Dexco SA

BOVESPA:DXCO3

Earnings Call Transcript

[Operator]

[Interpreted] Good morning, ladies and gentlemen, and welcome to Dexco's Earnings Call for the Fourth Quarter of 2024. This conference call is being recorded. You may access this recording at the company's website, ri.dex.co. This presentation is also available for download. This call is also available in English. [Operator Instructions].



Before we continue, we would just like to state that any prospective statements are based on the company's beliefs and assumptions. This is based on currently available information for the company. These statements may involve risks and uncertainties as they refer to future events that, therefore, depend on circumstances that may not occur. Investors, analysts, and journalists should take into account that any events related to the macroeconomic scenario to the industry and other factors may make these results differ materially from those expressed in these forward-looking statements. We have with us the Executive Board and the Investor Relations team from Dexco. 

 

I would now like to give the floor to Francisco Semeraro, the company's CFO, who will begin the presentation. Please, Francisco, go ahead.

[Francisco Augusto Neto, executive]

[Interpreted] Hello, everyone. Welcome, and thank you for joining us for another quarterly and annual earnings release for Dexco. I'm here with the CEO, Antonio Joaquim, and the entire Executive Committee. 

 

I would like to start on Slide 3 with some of our headlines. During 2024, the Wood division consistently boosted its results with demand booming during all quarters of the year, driven both by the furniture industry and the retail sector with good panel price levels considering price transfers that began in the third quarter and that were well received by the market. 



Talking about Metals and Sanitary Ware, we have confirmed the division's recovery compared to the 2023 results with operational execution recovered in the face of a market upturn. In this regard, we have been closely monitoring the ceramic tiles sector, which continues to be under pressure, but it's proving to be a sector with opportunities for Dexco looking ahead. 

 

The global political and economic scenarios have remained challenging. However, we were able to recover and maintain our operational efficiency. As for LD Celulose, it continues to deliver consistent results. This year delivered another record in revenue and EBITDA, combining great operational efficiency and effective cost management. There was a one-off effect on net profit, net income this quarter, which we'll discuss in a few slides. Driven by the results in the Wood division and the recovery of the Metals and Sanitary Ware division, we ended 2024 with an adjusted and recurring EBITDA of BRL 1.6 billion and a margin of 20%. 

 

If we include the 49% of results from LD Celulose, we will have reached an adjusted and recurring EBITDA of BRL 2.4 billion in 2024, an increase of 22% compared to 2023 with BRL 8.2 billion in net revenue. We continue on Slide 4, which deals with the company's cash flow. We closed 2024 with a sustaining cash generation of BRL 391 million, driven by a recurring -- a stronger recurring EBITDA. Working capital over net revenue ended the period at around 11%, in line with previous years, showing an improvement of 3.6 percentage points in comparison to the third quarter of 2024 and 0.8 percentage points in comparison to 2023, reaching levels in line with the company's cash strategy. 

 

We're approaching the end of the 2021-2025 investment cycle. And this year, we've invested around BRL 231 million in the new floor tiles unit in Botucatu, which has already started its ramp-up. Around BRL 108 million in improving the metal mix and around BRL 10 million for our venture capital fund, DX Ventures, and around BRL 40 million in improving the wood panel mix and improving our forestry base in the Northeast of Brazil. As far as CapEx levels are concerned, we ended 2024 with a sustaining CapEx level higher than the previous year, driven by investments in our forestry base. The second quarter of this year had a significant disbursement in this line. 

 

We understand that these investments are strategic differentials in the medium and long term. It's also worth pointing out that this is one of the most discussed components when we analyze the company's leverage levels. With the end of the investment cycle approaching, we have been studying the most efficient levels of forestry investments and planned maintenance so that the company's cash generation is prioritized without impacting our operations. 



Slide 5 shows that even in face of a more unstable macroeconomic scenario during 2024, we managed to ensure efficient liability management with a reduction of the average cost of the company's debt in the quarterly and annual comparison, maintaining the average term. 

 

Dexco's leverage levels were around 3.01x net debt-to-EBITDA in the last quarter of the year, returning to 2022 levels. We continue to pay attention and take action to optimize Dexco's financial performance and collaborate with deleveraging in an intelligent way, preserving the company's strategic levers such as the forestry operation at the end of 2024 as per the previously published material facts. Now on Slide 7, we present the wood panel market scenario according to data from IBÃ, the Brazilian Tree Industry. As we said in the beginning of the presentation, in the domestic market, we have seen demand for both MDF and MDP evolving versus the last quarter and 2023. It was noted that in the fourth quarter, the foreign market shrink by about 9%, mainly due to the higher costs associated with shipping. 



