Good morning, ladies and gentlemen. Welcome to Dexco's earnings call for the second quarter of 2026. This conference call is being recorded. You may watch a recording of it on the company's website, ri.dex.co. The presentation is also available for downloading there. This call is also available in English. Simply click on the globe icon on the lower part of the screen and select English. You may also mute the original audio. We'd like to inform you that during the presentation, all participants will have their microphones and cameras turned off. We will begin the questions and answer session when further instructions will be given. Before we continue, we would like to underscore that any statements about the future are based on the company's beliefs and assumptions and on information that is currently available to the managers.
They may involve risks and uncertainties since they refer to future events, which therefore depend on circumstances that may or may not occur. Investors, analysts, and journalists should take into account that macroeconomic factors, industrial factors, and others may make these results differ materially from those expressed in these forward-looking statements. We have with us on this call the company's CEO, Raul Guaragna, and CFO, Lucianna Raffaini, along with the investor relations team. We will now hand it over to Ms. Lucianna Raffaini, who will begin the presentation. Go ahead, ma'am.
Good morning, ladies and gentlemen. Welcome to our earnings call for the second quarter of 2026. My name is Lucianna Raffaini. I am the company's CFO. Today I'm going to present the results for this quarter. As we'll see throughout the presentation, they confirm a consistent evolution in executing our transformation plan.
We've made relevant advances in generating cash, margin, and de-leveraging the company. We're going through a very special moment, which is our 75th anniversary. Let us begin. Starting with the second quarter highlights. In the second quarter of 2026, we posted a consistent performance across most of our divisions. The highlights were prices, mix, and expense controls. We are continuing to advance on everything that's under our control with discipline on execution and focusing on sustainability. We've made investments in a structurally challenging scenario. We adjusted our factory footprint by closing one plant to adapt its capacity, adjust costs, and reduce inventories. Our priority is to preserve cash. In metals and sanitary ware, we prioritized profitability recovery through price increases, already creating an effect to our margins and contributing towards better cash generation. The wood division maintains a consistent trajectory even with cost pressures.
Forestry trading have strengthened our cash generation. In that context, the recurring net revenue went up 5.2%, finishing at BRL 2.2 billion, and 5.6% in the first half of 2026, coming to a total of BRL 4.2 billion. Gross margins went up 1.6 percentage points in the quarter and 2.8 percentage points in the first half of the year. Our year-to-date percentage is 26%. Our adjusted recurring EBITDA of the Dexco operation was BRL 547 million in the second quarter of 2026, up 3.6% versus the second quarter of 2025. The margin was impacted mainly by operational gains and by more operational efficiency. Considering LD Celulose, the company's total EBITDA was BRL 714 million, up 1.7% versus the second quarter of 2025. Year-to-date, we have posted a 30.1% growth in our adjusted recurring EBITDA versus 2026, reaching BRL 1.25 billion, up 4.6 percentage points in our margin.
Adding to this, the share of LD Celulose, our total EBITDA was BRL 1.73 billion. Finally, recurring net income. We had a growth of 13.3% versus the second quarter of 2025. It's important to highlight that these results are reflecting the company's turnaround from a loss of BRL 64 million to a profit of BRL 6 million. This shows the lower contribution from LD Celulose, which was impacted mainly by reduction in DWP prices and the depreciation of the US dollar. We will now continue with our cash flow results. The second quarter confirms the company's trajectory of improved operating cash generation, with contributions from all three divisions: resilience and cost management in wood, profitability recovery in sanitary ware and metals, and adjusted productive capacity in ceramic tiles, all converging toward a lower working capital consumption. The graph on the left-hand side shows the company's free cash flow evolution.
We went from consuming BRL 262 million in the first quarter of 2025, to a positive generation of BRL 158 million in cash in the first quarter of 2026. The project lines also reduced from BRL 267 million to BRL 109 million in the first half of 2026. It's important to highlight that, yes, we did conclude our investment cycle according to the plan. In the projects account, we're now seeing investments in forestry and trading. As a result of this combination, discipline in working capital and by prioritizing investments, the company's operational free cash flow reached BRL 682 million this quarter. The total free cash flow came to a total of BRL 356 million. These two figures are a great summary of the first half of the year. Dexco is converting its recurring EBITDA into cash consistently. All of its actions are under the company's control.
On the right-hand side, we see the working capital to net revenue ratio. We finished at 15.8%, the lowest since the second half of 2025. Now we continue with our indebtedness. The company's position at the end of the second quarter of 2026 confirms our expectations. We reduced to 2.72 times our financial leverage, a reduction of 0.67 times year-over-year. This was sustained by our better working capital structure, which have led to a reduction of BRL 200 million in net debt during the first six months of the year. Our average term is 5.1 years, and the average cost is 104.4% of the CDI. We have a comfortable amortization schedule, with 87% of the debt in long-term and 13% on the short-term.
