Suzano SA (SUZ) 2008 Q2 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 2Q '08 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 inform you that all participants will 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 section. At that time, further instructions will be given.

(OPERATOR INSTRUCTIONS)

Today's speakers will be Mr. Antonio Maciel Neto, CEO; Mr. Bernando Szpigel, CFO and Investor Relations Officer; Mr. Rogerio Ziviani, Head of Pulp Business Unit; Mr. Andre Dorf, Chief Strategy and New Business Officer and Mr. Ernesto Pousada, Operations Officer.

We would also 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. Thank you.

Good morning everyone. Thank you very much to joining us this morning. Today we have two key subjects, a little bit different from other calls. This morning we will be talking about our results, the second quarter results. And as well we are going to reserve somewhat our time to talk about our investment program, which was announced yesterday.

So I think the best way to move is I will present the highlights, only the key highlights of the results because I understand that you have already had the opportunity to analyze the results. I will point out just somewhat of the key points, and just after as we conclude the questions and answers related to the results then we can move and talk about the investments and the new growth cycle.

Starting on page two I'd like to highlight the eucalyptus pulp price which increased to $840 in Europe and also to highlight the increase of $30 in Asia per ton, which was implemented at the beginning of June.

Hardwood inventories now reached 34 days compared to 35 days in March of '08. So the inventories are just being very low levels, and one day below what we had in the last quarter. For the good and the bad we had the Real appreciate 9.9% in the quarter so we are going to talk a little about this being the consequence of the big appreciation of our currency.

Record production of 681,000 tons of pulp and paper. That's the best we have had. Also Line 2 business is extremely important position I highlight that Line 2 at Mucuri concluding the learning curve there so in June we had the production of the Line 2 according to the specification of the line. So we had -- Ernesto Pousada had, anticipated before the beginning of the second quarter we would be achieving the learning curve in June. We have achieved it and this is -- you are going to see the impact and the good news in our results.

EBITDA record R$354 million, margin at 35.2%. Despite the big appreciation of the Real there's some pressure, cost pressures coming from our suppliers. We were able to move slightly the margins up to 35.2%, achieving this record EBITDA.

Net income at R$186 million, 44% higher than the first quarter of the year and it is important to highlight here that we had non-recurring financial expense of R$111 million to repurchase the stocks that should be where we filed the former shareholders of Ripasa. So this is an important non-recurring item that we experienced this quarter.

Cash costs of pulp we reduced to R$424 -- this is per ton, this is a [confirmation of what Bernardo has mentioned and had mentioned different times in our calls that we were moving in the right direction reducing the pulp costs. And this is a consequence of mainly as we have in our Line 2 at full speed. This has a big impact. But also this reflects a lot of operational improvements and operational excellence programs that we have worked out.

Net debt to EBITDA this ratio dropped to 3.19 in June. It's important to highlight that without the payment to the Ripasa former shareholders. This number would be today below three. So very important progress on this subject. And so we have announced yesterday the new growth cycle that we are going to have opportunity to talk in the second part of this quarter.

Page three just some highlights that the pulp wood demand is continue growing. Our capacity, the capacity closures we have booked at least 1 million tons of capacity closures. along with some supply constrains and low inventories, so good prospects of the market from the demand perspective.

Net pulp price in the spot market in the second quarter was $721 per ton compared to $681 per ton in first quarter '08. And $594 per ton in the second quarter of '07. So this is the net book price average this deserves a special highlight for Suzano. I think very impressive numbers.

Production in the pulp side that's 400,000 tons of the market's pulp in the second quarter, record production and sales volume above the 100% if compared with the first parts of '08.

On page four just moving faster to save some time for our discussion investment, I would like to just highlight the Asia participation in our sales. Now achieved 35% according to what Rogerio has anticipated in other calls that Asia was going to be the key destination of the additional capacity that we have now in Mucuri.

Page five -- paper business we have increased our price $41 per ton compared to first quarter '08 and $104 compared to second quarter '07. It's important to highlight that this is a trend in international market price mainly due to the cost pressures this is what we have heard from our competitors worldwide. Now they have this big pressure in the cost and this is the main, we understand, drive of this increases. But we are moving forward in the same direction.

Also in this -- the local markets, the domestic market if you compare second quarter '08 with second quarter '07 you see uncoated with 2% growth, coated 19%, and cartonboard at 6% growth. So the demand is very strong in the domestic market supporting some of the increase of our sales in this local market compared with the same period last year.

Paper prices in domestic market have dropped a little bit, 0.8% first quarter '08 and total sales volume of 283,000 in the second quarter '08. This is [4.5%] higher than first quarter '08.

On page six just to highlight the information that we have on the top left of the page on the right side, where you see the growth of second quarter '07 to second quarter '08 a flat number. Here you need to -- I would like to mention that last year 282,000 tons we had in our group two of the small plants of Ripasa that we call Limeirinha and Cubatao plants which were sold out during the year.

