Good afternoon. We're now beginning our earnings call for the second quarter of 2024. This is a public call. All participants have their video and mic off during the presentation. Any questions can take place through the Q&A chat, or we can also open up your mic by the end of the presentation. The meeting is also being translated simultaneously into English. You can select the interpretation option. We also have sign language. The webinar will be recorded in English and Portuguese on the investor website.
So, as we get into our results for the second quarter, we ended the quarter with an operational net revenue of BRL 393 million, practically in line with what we had achieved in the second quarter last year, the adjusted EBITDA of BRL 118 million, 0.8% compared to the second quarter of 2023, and then net income of BRL 40.66 million, 82.5% in relation to the second quarter of 2023, which is mainly due to the recognition in the second quarter of 2023 of the PIS/COFINS credit on the acquisition of the scrap that we had won the lawsuit for. And so this impacted our profit positively by BRL 161 million. The ROIC in the last 12 months was 12.9%. The cost of debt in the last 12 months after social contribution and social pension incomes, and it was at 2.9 net adjusted income.
As we get into the evolution of our revenue, we had a slight drop compared to the second quarter of 2023. We had a peak in regards to the first quarter of 2024, with a share of 15% from exports in this quarter, ending BRL 393.469 million. The adjusted EBITDA and margin, we ended the quarter with an EBITDA and a margin of 30% in line with the previous quarters. Then the EBITDA was slightly above the second quarter and the first quarter of 2024.
So, when we take a look at the net income to have a direct comparison with the results in the second quarter last year, there was a slight drop in regards to the profit of the operation without recurring effects of 40.8%, which is due to the interest rate, especially our debt situation due to the Gaia platform and the investments that are occurring that we still have not captured entirely with the returns on invested capital, which is why we have this drop in 40.8%, which is really impacted by the increase in the interest rate. And in regards to the previous quarter, it was 10.5% less. But when we remove the non-recurring effects, we had a profit pretty much the same as what it was in the first quarter.
When we look at this, we have BRL 161 million in the second quarter that were the non-recurring effects of the PIS/COFINS lawsuit. And BRL 4.116 million were tax execution of the ICMS in Santa Catarina, which impacted our profits negatively. And profits compared to the previous year were very similar.
And when we look at the comparison with the previous year, we also had the situation with the financial expenses, but also more depreciation due to the investments in the Gaia platform that already began with the depreciation process and a lower variation of the biological assets, which is mainly due to the increase in the discount rates, which were 0.5% last year and another 0.5% at the beginning of this year, which is why we also have this difference in the profits due to these effects.
When we get into the corrugated cardboard business and we look at the overall market, this is really good news because we've had a sales volume that is higher than the same period last year, 5.4% evolution in evolution and 4% in regards to the first quarter. So, it's a dynamic of demand that is quite favorable in the corrugated cardboard business. And in square meters, pretty much the same dynamic. It grew 15.6% and 3.4% in regards to the first quarter when you look at the square meters. And in our case, we had a performance a little bit above, 8.4% with 41,874 tons sold and 0.9 above the first quarter of 2024. And when we look at this in square meters, we ended up with 83 million meters sold and 2.3% above the first quarter.
This is above market levels, mainly due to the increase in capacity in the packaging factory in Santa Catarina. This growth took place throughout last year, and we were able to capture here in the quarterly comparison. The average prices of corrugated cardboard had a slight drop of 7.2%. This is due to the fact that we had a drop in the costs of our products.
The corrugated cardboard prices also kept up with this drop, not at the same speed, but there was a significant drop compared to the second quarter. In regards to the first quarter of 2024, there was a slight increase, but this is already a pretty good sign because we've begun a cycle for corrugated cardboard, and we can talk about this a bit more up ahead. Prices were pretty stable.
There was not a drop anymore in the prices throughout the quarter. We began a process to recover our prices due to the elevation of the scraps. When we look at square meters, the performance is similar. When we get into the paper for packages, we had an important increase in the volume sold of 8.4%. The paper for flexible packaging for bags, industrial bags, had an increase of 22,000-24,000, so about 1,600 tons more. When you look at the paper for rigid or stiff packaging, which is for corrugated cardboard, we sold 6,405 last year and this year 7,300. We had an increase of about 900 tons. When we look at the previous quarter, we had an increase of 4.4%.