Regarding the Wood division, now on to Slide 8. It has delivered yet another nominal record for adjusted and recurring EBITDA in the year at BRL 1.5 billion and a margin of 28%, mainly due to the improved profitability of panels considering price transfers that took place during the second half of the year and the company's assertive strategy of carrying out forestry business as a profitability option, which took place in the first and third quarters of the year. In the quarterly comparison, meaning versus the fourth quarter of 2023, volumes and net revenues were in line, considering that there were scheduled maintenance downtimes and the industry collective vacation period. But we continue to see an upward trend after this seasonal period. 

 

As far as cost is concerned, in addition to the lower dilution of fixed costs, we felt an increase in dollarized inputs in the period given the price peak that the dollar reached at the end of the year. So we remain alert to the upward trend for 2025 and new price adjustments that may mitigate these impacts. Regarding the dissolving pulp operation, we continue to have good news when it comes to LD Celulose's results. We presented record net revenue and adjusted and recurring EBITDA for 2024, confirming the operational excellence and competitive advantages of dissolving pulp over other fibers. And we're talking about the quality of fiber produced by LD and the stability of prices in the commodities market. 

 

As this is a dollarized operation, it benefited from the devaluation of the real at the end of the year. Also with regard to cost, the operation maintains very diligent processes, which minimize the impact of the currency on the results. Finally, with regard to net income, it showed a negative result for the quarter and the year. As reported in the last press release, LD went through a new process of restructuring its financing, replacing project finance with corporate finance, which resulted in a more appropriate capital structure and covenants. However, this replacement ended up appropriating all the charges from the last operation, which directly impacted the financial results for the fourth quarter of the year. 

 

Additionally, we had essentially accounting effects related to deferred taxes associated with the operation's functional currency, the U.S. dollar. So this caused LD to post a loss for the period. We emphasize that the outlook for the operation is completely positive, and these effects have only occasionally affected our results. 



Let's continue with Slide 11. The finished goods market ended 2024 confirming its recovery with a 9% increase compared to 2023, as did the construction materials industry as a whole, which grew 6% versus 2023 according to ABRAMAT, the Brazilian Association of Construction Materials. 



Even though they provide broader indicators, including products that Dexco does not sell, we believe that this is a good gauge for the sector in which we operate. 



We continue on Slide 12. In 2024, we saw an important recovery in the Metals and Sanitary ware division, which ended the period with an adjusted recurring EBITDA of BRL 131 million and margins of around 7% in 2024, of which BRL 28 million were in the fourth quarter. With this result, we began to reap the rewards of the initiatives carried out throughout 2023 to improve operations in face of a market with stabilized demands. As mentioned before, the appreciation of the exchange rate also had an impact on the division's dollarized inputs. And we also had scheduled maintenance downtimes and collective vacations, which reduced the dilution of fixed costs. Disregarding these effects, adjusted and recurring EBITDA in the quarter remained in line with what was delivered in the third quarter of 2024. 



Even with the conclusion of the electric showers and taps segment, we showed an evolution in volumes, both quarter-on-quarter and year-on-year as well as an evolution in net revenue, confirming a better product mix and gains in market share for both metals and sanitary ware. In terms of plant capacity utilization, the Metals segment continues to be the differentiator, running at efficient levels with the premium product mix that corroborates the division's results.



On Slide 13, we see the Tiles division or the tiles market according to Anfacer. This quarter, we began to see a recovery in this industry as a whole and in the wet segment where Dexco has operations. It's important to realize that this recovery is estimated at 4% in the last quarter of the year. So there is still a long way to go to achieve stable results. In 2022 and 2023 combined, we saw a drop of 30%, which means that the recovery is still challenging. We have also seen a progressive increase in the industry stock levels, which were running around 30% idle capacity, which brings attention to the market that is already variable.

 

The next slide shows our division. We continue to intensify our commercial initiatives, ensuring gains in market share compared to 2023 and with higher volumes and net revenue, both quarter-on-quarter and year-on-year. However, there was an impact on costs reflected in adjusted recurring EBITDA for the fourth quarter and for the full year. Besides the downtimes and vacations, we had the start of a ramp-up in the new tiles unit in Botucatu. With the sector showing few signs of recovery, factor capacity utilization levels pressured by a highly competitive industry, we've closed the year with an adjusted and recurring EBITDA of BRL 4 million with a margin of 0.5% in 2024. 



