Suzano S.A. Q4 FY2022 Earnings Call

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. 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 a large part of our C-Level executives who would be able to answer your further questions at the end of the presentation. 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. On the operational side, we have flat volumes on the paper and pulp despite the fact that we have additional annual shutdowns and retrofits 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 that point. The combination of good volumes in terms of sales and better prices led us to a situation where we achieved our best-ever EBITDA at R$28.2 billion, with operational cash generation of R$22.6 billion. Despite having short-term impacts on our cash cost due to inflation and other commodities and services, Aires is going to share additional information on that. Our financial situation is strong with a robust balance sheet. We have liquidity potential of R$6 billion right now. Our net debt is at R$10.9 billion with several initiatives that we undertook this year. We had a minor increase from R$10.4 billion to R$10.9 billion, and Bacci is going to share additional information on that. Our leverage is at 2x net debt over EBITDA right now, and we have performed our CapEx in line with our guidance once again this year. I am also very pleased to announce our best-ever results on safety performance and a major improvement on our cultural development, mainly showcasing that we are preparing the company for our future. We are not only focused on short-term results but we are also preparing for our future. At 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 will pass the floor to Fabio, who will 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 in the fourth quarter, we wrapped up 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 demand in 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 demand leaped 2.2% in the quarter when compared to the fourth quarter of 2021. This decrease is due to strong comparisons from 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 looking at full figures for the year, printing and writing demand remained at the same levels as in 2021, a positive indicator given the strong readings in 2021. The robust performance of the publishing sector and office and school paper segments sustained the demand supported by the rebuilding of previously 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 the fourth quarter of 2021 due to continuous consumption of essential goods and strong seasonality at this time of the year coinciding 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 imbalances are fading and demand has returned to historical trends albeit still sustained at favorable price levels. Suzano's sales volumes in Q4 were 2% higher than the previous quarter and 10% below the fourth quarter last year. The decrease in sales volume when compared to the fourth quarter of 2021 is explained by our decision to operate with lower inventory levels to serve market demand, which diluted sales volumes throughout the year. When looking at the annual volume for 2022, sales were at the same level as 2021 and domestic sales represented 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. 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 for 2022, there is a solid 50% increase when compared to 2021. During 2021, we grew the sales of our innovation pipeline by almost 2x, delivering on targets set at our Suzano Day event. We also surpassed the milestone of 43,000 customers directly served by Suzano, strengthening our vision model with 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 continuing to grow above historical trends for paperboards. We expect more challenged market conditions in international markets with shrinking demand for printing and writing papers against the backdrop of supply dynamics. The domestic market seems more balanced and should be more resilient. It's worth mentioning that the structural competitiveness of Suzano's Paper and Packaging business provides a solid ground to navigate unforeseen market dynamics. Cost inflation over 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, where 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 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 were quite strong, also in line with the preceding quarter and with the fourth quarter of 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 the 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 started destocking. We have noticed, however, improvements in the demand for decor paper by the end of Q4. In China, low paper producers' margins, a re-establishment of logistics lead times, and the negative sentiment due to uncertainty on how the growing COVID infection rates could affect consumption going forward, despite positive messages from the greater opening of the Chinese market, reflected an order entry at below normalized levels. Due to this prevailing scenario, we decided to adjust our prices in Asia for December order intake, which stimulated our customers to reestablish purchases of pulp as hard-hit inventories in China were widely 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 Q4 2022, our prices for export markets further increased to $831 per ton. Our EBITDA for 2022 totaled R$25.1 billion, which is a new record for our Pulp business unit, posting a 17% increase compared to 2021. The Q4 2022 EBITDA performance was mainly driven by higher prices and strong invoicing performance, leading 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 considerable 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 2022 levels and in February, they further improved, trending close to historic levels. In Europe, we expect 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. 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 scenario in the short term. Also, increasing fiscal prices are stimulating flex dissolving pulp producers to swing back their productions toward dissolving grades. It is our view that unexpected downtimes will continue to put additional pressure on supply due to the technical age of pulp producers, weather-related events, strikes, as well as increasing cost pressures and wood availability 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 be further increased by a 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 significantly changed the set points of decision-making of higher cost producers, which should anchor different price levels compared to previous cycles. With that said, I would now like to invite Aires to address the cash cost performance that we had during the last quarter.