So, when we look at this, we had a pretty good increase, but when it comes to prices, we had a drop of 7.5%, mainly due to the rigid packaging paper, due to the drop in the scraps prices. Now we start a process to readjust these prices. We also had an impact of more exports, countries that are sometimes a little farther, which makes the costs of freight a little more expensive. This is mainly due to the situation with Argentina, a big buyer of paper from Brazil. The dynamic in Argentina there is still very difficult, with exports occurring at a smaller volume. So, the average price for rigid packaging, here you can see the paper for corrugated cardboard dropped 6.1 compared to the previous year due to the drop in the scraps.
We already had an increase of 3.5% in regards to the first quarter, as we already capture part of the increase in these scraps that took place in the second quarter. So, here you can see the issue with the scraps, which is very relevant for our results in the quarter. We had an increase in regards to the second quarter of 2023 of 20.9%. Also in regards to the first quarter, 27.4%, with an average price for scraps in the market of BRL 740 per ton. In our case, the elevation was 10.6%. This was an increase that was slightly above market levels and 28.8% above what we had in the first quarter of 2024. So, this was a significant increase. This has been offset by the increase in prices for packaging, which is already taking place in the second quarter.
Now, about the rosins, we had a slight drop. The market continues to have volumes that are still quite unfavorable. So, either due to the dollar or the increases. But that, of course, caused some kind of increase in prices. But obviously, the volumes have been below what we achieved last year and also below the first quarter of 2024. So, the prices, we had a slight drop in regards to what we achieved last year, but we had a substantial increase, which is due to the increase in the dollar prices and even the dollar itself going up 25.8%. So, the expectation is that the prices would continue to have a slight increase, but a trend for stability and recovery of the volumes throughout the year. So, we had the gross debt of BRL 1,644 and a net debt of BRL 1,051.
This was obviously in line with the script and the investments of the Gaia platform. We should have an increase in leverage till the end of this year. That's when we would start a deleveraging process by the beginning of next year. Foreign currency, 98% is national currency, and this is an average cost of debt of 12.4% a year, 91% of the debt in the long term, and 9% only in the short term. The ROIC was 12.9%, 4.7 percentage points above the cost of debt. This drop is due to the investments in the Gaia platform and the non-recovery of these returns. Our estimate is also that we would start a recovery in the ROIC by the beginning of next year. The buyback program for 2024. We have begun this on the 25th of March with a term for 18 months.
Our acquisition limit is 10 million. We bought back till the 30th of June, 585 Common shares. The buyback program is still very strong in the next quarters. We have highlighted the payment for dividends. In the last 12 months, we had a dividend yield of almost 8% and a payment of BRL 0.74 per share in the last 12 months. In the second quarter, there was the payment that was pretty high due to the results in the last year, which was the payment of that installment of 50% additional payout and the closing of the exercise. Also the payment related to the actual quarter before which reaches BRL 103,959. The total dividends in the last 12 months with a dividend of BRL 0.70 and a yield of 18%. We talk about the investments in the Gaia platform.
We have the main investments complete, basically. The total investment till now approved by the board is BRL 1,152 million. In the second quarter, there was not much more to be done. The gross investment performed was BRL 966 million. When we look at the projects, the main Gaia 1, Gaia 2, and Gaia 3 projects, they've been complete in the performance curve as we capture returns. For Gaia 1, the main return lines with reduction of variable costs and energy costs, as well as the increase in pulp production, this is already being captured. One of the main return lines is a mix for papers. We estimate that we'll be having all of machine one with fiber papers. But due to market issues, we've had an oversupply of papers that are dedicated to be used in industrial sacks and bags.
There's a super supply in the market due to the reduction of exports from the main players. So, most of the volumes of our competitors go to cement bags, which is a sector that's recovering still in Brazil and abroad, which is why you have an oversupply. As the cement market grows, then there's a natural reduction in the paper supply, and we can operate with a mix for machine one that's more adequate. We can capture the total returns for Gaia 1. Gaia 2, which is the refurbishing of machine two, we've already completed the investment, and the performance of the machine has actually been better than what we had estimated in this project. This is the machine that's dedicated to papers for bags, which has been a segment that has been having very good performance.
