Suzano S.A. (SUZ) Q4 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for holding and welcome to Suzano's Conference Call to discuss the Results for the Fourth Quarter of 2022. We would like to inform that all participants will be in a listen-only mode during the presentation that will be addressed by the CEO Mr. Walter Schalka and other executive officers. After the company's remarks are completed, there will be a question-and-answer session when further instructions will be given. [Operator Instructions] Before proceeding, please be aware that any forward-looking statements are based on the beliefs and assumptions of Suzano's management, and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. You should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Suzano and could cause results to differ materially from those expressed in such forward-looking statements. Now, I would like to turn the floor over to the company's CEO. Please Mr. Walter Schalka, you may proceed.

Good morning. Welcome everyone to the year result meeting that we are presenting here. We have with us here large part of our C level that would be able to answer your further questions in the end of the presentation here. I'm very pleased today to announce and to present to you the best ever results of our company. We are very pleased with several developments that we had with you that I'm going to share right now. In the operational side we have flat volumes on the paper and pulp despite the fact that we have additional annual shutdowns and retrofit in our Aracruz plant. This keeps us with inventory levels below our optimal operational levels. Leo is going to share more information with you regarding his point. The combination of good volumes in terms of sales and better prices lead us to a situation that we had the best our EBITDA ever in the company with R$28.2 billion, when the operational cash generation of R$22.6 billion. Despite the fact that we have short-term impact on our cash cost due to inflation and commodities other things and other services that Aires is going to share with you additional information. Our financial situation is a very strong balance sheet. We have liquidity, potential liquidity of R$6 billion right now. Our net debt is at R$10.9 billion with several initiatives that we had this year. We had a minor increase from R$10.4 billion to R$10.9 billion, and Bacci is going to share with you additional information on that. Our leverage is at 2x net debt over EBITDA right now, and we have been performance our CapEx once again one additional year in line with our guidance, and we are very pleased with that. We are a highly intensive capital company and we need to perform on our CapEx. I'm very pleased as well to announce our best ever results on safety performance as well, and a major improvement on our cultural development, mainly showing that we are preparing the company for our future. We are not only think on the short-term results, but we are preparing our future. In the end of the presentation, I'm going to share with you how we have been performing on all the strategic avenues that we announced to you. Now I'm going to pass the floor to Fabio that is going to share the information regarding our Paper and Packaging division.

