Klabin Sa S/Adr

Good morning and welcome to Clubbean's conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a questions and answers session and instructions will be given at that time. We kindly ask that for the benefit of time, each analyst asks a maximum of two questions. If you should require assistance during the call, please press the star followed by zero. As a reminder, this conference call is being recorded and also being transmitted simultaneously via webcast, which can be accessed through Clubin's investor relations website, where the presentation is available. Any statements eventually made during this conference call in connection with Clubin's business outlook, projections, operating and financial targets, and potential growth should be understood as merely forecasts based on the company's management expectations in relation to the future of clubbing. Such expectations are highly dependent on market conditions, on Brazil's overall economic performance, and on industry and international market behavior, and therefore are subject to change. are present with us today Mr. Cristiano Teixeira, CEO, Marcos Ivo, CFO and IRO and the company's officers. Initially, Mr. Cristiano and Mr. Ivo will comment on the company's performance during the second quarter of 2023. After that, The offices will be available to answer any questions that you may wish to formulate. Now I will pass the call over to Mr. Cristiano. Please go ahead. Welcome to Klabin's earnings conference call for the second quarter of 2023. Faced with a market scenario that has been and continues to be challenging for the pulp and paper sector, Clubbing, from a diversified product portfolio and its commercial dynamism, once again used the integrated business model, generating a beta of 1.3 billion BRL in the period, a performance relatively higher than the average of its global peers. In the pulp business, the soft food fluff once again presented a resilient demand and high prices, mitigating the price drop in the short fiber pulp products. In the paper business, specifically container board, given the market situation, we maintained market production stoppages and a higher level of integration in our corrugated box division, bringing stability and profitability with the integration. In Coated Boards, with the startup of Machine 28, we started the process of qualifying the products with our main customers. In the packaging business, we performed well in terms of volumes and profitability. And in the industrial bag segment, Clubin's relevance in the domestic market brought sound business results. Now I turn the floor to Marcos Ivo, who will bring the financial details of the second quarter of 23. Thank you, Cristiano. Good morning, everyone. Thank you for attending our conference call. Sales volume in the quarter was down 15% compared to the same period in 2022. This drop is substantially explained by the general scheduled stoppage for maintenance at the Puma unit in the month of April, and a lower demand for a craft liner in the foreign market. Net revenue in the period was 4.3 billion BRL, down 15% year on year. This reduction is the result of corrections in pulp and craft liner prices and lower sales volume. EBITDA was of 1,344,000,000 BRL in the second quarter of 2023, with adjusted EBITDA margin of 31%. Moving on to slide four, we highlight once again the flexible sales mix between geographies and the portfolio with three types of fibers, short fiber, long fiber, and fluff, which benefited the average price in the top business, driven especially by fluff and the execution strategy. The cash cost of pulp production, excluding the impacts of the maintenance stoppage, was of 1,363 BRL per tonne in the period, the same level as in the previous quarter. Adjusted EBITDA of the pulp segment was of 389 million BRL in the quarter, representing an adjusted EBITDA per tonne of 1,162 BRL. Now on page 5, in the coated board segment, sales volume was 170,000 tons in the period. The net price per ton of coated board reached 5,594 BRL in the second quarter of this year, an increase of 15% year-on-year. Driven by price adjustments, net coated board revenue reached 951 million BRL, an increase of 20% compared to the same quarter of 2022. On the next page, in the corrugated box segment, sales volume in square meters grew 1% in the second quarter of 2023, when compared to the same period in the last year. The net price per ton of corrugated boxes reached 5,925 BRL in the period, an increase of 6% compared to the same quarter of 22. Leveraged by price adjustments, net revenue for corrugated boxes reached 1.3 billion BRL in the quarter, representing a 5% year-on-year growth. I also highlight the adjusted EBITDA per ton in the paper and packaging segments. which reached 1,831 BRL per ton, showing the resilience and stability of these markets. On slide seven, adjusted free cash flow, which excludes discretionary factors and expansion projects, was positive at 787 million BRL in the quarter. In the last 12 months, adjusted free cash flow reached 4.6 billion BRL, representing a free cash flow yield of 21%. Now on page 8, at the end of June, Klabin's net debt was 19.5 billion BRL, a reduction of approximately 1.5 billion BRL when compared to the end of March. This reduction is mainly explained by the positive effect of the appreciation of the real against the dollar on foreign currency