So taking out trying to compare the same basis and taking out the Limeirinha and Cubatao last year we have experienced a growth of 6% total number and 3% growth in the domestic market.

On page seven we have the results first quarter '08. Page eight you have six months, let us consider and take some minutes on page seven. So this is just to compare sales volume comparing second '08 to second quarter '07 we see a sales volume of 38.8% growth achieving as mentioned before 635,000 tons of product. Paper volume is down 5%. We achieved 160,000 compared to 168,000. We have that impact of the capacity that we had last year, which was sold out.

The pulp volumes here I think is the key highlight where we express 113.5% of growth. This is due to the capacity in the Line 2 that now is operating at capacity level. On net revenue we achieved this -- I think this record number is a very symbolic number for R$1 billion on the quarter that's very important and then very interesting we achieved, we did 22.3% of growth.

Net income at R$186 million, 7.8% growth. As I mentioned before we had paid more than R$100 million to have the financial expense to pay the former Ripasa's owners. Cash cost, I think here you have the good news of 424, fully aligned to what Bernado mentioned last call. This is (inaudible) below what we have experienced last year, 13% below what we had last quarter because of the period of the learning curver that in the last quarter we had some cost associated to it and also some stoppage and shutdowns of the lines.

EBITDA of R$354 million, which is 26.7% higher than what we experienced last year the same period. EBITDA in dollars increase of 51.6% growth. Here you see the impact of the exchange rate on these numbers. Margin, at 35.2% despite all the pressure on the costs we have been embarking, our team has been able to manage this situation and maintain and increase in fact the EBITDA margin to 35.2%.

This is just to highlight the exchange rate. In second quarter '08 we had this exchange rate to 1.66 just to remember everybody that in the second quarter '07 it was 1.98%. So 16.5% compared to second quarter of this year as compared to what it was last year.

Net debt to EBITDA we achieved 3.19 the second quarter '08 compared to 3.73 the second quarter last year. And as I mentioned without the payment, associated to the -- to the Ripasa acquisition this would be below 3% as we speak.

On page eight you see the results compared six months to six months. It is the same trend that we have seen before then we don't need to go through these numbers in our opinion. Having said that we conclude our short introduction to this call, and will be available to take questions.

Thank you. (OPERATOR INSTRUCTIONS). And sir, we'll take our first question from Debbie Bobovnikova from JPMorgan. Please go ahead with your question.

Hi good morning everyone. My first question is on your strategy. I just want to understand the rationale behind the three new projects in 2013 through 2015. Both from the perspective of why are we doing three projects now back to back? So why three projects in three years? It kind of feels like you're going from nothing to everything at once. I just want to see what's the rationale, what's changed in your outlook to garner such a strong response to supply.

And then the other question is to see if it's possible to increase capacity at Mucuri further? So I know you now have de-bottlenecking of 400,000 tons in 2011. Is it possible to take that up to a greater number, is it possible to do another full line at Mucuri ahead of doing the greenfield project in Maranhao and Piaui?

That is [Parcio] -- if you agree I would like to propose that we split our conversation in two parts. I would be happy to take some minutes probably five, ten minutes at most to the results questions. And I just after I would like to have -- to make a quick presentation about the investment program that we have, present them. As I do that are you -- to answer your questions.

Perfect.

Okay?

Okay so then could I have a few questions on your results?

Take your - go ahead.

Okay thanks, yes just one question on the pulp volumes, I saw that you sold 50,000 tons less than you produced in the quarter. Just wondering if you were trying to actively trying to build inventory? What's the rationale and also if you can just tell me what your inventory levels are?

And then the second question is on your cash costs you provide us with a number on Mucuri cash costs. Do you have a number that combines it with your Conpacel stake as well? Thanks.

Thank you sharing, good morning. Cash costs today now they seem to be lesser. Regarding the tonnage we had two issues that happened in the third quarter. One of them was the one vessel that at the end of July, June I mean was a little bit delayed to the first week of August so we could not invoice that to China. So unfortunately we lost there roughly 20 to 22,000 tons of invoices in the month. But it was invoiced right after one week and so is not in these results.

The second half of that, which was about 28,000 tons that you mention. That is the build up inventories that we were putting in our logistics because we were in a very, very, very low inventory, and we had to build it up to the level of safe inventories and things like that in order not to pay dead freight or de-merger or things like that. So it is in our strategy to grow up and to continue to grow up with these inventories to supply all the chain that we need and to fulfill all the ports that we need where we are below, behind the minimal that we need for each one of them. Okay?

So this is normal now I think in the month of August we'll be reaching the level where we are going to be safe, which is about roughly 34 days of production that we have in our target to maintain as a good level of inventory to supply all our markets. Regarding the cash costs I think I'll pass onto to Bernardo.

