Suzano S.A. Q1 FY2024 Earnings Call

Ladies and gentlemen, thank you for holding, and welcome to Suzano's conference call to discuss the results for the first quarter of 2024. We would like to inform that all participants will be in a listen-only mode during the presentation that will be addressed by the CEO, Mr. Walter Schalka and other executive officers. This call will be presented in English with simultaneous translation to Portuguese. 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'll turn the conference over to Mr. Walter Schalka. Please, you may begin your presentation.

Good morning, everyone. It's a great pleasure to have you be part of the first quarter results, 2024, of Suzano. I would like to just mention to you that we have almost everyone from the C level with us today and will be available for a Q&A session after our presentation. It's a great pleasure to announce the results of the first quarter. Once again, we had a very good operational performance with volumes and pulp side with 2.4 million tons. We have been improving volumes on the paper side as well and on the consumer goods. We had BRL 4.6 billion on EBITDA this quarter. And I'd like to mention that we are continually looking forward to our competitiveness. It's very important to mention our operational cash cost that was BRL 812 per ton, a very good performance and very close to the performance of the fourth quarter last year. Just to reinforce our positioning on our robust balance sheet with $6.3 billion in cash plus revolving position. With a net debt of $11.9 billion, we are reaching the peak of our leverage at 3.5x net debt over EBITDA. We are going to present Cerrado; Aires is going to present that in a few minutes to you. We have been approaching the end of Cerrado with fewer disbursements in the future. Now I'm going to pass to Fabio, who is going to talk a little bit about the packaging and paper market.

Thank you, Walter. Good morning, everyone. Please, let's turn to the next page on the presentation. In the first quarter of 2024, we have faced different market conditions in our domestic and international markets. Outside Brazil, we have seen demand starting to rebound as inventory replenishment builds after the strong destocking process through most of 2023. However, on the domestic market, demand started the year lower than expected. Demand for print and white papers in Brazil shrunk 20% in the first two months of 2024 compared to the same period of the previous year. This is due to the impact of the postponement of federal and state book programs and customers' inventory adjustments led by slower economic activity at the beginning of the year. Additionally, we expect a structural reduction in coated paper demand for the promotional segment. In terms of paperboard, demand in Brazil has been impacted by a slowdown in consumer spending, which, coupled with previous inventory adjustments, resulted in a 6% demand reduction in the first two months of 2024 compared to the same period of 2023 according to IBA's available data. Suzano's total volumes in Q1 were 3% higher than Q1 2023, driven by higher export volumes. Compared to the last quarter, our total sales reduced 20% due to the usual sales seasonality between such quarters. The average net price during the quarter was flattish quarter-over-quarter. We have delivered higher prices quarter-over-quarter in the domestic market due to price increases in our uncoated and cut size product lines. In international markets, our prices were slightly lower quarter-over-quarter due to product and regional mix. Looking at EBITDA, the 19% decrease quarter-over-quarter was driven by lower sales volume. However, when compared on a year-over-year basis, the 35% decrease in EBITDA was mostly led by lower prices in the external markets. Our EBITDA per ton was slightly better on a quarter-over-quarter basis. Looking ahead to the coming quarters, we expect healthier demand levels as inventory buildup continues in mature markets. In the domestic markets, we expect the seasonal cycle to support demand in the coated segment, which has recovered in the uncoated market segment as well as improving paperboard demand for packaging. The improvement in demand, combined with current market expectations for pulp, energy, and wood prices, is expected to sustain current price levels in the domestic market. While in international markets, apart from the rapidly evolving scenario, we generally expect price levels to increase as several major international players have already announced price increases for the coming months. Despite the mounting cost pressures, the impact is not uniformly distributed across all players and regions. Looking ahead, we expect a flattish cash cost performance in our Paper and Packaging business throughout 2024, supported by our strong structural competitiveness. Now I will turn it over to Leo, who will be presenting our operational business results.