indebtedness with no material cash effect in the period. Leverage measured by the net debt over adjusted EBITDA ratio in dollars ended the quarter at 2.8 times the same level as the previous quarter and within the parameters established in the company's financial indebtedness policy. Moving on to the next page, Klabin's liquidity remains robust and ended the quarter at 8.4 billion BRL. This liquidity consists of 6 billion BRL in cash and the remainder in a revolving credit facility. The company's cash position is sufficient to repay the debt that matures over the next 44 months. The average maturity of the debt at the end of June 2023 was of 104 months. equivalent to almost nine years. Klabin has contracted and not yet withdrawn financing in an amount higher than the capex that will still be dispersed until the completion of the PUMA 2 project as detailed in our earnings release. Moving to page 10, According to the notice to shareholders published yesterday, the company has approved the payment of dividends in the amount of $269 million BRL to be paid on August 15. On an accrual basis, shareholder remuneration paid over the last 12 months totaled $1,541,000,000 BRL. This amount represents a dividend yield of 7%. On page 11, The first stage of the PUMA2 project, MP27, continues through its learning curve, having reached production of 364,000 tons in the last 12 months. On the next page, the second phase of the PUMA2 project, MP28, is on its learning curve, with the expectation of producing approximately 165,000 tons in 2023 between craft liner and coated board. Since the beginning of the project, 12 billion BRL have been disbursed, of which 433 million BRL were in the second quarter of 23. Moving to slide 13, in June, we released the 2,000th 2022 sustainability report and updated the ESG dashboard, which brings all of the indicators of environmental, social, and governance aspects, transparently sharing the company's evolution in its sustainability journey. In addition, in the second quarter, Klabin was included in the prime category of the ISS ESG corporate ratings, completing the company's leadership in the sector in the main ESG ratings. On the last slide, I share with you a photo of MB28, an important milestone of our company. Now, Cristiano, the other officers, and myself remain available for the question and answer session.

Now we're opening the question and answer session. If you want to ask questions, please press star 1. If you want to remove your question from the queue, please press star 2. The first question comes from Rafael Barcelos with Santander. Please, Rafael, you can go on. Good morning, everyone. Congratulations on the results. The first question has to do with the decisions on the companies. After Flavio Deganuti left in June, the statutory officer for paper, this position came to an end and some areas are not statutory anymore, reported to Cristiano. Cristiano, I'd like to better understand this move and in practice, what changes in terms of the company's daily routine? The second question is about capital allocation. Cristiano and Ivo, now that the second machine in Puma 2 already started up operations, what are the main discussions today in terms of capital allocation at the company? Should we really consider growth with an announcement next year? And if yes, what are the business lines of the company that are eligible for a growth project? We also realized that you had an announcement, a notice about dividends last night what about balance between growth and dividend or even if any payback or buyback products and programs could be part of the strategy thank you thank you Rafael first let me comment let me comment on the second part of your question about capital allocation and I'll be joined by Marcus Evil and then I'll conclude with more soft topic about people and management. Just to give a softer spirit to the second part of the question, when it comes to capital allocation, perhaps this is one of the main strengths of Klabin. And I'm not only referring to our recent years, but the whole history of the company. This criterion about capital allocation So the first part of the question, and I'll leave the second part of the question about the protocol and the policy. But first, let me talk about the more conceptual aspects about growth and dividend payout and also tapping into opportunities. I believe you understand and you realize a circumstance that is cyclic about commodities. And as a result, the price of commodities, prices per ton, and by the way, I'm not only referring to pulp and paper, but I'm including all commodities, including agricultural commodities, and I also talk about land price and forest price, etc. So today, We live in this moment in which we left behind a strong growth period. I guess Klabin did manage to benefit from nearly all opportunities there were for us, be it by forest expansion or involving new technologies brought by state-of-the-art machines. And also access to markets. So sometimes this is too specific to get into details today, but access to paper packaging and also innovation and research and development in recent years, which transformed the company. So I'd say that the company's growth cycle, and as you know very well, because it's a cyclic industry and within this cyclic sector, the pulp and paper industry is part of a more macroeconomic commodity cycle. As a