So, for Gaia 2, the expansion of the Embalagem Santa Catarina has also been complete, and the additional capacity has already been occupied. We already have some performance with the corrugator, but that's mainly within what we had expected in the capturing of these returns. And so, we have an evolution curve as we look into the capacity of the corrugator to be able to reach the estimated volumes for the project. Then Gaia 4 and Gaia 5, the licensing process, which has been extended more than we would like it to, but it's already in the environmental agency. And we think that till the end of the year, we'll be able to have the license to begin the repowering of Cristo Rei. And then we should take another six months, maybe till the end of the year.
So, maybe one more year to have the licenses and perform the investments. For Gaia 6, which is the system to manage information and processes, which is pretty much complete, only one unit. We haven't reached a D-day for yet, but we're working on the automation of our processes and the operations. We're doing super well. We already have this project pretty much installed in all units. We've expanded the ETE as well already, and the automation of the intermediate stock, which for Embalagem São Paulo has also been complete. Then when you consider the performance curve, this is an important investment for the Indaiatuba packaging factory. All of this stock took place with the systems where we also have with the conveyor belts, and we can also have all the connections with the printers so that it can be done automatically.
This process has a performance curve that we would like that we're experiencing at this moment. So, we should reach the estimates for the project more towards the end of this year. The new printer for the unit in Santa Catarina, we've received the machine in the beginning of next year. And then with the refurbishing of machine 5, we should be going through the investments phase and engineering phase, and we should start the project in the next months. So, the only project that is still under execution, which is the management process, the management system for processes, all the rest have been complete, and others we approved later on, and also the PCHs, which we just mentioned. So, this quarter, we had 3 important awards. We were among the best in Brazil from Humanizadas.
It's a research that assesses the performance of the organization when it comes to the main stakeholders, customers, investors, suppliers, and governments, and surrounding communities. So, it's a multi-stakeholders perspective, very interesting research, and there's an interesting partnership with the management school, this London School of Management. And then it assesses the socio-environmental commitments, and we are in the A rating with an important highlight among the biggest companies. So, we were also occupying the fourth position in the GPTW, Great Place to Work in the regional ranking for Minas Gerais. And for the second consecutive year, we were able to conquer the Época magazine for diversity, equity, and inclusion as a highlight for the paper and pulp sector. And then our team for investor relations, which is always available to meet the needs of our investors, and Odivan, which is leading the financial management department, and André as well.
Our team, which includes Marciana Ito , and Daniela, and the financial team, Marcos, Emanuel, and the accounting team, Evandro and Alex, and of course, Giovanna from the new business area. Our team is always available, of course, to meet the needs of our investors. Great. Now we can open up for questions. I'll remove the presentation here, and feel free.
Well, good afternoon, everyone. Just a minute. We already have a few questions here. I'm going to start off with a question from Stefan. He sent this by email. These are two questions, the paper and EPO market. We're expecting a positive seasonality and volumes with second quarter, even with such a strong first quarter. Do you see possibilities beyond prices for flexible papers and corrugated papers? And the second one is scraps from Gaia 1.
What do you expect for the evolution in pricing for the second semester? Could you talk about this a bit more and give us a bit more of the performance curve on Gaia 1 for the second quarter? And if there's expectations for the rest of the year?
So, the scraps had a peak that was very relevant in the quarter. We are noticing that there's a slightly smaller pace in the increases. We were transferring about 15 BRL to every two-week period. Now it dropped to 30 BRL. And we expect to stabilize this in the current values throughout the next months. This is our expectation. It's going to really depend on the market dynamics. But we do feel that there's a slowdown in this pace. And when it comes to the volume of corrugated cardboard, things have been doing really well in the month of August as well.
So, we should keep up with the same dynamic of the same period. We should keep up a pretty strong pace, which would allow for price adjustments. It's not trivial. I think this is important because it's important to have this favorable dynamic. But we've also had the inclusion of many new capacities in the market. And in some way, that could maybe make the price increases even more difficult to do excessive capacity. But we have seen a higher level of acceptance that's really good considering the price increases at the moment. So, I'm not sure if Lindamar has anything else you would like to add in regards to this.
Well, I think that's perfect, Sérgio. It seems exactly right.