Thanks, Fabio, and good morning, everyone. Let's please move to the next slide of our presentation to see our Pulp business unit results. I would like to begin by sharing with you some facts related to this past quarter. Demand for hardwood pulp has positively surprised our expectations throughout the period, both in China, where the rhythm of paper production continued quite healthily, growing 6% to Q1 compared to Q1 '23, as per CI, and with low pressure on paper producers' inventories, as well as in Europe, which has recovered significantly from the values seen in the first half of '23, where our customers kept revising their forecasts upward. On the supply side of the pulp fundamentals, we have noted several disruptions coming from the impacts of permanent closures announced previously, added to several new and unexpected events such as strikes, wars, climate-related events, and the idling of some mills, reducing the availability of pulp throughout the system. Demand from our customers and the push for order intake has exceeded our capability to serve all their requests, and we had to limit and cap order intake during all months of Q1. Despite our efforts to reestablish our inventories in Europe and North America during the quarter, optimum inventory levels were still not achieved, and we forecast that this situation will still take some months to level out, and for inventories to be physically repositioned and available in European and North American terminals. As I mentioned in our previous earnings calls, our inventory levels across the systems were too low and unsustainable at the end of 2023. During Q1, we started establishing a better operational condition. Regions and customers who are served by Suzano directly out of Brazil, like the Middle East, Africa, Asia, including China, are still experiencing significant shipment and invoicing delays, with no improvement during the quarter and indeed even more challenging, now reaching more than 70 days of backlog at the end of this period. Coming now to the graphs on the slide, our first quarter sales were limited by inventory replenishment, as I mentioned before. Our average export prices increased to $624 per ton, capturing only partially our price increases due to the high backlog levels. Our price increase announcements during the quarter were all fully implemented in their respective markets. Our EBITDA totaled BRL 3.9 billion with an improvement compared to Q4 due to higher prices, despite lower volumes. Now looking forward, I would like to highlight the following points: Rolling forecast coming from our customers in Europe and the Americas keep improving, and we still see challenges to serve all the pulp demand in the short term. It will take time to reposition our inventories accordingly. The effects of strikes and new disruptions in Europe have unexpectedly generated additional pulp demand for Suzano, and our current inventory levels do not allow us to tackle any unplanned pulp demand. We expect S&D dynamics in Europe to remain quite tight during the second quarter. In China, we know that leading paper producers are taking advantage of their financial strength to lower paper producers' margins generally in the market to push for market share gains, consequently squeezing smaller paper producers. Smaller paper producers' lower operating rates, as recently reported, are compensated by higher operating rates from larger paper producers. As in China, downstream paper demand continues healthy, also supported by our customers' macro sentiment in general, we do not expect major changes to paper production rhythm. And indeed, this paper production rhythm has been quite solid this year. Demand for our pulp came again over our expectations in April. As we speak, we are still capping order intake and refraining from offering to spot markets as an effort to recover timely shipment to our customers. As we speak, we are completely oversold. In addition to favorable demand perspectives, our constructive view for the short term is further benefited from disruptions on the supply side of the equation, for which we are not sensing any significant improvement soon. Therefore, we feel the pricing momentum should continue. News keep coming, and you all have read yesterday that a new permanent closure was announced. With that said, I would now like to invite Aires to address the cash cost performance of the quarter.