Now talking about perspectives for 2025. These are some of the discussions that we believe will guide the first half of 2025. The Wood division remains resilient, mainly from -- with demands from the furniture industry. Talking about the finishings division, we continue to make progress in metals and sanitary ware, and we continue to see the best results for this division. With the end of the '21-'25 investment cycle, our focus is to reduce the company's leverage and prioritize cash generation. Even facing a challenging macroeconomic scenario, we remain attentive to opportunities so that we can optimize our efficiency and profitability. We are already seeing price increases for our products to offset increase in input prices. And we remain diligent about the company's costs and cash management, prioritizing returns on all projects. 



Before we conclude our presentation, I want to share with you a project that is a new moment for the company, Casa Dexco. It was announced in 2021, and it is now a reality, consolidating our presence in the design and our decoration sector right in the heart of Sao Paulo. I will officially present it to you.

 

We're very excited about this project. The official event took place last Monday and was attended by key professionals in the field of architecture and design as well as Dexco's top executives. We have 2 floors, almost 4,000 square meters, and it's an important step for the company. For the first time, we've brought together all of our brands in a single space, offering an integrated experience for architects, designers, and consumers. It's a new concept, an architecture and interior design going beyond being a showroom. It's a space where customers can see and purchase our products. It features -- everything you see in a conventional store, but it's also designed by 20 professionals, and these spaces are not just there for show. People can enter, touch, try out the products, and also see art and design exhibits, and there's also space for events, a co-working space, and a functional kitchen and cafe. We'd like to invite anyone to visit this space, which is located on Avenida Paulista. 



Before we close the presentation, I'd also like to invite you to Expo Revestir 2025, the largest floor and wall tiles and finishes here in Latin America, which runs until tomorrow, March 14, in Sao Paulo. This is an important event for the sector. And we have Dexco City, an architectural project inspired by Consumo Nacional, which also connects with Casa Dexco. This is an important channel for product launches. And this year, we've secured new products from the Deca brand with new lines of metals with Portinari and porcelain tiles with slabs that can reach 120 by 280 centimeters. These are products that dialogue between all the company's brands. Expo Revestir is one of the company's main channels for connecting with its various stakeholders, and it was an important driver for results in the first quarter of the year. 



Before we continue with the Q&A, I'd like to take a moment to recognize and thank Antonio Joaquim, our CEO. As many of you already know, this is his last earnings call as our CEO. On behalf of the entire company and our team, I want to express our deep gratitude for his leadership, vision, and commitment over the past 13 years. 



Now let's continue with the questions-and-answer session.

[Operator]

[Interpreted] [Operator Instructions] The first question will be asked by Marcio Farid from Goldman Sachs.

[Marcio Farid Filho, analyst]

[Interpreted]  I have a couple of questions. First, I'd like to understand what we can think -- what we can consider for 2025 when it comes to standing wood sales and panels. We saw there were no sales in the fourth quarter, but considering that this will be a potentially more challenging year, how are you getting ready for this product mix? From my understanding, you prefer to run panels full capacity. And when you can't, you decide to sell a little bit more in standing wood. So I'd just like to know if you have anything planned and how you will behave this year? And my second question is about your macro and microeconomic scenario. As this will be a more challenging year with higher interest rates, have you been making any -- have you been seeing any changes in the market when it comes to demand, customer feeling?



And what should we consider for Deca tiles, which was having a turnaround, but is now facing a tougher market?

[Francisco Augusto Neto, executive]

[Interpreted] I'm going to let Henrique and Raul talk about panels and the feeling they have been having in demand, but we just want to connect this to what we just mentioned, the trade show, which is a good gauge of what the market is thinking about. This is an important feeling to capture because as things are advancing in the macroeconomic scenario, we need to be in touch with them. So this is an event that brings us very close to our clients. So to talk about wood panels, I'm going to ask Enrique to talk about what we're considering for this year.

[Henrique Marcondes, executive]

[Interpreted] Marcio, this is Henrique. So this year seems to be a bit better, but we see that growth is a little bit slower than in the second half of 2025. So the good news is that the market is still doing well, but it's adjusting itself, which is natural after so much volatility. We don't really see a major block of forest or wood to be sold on the short term. So we don't believe that this will happen at a significant level.



