Klabin Sa S/Adr

Welcome to Klabin's conference call. At this time, all participants will be in listen-only mode. Later, we will have a question-and-answer session when further instructions to participate will be provided. We kindly ask that, for the benefit of time, each analyst asks a maximum of two questions. As a reminder, this conference is being recorded and is being broadcast simultaneously via webcast, which can be accessed through Clubbing's Investor Relations website, where the presentation is also available. Any forward-looking statements that might be made during this conference call in connection with Clubbing's business outlook, projections, operating and financial goals, 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. With us today are Mr. Cristiano Teixeira, CEO, Marcos Ivo, CFO, and IRO. as well as the company's officers. Initially, Mr. Cristiano Teixeira and Mr. Marcos Ivo will comment on the company's performance during the third quarter of 2024. After that, the officers will be available to answer any questions that you may have. Now, I will give the floor over to Mr. Cristiano Teixeira. Mr. Teixeira, please go ahead. thank you good morning everyone it is a pleasure to be here with you in another call to discuss third quarter 2024. as a reminder we changed the format of the call a little bit i'll start with the slides speaking about the performance of the markets and then marcus evil or will present the financials in more detail and i'll be back in the end to speak about the trends. And then we'll start the question and answer session. Well, I guess that what we can point out in this slide, and it really shows what happened, and then Marcus will confirm this, was an extraordinary cost to performance. Our bet on capital allocation by the company of acquiring Arauco's areas are represented here and they led to a reduction in the effective cash cost of the company. We have numbers that draw our attention also because we had the anticipation of the business case and the project presented to you. We have synergy of the operation. with a radius close to our mills, representing a strength, a benefit in that region in the state of Paraná, and the reduction in the purchase of third-party wood, and the effective delivery of everything that we promised. Again, we can show you that we had the correct strategic decision in terms of capital allocation of the company, bringing benefits that lead to the leveraging of the company after one more growth cycle. I draw your attention in this quarter to the increase in the volume of paper We are still going through a difficult period of logistic issues, which have impacted us with back orders in practically all business lines. We had the ramp up of PM 27, 28, showing strength, coated boards increasing 20%, craft 31% in the period. showing this balance that we looked for in the company since we started showing you these slides, showing market segments, pulp, paper, and packaging. So it's three-thirds, and it really represents what we've been talking about for a while now. In the next two years of the company, this is how we will be performing. creating the biggest optimization for the company. In order to have free cash flow, deleverage the company, and only then will we start forecasting growth. We have been speaking a lot about our momentary focus. It doesn't involve any other strategic decision which is not focused on free cash flow for the next two years, as well as deleveraging the company. Lastly, I would just like to bring you something else that we've been talking about, the FIGADA project. By the way, you are all invited, and I expect to see you soon in clubbing day, when we're going to be having an on-site tour, the site operating with the two corrugated box machines. bringing a reduction in the integration cost in a moment when domestic market, as you know, is posting significant growth in terms of consumption, improvement in income, again, higher consumption. And the Figueira project started a very surgical moment in what we had planned. So this was very important during the ramp-up of PM27 in the last 18 months when international prices were not attractive. We were able to focus on integration at Figueira. And now, when we start seeing recovery of craft liner around the world, We can operate paper at Figueira using more recycled paper in Brazil, maintaining what we had already gained and now benefiting from a moment when we have external prices, which are good for a craft liner. So with this, I'll end this first part about Q3 24 performance. And again, as a highlight, despite logistics issues and general stoppage, we had paper performing significantly well considering the expected ramp up. but now with an expectation of better prices, better prices than before, but also with a very positive outlook for some of the markets, particularly coated board. So this is a general overview of our performance, and now I'll turn the floor to Marcus Ievo for more detailed results, and then I'll come back to speak about the trends. Marcus? Thank you, Cristiano. Good morning, everyone. Again, thank you for joining us in our conference call. On page four of the presentation, Net revenue in the quarter was 5 billion BRLs, up 14% year-on-year. This increase is mainly explained by the increase in the price of pulp and craft liner, higher sales volume of paper and packaging, as mentioned by Cristiano, and the depreciation of the Brazilian currency, the real, against the US dollar, which benefits exports. Adjusted EBITDA was 1,805,000,000 BRLs in the quarter. EBITDA margin reached 36%, which represents an expansion of five percentage points compared to the third quarter of 2023. Moving on to slide five. Total cash cost per ton was 3,179 BRLs in the third quarter, an increase of 4% year on year. Year-to-date in 2024, total cash cost per tonne totaled 3,015 BRLs, ratifying the cost trajectory in 2024. according to the forecast that we provided to the market at the end of last year the year-to-date cash cost materializes the various actions implemented by clubbing with emphasis on the synergies of kaiti project already being reflected in the forestry cost moving on to slide six clubbing ended the third quarter