In a still volatile macroeconomic scenario, this combination of being de-leveraged and having a healthy debt profile allows us to conserve cash and maintain robust liquidity. Now let's look at the division, starting with ceramic tiles. First, we're going to give the sector context, then we'll go into this quarter's results. The sector continues to contract, particularly in the wet route segment. It has contracted 8.7% year-to-date. Industry inventories remain above historical levels, and despite signs of stabilization, this continues to weigh on pricing dynamics. Idle capacity remains elevated across the entire ceramic tiles chain. This is a structural feature of the sector, and it reflects a mismatch between supply and demand. Capacity utilization was 65% in the second quarter of 2026, 7.8 percentage points below the second quarter of 2025. Now, let's take a look at our results in ceramic tiles.
In this context, the company has maintained its volume discipline, with shipments remaining virtually stable year-over-year. A reduction of 0.3% in the second quarter of 2026 to 4.2 thousand sq m. Year to date, it was a 5% drop to a total of 7.8 thousand sq m. Recurring net debt was BRL 190 million in the second quarter, and this reflects the company's discipline and priority in a contracting market. This can also be seen in the year-to-date figures. The first half of 2026 had a reduction of 12.8% and a net revenue of BRL 362 million. Gross margins advanced to 13% this quarter, and this reflects the increased productivity and cost and expense discipline. We're finishing the first half up 5.1 percentage points, a total of 14.4%. This combination is translated into our results.
The adjusted and recurring EBITDA was a total of BRL 7 million in the second quarter of 2026, with a margin of 3.5% versus BRL 6 million and 2.9% margins in the second quarter of 2025. Year to date, our EBITDA reached BRL 3 million with a 0.9% margin. Now, we will continue with metals and sanitary ware. The construction materials market has had a contraction during the first half of 2026, with only early signs of stabilization at the end of the second quarter. In metals and sanitary ware specifically, the market posted a contraction of 2.2 points in metals and 11.1% in sanitary ware versus the same time in 2025. It's important to highlight that this is reflecting the successive price readjustments that were implemented by the industry itself throughout the first half of the year, responding to cost pressures, copper, metals, and others.
We also saw some downtrading on the consumer side, and a part of the consumption has been migrating to lower added value segments as prices go up. We've offset this partially with share gains in higher added value products. Civil construction had a growth this year. This was supported by new real estate launches, but this has not yet translated into a meaningful increase in demand for finishing products. Now let's take a look at our performance. In this division, we are focusing on profitability over volume. This is being supported by commercial discipline, and we are executing our RGM and go-to-market initiatives designed to capture value through pricing and mix management. In the second quarter of 2026, our recurring net revenue was BRL 471 million, which is basically flat versus the second quarter of 2025.
Even with a 15% volume contraction this quarter, we are at a comparable basis, excluding the effect from the Paraíba plant, which was closed in 2025. This price and mix strategy is confirming our results. Our recurring net revenue came to a total of BRL 926 in the first half of 2026. Gross margins went up from 22.8% to 29.1% this quarter, and the recurring adjusted EBITDA went from BRL 9 million to BRL 56 million, with an EBITDA margin going up from 1.8% to 11.8%. This was one of the strongest quarters in this division in the last few years. Gross margins went up 7.3 percentage points, and the EBITDA margin went up 8.4 percentage points versus the first half of 2025. This confirms that we've been posting a consistent trajectory over the first two quarters.
Our adjusted and recurring EBITDA in the first half of the year reached BRL 95 million, which is more than the entire year of 2025. We will continue with the wood division, starting with the sector environment. According to data from IBÁ, the domestic panels market maintained healthy fundamentals in the second quarter of 2026 with stable demand. It went up 5% this quarter and 6% in the first half of 2026, while the foreign market continues to contract with reductions of 21% and 19%, respectively. This was led by MDF and MDP, which grew about 5% in volume in the second quarter. For the first half, MDF went up 7.2%, while MDP grew 4%. This was a quarter that was marked by cost pressures in oil byproducts and resins, and this had to be passed on before a price readjustment. Let's continue with our results.
In the wood division, volume and revenue continue to perform well, operating at 96% capacity utilization in the second quarter. Increased costs related to the war were partially mitigated through price increases, productivity initiatives, and cost management. In the second quarter, the panel's volume went up 5.2%, and recurring net revenue went up 9.6% to BRL 1.57 million. The same trend can be seen in the first half, which had an increase of 2.4% in volume and 8.9% in net revenue, a total of BRL 2.96 billion. We saw an increase in the EBITDA margin this quarter due to our operational efficiency. Adjusted and recurring EBITDA came to a total of BRL 485 million, with a 30.9% margin. This is capturing our cost management, price discipline, and gains from the trading operations carried out in wood.