So this is our understanding. Of course, adjustments will take place. We're always buying and selling wood. This is a part of our operation. But the typical impact that we have in wood volumes will not be seen, at least we don't believe so. Thank you. Raul?

[Raul Guaragna, executive]

[Interpreted] Good morning, everyone. So I think your question comes at the right time because this might be the most -- well, the hottest week of the year when it comes to trade shows, exhibits. This trade show is always very busy with all of the players in our industry. And also, we've opened Casa Dexco, and we've had over 3,000 people visiting us in 3 days, which is also a great moment to interact with all the stakeholders. I think it's still early to talk about any sort of expectations in reduced demands due to interest rates. 



We've been seeing mixed signals from both sides. There are industries and areas and clients that are doing very well in the market. Everyone seems to be stable. There's some growth in January and February, and we see the same here. I think the name of the game here is to be very close and understand what is happening at the end. January was a bit slower this year when it comes to sell-out. February was a bit stronger and March after Carnival seems to be behaving in line with what we have been seeing before.



Our industry has a very long chain. This is the time of the year when projects start getting finalized. So we're starting to see some of that. So we're controlling everything we can control. It's a year of austerity of being very responsible in how we allocate our capital and looking at cash very carefully. But so far, it doesn't seem very different from what we expected. 



During our Dexco Day at the beginning of the fourth quarter last year, we had already imagined that 2025 would require attention. And so it does. So the secret here is that we have to be aware of what is happening, be very close to our stakeholders, and to start our initiatives. So we started the year with controls, austerity, but so far, we have had no surprises.

[Marcio Farid Filho, analyst]

[Interpreted] And just a follow-up. The foreign exchange rate has varied a lot this year. So how are your competitors behaving in trying to recompose a part of this price increase?

[Francisco Augusto Neto, executive]

[Interpreted] We've been monitoring this very closely. As you mentioned yourself, we had a lot of pressure since January. I think there are many effects here. Not only has the Brazilian real been devalued and of course, it's more volatile recently, but we also have some commodities related to resins, which have been impacted and will impact the cost at the end of the day. So if you look at some commodities like urea, ethanol, they have had significant increases since November. And that, of course, pressures our costs on the short term.



So we have made some price adjustments. As you have seen, our commercial policy is presupposing intelligent increases. It's not a one size fits all. We have been doing some changes depending on the product. What we see in the entire market, of course, I can't give you precise figures on a competitor-by-competitor basis. But there seems to be a much more rational position. Of course, there are disputes for share, for space, but it's not the same that we had before when it comes to price.



Without a doubt, costs, not only of resins and commodities but also wood costs have set a cap for wood prices. So I just want to include the finishing division here. We're also being impacted by costs. There are some commodities, there's shipping, which is a transactional impact for all operations in the company. But the fact is that we have been able to be a bit ahead of this at the end of the year, we announced a couple of things. So we're undergoing the implementation process. So if the situation remains, our price levels have been adjusted for the current cost reality. But like Henrique said, we need to keep a close eye on this.

[Operator]

[Interpreted] The next question will be asked by Mr. Ricardo Monegaglia from Safra.

[Ricardo Monegaglia Neto, analyst]

I have 2. First, congratulations on opening Casa Dexco. With this investment, I hope you can share with us what metrics you're going to watch to see the returns for this investment directly and indirectly. And what should we expect for 2025? What do you expect to do with the start-up in 2025? Our second question is, I think it was very clear that you need to pass on price -- cost inflation to the price. So my question is if this has already started in 2025 or if this is a conversation for the next months? And if you can break it down per segment, that would be very helpful. Thank you.

[Francisco Augusto Neto, executive]

[Interpreted] We're going to start talking about Casa Dexco, and then we'll talk about the different divisions. So for Casa Dexco, it's a first movement. So we do have some metrics. There were several reasons why we went into retail with this. The first is to have a much better service for our clients, for consumers in a space that would allow for that. We had a showroom before, but it had high operational costs. And it was not as efficient in its service, not only with end consumers but clients who wanted to come in and talk about a new collection. So with Casa Dexco, we switched our position. We had 2 operations, and we replaced it with one more efficient operation. 