result, sometimes it may happen that we are into a process of global market, which is precisely what's happening now in our industry. And then some opportunities begin to come up. There is no M&A being considered at Klabin as we speak. But because we have a readjustment and repricing of assets in general from fibers, commodities, agricultural assets, etc., so this repricing of assets may appear as an opportunity down the road. However, right now the sector is against cycles. drop in prices, reduction in margins, not only at Klabin, but worldwide. So now there is a dilemma of a highly capital-intensive sector. So when we are against the cycle, the discussion is very hectic because we have to allocate capital in terms of growth and also Klabin's opportunity right now. because it's becoming more diversified with highly added value products like fluff and also LPB. These are more stable products. So in times like these, there are opportunities. So this debate is necessary. And it commonly happens at the board level and in our management. But it seems to me that to date, when it comes to this dilemma, growth, versus our dividend, I guess this debate is very positive and valuable. And we are very happy to share with you, based on the figures published, what Clubin managed to do on our ROIC for the last decade. So when it comes to strategy right now, there is nothing that we have to be prepared for. However, I have to share with you that an industry that is so high capital intensive as ours and subject to cycles, these dilemmas come up regularly when opportunities come up because the real price of assets begin to go down just as the market when we have these margins and results. We don't have future numbers to justify by pure maths and financial aspects these investments. So that's a very positive discussion, and I believe clubbing has been playing its role well for many decades. So now I'll turn it over to Marcos Ivo to talk about politics and protocols, and then I'll come back to talk about management. I think Cristiano covered it well. Just for the sake of time, there are two policies approved by the board and they are available on our IR website. One of them is about capital structure and the leverage at Klabin and also a dividend policy. So everything is fully available there and the investor relations management is here for you. Okay, coming back to your question about management. First and foremost, I would like to talk about Flavio Demerucci and pay tribute to him. And we wish him well in his future challenge. And I'd also like to address our in-house team and whatever is happening, particularly for the last two years. Historically speaking, Klabin is a company with a succession process that is very rich, more and more established by processes that have lighter individual losses. And my succession and others that happen in recent years at the company, just to show you some numbers, they show a substantial growth in the company's earnings. not only absolute numbers, but also margin maintenance and the entry of new products. And this thanks to very well established processes. So within this succession context, today I'm joined by Ana Cristina, who is our people and management manager. Please feel free Ana Cristina to add any comments. But very briefly, In a very transparent manner, I share with you that Klabin, well, I've been at Klabin for 12 years. Some friends of ours have been at the company for 25 or 30 years in the company's management. If we consider the outlook or the perspective for the last 12 companies, when I joined the company, Klabin had 1 million, 1.5 million tons more precisely. And then I'll be brave, but it brought two machines, in Correa Pinto and another recycling machine in the Northeast, which is state of the art at the time. And it was so important to develop what is known today as Machine 27. We're not going to talk about this now, but we moved to 1.7 million. And then let's make a leap from 1.7 million back in mid-2011 Now we have 4.7 million tons. Therefore, 1.7 to 4.7 million tons. And I said briefly that we are focusing a lot on product portfolio that are more technological products. And Klabin's Technology and Development Center was key to the process. But just to mention the recent acquisition is the coated board machine, which among other products bring that white top liner and also adding more commercial complexity to Klabin. Klabin, if you think about and if you consider Klabin and compare it to all our global partners, all partners, you are going to see Klabin in the pole business with fluff. long fiber, which is registered and approved worldwide for best brands. And then we have short fiber, which is important in terms of efficient logistics and logistics infrastructure that is very well established and mastered by Klabin. And then in the paper section, you know, we have very complex products from beer, milk, or liquid food, and also general products, supermarket items, for instance. Now, when we move into craft paper, you know very well how complex the world of corrugated box is. Today, Klabin supplies papers for many regions in the world. And lastly, our industrial bag, production line, which is very specific. And in the past, it was in the Brazilian civil construction industry, but today nearly 50% of the volume is earmarked to North America and also other regions in the world, not only for