Ladies and gentlemen, thank you for holding and welcome to Dexco's conference call to discuss its earnings from the third quarter of 2021. I'd like to inform you that all participants will be in listen-only mode during the company's presentation. After that, we will begin the Q&A session when further instructions will be given. If you need assistance during the conference call, please request the help of an operator by dialing star zero. Before we begin, we'd like to clarify that any statements made during this conference call about the company's business perspectives, projections, and operational and financial goals are merely beliefs and assumptions from the company's directors, and they're based on currently available information. Remarks about the future are not a performance guarantee.
They involve risks, uncertainties, and assumptions because they refer to future events and therefore depend on circumstances that may or may not come to pass. Investors should understand that the economic conditions, industry conditions, and other operational factors can affect the company's future results and can lead to results that differ materially from those expressed in the forward-looking statements. We would now like to pass the floor to Mr. Henrique Haddad, VP of Management, Finance, and Investor Relations. Mr. Henrique, you may continue.
Good morning, everyone. Welcome, and thank you for listening to Dexco's conference call. As with every quarter, I'm here with Antonio Joaquim, our CEO, Felicia Prado, head of ESG, Daniel Franco, IT and Innovation, Raul Guaragna, our Head of the Wood Division, and Marcelo Izzo, Head of the Deca and Ceramic Tile divisions, and also Head of our Investor Relations team. We're going to start on page three. The third quarter was once again marked by records. There's a strong market demand. We improved our mix and products, and we also increased prices due to inflation. That took our net revenue to a record level. Along with a good plant utilization rate, we have been able to mitigate the cost increase of our main inputs. Our adjusted and recurring EBITDA was BRL 604 million, the best ever presented by the company.
The first nine months of the year had an EBITDA of BRL 1.6 billion, which is greater than all the yearly results we have ever posted. Besides these record results, we were also very happy to share with you that for an additional year, the company has received the GHG Protocol Seal of Excellence, which certifies our record and posting of our carbon emissions. We also got carbon credit certificates from Econtech, which recognizes our practices, and we received for the fourth time a Transparency Award, which seeks to promote a fair and more ethical business environment. These were some very important steps that we had in our ESG journey. Another highlight is that we are less than 140 days away from starting up our new dissolving pulp unit. Its startup will be in March 2022, and we have managed 7,500 employees in that construction work.
Now moving on to page four. These record results have also been reflected in the strong cash generation during this quarter, a total of BRL 219 million, and BRL 600 million year- to- date. This was due to a strong supplier management strategy which partially offset the high raw material inventories that we had and sustained our cash conversion cycle at 25 days, which is significantly below what we had in 2020. If we look at our need for working capital versus revenue, the level was low at 13%, and in the past, this has gone over 30%. Regarding expansion projects, our investment plan was announced in June and has already started being implemented. The first investments at DX Ventures are starting to come to fruition with Urbem and Noah, as we recently announced.
We have to remind you that Urbem has as its goal the production of engineered wood, a new technology for civil construction aligned with ESG practices, offering a greater speed in the building process. Noah develops real estate businesses through projects that use engineered wood in an industrial and sustainable building process. With that, we have been even closer to the building trends by leveraging our expertise in using wood. Even considering these investments, we finished the first nine months with a free cash generation of BRL 421 million, over BRL 300 million above the figure we posted last year. Now, looking at the impact that these results had on our debt level, we'll continue on page five.
These strong results were also reflected in a reduction in our debt level, which was at 0.8x net debt to EBITDA this quarter, even with a higher expense in growth projects, which once again prove the company's financial solidity. Regarding our debt, we finished the quarter with a cost reduction since we partially paid some of the debt we captured in the beginning of the pandemic. Our average term is 2.1 years, and it should increase significantly in the fourth quarter due to the payment of the financing plan that was taken with BNDES and concluded in October, and other funding movements that are being implemented.
Continuing on our divisions, we will continue on page seven. The wood panels market finished the third quarter with a volume sold of 2.45 million cubic meters. A reduction of 3.3% in MDF sales and 6.8% in MDP, according to IBÁ. This is due to lower inventory levels in the industry regarding this in comparison to the same period in 2020. This was a negative impact of 4.7% in the domestic market and 7.6% in the foreign market. Continuing with Dexco on page eight. The wood division, just as the entire industry, finished this quarter with a reduction in volume sold due to low levels of inventories of finished goods.
