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

Welcome, everyone, to our Earnings Call for the third quarter 2026. We are here with the management, and we also have the IR team with us. We're going to start off with the presentation of the results in this quarter. After we'll have time for the sessions and proposals. [Operator Instructions] The webinar is going to be provided and recorded on both languages on the company's IR website. Once again, I want to thank you all so much, and welcome to the Earnings Call for the quarter. The third quarter was very good. There was -- where we were able to deliver interesting quarter results. We -- [indiscernible] BRL 456,000 (sic) an adjusted EBITDA of BRL 151.9 thousand, net income of BRL 56 thousand, and a free cash flow of 18.1% in the year. And when we compare the quarters when it comes to net revenue in the third quarter, we had BRL 456 thousand, which was 5.3% above the third quarter of last year and 5.7% above the second quarter this year. So when it comes to the EBITDA for the ongoing operation, we still have the adjustment of the operations we discontinued last year, [ resins ], and we're -- we still have an ongoing and discontinued operations that we're going to be presenting. But the discontinued operations have a very small effect. So the difference between one and the other are almost irrelevant. But we must present this in both formats. And then in the ongoing operation, which is what most interest us, we delivered an EBITDA of BRL 151.9 thousand (sic). That was 3.9% above the BRL 146 thousand (sic) and 15.5% above the second quarter this year. And I want to highlight the level of the EBITDA margin. It was a quarter where the EBITDA margin was above the 33% as we had already seen in the third quarter last year, which places us among one of the companies in the sector of paper packaging with one of the healthiest EBITDA levels in the local Brazilian market, but also in the global market. And in the ongoing operation -- discontinued operation, the EBITDA in the third quarter [ the same] 4.7% above the third quarter last year, BRL 145 thousand (sic) and 15.5% the second quarter. So it's the same number. And when we look at the net income in the ongoing operation, on the left side, we have the ongoing and discontinued operations. So in the continued operation, our net income closed at BRL 56.5 thousand (sic) million, which is 34.3% above the net income in the same quarter last year, BRL 42 thousand (sic). And so we continue -- we had BRL 30.9 thousand (sic) and it was also above in the third quarter compared to the second quarter. So I think an important point is that in the third quarter, we had BRL 39 thousand (sic), and that's the net income from the operation without the biological assets, right, which is kind of in line with what we had last year. But we had BRL 16 thousand (sic) of variations of the fair value of biologicals, which is a little lower, but still higher than what we achieved in the third quarter last year. So the net income was -- in the third quarter was very good, BRL 56 thousand coming from the operation, which we've been supporting and sustaining at a healthy level, but also gathering our biological assets. In the ongoing and discontinued operations, basically the same situation. The numbers change a bit BRL 56 thousand (sic) against BRL 41.1 thousand (sic). You can see it doesn't change much in regards to the ongoing operation and the effect are the same in regards to the operation and the biological assets. And then when we look at the packaging segment, which is our segment for Corrugated Cardboard, and we look at this segment, which is most of our revenue, you have empapel, which is the entity that discloses the numbers in this sector, has been showing that the sector has a slight backwards in regards to the third quarter of '25. So it's practically stable in regards to the third quarter of last year and an increase of 4% in regards to the second quarter this year. In square meters, we also have pretty much the same effect, stable, and an increase of -- and this is market data disclosed empapel. And on the other hand, we were able to have very good performance, exceptional performance volume when it comes to volume. We grew 11.5% in the third quarter of '26 compared to '25 and 8.3% in regards to the second quarter of '26. So when we looked at these square meters, it was 13.5% even [indiscernible] and this is a major evolution of 7.3%. We resumed our search for expanding vol. There was a bit more room for adjusted margins. But now our operation is super stable and our sales teams are really prepared and we've conducted a lot of work in R&D for the packaging, which allowed us to evolve when it comes to volume that we could really fill in our capacities. And we have both of the packaging without detriment to the price. And so it's a lot more related to the [indiscernible]. We have a little more of sheets here, but we were able to have an increase in volume that was really significant with a quality in the margins. And in regards to the second quarter, we've also had stability, right? And when we look at the price in square meters, it's a little higher and you have an increase of 0.6% compared to the second quarter. Now with the paper for packaging segment, we have a big reduction of paper and most of this is transferred to our packages and the rest is sold to market. So the part where we sell to the market, we had a reduction of 5.2% with regards to third quarter of '25 (sic) because we reduced the cardboard packaging and we had more of an internal transfer, we're actually a little less in regards to volumes. And in the flexible packaging, we sold 4% more than the second quarter. And actually here, it's the total amount, right? So we sold a little more from '25 to '26 and it dropped a little bit. And there was a slight reduction in regards to the third quarter of '25, but production has been very good. We've been ramping up with machine [ 5 ] and we've been reaching all-time high, all-time records with the production of the brand and the global results, right? So