civil construction, but miscellaneous, as we know in general, from seeds to coffee for Brazil and other regions in the world. So I just wanted to add this about complexity because from 1.7 million in mid 2011 to 4.7 and with product diversification, we previously discussed with our management area and also the executive committee that we would focus more strongly on commercial strategies at Klabin, focusing on something which is so valuable, which is niche management for the benefit of margins and also bring the industrial area, more technical area, for the same framework of weekly discussions by the executive committee. So there are two names here before I close my long answer about management, Ricardo Cardoso and Michael Souza. both have 25 years of experience at clubbing they are top line engineers in terms of project implementation at clubbing for the main clubbing machines they have their background at clubbing with operating efficiency safety and at clubbing we had already concluded that the industrial area would report directly to the general management. And at the same time, commercial divisions, considering the complexity about market coverage and naturally future intentions at Klabin, these would be separate areas. So we have the industrial management now and also the commercial management. And the names, as you know well, these are people. I'm not exaggerating. These are big names in the pulp and paper industries. Nicolini in pulp and José Suárez, you know him well. He is a professional for decades in the industry, known worldwide by the industry. So I just wanted to wish Flavio well. Best of luck. But I also want to pay tribute to the succession process at Clavin and also processes set as a whole in our company. And at the end of the day, despite all these changes, the company still manages to keep on running the strategy designed by the board of directors with the same level of delivery as before. I apologize for this long answer, but I think we haven't talked about this before. Thank you for the question, Rafael. Thank you, Cristiano and Ivo.

Next question, Leonardo Correa, BTG Pactual. Please, Leonardo, you may go ahead. Hi, everyone. Good morning. I'll focus my questions on the market. Leonardo, I'm sorry, excuse me. I'm going to ask you to speak up. Your audio is very low for us. Can you hear me better now? I'm having some audio issues. Yes, we can hear you. I apologize. So about coated boards to start talking about the market, Cristiano. You said you saw some signs of weakness in this market. If you could talk more about this or what you see in this issue, I think it would help. And the second question to Nicolini about Pope. We've been talking about this, but we saw clearly at the price level in China, 460, 480, maximum pressure level. The scenario has somehow changed. There have been three announcements of price increase in June and July. Apparently, it isn't completely clear to, but now in august we're waiting to see if we can transfer what was increased in june but the price is following this path but i'd like to ask nicolini if it's something that may be sustained over coming months or if you see it differently thank you thank you leonardo okay so I'll turn to Suarez directly, and we'll start talking about coated boards, and then Nicolini talks about the pulp market. Good morning, Leonardo. Thank you for your question. I apologize. My voice is a little hoarse. I have a sore throat. But on coated boards, what we've seen in terms of demand in the first quarter and the second quarter, rather, But we can see already an improvement in the scenario for the third quarter, which usually is a more active quarter with greater demand both domestically and internationally. Here in Brazil, we've also felt on the second quarter a stronger presence of imported products, especially from China. these coated boards do not compete directly with Klabeam's products, but in some ways it does hinder us a little and gives us this feeling of an enhanced competitiveness. However, we've been able to maintain price levels somewhat resilient, both in the international market and the domestic market. So that was the scenario that we saw in the second quarter. And for the third quarter now, we start to see a perspective of greater demand. Okay, so now Nicolini, please. Good morning, Leonardo. Thank you for your question. Well, actually, we start to see some positive signs coming from China, despite stocks at ports are still at high levels. What we've seen is that the inventory turnover is higher today than it was a few months ago. And that's due to two things. One is the domestic paper production that has been improving vis-a-vis a better demand over the past two months. We've also seen some announcements of the increase of unquoted papers, for example, and in the hardboard market that follows an increasing trend. And the other aspect is a replenishment of inventory. Dope inventory in the hands of paper producers is still considered low, so we have this formation of inventory, but it is worth noting that the inventory of finished products remains at normal levels. We're confident with the implementation of the price for August. That's nothing but the price announcement made in June, implemented in two stages, $15 in July and another $15 in August, bringing the price of short fiber to the level of $530 safe put. Excellent. Thank you.