Thank you, Leo. Good morning everyone. Moving to the next slide, looking first at the 2022 cash cost performance against downtimes, as we were already seeing in the previous quarter, a new and higher level was established due to the exogenous impact of commodity prices on wood and input costs throughout the year. Pricing alone holds R$100 AIs over the 2021 basis. The higher scheduled maintenance downtime and labor costs also impacted fixed costs during the period. Nevertheless, the operational performance in 2022 was outstanding, with all mills reaching technical records in operational rates, stability, and chemical consumption. Looking specifically at the fourth quarter versus the third quarter, our external plans and some external times, although some commodities, mostly branches, have provided some relief on the cash production costs, there was still an increase of 6% due to several factors, the most important being the sum of one-off events in the industrial plants impacting specific consumption of energy and chemicals. On the wood costs, our greater third-party harvest operations, freight tariffs, and a higher average transport costs explain the hit. Addressing the fixed cost increase, pressures came from labor costs and lower production volumes leading to a higher downtime in our Aracruz unit impacting fixed cost dilution. Looking forward to the first quarter of 2023, for cash production costs, we foresee a flat performance over the fourth quarter of 2022, expecting a reduction in cash production costs throughout the year, especially if operational performance exceeds our expectations. 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 physical and financial timelines. So that you can have a more complete view of the physical progress of the project, we have made available a short video showing the evolution of the project. The link is in the presentation or on 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 R$10.4 billion to R$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 R$3.2 billion that we made in CapEx and the R$400 million in share buybacks. This allowed us to reach the lowest leverage ratio that we had since the Fibria merger in 2019 at 2x. Our liquidity position continues to be extremely positive and comfortable with R$6 billion including R$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% per year. That puts us in a very robust position in terms of financial stability. Moving to Page 9, we show that we continued to advance in our FX hedging policy, taking advantage of the BRL volatility. We now have operational hedges close to R$6 billion in notional with an average put of 5.58 and another R$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 adjustments 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 R$400 million. We have just announced that 93% of the shares that we bought will be canceled, representing 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$2,022 in 2022, and we show here that we expect a significant reduction in the next five years, moving that number from R$2,022 to R$1,750 in 2027. That movement will be achieved with contributions from more normalized commodity prices, the effect of the maturation of competitiveness projects that we have in our portfolio, both on the industrial and forestry side, and also the contributions from the Cerrado project that will come on stream 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 believe we are sharing an outstanding year and results of the company from last year, and I am going to share in the last segment several activities that we have undertaken on each strategic avenue over the last year. The first one, that is best-in-class in the total cost vision, we have been working to increase and acquire additional land for us through the acquisitions of Parkia and Caravelas. We have been going through the retrofit at Aracruz, and this year we will also have the retrofit of Jacarei. A new terminal at our Itaqui port will allow us to be even more competitive in this area. We have maintained our relevance in the global markets and we have been working to increase our land bank. We have several acquisitions preparing for the largest CapEx project, sustaining an expansion CapEx program in our Forest division. Last year, we planted more than 260,000 hectares of additional area and we have been conducting the largest single-line CapEx in the world right now, which is the Cerrado project, as Aires mentioned earlier, that is on time and on budget. We have been advancing in the supply chain and are awaiting the approval from the antitrust regulator for our potential acquisition of Kimberly Clark. Additionally, we announced a potential new project in the 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 at the beginning of this year and we have started the MFC mills in Europe and Limeira, which will create a lot of value in the textile market for us in the near future. We also have the new CVC Suzano Ventures activity and we have been working on innovation through different areas focused on plastic substitution, one of our main targets. We have also been improving our ESG ratings across different entities. We have launched the Biomass initiative, which aims to significantly regenerate and preserve natural forests in different biomes in Brazil, and we have been advancing on diversity and inclusion as well. We are very satisfied with the developments we have made and extremely excited about our near future. Now I will open the floor to the Q&A session where all of our C-level executives will answer.