For the first half of the year, we posted a growth of 19.2% in our EBITDA to BRL 927 million, with a margin of 31.3%. We will continue with LD Celulose. I'd like to remind you that these numbers are representing 100% of our operation. In this division, volumes were resilient, reflecting the company's operational strength and maturity. Shipments were stable quarter-over-quarter at 158,000 tons, and it grew 6.7% in the first half of the year. Revenues and margins were impacted and were below the second quarter of 2025. Our adjusted and recurring EBITDA reached BRL 339 million, and our margin dropped by 36%, and this reflects DWP prices in international markets and adverse exchange rate effects. We were impacted by non-cash effects as foreign exchange fluctuations on our U.S.-denominated asset base generated deferred tax volatility, which impacted our net revenue but had no direct cash impact.
We will continue with our ESG results. I'd like to highlight our publication of the Climate-Related Risks Report for 2025. This was prepared in accordance to the TCFD. These recommendations have been published since 2021 with limited assurance provided since 2023. This report marks an important step towards the publication of the IFRS S2 report scheduled for 2027 based on fiscal year 2026. Our focus for 2026 is to advance preparation for the sustainability-related financial disclosures in line with IFRS S2 requirements. To give you an update on Dexco's transformation plan announced in September 2025, we remain focused on continuing to execute our five strategic priorities. I have an update on their advances this quarter. Starting with the financial deleveraging project, we reduced our net debt to EBITDA ratio to 2.72 times with a reduction of BRL 200 million in our net debt this quarter.
This was sustained by the company's robust operational cash generation. In addition to that, as we disclosed this week, we also sold the tiles plant, continuing our deleveraging journey. Our priority is still very clear. We want to reduce our indebtedness by consistently improving operational results and selectively sell non-operational assets. Continuing with the tiles turnaround project, we are adjusting our production capacity, focusing on executing sustainable profitability actions. This includes closing a plant to realign our production to the actual demand from the market and reduce excess inventory, which is still a pressure on the industry. Our decision is to rationalize our capacity, this is not a reactive response to the additional deterioration of the demand. Although the environment is still structurally challenging, with no signs of changing in the short term.
Continuing with the Metals and Sanitary Ware competitiveness project, the leap we saw here is a direct effect of our price readjustments and execution. These results are connected to our go-to-market project and RGM. To tell you a bit about the go-to-market project. Go-to-market actions and RGMs are being executed across all the company's divisions to capture value through price and mix through our pricing strategy and channels and product lines. The most visible advances are in Metals and Sanitary Ware, where this agenda is already a part of our margin expansion in this division this quarter. The Wood division has also advanced on this strategy and is capturing value through prices and mix in its product lines. Forestry trading operations have contributed to our cash generation and to the division's margin resilience, even in a pressure marked by cost pressures.
We will now conclude with an outlook for the third quarter of 2026. Starting with Ceramic Tiles. Continuing the productivity capture plan with a focus on higher manufacturing utilization and commercial restructuring initiatives. The key watching point here is that the market continues to be challenging with ongoing volatility and uncertainties and a reduced demand. In Metals and Sanitary Ware, we are observing price increases after costs have increased as well. Our challenge is to maintain these volumes with the new prices. For Wood, we expect moderate volumes in line with consumption trends and supported by the favorable seasonal pattern in this half of the year. We expect to gradually capture the implemented price increases. The key watching point here is that we continue to monitor cost volatility driven by geopolitical developments, which impact key input commodities for our operation.
In LD Celulose, we have no scheduled maintenance shutdowns this quarter, and we will continue with strong productivity, sustaining our position in the first quartile of the global dissolving pulp cost curve. On the other hand, higher DWP prices will impact our results and margins. This concludes our presentation. Thank you very much for your attention, we will be available to answer your questions.
We will now begin the question- and -answer session for investors and analysts. If you'd like to ask a question, please click on the raise hand button. If your question has been answered, you may remove yourself from the queue by clicking on lower hand. I will hand it over to Guilherme Setubal, the Investor Relations Director, who will conduct this Q&A. Go ahead, Guilherme.
Good morning, ladies and gentlemen. We're very pleased to begin the Q&A for this call. Let's start with the first question. The first question will be asked by Tatiana Congini from JP Morgan. Go ahead.
Good morning. First of all, thank you for taking my questions. Congratulations on your results. My first question is about Deca. I think your EBITDA was a positive surprise when we look at our numbers, but I'd like to understand some of the things that you mentioned during your presentation and on the release. You mentioned a downtrading movement that has been offset by your better mix market share, but we saw a significant contraction quarter-to-quarter. What should we expect for the next quarters in your margins? How much of this margin recovery that you saw is sustainable despite reduced volumes and weaker demands? Still in Deca, you mentioned a cost pressure due to copper and due to the lower volume. How do you see this trend now in the third quarter since we're halfway through it?
Thank you, Tatiana. Just a remark, in the second quarter of 2025, we still had the Paraíba operation, and that was the most competitive ceramic product. A part of the volume is explained by this. I'll hand it over to Raul.