Well, and then for papers for flexible packaging, we've already had an increase in prices for machine 4, which is the thinner papers.
This had an increase of 6% in the internal market. It's already been complete. But the papers for machine 1, which are the papers for industrial bags, we have not seen much of an expectation for an increase in prices, at least not for the next quarter, because the market has an oversupply and we've had to direct a huge volume of these papers for exports. So, they're having an increase naturally due to the currency rate increase. And it's important because the currency rate's almost 10%. And however, in the internal market, the perspectives for the increase in the papers for machine 1, which are the papers for bags based on virgin fiber, we believe it'll be close to about the fourth quarter where we could assess transferring this possible increase. Henrique, do you want to add on to anything?
No, that's it.
Okay. Perfect.
So then about the exports, we've also been exporting a lot, a bit more than the previous quarters. And that's probably because of the internal market situation. We have this policy of to not reduce prices. So, we become a little more vulnerable at the moment where there's an oversupply. But we do prefer to keep things this way because if you reduce prices, then after you're going to head to another level to increase prices. And we know that this is not a good dynamic. So, we try to keep our prices in the internal market. We accept some possible volume losses, and we calibrate these sales with more exports, knowing that the market will be recovered naturally. I'm not sure if I answered everything. Well, just about the performance curve for Gaia 1, I think that's missing. Yeah. So, I talked about the project.
Henrique can also help me with this. But we've been capturing the energy, which is completely functional with the new turbo generator. And of course, within the expectations for the project. But now the cost of opportunity for energy is smaller than what we had estimated for the project. So, however, we've been capturing a reduction in the cost of energy at a lower level than what we had estimated in the project. But, and of course, this is because we work with an average price. And so, that tends to obviously become closer to the levels of the project. And so, we're also capturing a reduction of variable costs for soda vapor and other costs. But we still have one line, which is the main return line, which is a mix for papers.
So, we stopped producing papers for corrugated cardboard, and we had sold a bit of that in the market. We started transforming this into virgin fibers, which have more added value. But of course, we depend on the market dynamics, right? That could be a little more favorable for the papers and industrial bags. So, machine 2, which is for the papers for bags, the dynamic in the market has been good. And there could be a slight increase in prices throughout the semester due to the increase in the scraps costs. But it shouldn't be in the second quarter, probably only in the end of the third quarter and beginning of the fourth quarter, most likely.
Great. So now we have Guilherme Nippes . Guilherme, feel free to open up your mic if you'd like.
Okay. Good morning, Sérgio and Ojiba. Thanks for this opportunity.
I'm Guilherme Nippes from XP, and we have two questions here. On the first point, you mentioned about costs. We noticed pretty good performance in the costs throughout the second quarter, even with the impact in the prices of the scraps. But I wanted to hear from you a bit about the expectations you guys have for a slight reduction of scraps for the third quarter and what we could expect as a reduction that's greater throughout the quarter. And what would be the potential impact in the costs for you guys? Would there be a significant improvement in the costs? And the second question is about the volumes kind of called our attention a bit more to the negative side. We know the market's very volatile, and you gave us a pretty good explanation. But prices were surprisingly positive.
So maybe if you could just talk about what we could expect throughout the third quarter when it comes to volumes in this segment as well. I think that's what I had to say.
Well, about the cost reduction and more controlled costs, that's mostly because of Gaia 1 and a careful management of the costs we work on and control of specific consumptions. But the scraps costs should lead to a slight increase because it came at a growth curve that was significantly important. The average price was BRL 716 per ton. And the trend, however, is that the average price in the third quarter should be higher because we came in through this growth curve. So we haven't seen a drop in the scraps prices.
We think they're going to be kept pretty much at this level because the companies have a big difficulty in the second semester to have regulating stocks or inventories. So stocks are normally relatively low because the production of paper is high due to a demand that's stronger. Now, on the other hand, the scraps will force companies to adjust prices, mainly because of the increase in the scraps and also the inflation of about 18 months where you don't have price adjustments for corrugated cardboard, almost a bit more actually, where you don't have adjustments. And there was a pretty downward curve last year due to the increase in capacity in Santa Catarina and also the drop in the scraps. So now there's this movement for the repositioning of this inflation where you have these drops and also to reestablish the scraps from this peak we had now.
