the entire year when it comes tons and square meters. And in our case, we had an increase that was higher than the market and in line with the market as well when it comes to square meters. Above average prices, we had a drop of 2.8% compared to 2023, the average price -- against average pace. And you can see the average price in 2023 is a lot closer to the average price in the fourth quarter and 2.3% below when you consider the square meters, the total sales of paper for packaging ended with 124,323 tons, 3.4% higher than '23. So in volumes, we did have a sale for paper for packaging that's almost 4,000 tons more than what we did last year. And this is due to good industrial performance and the refurbishing in Machine II and all this has increased our sales of paper for flexible packaging, which is the paper we sell for bags and sacks, industrial bags and so on in the market. And then paper for stiff packaging, we ended up with 25,000 tons and the average prices of the flexible packaging ended a little below 2023. Then I want to remind you that there was a significant increase in the fourth quarter due to the dollar and the exports and especially with some price increases in stiff packaging. Then we have the sales volume of Rosin, it's basically equal and stable compared to 2023, 0.9% below. And the average price will still drop of the prices in dollar and a slight recovery. So there is a drop of the average price against the average price of 9%. When we look at the total debt level, we ended the year '24 with BRL 1,680,865 total debt. We have BRL 604.232 million and net debt at BRL 1,076,633 and this is 98% in national currency, 2% in foreign currency and 89% of the debt is in the long term and only 11% in the short term with a leverage situation of 2.26x because here, we're close to the peak in leverage, and we had these processes throughout 202 and the average price this is at 11.2% a year in 2024. When we look at the ROIC in the last 12 months, it reached 10.8%. There was a significant drop in ROIC over the Gaia platform investments, and we still had an -- we still -- we had an increase in the debt level, but we didn't get the full returns. So as the EBITDA starts recovering this year in 2024 and already captures the price increases we had in the last quarter, and additional gains in the Gaia platform, we should be able to have this inversion in the costs in this curve throughout 2024. And our cost of debt in the last 12 months after income tax is at 7.4%. Now we have our buyback program that is still active and it's been a strategic definition for the company to buyback its stock because we're -- we understand it to be an excellent investment since our stock, we consider it's way below the value the company's intrinsic value and the expectations for results in the next months and years. We also distributed this year BRL 126.043 million of dividends and last quarter with 0 -- it was BRL 9.583 million, 0.04. And in the year, 0.2 with a dividend yield of 4.82% considering the value of the stock of BRL 10.92. Then being investors in the Gaia platform, they were all complete and we have Gaia I, II and III that are already performing on this curve, it's performance curve, and we've already captured some returns from the Gaia platform. Gaia IV and V are the projects to restart the PCHs that we've already still been working on getting the licenses for, it took a little longer than what we imagined. But we should have at least one of these restarted in 2024 -- sorry, in 2025. And Gaia VI, VII, VIII, IX are complete. Gaia X which is the new printer for Santa Catarina, it's already in the final phase and it will start operating by May this year when we have the additional equipment installed. The machine itself is already working, and we have the [indiscernible] that's also part of this operation and that should be installed from the month of May onwards. So this is already planned and prepared for the end of this year. We don't have the precise date yet, but the machine is completely planned and all the equipment is being acquired as well to be able to refurbish this during the shutdown at the end of 2025 and the beginning of 2026. And this quarter, we had, for the first time, we started delivering the Efficient Carbon Index for B3 ICO2 and we're really proud of this with the decarbonization process the company has been working on throughout many, many years. And we've also been recognized as the fourth best industry to work in Brazil according to GPTW Brazil for industries. And we've also been recognized by the House of Representatives of Santa Catarina when it comes to industries considered. And this is our team in the Investor Relations area that are always available to help our shareholders sharing more information on our results and clarifying any other questions that may arise or supplying any kind of information that could be necessary to our analysts as well. So we have Odivan, he's our CFO; André Carvalho, he is our Investor Relations Manager and the analysts also leading the Investor Relations area Mariciane, Italo and Daniela Amorim. Besides our financial area with Emanuel, our financial specialists. In the accounting front, we have Evandro Zabott and Alex Sandro. And Giovana is also our new business analysts supporting us during this process during the earnings release. So this is the information we wanted to share with you today beforehand. And now we can hop in to the Q&A session and answer any questions you may have. Thank you so much.