Good morning, everyone. Thank you for that question. Well, I think Deca may be the division that advanced the most, as Lucianna mentioned during her talk, in our go-to-market strategy. When you talk about income, I think that's something that we're not going to let go of. The industry we work in is made up of several kinds of products with different price levels, different margins. Deca works in most of the segment, but not across the entire segment. We dropped a plant in Paraíba.
We took the volume to Recife, that reduced our production volume since we have a limited possibility of having adequate margins in this segment. We have to separate the impacts in sell in and sell out. When we see the increased service and the genuine concern of taking care of working capital, we see that inventories are being reduced at the end. This shows a reduction of our sales to them, but we're still at a healthy sell-out level, and that's great news. As we sell products with the right level of profitability and deliver products that are aligned with what is being sold, we're not building up inventory, and that gives us more pricing predictability. That's very relevant. We also adapted our capacity in Deca, not only in sanitary ware and ceramic tiles, but also in metals. We reduced production lines.
It's almost business as usual, but we do have a much better-adapted capacity to the demand. When it comes to metals, it's much easier to build up the capacity, and it's also less costly to work with some idle capacity. We're prepared to sustain this profitability level, and this is a quarter that tends to be stronger. In July, retail has made a slight recovery, and that's how we're going to continue. Concerning cost impacts, this is aligned to everything we did in operational efficiency. Our supply team worked very well, we've been able to align costs to the prices, and this also helps justify the higher income profitability. We're aligning our cost structure to purchasing management, which has been excellent. I think that's the right path forward. We're continuing to improve on this step by step.
In Deca, we still have some room to advance, but we're cautious about the demand because we don't expect any positive surprises for this year.
Thank you, Raul. If I can ask a second question, I'd just like to ask about Ceusa. You've been making several decisions to try to increase your profitability there. In this quarter, we saw that EBITDA moved towards a positive side. We saw that sales were stronger and costs were down. What's the normalized level that we should expect? Is this current level the new normal, or will we have challenging quarters ahead of us? Thank you.
Right. You're talking about ceramic tiles in general. What we did was we closed an old Ceusa plant, but we still sell both brands, Ceusa and Portinari. Ceusa is a very strong brand in retail, and Portinari is a high-end brand.
We're going to have to take a look towards our strategy, and we're very confident by doing that ceramic tiles will find a way. We have a plant in Botucatu with a high productivity level, with a high sophistication level, in a location that represents 50% of the ceramic tiles demand in Brazil, the Brazilian Southeast. This location will help us as we accelerate. We finished ramping up this plant, which is always complex, but we currently have the right cost levels. Many of the products that we had in the Urussanga plant were transferred to Botucatu, where we have lower thickness products, which also help us in reducing costs and being closer to the market. In Criciúma, one of our older plants, we're highly productive in 90 by 90, which is a market leader in this category.
We also have smaller lines for special parts, which provide an important margin. Like Lucianna said in the beginning, this is an intentional initiative to select what segment we want to work in. We have an addressable market from super luxury, and top of the medium, which is where we can take place. The lower-end market is not for us. It doesn't have enough margins. It has a very big idle capacity. As we gain in productivity, we have been able to adapt our company very well. When we look at our history, we see that as margins go up, costs go down, inventories go down, and inventories are better adjusted to the demand. We'll have a much leaner portfolio. We removed 600 SKUs from our portfolio, this helps in operational efficiency and also inventory turnover. We're going to see growing margins.
It is possible that in the next two quarters, we might see some changes as we have new products coming in. There are SKUs being sold, we're building out our sales team. We've just concluded the last hire to our commercial team focused on ceramic tiles. They have five years of experience in ceramic tiles in general, and the entire commercial team has eight years of experience. These combined initiatives will provide a positive trend. When you look at this on a quarterly basis, we still might see some standouts. Thank you.
Thank you, Raul, and thank you, Lucianna.
Thank you. I'd just like to reinforce something that Raul mentioned. The ceramic tiles market is very challenging. We can see, there's a lot of pressure. We have excess demand, and there's still a lot of idle capacity in this sector.
What we have been doing, and something that you can consider for the future, is that this entire adjustment that Raul discussed in costs will continue. We've been reinventing ourselves significantly. We worked in reducing product thickness. We're using our energy matrix better. Aligned productivity is much better. We've been advancing on these cost factors significantly. But the market, as you know, is still very challenging. I'd just like to underscore what Raul said. There are still many uncertainties in this market, and without a doubt, what's in our hands that can be controlled is being done very well. But we still have a huge challenge ahead of us.
Okay. Thank you.
The next question will be asked by Matheus Meloni from Santander. Go ahead, Matheus.
Hello. Thank you. The first point I'd like to raise is leverage. We saw an improvement this quarter, and I'd just like to get your take on how leveraging will go for the rest of the year. Do you expect to sell more non-operational assets? What do you expect from this side? I'd just like to get your mindset on deleveraging for the future. I'd also like to ask about wood costs. Looking ahead, do you believe that costs have normalized, or do you still think that there could be an impact in the future? Thank you.