Thank you, Leo. Good morning, everyone. We are on Slide 7. The cash production costs performed in line with the company's operational plan, presenting stability compared with the previous quarter. In addition to the benefit from the drop in the price of diesel and caustic soda, which is the main chemical in the cash cost composition, we operate at a smaller distance from forest to mill and had a better performance in harvesting activities, further reducing the cost of wood. These positive factors were offset by nonrecurring events in some mills, which negatively impacted input consumption and fixed costs in the quarter. In the annual comparison, we see a clear benefit of the better operational performance on wood and inputs in the last quarter, in addition to the reduction in commodity prices during the period. Looking ahead, we continue to see stability in the cash production costs throughout the year, although with a small variation between upcoming quarters. Moving to the next slide, we are focused on the final steps of the Cerrado project, which has already reached 94% physical completion and 87% of fiscal execution by April. The project's CapEx guidance for 2024 is maintained at $4.6 billion, with more than half having already been disbursed by April, thereby reducing cash flow consumption in the remaining eight months of the year. On the next page, we would like to reinforce the company's vision for the expected ramp-up curve of the new plants, which should be completed in 9 months. Such performance means a production volume of 900,000 tons and a sales volume of 700,000 tons in 2024. In the first 12 months after the startup, we expect to produce 2 million tons of pulp in the new mill. Marcel, the floor is yours.

Thank you, Aires. As Aires just mentioned, we are at the end of an investment cycle that is paving the way for us for further deleveraging in the coming months. So I'd like to start on Slide 9 to give you a recap of what happened with our net debt in the last 12 months. Despite the fact that we invested $2.8 billion during this period, our net debt only rose from $10.9 billion to $11.9 billion due to very strong operational cash flow and also our very consistent derivative hedging policy. This led the net debt-to-EBITDA ratio to the level of 3.5x at this point, which is most likely the peak for this cycle of investment. We expect this number to start improving in the coming quarters. In terms of liquidity and amortization schedule, we have a very comfortable position with a significant amount of liquidity, $3.9 billion of cash plus standby facilities and undrawn facilities that will be utilized in the coming months with a very low level of maturities in the coming years that will lead us to a very comfortable position regarding the average term and also average cost of our debt. With that, I will turn it back to Walter for his closing remarks.

Now we are going for a Q&A session. Please, we are available right now to answer your questions.

We will now begin the Q&A section for investors and analysts. Our first question comes from Daniel Sasson with Itau BBA.

Walter, Suzano is about to deliver important growth projects on time and on budget. You showed the avenues that it opens up ahead. It keeps your excellent track record and so on and so forth. But now I think all eyes will be on the next steps, right? So it would be very helpful if you could elaborate on the next potential growth avenues that you see for Suzano? And more specifically, you have stated in the past that Suzano would be willing to analyze opportunities in different geographies as well. So if you could explain to us a little bit what would be the rationale or the main positives for Suzano if it decides to diversify abroad? And my second question, Walter, is also related to capital allocation discipline. When you became the company's CEO in 2011, the industry was going through a very hard time, right? And in 2012, capital increases had to be made at Suzano and Fibria. And then you conducted, what I would call, a transformational change that allowed your balance sheet to be strong enough to consolidate the industry and create value for shareholders. So looking ahead, what specific breaks do you think that Suzano has put in place to guarantee that rationality in capital allocation decisions will always continue to be the case?

Thank you, Daniel. It's a pleasure to answer this question. First of all, I'd like to say to all of the next questions that we are not going to comment on possible speculation that we are seeing in the press. But it's very important to give a clear framework of our view of the future. First, I think it's important to mention that we are long-term viewers. We are always analyzing opportunities for shareholder value creation at all times. That could be through organic or inorganic growth but could be through share buybacks as well. We focus on value creation, which is a very important point for us, always looking through a long-term view and sharing value with all shareholders consistently. For example, we recently moved to a single class share structure to benefit all shareholders. Second, I think it is quite important to emphasize our capital allocation discipline. We are in an industry that is very capital intensive, which is a significant concern for us. We always carry out a deep analysis and not base decisions solely on the opinion of one person. It’s a group of people discussing potential new opportunities for the future. I can mention some of the movements on this direction. Inorganic moves include deals such as Ibema, Facepa, expansion of land banking, and the Fibria deal, along with Kimberly-Clark tissue acquisition in Brazil. For each of these, we went through discussions regarding how to enhance our value creation for the future. On the organic side, we have made moves in the Tissue business, the fluff market, and Cerrado. When we presented Cerrado, many were questioning the value creation risks of its implementation. It is now clear that our team performed very well, delivering excellent results. We have a record of good performance and will deliver a plan that transforms the company moving forward. This plan aims to add 2.5 million tons to the company with the lowest cash costs in our system at around $100 per ton. Retrofitting at our Suzano, Aracruz, and Mucuri facilities serve as additional sources of value creation. I'd like to emphasize, Daniel, that we are not pursuing growth for its own sake. We are focused on value creation, whether that necessitates retrofitting or exploring new avenues for the future through organic or inorganic avenues. The third issue I want to highlight is our financial discipline. We have a clear financial discipline policy that we will adhere to. It is public, and we will maintain this policy. Last but not least, I believe we have a very strong team in place. Our team is committed and highly competent, closely aligned with all stakeholders. Our team consistently seeks opportunities to push for new boundaries and create value. All this is balanced on a fundamental principle: we seek to create differentiation with every single move we make. We are committed to establishing a differentiated stance and scaling our operations. The combination of the two will create value for all stakeholders in the future.