We have been prioritizing more profitable channels and a successful price increase strategy, which led us to an increase of 39.1% in unit revenues, which resulted in the highest net revenues in a single quarter in our history, 25% above the third quarter of 2020. This, in connection with high plant utilization levels and strong cost control, means that the division had its best quarter ever with an adjusted and recurring EBITDA of BRL 384 million and a margin of 31%. Year- to- date, gains in increased prices and mix improvement offset the cost pressure and took our adjusted and recurring EBITDA to BRL 1.1 billion, 24% above the total from 2013, which had been our record. Continuing with the Deca division, we'll move on to page 10.
The macroeconomic scenario is still favorable for civil construction materials. According to ABRAMAT, there was an average increase of 15% year to date regarding the total deflated revenue for the industry in the same nine months in 2020. When we look at Deca on page 11, the highlight for the third quarter was a strong growth in results due to price increases and prioritizing product mixes, which have led to an increase in 23% in unit revenue. With that, results reached another record in quarterly EBITDA, BRL 138 million . While margins, even though they were pressured by the inflation, posted a higher result than the third quarter of 2020, reaching 23%. This is the tenth quarter in a row where we have grown when we take off the effects of the pandemic.
Year to date, our EBITDA was BRL 292.2 million, 61% above the same period in 2020 with a margin of 18%. We'll continue on page 13. The ceramic tiles market finished this quarter with a high of 2% versus the third quarter of 2020, and with an installed capacity utilization of 90% according to ANFACER data. Page 14 shows that our division operated at 100%, although there was a slight contraction in volume sold, just like what happened with wood. Amid recent increases in natural gas prices, we have decided to improve the mix of the division and also implement price increases, which took our EBITDA to a significant increase, reaching BRL 82 million, with margins of 25%.
Year to date, our EBITDA was BRL 216 million with a margin of 25%. Continuing with the Dissolving Pulp Project, we move on to page 16. We finished another quarter with the project within budget and within schedule, despite all of the adversities we faced. With nearly 8,000 employees in the front lines, we finished 85% of the construction, which confirms our expected start-up date, March 2022.
Finally, page seventeen. Amid this instability that we have been seeing with potential increased interest rates, we are still positive that there will be a great demand for construction material on the short term because there have been no signs that this would be any different, and in the middle term because construction continues to be launched, but we're always paying attention to new situations. Looking at 2022 with each division, starting with wood. We're going to have a greater capacity for the panel lines. This is another step in our strategy to improve product mixes. This connected to high plant utilization levels means that results will remain solid for the next quarters. In Deca, we're also positive with better mix and increased production capacity.
As we have communicated, there have been investments that are already being implemented which should support our continuous improvement. In ceramic tiles, after concluding our retrofit process in the Santa Catarina line, we'll continue to run at full capacity early next year. We'd also like to highlight the new plant being built in Botucatu, the state of São Paulo, which is still ongoing. Finally, we'd like to reinforce how optimistic we are with the new dissolving pulp unit, which should start in March. With that, we will now open up for the questions and answer session. Thank you for your attention.
We will now begin the questions and answer session. If you'd like to ask a question, please dial star one. If you'd like to remove your question from the queue, please dial star two. The first question will be asked by Mr. Caio Pregnolato from BTG Pactual.
Hello, good morning, everyone. I have two questions from our side. First to Antonio. We've been talking about this over the last months, this concern that the market has been having about Dexco's results. Many people believed that we are reaching a peak and from now on results would drop as our economy recovered. In 2022, there will be elections in Brazil, and that could lead to negative results. Can you give us an update on that? How are you seeing business perspectives for Dexco in the next quarters? How is your orders portfolio, and what visibility do you have for you know the demand in the future?
Do you expect any changes in your volume levels or considering margins, if you could share with us that view, that would be great. Another question is that, well, recently, Deca has been expanding its margins. 23%, and at the end of the year, you should come close to 20%. This is interesting because recently you were still at 14%. I'd just like to know a bit more about how your margins evolve. How much of it is due to the market or industrial improvements in productivity, and how much of it is due to your commercial strategy, considering, you know, pricing and trade marketing. I'd just like to know what you attribute this evolution to and where do you see potential. Is 20% what we should expect? Have you reached the limits or if you still see some room to grow, where would that come from?
Would it be more industrial or, well, how does that fit into your plan?
Thank you. Caio, I hope you can hear me. Thank you for your questions. Actually, our perception on that is that, well, I disagree a bit with this assessment of business perspectives, especially with Dexco. It's interesting because we have been showing, as you showed yourself, consistent growth with every year. What I'd like to say is that, of course, this entire market movement and the demand has helped the company, but we should not forget that we've been working on costs, productivity a lot, and we should tell you about this soon.