But that's not the main fact. We have a plan, we brought in a team, a market retail director. And at Casa Dexco, we're starting -- this is the kickoff for a series of franchises that will be called Casa Dexco as well. We have 2 operations open and they will be implemented throughout 2025. So of course, in this process, there are several things we expect. First, as I said, we want to have much better service, we want to have architects and people. Our expectation is that this will become a mandatory stop for people who have the opportunity of going there. Like with Milan, you have major trade shows, and we really want to attract this audience. Obviously, with franchisees, we want to extend our sales of Deca and Tiles to more selected audiences in the specialized store segment, which is a premium, it's much more profitable. So we expect to see profitability increases, improved mix and things of the sort.

 

And also, we want to see higher returns as you have a new operation where you can service your clients directly. So we haven't published these, this is a part of the strategy. So most of these stores are store owners, which are already partners are having good conversions and are now becoming more integrated, working only with us. This new inventory model is very good. So again, I'd like to invite everyone, analysts watching and so on to visit us and then try to understand what Dexco is doing because our aim is to also have a position in retail.

 

I also want to talk about the institutional effects of having Casa Dexco. Like we said before, we had 2 old showrooms that were outdated. And when we include a space of this magnitude and when we can show this to our clients, we're going to see -- you're able to see how broad our products are and how they work in harmony. We see a lot of wood solutions in houses, all sorts of finishes. And the truth is that architects specifiers and even store owners have embraced Casa Dexco as a place that they can use, where they can take their clients for inspiration. So I truly think that we're very close to our partners even to our independent stores. We've seen a lot of store owners who visit and they also use our space to bring their clients in. So it's more than just a retail investment. 



Of course, it will definitely boost the Casa Dexco brand for the cities and regions where we have our franchises but we also are presenting Dexco solutions to our partners. So this has been very well accepted. Starting next week, we will have our sales operations, which also have a key element that is capturing data. So understanding how our products match analytics, data intelligence becomes viable and will become possible with data capture. So this is another key element for our strategy.

 

Continuing Ricardo's answer on passing on cost through prices. As I said in answering Fareed's question, we have been paying a lot of attention to this since the fourth quarter of 2024. We have had some price increases to adjust to the current realities. So we have been ahead of this because we know that you cannot miss these things. It takes some time to implement new prices, some of the agreements are over 1 month long. So the price increases we have made have adjusted to the macroeconomic scenario, looking at diesel costs, the U.S. dollar prices, and looking at the main commodities that we keep track of. But in such a volatile moment, we're not just making linear increases, we have a great pricing intelligence level where we can find the main elements of each cost calculation for our products and then adjust them accordingly. So we have made some adjustments, of course, we will need to make more, but we're paying attention to the scenario.

 

Just adding to that, I think I already answered this in more generic terms, but we are keeping track of it. We've made some adjustments in the first quarter, and we will continue to be close to our teams in doing this, and of course, to be close to the market so that we can make all necessary adjustments.

[Operator]

[Interpreted] The next question will be asked by Mr. Rafael Barcellos from Bradesco BBI.

[Rafael Barcellos, analyst]

[Interpreted] My first question is, I'd like to understand what changed in your strategic view considering the current scenario that you mentioned in the beginning of the call, where you see some uncertainties in some business lines, given the macroeconomic scenario. So are there still any adjustments to be made when you look at the operations? And what about your turnaround in Deca Ceramics? Will you have to change anything in your route given this new scenario? And what profitability levels do you expect? And my second question is about LD Cellulose. If you can tell us a little bit more about how your asset has been evolving throughout 2024. And also, are there any adjustments and opportunities for the short and medium term to make this asset return dividends earlier?

[Francisco Augusto Neto, executive]

[Interpreted] I'm going to start talking about the general strategy, specifically in ceramics. And then I'll let Adaji talk about LD. So speaking, overall, our strategy hasn't changed. We're going to make some small adjustments here and there, but this company has a long-term view. So ceramics will be our new growth platform. We continue to be committed with this strategy of working with ceramic tiles. 



I think Botucatu, Casa Dexco require you to work hard on ceramics, right? 50% of the sales in stores are ceramic tiles. So this is a product that we need for any environment of the house. So of course, we're going to continue to invest and adjust our position in this market. You saw the impact that this had on our results at the end of the year. There were relevant impacts in investments. We are making industrial adjustments to start off the Botucatu plant. Its portfolio is completely different. It's a unique plant in technology, new products, and it allows us to play in segments that we're not present in yet. And it also allows us to have a bigger geographic footprint. 

