Suzano S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for holding and welcome to Suzano’s Conference Call to discuss the results for the First Quarter of 2024. 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. This call will be presented in English with simultaneous translation to Portuguese. To change the audio, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter the Portuguese Room. After that, you can select mute original audio. Before proceeding, please be aware that any forward-looking statements are based on the beliefs and assumptions of Suzano’s management and non-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’ll turn the conference over to Mr. Walter Schalka. Please, you may begin your presentation.
Walter Schalka: Good morning, evening. It’s a great pleasure to have with you to be part of the first quarter results 2024 of Suzano. I would like just to mention to you that we have almost everyone from the [ph] with us today and will be available for a Q&A session after our presentation. It's a great pleasure to announce the results of the first quarter. Once again, we had a very good operational performance with volumes and pulp side with 2.4 million tons. We have been improving volumes on the paper side as well and on the consumer goods. We had R$4.6 billion on EBITDA on this quarter. I would like just to mention to you and reinforce the point that we are continually looking-forward to our competitiveness. It's very important to mention our operational cash cost.
That was R$812 per ton, a very good performance and very close to the performance of the fourth quarter last year. Just to reinforce our positioning on our robust balance sheet with $6.3 billion in cash plus revolving position. With a net debt, there is $11.9 billion and we are reaching the peak of our leverage with three and a half times net debt over EBITDA. We are going to present Cerrado. Aires is going to present in a few minutes to you and we have been approaching the end of Cerrado with less disbursement on the future. Now, I'm going to pass to Fabio that is going to talk a little bit about packaging and paper market.
Fabio Oliveira: Thank you, Walter. Good morning, everyone. Let's turn to the next page on the presentation. In the first quarter of 2024, we have faced different market conditions in our domestic and international markets. Outside Brazil, we have seen demand starting to rebound if inventory replenishment builds up after the strong destocking process through most of 2023. While on the domestic market, demand started the year slower than expected. Demand for printing and writing papers in Brazil shrunk 20% in the two first months of 2024 when compared to the same period of the previous years. With the impact of the postponement of federal and state governments book programs and customers' inventory adjustments led by slower economic activity at the beginning of the year.
Apart from the read expected structural reduction uncoated paper demand for the promotional segment. Regarding paper board, demand in Brazil has been impacted by slowdown in consumer spending, which coupled with previous inventory adjustments resulted in a 6% demand reduction in the two first months of 2024 compared to the same period of 2023 according to EBAS available data. Suzano total volumes in Q1 were 3% higher than Q1 2023, driven by higher export volumes. Compared to the last quarter, our total sales reduced 20% due to the usual sales seasonality between such quarters. The average net price during the quarter was flattish quarter-over-quarter. We have delivered higher prices quarter-over-quarter in the domestic market due to price increases in our uncoated and cut-size product lines.
In international markets, our prices were slightly lower quarter-over-quarter due to product and regional mix. Looking at EBITDA, the 19% decrease quarter-over-quarter was driven by lower sales volume. When compared on a year-over-year basis, the 35% decrease in EBITDA was mostly led by lower prices in the external markets. Our EBITDA per ton was slightly better on a quarter-over-quarter basis. Looking ahead to the coming quarters, we expect healthier demand levels as inventory buildup continues in mature markets. In the domestic markets, we expect the [indiscernible] cycle to support demand in the coated segment, a recovery in the uncoated market segment, as well as improving paper board demand for packaging. The improvement in demand, combined with current market expectations for pulp, energy and wood prices, is expected to sustain current price levels on the domestic market.
While, in international markets, apart from the rapidly evolving scenario, we generally expect price levels to increase, as several major international players have already announced price increases for the coming months. Despite the mounting cost pressures, the impact is not uniformly distributed across all players and regions. Looking ahead, we expect a flattish cash cost performance in our paper and packaging business throughout 2024, backed by our strong structural competitiveness. Now, I will turn over to Leo, who will be presenting our pulp business results.
Leonardo Grimaldi: Thanks, Fabio, and good morning, everyone. Let's please move to the next slide of our presentation to see our pulp business unit results. I would like to begin by sharing with you some facts related to this first quarter. Demand for hardwood pulp was positively surprised, has positively surprised our expectations throughout the period, both in China, where the rhythm of paper production continued quite healthy, actually growing 6% to Q1 compared to Q1 '23 as per SEI, and with no pressure on paper producers' inventories, as well as in Europe, which has recovered significantly from the value seen in the first half of '23, and where our customers kept revising their forecasts up and up. On the supply side of the pulp fundamentals, we have noticed several disruptions, coming from impacts of permanent closures announced previously, added to several new and unexpected events, such as strikes, wars, and climate-related events, as well as the idling of some mills, reducing the availability of pulp in the whole system.