The perspectives that we see for the next quarters are at the same level that we are seeing today. It's not very different from that. For the next quarter, orders have already been received, so we can tell you some more about perspectives for 2022. The year should finish at very positive levels as we showed you during this quarter. I've always been saying that analysts and everyone else should read the situation correctly. Of course, we are seeing inflation, but we have good cost levels that we were able to recover above inflation. The market is still very hot, and we have been able to recover due to the acquisition of our products. Because, you know, as you know, we come in during the finishing works in a construction.
There's a huge demand, there's a big backlog of construction works that will remain strong in 2022 and 2023. We have new launches. We have new constructions. There has been a boom in the luxury segment. We've recently seen some statistics there, and it's really impressive how much it grew. Our market share has been much stronger than average. We're very positive for next year. Of course, we believe that it could be a more difficult year because of the elections, but usually, election years are good for our industry. History shows that usually election years are good for us. You have more investments, more public expenditures. I don't need to go into macroeconomics, but really, we don't expect that it will cool down.
Even if the demand cools down, we believe that the construction industry will continue to be strong. Let's imagine that we have more uncertainties. It could be that we will have fewer launches, but that means that we will only be affected in 2023 or 2024. Right now, we have the possibility of having long-term supply contracts with clients. This is being built already, and there's a positive perspective for that. Similarly, the international market is well, we're talking a lot about wood, but Deca is mostly affected by the domestic market, so I don't believe that the demand will reduce there. In wood, which is so important, we also have an international market which is not being serviced very well. We always prioritize the internal market.
We have more possibilities there, but there is a possibility of working with the international market even better if anything happens here. My perspective is positive. I absolutely do not see that this is true. People often ask if Dexco can go back to 2019 levels, but I don't think that is in our radar. We might have some changes in the economy, which is normal for a country like ours, but we believe that it's a different operation as a level. 2022 will be at the same operational level that we are in right now. There have been some positive perspectives. You mentioned Deca. On your point, Deca, over the last years made a huge turnaround, at least with what concerns margins, mix, portfolio, productivity, and this is all reflected there.
We don't believe that the 14% margins will ever come back. We believe that it will remain at 20% and above. For us, that's very likely. We have medium-term plans for next year, for 2023. We want to work on possibilities that will bring us better margins. When we announced the projects that add up to BRL 2.5 billion investment, I explained that, you know, Deca and ceramic tiles take up a huge share of that, and they're all aligned to quick returns and margin improvements, automation, expanding capacity in ceramics in Ruyai and in João Pessoa. The new ceramic tiles plant in Botucatu. All of these projects have been working on this possibility. I do believe that margins will evolve. It's not, you know, something that is very clear.
It's not that we're going to move up from 20%-30%, but we do have a solid end to build up. I don't have any expectation that margins will get slimmer, at least not significantly in any of the segments we're working. We may face, at some point, you know, some challenges, but especially in this segment that you mentioned, Deca and ceramic tiles, we believe that margins at worst will remain flat. But there are possibilities of growing as well.
Great. Thank you, Antonio.
Rafael Barcellos from Santander will ask the next question.
Good morning, everyone. Congratulations on the results. My question is, in the quarter where you had to increase prices for wood, but can you tell us a bit more about that? And considering the fourth quarter, what will your price levels be like? Can you tell us a bit more about your capacity utilization for the fourth quarter? My next question is about the Mesoni project. We recently saw that some projects were postponed. I'd just like to know what are the main risks that you see today in executing projects? What do you believe will begin in the first quarter of 2022?
Rafael, if I understood your question, results in wood are being sustained by the price. We adjusted on the price throughout this period. That allowed us to have price recovery above the inflation. If we look at the main driver, it was really price. In October, we have already increased prices. They have already been taken to the market and have been fully absorbed. That was the biggest effect. I'd also like to state that throughout the last years, we've been working with wood in a better mix, adding more value. I'm going to go to the Agudos plant tomorrow, where we're going to be opening a new line, which is the first of three lines that we acquired. That will also allow us to add more value. The percentage of wood covered materials has grown versus raw materials.
The biggest effect was due to price. We are all set, we're prepared, and we're going to continue working at full capacity. This is what we have decided to do. In the past Duratex, you remember when we decided to close a plant and work with four instead of five because our idea was to work at full capacity.