Thanks Walter, and good morning everyone. Let's turn to the next page of the presentation. We're glad to announce that with solid results of the fourth quarter we wrapped 2022 as the best year ever for the Paper and Packaging business unit. Demand for print and writing papers and carton board has been strong in the domestic market led by seasonal customer demanding Paper Packaging and Editorial segments. In the international markets demand although solid in the quarter has shown some signs of cooling down with much improved supply chain leading to end of inventory replenishing in all major markets we serve. In the domestic market, according to IBA Printing and Writing demands leaped 2.2% in the quarter when compared to fourth quarter 2021. This decrease is due to strong comparison to last year and the reduction of Printing and Writing papers sold into the Containerboard segment, which has been minimal at the end of 2022. When you look at full figures for the year, Printing and writing demand remained at the same levels of 2021, a positive indicator given strong reading in 2021. Robust performance of the publishing sector office and school paper segments sustained the demand supported by the rebuild of previous depleted inventories, a trend that was particularly strong in the quarter. For paperboard IBA's public data on demand shows a strong 11% increase versus fourth quarter of 2021 due to continuous consumption of essential goods and strong seasonality at this time of the year with holiday shopping. Consolidating 2022, there is a 3% increase in demand sustaining the post-pandemic growth trend. In the international markets as already mentioned, supply imbalance are fading and demand has returned to historical trend albeit still sustained at the favorable price trends. Suzano's sales volumes in Q4 were 2% higher than the previous quarter and 10% below when compared to fourth quarter last year. The decrease in sales volume when compared to fourth quarter 2021 is explained by our decision to operate with lower inventory levels in order to serve market demand, which diluted sales volumes throughout the year. When you look for annual volume 2022 sales were at the same level of 2021 and domestic sales represent 7% of our total sales. Our average net price during the quarter was 2% higher than our average price in Q3 and 40% higher than the same quarter last year. When looking year-over-year, our average net price increased 36%. As a result of revenue management and operation stability our EBITDA has reached R$810 million, a 47% increase on a year-over-year basis. On a quarter-over-quarter comparison, the EBITDA performance was mainly impacted by G&A costs as explained in our earnings release. If we look at the annual EBITDA of 2022, there is a solid 50% increase when compared to 2021. During the year of 2021, we have grown the sales of our innovation pipeline by almost 2x delivered on our target set in our Suzano Day event. We have also surpassed the milestone of 43,000 customers directly served by Suzano, strengthening our Suzano, [indiscernible] Visions model active record numbers in sales throughout our eCommerce platform. Looking ahead in terms of demand, we expect to see markets returning to their secular trends for Printing and Writing papers and continue to grow above historical trends for paperboards. We expect more challenged market conditions in the international markets with the shrinking demand for Printing and Writing papers [indiscernible] of supply. Domestic market seems more balanced and should be more resilient. It's worth to mention that the structural competitiveness of Suzano Paper and Packaging business provide a solid ground to navigate on the unforeseen market dynamics. Cost inflation for the last two years has altered the marginal cost of paper producers and moving forward we should expect prices to remain higher than historical levels in most markets. Now I'll turn over to Leo who will be presenting our business results.

Thank you, Fabio and good morning everyone. So let's please move to Page 5 of our presentation, so that we can address the results of our Pulp business unit for 2022, which was also a record year for Suzano's Pulp business unit as well as sharing with you the results for Q4 2022. As you can note on the upper left graph, our 2022 sales volume was much aligned with our 2021 sales volumes. Our sales volumes during the fourth quarter was quite strong, also in line with the preceding quarter and with the fourth Q 2021, consequently keeping our inventories still below optimum operational levels. This sales performance was supported by a timely recovery of shipments and invoicing to Asian customers for which we have now established previous service level commitments. During this past quarter demand for Paper segment in Europe performed differently among themselves, while tissue was quite strong and resilient, Printing and Writing as well as some specialty grades mostly related to the label markets faced lower order intake as distributors have started to destock. We have noticed, however, improvements in the demand of decor paper by the end of Q4. In China, low paper producers margins, a reestablishment of logistic lead times and the negative sentiment due to the uncertainty on how the growing COVID infection rates could affect consumption going forward, despite a positive or positive messages from greater opening of the Chinese market reflected an order entry at below normalized levels. Due to this prevailing scenario, we have decided to adjust our prices in Asia for December order intake, which has stimulated our customers to reestablish purchases of pulp as hard hit inventories in China were wide balanced. Now coming back to the slide, our average price for 2022 was 25% higher than 2021's average price in U.S. terms and during the Q4 2022, our prices for export markets further increased to $831 per ton. Our EBITDA for 2022 totaled R$25.1 billion rise, which is a new record for our Pulp business unit posting a 17% increase compared to 2021. The fourth Q 2022 EBITDA performance was mainly driven by higher prices and strong invoicing performance as I have already addressed, which led us to a 61% EBITDA margin despite cost pressures. Now, looking forward, I would like to highlight the following points. In China post Chinese New Year, we have noticed quite an optimism from our customers with improving confidence levels and a general expectation that consumer confidence in spending will accelerate in the short term. Order intake in January was higher than November, December 22 levels, and in February they have further improved trending quite close to historic levels. In Europe, we expect that the distributors and customers destocking for Printing and Writing and Specialty grades should be over soon, consequently, recovering purchases of paper. In the European tissue segment, we continue to see quite stable and resilient markets with positive downstream demand. In North America focusing on tissue as other paper grades are mostly integrated, most major producers are reporting to be running at healthy production rates. Looking now at the supply side of the equation, we still haven’t noticed additional volumes from upcoming projects being marketed as we speak, and we expect that these new capacities will reach markets gradually and possibly more significantly towards the second half of the year. When we add the full annual impact of decreasing birch hardwood availability in Europe, we foresee a healthier as in this scenario in the short term. Also, increasing fiscal prices are stimulating flex dissolving pole producers to swing back your productions toward dispo rate. It is our view that unexpected downtimes will continue to put additional pressure on supply due to technical age of pop producers, weather related events strikes, as well as increasing cost pressure and availability of wood in several regions of the world. Looking at 2023 as a whole, we see organic demand for hardwood pulp growing close to a million tons, which should, which should be further increased by a restock restocking movement in Asia once prices get closer to marginal costs and also supported by fiber substitutions favoring hardwood grades as well as single use plastic substitution. Despite our positive view on the short-term fundamentals, we sense that our consumers and customers' behaviors are anticipating the sentiment of future projects which have been influencing price curves. It is worth mentioning that inflation on production costs during these past two years, mainly driven by higher wood costs, have changed significantly the set points of decision making of higher cost producers, which should anchor different price levels when compared to previous cycles. With that said, I would now like to invite Aires to address with you the cash cost performance that we had during the last quarter.