Next question, Tiago Lofiego with Redisco. Please, Tiago, go ahead. Thank you. Good morning, everyone. First question, coming back to capital allocation, Cristiano, just to dive deeper and be more specific, you mentioned that CapEx per ton that you saw in the market was way higher compared to what you considered to be reasonable. to start up a new wave of investments at Klabin. I would like to better understand how you have been following up this variable, if it's going upwards or downwards, and about the timing for the next growth phase at Klabin. Do you think you could give us more color if it's mid next year or maybe by 2025, just to better understand your mindset about your timing? even if it's preliminary. The second question about wood costs. Last quarter, the cost in pulper, wood costs for pulp increased to 822 reals per ton. I'd like to understand if this is in line with what you said before, or you consider it to be a rise. I would like to understand if this level around 820 is the next level to follow up into the future. Or do you expect to see more sequential increases for this item? Thank you. Thank you, Tiago. Look, in order to be to the point, like you said before, it's important to say in a specific manner. There is no forecast for announcement or study of progress. growth project as we speak at Klabin. By the way, we've been following up construction costs, etc. I'm joined by Jose Migno, our project manager. He can also add comments if he wants. But right now, our absolute focus is on delivering well. Our machine 28. We are very motivated in order to turn that site into a world benchmark. And when it comes to machinery complexity, it is a benchmark. So investments have been made and there is a lot of upside to come from that site. So we have our total focus on it right now, in addition to other small investments about continuity at clubbing. So today we're not considering any investment, any organic investment, which we've been normally doing. Focus right now, in addition to what I said before, ramp up of the machines and having the best benefit from that site. And on top of that, we also have strong focus on productivity. specifically indirect fixed costs. We've been assessing, well, all the management, all the teams have been assessing opportunities and precisely to adapt to a new reality. As you know, our industry has long cycles, but as we speak, we want to gain productivity and face competition that is set in the market today and perhaps into the next 6, 12, or even 18 months. So we're getting ourselves ready when it comes to efficiency and cost for a period of up to 18 months, which we consider to be tough. So this is our current focus. As for wood cost, oh, by the way, Francisco wants to add to our comment. Just a second, please. Good morning, Tiago. Good morning, everyone. With regards to inflation and investments, I think we see signs both ways. Some important commodities for production and machinery have been like copper and iron ore. They have been affected by the market, but we also have points of concern like semiconductor. So it's important in our automation and electronics. And also globalization. There are many questions today about how and where our products are being manufactured. We've seen value of investments notices like ours, approximately 12 billion and others are way higher. So our current commitment is such a high amount with products being manufactured with no guarantee owing to geopolitics, that's also a very strong concern. And in Brazil, civil construction is very busy, but also many projects which were cancelled in the world. So like Cristiano said, this is the moment to focus on our operations, our productivity, and the project Rumpop. And we'll keep on doing our remarks about potential aspects, but with no project being considered in the short term. Perfect. Marcos, Thiago, about costs. I'll be very broad in this aspect and maybe we can clarify this topic. Firstly, Klabin has been delivering costs that are slightly below what we said on Klabin Day late last year, and also in our previous earnings conference call. That's something to