Conpacel we have R$520 per ton cash cost for the market.

So Conpacel was $520 based on?

Reais.

Reais, sorry, no Reais. But this is just Conpacel?

Yes.

Okay great and just one follow up to the inventories, so what were your inventories as of the end of the second quarter in pulp?

At the end of the second quarter was about 27 days.

Thank you.

Thank you.

So our next question comes from Juliana Chu from BES Securities. Please go ahead.

Hi good morning gentlemen. I have two questions regarding the expansion project, first for (inaudible) are you considering the land authority on the state of Maranhao? And the second regarding the CapEx and investments are you considering logistics investments or we may see some targeted investments regarding logistics? Thank you.

Juliana, as I announced in the beginning of the call we're going to have a session in about five minutes to talk about the new projects, if you agree, we will take the questions about the results and I will take your question just after, okay?

Of course, sure. And just a question also regarding the price performance in the second half, do you have any idea or expectations on price increase of paper in the domestic market for the second half?

Hi, Juliana it is Andre. Yes on top of the significant growth that we experienced in the first half of this year you could see in our press release that we had in the domestic markets for all grades, paperboard, uncoated and coated, significant growth in the first half of this year. Also in the second quarter, especially in the second quarter of this year.

We expect -- our prices in the second quarter remained flat in the domestic market with negative highlight to the coated paper. We had a small decrease in prices in the coated segment, and mainly due to our recovery tonnage that we had in the second quarter of this year. We increased our volume of coated paper in the domestic market by 30% compared to the first quarter of this year.

For the second half of this year we already announced several price increases -- one related to the paperboard, we announced up to 7.5% depending on the break for the domestic market and this is going to be implemented throughout the second half of the year. And we also foresee room for growth in the uncoated papers something around 2.5% to 3% throughout the second half of this year as well.

Okay thank you very much.

And sirs, our next question comes from Marcos Assumpcao from Merrill Lynch. Please go ahead.

Good morning gentlemen. The first question is for Mr. Ziviani. I would like for him to give us an overview on the outlook for the pulp market in the second half, if you could point how the inventory situation is throughout the world right now and how are you feeling about the question, about the Russian export taxes on wood? Do you think that this will stick in the beginning of next year and if this will create an opportunity for pulp producers potentially by the end of the year, beginning of next year?

Good morning, Marcos. So thank you very much. The outlook for the year as I mentioned in the conference call in Portuguese looks very good. Prices, announced prices in China was implemented. There were some reductions in purchasing due to the fact that China is taking some steps towards the decline, cleaning the air for the Olympics. But things are going to move back. Clients are anxious to have their products coming in because also they wanted to reduce some of their inventory as well because were very, very low.

The outlook in terms of price increases is very difficult to forget anything right now for September. For August we don't see any room for implementation right now due to the fact also that in Europe we have some constraint as Andre said about the coated paper market where costs are very high on the chemical side and so on.

And difficult to implement the price increases at once. So regarding the Russian, the Russians are negotiating with some companies that are willing to implement some investments in the country. So we heard also in the market that they are in final stages with big furnishing companies in order to continue to fulfill their purchasing in terms of wood. But they will be implementing for the rest the tariffs that they have announced.

So this is positive for us and for the market in general and I think this is a positive step also. On the other hand if you look into the capacities of softwood announced we don't see any. And this also could be from some news in Russia to supply the demand on the softwood in the mid terms, so in medium terms. So this could be also positive to create a more balanced situation in terms of the supply of softwood and the demand in China. So on my side we see a positive second half in general.

Okay, thank you very much. And the second question is not related specifically to the announced expansion plan, but actually is to Andre Dorf. Is it -- I think that clearly this expansion plan shows the focus of Suzano in pulp in the future. But also I would like to ask if you see any room for some de-bottleneck like low CapEx per ton expansion project on paper as well?

Yes hi. Hi, [Marcos]. We just announced a solid investment plan for Pulp as you saw three new lines and a de-bottleneck at the Mucuri mill. And regarding to Paper we've been growing a lot since -- or in the last five years. We grew approximately 50% in the last five years.

We'll continue to analyze opportunities in the Paper market. We have several good de-bottleneck projects in our existing lines. Basically aiming productivity, cost reductions and additional marginal tonnage. We do not foresee any room for a new paper machine in the region as of now. So we'll seek to de-bottleneck and the productivity projects for now. As the domestic market grows we'll be implementing those projects and analyze new investments in the Paper business.

And just to try to quantify a little bit these de-bottlenecks, today your current paper capacity is close to $1.1 million. Probably you could increase by 20% probably through these projects?