Thank you, Leo. Good morning everyone. And moving to the next slide. Looking first to the 2022 cash cost performance x downtimes, as we were already seen on previous quarter, a new and higher level was established most due to the exogenous impact of commodity price on wood and input costs throughout the year. Pricing alone holds R$100 AIs over 2021 basis. The higher scheduled maintenance downtime and labor costs also took a two fixed cost in the period. Nevertheless, the operational pro formas in 2022 was outstanding from the second quarter and on, with all mills reaching technical records and operational rates, stability and chemical consumptions. Now looking specifically for the fourth quarter over third quarter our external plans our also external times, although some commodities mostly branch have provided some relief on the cash production costs. There was an increase of 6% through the several factors, being the most important related to the sum one-off events in the industrial plants impacting the specific conceptions of energy and chemicals. On the wood costs our greater third-party harvest operations freight tariffs and a higher average transport [indiscernible] explains the hit. Addressing now the fixed cost increase, the pressure comes from labor cost and lower production volume and came to a higher downtime as in our cruise unit impacted fixed cost dilution. Looking forward to the first quarter 2023, cash cost, cash production cost [indiscernible] times we see a flatish performance over the four quarter 2022 with a [indiscernible] reduction in the cash cost production throughout the year, especially if the [indiscernible] perform better than our exceptions. In other words, different from the dynamic observed in 2022, we see a more stable cash production cost performance in 2023 considering the current operational plan. Moving to the next slide, the Cerrado project continues to evolve as planned in both the physical and the financial timelines. So that you can have more complete view of the physical progress of the project, we have made available a short video that shows the evolution of the project. The link is in the presentation or in the IR website. Now I'll pass the floor to Marcelo Bacci to continue the presentation.