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, and where you see the cost support in the industry today for hardwood? And then secondly, linked to this question, given this wood cost inflation, which we see as partly related to higher competition for forestry assets particularly in LatAm where there's a number of different pulp projects in 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 where the lower availability of forestry assets could start limiting expansions in the industry? Thank you.

Caio, good morning, thank you for the question. On the wood inflation, that can be explained mostly by the Brent crude, the diesel that has gone up over the last two years. The second component has to do with higher logistics costs, and a higher price for 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 responding to the second point that you raised. We have been working on tracking all the potential new areas that we have for forests in South America. Our vision is that we do not have availability of wood for short-term projects in the region. I cannot tell you that it's not available for the future. For example, one of the Chilean companies is announcing a new project in 2028. That could be possible to happen but we do not believe any other project or projects will come online between 2024 and 2025. We believe that we are not likely to see new projects coming online due to the lack of wood. It is vital, as I mentioned, that wood costs have been increasing at a very high speed. The new projects now will face higher CapEx due to the inflation we are seeing right now, higher interest rates for funding these projects and lower wood availability, making it more difficult to see new projects come online.

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 you provided for your total operating disbursement by 2027 and the increase that came mostly from higher spending on forestry and in cubic culture, do you think 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? Is that a fair assumption? And my second question, given that you posted 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, do you think that you could take to the Board of Directors any new projects after Cerrado, or do you think the correct timing for doing such activity would be after the project is up and running, which would mean we should see something only by the second half of 2024 in terms of the capital allocation 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 set and incorporated in our 2023 guidance. We don't expect any major deviation from the initial number other than the normal monetary correction in some countries. That's why we maintain guidance of being on time and on budget. The effects that we’re going to see in the future sustaining CapEx are tied into our total disbursement costs 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 will have afterwards. In terms of capital allocation and new projects, this is a challenging year for us concerning capital allocation because we have a major CapEx program already announced of R$18.5 billion. We also have some uncertainties regarding cash generation given the curve we see in pulp prices right now. Therefore, it is not the right timing to announce new projects; however, a more severe correction in the market will likely bring opportunities for companies with robust financial positions like ours, and we’ll be following this closely and bringing new potential alternatives to the Board when necessary.

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 similar to the one that Bacci just answered, but just looking five years out, right? As you approach the Cerrado startup, and looking beyond that five years out, what's your idea in terms of capital allocation when we think about different business lines and potential strategies? For instance, increasing integration through packaging, paper packaging M&A outside of Brazil, or converting lines to dissolving wood pulp. What are the big potential ideas that we could see coming up after the Cerrado project, or will dividends be the new norm, right, with higher dividends? And then the second question to Leo. Leo, you mentioned, correct me if I'm wrong, but I heard you say 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 how does your own project Cerrado play a role in this restocking potential? There's a psychological factor there, I would say, so I 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 have been investing 90% of the cash flow generation of the company into our future. The company will complete its hundredth anniversary next year, and we have been investing in different scenarios in Brazil for many decades. It’s clear to us that we have five different strategic avenues. Of course, I won’t comment on any kind of future project without discussion and approval from our Board, but we can pursue organic or inorganic opportunities in the future depending on the scenario we face. I think you mentioned many of the alternatives we have. We have the integration into Paper and Packaging, into Tissue with higher volumes, exploring new areas to be invested to address new markets. We have been working on the textile market, on biofuels, and we will seek opportunities to increase our efficiency. Overall, we have several areas, with our competitiveness and differentiation being fundamental. We always want to ensure scale and differentiation, and we will pursue those prerequisites for the future.