We are not prepared to disclose the project as of now. We have actually de-bottleneck projects related to all lines, paperboard, coated, and uncoated. And it could increase our capacity more than 10%. And I'd like also to take the opportunity to mention that we are not analyzing. We don't have anything related, a new paper machine, in North America as we have heard in the market in the last several days. I mean we are not analyzing any opportunity in Texas or anywhere else in the U.S.

Okay thank you very much.

Ladies and gentlemen this section of the question-and-answer session has ended. I will now pass the floor over again to Mr. Antonio Maciel Neto. Sir?

Okay let's talk a little bit about the new growth cycle. As probably most of you have already the opportunity to go to the information that we sent out. And so I will say some words about this and then take the questions. Just after. Suzano, you know, is the largest company in Brazil in revenue terms. We like to say that we are largest producer of eucalyptus pulp from certified forests worldwide in our case certified by FSC. And now with this leadership position we have been analyzing awhile new opportunities of growth.

The idea, this announcement came out after a very deep and serious analysis of the demand worldwide. We see more than one million tons per year growing in the worldwide market of the eucalyptus pulp worldwide in the coming 15 years. And we have analyzed the closures and the future, possible closures of high-cost capacity worldwide, mainly in the north.

And we have seen also the trend of -- the growing trend of substitution of softwood to hardwood. So analyzing all of the data we could notice a good space in the market worldwide despite the fact that we had three different announcements of capacity increase mainly here in Brazil from our competitors. So the first point that this is fully demand driven, we decide to -- in fact just yesterday of -- that question we have, in fact, decided to go to four projects, not three projects. That's three lines of both again the capacity increases at Mucuri.

And with that we think that we are -- we are going to have, and considering the timing that we are going to have the start up of those capacities, we will be fully aligned with the demand and we will be able to continue maintaining our leadership position here, and probably very close to the new position in our industry worldwide.

The project, this growth cycle, as I mentioned we have four big business. The first one is the one single line off of 1.3 million tons in Maranhao. The second one, 1.3 million tons at [POE] stake. 1.3 million tons in POE, Maranhao or another greenfield site, for 2015. And also the de-bottlenecking or let's say the optimization or capacity increase of Mucuri of 400,000 tons at the second part of the year of 2011.

So this is in general terms. One point that we underline in our announcement is about this debate of 1.3 million tons, 1.4, 1.45. We consider that today that the most likely capacity for a new single line is 1.3 million tons. We have heard about higher numbers but we haven't seen the details, technical consolidations behind those numbers. And for sure as we progress and as we got the approvals from our board to buy the equipment, and to buy the plants, and these new starts 2010, the second part of 2010, there we are going to have a better picture of the better technology available. The volumes, the costs and also the full information of the cost of the new plants.

So also as we progress we are talking here in dollar terms. Today we have this 1.6, 1.7 exchange rate. We are going to see [gaining] three years from now is probably we are going to have some changes. So everything that we announce it is based on what we have in our hands now, the knowledge available and this can change a little bit, for sure, for better as we progress and as we move. So Suzano has the long history of taking the best technology available worldwide always and this will continue.

Talking a little bit before about the Maranhao line, this is 1.3 million tons to have the start up on 2013. The key, I think the key differentiation of this project is our partnership with Vale. And this partnership with Vale has at least three big parts. The first one is that we -- doing our conversations with them to debate this project we ended up buying the forest that they have in the Sul do Maranhao state. So they have more than 83,000 hectares of land there from that they have 36,000 hectares of planted eucalyptus. They have been around there for more than two or three decades. So they always maintain their research and development center.

They have the nursery being very active, during those years. So they have a very good forest, which will be the key element for the anticipation of our start up. So this is the innovation that we are bringing to this project that we were able to find a forest very good outstanding productivity from Vale that we were able to buy and to anticipate our start up.

The second part of this project, this partnership with Vale is related to their Vale Florestar project. This is probably one of the largest environment protection projects worldwide being conducted as we speak. This is the idea of creating greenbelts throughout the Para state where its concept and this have this concept what is viewed as the total, what's viewed along with their conversation with the non-governmental organizations and people in this environmental discussions worldwide where they see today that the best way to stop the forest devastation was they had seen this as putting a kind of belt around the areas around the forest, the native forest that was still there to avoid the continuation of the devastation.

So this is an environment within the conversation project is extremely well received for the environmental community worldwide. And Suzano yes from yesterday now we are a big part of this big environment project because we are going to be using, having this wood in our (inaudible) is going to be one of the best ways to sustain this project during the future years. So this is a -- fits very well to the Suzano's DNA where because all of you know before that we have been very strong on the environment protection. We have almost 40% of our area specific to preservation. We have 100% of our owned forests certified by FSC and so on and so on. So this fits perfect to our tradition.