Great. So good afternoon, everyone, and we'll cover the Q&A session now. So we're going to show you the first question we received from Stefan at Citibank. Thank you Stefan and he asks us the following. Should we imagine that the scrap prices, [ NPO ] prices should continue in the first quarter of '25. The price of scraps kept stable during the beginning of the year, but do you still imagine some set back during the year or some drop and then also about the announced platform. And if there's any update you could share ever since the last Q&A session and the last quarter.

Well, in corrugated cardboard Stefan, we had an important price adjustment in the last quarter, which already appeared in the results. And this increase still has a bit in this beginning of the year with the negotiations made in the third quarter. That should impact prices in the first quarter. And we'll then have this movement to recover prices, especially in the second quarter this year or at most in the third quarter of reestablishing the inflation of '24 and all the rest with the increases in the scrap. So they started the year of '25, relatively stable with a bit of pressure due to pricing in the last month and the market was pretty heated. The month of January was also very good and that seems to be very positive in the month of March. Also has a pretty good portfolio coming along, and that ensures the chance of really reestablishing the margins ever since the beginning of the second quarter in 2025. So we should move around with the price increases in the next month. This is going to be extended for a few months. We have contracts that are established and that we have to wait or honor bigger accounts. So the price adjustments take place during a period in the next few quarters, but we're super excited with the beginning of the year because the volumes continue to be very strong. The month of January had an increase of 1% compared to January last year that was disclosed by Irani Papel. But I want to remind you that the first quarter of last year was also very strong. So we've already had a first quarter that's always -- it's already been very strong. Are we starting '25 with growth compared to the same period last year. So our expectation is that despite the monetary restrictions of such high interest rates we've seen that the market is super dynamic and maybe even allowing for price transfers and adjustments for the next few months. And about the scraps, they continue to be pressured, which is a point we didn't imagine for the beginning of this year. Then typically, the year had some drops in the scrap prices, and that demonstrates that the market is pretty heated, which is why we have pressure on the scraps in the beginning of this year. We don't imagine this will be that strong, but we haven't seen at least not so far any kind of drops in scrap prices, as you had imagined, could exist in the beginning of the year. And about the announced platform, which was the last question. We're at the designing phase and engineering of the main projects. And so as soon as we have this well-defined with pricing and schedules, we'll be able to dispose this to the market. But at this moment, we're still in the studying and engineering phases of the projects.

Perfect. So now we have [indiscernible], he raised his hand, so we'll open up his mic.

2 points here. If you could just talk about the demand expectations for the year. We see that paper had a slight slowdown in December with data in January, a little better. We also had some news on the newspaper today, Valor Econômico saying that there should be a moderate optimistic vision for the year, and I want to understand your guys' perspective. And then secondly, I want to know if there's any other initiatives from your guys' side that could maybe accelerate the deleveraging that the company expects to achieve this year? And how this could maybe affect the speed of your buyback program as well.

Well, the issue with the demand, as I mentioned, we're really excited because we had some projections and forecasts by [indiscernible] and their positive perspectives with growth, really strong above 3% to 4%, which is great. We also have some segments that are doing super well. One of them is the cold cuts and beef and protein, which is where Irani has a lot of exposure to this and so really close to that cluster of companies that are close to main slaughterhouses like [indiscernible] and others, which have demand that's really strong for exports. And so that brings us great expectations for volumes in this segment. And also in the market overall, the salaries have gone up despite the inflation being higher than what we would like it to be and the interest rates also. We haven't seen so far any kind of slowdown in the demand, especially not for the food sector, which is a sector that really depends on the income levels and employment levels in the entire -- as a whole. So we're really optimistic with what we're seeing so far. Of course, there could be some kind of a slowdown in the second quarter -- the second half, sorry, but we still haven't seen this slowdown. And our expectations are that the segments we're most exposed to will have a very favorable dynamic throughout the year. And then about pricing is what we've already mentioned previously, we're also -- as the demand gets stronger and stronger, capacity is also occupied and it's natural that we reestablished the inflation period. And what's the other point? Well, the buyback program, the issue with the deleveraging, we're really optimistic in regards to the results and they already can be translated into best margins and results for the next quarters because of the carryover effect of the price increases and also the expectation for new price increases in the next months. So our results should evolve and be better than what they were in '24, and that's why the deleveraging process happens naturally.