Thank you, Aires. Let's move to Page 8 where we see that our net debt moved from $10.4 to $10.9 billion during the year of 2022, especially because of the dividend, the advanced dividend payment that we made in December regarding 2023 and despite the $3.2 billion that we made in CapEx and the $400 million in share buybacks. That allowed us to reach the lowest leverage ratio that we had since Fibria merger in 2019 at 2x. Our liquidity position continues to be extremely positive and comfortable with $6 billion including $3.3 billion in cash. The level of maturities that we have for 2023 and 2024 is extremely low and our debt is 95% fixed rate with an average cost of 4.7% a year. That puts us in a very robust position in terms of financial stability. Moving to Page 10, to Page 9, sorry, we show that we continued to advance in our FX hedging policy taking advantage of the BRL volatility. We now have in operational hedges close to $6 billion in notional with an average Put of 5.58 and another $1.8 billion of hedges related to the Cerrado project with an average Put of 5.78. If the Real continues at the current level, we can expect to have significant positive adjustment in cash in 2023 and 2024. Moving to the following page, we demonstrate the significant cash returns that we had last year. We paid R$4.2 billion in dividends and we bought 40 million shares in our buyback programs with a total of close to $400 million. We have just announced that 93% of the shares that we bought will be canceled and that represents 37 million shares. Finally moving to Page 11, we update our guidance in terms of 2027 operational disbursement. The number that was R$1,669 per ton in 2021 reached R$2022 in 2022, and we show here that we expect a significant reduction in the next five years moving that number from R$2022 to R$1,750 in 2027. That movement will be achieved with the contribution from more normalized commodity prices, the effect of the maturation of the competitiveness projects that we have in our portfolio, both on the industrial and the forestry side, and also the contribution of the Cerrado project that will come onstream with a lower than average total cost of production. With that, I'll turn back to Walter for his final considerations.

Thank you, Marcelo. I think we are sharing with you one outstanding year and results of the company on the last year, and I'm going to share on the last leg with you several activities that we have on every single strategic avenue in the last year. And the first one that the best-in-class in the total cost vision, we have been working to increase and to buy extra land for us through the acquisitions of Parkia and Caravelas. We have been going through the retrofit at Aracruz and this year we are going to have the retrofit of Jacarei. We have a new terminal in the, our Itaqui port would allow us to be even more competitive on that specific area. We have maintaining our relevance on the global markets and we have been working to increase our land bank. We have several acquisitions preparing the largest CapEx progress, sustaining an expansion CapEx program on our Forest division. We had last year more than 260,000 hectors of additional area that we planted and we have been going through the largest single line CapEx in the world right now. There is the Cerrado project, as Aires mentioned to you, that we are on time and on budget. We have been advancing in the supply chain and we have the potential acquisition of Kimberly Clark that we are awaiting as a president condition for the antitrust regulator to approve that. And we announced a potential new project in Aracruz plant. We have been working on new markets to expand our addressable markets. We have the operations of Woodspin and Spinnova that we commissioned beginning of this year and we have started, starting up the MFC mills in Europe and Limeira there will be create lot of value in the textile market for us in the near future. We have the new CVC Suzano Ventures activity and we have been working on Innovation through different areas on plastic substitution that is our main, one of our main targets. But we have been working as well on sustainability, where we have been improving our ESG ratings on different entities. We have been launch the Biomas that would be a major plan of regenerating and preserving natural forest in different Biomas in Brazil, and we have been advancing on diversity and inclusion as well. We are very happy with the development that we did and very excited for our near future. With now I'm going to turn to the Q&A session where all of our C levels are going to answer.

[Operator Instructions] Our first question comes from Caio Ribeiro with Bank of America.

Yes, good morning everyone. Thank you for the opportunity. So my first question here is on the cash cost inflation in the industry, right? Clearly there's been a lot of changes in the cash cost curve in the past few years, particularly the wood cost component, which is a major cost component. I mean, that appears to be experiencing pressure from a number of different factors. So I just wanted to see if you could comment on some of the factors that you see impacting wood cost in the industry, whether you see these as more structural or cyclical, right? And where you see the cost support in the industry today for hardwood, right? And then secondly, linked to this question, given this wood cost inflation which we see as in part related to the higher competition for forestry assets particularly in LatAm where there's a number of different pulp projects in our development, I was just curious to see, whether you believe that there's still competitive forestry assets to continue to support expansions of 1.52 million tons or above projects or whether you believe that we could be nearing that point or that lower availability of forestry assets could start limiting expansions in the industry? Thank you. Carlos Aníbal de Almeida Jr.: Caio, good morning, this is Carlos. Thank you for the question. On the wood inflation, that can be explained mostly by the Brent, the diesel that has gone up over the last two years. And the second component has to do with a higher logistic cost, a higher price for the major equipment like trucks and other forest machines. Those are the two major components that can explain a higher wood cost.