As I said, we are basically sold out in the fourth quarter. We're going to be working at full capacity during that time. We also have that forecast for the next year. Considering the Lenzing project, it's going very well. We are going to start up in March next year. Which is extraordinary considering all of the situations that we had throughout this project, especially with COVID and everything, it was a major challenge, but the project was executed very well, and it will conclude in March. When we're talking about pulp, we actually have two worlds. They connect to a certain extent, but that's not necessarily it. The dissolving pulp market very often is less connected to the pulp market, but it's closer to fabrics and threads. We're seeing a price retraction, but this has been absorbed by, w ell, it's dropped, but at a much lower level.
The market still is growing, and we believe that perspectives for this market will be very positive. Everything is going well. Of course, next year will be a ramp-up, right? If we look at March, you know, in mid, in the middle of the second quarter, we believe the plant will be at full capacity. We have remained positive because of the quality of the equipment, people who have been allocated to the project, and we believe that we're going to have a very positive project. It's important to remind you that, of course, there was a significant level of inflation, the price of steel went up, and so on, but we will conclude the project. As you know, it's all priced in, foreign currency. Our credit came from abroad, but it's within budget and on time.
Great. Thank you.
The next question comes from Isabella Vasconcelos.
Good morning. I hope we're all doing well. From my side, we have a couple of questions. We'd just like to know about your inventory levels in your chain today. It seems that you were able to make up your inventory after working at low levels for such a long time. We'd just like to know a bit more about your clients and how they are exposed. We also like to know about your wood lines. You mentioned that the first of the three will start next year. How do you believe that will benefit your margins? Do you believe that's going to affect you for the next years as you ramp up and, you know, we know that there's a wide range of products that can be made there.
We'd just like to know how that's going to affect your margins. That's it. Thank you.
Thank you, Isabella. Considering inventory, what happened in the beginning of the pandemic, which made clients stop around March last year. The fact is that the market overall has gotten used to working at lower inventory levels than, what we were historically, accustomed to. Of course, they were being very cautious during the pandemic, and the inventory level was at actually a higher or more healthy level. We have many clients who had a lot of inventories. Right now, inventories are still very low.
We're even having some supply issues in the Deca and ceramic tiles chain, for example. We have longer shipping dates or delivery estimates because, you know, there is higher demand than supply. Inventory level in the chain is low. Clients are still trying to adapt their inventory. There are many stores today working or selling for future deliveries, so inventory levels are low. In the wood channel, in the industries and in retail, inventory levels are lower than usual. We have been at minimal inventory levels, or at least close to minimum. It would be good to make up our inventory a bit, but we have also been pressured in demands, and the company has gotten organized to work on with lower inventories. That was almost an additional benefit that we had.
Now we started working with wood, with two or three days of inventory. We used to work with 20 days, and we believe that it can go to a healthier level, yes. The question on the BP line, as I said, I'm going there tomorrow. It will start tomorrow and not next year, Isabella. It really will produce its first panel tomorrow. The purpose of these lines, a low pressure line, as we call it. Can make any mix of product. It's not specific for a single kind of product. What we're doing with the purchase of three lines, we're going to have one tomorrow and another one in 2022, and another one in 2023. At least that's our schedule according to how they are built and delivered. It's not a machine that you can just turn on, you know.
It requires a lot. That means that we're going to expand our capacity, and we're going to maintain the same base capacity for generating panels. It will be a greater mix of products. Duratex will be able to offer to the market a proportional volume. Duratex is by far the company that has the biggest capacity in the market, but we want to lead that in retail, and we want to encourage clients to buy these products. As we're able to sell them, the mix is better, and therefore, so is the margin. All of the investments that we've made into wood, which have been announced, specifically, the BP lines, there are three lines that will represent BRL 200 million in investments in three years.
These three lines and the debottlenecking projects in the plan will generate additional capacity without building new lines. These projects are extremely strong, and they really will be critical. We're very excited about the fact that the target really will allow us to sustain higher margins in wood and improve our sales mix.
Great. Thank you, Antonio.
The next question will be asked by Marcio Farid from Goldman Sachs. Go ahead, sir.
Good morning. Thank you for taking my question. I have a couple of questions. You had mentioned during your call that you are seeing greater demand for orders internationally. I'd just like to know a bit more about that. You're saying that you haven't gotten even half of the demand that you could get. Do you believe that's true? Can you give us a rough estimate on what that would be? We have been making some price estimates across several industries. I'd just like to know what we can expect from you. Have we reached the peak? What should we expect for the next quarters? Thank you.