highlight. When we think about Pope cash cost, what do you expect to see in the second half of the year for Pope cash cost? For the second half of the year, we expect it to be at the same level that we had in the first quarter of 2023. And it includes wood. More specifically about wood, we don't want to give an exact number, But we also shared with you for a while that the peak price of wood, the peak cost of wood in our products, happens this year over 2023. Actually, it already happened in practice in 2023, and it remains at this level for 2023 and 2024, the first step of production. Reduction is as of 2025. We explained that previously many times. This drop will happen from 2025 to 2033 on a year basis. When it comes to the total cash cost at clubbing, there is a table that clearly shows this on our release. We've been giving signs since clubbing day. The total cash cost at clubbing per ton, the first six months of the year, increased by 10%. We were speaking of two digits low. Now we are at 10. So 10% is the cap that we see to increase in the total cash cost per ton in 2023 vis-a-vis 2022. We see this one digit high up to 10. Crystal clear, Ivo. Thank you. Thank you, Cristiano. Thank you, Francisco.

Next question, Caio Ribeiro, Bank of America. Please, Caio, you may go ahead. Good morning, everyone. Thank you for this opportunity. First, about the global container board markets, we've seen pressured prices throughout the year, and I'd like to ask you if you see any indication of improvement at the end, and if you can also give us some color of how you see the evolution of entry of capacity in this market and the demand, especially during the second half of the year, that would be great. And second, changing the focus to Pope. How do you see the environment in terms of demand in different regions, especially in Europe and China, if it justifies any change in your commercial strategy to concentrate volume in one region or another? Thank you. Thank you. Suarez, please go ahead. Good morning, Caio. Thank you for your question. So if we look at the prices of container board in general, what we see is stability in terms of prices. We came from a continued drop since the middle of last year, and today the scenario is stable. the prices have reached levels that we start to see capacities being closed in North America because the price in some regions have reached levels that are lower than the cash cost for production of some manufacturers, and that has been leading to capacity closures. At the same time, in Europe, we see postponements of plans with new capacities that had been announced and are being delayed at this time or even canceled, projects being canceled. So what we see is a greater balance between supply and demand, a reduction on inventory levels here in Latin America. We went through almost one year with the majority of our clients being overstocked. It took us about one year to solve this overstocking issue. And now we can see that the market's starting to purchase again, and the prices are starting to show some recovery. Still low, slow, but we can see an improvement in price conditions from the moment that the inventories have been equalized, as they were above normal for a considerable amount of time. Thank you, Suarez. Now, Nico. Good morning, Caio. Thank you for your question. Caio, the scenario in Europe is kind of the opposite of what we see in China. We have a more attentive look towards the development in the pulp market and the paper market in Europe. It's more concerning. The demand is very repressed. Inventory levels overall for pulp and finished products remains high. All eyes are to revenue management, as always. We have some degree of flexibility to move volumes to other regions, And this is a constant assumption that will remain for the third quarter. But today it is the most concerning market. I'm talking about mature markets overall, but the United States has a market that's more concentrated in the tissue segment. So it's not so concerning for our case. But Europe is a market that remains more challenging in terms of demand for vape and popper. Excellent. Thank you.