Thank you, Matheus. I'll let Lucianna answer. I'd like to underscore that, of course, deleveraging is one of the company's number one priorities. We've been talking about reducing net debt. This is what's going to allow us to generate cash more consistently. I'll hand it over to Lucianna, and then Raul will answer your questions about wood division costs.
Hi, Matheus. Thank you for your question. Deleveraging, as we've been saying for a few quarters, this is our number one priority. It's not even about the ratio, but as we heard, we do want to reduce the amount of the debt. With these 14% interest rates, this has consumed our cash significantly. As you saw during this quarter, about BRL 380 million or BRL 400 million in interest rate expenses. As some of you know, just to maintain consistency and not to repeat myself, we're focusing on the operational side. This quarter, you will see what our cash generation is like. We're seeing very healthy EBITDA levels. As we've been saying, this is due to the operations we've been working on. Not just RGM and price, but also portfolio assortment, distribution across the channel. These are all levers that we're working on. And of course, costs.
You saw that our productivity improved across all divisions. Wood, even with the costs and everything we expected, have had improved productivity, and this is reflected in our results. The first lever, the operational lever in what we control, is supported by our CapEx. We concluded the investment cycle, and we've been very responsible and disciplined in our investments. Of course, we're not letting go of anything that can compromise us for the future. But we've been very disciplined and organized. In the operational level, we're doing very well and we will continue. What we expect according to our expectations is to reduce inventories, continue to be disciplined. We have very robust and solid levers to continue to generate operational cash.
You mentioned non-operational assets?
Yes, as we've been saying, this is the fourth quarter in which I've been saying this. We still feel the sense of urgency. We're assessing everything that can be assessed. We're trying to sell equipment, land areas, and other non-operational sales. We have to highlight that the last sale still wasn't reflected in the second quarter. We're still expecting approval from the monetary authorities and so on. We also expect this to improve our cash position. Yes, we're still consistent in this operation with discipline. We're focusing on what we can control. We're focusing on expenses. We do our monthly cash position, and we're very disciplined in advancing this. We're focused on operational efficiency. We expect to finish at 2.7x and 2.5x, as we've been saying in the last two quarters. Raul will now discuss the costs.
Thank you for your question. That was very relevant. I won't go on for too long. I just want to add to what Lucianna said. We've been saying this since last year that we want to be between 2.5x-2.7x in our net debt to EBITDA ratio. We're not going to be pleased only with the numbers. We're seeing our EBITDA growing. That also helps. We need to reduce the absolute value of the debt. This needs to be reduced significantly because at the end of the day, like Lucianna said, when you look at the cash generation that we had, since we're paying a lot in servicing the debt, this hurts. Regardless of being at 2.5x or 2.2x, the nominal debt needs to go down. All initiatives are valid here. We're seeing improved margins, reducing costs, selling operational and non-operational assets. This all continues on the table.
We still have four assets. They're not easy to sell. They're not material. When we add up all of these assets, we have hundreds of millions of BRL to sell in non-operational assets. When it comes to operational assets, we have nothing on our radar. We are still paying attention to what can be done. Switching to wood costs, I think you're right in saying that costs of wood will be more stable. We still have a deficit for the next few years. We have CMPC, Arauco, Bracell. We have a demand for corn ethanol. This will all pressure our wood costs. I see that regionally we're going to have different behaviors. Maybe in São Paulo, the demand for wood will be lower. In Rio Grande do Sul they have a strong demand. In the Brazilian Midwest, the demand will be strong as well.
Since we're agile and since we can move quickly, we're still going to see opportunities in forestry business. We're not expecting a significant cost increase in our biological assets. Let's remember that the price of wood has more than tripled. It continues to be a competitive advantage if you are an integrated company like Dexco. It's not easy to buy wood, not only because of the cost, but also the supply. Not every wood is available to you. Some part of it will be regional. You may also have different kinds of wood. There's kinds of woods that people don't sell for wood panels and for pulp. We still see some pressure here. It's still expensive. We see only some regional variations.
Thank you. That was very clear.
The next question will be asked by Gustavo Hwang from HSBC. Go ahead.
Good morning, everyone. Can you hear me? Great. First of all, congratulations on your results. Thank you for taking my questions. I have a couple of very quick points. First, about metals. You've continued with your value over volume strategy, and you've passed prices on to the chain due to increases in copper values. How sustainable do you believe that this is? Another point is, you mentioned in your release, and Lucianna commented on the downtrading movement, do you believe that this will continue in the second half of the year, and how would you react to that? That's my first question. The second question is also on metals and sanitary ware. In the first half, you posted some results, and I'd like to understand if your expectations for the year are in line with what you saw in the first half.
Thank you. Raul will answer your questions.