Thank you, Marcio. What I mentioned about exports is a fact. Let's break it down. Yes, we do have a demand today. There is an unmet demand in the foreign market in general. We have a high demand for panels in Europe and even in Asia. There's a big mismatch between offer and demand. This is actually reflected in all wood products. We need wood for several industries, and this starts at the forests. There's a huge mismatch between the supply of forestry products and its demands. The possibilities for the domestic market are huge. You definitely know that we have an international shipping crisis, and this is unprecedented in history. We have no containers. Ships are running out of space.
To give you an idea, s hipping a container from Brazil to the U.S. used to cost $1,000, and now it costs $8,000-$9,000. It really depends on spot availability. This is a crisis that is affecting the entire world, and the same happens, you know, between China and the U.S., Europe and the U.S., and any region in the world, really. We believe that this will be resolved, and there have even been threats of actions in the U.S. because, you know, ship owners have been making movements.
Maybe they have been excessively increasing prices, but it's an international crisis which will need to be solved. I don't really see a quick solution for it. They'll need to build more ships, more containers, and that is a huge demand. With the current dollar levels, you could say that it would be very good to export right now. It would not be bad. Margins, you know, we've had many, many years of poor margins in the international market. Not only due to the exchange rate, but especially the price. There was a greater offer than the demand, and prices were very low. Prices went up significantly in the international market. Right now, we're operating with, you know, contracts per batch due to these shipping uncertainties.
It's like we were selling FOB right now and then adding the shipping rates depending on the client. There's a lot of space to grow, but margins are still lower than in the domestic market. Traditionally, the Brazilian domestic market buys wood panels very well. What I'm saying is that the current margins that we have on the foreign market and the likely volumes that we could have are a very interesting hedge to have for Dexco and other companies in Brazil if there are any slowdowns in the domestic market. I have to highlight that I'm not expecting this to happen. Again, margins are a bit lower, but they're still positive, and they would be very good for an operation.
Let's imagine that the supply reduces. It will definitely be possible to, i f the demand drops here, we can take it to the foreign market. We're actually reducing our level of exports to supply the domestic market, but that can be changed. We kept all of the non-spot markets, the ones that we have had for many years with long-term commitments with clients and so on. This is what I mean to say, our demand is much higher than our supply. Brazil has a big demand for exports, but our clients are also maintaining good policies that they've also been working significantly in exports. Berneck and Arauco have been doing that a lot. To answer your second question on costs.
We had been talking about this this week. We are starting to notice that inflation or cost inflation is dropping in Deca. It did grow a lot throughout the year, and it's starting to go a bit flatter. We have some stability in commodities, international commodities. We have the cost of resins, paper, that needs to be managed. Well, I believe that we will remain flat at a high level, and I don't believe there will be cost inflation peaks. We believe there will be more stability, and this is what we're betting on. Right now, we have good prices, and we are prepared. Of course, we can still have some situations with the inflation, but I believe that in 2022 it will be much lower than what we had in 2021.
Great. Thank you for your comments.
I agree with everything you said about exports, and I'm glad to hear it. Thank you.
Next question, Mr. Jon from HSBC. Sir Jon, you may proceed.
Good morning. Thanks for taking my question. First of all, I'd like to come back to demand. I'm interested in the higher interest rate environment that's in Brazil at the moment. There's not much impact. I'm wondering if Brazil returns to a period of double-digit interest rates in the next six months or so. What sort of impact is that? Is that sustainable? Or maybe ask the question another way. You know, at what interest rate level do you start to see some demand destruction? My second question, just on cost to margins, if you're expecting-
Hi, Jon, sorry.
Sorry.
It's impossible to understand, there's a noise behind. The connection is very bad. Can you please repeat or send it by-
Can you text your question because it's really impossible to understand you.
Yes. Can you hear me now? Is that better?
No way.
Sorry. I'm not sure what is happening, so the connection is very bad. It's just like...
Okay. I'll reach out to the IR team. Thank you.
Okay, thank you.
As there are no further questions, we'll turn over to our speakers for their closing remarks.
Thank you very much, everyone. I'd just like to say that we're very happy with the results so far. We're excited about having such a good year, and we're very positive about 2022. We're very excited about the projects which are all ongoing and have been at a very good level. This is a very positive moment for the company that we'd like to share with you. Thank you. We're all available. Even Jon, who sent us a question, we're going to call him now to answer his questions. Everyone here at the investor relations team is available to answer any questions you may have. Thank you, and have a good day. Thank you, everyone.
This concludes Dexco's conference call. Thank you for listening, and have a good day.