Thank you, Walter, thank you for all these years.

Next question from Jon Brandt with HSBC.

Walter, thank you very much for the past decade and I wish you the best of luck in your future role on the Board. I want to focus on capital allocation. I understand you can't comment on the media reports, but could you discuss the size of a deal? Are there any limitations? Is there an amount that might be too large for you? Regarding financing, I know your net debt and leverage policies are clear, but you've exceeded 3.5x in the past. As long as there's a clear plan for deleveraging, would you consider going above 4.5x to 5x leverage for a particularly interesting deal? Also, would you consider equity participation in any deal, or is that not an option? My second question relates to pulp volumes. Sales volumes declined by 2% year-on-year. I understand there were some inventory builds and that last year three mills had downtime while there were none this year. Can we assume the remaining production was added to inventory? Can you quantify how much more inventory needs to be built and is it safe to assume you're operating at 100% capacity utilization?

Thank you, Jon, for your question. It's Walter here on capital allocation for us. As I mentioned to you, we are very disciplined on that, and we are very committed to our financial policy, which is clear. We are not going to change this. We could exceed the 3.5x at certain times, but we must present a remedy when we do so. This has been our approach. We aim for a balance between 2x and 3x, and we can reach 3.5x during an expansion program. However, if we exceed that, we need to address it. If you ask about the potential movements for the future that could generate cash and shares, this is contingent on the opportunities available. But more importantly, we are always disciplined about value creation. We are not pursuing growth for its own sake. Our aim is always focused on value creation, not merely to enhance the company's size or prominence.

Jon, this is Leo here. I will address your question related to pulp volumes and inventory buildup and production. First of all, we have been stating for quite some time that we are not going to issue any comments related to our production levels. So I'm going to focus my answer on inventory rebuild and what we're seeing. First of all, the volume effect on Q1 is all related to inventory rebuild. We ended last year with a very unsustainable level of inventories, which we had to quickly address to avoid compromising our agreements with key customers. This generated this below-expected volume in the quarter. We are still not there yet in terms of inventory rebuild; there is still some space to complete. There is cargo at sea or leaving Brazil that is not yet at our terminals and available for our customers. This is one of the reasons I mentioned that we are completely oversold at this time and actually capping order intake in all markets.

Okay. That's clear. Walter, just a quick follow-up. How would you measure value creation? Is there a certain ROE or ROIC that you would measure that at? Or is there some other way that you would measure value creation?

Yes, we require a spread over our projects. Of course, we are not going to disclose what that required spread is in the market, as it is not the same for different projects. When we have a retrofit, the required spread is lower because the execution risks are much lower. When we have Cerrado, it’s a bit higher, and for a potential acquisition, it is even higher than that. There is a different spread for various activities undertaken.

Next question from Leonardo Correa with BTG.

Can you hear me? Yes?

Yes, Leo.