Thank you. These are great questions. Yes, we do need to have a better mix. There's still a lot of room to work on the mix as we debottleneck the operations and improve our service level. Deca has always been known, over the last 20 years, for having a long delivery level. We never really knew what was happening at the consumer end, if they were just replacing inventory, if they were using it, if these were customers making use of an opportunity. It was very difficult to fine-tune between the supply and the demand. Now, since we have 10 days on deliveries, it starts making less sense for our clients to have a large inventory. It's great that they don't. It's great that they can trust our service level and our plants.
This is helpful, it creates a short-term effect, because customers are going to now sell their inventory first before making an order since they know that these orders will be fulfilled quickly. We saw this in the basic lines. We saw a huge volume loss. For basic products, we can now deliver within two or three days. This is wonderful. It really helps us to keep track of what's happening at the end. I also see that service levels have improved. We have a better portfolio. We reached a very good cost level, and this also allows us to spread out. We have data showing that we are reaching a small part of the points of sale in Brazil. This is interesting to hear because we're in most households, but if you go to more remote areas in Brazil, you don't necessarily find Deca there.
Daniel is in a sales convention with his team, and the topic there is distribution or helping Deca to reach more customers. This will definitely have a very positive effect, this combination of better margins, better service level, an important portfolio with something that helps build up the fixed cost volume. The name of the game here is profitability and volume. The first part was evident. It was improving service level, reducing volumes because you're no longer pushing out your inventory to the chain, increasing prices, which are now much better adjusted. We don't need to adjust for inflation, but rather for RGM to have more competitive prices. We're always going to do this, but not due to the cost pressure. Downtrading is something that we always need to pay attention to.
We do see, especially in sanitary ware, that super competitive products have been gaining space, but there's not much we can do. Our response to this is to step out of the segments in which we cannot compete. On the other hand, Deca is very flexible. We can sell metal products that cost BRL 180 to products that cost thousands of BRL under the same brand, so we can address an important part of the market. We're not going to be able to address the BRL 40, BRL 50 faucets and very competitive basins that cost under BRL 300 for a kit. Yes, there's a part of the demand in which we'll need to choose not to play in. As I said before, when we look at the long term, we're going to continue to improve.
This is a business that needs to find better EBITDA margins around 20%-25%. This is something that we need to do, but it's not going to be a short journey. We're going to see sequential improvements. The third quarter, again, is seasonally stronger, but it probably won't be as strong as the last few years. It is reasonable to think that at least the demand won't deteriorate anymore.
Thank you, Raul.
The next question will be asked by Gabriel Barra from Citi. Go ahead.
Hi, Raul, Lucianna, and Guilherme. I have two questions. First, we always need to talk about de-leveraging, since this was one of your main pillars recently. One point that drew my attention is that we were talking about a target leverage of 2.5x to 2.7x, and you're very close to that.
We're very close to this 2.7x level.
When we add all of this together, we might be aiming towards something below 2.5x, because your EBITDA is higher and your net debt will be lower. I'd like to understand if that makes sense, and if it does, if it doesn't, if 2.5x is the real number, you're going to have some leftover cash. What would you do with that? Would it be dividends, buyback? Do you see any projects that would consume it? That's my first point. My next question is on ceramic tiles. We've been talking about capacity adjustments. Lucianna mentioned capacity cuts to adjust to the business. I'd like to ask about any potential asset sales that can generate value with this reshuffle and the possible sales that you might have. Thank you.
Thank you, Gabriel. Two excellent questions. When we mentioned 2.5x- 2.7x, we knew that this was an ambitious goal, from 3.5 x to 2.7x. It's not easy to do something like that. Yes, we're on the right track to reach the 2.5x that we set as our goal. No, we're not going to be happy once we get to 2.5x. I think you understood it perfectly well. This is a key part of our strategy. We need to reduce debt by over BRL 1 billion. We need to have interest levels that are at the right level, because we're not seeing interest rates going down very quickly. The overall scenario, in 2026, interest rates will be higher than in 2025. We didn't imagine this when we built our plan.
We thought it would be the same or slightly below 2025, but it will be higher. We forget about the fact that 15% was at the end of 2025, and we had to carry it for most of 2026. Anything we can do in selling additional assets to generate cash and reduce indebtedness will be done. We're not going to stop at the 2.2 x goal. I hope in the future we can say that our debt is very low and that we will invest Has the potential of having smaller equipment that makes very good parts. This is all aligned to the process that we're going through in ceramic tiles. I think that's it. I don't expect to see many opportunities to sell new ceramic tile assets.
We expect to continue producing at the right cost, continue promoting the right categories, focusing on luxury, super luxury, and this is a very good addressable market of BRL 5 billion, and we need to be leaders in luxury. Portinari is the second brand in consideration and conversion. This is the investment journey that we're taking, and that's very important for our portfolio. It's also reasonable to think that you have capacity everywhere. We saw that the market went down 25% and capacity went up 15%. It's not trivial to sell assets right now, especially the ones we have. It doesn't really make sense to look at that. I think we need to improve our business so that we can get better EBITDA margins above 20%.