Perfect. So Edgard also raised his hand.

We've got 2 questions here. One is a follow-up of the previous question on scraps. I think that we want to understand some points related to scraps. First of all, we saw in mid last year with the price of the scraps almost doubling with the more limited dynamic in the supply with the floods in the state of Rio Grande do Sul. But of course, this price has kept pretty high ever since we had a better seasonality period, and then that has -- that has been surprising, but would you consider this higher price due to demand or there's still a supply issue that's not normalized and that possibly some kind of an offering normalization could lead to a reduction in the price of the scraps. And then still about scraps, we saw your costs really opened up a significant gap versus the price of Anguti. So if we take a look at the consolidated data for '23 versus '24, you saw the price of the scraps at the FOB basis are really close to Anguti's. And this year, we closed up with a difference of almost BRL 100. And so how should this impact your costs, right? And if there's any kind of stability up ahead or pressure due to this gap that was created between Anguti and the actual. Well, then about the segment papers, how do you imagine the volume evolution? What do you expect for this year? Is there something you would sort of like to carry over the Gaia platform and maybe even increase the flexible paper. Of course, it depends on market dynamics. But how do you expect growth for this segment this year and the growth magnitude, et cetera? That would be great.

So about the scraps, they came in with more stability and with a bit of pressure really increasing in the gains here, but this price difference on average compared to Anguti's basically because the price transfers doesn't happen in the same way. And we also have a loyalty relationship with our suppliers that's really important to us and that kind of softens this increase in that part. So it doesn't grow as much as the market and also doesn't drop in same speed because of the partnerships we have with our suppliers and the differences between the prices that take place, but the trend is that it should be close to the Anguti number. Well, time goes by. So about the scrap market, it's a closed circuit, right? So you have very few exports and scraps and so you have variations in the demand that lead to pressure on pricing and when there's a drop in demand frequently even scraps drop. And so we have not been seeing reasons for the scraps to continue to go up. So we have virgin fiber paper due to new machines that were added to the system, and they're really big in the kraftliner exports are not going up at the same speed. So that means that you have an insertion of virgin fiber papers in the system that are very significant which would suggest a nonincrease of scraps and even a drop at some moment in the year. I think this pressure comes due to the rains and holidays as well at the end of the year. And we -- both us and our competitors have a stock of scraps for a few days. It's not that big. But that pressures prices when you have a delivery in holidays or even days where you don't have this, that pressures prices a little bit up ahead. And we understood that due to a working capital stock, nothing too big, we have an average term of about 10 days, which keeps the optimal level of stock in the scraps for our operations. So I don't see the scraps going up, maybe there's even a slight drop, and we have information from some competitors that are -- so if the corrugated cardboard market continues in this dynamic of 4% per year, I'd imagine that the scraps shouldn't give in. But on the other hand, I don't see the market moving towards price increases and margin increases and then, of course, leading to a very positive year for the sector. So then the other point was about -- yes, [indiscernible] about the papers market.

And about the papers market, the good news is Argentina got back to the circuit. And this is going to help with the market dynamic. Of course, you still have this situation in Ukraine and Russia that effects the exports of virgin fiber. But I believe that there will be recovery gradually month after month in this market. And it's going to be a slight curve upwards.

So do you want to talk about the or the packaging market and this dynamic? It would be great to get your view on this.

Well, I don't want to be too repetitive but it's really in line with the recomposition and we need to be very determined and focused. And that's mainly due to the demand we have in the sense and also the need to reestablish the price of scraps and inflation accumulated during the period. So we're really optimistic and we believe that things will happen in the second quarter.

So here, just a quick follow-up. Just to make sure you don't lose anything here. Of course, Anguti has its market dynamics, but we should consider some specific pressure to maybe get a little closer to the Anguti prices that are higher prices than you've had in the scraps.

Well, yes, that could be it. But I want to remind you that in the south, we have scraps prices that are a little lower. So maybe if you look historically, our prices are slightly below Anguti.