The third part of our partnership with Vale is related to logistics and here I have the opportunity to answer Juliana's question. Vale is going to provide us the outbound, so far the outbound logistics where they will provide the cars. They are going to provide the all equipment needed to its transportation. So the CapEx that we have mentioned in our CapEx there is anything related to this out-of-bounds transportation because these will be 100% provided by Vale. There you will have, yes, they will have an individual, we will, as we progress, we will need to decide the port solution for this investment. For sure this will be in Sao Luis do Maranhao.

In there, we have two or three opportunities, we have a private project, we have governmental projects and we are going to analyze and it's not out of our discussions here, the debate is we have with the private projects there, the port that we can participate. But this is not in our CapEx numbers now. This is going to be considered in the future. So from the logistics side, mainly the outbound Vale is going to be providing itself.

The price -- the way we have a memorandum of understanding signed with Vale and this memorandum of understanding, we have all the details about the purchase of their forest assets that now we are buying. They have -- we have a part where we talk about the logistics, where we have the prices, the formula, the -- all the details needed. And also we have a formula that we are going to use to calculate the price of the wood that we are going to pay there.

There is no, let's say, wood market in this region, mainly to this point that we are confident. So the agreement that we got with Vale is related to their costs plus one plus, with cost plus, where they will serve our plant using their best technology.

So now, as we sign this agreement, we are going to have a lot of cooperation from our forest people, from our forest professionals, with their people to improve their -- our forests immediately, the forest that we have bought as we progress. But also we are going to have the opportunity to cooperate with Vale in their environmental projects, the Vale Florestar, which will be outstanding for us to give some cooperation to this environment of outstanding environment projects.

So we can say that the forest space has today a very good solution, in this it's a combination of the assets that we have just bought. The Vale Florestar, net profit, where the -- we are going to be shipping out wood from these projects. And align with these program that we have and with this small partner serving us, to the plant. And along with some land that we have already bought as well, we have the first phase solved.

As we have this first phase solved, we are going to have the plant as the updated plant, the best technology available worldwide and we will have railroad transportation, which will Vale, which is the Caraja and Norte-Sul, which are two of the best railroads in the world today. And they will be serving us.

So this the combination that we will have in a very good project, very good productivity, very competitive line compared with all the sites that we have seen announced shortly. And also with these innovations that we will start up on 2015.

As we move to Piaui, very quick, this is 1.3 million tons. In Piaui, we have -- we are going to be using partially the land that we have in Maranhao, but this is another part, I think we have the map. If we show the map, it now will be easier to tell. This page is nine, on page nine, you see that the positioning of Maranhao, or as we say in Portuguese, (spoken in Portuguese), South of Maranhao, is where we are considering for the location of our plants. From there, you see the Norte-Sul and after that the Serra dos Carajas railroad going to Itaqui, in fact this in Sao Luis where it is the main port in that city.

So as we move and see on the right side of the map, the second red dot, you will see the Piaui states and from there we have our -- a little bit in the North in the Maranhao side. We have our areas, about 110 hectares, which was -- which got the environmental licenses recently. So we have this license in the area. We have the commitment with one of our partners today, they are going to use, on the north, let's say on the left, north side, they are going to use 10,000 hectares and we will have about 100,000, 95,000 hectares available as we wait for the environmental permits to move in the -- towards us.

Then we are going to use this land, this area, and also we are going to -- we have a start to the -- by our process of buying land there for awhile. So with the combination of the program that we are going to have, which is small partners, that we call Fomento project, the -- with our own lands available and with the environment permits already achieved or bought. And also with some of the areas that we have bought, that stayed in that area, we have also the base of the forest to move forward and already sold.

One point that's important there, in Piaui, if in Maranhao its key point is to have this partnership with Vale, in Piaui, we can say that the key point is the results of more than 25 years of research and development in the forestry area of that region. We have tested during the last 25 years several alternatives of and types of eucalyptus.

And we have found some outstanding alternatives, with this not being used in Brazil yet and so the combination of the availability, the price of the land, the availability of water, the availability of rain, the climate and the land that we have there. And these outstanding results of our research and development after 25 years of experience, we found a solution to set up this plan.

We have these two railroads from that red dot that you can see there. We have one railroad from CFN, Companhia Ferroviaria do Nordeste going to Sao Luis and Itaqui and another line, another branch going to the Pecem in Fortaleza. We have also a memorandum of understanding signed with this company, where we have agreed on the price and we have two options. In both alternatives we have the formula, the price and all details [and prices] that we use in our model to define and to make the final decision. So here also we have all the contract and we are very, very strong having this start up 2014.

The third line is market driven. We decided to announce this now because we think that it was important to tell the market that this was going to happen. And this is market driven. In this view we are going to expand Mucuri to expand the Maranhao we are going to expand Piaui or we are to decide for a new greenfield project. We have start, as I have mentioned several times to you here, we have analyzed several alternatives and we still see some good sites for a new project as well.