Thiago, this is Leonardo, addressing your question about restocking and how Cerrado fits into that. As I mentioned in my speech, we believe organic growth in terms of demand this year will be close to 1 million tons. That aligns with most consultants' views of our business. We think that once prices begin falling and approach this higher cash cost of marginal producers, decisions will be made primarily by Asian producers in terms of either reducing their production rates or ceasing production, which in turn will lead customers to replenish their inventories based on the current levels, which we consider quite balanced. We attempt to calculate how much that could impact the market. If we conclude that in order to support China's paper production on average, 1.8 million tons of market pulp is consumed monthly, of that, 1.2 million tons are hardwood. Therefore, every 15 days, a stock buildup would add an additional 600,000 tons demand for pulp over the baseline organic growth we have discussed, which I highlighted previously. We do not expect Cerrado's influence on this decision-making for 2023, as it pertains specifically to decisions or set points made concerning the higher cash cost of marginal producers, primarily in Asia.

Thank you, Leo. If I may, what’s your view on the marginal costs in the market right now? You had mentioned $600 per ton recently; does that still hold? And if you could repeat the rationale for the 600,000 tons, I would appreciate it.

Okay, starting with the last part—the rationale for the 600,000 tons. The China paper production and the paper industry require approximately 1.8 to 2 million tons a month of chemical pulp to operate at current capacity. Of this amount, approximately 1.2 million tons consist of hardwood. Every month, roughly 1.2 million tons are imported or consumed of hardwood market pulp in China. Therefore, if we consider a 15-day stock buildup, that would amount to an additional 600,000 tons of hardwood, based on this monthly consumption of 1.2 million tons. Now, regarding our view on marginal cash costs, we have pointed out since early last year that cost inflation for pulp producers has significantly changed cost levels. We forecast that the cash cost for marginal producers is around $600, varying between $580 to $610, or $615 based on different base scenarios we consider. This forecast stays consistent since wood is the main variable in pulp cash cost. We expect that availability for wood will remain limited, particularly for Asian producers, which will help maintain high price points.

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. Do you believe that news could move production back to dissolving pulp in the coming months? How much hardwood pulp could be removed from the market if this movement materializes? My second question is about pulp affordability. How do you see pulp affordability in China now, particularly considering that pulp prices have fallen by over $100 in the past few months, and consumer effects have also played a role in this equation? Is pulp affordability still a concern among market participants? Thank you.

Rafael, this is Leo again to answer both of your questions. First, on the dissolving flex capacity, what we have been seeing is that these cost prices are trending upward since the beginning of the year, and indeed, some dissolving pulp producers have moved away from paper-grade pulp to focus on dissolving grades. Based on our assets, there is approximately 2 million tons globally of paper-grade hardwood that can be converted into dissolving wood pulp production. We don’t expect that all of this will be converted at once, but we do see movements in that direction as indicated by a major producer undertaking a large 30-day production trial towards this grade. Regarding pulp affordability, as I previously mentioned, we don’t foresee the short-term fundamentals indicating such movements. Therefore, we believe most activity stems from anticipation towards future demand or supply that will manifest later. In our view, this trend aligns more with the second half of the year, and falling prices are facilitating the consumption of hardwood by Chinese or Asian paper producers. As I mentioned, January's order intake for Suzano was already higher than the levels in November and December, and February saw further increases, moving closely towards historic levels. We expect that the order intake will soon reach normalized levels.

Okay, thank you.

Our next question comes from Marcio Farid with Goldman Sachs.

Thank you. Good morning, everyone. So a couple of questions from my side, please. The first on the paper side; Fabio, can you comment on how you're seeing this, particularly in Europe, which is kind of the benchmark for graphic papers? Obviously, the past couple of years have been good. 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 maybe to Aires or Aníbal. Carlos had briefly mentioned the inflation cost in Brazil and the reasons behind it. Can we talk a little about the supply-demand conditions for land and the different regions? I mean, an overall view of how you're seeing the wood market perform in Brazil and how it has changed, especially in the past two to three years, considering the growing competition for land and forests mainly in the southeast of Brazil, but pretty much everywhere, really? Thanks for that. Lastly, Leo, you mentioned the 1 million-ton demand growth potential for this year and potential restocking if prices drop to marginal costs around $500 to $600. So my question is: considering the incremental volumes from especially the UK and new projects reaching the market, what do you think might prevent prices from falling to that level in this cycle? What are the pockets of strength in the markets you’re seeing today or expect to see in the next few months? Thank you.