Next question, Matthew Farigi with Goldman Sachs. Please go ahead, Matthew. Good morning, everyone. Thank you for the opportunity. I guess most of the questions were answered. I have two follow-up questions. Firstly, about cost. I guess the company had been through or gave us a cost beyond double digits. for square meters better than expected. And we can see some raw materials, particularly chemicals and diesel going back strongly. I know we already mentioned about costs that remain high, but we want to understand that you foresee better cost scenario compared to what you expected earlier this year. I remember that in the previous call, you said that the guidance was maintained, but just to better understand if that's really true. And the second part of the question is more philosophical. Cristiano mentioned that the new machine, Machine 28, had some complexity, commercially speaking and also logistically speaking. Naturally, that is an upside. Clubbing can capture margins from these challenges and complexities. But on the other hand, when you consider about investors' demand, clubbing also became more complex. It's more complex to analyze more product lines and different markets. So the question for you is, how can we make clubbing less complex and have a cleaner vision for investors? I don't know if that's a suggestion, but one of the things we recently heard is maybe more details for business and type of paper in terms of disclosure so we can dive better into different lines. So I'd also like to hear from you how we can uncomplicate clubbing for investors. Thank you. Thank you, Faridi. Marcus? Marcus is going to talk about costs and then I'll come back. Faridi, I'll be very specific. The answer is yes. We can see a slight improvement in terms of what we said on clubbing day and on Q1. It's a slight improvement. I'll try to share some numbers to help. Like I said before, pulp cash costs expected for the second half of the year is at the level that we had in the first quarter. What I mean by level is something very close. As for total cash costs at clubbing, two digits low for the year. Well, imagine something from 12% to 13% growth in the cost per ton. Now we begin to see an envisaged 10% growth in the first half of 2023 vis-a-vis 2022 as a ceiling, as a cap. So year-to-date for 2023 is one high digit up to 10%. And that's sustainable, by the way. changes in prices of some items that we use in our production process, and also owing to several actions by the company. So that's how it's structured. That was a great question. By the way, I have to admit that we constantly work on this reflection about how to translate what we actually do And I have to mention this. If you think about our global peers, the portfolio of products and markets where we are, I think this is one of the most complex companies worldwide. I have to agree. But I'll try to be brief about this context, and then we'll consider something more structural to communicate with you and the market in general. But I'll risk now to simplify this. make a simple vision of Klabin. And let's see if you look at this the same way. So today, Klabin, considering these 4.7 million tons, I'll consider only for our conversation purposes that we have all the ramp-ups of the machines ready to roll. Klabin at 4.7 million tons is one-third pulp, one-third, let's call it And I'll give more names about companies just to make it easier to compare. And one-third corrugated box supply. So one-third, one-third, one-third. And I'll dive into each one of them. Let's consider one-third for pulp first. As you well know, we have three fibers. The most important fiber of this one-third is fluff when it comes to results. And I'll mention some names. obviously respecting our global peers. But considering there's one third for pulp, I would say perhaps we have two companies, if you could think about it on a relative term. If we focus on fluff, maybe one of the highest margin products at clubbing, precisely considering efficiency, Please bear in mind, Clubbing was the first company to bring and design a specific machine for fluff in the world. There are big players of fluff in the world. IP, for instance, and others as well, but IP. So we are in the market, which is a highly added value market. with extremely hard to please end users. Klabin is approved worldwide and undoubtedly Klabin has the best cash costs in the world considering efficiency and technology. It comes with a price. It is in the company's ROIC, in the company's design, but considering this, I'll repeat, for these 4.7 million, one third is pulp. Within this one third for pulp, we have the three fibers, And fluff is the reference. And IP is a comparison. Now, the other part of the third for pulp, I mentioned Suzano and other companies in the world. That's a product in which efficiency, cost, and a good logistics infrastructure. By the way, we are speaking of one SKU that is very well dimensioned along the chain. And cost here in this case is the name of the game. Considering this context for short fiber pulp, what is Klabin's differential? I mentioned the company that we could compare. So within this context, I believe the commercial strategy that Klabin has been using Well, naturally, there is an obvious difference in volume. Maybe we're comparing only short fiber pulp, 1 million compared to 10 million tons