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

Good morning, everyone. Welcome to our earnings call for the second quarter of '26. We'll just give it 1 minute so that everyone can join us and we will begin. Welcome, everyone, to our webinar for the second quarter of 2026. We'll begin with the presentation of our earnings in the quarter and then after we'll provide some time for Q&A. [Operator Instructions] And the webinar will also be recorded and provided in both languages on our IR website in the company. So anyways, let's begin with our presentation. So in the second quarter, we had a net revenue of BRL 431 million and adjusted EBITDA of BRL 131.633 million and net income of BRL 30.920 million and a free cash flow yield in the last 12 months, considering the ongoing and discontinued operations of 18.7%. And an observation here in this quarter once again, we had the presentation in the ongoing continued operations and the discontinued operation. And we discontinued operations for Resins in the second quarter of last year. And in this quarter, we still have both present format, right, continued and discontinued operations, which is identified by this OD and OC. So when you look at our net revenue comparing with the previous quarters. On the left side, you can see in this model of the continued and discontinued operations, we had an evolution of 1.6% from BRL 424 million to BRL 431 million considering the second quarter of last year and the second quarter this year and evolution of 5.4% in the first quarter. When we look at the continued operation, excluding the Resins operation in the second quarter of last year, we had an evolution of 4.4% and 5.4% when it comes in the first quarter of 2026. Comparted to adjusted EBITDA and our margin, our continued and discontinued operations, grew 8.2% and we had a margin of 28.6% to 30.5%. This is 16% of BRL 113 million with a margin of 27.7% in the first quarter. We have the shutdown of Machine 05 due to the modernization project, which impacted the EBITDA and the comparison's is a little bit compromised because of the first quarter having this effect. And when you look at the continued operation, our EBITDA grew 3.2% in regards to the second quarter of last year and the margin of 30.8% to 30.5% compared to the first quarter of BRL 113 million to BRL 131 million, which is the same number that I've already mentioned. And then here in the second quarter, we also had an effect of BRL 4.490 million which was generating to TG4 was that technical event and stay there where it began having energy issues. It went back to operating in the second half of May. And so it was already operating normally but in the second quarter, we also had a negative effect of BRL 4.490 million. So if it were not for this effect, our EBITDA would have been BRL 136.123 million. So that was an evolution that would have been a little better than what we ended up having. The good news is we were able to solve this topic and ever since the second half of May, power generation got back to the normal levels. When we look at the net profit on the left side, our net profit dropped 70.3% from BRL 70.526 million to BRL 30.928 million. The main asset here are the biological assets. The biological assets from last year. We had two acquisitions of forests that ended up positively impacting the value of the biological assets and it was isolated event of the second quarter of last year, which adjusted our net profit. This is a recurrent effect of the forest, reforestation that we did in the second quarter of last year. Also in the second quarter of last year, we had BRL 18.422 million, which we did not have in this quarter. And the recurrent net profit reduced from BRL 50 million in operation to BRL 7.235 million basically because of the impact of larger effect. And over time, we have been registering the evolution of all of the readjustments of the values during all the quarters, and this has improved our for us, and they are doing much better because of the volumes that we have. So this explains the reduction of the net profit -- the recurrent net profit. In relation to the first quarter, there was an evolution of BRL 19 million to BRL 30 million. In the first quarter, we had an impact on the operational results because of the stoppage of Machine 5, as I mentioned. And the continued operation, the explanations are the same. The numbers change a bit. But what we have here is the operation of the resins that we had in the second quarter of last year, which we no longer have but the explanation in a material form is the same. The impact of the biological assets and the impact of the tax credit and the operational issue because of the larger depreciation and exhaustion, which we registered in the second quarter. Looking at the segment, here, we have the segment of sustainable