 

And we're also more competitive when it comes to shipping. And we can now service on the Northeast, the Midwest, and even the state of Sao Paulo. So our strategy is to work with this operation system in ceramic tiles. And I think this has been sustained and is now strengthened. In December, we made all necessary adjustments, changing our product portfolio, and this is not a trivial operation. We have over 1,000 SKUs, 1,000 different products that need to be aligned with our units. So we're following the plans that we have made a long time ago. And considering the rest of our turnaround with metals, we're starting to see ourselves in a much better situation. 

 

Our products have a good demand, good production capacity, good improvement in delivery levels. And I think that is key, so we have made some very good launches. Our portfolio is very comprehensive. It's aligned with what we need to have to gain a share of the areas where we work in. And with sanitaryware, we need to have higher plant occupation rates. So we have made adjustments to our plants. Jundiaàhas been automated and it's starting to have very good results. And this is something that we need to look at very closely. Our results in automation should provide good results in JundiaÃ, and plants in the Northeast have a good occupation rate. That's our outlook. 

 

We have very labor-intensive plants that need a better occupation rate in order to absorb all of these fixed costs and in order to generate the right cost levels. So we need to keep an eye on our finishing division, our sanitary ware division so that we can deliver all of the results. 



So let me start answering about LD, and we'll add some information from Henrique as well. It's important to mention that throughout 2024, we've been reporting this, but we concluded the year with a higher productivity level, much higher than 10% nominal capacity that this operation has; which we expected to happen throughout 10 years, but it ended up taking place in the third year of full operation. 

 

So that's a very important piece of news. And it also confirms production quality, which was very good. Especially when you have maintenance downtimes, you always expect to have some changes, some variations, but it didn't happen so significantly. So we're happy about both indexes. So LD is confirming its potential. And concerning opportunities, there are always ongoing efforts to find additional productivity measures, including in these downtimes. We've had our full downtime and then we went through a ramp-up. And we can say that we have been at a very good level in recovering our operations, which puts us in a very positive position. 

 

Considering 2025, just to give you an idea of our dividends, the kind of pressure that we see in Dexco is also taking place in LD. It has chemical components in its industrial production. It has shipping costs, which also connects to the macro variables. There are some logistical challenges. So this all puts pressure on us from 2025 forward. The good thing is that we haven't seen this affect prices as we saw in the pulp market. So the market has been conserved. So in the future, productivity will remain high and will bring good results for LD, and we believe that this will continue. Considering dividends specifically, there's a new structure that allows us to pay out small dividends in the first years. But as the company deleverages itself, these locks are lost. So we're very prepared for the next cycle. 

 

In 2026, we don't expect to see major figures. This was a year in which we will pay the first dividends and small amounts, but '27 and '28, we'll see an increase. And if we continue at this level of productivity with controlled costs and sustaining prices or with a slight increase, we believe that we can advance some of these dividends. 



And just to underscore this, we're very happy to see the operational issues evolving. It's been a positive surprise, the management, the productivity, even how your efforts are being built up. This is great news, and we expect to accelerate the maturity process in the next few years.

[Rafael Barcellos, analyst]

[Interpreted] Just a follow-up question with Raul. Regarding ceramic tiles, if you can give us some more details about how you expect it to advance throughout the year. I know it's hard to provide a macroeconomic scenario, but if you can tell us what your expectations are for when it comes to these results?

[Francisco Augusto Neto, executive]

[Interpreted] Thank you, Rafael. So 2025 will be a year in which we expect to recover the ceramic tiles market. We're still making some adjustments, but our focus this year is still to recover our relevance and adjust our production system. So it's still a year in which Botucatu will be accelerating, ramping up with some product development, going into new segments. And we're starting to collect our investments in trade marketing, store participation. So this is a very consistent thing, but there are also additional costs.



What I can say about this plant, and I've said this to our Board is that in 2025, we will finish any conversations on ramp-ups and adjustments to ceramic tiles, but this is still a ramp-up year for Botucatu. So we're going to conclude the year at a better cost than we had in the South. This is a unit that has the best technologies for this to happen. So at the end, we're going to be at a very good level of operation. Botucatu will be at a good level and we're going to start moving well. With everything we saw in our client previews and so on, we expect to have a good product portfolio, and this will allow us to compete in a very good way. 



So we'll finish 2025 with tougher results. The market is very competitive as it needs to be. And in 2026, we hope to start operation levels, well, be at better -- more appropriate levels than we were before.