for the example I shared. In this 1 million, by combining fibers and owing to the size of the business, we can choose markets. In this case, precisely the reference I mentioned before, going to Nicolini's commercial strategy and the whole area strategy in order to gain through mix and commercial intelligence the best price and the best margin possible. And I think as you can see, if you compare average prices of clubbing for this product with other peers' products, we can have these for fluff and also for short fiber whole. So that's for one-third of clubbing. Next, another one-third clubbing. I mentioned consumer. So I draw your attention to packaging. If I were to work on a portfolio of products, mentioning different companies, Crab Pack is our client as well. So Crab Package is a U.S. company focused on different kinds of products. boards in the vast majority virgin fiber clubbing only has virgin board and our main focus are liquid foods and beverages so when we consider our consumer products these are high-end products lopb and cuk and we have other products for food service particularly now with the startup of machine 28, but the main references of clubbing in the world, all these two products and the volume of this coated board machines. And from then on, all other products are made specifically from virgin fiber boards. Now, prep pack in general, but more specifically, we could think about Stonic Enzo at LPB, for instance. or Billeroo, and for CUK, as you know, U.S. companies. All these products I mentioned, I'm referring to the second third of Klabin in all the comparisons I mentioned. Klabin performs highly competitive costs owing to efficient volumes and machines. The third third of Klabin, I'll refer to it at corrugated box chains. Just for explanation purposes, and then the IR department will have all the job to translate what I'm saying right now, but for the one-third of corrugated box products, it includes all the technology that we've been mentioning about Eucaliner, low-grammature or weight paper with important differentiators for efficiency gain to conversion. And we also have higher weight or grammage papers dedicated to specific products like fruit and regions in the world, including Brazil, and also covering Latin America in general. So we have a very great specialty for fruit. And now we have this heavier paper using pine. Most of it is pine. and also very technological cores like semi-chemicals that are specific for this sector. We are an important benchmark for these papers. However, when you think about the corrugated box chain, it's also focused on integration in our packaging area. So, As you know very well, we have 1 million tons of corrugated ox. By the way, just as a side comment, 30% of our FIGATA project, the packaging officer is here. If you want to add comments, I always like to have them next to me should they need to add comments. But we have Figueira with two corrugating machines, extremely technological in the countryside of Sao Paulo with high conversion efficiency. And this is for the second quarter of next year. So in this corrugated box chain, we can increasingly see Klabin integrating its papers in the packaging and also selling packaging in Brazil. and based on cash price in Brazil and boxes in Brazil. Historically, they follow GDP, but in recent years, benefiting from the so-called pandemic, there are real increases above inflation. So, stable prices in packaging, efficiency gains owing to the reduction in weight or grammage, As a reminder, packaging is area, square meter. There is a cost reduction, fiber per ton, and also more efficiency in conversion with more packaging area. So I'm sorry. I tend to give long answers, and, you know, I'm being reprimanded. So to summarize, one-third pulp, mostly focusing on fluff, efficiency, and commercial intelligence of our pulp area. One-third consumer, high-end in the industry. We are one of the main leading brands in the world and very well established on average three-year contracts. And finally, I'll put together craft paper, sack craft, or container board, together with our packaging area where we make the boxes and papers. So, Faridi, unfortunately, we are part of the business. It's very simple for us, but certainly we can find a way to better communicate with you. And absolutely, through our investor relations area, we will think about more educational ways to explain it. Thank you very much. And once again, I apologize for my long answers.

I apologize for the delay. We were waiting for the operator to call us for the closing remarks, but let's go on to the closing remarks then. So as for the third quarter of 2023, Even knowing that it is a seasonally better period, we still have the perception that it will be challenging. So considering this context of the market, we will remain vigilant in focusing on operational efficiency with cost control and optimization of the product mix and markets. In addition, we will continue to work hard in the progress of the works and the Fageda project. I mentioned recently that we're 30% through the works. And for the moment, it's delivery time, as I mentioned, is the second half of 24. And also in the ramp up and qualification of the products on machine 28 with our main customers. I thank you all for your participation and I'll see you on Klabin's next earnings conference call.