packaging. Here, we have the paper in the quarter which brings together the market as a whole grew 3.5% from the second quarter to the second quarter of '26 from '25 to '26 and 3.8% in square meters. In relation to the previous semester, it was 4.4% growth and 4.7% in square meters. The good news here is that we have the recovery of our volumes. We began to seek volumes that before had been in a strategy of value over volume, but this strategy has limits and it changed in the last quarter. So we have been taking account of it. And so we have an idle capacity in our plants, which we are seeking to fill. That is why we focus more on volume without deteriorating margins, being very careful. We were very surgical about this and we will be able to grow more than the market through this strategy, recovering, therefore, part of this volume from 41,000 tonnes to 44,000 tonnes and 4.9% in relation to the first quarter in square meters. This effect was higher was 9% growth against 4.7%. This is a positive highlight, which we have in this second quarter. The prices evolved quarter against quarter, 1.3% in tonnes, 1.3%. And so they were practically stable in relation to the first quarter of '26. In square meters, we registered a drop of 1.9%, and they were stable in relation to the first -- the second quarter of '26. Later, we can talk about this in the Q&A, but I believe there is a challenge in the recomposition of costs in the cost operation. We are trying to transfer the costs. The market as a whole has sought to do this. We've been successful in some accounts and in others not, but it is a process that is being done in a very criterious way by our commercial area. In the segment of paper for packaging, looking at the segment in which we sold paper with the coil, the coil paper for packaging, we've had a growth of 3.2% in the volume, the total volume of sales from 30.9 thousand tonnes to 31.9 thousand tonnes and 8.9% in relation to the first quarter. The first quarter was affected by the stoppage of Machine 5 once again. So we registered positive growth in terms of price, the packaging -- the flexible packaging, which are the papers we use to make bags and snacks for bakeries and groceries. We had a drop of 1.1%. Basically, what explains this is the exchange rate because we export this paper in relation to the quarter of last year. This justifies the drop in the price. If it wasn't for the exchange rate, our price would have increased in line with the recovery of the transfer of the inflation. And it dropped 1.3% in relation to the first quarter in relation to the rigid paper, the paper that is used to create for the boxes, which is the main raw material. In this case, it dropped 2.4% during the period and grew 1.8% in the quarter, reflecting a more pressure in the prices. In second quarter, when you look at the data from the market, the price of scraps dropped. There has been a recovery in relation to this quarter of 2% and this dynamic was reflected in our numbers in regards to this quarter of last year, scrap dropped 20% and already had a recovery of 2.9% in the second quarter in regard to the first quarter. [indiscernible] and we've seen a dynamic that's a little bit different with pressure in the scrapped prices that we have been negotiated and working on and don't know exactly where we're headed on that. But in the last few months, we've been seeing an increase in the prices of scrap. And then moving on to the financial. We have another quarter of reductions in our leverage. Our leverage actually went up in the first quarter because our EBITDA was impacted due to the shutdown of Machine 5. So the first quarter was an EBITDA that was lower than normality because of the event with our CapEx in Machine 5. Now we've already resumed our deleveraging. We ended in the quarter of 2.07x, BRL 833 million in cash and BRL 1,074 million of net debt, BRL 1.9 billion of gross debt. And our debt is basically more -- is basically in local currency, 1% in foreign currency and the cost of debt of 14% a year is equivalent to CDI minus 0.7%. So we actually have a positive care over cost our debt as a whole cost less CDI where we have our funds invested. So the quality of our debt is really good and 21% of our debt is short term, and we ended the short term and 79% in long term. So we have a maturity in August 2027, a CRA financial instrument we issued about BRL 480 million, BRL 490 million. And so it's going to expire. It's going to mature in 1 year. And you probably saw the material fact we announced after I'll talk about this a little more. We just performed an operation today of BRL 750 million, preparing for the maturity of the CRA instrument next year and also capitalizing the company and making the company's liquidity higher due to this event with the CRA payment and also extending the