Okay. So I have a couple of questions here, guys. Sorry to insist on the capital allocation theme, but I guess it's going to be a bit of a monothematic discussion here today. Yes. So the first point, maybe going back to Jon's issue on M&A internationalization, right, Walter. Correct me if I'm wrong, but my understanding over the past quarters and years has been a bit off. But I guess the idea for me was always that the bar for internationalizing the company is very high. The bar for M&A is high. I mean, I guess you guys were talking about diversifying a bit away from pulp and markets with very big China exposure. But I guess the main discussion point over the past week has been on size and the level of risk management is willing to take on via potential moves, which would be big, right? I know that you guys are not commenting specifically on market speculation, which I understand completely. But just to clarify, if the next move were big, would you prefer the smaller, lower-risk, bolt-on deals instead? I just want to see how the company's strategy has changed and the level of diversification you guys are looking for? I believe this is key, and I don't think the market is currently understanding the next move and how the company’s risk tolerance is set up.

Thank you, Leo. Yes, we are not going to comment on speculation. However, it is important to mention that we shared a framework about our future positioning during Suzano Day last year. We have big deals, such as Fibria, but we also have smaller deals, such as Facepa or Ibema. In every single deal, we evaluate value creation for shareholders over the long term, always considering differentiation and scalability. It is crucial to state that in every action we have taken, we have adhered strictly to our financial policy. I'm not entirely comprehending the market's current reaction; I can't make assumptions about speculation from the press that the market is taking us down a risky path. I assure you we are not engaging in actions that would create any risk for the company. We will not make any moves for the sake of growth; our focus is on value creation, whether through bolt-on opportunities or more significant pursuits, whether they are organic or inorganic.

Yes, Leo, thank you for the question. We have an open buyback program. During the quiet period, we were not able to operate a buyback until the release of the results yesterday. We will certainly consider that possibility for the future, and this correction in share price is an additional incentive in that direction, although no decision has been taken in that regard.

Next question from Rodolfo Angele with JPMorgan.

I'm going to switch course. I have only one question. Isn't it great to start up a project like Cerrado in a time when I see that you're oversold for the quarter? So my question to you is about the strategy for this ramp-up. You showed the typical fast ramp-up for the project, which is 9 months. If we start to see a response in prices, is there flexibility to accommodate this? Can you comment a bit on what to expect and any effects we anticipate regarding pulp pricing into the second half of the year and into 2025?

Hi, Rodolfo. Thank you for the question about the Cerrado project. Unfortunately, I have to start with the bad news that we cannot share our strategy as it could affect our commercial positioning in the upcoming months. However, I can state that fundamentals are indeed quite supportive as we speak. These recent unexpected events have significantly influenced supply and demand dynamics, surprising all markets. We are observing a significant weather-related event now, and we must see what occurs in the following weeks and months as the year progresses. It is also essential to share that one of our key focuses has been fiber transition, which we refer to as fiber to fiber. Last year, there were over 2.5 million tons of permanent closures in bleached chemical pulp. Half that amount this year reflects a 1.7 million ton impact due to the timing of announcements. So far this year, with last night’s announcement, we have hit a new 1 million ton mark of permanent closures in bleached chemical pulp. This presents a significant opportunity for us. We have consistently stated that hardwood has been gaining market share in fiber, and this will only speed up as demand grows in areas vacated by closures.

Next question from Caio Ribeiro with Bank of America.

Yes. Good morning, everyone. Thanks for the opportunity here. My first question is on paper markets in Brazil, where demand started off the year quite weak. As you mentioned, your leads with printing and writing dropped 20% year-on-year in the first two months, and paper mill demand also declined around 6%. I wanted to ask what you believe is driving this weakness and your expectations for the coming quarters? Then also on paper prices, do you think this weakness in demand could translate into further price weakness? Secondly, regarding your pulp cash costs, could you share a bit more color on how you see them evolving in the coming quarters? What the drivers are, and do you see room looking further ahead for your total operational expenditure guidance for 2027 to see price positivity at this point?