when you look at the average pricing for packaging for bags, and for those who are not very familiar with this, flexible packaging for bags and retail paper packs for bakeries or the kraft bags, we also produce the rigid or stiff paper, which is what we call containerboard, and that's what we produce for boxes, cardboard boxes. The -- in flexible pack, we had an increase of 2.4% in price in reals per ton and 1.8% in regards to the second quarter. We have the adjustment in pricing in some lines. And in the rigid paper, it's more like this relations with the scrap prices. So there is a drop of 3% and pretty stable, though, in regards to the second quarter of this year. And the scraps, which is an import that we're exposed to and that impacts our results significantly. There, we have Anguti which is the entity that collects and disposes prices to the market. And they decided that in the third quarter of '26, scraps were 8.9% below and 9.7% above in the second quarter of '26. And so in our case, we monitor this, right? But we've reduced the price of the scrap by 8.5%, and we also had an increase of 8.6% (sic), right? And this is the main input. And I think now the main issue is how this is going to be from now on. We've been facing stability in the pricing and at least when you consider short-term horizon, there's going to be more stability in the price of scrap. Heading to the financials. We can see our capital structure and our debt. We ended the quarter with [ 1.98 ] net debt to EBITDA, which is a ratio of 1.89. And during the third quarter, we also expanded liquidity and the prices, extended our debt, and reduced costs. We paid certain debts, which funded about -- and we were able to refund and re-strengthen our cash. And we have a net debt of BRL 992 million. So I want to highlight that the drop in the net debt, which is below BRL 1 million, a very robust cash position, which is already prepared for the -- we already have the cash to pay out the debenture that's going to mature in August, BRL 486 million. And we have a work -- a cash flow that's really smooth and really balanced considering our liquidity capacity and we've done all of this because of the scenarios that we're designing in the third quarter. We didn't know how the elections would end up and how things were defined. And the fact is that now the company is really prepared and ready to take on the next years. The average cost of debt was 12.9% per year and that's our debt as a whole that [ BRL 2.4 million, BRL 2.5 million ] has a -- all sets lower than CDI on average. We have operations that are a little higher, others that are a little cheaper. But on average, we can have the cost of debt that is lower than the interest from treasury. And when it comes to currency, our debt is currently in local currency and only 1% in foreign currency, which is the ACCs that we have, which is hedge and precise management of the currency variation. So we're a company where the functional currency is the real. And so we really want to have -- we don't have -- we don't want to have FX on our income statement. So that, of course, affects dividends and predictability in the management of our cash and also, of course, for our shareholders. And then another topic we're bring in that is new disclosed in details our financial statements, but we're changing the way we calculate our ROIC. Our ROIC, we always used our gross debt calculate. Due to the effect of this major fundraising initiative in the third quarter, we sat down to reassess this. And since we have a high cash of BRL 1.5 million, then we understood that this was affecting our ROIC inadequately because the company's cash position was not invested in the company. And the company's cash is a financial strategy or liquidity strategy that is invested in the financial market, right? It's not allocated in [ plants ] equipment, plants that generates cash, right? So we study this, we benchmarked that we understood that the correct method would be to use the net debt rather than ROIC. And so the net debt is establish invested capital, net equity, and construction or projects that are underway that have to be excluded, that haven't generated cash yet. And then we can really calculate the -- know flat operational cost and we can compare this cash generation fee invested capital. And so we're changing the methodology to have the cash balance and it is BLR 1.5 million that we have in the third quarter is not applied or not invested in the operation. You see the average cost of debt is below the CDI level. That won't impact the operation of the company, and it must be excluded. And that's how we discovered this recommendation, right? We adjusted this, and that's why we're bringing both of these accounts. In the third quarter, we had a ROIC of 18.8 using the net debt to EBITDA. A lot of companies also use this methodology. And if we had kept the methodology before, it will be a ROIC of 12.5, which would give us a wrong number per assessment capacity because the invested capital would not be the 2.030 that we have because it -- in the gross debt, the 1.048. So our ROIC ended up at 18.8. And so -- and then the third quarter would be -- you'll will see the evolution even when you compare and -- our ROIC evolved, actually, during our -- the second quarter this year. We have other details also on the financial statement comments and noted. And if anyone has any further questions, you can also schedule a more in-depth conversation with our IR team and financials. So when you look at this new ROIC methodology, we closed at 18.5. And we have an average cost of debt which is 8.5, deducting the income tax that allows anyone to calculate the ROIC. And so we use our own cost of capital and the 18.8 is above the ROIC and using the cost of capital, though -- as each one has their own cost of capital, we can do your math and we'll give you the numbers and formulas so that you can look at this and understand if the company is compensating this adequately, right? So with everything we've been doing in our calculations, we can -- we've been navigating with some