Suzano SA (SUZ) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Suzano Pulp and Paper fourth quarter 2007 earnings conference call.

Today, we have a simultaneous webcast with slide presentation on the Internet that can be accessed at the site www.suzano.com.br. There will be a replay facility for this call on the website. We would like to inform you that all participants will only be able to listen to the conference during the Company's presentation.

After the Company's remarks are over, there will be a question-and-answer session. At that time, further instructions will be given. (OPERATOR INSTRUCTIONS).

Today's speakers will be Mr. Antonio Maciel Neto, CEO; Mr. Bernardo Szpigel, CFO and Investor Relations Officer; Mr. Rogerio Ziviani, Head of Pulp Business Unit; Ms. Daniella [inaudible 0:51], substituting for Mr. Andre Dorf, our Head of Paper Business Unit; and Mr. Ernesto Pousada, Operations Officer.

We also would like to inform you that statements during this conference may constitute forward-looking statements. Such statements are subject to known and unknown risks and uncertainties that could cause the Company's actual results to differ materially from those set forward in the forward-looking statements.

I will now pass the floor to Mr. Antonio Maciel Neto, who will start today's conference call. Thank you.

Hello and good morning, everyone. Thank you very much for participating in our call this morning. Happy new year to everybody. This is beginning of the year. We would start with the highlights from 2007.

Slide number two, here we have several good news. Most of them, you have already -- we have already discussed in previous calls. But I will go through some of them.

First one is about the EBITDA. We have a record EBITDA, reaching $593 million, one point, and 115 in reais. This is the -- equals to a margin of 33.6%. Net income is 21.6% bigger -- larger than last year, reaching R$539 million.

Another highlight's important is related to the pulp price. We had a strong year related to the price. The CIF in Europe -- we have any -- we experienced a $100 increase.

The same happened with the paper. In the export markets, we were able to increase our prices, an average of $95 per ton. As we speak about -- we talk about the capital markets, we have the share prices. Suzano's share price increased about 40% in 2007. This was the highest increase of share price in the pulp and paper sector. And the same had happened in last year in 2006. So for the second consecutive year, Suzano was -- experienced the most -- the [better] price increase in the shares in the Bovespa.

Another big highlight or probably the most important thing that's happened in the last year in the Suzano life was the start-up of line 2 at Mucuri plant. This -- our team led by Ernesto Pousada was able to conclude the project on time on budget. In fact, we had 35 days of -- ahead of the planned schedule.

And another good news that we announced today that -- was that we were able to produce 135 tons of -- 135,000 tons of pulp in 2007. As we had discussed it several times, our plan for 2007, the base plan when the project was approved by our board, the number that we had for 2007 was 120,000 tons. So we were able to meet this -- the target. And the production was 135,000 tons.

This was very good, as well as you are going to see as we move forward that our teams in the sales side in the total business units in the logistics side. The -- all teams were able to sell and to invoice most of this production and improving the results of the fourth quarter.

We had also the completion of our pulp project in Americana unit, what we call P630, was a increase of 8,000 tons of pulp and for Suzano is 40,000 tons of pulp per year.

We had discussed before. We had the interest in follow-on equity offer, mainly related to [inaudible] shares in beginning of the year. And now we have reached a free float of 46.6%. That was one of our targets the -- for 2007 that was achieved.

We have talked about the new tax incentives, what we call the [inaudible]insurance Mucuri unit. This was the first project in Brazil to receive -- to be compensated with this tax incentives very good as well.

We have the approvals of the authorities. The last one that was pending was the CADE. That's the Brazilian antitrust authorities. So now we have the Conpacel model that -- the consortium model that we have along with the VCP to run the Americana units [inaudible] approved and moving forward.

We -- beginning of the year, we bought from VCP the remaining 50% of the Embu unit. This is a paperboard plant, very important for us. We paid $20 million for this 50% of the Embu plant. We have also completed the second phase of the Amador Aguiar hydroelectric power plant. Before, we called this project Capim Branco. This is very important.

We have 18% participation in this -- great company. This stake along with the start-up of line 2 in Mucuri puts us in a very good situation relating to energy consumption. Suzano today, in Mucuri site, we are self-sufficient in energy. And what we buy -- the energy that we buy in Suzano plant, Rio Verde, and Embu plant is equal to the -- our take in the Capim Branco or Amador Aguiar plant.

With that, we have or we are self-sufficient in our own operations energy. This is a very important information, great news. Everybody knows that the price [swap] energy is [skyrocketing]. Then we are protected with these actions. Very smart decision of the Suzano team -- several years ago.

And also we would like to highlight that the -- we -- middle of the year, we opened the Suzano Pulp and Paper Asia office in Shanghai, China, along with -- this office along with our office in Europe, in the United States, and our operations in Argentina complete the -- our structured network of sales there at last.

On slide three, you -- we have the highlights of the fourth quarter. The first one is the pulp price. And that's -- increased to $780 per ton, CIF in Europe. So this is -- and we had price increase along the year. And the -- in the fourth quarter, what we had was a moderate movement. The same happened with the price in the paper segment. We experienced a $20 price increase in the export markets.