So we see scraps a little less pressured, and you have volumes that are a little lower in the beginning of next year. But that's a typical cycle, right? So that's where we see the beginning of the second semester. And they started their increased cycle in the month of May and June. And now these months are going to be the months where we have the highest seasonality with capacities pretty much full. And that allows for this movement with adjustments. So not sure if I answered all of the points there, Guilherme.
Well, that was perfect. But the other question I had was about Rosins. Could you talk about your expectations for the third quarter?
Well, the increase in prices is already demonstrating that the market's a little better than what it was last year.
It had gone really downward when it comes to the lower demand from China, from Europe, and lower economic growth. The harvest in China was also a little better. The prices dropped a lot. So this increase in prices comes from a market scenario that's a little better and also the dollar. And then in regards to our volumes, it's because the market really hasn't recovered all the way yet. And we also have the actual harvest situation that's starting off now in the third quarter where you have a natural drop in volumes and a recovery of these volumes by the end of the year and beginning of next year. So anything to add on, Henrique?
Oh, no, I think that's it. Just to highlight that part of this volume, we were even able to sell, but Rio Grande do Sul had some flooding problems.
And that's where we suffered a bit because of the shipments. And so we still have some shipments that are delayed that should be taking place in the next quarters. But this is the dynamic that Sérgio mentioned for the third and fourth quarter.
Great. Thank you.
Very good. So our next question is from Ivan dos Santos Torres. And he says, "Good afternoon. The world is headed towards a Third World War. And how will it position itself in this moment that's so critical?"
Well, we will continue to perform our investments as long as we can have return rates that are adequate. We have been approaching a new growth cycle for the company. And we're always very careful about all of this with the adequate returns.
We understand Brazil has a comparative advantage that is extremely important when it comes to the production of paper for packaging because of the wood cycles and also because of the quality of the Brazilian companies. So it's quite difficult, right, to have a forecast for this war scenario because we are not specialists, right? But of course, Brazil, due to the geographic conditions and geopolitical conditions, will probably be affected even positively by a possible external conflict when it comes to exports. But of course, the result of the Third World War is horrible for the whole world, right? And I do hope that doesn't happen.
Great. So the next question is from Antonio Junqueira . Antonio Junquera, you can open up your mic.
Hi, good afternoon, everyone, and congratulations on the call and the results.
I wanted to ask you, Sérgio, if in the current price, if you can, of course, disclose this, what would be the buyback program like? And do you expect to have any buyback plan at the current levels?
Well, we have been working on the buyback program. We understand that the shares do not represent the intrinsic value of the company. They don't capture the returns from the Gaia platform that are already taking place. And that's why we have been keeping up buyback programs because we believe that the value of our shares are still way below what they should be. Now, at what level we will start buying from, this is information we can't be releasing to the market, right? Yeah, exactly. At the end of the day, it's a capital allocation decision. We have some projects to implement that have really good return rates.
But sometimes the price of the shares leads us to having a return rate that's even better than some of the other projects we have to invest in in-house. So we have to look at our leverage position. We're in this period where we're close to about 2.5, which is our limit, our target, let's say. And so it's a decision for capital allocation, really. At the end of the day, sometimes we look into seeing what the parameters are like for the financial policy, return rates, and opportunities to allocate resources. And of course, we look at this, but we don't disclose the price we're going to be buying back at.
Great. Thank you. The next question on the chat is Angelo. How's it going, Angelo?
His question is, well, do you guys see that operations for imports for scraps could be maybe an operation to balance out this? Is this part of your read-only strategy?
Well, yes, it has been part of our read-only strategy. We've been searching for the possibility to import scraps in moments where we have more scarcity or where we have a real increase in our internal prices. We always keep this channel open, and we understand that it can mitigate some speculation from the internal market. So basically, we've been doing this recurring with some level of imports, not with the objective of supplying our operation directly, but with a secondary objective of avoiding speculation and avoiding that the scraps reach such high levels and difficulties to transfer this to the end customer. So I hope that answers your question.
Well, yeah, moving on. Alexandre Assaf , good afternoon.
How's it going? Could you talk about the expectation dynamic for the vertical resins and the fair value of the biological assets? Henrique, could you talk about the main variables that influence the biological assets?