Caio, it's Fabio here. I'm going to take the first question on the paper side. Paper demand in Brazil must be separated here into print and writing and packaging. For print and writing, the year has started slower than expected. This is mainly due to some postponements in books program from state and federal government. There's currently a discussion in Brazil about higher education curricula and that is driving postponements of some of the book programs. However, we understand that moving forward into the year, there’s a chance that volumes for the book programs will be even higher due to this curriculum change. It's simply a movement of demand throughout the year. Yes, the first quarter's demand was lower, mainly for uncoated wood-free varieties, while cut size demand remained resilient, and we expect demand to improve as the year progresses. Regarding paper prices, we implemented price increases for uncoated wood-free and cut size in the first quarter. We announced a 4% to 5% increase, and these increases were fully implemented. We expect these prices to remain until the end of the year. For packaging, the start of the year showed demand shrinkage of 6%, primarily due to the lower economic activity in consumer spending. We believe this is seasonal in the first quarter, and we anticipate a change as we move forward. In fact, we are starting to note changes at the end of Q1 in March and in April. We are optimistic that it's going to continue to increase, as it has in previous years. So it's just a lower start of the year for various reasons on print and writing and packaging.

Hi, Caio, Aires speaking. We continue to see stability in the cash production costs for this year. Following the first quarter and the next few quarters, we have planned production that could affect, in certain quarters, the mix and the average distance from forest to the mill, but I expect it will impact single digits in cash costs. Especially in the fourth quarter, at the beginning of next year, following Cerrado's ramp-up, we anticipate our cash costs will perform at peak efficiency, especially because of Cerrado's impact. The growth of our new forests will further reduce our average distance from forest to mills, in line with our targets for 2027.

Next question from Marcio Farid with Goldman Sachs.

Thanks for the time. Leo, first question to you. Pulp prices have been much stronger than expected for the past few months. There has been an unusual situation where Europe is much stronger than China. I think you and I have talked about this in the past; it seems that the China paper margin is weak, but the domestic market is usually oversupplied, meaning it's hard to foresee margins improving significantly. How do you treat these regional differences from a profitability perspective? It feels as if all incentives are to sell as much as possible in Europe, where margins and prices are close to $100 per ton higher than in China? Or are we going to see a more aggressive push to increase prices within China and eventually return to a more balanced global market where profitability is relatively equal among different regions? If you could comment on why pulp futures in China have been so weak, I know that it's difficult, but any insights into what's driving the domestic sentiment would be helpful.

Marcio, this is Leo here. Regarding the first part of your question about selection between regions and what we anticipate regarding prices, we follow individual market dynamics while respecting our customers and understanding their strategies. We want to ensure a healthy chain throughout all major markets. As has been mentioned, the current situation in China is typical. When prices rise, there is generally a market share dispute; smaller players typically lose market shares as they must buy pulp from traders or face current market prices. Meanwhile, larger customers, who have inventories and varying average prices, leverage their financial strength to capture this market share. Overall, we are witnessing a shift of production from smaller to larger customers. It bears mentioning that Suzano usually supports these larger customers, which is beneficial for us. As I mentioned, we are capping order intake as we assess the robust demand from Chinese customers and others. Regarding price discrepancies between markets, we’ve seen that commodity prices generally trend towards convergence. Therefore, we expect price levels to align, but they won’t be identical, as servicing Europe under its economic model raises costs compared to what we see in China. Nevertheless, we expect prices are heading towards convergence. With the current supply-demand fundamentals, all indications suggest that Asian prices will have room to catch up with other regions, aligning more closely with the current prices we've observed in those markets.