Very low inventories for pulp producers at 29 days, one of the lowest levels ever. End of December, we have below 30 days of our inventory for the producers. We had also concluded the sale of our stake in Limeira and Cubatao. Our stake, the price for us was $32.5 million. This -- with that and also with the approval of the Brazilian authorities for the Conpacel consortium, we concluded the acquisition of Ripasa. And now we have a stable production starting now.

Suzano's market value reached for the first time $5 billion. In fact, in the end of the month or the year, we were at $5.1 billion, a record value for the company, reflecting outstanding recognition from the market for the directions taken for the -- by the company.

Also, Suzano was commended again as one of the companies included in the Bovespa's Corporate Sustainability Index, extremely important for us. Very good news related to our actions in the sustainability field.

We also announced in December the new organizational structure [inaudible] related to our operations. Ernesto Pousada now is in charge of our whole operations in the company.

With that, we are going to strengthen the concept of business units, maintain the forest, pulp, and paper business units where we measure our results with very clear comparability. And with better and modern operations, we are going to communicate this model that we have adopted some two years ago.

Also, the leverage of the Company is at 3.74 now, net debt related to EBITDA, same level of last year. This is also a very strong cash flow management. And we concluded so the peak of our CapEx expenditures in Mucuri at the same level that we had the last year. So now, we are going to -- we expect a very good deleveraging coming in next month. And also we have in the quarter a production record of more than 600,000 tons for the quarter of the pulp [inaudible].

So as we can move to the slide number 4, just some -- few highlights about the Pulp Business Unit. Our director, Rogerio Ziviani, is here and he's going to be able to comment and to answer questions as soon as I finish this brief introduction.

Net price of -- for pulp exports in the fourth quarter was $654 per ton. This is a -- also very important news because as you can see that we had consistent price list increase and also this reflects entirely in the net price. So very good revenue management from our team again on this side as well.

We have experienced very strong demand. These -- there is a [price] in the financial system; it's not in the real [side] of the economy yet. Hopefully, it's going to have any big, strong impact. So far, we have been -- experiencing very strong demand restriction relating to wood supply Rogerio Ziviani is just going to talk here briefly about some other price increase that we are announcing today.

We -- market pulp production of 320,000 tons in the fourth quarter. With this level of production where we -- Ernesto is going to inform us on -- about the production of line 2. We have up 50% of [optimization] of the line 2 capacity in the fourth quarter. But even with these figures, we are already number two in eucalyptus and market pulp production. And we are within the 10 largest producer of market pulp worldwide.

Also, the sales in -- very close to 300,000 tons -- 294,000 in the fourth quarter reflect what I have mentioned before. That was very strong and good production, very strong [inaudible], very strong coordination among the different teams to invoice -- to produce first then to invoice the production of late.

Cash costs -- a special highlight -- we are seeing in the quarter, R$489 per ton. This is 8.6% lower than the third quarter and 2% lower than fourth quarter of '06. Bernardo's going to talk if -- he's going to talk later about these total [inaudible] just to highlight that these is the numbers in reais.

Our cost comes in reais. So here we don't have the tax off of the devaluation -- and both of these numbers for as long as you have an impact off of the situation --for sure this is not a [completed good practice] and [hope to take advantage of this situation] we have. This in reais, R$489 per ton.

Also, very important -- most of the analysts' I would like to mention that we -- inside these costs here, we have the line 2 fixed cost. We have all the fixed costs of [inaudible][optimization]. So line 2, 135,000 tons of [capacity] to carry a fixed cost for the whole capacity, 100% capacity.

Also, here it's very important to highlight that as we are in the middle of this very [fast growth] curve, the learning curve, we have stability [inaudible]. So we have energy consumption, chemical consumption not stable in that. So this number, R$489 per ton, is a number that, in reais, carry -- that in the first -- in the third quarter it is correct to remember that -- to remind everybody that we had a maintenance cost as well.

However, taking apart this maintenance cost that we had in the third quarter, in the fourth quarter, we had the -- we had this reduction of 8.6. But beside this number here, we have the -- we have gained the cost of the start-up of [Mucuri]. We have a good perspective on reduction of this cost as we move forward.

Page 5, we have on top of the page written Paper Business Unit. Sorry, I don't [inaudible] Pulp it is already corrected. Or my copy is corrected. Pulp is a paper business unit that is our [inaudible]. Very good. And pulp in the fourth quarter, you see the number that I have already mentioned, 294,000 tons, a record number for a quarter. This compares with third quarter of 156,000 and last year fourth quarter was 145,000. Reflecting very strong figures in the paper business.

Also if you see on the bottom of -- on the top of the page, right side, the 799,000 tons of pulp. That's the [market] pulp sold in 2007 versus the 615,000 in 2006.

Also you can see on the bottom of the page that -- how Asia is growing in the participation. As the destination of our market pulp. During the year, we had Asia with 29%. Fourth quarter was already 36%. Europe, 60%, the full year and 57% in the fourth quarter. This is like the results that we are going to -- we are expecting for 2008 where we are going to see substantial growth of the Asia participation in our sales.

As we move to page 6, we talk a little bit about the paper business, the average price, this was in 2007, as I mentioned before, 11.3%, $95 per ton in dollar prices roughly [inaudible]. I have already mentioned that $100 in the pulp and $95 in the export markets of paper.