Besides the issue I mentioned with the discount rate that was higher, we had an increase in the discount rate, which was 0.5%. It was higher. So this assessment is done by a third-party consulting firm. In their assessment, they suggested an increase in the interest rate by 0.5% last year and 0.5% this year. So that's why you had a natural drop in the value of the assets. Well, yeah, it's a formula and a theme that you have an average of price in wood for the past three years in Rio Grande do Sul also. So we consider this an average of seven years.
You have overhead costs. You have the discount rate, which has been coming around ever since the Brazilian interest all the way to international interest. And for all of this, we can't calculate the variations quarter over quarter. And annually, we hire the Afry report, this international consulting firm, that's so acknowledged worldwide. And we just split this variation between the quarters according to the quarters as they come in and out. So in this quarter, what most impacted us was the price of wood and the rate of discounts, which reduced a bit of the biological assets. So, of course, that increased this. So in regards to the previous quarter, there was a variation due to the discount rate. So, yeah, the main impact, of course, you don't have major changes, but the biggest impact is always going to be the discount rate. Yeah.
And then once again, it's always positive, right? Always varies positively. And at the end of last year, it varied less than previously because the price of wood went up so much at the end of 2022. But there's always this positive variation. So, yeah, you have longer averages so that this doesn't lead to such acute changes. And so you always have these averages of like 3 years. And when it comes to the gum rosin, 7 years.
Well, Angelo Lambasque has another question. And seeing if the virgin fiber competitors are not suffering much of a pressure due to the reduction of costs, how do you view this competitive dynamic with the reduction of prices versus the relative stability in kraft paper?
Well, yeah, the virgin fiber producers also have you have Smurfit and WestRock, where you have a significant percentage of recycled paper and even Klabin.
So, of course, this is of their interest to replenish these costs. But, of course, naturally, since they have a virgin fiber part and a more stable cash flow, they have a competitive advantage. But the increase in prices is not only related to the increase of the scraps, but also repositioning of the inflation from almost one year where we don't have increases in corrugated cardboard. So the companies, by what we've seen in the dynamics in the market, are also going through a process to try to increase. But there are some side players, let's say, which is the virgin fiber situation, whoever has more exposure is more positioned, and also the new capacity. But since the demand is very strong and we had 100% occupation, this makes the price transfer take place in a more easygoing manner.
Okay. And then Xing also has another question.
How's it going, Xing? Well, what is the ratio of the net debt to EBITDA after capturing all of the returns from the Gaia projects?
Well, how's it going, Xing? We can't release projections. What we can say is that we estimate that the leveraging process would start from next year. From a more strategic perspective, you can see that there's a leverage target of 2.5 times. We understand that 2.5 times is a leverage that is healthy, and it keeps the credit rating in the company, and it potentializes the returns to investors, so to shareholders. It's normal, as is in our financial policy. We should always try to have leverage that is closer to 2.5 because that would increase the returns to shareholders because of this leverage effect.
So if after Gaia you have a drop in leverage, then it's natural that we would have other investments to try to deleverage the company. And that would always be close to the initial value.
But Marius also has another question. With the floods in Rio Grande do Sul , the impacts and the cost of the scraps are pretty high. Does EBITDA have any expectations to return to the levels that had been commercialized in the next quarter? Do you think you're going to return to what it was before the floods in the next quarter?
No. This is very difficult to foresee. The scraps market has its own dynamic. But by our experience, it's not very probable that the scraps are going to drop in these peak months in the second half of the year. But we do hope that they start this drop in the beginning of next year.
That's what we're expecting. But, of course, whether they're up or down does not necessarily determine the profitability. What determines the profitability is the price. If we have the capacity to transfer prices, which is something we've been able to do quite firmly, we should have an expansion of profitability in the business. So the fact that the scraps are pretty high does not necessarily mean that the profitability of the business is going to drop. The capacity to recover prices, yes. So then the best margins we had were when scraps had an issue that was about BRL 1,800 per ton, right? So then after we were able to have the best margins, really. Yeah.
In the sector, you have this main common knowledge, which is when the scraps are high, you can transfer prices and have better profitability, especially after there's a slow or dropping period and trend where the prices don't drop at the same speed. So basically, that's why there's this correlation, but it's not direct.