of 2024 with a net debt of 29.5 billion brls an increase of approximately 5.7 billion bureaus quarter on quarter. This increase in debt is substantially explained by the payment of KITI project carried out in July in the amount of 6.3 billion BRLs, which was partially offset by the appreciation of the BRL against the US dollar in the quarter, thus impacting indebtedness in foreign currency. Leverage measured by net debt over adjusted EBITDA ratio in US dollars ended the quarter at 3.9 times. within the parameters set forth in the company's financial indebtedness policy. I would like to highlight that on October 29, Klebing's board of directors approved a new version of the financial indebtedness policy of the company. The main change was a reduction of maximum leverage in the investment cycle from 4.5 times down to 3.9 times net debt over adjusted EBITDA in U.S. dollars. This move reinforces management's commitment to clubbing's deleveraging and ratifies our confidence in this process through the ramp-up of Project Uma2, capturing synergies between Caete Project and the Plateau Project, which was communicated to the market last week. The full policy is available on the company's investor relations website. Moving on to the next slide, slide number 7, Klabin's liquidity remains robust even after the payment of KIT project and ended the quarter at 2.2 billion BRLs. This liquidity is made up of 7.5 billion BRLs in cash and the rest in an undrawn revolving credit facility. The average maturity of the debt at the end of the quarter was 99 months, and the average cost of debt in dollars was 5.7% per year. Moving on to slide 8. According to notice to shareholders published yesterday, the company approved the payment of interest on capital in the amount of 425 million euros to be paid on November 21st. On an accrual basis, dividends paid out to shareholders in the last 12 months totaled 1,528,000,000 BRLs. This amount represents a dividend yield of 6%. Lastly, on page nine, I invite you to our clubbing day, which will be held on December 10 in the city of Piracicaba at our newest and most modern corrugated box packaging plant, Figueira. Now I turn the floor back to Cristiano, who will bring more details about business trends.

Thank you, Marcus.

So as usual, we are already bringing to you this overview as we've done in the past few quarters. So just a reminder at the top on the left, we can see a little bit of the references that we try to provide. When we have the pointer going straight, we're talking about neutrality compared to the previous quarter. So now we're talking about the fourth quarter, the trends for the fourth quarter, compared to the third that we have just delivered. So when we say that the arrow is straight, we're talking about a neutrality. So what do we still see, starting with the short fiber pulp? We still see, considering the uncertain conditions in China, despite the inventories or stock levels being at good levels globally, we are still uncertain about the Chinese market. So there's an effort to transfer the mix, to transfer major producers to Europe, trying to improve the average price. So this pressure, this dance shall still show a slight drop of short fiber compared to the third quarter, the first quarter. So this trend is something we already see, although there's a factor here of the fourth quarter compared to the third quarter. We believe that that's what's going to happen. The small drop still represented here, which will probably turn into stability from that point on, the way that we can see here. So when we talk about fluff bulk, obviously you've been seeing, I mean, here, I say it again, It's a quarterly reference. But of course, you keep track of the closing of the capacity announced for next year, which leads us to having an expectation that in strategic points, clients will come to Klabin, for example, for contracts at a premium compared to our competitors. So having Klabin as an alternative for long fiber fluff structural in the long term, especially thinking about the company's strategic view of investments in coming years. So despite this view for the first quarter, we still foresee some price stability, a slight drop. And then after the fourth quarter, we do expect to see some price increase next year, even though there's still a slight drop for the fourth quarter. Coded boards are at a good point. We've been feeling that, especially in the internal market. It's something that may also be subject to the foreign markets, tariff prices, considering the countries and macroeconomic and geopolitical aspects that we are monitoring. Clubin benefits from that at this point. as it is a stable producer with a machine ramp up of long fiber products comparable to the Northern hemisphere producers with a gain in gramage. So we are positioned in a place to gain productivity compared to our clients in square meters terms. And at the same time, we see a benefit of price, especially in the domestic market. As for Kraftliner, there's a recovery now. There's a recovery compared to the last quarter. So this recovery remains, it's maintained and this has been reflecting. As Clubbing maintaining the export volumes that we're having with the ramp up of machine 27 and the Kraftliner volume that we started the coated board machine producing Kraft liner. So all of that, which was dedicated to the foreign market with this trend of the price improvements that we've been talking about, will probably lead the company's export volumes to remain at good levels for Kraft liner in the coming quarters, especially the next quarter. When we look at the corrugated boxes, it's a very positive time in Brazil. The month of October is very strong. The expectations for November is also great. So that we are expected to perform very well compared to our competitors here in Brazil, making the most of the opportunities of the major top accounts that have an SLA requirement that is very high. And Clubbing has been able to do that, especially being a reference in the Southeast region. With the plant that I hope you get to see visiting Figueira, the service level has improved greatly with this machine compared to our competitors. So that leads us to expect a gain of