Thank you, Marcio, for your question. I want to underscore your point regarding competitiveness. It's critical to our strategy. We will not pursue any transactions or potential M&As that don’t facilitate our ability to create competitiveness. Differentiation is essential for us, and we continuously seek to achieve that in our strategic initiatives. When we moved into the tissue business, many inquired how we could succeed without a brand or distribution. We countered that we possessed alternative competitive advantages, and we would eventually seek after branding and distribution. Now, we have established that capacity. We will not invest in assets simply to maintain the status quo; instead, we will always transform the assets into something more competitive. That’s central to our ongoing evaluation of M&A opportunities. You correctly point out that operating internationally poses challenges due to a lack of expertise in that arena. This is new territory for us, and we recognize the need to approach it diligently. However, as I’ve noted before, we do not consider geography a barrier. We anticipate pursuing international opportunities in the future and will work diligently to replicate our successful track record of M&A transactions here in Brazil.

Next question from Alfonso Salazar with Scotiabank.

Hello?

Hello, go ahead, Alfonso.

Thank you. A moment ago, you mentioned that Suzano is agnostic about organic or inorganic growth and about geographies. My question is, what about products? Are you also agnostic about growth in different products such as pulp, tissue, or other paper grades? Related to this question is, we know there are at least two other large pulp mills being analyzed in Brazil. To what extent has this changed the perception that good forestry land for new pulp mills is scarce in Brazil? What are your expectations in this regard, especially given that it seems that building a new pulp mill in Brazil will be more challenging in the future?

Thank you, Alfonso. I will start with the second question. Brazil will still face opportunities regarding plans for the future. However, we acknowledge that we currently have wood scarcity in Brazil. As you know, no new plants are expected to be constructed over the next 3 years; it is nearly impossible to do so. New players could establish land banking to begin planting and prepare for the future, but that will not happen in the short term. It is salient to note that new projects will require higher pulp prices. The capital expenditure per ton is rising, as are the costs of wood and land, alongside high interest rates. This situation will necessitate higher pulp prices to make projects viable. I’m glad to see that potential increases in pulp prices may take effect in the future. Suzano is well positioned to achieve strong returns for our shareholders. Regarding your primary question on products, we may explore various verticals in the future. We mentioned during our Suzano Day last year the significance of the textile market and packaging markets as future priorities. We will consider these possibilities as we move forward; however, we have not yet made definitive decisions.

The Q&A session is over. We would like to hand the floor back to Mr. Walter Schalka for his final remarks.

Well, I would like to thank you very much. I'd like to spend two or three minutes to thank a lot of people here. After more than 50 of these sessions that I've had in the last 11 years with you, I'm going to hand over my position to Beto. I want to thank the Board of Directors of Suzano, who have supported us at the C-level for the last 11 years. I want to express my gratitude to all my colleagues at the C-level who have worked to transform Suzano. A huge applause for the more than 40,000 people that work every single day with us to improve Suzano and impact society and all stakeholders. I also want to thank the buy-side and sell-side analysts who have worked with us for many years, bringing new ideas and challenging our positions. We consistently remain humble enough to listen and implement many of your recommendations. The positive news is that the company continues to improve. We are not perfect, but we have made strong strides toward bettering our organization. I am proud of the impact we have had on society, not only environmentally but socially and economically, creating value for diverse stakeholders. Thank you very much for that. Now I will pass it to Beto Abreu for his few words, and his first words as the leader of this organization going forward.

Thank you very much, Walter, and hello, everyone. Walter, let me start by congratulating you. It's truly remarkable to see such a brilliant journey as a leader as you did. I wish you all the best in your next cycle, which you truly deserve. I am very glad to join this group and be part of this powerful team and this broad business platform to continue creating value for all of our stakeholders. I must say that we will maintain the same level of discipline in capital allocation. I also want to assure you that we will work diligently to generate this value, and I look forward to meeting with you to discuss our business further. Thank you very much for attending the call and I will have the pleasure of being with you in the upcoming months.

The Suzano S.A. First Quarter of 2024 conference call is concluded. The Investor Relations department is available to answer further questions you may have. Thank you, and have a good afternoon.