[Operator]

[Interpreted] The next question will be asked by Mr. Marcelo Arazi from BTG Pactual.

[Marcelo Arazi, analyst]

[Interpreted] I'd just like to hear a little bit more about the company's leverage. We saw good cash generation this quarter, but this was helped by a one-off event. And your CapEx level is still relatively high. So I'd just like to understand how you're seeing your leverage throughout 2025. And if there are any possibilities of accelerating your deleveraging process through divestments or any CapEx flexibility?

[Francisco Augusto Neto, executive]

[Interpreted] Thank you for that question. So in our forestry operation this year, we have made adjustments to our operation. This leverage can come from 2 places, as you said. It may be DRI, which is business performance, and that refers to what Raul and Henrique said about what we expect from this business. We also expect to capture some of the results from the projects that we implemented. And even in a challenging scenario, we're expecting to capture gains from what we did in the last 2 years. So that's the important part to generate a part of the cash that will capture these investments.

 

Of course, this is diluted over time. And the second part are balance actions. So we're paying close attention to this for 2025, just like we did for 2024. There's nothing relevant to talk here that you don't know of -- that you haven't thought of when we talk about divestments. We do have a very big balance and that involves industrial assets. It involves forestry assets. It involves land. It involves a number of things that allow us to make better use of these assets. So this is all on our radar.

 

We have been looking at this as we did in the fourth quarter. And of course, one of the biggest drivers is the high interest rates, but we're not considering leaving a segment that we're in right now. It's not a major transformation. We just want to use our balance in a better way. So this is what we want to do for 2025 to capture improvements for our business, but also to optimize the kind of balance and the kind of capital -- investments we've made for the company. Thank you.

[Operator]

[Interpreted] This concludes the question-and-answer session. We'll now hand over to Mr. Antonio Joaquim, Dexco's CEO, for his closing remarks.

[Antonio de Oliveira, executive]

[Interpreted] Thank you very much once again, everyone. I'm very happy right now to really pass the baton on within a month. This is a mere formality. Raul has already been in charge of the operations since January. But I'd just like to underscore that the company has a very solid strategy. And its strategy is always to look 5 years towards the future. This is what we're going to continue doing throughout the year. So of course, we are thinking about indebtedness, not only due to the net debt to EBITDA, but due to debt costs because the cost of capital is higher.

 

So we have a group that is working on this as a priority. We have actions that we're looking at, considering, we have discussed this with our committee. So of course, we're looking at all initiatives we can use to make this reduction. I believe we will be able to do it. Of course, there are things that we'll have to do, but we're going to do them very carefully. Also, we're making a big effort to rediscuss our go-to-market in the Deca and Ceramic Tiles divisions. This has been a solid effort with the support of consultancy companies. And a part of it includes this strategy of being close to retail with Casa Dexco.

 

So sometimes, we look at these things in simple terms. So we might think that if ceramic tiles are difficult, we should invest on that. But we've done everything that we needed to do when it comes to industrial assets. Of course, we may have smaller lines. We can manage lines differently, but we have assets. We have our own plants in Santa Catarina, and we have a new plant in Botucatu. So we're going to work hard to use these assets and ceramic tiles are a central part of our strategy for the future of our company. So this is where we can recover a lot. We really believe in this new model. 



At this stage, the company has a high cost of debt, but we have concluded all of our investments -- all of our relevant investments. So we can expect to have lower investment cycles basically maintenance for the next years. And that means 2 or 3 years while we still are comfortable with our debt level. So we are not comfortable with our debt right now. We're working on it, but these investments have been made, and now we have to make use of them.

 

We have several projects. We have several good ideas on the table, and the team is working on them. And I'd also like to underscore that since our vision is to support our shareholders, and this is very solid and long-term, we may experience some tougher moments. I think everyone is seeing that this is a challenging moment with the trade war and everything, we're going to have to watch this closely. So far, we are not seeing major effects to our processes, but the market may be challenging. And if it becomes even more challenging, we are very resilient and we'll continue to be prepared throughout this time. And I'm sure we're going to do well. 



So thank you, everyone, for your support. Thank you for watching. And I'd just like to say that while I'm leaving you, I will still be available as a Board member. I'll be here supporting you and supporting our shareholders and our Board members in running these strategies. Thank you. Have a good day, and I hope we can do very well. Thank you.

[Operator]

[Interpreted] This concludes Dexco's conference call. Thank you for listening, and have a good day.



[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]