We need to have more capacity utilization and really execute the leadership that we have in the super luxury and luxury segments. We need to be absolute leaders in large products.
Thank you, Raul. That was very clear.
The next question will be asked by Ricardo Monegaglia from Safra.
Now, when we think about the next quarter, you passed on some price increases this quarter. Do you expect this to continue? We're seeing that raw material prices are going down. Given the current context, the supply and demand, should we expect a reasonable margin expansion in the panels business in the second half of the year versus what we saw in the second quarter? My second question is about Dexco Forestry. I'd like to understand what your vision of this business unit is. I see that you're taking more opportunities in forestry trading.
If you can tell us a little bit about your long-term goals here. How will these results be reported to the market? What is your expectations from the market when it comes to this forestry business? Thank you.
Thank you. I'll hand it over to Raul. The next question will be the last one that we answer for the sake of time.
Thank you, Ricardo. I think the pricing topic is a key thing. We got ahead of this process when it came to cost, we also have structural competitive advantages. We have a resins plant. With that, we were able to bill urea at the right cost. We had a good contract to receive methanol. The sophistication we have at our operations and processes is not only about the cost, it's also about our competitiveness.
I think we're well equipped to pilot these volatile moments, and that's what we did. For some time, we were ahead of the cost because we were able to buy some inventory, and later when the inventory was replaced, we saw that this came to our cost levels. Things were more or less aligned. I see very limited space for new price increases in panels. I think things are adjusted now, but I also don't see a lot of space for a reduction. Henrique Haddad here always says something interesting. He says that costs dropped upwards. That's very important. We see that costs went up, costs went down, but they stopped above the previous level. Which means that our cost management and price levels are in line with what the market is demanding.
Again, when it comes to wood, the third quarter is the strongest, usually even more than in other segments, but I don't see any high demand for panels. I see that supply and demand is balanced. Prices are at the levels they should be. We're very robust in piloting this. We developed a very good model. We're not going to let go of it. We're not going to give up any market share to our competitors. We're always going to be aligned to our capacity share, and that's a non-negotiable. As the market cools down, we don't have any wood left over, but we might have forestry businesses with the plant under 96. It's interesting because we have been operating over 90, so that's the optimal cost level. Continuous production demands an occupied plant. We've been able to get very well-controlled costs. Operational efficiencies have been challenged.
We're aligned to what's happening at the end. I think we're very well-balanced here, and we're seeing the fundamentals being delivered. We've been at historical levels, and we hope to sustain these margins, and any gains that we see will be one-offs. Looking at Deca's and moving operational details that our team does brilliantly. When it comes to forestry business, we have an incredible year ahead of us. Or excuse me, we've had an incredible year recently. We launched this by understanding three things. First, that this is a skill that Dexco alone has. We're one of the best companies in the world in fiber development. We have a very good clone bank of genetic materials that was developed over decades. We have a very efficient operation, and we're very agile. We also have the size.
We're not small, but we're not huge, so we're not putting out fires in thousands of hectares. We have a very agile team that can find alternatives. That was the principle that we developed. This gives us a lot of motivation, and we have a huge retention capacity. When you don't have so many new forestry projects, when you're doing well in capacity, developing new bases like we did in Cartax, and Guilherme mentioned recently about our project in the Brazilian Midwest. When we start developing this new base, you see that we can generate more demand. When we have a good size and we see this as a separate business, we will see this as a separate business unit, but it's not the right moment yet.
We have to remember that 90% of what we consume in wood or what we do in wood is in our panels business. We need to focus on that at our core. What we can tell you is that we have a lot of ambition for this business. We hope that this will be a robust business unit. There are limits to it. You can't develop a forestry base of thousands of hectares without having a good demand at the other end. We have a lot of responsibility, and we're finding trading opportunities. We're doing our work very well. We have a base in Alagoas, which is self-sustaining, and at some point we're going to see what we can do with it. There's a lot that we can do with forestry by leveraging our main competence, which is spectacular.
We have to see this as a business unit, we need to focus on our core, which is still going to be panels for some time.
Excellent. Thank you.
The next question will be asked by Marcelo Arazi from BTG Pactual. Go ahead, Marcelo.
Good morning, everyone. I have two questions. I'll try to be brief since we're at the end of the call. The first question is for Lucianna. We saw a good level of cash generation this quarter. Obviously, this was helped by your EBITDA and the effects that Raul mentioned. Something that drew my attention was working capital. You mentioned the effort that you've been making, and I think this quarter Really showed that the results are of that. How much of this is going to be recurring? And your Deca outsourcing, can it impact this in any way?
A philosophical question for Raul as well. When we look at these profitability levels in the industry and the resilient demand, it's natural to think that Dexco and other companies will increase their panels capacity. Is this a discussion that you've been having? How sustainable is this profitability level for wood panels on the long term? Thank you.