The fourth piece and the last one of this conversation here, the Mucuri growth, we are adding 400,000 tons there. We have very good engineering studies showing what we need to if actually it is Line 1, Line 2. And we don't see opportunities for growth from up with the technology that we have. I'll ask Ernesto to talk a little bit very soon on this to talk about the question about the possibility of going further than 400,000 tons at Mucuri.

Finally just a word about the investments and the way we are going to fund this project. The funding, you just saw that we had the EBITDA of $212 million this quarter. As we the Line 2 at full capacity in the fourth quarter I think that this is something that we consider we are close or between 900 to $1 billion EBITDA, annualized with those that we have in this second quarter.

So with very strong generation we have today. And with the traditional sources of financing like [BNEDS], regional banks, in this case we have had several conversations with the [Northwest] Development Bank. They are extremely excited with this opportunity to participate.

And we have also talked to suppliers and they have several alternatives of supply financing as we speak. We will be able to finance all this four initiatives with current funding. We will not need to approach the capital market, the equity market as we speak because this is -- we are going after that, if we need it, Ernesto is going to talk a little bit but the ratio, with everything we have announced the ratio net debt to EBITDA will be during this project, at the end of the project, better than we had during the Mucuri second line construction, so very strong.

Capital markets could be [adapted] if we see good opportunities, if we find opportunities to reduce the cost, which is not the case as we speak. Or if we see other opportunities beyond what we have talked, we can work and approach the capital markets. It's I think interesting to say that Grupo Suzano is ready to participate in (inaudible). But as we have shown to our Board of Directors so far, with the discretion and considering the current situation, we don't need to do that.

So having said that I want Ernesto to talk a little bit about Mucuri and just talk (inaudible) additional.

Hello, good morning everybody, good morning, Debbie. I just wanted to say on your question regarding further expansions in Mucuri, basically we are in advanced engineering studies which are showing that this additional 400,000 tons is probably the limit with existing technology which would make sense from a CapEx standpoint on expansion for the assets we have right now, for Line 1 and number 2. So for this is it probably for Line 1 and 2, at least from the technology we know today.

The second part of your question was regarding a third line in Mucuri and this was during the first stages of our studies for this investment. We analyzed it and a third line in Mucuri was analyzed but at that time didn't make sense as well. And the returns we've seen in these announced projects in Piaui and Mya made more sense than a third line in Mucuri. Especially a Greenfield would be much more higher returns and then bigger growth than only expanding Mucuri.

Sir, if you're ready to take questions. (OPERATOR INSTRUCTIONS) And our first question comes from Debbie Bobovnikova from JP Morgan. Please go ahead with your question.

Great thank you again and thank you for the answers earlier. I just had a couple of follow-up questions, one is, can you share a little bit of the economics behind these projects? What types of assumptions are you making on long-term prices, operating costs, leverage and cost of capital? And what kind of returns does that get you to?

This is Bernardo. Some of the economics, in terms of long-term and normalized prices, we're working with top prices of $615 per ton. Cash costs, basically they are, from the standpoint of the mills [we see them] to be state-of-the-art technology. In terms of chemicals consumption it will be similar to the best mills that have been built today, like for example a mill to up Line 2 a Mucuri, very, very efficient, very low cost.

Wood costs also will be very competitive given proximity of the mill to the forest. We don't have the final location of either the forests or the mill because some of forests are based on [coming] to the orders from third parties so this is not the time yet exact location. But in terms of the average transportation (inaudible) we have planned for them to be very, very competitive. Given our own experience, the average (inaudible) is below the average [in this field] and there is a possibility for very low average for some specific sites.

Cost of wood is also very important and also the total cost is, given the fact that we are moving to regions where we are able to have a very nice combination of land prices and availability. Yields, given the quality of genetic material and extremes of both [value] and our own two sites and the infrastructure for transportation. These are the three main topics. So very, very competitive.

Of course for the time being we are working with ranges of prices for specific, so not a detailed calculation. We will have those later on as these things tend to get bigger, exact places if you like, then we will provide more details. But it's also important to remember that we always work to get the return on the projects, given some hurdle rates above our weighted average cost of capital, a million, almost 200 basis points if you're getting more than that.

And in terms of leverage, as Maciel mentioned, we have a comfortable position. It's important to remember that the total CapEx program, we have two different let's say phases. What we are starting right now is the forest base which will be implemented over the next five, six, seven years. This will be spread over a large period of time.

Then later on when we start actually building [acceptable community] which industrial investments will come earlier. But for the largest portion of the CapEx, this comes starting in 2012, 2013 with the first mill starting up in 2013. So we will be spending large amounts of value in 2012.