Thank you, Caio for the question. It is Walter answering about the second point that you raised. We have been working on tracking all the potential new areas that we have for forest in South America. And our vision is that we do not have availability of wood for a short-term project in the region. I cannot tell you that it's not available for the future. We are seeing, for example, one of the Chilean company is announcing a new project in [indiscernible] for the year 2028. That would be possible to happen, but we do not believe any other project or any project coming on stream between 2025, 2024, there is going to be our project and 2028. We believe that this, we are not going to see new projects coming on stream due to the lack of wood. And it's very important, as they have been mentioned to you, that wood costs have been going up at a very high speed. The new projects now will face higher CapEx since an inflation that we are seeing right now, higher interest rates that we are seeing for funding this project and lower wood availability, that would become more difficult to see new projects coming on stream.

Perfect. Thanks a lot, gentlemen.

Our next question comes from Daniel Sasson with Itaú BBA.

Hi everyone. Good morning. Congratulations on the results last year. My first question is related to the CapEx for the Cerrado project. I mean, given the updated figures that you provided for your total operating disbursement by 2027 and the increase that came mostly on the back of higher spending on forestry and in cubic culture, do you think that we can expect an increase in the total CapEx for the Cerrado project as well at some point in the future that those R$19 billion could be revised? The reports, is it a fair assumption? And my second question, I mean, given that you did post very strong results that your average maturity schedule for your debt is very long, that your cost of debt is long and fixed, and that you're already at 2x now, that done, do you think that you could take to the Board of Directors already any new projects after Cerrado or do you think that the correct timing for doing search and activity would be after the project is up and running, so we should see something only by the second half of 2024 in terms of the capital location decisions? Those will be the first two questions from my side. Thank you, guys.

Thank you, Daniel. This is Marcelo speaking. In relation to the Cerrado CapEx, the number for 2023 is given and it's incorporated in our 2023 guidance. We don't expect any major deviation from the initial number other than the normal monetary correction that we see in some countries. So that's why we keep the guidance of on time and on budget. The effects that we're going to see in the future in sustaining CapEx are incorporated in our total disbursement costs that we just announced, but that has nothing to do with the initial CapEx of the project. It's more related to the sustaining CapEx that we're going to have afterwards. In terms of capital allocation and new projects, this is a challenging year for us in terms of capital allocation because we have a major CapEx program already announced of R$18.5 billion. And we have some uncertainties in relation to cash generation given the curve that we see in pulp prices right now. So it is not the right timing to announce new projects, but a more severe correction in the market will probably bring opportunities for companies that have a robust financial situation like ourselves and we're going to be following that very closely and bringing new potential alternatives to the Board when it is the case.

Thank you, Bacci, very clear.

Our next question comes from Thiago Lofiego with Bradesco BBI.

Thank you, gentlemen. Congratulations on the all-time high results in 2022. Walter, I have a question which is similar to the one that Bacci just answered, but just looking five years out, right? As you, as the Cerrado startup approaches, and then looking beyond that five years out, what's the -- your idea in terms of capital allocation, when we think about the different business lines and potential strategies? So for instance, increasing integration through packaging, paper packaging M&A outside of Brazil, or I don't know, converting lines to the solving wood pulp. So what are the, maybe the big, potential ideas that we could see coming up after the Cerrado project or maybe dividends are going to be the new norm, right higher dividends? And then the second question to Leo. Leo, you mentioned, correct me if I'm wrong, but I heard you mentioned that restocking will happen as prices approach marginal costs. So do you think we could see that restocking move happening already this year or maybe this is more of a 2024 story? And then how does your own project Cerrado play a role in this restocking, potential restocking move? There's a lot of, there's a psychological factor there I would say, so just want to hear your views on that. Thank you.