pretty good ROIC and that's even more than enough to overcome the ROIC even in this period with the higher interest rate that ends up bringing in additional challenges. So the lower level of debt would add value -- even more value to shareholders and even in a more complex period with high interest, we've been able to compensate for our shareholders. And so we distributed BRL 0.40 in the last 12 months, which adds up to BRL 92 million accrued, a dividend yield of 4.8% and towards the third quarter BRL 0.061, the minimum that's mandatory, the 25%. I want to remind you that our dividend policy is that we distribute the legal minimum every quarter. And in the fourth quarter, we distribute the mandatory minimum. And then the general shareholders meeting considers the distribution of an additional 25% if leverage is below 2.5x, which is what has been going on in the last years and what would also impact this, right, because leverage is below 2x. So at the end of the day, the end of the year, we disclosed the earnings for the full year and the 25% additional amount is approved at the general shareholders meeting of 2027 related to the year '26. Here, we have the investments. And so we have the investments concluded for the Gaia Platform. Actually, I just want to remind you that there's 12 projects. From these 12 projects, 7 have already been concluded adding up to BRL 974 million of investments that were already made. And we have these 5 that is still underway, the 2 [ PCHs ]. And we 26% of the project already executed. And we'll have the additional energy And then the print also, which we already 90% of the progress considering the performance curve. Machine 5, also -- and Gaia XII which is the main investment underway today, BRL 514,000 which is the production of Minas Gerais. And it should be finished by the fourth quarter of 2029. So when it comes to investments that are relevant, we have Gaia XII that we're working on the execution for. Then we have the Neos Platform and now, we haven't approved any project for yet. And all of this is intending to define the projects that were -- that we should be performing first. So now has 2 packaging plants and a new paper machine, right? So we're working on engineering and also looking at market conditions to be able to assess if we've been working with this return rate for each of the projects above the cost of capital. And when you look at this from a market perspective, engineering perspective, and also with the feasibility [ perspective ], then buyback program, we performed 300,070 shares, which adds up to BRL 1.56 million related to 15% of the project. And it's going to go until -- for another 18 months, and that's when it should be finishing and we'll consider that when the value of the shares are not reflecting the intrinsic value of the company, it's also a way for us to optimize and maximize returns for shareholders with the buyback program. So we see there's a potential to have a higher tier. And we should also have some buyback operations as well. And so I think that's it. Some highlights here. I think the company, besides the economic and financial results has other perspectives as well. And it's important that we do well in these. So we're happy to see it at the -- among the best companies in Brazil for Great Place to Work, GPTW. And so that's -- people that make this happened, right? These are our people and our teams. And we're among the 50 best companies in Brazil. And people are here, they're happy, they're happy to work here and they recognize us as a healthy place. And that's what we want, right? To work with people that are trained and prepared and happy and that's how we can achieve results as we've done now. And also the 11th position in the Sao Paulo ranking, among the best companies to work in, in the city of Sao Paulo. So we're the 11th company in the city of Sao Paulo. So that's a huge differential. In Rio Grande do Sul, we were the fourth position and we're now waiting for the results of the ranking in Santa Catarina to see where we will land in the state's ranking. Then we also have the Transparency Trophy and the -- as referencing this, we're always for transparency and information. And we've been working tirelessly to improve our financial negotiations and make them easier to understand and that's why it's really valuable for the next consecutive year. We want the recognition for transparency, a group of specialist that the financial statements and there's net revenue to [indiscernible]. And so, yes. We were also really happy to be the first place in Paper and Pulp for the best and biggest in [indiscernible]. And we were really happy about this because the sector has really good companies as well [indiscernible]. And we could see in the first place and that really made us happy. And the second place in the Valor Inovacao award from the sector. We can see that, that's something we've been evolving a lot with, and we've been dedicating capital, we should be a more innovative company so we can service our customers more and more, and they are the ones that really help the company. And we hope our customers always prefer us and, yes, that's the increase in the volume of packaging, that was great because we were really able to have an adequate approach to preserve margins and all of that was reflected in the economic results. This is possible without -- this would not be possible without innovation and really having customer preference, right? So we've been dedicating a lot of time and energy and so that we can grow even more. And so everyone is here on our photo. This is our IR team and feel free to hop in if you want to clarify anything or answer any questions. I want to invite everyone to also visit our social media pages. We have great content being produced and what's paper for packaging, flexible packaging, productive processes. And just a few weeks ago, they also published some interesting videos. And the more you understand what Irani is doing, the better it will be for us because we can -- it can be a lot easier for us to explain what's going on in the day to day.