So in the domestic markets, we experienced a -- almost [inaudible] more than 2% increase in the domestic market. We of this price -- of price was a very good achievement considering that we experienced having 2% off our valuation in our domestic currency.

In production, including Limeira and Cubatao, we achieved 1.15 million tons of production or net revenue of R2.4 billion, almost R$2.5 billion, 5.2% higher than 2006. And there's -- we [reflecting] sales of 1.13 million tons or 5.1% more than 2006.

On page 7, you can see the numbers that we had mentioned before. Paper was a -- sales volume, total volume was, in the fourth quarter, 290,000 tons. Last -- third quarter off of 288,000 tons. The last year we had, 2007 as I mentioned before 1.125 thousand tons total volume of paper sold compared with 1,071,000 tons of paper last year.

You can see that we experienced a growth in the export market.

Among the -- we [beat] the Brazilian producers, we were able to maintain or slightly increase our market share in all segments that we work and we view. So among [inaudible] this as we compare with our peers in Brazil we maintained or increased slightly our market share. We lost some market share in some segments due to the presence of the [influx of the] product.

As we had a combination of the excess capacity -- surplus of capacity in Europe for the coated paper, also combined with 17% revaluation of our currency. We experienced some decrease in our sales inventory market share in domestic. We were able to export these products with better -- some better [inaudible] than we had before.

And we see year 2008 we think levels or better levels of the price and market share. We can talk about these later if this is what you guys want to do.

Page 8, we have here the highlights, the numbers, results related to the fourth quarter '07.

I'm going through more only for the comparison of fourth quarter '07, fourth quarter '06, some with -- or in the third quarter as well. Sales volume in fourth quarter of '07-'06, we experienced almost 40% increase versus a third quarter's 31%.

Paper volume in the domestic market, as we mentioned we had a decrease of 5% mainly impacted by the important some special segment and some like in the paper pulp -- this is not exactly, the fourth quarter is not the strongest -- quarter that we have. But this, as I have mentioned before, is the offset that we achieved through the export market.

Pulp volume in the export market, for a quarter, last quarter we had, third quarter versus fourth quarter, a 93% increase. In year-over-year, we had a 121% increase. And as I mentioned before, we are producing at the half of the capacity of line two so far. Net revenue in fourth quarter, we achieved R$963 million, very close to R$1 billion, which is 18% higher in reais then -- fourth quarter compared with third quarter, and 20% higher than the fourth quarter.

As we will see, net income during the year we had a fourth quarter versus fourth quarter '06 we had 3% increase. We had a decrease in 45% net income [of last] -- third quarter, more than explained by [non-] operation results that Ernesto is going to talk a little bit later. Cash costs, we have already discussed. In reais, these are the right numbers, 8.6% reduction versus third quarter, 2% compared with last year. EBITDA, there are -- including R$326 million, 22% higher than the last quarter.

In dollars, these number are much higher. If you compare with last -- fourth quarter of last year, EBITDA in dollar increased by 50% and the 50% in quarter versus quarter, 31% -- very strong and very, very strong growth in EBITDA as we see these numbers here.

EBITDA margin, we attained in fourth quarter 33.8%. Fourth -- third quarter of '07 was 32.7%, last year was exactly the same number 32.7%. So we -- in spite of the fact, also the next line you are going to see that we experienced a 17% valuation of the real or devaluation of the dollar versus real. We were able to increase our EBITDA margin in this year.

Leverage debt net related to EBITDA, we ended up the year with 3.74, the same level of last year and better than the preceding quarter, that's was the peak of our extent [inaudible] relates to the purchase of [Mucuri].

Last page, adjusted results comparing 2007 with 2006, sales volumes, Suzano achieved a 1.925 million tons, very close to 2 million tons, 14.2% higher than the last year. Paper volumes in the domestic market was almost the same level, 1.5% lower than last year. Pulp volumes did 32.8% higher, net revenue 10% higher, net income 22% higher, EBITDA 10% higher.

EBITDA in dollars 24% higher. It's very important to mention here that we are very close to $600 million EBITDA in the fourth -- in 2007. So EBITDA margin, as I mentioned before, is likely -- is almost the same despite the [effect off of] these exchange rate variation that we mentioned and the leverage we had already mentioned before.

So with that, I conclude this presentation, [inaudible] conversation. We have all the senior management team officers here today. We are looking forward to answering your questions or comments on specific aspects that you like to do. So I will give back the call to [inaudible] for the questions.

Thank you. Ladies and gentlemen we will now initiate the question-and-answer session. (OPERATOR INSTRUCTIONS). Our first question is coming from Marcelo Luna of Deutsche Bank.

Good morning, Maciel, Bernardo, and the whole team. In the morning, we discussed the cost item and a couple of other issues. So I just had a couple of really quick questions on different areas. My first question is on your effective tax rates that Suzano is currently paying.

I see from the press release that I think the statutory or the accounting tax rate was actually above 20% which we know is not exactly what Suzano is paying in terms of cash, income tax. So I just wanted to ask if you could comment on what the effective tax rate was in the quarter and what you expect it to be in 2008?