debt and reducing the cost of some facilities we had. Our ROIC reached a quarter 12.5% with an average cost of our debt of 9.2%. So of course, the ROIC you have to consider with the WACC and so we show the cost of debt and then each shareholder and investor can calculate our ROIC according to their own cost of capital and see if we're navigating in line with the cost of the WACC even though we're considering the cost of capital to the investors and that's how we've been working on this and how we've been navigating around this. Now the ROIC actually went up a little bit, 0.2 percentage points and that's really positive. I think the understanding here is even at a moment where interest high in interest cycle so high pushing upwards, we've been able to deliver a ROIC that is compatible with our WACC. Of course, we would like to have a ROIC that's way higher than the WACC. But now when you look at the whole scenario, we've been navigating through ROIC that pays for the WACC -- ROIC that pays for the WACC, right? Even in an adverse scenario, maybe it's not the best moment for business, but we're still able to compensate the capital adequately. So when we talk about the dividend, we paid in the second quarter of '26, BRL 64.894 million and we always have the payment, the extraordinary dividend 25% additional and that is why we have this bigger impact. What is valid, BRL 0.28 per share. In that last 12 months, we paid BRL 110 million to shareholders, which is representing BRL 0.47 per share. And in the second quarter, now we're proposing the payment according to our policy and distribution dividends policy of the distribution of 25%, which is a minimum mandatory amount for each quarter. Now we propose the distribution of BRL 0.03438359 per share. That's still going to be decided by the Board of Directors. Our investments here, if you have this little chart on the bottom, all the projects that have already been completed with the Gaia Platform and the chart at the top, which is still under way. Here we have our PCHs, especially São Luiz, doing really well. This is where we have about 25% of the progress already achieved according to our schedule. That's going to increase our hydroelectric power generation. So that's great as it provides for major efficiency. We already got the licenses, I mean, now we're in the execution. Total investment, BRL 125 million. Gaia X is also 90% completed, and that's the [indiscernible] and then Gaia XI, which is the shutdown we performed in the first quarter of this year. We're still finishing up the costs and payments, but the [indiscernible] were approved to start capturing the [indiscernible]. Then we include Gaia XII, which is the expansion and optimization of the Minas Gerais, BRL 514 million. That's the main project we're performing at this moment, approved by the Board. So far we've invested very little, BRL 1 million, but we have all the engineering and everything else is working in line with the schedule that was promoted and disclosed to the market. For the buyback program, we went back to buying the shares in this quarter, so we were able to buy back 605,100 ordinary common shares, and that's representing 6.19% of this program that was approved by the Board. This is a buyback program and started on the 25th of September 2025 and went back to buying back shares now in the second quarter of the year, as well as the capital allocation procedure to maximize returns to shareholders. And now here you can see the slide that we disclosed with material facts that was approved today by the Board. An operation for funding of BRL 750 million. We funded this with banks we already have a positive relationship with in the company. Everyone knows that the capital market for credit providing is a little more complex at this moment. And all of the negotiations we ran and procedures that we studied led us to have the closing of the banks we already have relationships with due to the conditions of the credit facilities they offer BRL 750 million with multiple banks, bilateral operations and it's a group of banks, that costed an average cost of 1.15% per year. Total term, 5 years, negotiation of 24-30 months and no guarantees required. It's a clean operation with a BRL 758.6 million, and that's operating with the same banks where we funded at a cost of CDI plus 1.84%. So that represented a reduction of the cost of debt that we've been carrying over. That also represents BRL 591.4 million coming into the company's cash position and we're prepared to fund the CRA, final instrument payments that are going to mature next year as well with this cash position. Our financial structure for the maturity of this CRA is going to be solved. Of course, we would have been able to fund this in the capital market if it was a window for this and the necessary conditions that