Leverage is also comfortable for the size of company today. It will be much better, much below if you think in terms of net debt to EBITDA, below levels which we have for Mucuri, which as you can see we're very well planned and the funding is normally for this (inaudible) very long-term, low-cost. Doesn't (inaudible) take any specific pressure in terms of cash flow for the company. So the overall plan from a financial point of view and from an economical point of view is very robust.

Okay thank you. Is it possible to at least give us some ranges for some of things like yield or land prices? I know you don't have any final numbers, but just to get an understanding. Because my feeling is moving to regions like Myarel and Piaui makes sense because your CapEx will be lower because land prices there are lower. But that's somewhat offset by higher operating costs because logistics are poor and so the yields might be lower. I'm not sure if I'm right or not on that last point, but if you could give us any sort of indications on those key metrics it would be great.

Yes Debbie, this is Maciel. The logistics we are not going to experience any higher costs in logistics because this we are going to have outstanding railroad compared with most of our truck transportation. So from the logistics side, we think that it will be competitive. We have -- we can say that the yields that we have today in these regions average, you can put your model about 40 kilometers per hectare per year. So it's a range, it's about, it's around, okay, Bernard? It's a range, about, around, it's 40. The 40 kilometers per hectare, per year.

So I think that it's important to note, to mention, to underline, that in the forest that we've bought from Vale now, this is about 42, 43, as we speak, deals. Because they have a lot of research from that.

And I would like to underline, again, two things. First, we have a research. We have been in this region for 25 years. We have tested several dozens of alternatives in tons and we have a very good solution. And in a very conservative base, we put in our model around 40 compared to the 45 that we -- that is the Suzano's average that we have today.

Another point that I would like ask you guys to think about is about the proximity -- the -- how long the -- how far we are from the customers. Okay? These reasons, as we'll talk to logistics costs, we -- you need to add and to consider in these, you know the delivered logistics costs. To deliver the pulp costs. So the key customers that we have in North America, mainly in Europe, we are going save about four to five days of vessels moving from Greece to Europe or to the West as compared to the solutions that we have in the top port of sale, in (Santos). So we have also, as we consider our net/net prices that we have, we will have a good evidence. You know that the vessel cost is growing a lot. And as we are able to reduce about five days to serve most of our customers, this is going to add a very interesting and competitive aspect in our business in those new lines.

Great. And on the pulp prices that you mentioned in the long-term price of 650 per ton, just to clarify, is that your realized price or is that the list price? And if it's the list price, for what regions?

This is the list price average, yes?

Average list price.

The average list price for the Suzano's whole production.

Assuming the same mix as today of regions between 60 in Europe, 30 in Asia?

Yes.

Okay. Great.

About that, yes. It's confirmed that it's about that.

Okay. And maybe just going back to my original question, and then I'll leave it to other analysts on the phone. But just to understand the rationale of planning three big greenfield projects, one after the next, because you just mentioned in the opening remarks that you expect in the end for eucalyptus to grow to about 1 million tons per year, these projects are each going to be 1.3 million tons and there are obviously projects of similar size from your competitors, so both [ArrowCruise] and BCP have plans for new projects either in 2014 or 2015.

So it looks like there's going to be a lot of capacity coming online in that time frame. What are your thoughts about this? Do you think that some of that capacity will be delayed or do you think that demand will actually be great enough to absorb it? How do you view it? And how do you view it from Suzano's perspective? What is the importance of getting this third line that right now you seem to still be undecided as to where to place it? What's the rationale for announcing it now if you're not even sure of the location? And if you're not sure of the location now, which is seven years ahead of start-up, how will you be able to ensure that you have the forestry base ready for that time frame?

I mean, it basically seems like in order to keep that 2015 target, I would think you'd need to decide on a location soon in order to start investing into forestry, which takes seven years to develop. Thank you.

Okay. Thank you. The idea of having this -- the full project, you have asked me many times to show our full project, the full project, how we are going to progress in the future, like BCP has done. Now, we present the whole project, you are saying that it's too soon to present the whole project, which is a little bit difficult to managing, to get to your good approval to our project. So let me try again. Let's see how we can work out.

We thought that now with the plans, we will be like the BCP. Now with the plans that we have that we need to see more to have to develop. But let's see if I can get that. Let's see. The first point is this, we see the demand growing. We took in our analysis, very seriously, all the projects announced. In Brazil, and outside Brazil, in Uruguay, in Europe, in Asia, we talked to the analysts, we talked to the suppliers of the product. We talked to the people in the forestry business. We talked to the consultants. And we think that we have a very good and broad perspective on the -- about the market.

We analyzed the possible closures. We have done several times done this. We think that this additional volume, that's 4.3 million tons that we have, we were adding. And also the timeframe that we are going to add this is going to fulfill the markets that we see. As we have analyzed and discussed it. And compared to our direct, let's say, competitors. And we have been able to support and to have the first base extremely well prepared. Have all the logistical -- logistics needed, extremely well discussed, all the contracts signed.