Marcelo, this is Bernardo. When we look at the effective tax rates, I think we should, in our case, make the difference between the accounting tax rate and the financial tax rate, if you like. Because on the accounting terms, we treat the income tax without taking true advantage of the tax incentives, which we are using at this point in time '06 and '07, which is actually the deferral of income tax that we are enjoying.

So in terms of effective tax rate, the accounting tax rate, it was higher this year was [inaudible] we'll see if the accounting value of the tax rate was 33, something like that. From the financial point of view, we didn't disperse any amount for income tax this year. This is the important thing because the deferral is working such that everything that we should be paying is being deferred over the depreciation period.

So from a financial point of view, what we did pay this year was basically just social contribution which is 9%. So in the year and this is what we have been doing in '06 and '07, we have been something like 10% from a financial point of view.

Okay, great. And then in 2000 -- I'm sorry, in 2008, for instance you would expect to be paying similar level of taxes, meaning around 10%?

It does depend on the amount of CapEx that we are spending in or at Mucuri. In '06 and '07, since we were investing in the Mucuri project, very large amounts as you know, in fact what we had was to use all of our respective deferral incentive and we did use the reduction of 75% of income tax which is our normal [inaudible] our previous tax incentive.

Now, in 2008 and what changes is that we are not going to be -- continue to be spending at this high rate because the Mucuri project is almost complete. But we still have some expenditures. We report -- we now report that we have something like $80 million to be spent in '08 plus the normal CapEx, the maintenance CapEx.

So what we'll be -- what will happen is that we will reduce the amount of tax deferral that we are using, and then we will start using our reduction of 75%. So from a financial point of view, we may increase a little bit, but for different reasons, we remain at similar levels.

Okay, great. The second question is regarding to financial expenses. We know because of the arrangement with [BNDS] and other institutions that Suzano has been paying lower financial expenses during construction of the Mucuri. And I just wondered if you could comment on, by how much you expect financial expenses to go up in 2008, and then 2009 as construction of Mucuri too is, especially Mucuri is now concluded?

We would be still -- what you see in the figures for fourth quarter widely reflect the numbers of the financial expenditures that we'll be facing. Some additional related to what I just said that we still have some -- a little bit more to complete the projects. And then what you just said or so far we have been capitalizing interest doing construction for the Mucuri project.

So it will increase totally. Just think of it, something like -- probably something like R$40 million will be added to financial expenses.

Okay, so additional field expenses of R$40 million in 2008?

Yes, I can't give you much of the precise figure, just an estimate.

Okay, excellent. The other question and I'm almost done. But the other question is regarding liquidity, and we know that Suzano has been working hard on increasing liquidity by hiring local market makers. And [three] months ago, the stock joined [inaudible] Brazil. We know you have a goal to try to make the stock join a Bovespa index. Can you comment on that and when you expect that to happen?

There is a number of initiatives to lead through to the -- in the Bovespa, but one very important thing that has already happened with the share is that the daily volumes have increased significantly. Based on these aspects, we would already be -- to comparing to other companies and similar that are in Bovespa and [inaudible] daily volume there, already there.

What we have been really behind is on the number of trades of daily trades, it's more concentrated a little bit on the institutional investors that trade in very large volume and very comparable to others, smaller individual investors that -- they are not participating as much and our focus has been on this side and [inaudible] effort on this.

At the same time, we have interest in news in terms of we see shareholders, the movement of shareholders somewhat did not negotiate like [inaudible]. For example they have been a little bit more active in the market with their position. So this is -- we will see now, day by day [inaudible] improvements in liquidity of the share.

These are our plans for this year that we will likely be complete to a large extent, focusing on, reaching on joining IBX and Bovespa as well and things have been moving quite well in this direction.

Okay, great. I have -- my last question is regarding the pulp market and then maybe to Maciel or Rogerio. On the -- as pulp prices increase through 2008, I would expect maybe the level of discount to the benchmark list price to grow. So I just wonder if you could comment whether you would expect to give more discount as pulp prices continue go up?

And if Rogerio could comment on how much substitution he has continued to see in the market in terms of printing, writing, and tissue paper companies in the U.S. and Europe increasing consumption of eucalyptus?

Hi, good morning Marcelo and everyone. As you could see from the numbers of the last quarters in terms of net prices, we've practiced about real -- $654 per ton. Which was included there with all the start-up products that we sold in to the market

So in comparison to our peers, as you can see, there was no need whatsoever to increase any discounts. On the contrary I think did and the whole team, as Maciel said before, did a very good job by keeping the prices and discounts in a level that bring that net price on a differential scale [throughout the year]. So I don't see any reason whatsoever to have a higher discount in the year 2008.

On the contrary, I think, by the demand that we see in the market and that we could also see some diminishing on the discount levels even though we have higher volumes coming in the market. I think also that that should be in line with the commercial policy of each company.

Some of them like to have a larger contract with a larger discount, and some others would like to have much lower volumes that are in contract with lower discounts.

So I think we are in the second month and we are taking the opportunity to have much less discounts at this moment, and also because we happens to have beforehand the [SSP] which was in high demand in various markets. And we were able to take advantage of that where we sold that, our contracts with less discounts.