unfortunately, that didn't happen but the capital market, whenever it's open and available, will also have the great pleasure to perform these operations. Our CRA is currently issued and we have a lot of individual investors that are expecting this deliver and we are going to end up paying this off next year without needing a new issuance. There's always a door open, right? We really enjoy performing the issuances on the capital market. Unfortunately, this is not possible due to the market conditions. If not, we would have. Of course, things change and in near future, we'll have the possibility to have other issuances and funding through the capital market. The company has all of the means possible, right? We can fund with BNDES, with the banks, with capital markets, and we're always going to find the best offer or the best option, lower cost, best terms, and most favorable conditions. This is a really interesting operation that promoted an increase of liquidity, extending the average term of our debt and reduction of cost with our debt. It's an operation that really makes our capital structure even more robust. Then we also, in the second quarter, had our Irani Day. I think you guys were able to watch. If you haven't been, you can access them on our website. We were able to share more of our strategies for the company in the future. We approved Gaia XII, which is the expansion for Minas Gerais at MP07. We're going to be investing BRL 514 million in total. We'll expand our business capacity of Machine 07 in Minas. We're going to increase it by 60%, and we'll go from 60,000 tonnes per year to 96,000 tonnes per year. We also have Neos, our new cycle. I just want to remind you all that, Gaia, these active investments that we were able to implement to optimize our current sites and Neos is really expanding our capacity. We'll be adding new plants, and we're going to continue to work on the studies and engineering work but it still hasn't been approved yet because we're still working on the execution and engineering studies, et cetera, and also monitoring the market conditions to know when will be the exact moment to really start this project and promote this and propose this to the Board. Looking at our capital allocation strategy and our discipline in capital allocations. We're not going to perform investments that get in the way of our policy for financial management. We have limitations for leverage, and we really need to study the right moment, the right timing, because these are for worlds. This is our strategy. We're going to grow our sustainable packaging market, and we'll add a new recycled paper machine as well in this cycle of investments. We also announced on the Irani Day our first report for financial information related sustainability, the IFRS S1 and S2. We're the first company in Brazil to perform this disclosure, and we're going to continue to do so. Just have to re-disclose that CVM removed the mandatory condition of disclosure of the standard report. But this report provides tangibility to our strategy, right? We celebrated our 20th anniversary of our sustainability report in that same event. Looking back, the sustainability report has its retrospective perspective, right? Of course, we celebrated all of the evolutions we implemented in these 20 years, and the IFRS S1/S2 report looks to the future. Those are complementary reports. So the sustainability report looks in the past, and the IFRS S1/S2 shows the perspectives and future potential of what related to sustainability. Our strategy is really a thesis for our capital allocation, and these reports are very important and useful to help investors and partners and related parties or stakeholders to really understand the strategies in depth. To wrap up, we were also recognized as a citizen company due to two cases we shared regards decarbonization at Irani and our strategic plan as well. So this is a single case and our strategy plan for decarbonization. We also were certified by GPTW with the index of reliability of 86%, which is a very good rate, which captures the satisfaction of our employees within the company, and it's something that we always follow closely. We were very happy. Our unit at Minas Gerais was at the 39th position in the regional ranking of Great Place to Work. From our Investor Relations team, André is our person responsible that took over in January for Investor Relations, and this is the rest of the team that everyone knows. Emanuel is also the Coordinator, and Marcos is the Coordinator and Manager of relations with investors. They are the team you already know. Please feel free to ask questions throughout the year. That's what we had to share. I believe now we will open for questions and answers. I will stop sharing my screen so that we can all see each other and have a conversation.