So feel free to speak with any of us, and now we're going to move on with the session here for Q&A. I'll stop sharing. And we'll also see this on the -- I can see all of the Directors that are present here on the webinar.

Now we're going to move on with our Q&A and we're going to move on with [ Rafayel Otogu ] from Itau.

Well, first of all, congrats on the results. Two questions on my side. First about now, when you consider the cost of capital, how have you guys considered the decision for investment for timing now, still a main alternative regardless of macro conditions and scenario? Or do you guys think that there are other ways to allocate capital that could be better? And my second question here is about prices. When you look at the price dynamics, you can see scrap went up a lot in the third quarter versus corrugated cardboard. And we've seen this in the past. And I wanted to see how you imagine is [ basis ] of that, if there's any possible space for an increase of corrugated cardboard in the beginning of next year?

Well, I'm going to answer the first part, and then I'll pass it on to Lindomar to talk about the prices. But now we can't ignore the scenario or the interest rate because when you're conducting the company, you have to analyze the cost of capital and the return rates and just do what generates value to shareholders. And so considering a return rate, that's maybe -- so yes, the interest impact this decision. I think one of the main variables that we look at and our objective is to have a return rate that's above the cost of capital. And so maybe Brazil needs to be a little stronger and we need to have our capacity to engineer projects, right, searching for tier alternatives and ways to find returns, right? So that's an additional challenge, right, due to our level of interest. So we have one of the highest interest rates in the world and that pressures the engineering team. And so we have to use a lot of intelligence to really look at these projects that can really consider our cost of capital. And so that, of course, you still establishes leverage limits. And so that way, we can continue to distribute the 15% dividends. And so that, of course, has limitations. And who knows if the market is doing really well, we can even discuss -- and we can consider -- and so what we can see is that's most valuable is our own cash generation, right? And that's going to be a very robust cash generation, right? That will help us deleverage quickly and really create space for these investments. And so and that's kind of our mindset, right, Rafayel. We think about we have to really take care of the space. And so we don't leverage the company above what we should. And we understand what would be like the optimal structure and so we can have a return on capital and we don't want to leverage too much. But I think at the moment, we can see how our policy for financial management is really certain, right? Our level of leverage is controlled. Our level of liquidity is very robust, our extended debt profile. And all of this could even limit a little bit of our growth, but it really preserves the company's value in a very robust manner. So we've been seeing this in real time. Our financial management policy is really taking place in the right way at a moment where Brazil is going through a peak in interest rates. And so I'll leave this up to Lindomar as he's our Packaging Director, and he can answer.

We've already planned a movement or a trend from the first semester and be very objective. And so yes, there is space, and we've organized this.

And okay, that's great.

And so now we're going to pass the floor on to [ Paula ] from Citi.

Congrats on the results. Excellent. And just following up on the last question on the sustainable packaging. And we saw a significant growth compared to the industry and you guys have been able to evolve market share. And my question is if this continues in the fourth quarter and if you also see space for robust growth for market share and volume. And if you guys have any market intelligence coloring or information on the demand and packaging food and animal protein, et cetera for the fourth quarter and beginning of '27.

Lindomar?

Okay? I'll [ follow up ]. That was excellent performance, really, and in the third quarter. And I think that's mainly due to the work. The commercial team has been performing since the beginning of the year. And so we need to reinforce the responsible work to prospect volumes without destroying value. And so when you consider the volumes, there's an impact. And so we've also recovered volumes. And so when you consider the growth, the team, the market kind of went sideways, and we should have growth that's a lot higher than the second quarter [indiscernible]. But we have a very positive perspective that the work we're doing to optimize our capacity in the packaging operations continues, actually, in the fourth quarter, and we have a very positive perspective to begin the year as well with our capacity. And what was the other question you had?

Well, in regards to the demand and the strong points of this demand in the sector, especially for animal protein and food.

Well, the demand is still strong. You've been accompanying this. We had a slight problem in state of Santa Catarina. Our packaging was really concentrated in the West area and the north of Parana. These regions were not impacted. And there was -- can you -- guys can hear me right?

Yes, we can hear you.

All right. So there's been significant growth also in the exports to Japan and in the state of Santa Catarina, where we had this small issue. This was all redirected to the general market. So we had no difficulties to supply this into the market here. And you've seen that the beef sector has had a bigger difficulty with slaughtering. In the last years, there's a lot of female animals that were being slaughtered, but that really facilitates this process, including the chicken for the internal market. So I hope I answered you.

Yes, that's clear. Congrats on your results.

Now we're going to pass it on to Marcelo from BTG.

I think my question is really in line with the first question by Rafayel here, maybe not looking at now, but looking at 12 and a bit of the outlook for next year. As Odivan mentioned, we still have this macro trend of interest extended for longer and then considering the projection of the company next year, we should have a CapEx that's pretty high, maybe just below the peak in 2021 and '22. But I wanted to know what the view is for next year and if there's any perspective on this or maybe even a postponing of this investment considering the scenario, right? And if in some way, this macro environment is more challenging, could impact the demand, although we know that your guys' performance is going to be a lot more resilient than the average.