So I think we are entering to a year -- in the first month of the year, we already announced an increased prices all over the world, which means that in looks like, even though we are in the middle of a turmoil in terms of the economy worldwide. We are very anxious to see what is going to happen during the year. But we see the demand in the paper side all over the world considered to be good.

And we see also that demand is coming very high on hardwood because we see more and more substitutions in lines of other softwood because they don't have any new production coming on stream. So the positive side is we see more tissue being in eucalyptus. We see more printing and writing, using more eucalyptus worldwide. So we see -- it's a positive sign as well.

Great, thank you very much.

Thank you, our next question is coming from Ivan Fadel of Credit Suisse.

Hi, gentlemen, good afternoon. Daniella, Maciel, Bernardo, Rogerio, Ernesto. Thank you for the presentation. I think my first question will go to Rogerio again. I understand that your pulp outlook is still strong.

My question would be, what kind of drivers, now, we should keep track of or observe that could make us feel even more optimistic about pricing going forward, and if you could also comment on what's your personal view on the trend of pulp prices, now, going forward after this $20 increase, if you see the likelihood that -- if we see the same kind of drivers, sustain until the end of this year, we could see more increase in 2008 and maybe 2009, and just complementing, if you believe that in the case of a sign of a recession or a mild slowdown in the U.S., if you are concerned about pulp demand at all? Thank you.

Thank you very much Ivan. It is a good question. I think we have to continue to look in some factors that all of our -- [the fuel] looking everyday. One of them is wood.

Wood is a key factor in our industry as you know, and our big competitors are the Indonesians in terms of hardwood and they are suffering and started to suffer a lot because of their lack of investments in the past in their implementation and they continue to rely for a long time in mixed tropical hardwood and harvesting nature's force and so on without taking attention to these key issue, which is the growth and the use and the future of their plantation. So now they are starting to suffer in that and I think we're going to see in a company that to see if they are going to suffer even further then that.

Some people say that they can have a shortage of two-thirds of what they have in the coming years and that can be a key factor for our interest as a whole. Of course, a recession in North America will be a key factor around the world, as we all know and you know better than me. If you look into our industry in terms of take into consideration eucalyptus.

Eucalyptus in North America is 80% this year growing to tissue and tissue of high quality tissue, and that is the differential in the whole recession in the past -- we haven't seen a big diminishing in North America on this front. So this can be positive in one side.

The other 20%, 25%, which is growing to 30, maybe 30%, 35% is printing and writing. And printing and writing is growing even more because of the closures of their integrated capacity. So those mills are depending even more on external suppliers and the long-term contract that have been signed in the past and continue to be signed as [inaudible] of percentage of use of -- use of eucalyptus in the long term. So the fact is there could be a diminishing, yes, on the recession, but you have to leave that figure, in fact [inaudible] at this time in the contracts that we have.

So the same is for the year as [inaudible] as I said before even in the middle of this turmoil, we are able to implement for a price increase that was anticipated a few months because of the demand continued to be very strong, basically in Europe, in North America, and especially in China.

Okay, great answer. Thank you. Do you see also, as an offset factor -- the fact that the Chinese should continue to close down the wood mills and that could create also more room for wood capacity in China. Do you see that as a demand that -- more demand from China going forward?

Yes, there is a minor effect on that because you see the scale of the industries that are being closed down and the new ones that are coming in. You need about 40 or 50 mills to shut down to supply wood for one new mill. So that can be an effect, of course, but not in a bigger spend, in my opinion.

Okay, great, thank you. And if I could just make another question, in terms of paper market, maybe this could be to Daniella. Many people say always that our paper is a bad business. I don't particularly agree with this, but if you could just talk a little bit more about the trend in the paper market in Brazil, maybe comment on competition going forward, how do you see that evolving, if you believe that there should be more competition from imports given this FX rate levels and also -- if you could also comment on the efforts that you're making to avoid excess supply from imports taken advantage of that tax benefit for the editorial business for coated paper? Thank you.

Okay. In [inaudible] perspective, we in paper business saw in 2007 in North America some closures and it allow us to increase price at this region. In Europe, we also saw some overcapacities in coated papers and this region is responsible -- is the major responsible for the import increase in coated paper in Brazil, but we also were able to increase price in that region, so for external markets we saw that as the -- we are very optimistic in paper business.

In domestic market, in 2007, we have some major important sectors that affected our market, and of course, the dollar depreciation and [70%] pressuring domestic prices. The notebook exports competitiveness were lower, regarding the real appreciation. We also have this import increase and in a good perspective was a economy growth and industrial production is stimulating the consumption growth, the demand growth in Brazil.

In paper in domestic market, we were able to increase price despite the [just] factors that I told -- in 2% [inaudible] and of course, it causes some volume reduction, but we were able to keep our margin in domestic market. So for 2008, we feel optimistic in this business and we want to keep our strategic position and maintain the balance in paper sales in 60% in domestic market.

Just to add some things here, and we have -- in the highlights, the prices -- paper price in 2007, we were able to increase by 2% our price in the local markets and we increase about $90 of our average price in exports market. So, we have -- the exports price is much better than we had before, lower levels in the local market, 2% of the lower [inaudible].