Well, now let's move on Guilherme Nippes from XP. And we have many questions, but the first one, the demand for corrugated cardboard, and I wanted to hear a bit about this dynamic and also you were benefiting, so I want to hear about 2025. So I'll read all of them, but prices, and we also considered some possible price transfers throughout last months for corrugated cardboard and I wanted to understand what the dynamics are like for 2025. The third one is cost. We had great performance in our costs throughout the last quarters. And although we've seen a bit of price pressure on the scraps, could you tell us what you guys expect for the next quarters? And if you would expect possible conversions, including -- that could maybe benefit from this cost perspective? And also, if you could give me an update on the schedule for [ Novus ] and the last one is about supply and demand and what the environment is like for the supply in corrugated cardboard in 2025 and what you guys expect with the new projects entering the market. We can maybe go over a brief one. And I can also read this again to help. The first one is about the demand for corrugated cardboard pricing cost.

So I think that we've already discussed actually, I think the demand is pretty good. Prices, we've had an important recomposition last quarter. And our expectation, as Lindomar mentioned, is to have recomposition and reestablishment in the second quarter for the price adjustments.

And then also the other question about [ Novus ] platform and supply and demand market, capacity versus the demand.

Oh yes, we had an increase in capacity, was significant last year at the [indiscernible] units from one of our competitors and we considered a big offering for capacity. This year, we haven't seen any of our competitors moving towards adding capacity. So this is great news with what we saw as relevant capacities that have already been added and with the market growing 5%, 4%, 3%, these new capacities are absorbed with quite a lot of ease, no big pressures in the market as a whole.

Well, Guilherme, if you covered most of the -- if we haven't covered the points, please hop in and feel free to come back to us and we'll reinforce them. Great. So while we go over the next points. Hi, Congratulations on the results and increase of the prices for packaging and also being -- if you think that this price increase would already be enough to reestablish this. And the other questions also about the scraps and the importance of the cost and I believe that the market should stabilize, and we also consider a scenario with greater consumption.

Well, I think we covered all of his points already. I think the recovery in one of the recycling operations at [indiscernible] may cause a bit of pressure in the short term, but not being that would really represent an imbalance in the overall system. At this moment with this inclusion of virgin fiber, I don't think we have major pressure. We have some moments in the market where you have this new capacity coming in for recycled paper when you have a longer holiday and maybe have a bit of pressure in the market, but we haven't seen ongoing pressure for an increase in scrap prices in the beginning of the year. Maybe a little pressure, but nothing too relevant, which suggests stability in this market for the next few months.

Great. Let me just double check if we covered everything here. Well, the next question is from [indiscernible]. I have 3 points. First, the price and revenue grow up a little bit and the adjusted net income. Could we expect it this year that the company will be able to adjust prices and have compatibility with the price -- with the cost increases. Could you give us a perspective on the price range this year? And also, how much is the Gaia platform actually going to positively impact EBITDA considering investments have already been completed. And the third point is considering a volatile market, wouldn't it be more interesting to have the buybacks and reduce the buybacks and focus more on the deleveraging, allowing shareholders to define the best moment to just determine their share in the company. Well, the first point about the price of revenues going up a little bit and the adjusted income goes down because of the cost adjustment perspective is what's the capacity to transfer inflation to these costs.

Well, I think an important point here is if we analyze this sector of corrugated cardboard, it could always consider the inflation, which -- where you could maybe have a bit of a delay in regards to the moment where the scraps go up and the price transfers take place. But you can always transfer prices with a slighter delay or greater delay depending on the market context. So this price transfer in the second and third quarter was enough to cover part of the inflation that we had with cost inflation, that was very significant throughout the year. And so that's why we're moving towards reestablishing our -- recovering our price ranges in the second quarter, expecting this movement to be able to reestablish the inflation in '24 and also part of the inflation that was not transferred yet. And with this, of course, we're going to impact the results. The buyback program, do you want to talk about this, Odivan?