share compared to our Brazilian competitors. For bags, you've been also following in some regions in Brazil, there's a lot of investment reflecting in income generation that impacts other businesses at clubbing. Clubbing is at a good moment. But in terms of price, we see some neutrality, so to speak, for the fourth quarter. So these are the trends. Of course, I have all of the boards here. And as you ask your questions, we'll be able to give you more details of each one of the markets. So thank you, and we'll now move on to the Q&A. Ladies and gentlemen, we will now begin the Q&A session. In order to ask a question, please click on the raise hand button. To remove your question from the queue, please press lower hand. Our first question, Rafael Barcelos, Bradesco BBI. Please, Rafael, you may go ahead. Good morning, everyone. Thank you for taking my questions. My first question to Cristiano. Cristiano, I'd like to discuss a little bit more about the capital allocation strategy and also talking about fluff. The fluff market has for some years seen the closing of capacity and there are few additions planned for coming years. So that said, I understand that the company's focus today is deleveraging. That was very clear with the recent movements that the company's made. But I'd like to understand a little bit more how you perceive this need from the market to have a bigger fluff capacity. And could this make Labain anticipate an investment for an additional fluff capacity. And my second question about the box or the corrugated box market, as Cristiano mentioned in the beginning, October is a strong month, but I'd like to see or hear more about how you see the expectations for the fourth quarter and to close the year, as well as the expectations for 2025. And still on this subject, the actual price has been improving, but I'd like to understand how much comes from the mix or an actual price increase and how this has been conversing with the price of OCC here in the domestic market. Thank you. Thank you, Rafael, for your question. I'll talk first a little bit about capital allocation and the investments in fluff. And then I have Douglas here who will talk a little bit more about corrugated boxes market. So what we've been seeing in the global fluff market, I think we've been talking to you for some time already that Clubbing focuses on long fiber for fluff, even though we do have short fiber products. Strategically, we focus on products with a higher added value, especially geriatric diapers and the other products that are made from long fiber fluff. That's a market that we believe in and we invest on for the medium term. we've been saying that Blabin's next investment should come from this product. And for me, this announced closing comes to confirm we have great global producers in terms of quality, but those global producers have been struggling in their results in terms of the ability to generate cash from those assets. And that would probably represent in Plans closing, especially in the Northern Hemisphere, in the United States more specifically. Klabin is watching this move and has been preparing in the state of Santa Catarina for future investments. But this does not change our deleveraging trajectory at this time. This is a structural long-term view that's represented in what we call the Klabin strategy. the long-term vision, nothing is going to change our trajectory for the next two years of deleveraging the company, generating cash, reducing debt. And only from that moment on, we'll have any type of discussion or proposal for the board. The focus until that point will be to deleverage the company. So nothing is going to change the company's two-year trajectory at this time. Douglas, please. Rafael, good morning. Thank you for your question. As you said, the market has been surprising this year for corrugated boxes with a growth that's well above our expectations. But starting to look into the numbers, how do we look at them? We see that a lot of the contribution and clubbing benefits from that comes from exporting sectors such as proteins, fruits that have been growing at a lot higher rates than last year. And we're looking at the fourth quarter in the same way. When we look at the sales of the daily consumption, we always look at it on a day-by-day basis, the behavior of corrugated boxes markets. And what we see is that it will be slightly stronger than the third quarter, which is great, because the fourth quarter, we already start to see a slowdown in November and December, and we're seeing better numbers than the third quarter when we look at the market and when we look at clubbing. Clubbing has even a slightly better perspective compared to the market when you look at our shares in the export markets. that gives us this advantage of a bigger share. When we look at 2025, at Clubbing, we always say that the corrugated boxes market, when Brazil grows, it doesn't crash in the investment of capital, it grows in income or the industry. These corrugated box market grows at one percentage point more than the GDP. If the expectation for the next year is 2% to 2.5%, we expect to grow at around that level next year in line with the market. And then if we look at prices, the price of OCC and corrugated boxes, we are seeing a good scenario, pressure for cost. Of course, OCC is scarce in the market because the market's been growing. And we see these costs remaining at those levels. OCC here in the southeast, it's above 1,100 BRLs, and the northeast even stronger, which gives us a good scenario for price increase for the cost transfer to the entire chain, which is important for us. And we see this scenario looking forward. We see this behavior looking forward. So the market remains strong in the fourth quarter, and we see good signs to be able to transfer this to price fits. About the bags, just to take this opportunity, we also see a great moment for the year when we look at prices. Despite what Chris's raters show, that the average price of bags is slightly below, it's on the mix because we're selling more bags, 25-kilo bags, but that also gives us more profitability. But the price and volume of bags are also growing in the domestic market. Great, thank you.