Marcio, good morning, this is Carlos. Thank you for your question. We recognize growing competition for land and wood in some specific regions, which has led to higher wood prices. This is indeed happening in certain areas. As we speak, we still have ongoing discussions and negotiations related to forest assets and wood. For the benefit of our shareholders, we cannot share much information on that at this time. Once we conclude our program, we can return to this point.

Marcio, it's Fabio here. Thanks for your question on the paper side. We see different behaviors in different markets. As you know, China is coming out of the Chinese New Year, so activity there is improving. We see higher consumption and operating rates from most of the paper mills. Leo was discussing how we've noticed higher consumption of pulp in the past weeks, and you're right that in Europe and North America, we have seen a bit of cooling down due to higher stock levels in the chain. With supply chain constraints easing by the end of last year, stocks are higher than optimum levels, which will take some weeks to normalize. While we have observed stocks higher than usual, we do not anticipate prices moving downwards; prices remain resilient in Europe and North America at stable levels, due to inflationary pressures in these regions.

To answer your question about what could prevent prices from falling to marginal costs, we can break it down—first, looking at demand. We note a lot more optimism in China, along with economic stimulus plans at the provincial levels that may generate further demand for paper products and packaging products. Additionally, there's better than expected consumption in Europe following this destocking movement, which could provide positive surprises in terms of demand. On the supply side, concerns include delays and time to market for projects, which have not been unusual in recent months and quarters. It's also unclear when we may see good quality pulp offered to the market and how that will be ramped up. Most importantly, we’ve seen an increase in unplanned downtimes within the sector, and this trend is expected to persist, primarily because production lines are aging, particularly in the northern hemisphere. The new pulp capacities in the southern hemisphere are much larger, meaning that unplanned downtimes will lead to more significant production volume losses. We just observed a study by a leading consultancy, and by mid-February, unanticipated downtimes had already reached approximately 350,000 tons. This pattern appears to follow the higher run rates we’ve seen over the past three years.

Marcio, to reaffirm some remarks made by Walter, we have progressed well in establishing the necessary land bank to reach our forestry bases in the coming years. This was a significant achievement for 2022. Furthermore, it’s important to note that we are going to have in Cerrado an average distance between the forest and the mill of below 65 kilometers. That is a great outcome. Also, as Walter mentioned earlier, 2022 was a record year for forest plantation, and we anticipate 2023 to also be another record year as we accelerate our plantation program.

Our next question comes from an unidentified analyst with Morgan Stanley.

Thank you for taking my questions, and I really appreciate all the details you have been providing. I want to ask, when do you expect the Kimberly Clark deal to close? I guess you don’t foresee any issues given how fragmented the market is in Brazil. Elaborating on that, do you plan to grow more inorganically in the market in the tissue sector? Do you have any targets in mind for the level of integration you would like to achieve?

Thank you very much for your question. This is Walter answering. We do not have any forecasts for when CADI will approve these operations. We expected full approval and have no remedies, but we have to wait for that. Of course, as we have this as a precedent condition, we are moving towards closing this transaction. Regarding our future, we have announced a potential new project in Aracruz and, of course, are open to inorganic growth opportunities as well.

Okay, perfect. Thank you. As a quick follow-up on total operational disbursement, just to clarify, I think you provided a lot of details on Slide 11, but I want to ensure that you’re not considering any inflation beyond 2023, correct?

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

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 thank everyone for being part of this session. I think Suzano is very committed to our future. I would like to reinforce our three pillars of our culture that we have been working on: people who are inspiring, transforming, and creating and sharing value with all stakeholders—it's only good for us if it’s good for the world. We have been performing well over the past years and remain humble enough to understand that we need to keep improving our operations to keep meeting our consumers and other stakeholders' needs for our future. Thank you very much for joining us. I hope you all have a very nice week.

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