Yes. The first point here. I think it's important to see the price variations from the fourth quarter and the fourth quarter last year. When you compare this annually, you can see there was a drop in prices in the average in the year, but we look at this from one point to the other, you can see the scenario is changing. There's a different trend because from the low end you start capturing the price in the second quarter, and that is transferred to '25. So we already start 2025 with a better price perspective than what we had in 2024. The third question is about deleveraging the company, dividends and buybacks. So for dividends, -- could you -- the question was, could we increase the dividends? Well, there's a policy that's already predefined by the Board, and we have a payout of 50% of the income, of the net income, if it's -- if the leverage is at 2.5x, then we don't have like a provision or a reason to modify this policy at the moment. And we have no plans to increase dividends, so the policy must be kept throughout '25. We'll continue to distribute 25% every quarter. And at the end, of the year if the leverage is below 2.5x we'll distribute another 25%, completing the 50% payout and retaining 50% of profits for reinvesting in the company. And the buyback program is really a capital allocation decision. So we do, of course, keep an eye on our leverage always and our debt position, but you don't have that many significant payments that will impact the leverage situation. So we've been working on the buyback program as we understand that the conditions allow for such and in a way where we can actually generate value to all shareholders, which is the goal at the end of the day of this buyback program. So then I think the second question was about the Gaia platform and what's the positive impact on the EBITDA that's still captured from these investments that have already been completed.

Well, a lot was captured already. And that helped with the company's results last year. Despite all of the price increases in scraps, we had an EBITDA that was very close to '24. Of course, that's off the ideal, but it did kind of compensate part of the cost increases we had last year. And this year, with the price reestablishments, we can notice this difference in a very significant manner. So from all of the different return lines, what was not captured yet and that relies on the market still is the line where we have an improvement in the mix of papers and fibers on Machine I, which is where you have paper for industrial bags and the market has really become more difficult. It's been more challenging in the past few years because most of the time, we're talking about exports. And a lot of this used to go to Argentina. So that kind of hindered the market in Brazil for this kind of paper. And this improvement in the mix will happen throughout time as the market reacts. So they end up relying on the civil construction market. So a big consumer of these papers in the market as well. And in this case, we end up being hindered in directly, although we don't sell to the cement segment since the cement segment is not doing well, they end up adding papers to other segments we're participating in. So it really depends on this market -- internal market dynamic. First, the exports need to get better because of Argentina, and it's already happening. And secondly, because of the dynamic for the cements market in Brazil. that indirectly leads to an improvement in the consumption of paper for industrial bags. And based on this return line, we still haven't captured all of the returns in the Gaia platform. So Gaia II which considers the increase of capacity in the unit in Santa Catarina, and that's already been captured. Gaia III is the refurbishing of Machine II, where we were able to have performance that's even better than what we expected. And the others are smaller projects that are all performing very well. So for the Gaia platform, I would say that it's an important line that we saw it captured, which is the improvement in the mix of paper for Machine I. And all of this will lead to an increase in margins substantially in our sales. And then finally, also energy, right, power because there's a moment where the value was really low in the market, and then we ended up now capturing all of the expected returns. You do capture a bit of the returns, but not at the same level as the market prices.

Well, Angelo [indiscernible] asks about the [ Novus ] platform cycle, but I think that was already answered. And if you have any other questions, Angelo, you can add that to the chat. Then we have a question from [indiscernible]. Congrats on the results. Could you tell us about the Argentine market and the bags market.

I think he could cover this a bit.

Well, Argentina has been going through a full recovery process ever since Milei took over the government. In the first semester prices went up gradually in the payment flows also. But now in the second semester, you are going back to levels that are almost what we were working on in the Argentine market. There's maybe a little more to add, but the fourth quarter was great for exports in Argentina and the perspective of '25 is that we will have a year that's better than '24 not only for us, but the overall market because it also helped us to recover the returns that we're missing from Gaia 1. This collaboration with Argentina in '25 will help with the recovery in the Gaia platform as well.

Great. So our next one here from Edgard.

Just one last point here. Since we got into the issue with dividends, I think the company has been historically distributing high levels of dividends and doing the buybacks for shareholders bringing in a lot of returns to shareholders. But one point we had questioned considering institutional investors about maybe it would make sense to have a dividend policy that is a little more connected to the operational generation. I think your guys' policy today is based on the net income and maybe that considers some nonrecurring factors, such as repurposing value of biological assets, depreciation or even some other decisions like legal decisions that affected the company. So I think this is more of a point I wanted to provoke you guys, but do you guys consider this discussion maybe having a modification of the dividends policy to maybe have this due to the operational performance of the EBITDA instead of being a net income issue that is affected by the nonrecurring factors.