We increased our volume in the export markets and we have a slight reduction of the volumes in the local market. Our market share in domestic market where we have a more profitable market were amongst these. Compared with our peers, local producers we maintain our shares or increased a little bit.

It is true that we had a combination of exchange rates variation against local producers. We had mainly in the coated paper excess capacity in Europe. So this -- is a big import volumes that we have seen in the local markets coming from Europe, 90% coming from Europe, and also this is a, in some case here, the tax differentiation that we have over here is causing some [unfactoring], let's say in this way, in some [inaudible]. We don't know precisely the percentage in each [inaudible] there.

So the -- in the segments that we compete, we are maintaining -- our share or improving compared with the local producers and also the fact that -- that we have that. We have been able to add value, considerable value to margin 1 million tons of pulp. We produced the pulp, where [inaudible] sale was [profit] in the paper and we have positioned ourselves in this segment or division where we are extremely competitive.

We are not playing in the broad paper business. We have -- we are in the uncoated we are very -- we have a big ones in the [cut size] where we have more than 52% of the market share segment. We have positioned ourselves in the [inaudible] and pulp segment or so in the -- where we have more profitable business.

Paperboard, we have increased our capacity with the addition of [the new] plant. This is where the market has grown. It is where Suzano is leading. By far why we have value added. We are by far the leaders of supply -- the leader supplier of the paperboards to the pharmaceutical industry, by far the leader suppliers of the food industry, where we have a technological requirements in several actions that we have, I think. So as we move forward, we are not -- we have increased our capacity mainly through debottlenecking to efficient, to excellence in the operation and [fixing] the projects and -- or in this year 2008, considering the scenarios that we still have today, the domestic market is going to grow and if we at least maintain our market share, we are going to see a better mix, a better results in 2008.

We are -- we achieved the targets we have established before, set up before and as we move forward, I think that the [space] between our export business and domestic business that we are going to see a little bit better, maybe. So Ivan, we -- if we are in respect to paper we are going to grow in that as we move in the pulp business so with the competitiveness that we have with the local conditions and we have -- however, we have this 1.1 million tons of profitable business, adding value to our pulp and we agree with you. Thank you.

Thank you. (OPERATOR INSTRUCTIONS). Our next question is coming from [Thiago Lophero] of Merrill Lynch.

Hi, good morning. Given your strong pulp volume sold in the quarter and in the year, and also your outlook for 2008, I'd like to know and understand a little better about your inventory levels. I mean are you comfortable with them or -- I'd like to be a bit clarified about that.

Thiago, this is Rogerio here. Yes, as I said in the previous call in Portuguese, we had at the end of the year a coincidence, where we had about two vessels leaving the ports in Brazil and one of them was anticipated from the beginning of January. So we ended up the year with a very, very low inventory and as the production of Line 2, the ramp-ups, we are going to have to ramp-up now our inventories as well to give better services to our clients.

To be quite frankly honest with you, today we are not being able to give the excellent -- an excellent service that we used before because of a lack of inventory. So we are going to be building them along the year and this is growing steady by steady, but in keeping in line of -- in terms of day's own production as we had before in the previous years.

Okay, and just one more question regarding pulp prices, what is your outlook for second half for rates? I mean, do you think your ramp-up with Mucuri Line 2 and [Botnia] could pressure the prices down?

I think that if we look into the demand side the new paper machines that are coming in in the second half of the year, I don't think we're going to have that many problems. It can be even in the contrary a little bit more [wider] because we see more production coming out of this scene and this can be -- try and even up a little bit of the situation. But the whole thing has to come as we discussed it before regarding the whole economy in the U.S. and the reflects of that in the rest of the world.

Thank you.

Our next question is coming from Debbie Bobovnikova of J.P. Morgan.

Hi, good morning -- afternoon. Going through your pulp business, you sold significantly more to the Asian clients this quarter and you're guiding for even greater sales in the -- over the coming year, and my question is who are your top clients in Asia right now and what kind of contracts are they on, or would you say is the percentage of long-term contract?

Debbie, it's Rogerio again. In terms of the percentage, as we said before in previous calls, our target is to reach 80% in long-term contract as a whole of the company as a policy and keep about 10% into regular customers that we don't sign contracts with them, but they are very regular with us over the years, and 10% we play according to the market and also through -- on a [spot] basis reflecting also that -- those arriving late or things like that. So -- and anticipating this. Where we stand today, we are concluding very close to the 80%.

We are finalizing more and more time, and more and more contracts now, and we are going to be reaching the 80% in the next few days ahead of us. So we are very much in line for all the volume of 2008 being 80% contracts.

Asia, as we said before, can grow up to 45%, including a spot volume of course. We don't want to have, including in our total sales, 45% going to Asia in terms of contract that can be and very close to 40% on that. So this is where we stand today and we are seeing that Asia is coming with big volumes -- continues to have big volumes ahead.

In terms of contract -- the size of the contracts, we also try to maintain a quality of not having a single customer buying more than 10% of our total market production and we have been keeping that in our policy as well, so we don't have any contract above 10% of our total production. So that's what we have today.

Okay. Can you just give a little bit of color in terms of who are your major customers? Are they the international companies building machines in China or are they the local Chinese producers?