Thank you, Thiago for your question. I think it's very clear our policy that we are, have been investing 90% of the cash flow generation of the company into our future. The company will complete the hundredth anniversary next year, and we have been investing on different scenarios of Brazil for the last many decades. I think it's very clear to us that we have the five different strategic avenues. Of course, I'm not going to comment any kind of future project without discussion and approval of our Board, but we can face organic or inorganic opportunities in the future depending on the scenario that we are going to face. It's, I think you mentioned many of the alternatives that we have. We have the integration into Paper and Packaging, into Tissue with higher volumes, with new areas to be invested to address new addressable markets. We have been working on the textile market, on the biofuels. We will look for opportunities to increase our efficiency. Then we have several areas, and the base of everything is our competitiveness and our differentiation. We want always to have scale and differentiation, and we are going to pursue this basic precedent conditions for us in the future.

Thiago, this is Leonardo, answering your question about restocking and eventually how Cerrado can play a role in that. As I mentioned in my speech, we believe that the organic growth in terms of demand this year, will be close to 1 million tons in terms of harder consumption. And that's very much aligned with most consultants to our businesses view as well. And we believe that once prices start falling in closer and reaching closer to this higher cash cost of marginal producers, decisions will be made mainly from Asian producers in terms of either reducing their production rates or stopping the production levels and then buying for also our customers restocking a bit based on their current inventory levels, which we consider quite balanced. We try to make a calculation on how much that could impact the market. And if we consider that in order to support China's paper production on average 1.8 million tons market pulp is consumed in China and of that 1.2 million tons are hardwood. Every 15 days stock buildup would add an additional 600,000 tons demand for pulp over the 1 million tons of organic growth, which I have mentioned to you and also during my speech. We don't expect Cerrado to play a role in this decision making for 2023, as it's very much specifically related to decision points or set points that will be made based on this higher cash cost of marginal cost producers many in Asia.

Thank you, Leo. If I may, here the, what's your review on the marginal costs in the market right now? You had been mentioning $600 per ton recently, does that still hold? And if you could repeat the rationale of the 600,000 tons, I would appreciate it? Thank you.

Okay. So first, starting with the last part, the rationale of the 600,000 tons, the China paper production and the China paper industry requires a furnish of 1.8 million to 2 million tons a month of chemical pulp in order for them to be operating at capacity, at the current capacity levels. Of this, 1.8 million to 2 million tons, 1.2 million tons are hardwood. So every month, roughly, and on average 1.2 million tons are imported or consumed of hardwood market pulp in China. So if we consider a 15-day stock buildup that would mean an additional 600,000 tons of hardwood considering this monthly consumption of 1.2. Now, coming into, to our view on marginal cash cost, as we have been pointing since early last year, cost inflation for pulp producers have changed significantly the cost levels. And we forecast that the cash cost for marginal cost producers is indeed around $600, varying from 580 to 610, 615 depending on the base scenario that we use. This is obviously on a CIF China base and our view is quite consistent with this number. We don't see a lot of variation because, as we all know, wood is the main variable in the pulp cash cost. And we expect that availability for wood will still be limited mainly on this or for this Asian producers and prices will maintain the high price points that they are being created at today.

Very clear. Thank you, Leo. Thank you, Walter.

Our next question comes from Rafael Barcellos with Santander.

Good morning, and thanks for taking my question. My first question is about pulp supply availability. So dissolving pulp prices have increased in recent months. So my question is, do you believe that news could move production back to the dissolving pulp in the coming months? And how much hardwood pulp could be removed from the market if these movements really materializes? And my second question is about pulp affordability. I mean, how do you see pulp affordability in China now particularly considering that, pulp prices have fallen by more than a $100 over the past few months, and consumer effects has also helped with this equation. So is pulp affordability still a concern among market participants? Thank you.