I can get that one right. I can start. Okay. So about this issue with the nonrecurring events, they are also a result of the operation itself. They're not events that took place well, they're not from that period where they're being recognized but they are connected to the operation, and we always assess at this moments, the opportunity to pay off the dividends. And that's always done together with our Board. But since we have a liquidity position that is good, and we don't have investments expected in the short term, then we understand that compensating investors as established by our policy really makes sense. And normally, when this recognition or these acknowledgments take place sporadically they normally have a complete connection between the distribution of dividends and the operational performance of the company.

Well, we know other companies in the sector also do this, but in our interpretation, you wouldn't really have to modify what's already in the law. What needs to be distributed is the percentage of the net income. And this is really connected to our cash situation. So when you have a claim, for example, that can be converted into cash quickly. So we have no reason to see a dividend basis that is different than the typical scenario in the market as a whole. And so the actual evaluation of the biological assets, where you have this drop in the exhaustion costs, and it's also noncash, and that kind of offsets each other. So from the net income, there is not like a noncash net income. I could justify the dividend basis, right? So that's why we don't use this base as a percentage of the EBITDA. And we also don't have anything in this line in regards to the operation of the space because of this.

It sounds good. Very clear. So that impacts you guys a lot less than other companies.

We have 2 more questions [indiscernible]. As we saw a reduction ever since the first quarter of '22 between the ROIC and the cost of capital in the company, and I understand this is different. And of course, I'll remind you that this capital here is -- each investor calculates their own work according to their own cost of capital. Each investor has their own cost of capital, right? The controller has its own work, but each investor can get the information calculate their own work, right? The reduction of the ROIC in regards to the cost of the debt. So I think that when you consider the cost of investments you can look into what the perspective is for the next quarters, considering the ROIC and the capital and the capital structure. So how do we look at this forward?

Well, we saw this inversion in the curve in the next few months as you start having greater clarity with the entrance of the Gaia platform returns. And what happened was mainly due to the investments in the Gaia platform that took place with BRL 1 billion in the last quarter and that we are now at the initial phase with deleveraging and also capturing returns, right, that I mentioned were really important in 2025 to neutralize this cost of the scraps that were in 2024, right? And then in 2025 with this margin recomposition in the operation it will be a lot more evident to see the gains on the earnings from the Gaia platform.

There are other questions about the [ Novus ] platform and what you guys could share about greater data on the [ Novus ] platform and specific expectations that you guys are considering?

While our investments always consider long-term vision, investments now are basically to capture returns throughout whole life, right? So you have pulp expansions, et cetera. So these are all long-term investments, but the decision of investing now are a little further is really connected to this moment with the interest rates are a little higher. We considered this in our returns considering the vision of how investments are connected to long-term strategies.

Well, we always consider the actual group rate. And so we considered that the business itself can reestablish the inflation. So the analysis of the return rates are always going to use the actual interest rates. Of course, that varies. But it's navigating around well above 7% but we can access other funding lines and facilities considering the capital market or we always consider the mix at the end of the day. And then you also see the more restrictive interest rates that impact the economic activities that could affect the sales of these. So we analyze all these factors. And of course, we consider the scenario, how it is moving along and also understand the right moment to have this new [ Novus ] platform. And so could you give us the rationale of the type of logic for the fourth quarter of '24 and the expectations for this line in 2025?

Well, which were the most relevant points, sorry, in this variation in December?

Well, I'm going to help you with this one. The main point is the price of the wood, which is the average in the last 3 months we use. And then we have the post-pandemic effect with a significant increase in wood, basically doubling in size. And now we have more stability. And in Rio Grande do Sul, we already used the wood prices that are in the current market and an average of the ROS in the last 7 years. Since there's a lot of variations, we have to use an average of 7 years. So for '25, we imagine an increment that is maybe smaller than what happened in the last few years.

Yes, exactly.

Well, in between any other questions? If not, we're going to wrap up. [indiscernible] if you do have a last question, feel free to hop in. If not, we're going to wrap up. Well, I think we'll wrap up here. So we can end this call.

I want to thank you all for your presence today and remind you that we're really excited about '25. It's going to be a wonderful year for the company. And we hope we start off at a better position than what we had in the beginning of last year. So we definitely have an important carryover and a great price expectation as well soon after. So that should change the dynamic a lot for our results in 2025. Thank you, guys. Have a great take evening. Good afternoon. Bye-bye.