Thank you, Marcelo. I think those are two great questions to end this call on. Before I hand it over to Lucianna, I have a brief comment. Lucianna mentioned RGM. She's a sophisticated person, but RGM is Revenue Growth Management, which is managing your price per channel, per product, and per location. We've been focusing on this in our go-to-market. I know that we're going to get questions about this. Revenue Growth Management in Portuguese.
Hi, Marcelo. Thank you for your question. I'll be very quick here. You saw our working capital, we still have opportunities. We still have great opportunities to optimize our inventories. As with any cash generation, what we saw is structural, we have an opportunity to improve this even more. Yes, it is structural, yes, we do have opportunities ahead of us. When it comes to outsourcing, we've also been working with the opportunity that we had last year. We were developing some new suppliers in China. We were testing them. This consumed some of our cash as we were prospecting these partners. Now we can say that we have a great payment structure, we can optimize our capital as we structure this operation with our partners. This also improves our cash. A part of what you're seeing here in the supplier line improvement is coming from this negotiation.
To answer your question, yes, it is structural, we do have opportunities for this for the rest of the year.
That was a great point. I'd just like to add one thing. When we look at the value chain, the outsourcing to local production reduces our working capital because we're simplifying our portfolio. The highest inventory in metals is not finished goods, but work in process, so raw materials. When you produce less in Brazil, in luxury products with low cadence, we have nine different colors. We have the biggest Deca plant outside of China. Here we can provide an excellent service level. When we connect this with some of the outsourcing products, we have positive results to our working capital. Like Lu said, experience always counts when you're launching new products.
You have things that you do well and things that you don't do so well. Sometimes we have excess demand or excess supply, both things have happened. We've been maturing in our sales and operations planning meetings, now we are doing a much better job with a very positive result. Yes, we should expect a reduction, I'm not going to let go of our service levels. When we look at the COVID pandemic in 2021, we had about 8% of the list in inventory. Now we were at 19 last year, we've reduced this to 13 or 14, there's still some room to change to a certain point. There's a point in which this is no longer adequate for our volume, but you can do it. Payment methods, financing models, smarter and shorter production cycles.
I think when it comes to wood, the industry has learned. Our industry has much more discipline now than it did in previous decades. Before it was crazy how much capacity was being built, Duratex was the only one that reduced its capacity. Many people who reduced their capacity, or excuse me, increased their capacity are having trouble filling these lines. Wood is much cheaper to buy than it is to make, it's very hard to find wood to buy. The structural difference also is an important limit to our capacity. We also need to learn that the market is growing discreetly, that capacity comes in in batches. What Dexco did very well, other companies will do, is debottlenecking. With smaller investments, you can increase your capacity, have gains in consuming fibers and resins, increase machine speed.
It's important to mention that in 2021, Dexco built the equivalent to one big line, spending 10% of what it would if it had a new line. We made very good investments of about BRL 150 million to gain a lot of capacity. This kind of intelligent capacity gains will continue, I see that our competitors will continue to see it as well. I have a lot of trouble believing in Greenfield for the Brazilian market when it comes to panels. I think the market might even consolidate into fewer players. That's something that we need to take a look at. Truly, we will try to find more uses for wood. We'll continue to invest into new and innovative products. We just launched a flexible panel. We launched products that are very faithful to the natural panel.
We have a lot of space to gain in productivity, cost, production volume with low CapEx, we'll continue to pursue that. We were one of the first companies to run 24/7. We are reducing raw materials. We're improving line speed. We're analyzing defects. We're doing good quality control, and this is all fertile ground to sustain our panels team and keep them driven. There's still a lot we can do. We have a forestry base in the northeast, which we will find a use for. It doesn't necessarily need to be the wood panel, but if it is, it might be the international market, but this is still not on our radar. We still have some time for this.
That was very clear. Thank you.
This concludes the questions -and -answer session. We will now hand it over to Mr. Raul Guaragna, CEO, for his closing remarks.
Thank you everyone. Great questions. Thank you for participating. You've been covering our business very well, you've been very constructive about what we've been doing. This long-term vision will continue for us, this is characteristic of our group. We keep our eye on the ball. We're piloting on the short term, we have a lot of responsibility when it comes to indebtedness, capital allocation, and providing returns for our investment plan, which was announced in 2021. We'll continue to do that and improve our results consistently as we pilot uncertainties and volatility. We're not letting go of our right to grow. We need to continue to be relevant, there are several avenues that we can explore. After the first three years, we have been going through a cycle in which we unlocked the value that we have in the company.
In 2025 and 2026, we've been adamant at keeping this process ongoing, executing it very well. In 2028, we hope to be closer to the capital cost and to this right to grow. We might grow or we might not. This is a decision we'll make with our shareholders, the fact is that we conserved our capacity. You can't get quick results with quick decisions. You need to have structuring decisions. I'm happy to see that the market understands that now. I know that a lot of people are impatient. I know it takes long to get the results, this has been a consistent journey. Thank you for your interest.
This concludes Dexco's conference call. Thank you and have a good day