Rafael, this is Leo again here to answer both of your questions. First on the dissolving flex capacity, what we have been seeing is that this cost prices are trending up since the beginning of the year, and that is in indeed, some dissolving FX producers who move away from paper grade pulp and turn their assets into dissolving grades. Based on our assets, there are round of 2 million tons globally of flex capacity of paper grade hardwood that can be converted into dissolving wood pulp production. We don't see, obviously all of that being converted at once, but we see already movements in that direction taking place as well as we heard from our customers a test from a major producer in one of their large paper lines towards this grade as well, more than 30-day production trial, which indicates more movements in this sense. Regarding pulp affordability, as I mentioned, we don't see in the short-term fundamentals for such movements that have been taking place. Therefore, we believe that most of this is already anticipation of future demand, that of future supply that will come into place. But in our view, this is more towards the second half of the year and obviously falling prices are assimilating again consumption of hardwood by Chinese or Asian paper producers. As I have mentioned, January's order intake, at least for Suzano were already higher than November, December levels. February were higher than January levels, very close already historic levels, and we expect that during the next weeks the order intake will be already reaching normalized levels.

Okay, thank you.

Our next question comes from Marcio Farid with Goldman Sachs.

Thank you. Good morning, everyone. So couple of questions from my side, please. The first one on the paper side, Fabio, if you can comment in the, how you're seeing this, and especially in Europe as well, which is kind of the benchmark for graphic papers, obviously very good couple of years. It feels like we are seeing some sort of normalization now in terms of prices and volumes. Can we please have some visibility on that? And then may be to Aires or Aníbal. Carlos had briefly mentioned about the inflation cost in Brazil, the reasons behind it. Can we talk a little bit about, supply demand conditions for land and the different regions? I mean, an overall view of how you're seeing the wood market performed in Brazil and how it has changed, especially in the past two to three years in line of growing competition for land and for forest pretty much mostly in the southeast of Brazil, but pretty much everywhere really. Thanks for that. And then maybe Leo is that feel like, you mentioned 1 million ton demand growth potential for this year and then potential stocking if prices go to marginal cost of around 500 to 600. So question is, what do you think, I mean, considering that is, you mentioned that the incremental volumes from especially UK and [indiscernible] that reach in the market, so when they do, then there's a chance that we might see those prices going down to marginal cost. My question is, what do you think would prevent prices from going there in this cycle? What is the pockets, what are the pockets of strength on the markets you're seeing today or expect to see in the next few months? Thank you. Carlos Aníbal de Almeida Jr.: Marcio, good morning, this is Carlos. Thank you for your question. We do recognize a growing competition for land and wood in some specific regions and that has meant higher wood prices. So that is really happening in some specific regions. As we speak, we still have some ongoing discussions and negotiations related to forest assets, related to wood. And for the benefit of our shareholders, we cannot, at least as we speak, we cannot share much information about that. Once we conclude our program, we can come back to this point.

Thank you, fair enough. Thank you.

Marcio, it's Fabio here. Thanks for your question on the paper side, we see different behaviors in markets in different markets. As you know, China is coming out of Chinese New Year. So activity there is improving. We see higher consumption and operating rates from the most of the paper views. Leo was talking about linked with our higher consumption of pulp in the past weeks that we have seen, and you're right in Europe and in North America, we have seen a little bit of cooling down. This is in reflect of higher stock levels in the chain. As you know during the past few years, we have had some supply chain constraints, so that were easing over the end of the last year. And with that stocks are a little bit higher throughout the chains in Europe and U.S., but although we have seen stocks higher than the optimum levels, which will you leave, which will take a few weeks to normalize, few weeks or not to normalize, we don't see prices moving downwards. Prices are quite stable in Europe and in North America at a very, quite a good level as you may see from the consultant companies and the markets. And this is due to higher cash cost in these regions as well with inflation that has happened in the past few years. So we have seen prices being resilient in these major markets, although stocks are at the higher levels with destocking waiting to happen in the next month or so.