Thank you. Hello, everyone. I am going to open for the participants now. Please send your questions in the Q&A. Anyone who wants to raise their hand. We will start with Pedro Mello, Analyst from Citi. Pedro, you have the floor.

Can you hear me? I am going to ask a question, a follow-up on part of the presentation. You commented, at least what appeared here, is that you are making a larger shift to gain more market in packaging. So for the second semester, what are the expectations for the price transfers, taking into account the strategic increase in market share for the second semester and also in volume in the mix of packaging? I wanted to understand if when you transfer the cost, if there is any segment where you understand they are more or less receptive to price transfers and possible readjustments. Basically, how to marry increase in market share with the evolution of prices.

Perfect. Lindomar is our Director of the Packaging Business. So I pass the floor to Lindomar to answer this question. Lindomar, you are muted.

I apologize. Hello, everyone. Hello, Pedro. Actually when we talk about demand today, we have an offer that is very large of KraftLiner andthe KraftLiner is basically being directed to the market of corrugated packaging. There is an important idle capacity of the segment. This has made things difficult for us, we've made an effort in transferring prices to recover our margins. Aligned to this, we have also, in spite of these difficulties, been able to grow, as Odivan showed in the first semester, with a positive expectation in relation to the investments of our capacity in the business of corrugated packaging. This capacity is not large. It's relatively small, but we have done this work in the prospections, in the active portfolio, and we have been repositioning ourselves, we should be in the second semester with our capacities aligned. There is, yes, a difficulty in terms of implementation. We continue to work with the team. Some accounts, we were able to make the implementation. I would tell you that there's no specific segment. There's an important concentration in the food sector. 75% of our business happens in the Food segment, an important concentration in the south of the country in the segment of animal protein, more specifically in dairy and swine, but nothing very more specific in which we've had difficulty. In the price transfers we've done. It's a challenge. We continue to look in the third quarter to recover, but the good news is that we've been growing in volume. We've made a few movements and readjustments, and they are improving our margins. I am not sure if I answered your question, Pedro.

Yes, very good.

Let's go now to Guilherme Nippes from XP. Hello, Guilherme.

Odivan, André. Thank you so much for the opportunity. I have two questions here as well. Can you hear me well?

Yes.

Great. So on the side of volume, looking more at paper, if you could comment on what the expectation is of volume and prices are for the third quarter. Usually, you end up converting a bit more. Sometimes there is a higher volume of rigid paper here and sometimes there is a volume that varies more with flexible paper. Maybe you could comment more on volume price and this dynamic for the third quarter. And my second question is on cost. I know you already commented, obviously, that scraps went up when we look at July. There was an increase as well in the prices of scraps of around 4% versus the tip of June. But I wanted to understand with you, what is the dynamic that you have a vision for the future. If it should be 110, if that would be a more adjusted price, or if we should expect to see higher pressure coming from the cost of scraps and in this sense, is there any way that you can mitigate this price increase in your portfolio? Naturally, you tend to work with lower prices sometimes. Those are my two questions. Thank you.

Perfect, Guilherme. Henrique is our business director for paper. Could you answer?

Guilherme, hello. I'm not sure if I understood the question properly, but I will try to explain. With flexible packaging, we still have a price increase that will come in the third quarter, which is still to come, and the rest of the increases have already been introduced in the internal market. Since the price combines the external market and the internal market, it will be related to the exchange rate. There was some changes to compensate with the freight costs than an actual price increase because of an excess of paper that exists in the market, in the external market and in Brazil as well. In relation to the sale of rigid packaging or rigid paper, we have been transferring everything that is done in packaging, and we sell the excess. When we have more productivity, we end up selling a bit more, and the difference will be very small since the second semester is always very hot in the market of packaging. Usually, the sale of paper will be more stable, very similar to what we did in the first quarter. If there is a difference, it will be very small. I am not sure if I was able to clarify, Guilherme.

Yes, that was it.

And on the second question.

Yes, on the scraps.

I will try to help with this question. On the scraps it's the following. There is some pressure right now in price increases, but obviously, probably the market is going after importing scraps to minimize the impact. If all the companies of the sector are not able to transfer this price increase, I imagine there will be more pressure from the industry to the contrary to break this price increase. So at this moment, we are feeling this momentary pressure, but in the next few weeks, I believe that this will calm down unless the companies are able to transfer this price increase. On the same line, Guilherme, historically, when scraps go up, the sector always ends up compensating and transferring the price. This did not happen only in moments in which the demand for corrugated paper dropped. So what we need to observe is the demand. If there is a demand for packaging, in thesis, the sector should have the conditions to compensate for the increases in scrap prices. Basically, that would be it, I do not have an exact number to tell you. Besides what went up recently, we do not have more detail on this.

That was very clear.

Now going on to Marcelo from Itaú.

Can you hear me well?

Yes, we can hear you.

So thinking about the long term. In order to move forward with the project Neos, you need to look at market conditions and structures of the company. I wanted to understand in more detail what are the main variables that you have to feel more confidence to start the project Neos. In fact, is there any new market conditions or is it the capital structure of the company? Could you detail further for us?