Well, Xing has another question about leverage as well. Do you think you could reach the level of 2.3 net debt to EBITDA in 2024?
Well, our strategy is to keep our leverage below 2.5. And that's our mission, really. And it's in our policy. And we really believe we'll be able to fulfill our strategy.
Well, then you have an anonymous question, which is what you expect for the margins in the second quarter of 2024. Is there any improvement in the margins, even with the cost of the scraps going up?
Well, the total margin will definitely get a lot better because the second semester is a semester with more significant volumes in all of our businesses. So we'll have the results, which end up being bigger, especially for sales. And the margins, of course, rely on this capacity to transfer prices.
So Guilherme Souza, how's it going? Well, about the dividends, do we have a constant process for the next periods?
Well, we had a structural drop in the net income, and that was because of the increase in the interest rates, right, Ojiba? But our expectation is to keep this payout of about 50%, 25% throughout the quarters, and another 25% in the closing of the period.
As we've done this this year, at this moment, the trend is that the profit should be a little bit lower than what it was in the period where we're a little less leveraged. But as you mentioned, we should begin a process for deleveraging in the beginning of next year. Of course, we'll have to always be at this target of about 2.5 times, which is the optimal strategy and structure in our vision. But eventually, this leverage could drop a bit below till the beginning of the execution. So because of the investments and then the assessment also of the biological assets, and the financial expense has only impacted about BRL 3 million. And it wasn't the biggest impact in the second quarter. But, of course, we are working towards growing the net income.
We're here for this, and that is to really help the business perform. And then the returns also on the Gaia platform, which will reflect on higher net income throughout the time. But we're in a real economy and variable income, which is where you have the circumstances that affect the performance of the company. So the net income is something we can't guarantee because this is the dynamic the companies have and the business has with investments in shares anywhere you go. But our work is to always, of course, improve this. And that's where you have the biggest cash generation, which allows us to have future investments even. And 50% we distribute, and the other 50% we reinvest. So the more the profits, the greater capacity for investments.
So then Guilherme Nippes , we have one more here on the Néos platform. Would you have any updates on this project?
Well, at this moment, we actually left a workshop yesterday. We were talking about the strategic plan for the next 10 years. And we review these for every three years. And one of the accesses is this Néos platform, right? So we'll be disclosing this as soon as we get more clarity on this and it's approved by the board. But it's something we're elaborating for sure. That's the good news.
Well, Xing has another point here, which is biomass. Is that going to be sold in a recurring manner, or is it more occasional?
Bom dia, Xing. Biomassa, a gente não tem. Well, biomass, we don't sell. So I'm not sure if we understood your question. It's probably due to the carbon credits, yeah. For the carbon credits, yes.
But well, yes, it is recurring, but it's not something that happens every month. So we accumulate an amount, but it is a recurring value. So, yeah, we have a few more years of the projects to head with.
Okay, one more here that's also anonymous. What's the magnitude of the price increase that you guys are searching for in each business line? The recent news shows that competitors increased prices by 6% in certain lines.
Well, what I can say is that we increased 6% on the papers from machine 4, which are the thinner papers. We increased 6% in the internal market and in the external or foreign markets. In our current case, where most of the sales to Mercosur were reduced, then the prices are spot on.
But we had an increase that was provoked because of an increase in the dollar rate, which helped in the exports. And we've really tried to increase prices to help with the repositioning of this inflation. But, of course, that's another actual or real gain. So it's about repositioning it any, not necessarily the market as a whole. So eventually, the percentages would be above the official inflation rate.
Well, Xing has another one. Do you guys think that after the Rio Grande do Sul event, there was a rupture in the scraps prices compared to the history? And why was the volume in Rio Grande do Sul lost, reducing the offering?
Well, actually, the scraps started this peak cycle a little bit before. But, of course, with the episode in Rio Grande do Sul , there was a rupture.
Just to give you an idea, 30% of the scraps in our Santa Catarina unit would come from Rio Grande do Sul . So we had to buy these from other markets, which caused, of course, a bit of inflation in these markets where we were going to search for these scraps. We've already adjusted this dynamic, and the south quickly returned. But this peak cycle was retrofitted because, at a certain point in time, the stocks in the companies went up to levels that were pretty low as they attempted negotiating prices. And that also made this process kind of retrofitting itself in this peak dynamic. It's a bit of the dynamic when you consider the scraps. If you have a retrospective analysis, you have drops and peaks, but you never have two months of peaks.