To close the answers to your question, addressing the first view, right? What could possibly prevent prices from falling down to marginal cost? I think we can we can split the answer into first looking at demand. Obviously we observe a lot more optimism in China. We also observe a lot of economic stimulus plans now on province levels, which can generate further demand and also link to paper products and packaging products, and also better than expected European consumption post this destocking movement that's going on, and that can last some more weeks ahead of us. So this could bring a positive surprise in terms of demand. I will say that the most impactful will be actually how China performs once all this optimism and stimulus plans come into play. On the supply side, what can prevent prices from going there, first are new delays and time to market of projects, which are not -- which have not been unusual as we have seen on the last months and quarters, right? So, it's very unclear for us really, and actually when we're going to see a good quality pulp being offered to markets and then how that's going to be ramped up. And as I mentioned up to now, we have seen absolutely no offers from this new players or capacity coming on board. And second, which is very important, and I always like to highlight that, is the impact that unplanned downtimes have been taking in our sector, right? We have seen since 2020 numbers that are almost threefold what they were on the historic basis. And we expect that this will continue to happen. This will continue to be ongoing on our markets, and due mainly to the fact that both lines, especially in the northern hemisphere, are getting older and older. Then you have the new pulp capacities in the southern hemisphere now at a much bigger size, meaning that [indiscernible] planned down times in the same amount of base will result in a much higher absolute production volume loss. And the unforecasted or exogenous factors such as weather related, war related, lack of wood, strikes which will also in our view continue to be accounting for unexpected losses in the market. We just saw recently a study of one of the main consultant store business, and by mid-February, the current unexpected downtimes was already up to 350,000 thoughts. So it seems to be the same run rate, higher run rates that we have seen on the previous three years.

Marcio, and if I may be like just reinforce some remarks previous made by Walter. So we have a progressed quite well in establishing our land bank needed to reach our forestry bases later in the coming years. So that was a great achievement for 2022. Also important to remind you all that we are going to have in Cerrado, an average rate is between the forest and the mill below 65 kilometers. That is great, the great number. And also as Walter said, initially 2022 was a record year in terms of forest plantation and we expect 2022, 2023 to be another year, a record year as we are moving fast with our plantation program.

Thanks, everybody. Great [indiscernible]. Thanks.

Our next question comes from [indiscernible] with Morgan Stanley.

Thank you for taking my questions and I really appreciate all the details you have been giving. I just want to ask, when do you expect the Kimberly Clark deal to close? I guess you don't foresee any issues from -- giving the how fragmented the market is in Brazil, and elaborating on that, do you plan to grow more inorganically in the market in the tissue market? Do you have any target in mind as of how much integration you would like to have? Thank you.

Thank you very much Jens [ph] for your question. This is Walter answering here. We do not have any kind of forecast when CADI [ph] is going to approve these operations. We expected full approved, we have no remedies, but is we have to wait for that. And of course, as we have this as a precedent conditions, we are going to march to the closing of this transaction. Regarding our future, we announced a potential program, new project in Aracruz and of course, we are not going to comment on inorganic growth, that could be a possibility as well.

Okay, perfect. Thank you. And maybe just one quick followup on the total operational disbursement, just to clarify, I think you gave a lot of details there on Slide 11, but just wanted to make sure you're not considering any inflation beyond 2023, correct?

That's correct. That the number is in 2023 currency.

Okay, perfect. Thank you so much.

Since there are no more questions, I would like to turn the floor over to the company's CEO for final considerations. Please, Mr. Walter Schalka, you may proceed.

I'd like to everyone to thank everyone to be part of this session. I think Suzano is very committed with our future. I would just like to reinforce to you our three pillars of our culture that we have been working, there is people, that inspiring, transforming, that it's creating and sharing value with all stakeholders and it's only good for us if it's good for the world. I think we have been performing well on the last many years and we are humble enough to understand that we need to keep improving our operations to keep touching because consumers, all the other stakeholders for our future. Thank you very much for joining us. I hope you have a very nice week.

Thank you. Suzano’s fourth quarter results conference call is finished. Have a nice day.