Demand from our customers and the push for order intake has exceeded our capability to serve all their requests, and we had to limit and cap order intake during all months of Q1. Despite our efforts to reestablish our inventories in Europe and in North America during the quarter, optimum inventory levels were still not achieved, and we forecast that this situation will still take some months to level out and for inventories to be physically repositioned and available in European and North American terminals. As I had mentioned in our previous earnings calls, our inventory levels across the systems were too low and unsustainable in the end of 2023, and during Q1 we had to start reestablishing a better operational condition. Regions and customers who are served by Suzano directly out of Brazil, like Middle East, Africa, Asia, including China, are still running with significant shipment and invoicing delays, with no improvement during the quarter, and indeed even more challenging, now reaching more than 70 days of backlog at the end of this period.
Aerial view of a large paper mill, steam billowing from its many smokestacks.
Coming now to the graphs on the slide, our first quarter sales were limited by inventory replenishment, as I have mentioned before. Our average export prices increased to $624 per ton, capturing only partially our price increases, due to the high backlog levels as I have also mentioned previously. Our price increase announcements during the quarter were all fully implemented in their respective markets. Our EBITDA totaled R$3.9 billion, with an improvement compared to Q4 due to higher prices despite lower volumes. Now looking forward, I would like to highlight the following points. Rolling forecasts coming from our customers in Europe and Americas keep improving, and we still see challenges to serve all the pulp demand in the short term. It will take time to reposition our inventories accordingly.
Effects of strikes and mill failures in Europe have unexpectedly generated additional pulp demand for Suzano, and our current inventory levels do not allow us to tackle absolutely any unplanned pulp demand. We expect S&D dynamics in Europe to remain quite tight during the second quarter. In China, we know that the leading paper producers are taking advantage of their financial strength to lower paper producers' and the lower paper producers' margins in general in the market to push for market share gains, consequently squeezing smaller paper producers. Smaller paper producers' low operating rates, as recently reported, are being compensated by higher operating rates from larger paper producers. As in China, downstream paper demand continues healthy, also supported by our customers' macro sentiment in general, we do not expect major changes to paper production rhythm, and indeed, this paper production rhythm has been quite solid during this year.
Demand for our pulp came again over our expectations in April, and as we speak, we are still capping order intake and refraining from offering to spot markets as an effort to recover timely shipment to our customers. As we speak, we are completely oversold. In addition to tailwind demand perspectives, our constructive view for the short term is being even more benefited from disruptions on supply chain, the supply side of the equation, for which we are not sensing any significant improvement soon, a reason why we feel this positive price momentum should continue. News keeps coming, and you all have read yesterday that a new permanent closure was announced. With that said, I would now like to invite Aires to address with you the cash cost performance of the quarter.
Aires Galhardo: Thank you, Leo. Good morning, everyone. We are in slide seven. The cash production costs performed in line with company's operational plan, presenting stability compared with the previous quarter. In addition to the benefits from the drop in the price of diesel and caustic soda, which is the main chemical in the cash cost composition, we operate on a smaller average distance from forest to mill, and had better performance in harvesting activities, further reducing the cost of wood. These positive factors were offset by no recurring events in some mills, which negatively impact input consumption and fixed costs in the quarter. In the end of comparison, we see a clear benefit of the better operational performance on wood and inputs in the last quarter, in addition to the reduction observed in the commodity price in the period.
Looking ahead, we continue to see stability in the cash production costs throughout the year, although with a small variation between upcoming quarters. Moving to the next slide, we are focused on the final sprint of the Cerrado project, which has already reached 94% physical completion and 87% of physical execution by April. The project's CapEx guidance for 2024 is maintained at R$4.6 billion, with more than half having already been disbursement by April, therefore reducing cash flow consumption in the remaining eight months of the year. On the next page, we would like to reinforce the company's vision of the expected ramp-up curve of the new plant to be completed in nine months. Such performance means a production volume of 900,000 tons and sales volume of 700,000 tons in 2024.
In the first 12 months after the startup, we expect to produce 2 million tons of pulp in the new mill. Marcelo, the floor is yours.
Marcelo Bacci: Thank you, Aires. As Aires has just mentioned, we are at the end of an investment cycle that is paving the way for us for further deleveraging in the coming months. So, I'd like to start on slide nine to give you a recap on what happened with our net debt in the last 12 months. Despite the fact that we invested $2.8 billion in the period, our net debt just went up from $10.9 to $11.9 billion in the period because of a very strong operational cash flow and also because of our very consistent derivative policy or hedging policy. So that led the net debt to EBITDA ratio to the level of 3.5 times at this point, which is most likely the peak for this cycle of investment. We expect this number to start improving in the coming quarters.
In terms of liquidity and amortization schedule, we have a very comfortable position with a significant amount of liquidity, $3.9 billion of cash, plus standby facilities and undrawn facilities that will be drawn in the coming months with a very low level of maturities in the coming years. That will lead us to a very comfortable position when it comes to average term and also average cost of our debt. With that, I will turn back to Walter for his closing remarks.
Walter Schalka: Now we are going for a Q&A session. Please, we are available right now to answer your questions.
Operator: We will now begin the Q&A section for investors and analysts. [Operator Instructions] Our first question comes from Daniel Sasson with Itau BBA.