You normally have a cycle that lasts maybe 6, 8, 10 months even of small increases, and then you have a drop cycle. So, of course, the rupture in Rio Grande do Sul was what really accelerated this peak pace. But when we talk about the scraps market, our vision is that structurally, the market should not lack scraps in Brazil. So the offering of papers and virgin fiber increased in a bit due to the new WestRock and Klabin, and even the volume of papers that's been operated with virgin fiber Brazil, which has been higher. So from a structural perspective, we think that there's no reason for you to have because the supply should even overcome the demand.
But when you have these kind of events, extended holidays, and a natural disaster like Rio Grande do Sul , then that could cause a growing trend or peak, which is kept for a certain period of time. But we don't see a structural reason for the scraps to keep up with such a high cycle. That's why we're estimating the beginning of next year that the scraps should start a dropping trend or even in the end of this year.
Well, now we have Tiago. He has a question. How's it going, Tiago ? So the logic of leverage according to maximizing value for shareholders when you saw the reality with high interest rates, etc., but with possible incapacity to transfer prices in more unfavorable markets or scenarios, isn't leverage relatively high as long as it's always a little bit lower than the ceiling? Is that always what you desire?
Well, no. If we perform a retrospective analysis, our capacity to transfer prices is complete. We could have some setback of 1 or 2 months. But throughout the years, when you look at a 20-year analysis, you could see that we had transfers and payments that were even above inflation. In the last cycle, the payments were pretty high and way above inflation. So this condition is inherent to the sector and the business. And, of course, you could have, at a certain point in time, in an economic crisis, some recessions, but then it would be maybe a little more difficult to transfer these amounts. And that could lead to a difficulty, possibly. But we understand and frequently analyze the financial aspects of the optimal capital structure, considering the interest scenario we have at the moment.
So the 2.5% is the leverage ceiling in our vision if we consider the current interest rates in Brazil. Of course, if the interest rates drop, then, and of course, at levels that are a lot smaller, you could possibly have a leverage that's a little higher. But in our perspective, 2.5% is great. Well, Tiago, just as you mentioned, that is what we look into. And you see the rates of interest rates in Brazil that we historically go through, or even during the pandemic or another period where they operated at lows but then increased and had some peaks. But historically, the actual income regime. So if we look at the interest rates today of 10.50% Selic, you can have a calculation, and you can understand how much this interest payment would consume as cash flow.
And if you increase the risk level in the company, it doesn't only increase the cost of credit but also the returns expected by shareholders. So this calculation we work on reaches 2.5% as a ceiling. As you mentioned, they capture things really well with the ideas here where we don't want to leverage the company too much because that could lead to a higher cost of capital and make the company have a free cash flow that's a little tighter.
Well, we have one more here from Xing. He confirmed those carbon credits. And hello, how's it going? She asked about what the monthly carbon credit generation pace.
Well, do you want to talk about this one?
Well, actually, we perform the carbon credit sale once a year. But yeah, the pace, it's not that relevant at the moment.
It was in the past, but before we used to sell a lot of carbon credits, the prices were higher, and the amounts of credits were a bit greater. Today, the methodology changed, and the credits have a smaller amount. We're in a regulated market. So Irani was the first company in the sector to sell carbon credits in Brazil, and second in the world back in 2006. So we looked at this period, which worked pretty well. And then that's where we had the Paris Agreement in 2015. And that's where everyone went into the voluntary market. But to answer your question, it's not that relevant. It shouldn't go over BRL 500,000 per year when you add up everything we generate and sell.
So this is the last point here. And I think we have Carlos also. He has to open up his mic.
Carlos, feel free to hop in. Carlos, can you hear us? You can open up your mic. Yeah, I think he's done with his questions already.
Okay, great. So do we have any other questions?
No, no. We've covered everything. And no one with their hands raised.
So we've covered everything, guys. Wonderful. Thank you so much for your time and attention. We are here working firmly to produce and deliver results that are even better daily. Thank you so much. Have a great afternoon. Bye-bye. Thank you.