As I can see from the list of attendance in our callers, we have a lot of other competitors here and if I say that, it would be very nice to all of them. So I will have to skip that one. Sorry about that, Debbie.

Okay, that's fine. Okay, if we can talk about your costs a little bit, you gave guidance on your Portuguese call, I believe for R$400 to R$410 cash costs for pulp as a target over the next year. I just want to clarify, is that the target for -- just Mucuri the second line or is that the target for average costs for Suzano overall, including Americana.

Debbie, what we provide is our Mucuri figure and this is our cash cost, and the figure that we gave is for the whole of the Mucuri line -- unit which represents Lines 1 and 2.

Do you have any sense of what your average cost outlook is?

Average of what?

Including Americana mill and --?

Americana mills are something like 10 to 15 [inaudible] is something like 10% and 20% higher in real.

And then I guess the main drivers are that -- one is that you're going to have a major capacity increase and then you're going be diluting your fixed costs. But on the other hand, you're also going to be seeing more purchases from third parties in terms of what --

This is -- yes, this is already factored in. We referred to in the previous quarter that we have been moving -- let me just recall what we said. We were operating at something like 13% of wood from third parties as we -- and our plan is to move towards 25%.

Now, what happened in the third quarter is that we increased the participation of third parties' wood to 36% -- 34% I guess, 34%, because we were using most of the wood for the third parties on our line 1. Now, line 2 would be using only our own wood. So the figure that we are seeing right now reflects a larger but this is the average -- and a larger participation of the third-party wood. Then we would be -- when we reach full capacity at line 2, this is also important as we project what kind of cash-cost we will have.

There's a number of factors that had been affecting the third quarter and the fourth quarter, which is [inaudible] but it will take probably -- and first we'd have to reach full capacity in terms of volumes in line 2, which will happen by the middle of this year. And then we also have to reach stable conditions in chemicals consumption for line 2, which is probably going to happen something like a year from now.

So we'll see improvements towards this -- R$400, R$410. Of course, we want to move this closer as much as possible, but we have to -- this is a general challenge.

Okay. And just for this quarter, you purchased 34%? How much was your purchase from third parties in the fourth quarter?

In the fourth quarter, we had something like 30%.

30%?

Yes.

And what was the price for the purchases, at average what price?

Something like R$60.

R$60 per cubic meter of wood?

R$68.

R$68 per cubic meter of wood for external?

Right.

All right, perfect. And when you talk about external parties, this is the farmers' program as well as spot purchases; they're all lumped in one?

Yes, this is -- the third parties are farmers. It's what you call [inaudible].

Okay. And aside from the farmers' program, you don't have significant purchases from spot?

No.

No, okay, perfect. Then if we can move on to the paper business, you gave the general outlook for paper for 2008. But if you could, give us a little bit more specific outlook in terms of what kind of demand growth you expect for each of the three grades, of printing, and writing [inaudible], and board into '08?

Debbie, this is Maciel. We don't have this available to give. We don't have the guidance. We are [inaudible] guidance from this. What we can say in general terms is that in the paperboard, we are going to see very good -- continue seeing a very strong demand. The -- what we see in the order that we have in our hands [inaudible] we pushed in second quarter is very strong.

In the print and writing, what we have seen is -- in the cut-size business is also strong [inaudible] this year because we have -- in the important business, the books which is in -- related to the government purchases, mainly the national purchase -- books purchasing. This year, we is going to be not as strong as it was in 2007.

So we are not forgetting growth in the [inaudible]. We are seeing some growth and it could be about 5% in the cut-size. In the paperboard, we see [inaudible] larger than 10% growth. But this is a -- it is the growth of the [inaudible].

And we are going to work to maintain or slightly increase our much -- we are -- we think that we have a very good, very strong market share. We would like to defend this market share. But we are going to focus on the [inaudible].

And on the board side, I guess you're referring to the fact that [Corbina] is growing. Their capacity is going to be increasingly competing with you in the local market.

Yes, we see that's -- I think that's [inaudible] the start-up of our Mucuri line 2 with the [inaudible] Latin America is growing. In the [inaudible] 33% growth, that we're expecting to repeat this year. We're going to have some room. We are not -- the [inaudible]. So it's something that is good news for the market as well that these machines can be -- the [inaudible] is happening when -- specifically in this segment, the market is very tough.

Yes. And on the printing and writing side, just to get an idea of exactly what the impact is of the slowdown in educational demand and also notebook manufacturers, can you give us an idea of how much those two segments are representative of your overall printing and writing sales?

This is the -- I would like to -- yes. In the -- just to [inaudible] this dimensional program where [inaudible] in Brazil last year was about 60,000 [inaudible]. And this year, this is consistent -- this is going to be half of that. So they're going to have a -- this is the impact of 30,000 to 40,000 tons in the -- for the whole month.

And can you disclose how much of that is yours?

No.

Okay. And what about the notebooks manufacturers?

Excuse me.

The notebook manufacturers?

Notebooks is maybe about the exports. The exports we -- that we -- the notebooks they sell. We sell paper in the domestic market, but they export. So this is that they have. So they -- last year, 2007, they had expressed that this was about the [inaudible].

In 2006, the export of notebooks from Brazil was about 70,000 tons. We sold 70,000 tons of paper for them. 2007, this is the whole [inaudible], the 2007, 65, 66. And 2008 probably is going to be around [inaudible] need to compare 2006 and 2008, you can. And this mainly due to the extent to which [inaudible] is that they play with -- they deal with very low margins. And they accentuate this [inaudible].

I'm sorry. I wasn't able to hear the number for 2008.

2008 is 30 or 35,000.

30 --

The deal is 35,000.

Okay. And you're saying that you supply -- you are the exclusive supplier for the notebooks?

No, this is the --

The total [inaudible].

Yes, the whole industry. However, we are [inaudible] in the notebook market in Brazil due to the higher number of students and then [outsource] them for them. [inaudible] in this case, not national program but states or in the municipalities programs [inaudible]. So we see a -- some offset [inaudible] because this is very low margin [inaudible].

The notebooks there.

Yes.

Yes. Okay, thank you. One last question. I'm sorry. Was there -- yes. Question on working capital.

Just looking at your accounts payable, it seems like there has been a significant increase in days payable. [inaudible] average is about 36 days in '06 and now it's 62 days as of fourth quarter. I'm sure that you understand that this is the policy that we should expect to be in place going forward. Or is there going to be some reversal to this in the coming quarters?

Debbie, we -- give us few minutes to --

Okay.

-- to answer this question, because we are working exactly in the opposite way. In the local market, that will give us widely [inaudible] to Bernardo, but locally we have one after that other that reflect in our pricing. It is also that we have to reduced the [inaudible]. We have with us about 50 compare average in 2007 versus 2006, we have moved this about [15%]. So Bernardo, could you --?

In the case here, accounts payable, we have a number of effects including the -- you see the volume of operation. We have been ramping up, so the -- or lying in queue. So there is higher, larger volumes of [inaudible] that we have volumes. So the effect here is not that we have not increased the things if accounts payables, such as [inaudible] conformation in terms of how much we are [inaudible]. It is just the change in volumes of [inaudible].

So basically -- it is basically just the ramp-up period in the coming quarters. As everything evens out, it should go back to that?

Everything is there. You see, there is the Company is growing in those coming quarters you look at all of these, this is growing to a much larger company. From levels of 1.8, we are moving 2.8 million tons. So accounts too increase in this way.

Okay, great, thank you.

Thank you. (OPERATOR INSTRUCTIONS). This concludes the question-and-answer session. At this time, I would like to turn the floor back to Mr. Antonio Maciel Neto for any closing remarks.

Just to thank everybody for participating in this call, for the support that we have received from all of you in 2007. As we in 2007, end of 2007, we finished a growth cycle, very interesting growth cycle. Bernardo just talked -- answered that question.

If you compare our volume in 2008, compared with 2004, we are going to see more than 120% growth. So it took us 8 years to be at 2004, now in 4 years we are growing more than double here in this space, becoming a bigger company. And that this is coming from Line 2 in Mucuri, that's the big project in Mucuri, the acquisition of Ripasa and several of de-bottlenecking projects like we mentioned here today about the P630 Americana.

So this growth cycle in 2007 is concluded, and now as we move forward and we look for the future, we'd like to tell you that in the short term we are continuing our work on cost reduction. We have this -- we have the benchmarked our competitiveness. We have the target to be the lowest cost producer. We have worked to make more efficient our operations. We have seen a lot of results coming in.

The Mucuri project is the benchmark worldwide today in terms of what timing, quality, cost and this is being replicated for the current operations with the leadership of Ernesto and also in the short term we have a very strong cash, we are very well prepared, we have maintained a very conservative approach in cash-flow management.

So we have a long -- we have signed several long-term contracts with our suppliers. We have signed the contracts with all our key customers. Rogerio mentioned that we have already accumulated the length of these coming days up to 80% of our production. In the long-term contract, we have a stand-by for safety just in case if we need to go to through the [inaudible] very briefly. So, in the short-term, we have worked very -- very strong on the cash side and also on the operations, the efficiency, the relationship with suppliers, relationship with the customer, making our operations better.

As we foresee the future, we are prepared for a new growth cycle. We have a very strong team, we have a very strong reclamation zone [inaudible] best market. Our shareholders represented in our board of directors, they are very motivated to -- for the next cycle of the growth.

The controlling shareholders, they are very strong, very well prepared for the next cycle of growth. So as we will move forward [inaudible] we are going to announce this new green field site we are going to have unfold and also we -- you can be sure that we are looking at 2015, 2010, 2020 as a target as to when it is going to be a doubly stronger player than we are today as we will -- we see [inaudible].

So with that I would like to thank everybody and say that we will [inaudible] and Bernardo, Investor Relations team, but all of us will be available for questions [inaudible] and I'll like to see at least all of you visiting our plants in Mucuri. We are going to make the arrangement to see if we can get closer to [inaudible] and talk and exchange ideas about the future of the industry and [inaudible] that we see -- that we are very extremely motivates to, for a better future. Thank you very much.

Thank you. This does conclude today's presentation. You may disconnect your lines at this time and have a nice day.