We also, I didn't mention before, but we have the very good understanding, several letters, changed -- exchanged with the governments of BOE and in [Madayero]. We have all these reports to offer the infrastructure from this -- infrastructure, from a social perspective. Also the incentives and how they are going to support the projects.

Another thing I need to tell you, that is this, we have a strong, extremely good support for the governors of both the States and also the other States that we will be around. So this -- when we analyze these alternatives, we decide to show it, really to fulfill demand from you, from the analysts, to show what we were thinking up to 2015. This is what we're thinking.

What we presented is a very strong three projects, lining -- one lining [Morel], one lining BOE, and we have the expansion of Mucuri.

The first line is we have announced and we put a timeline for us because this is a timing, the important timing for the demand in the market and also it is important for us to -- for the discussions and with the BOE, alternatives, with the [demanel] alternatives into other greenfield alternatives, to say we are going to do that and this is the time. We are serious about that and we would like to go and talk and see how we can buy.

This discussions goes from the land owners, where we are talking about the prices and what we are considering, up to the government incentives and supports, how we are going to progress on this. So as we have analyzed the capacity utilization curve, that the demand as we progress, we see in the -- this will not be as the worse than what we had experienced before in most of the years.

So from our side, we are very serious on our progress and we feel like we did before. This is the third line as we mentioned before. And very serious, we are going to do that, and this, we have announced it because we are serious, we see especially in demand and this is the demand from the markets, from the capital markets that we would like to see what we are thinking about.

It's important to highlight that if we decide to go in BOE or in Marayel in this -- both sides, we have space, we have the logistics that we have discussed with these guys in the contracts. We have already volumes for a second line in both sides, and if we decide on that, we have a big synergies going through as we have expressed in the Mucuri line too.

So this is the most likely the way we decide to present ourselves, with a very strong, very robust, very well and strongly prepared plan and if you have any doubts about the line increase that we have announced in some months, we'll be months -- let's see how long we are going to break. We are going to -- we have a deadline that we have set for ourselves, that's 2015. We have the deadline.

Great answer and I appreciate it. I think we're all happy to see your pulp plants develop and we're just playing a little bit of a devil's advocate, but thank you for your answers.

Thank you. Our next question comes from Marcos Assumpcao from Merrill Lynch. Please go ahead.

Good morning everyone, again. The first question is regarding actually the industry life cycle that you guys also have some plantations and some, like close to 50,000 hectares of forest there. Why this site was not considered a viable option for this CapEx announcement this time? Why, like, BOE and Myarel were well ahead of this project? If you could elaborate a little bit on this.

Yes, Marcos, this is a combination of factors that we had mentioned, that Bernardo has already stressed. This is the analysis, when will you see, the cost of the land, the productive yields that you can get. The logistic costs that you have with in bounds and out-of-bounds. The -- and all the infrastructure available, this is the way we analyze.

When we talk about the logistics, also we have the railroads. But you have different railroads. You have different levels of efficiency in the railroads. You have a different availability of lengths for future extensions. Or we -- when we decide to go to these places, when you -- when we decide for a greenfield area, we are thinking about 50 years from now. Not only in the -- with the first line. And that, we all need to consider.

We talk to -- here about the growth in the forest in the next 10, 15 years. But a site like this is to serve for the next 50 years or 60 years. So we need to see growth potential as well, as we discussed. To have one line is one thing. To have the potential to grow in the future is something important.

So we have analyzed it. We have considered the Minas Gerais alternative as well. As you know, we have our Eucalyptus, forest, plantation there. We are saving our production there. We are in the woods market there. Very, very strong, very good woods markets as we have there. But at the end of the day, we decide to go, as we speak, at these two sides, BOE and (inaudible). That's in the future as we decide for the future line what -- which side will be the best for us.

Okay. And would you consider selling this land in Minas Gerais in order maybe to improve your cash capacity in the future? Your cash situation in the future?

No. Not certainly, not now. In the future, we know, we don't know. But as we discuss now, we are focused on this growth plan and these areas, let's say, you'll know we reserved assets, varied interest assets, that we see the value of these assets growing a lot due to the big demand of wood in that region. So, so far we are going to maintain these assets with us or we utilize to serve our growth projects as much as we can.

Okay. Another question is regarding the new projects. Probably they should be focused mostly in the Chinese market, as Mucuri has already been, with their sales approximately half of that going into the Chinese market. So you mentioned about the competitive advantage of these two projects, Myarel and BOE to the customers of paper in the United States and in Europe. But how do you position this -- the project regarding logistics to the Chinese market?

Marcos, this is Rogerio. Logistics in general, from what Maciel pointed out, he gave two examples only. But also it will affect China, because if we look into the Panama Canal and so on, we can also be closer to that, taking advantage of that as well. So this is also in our field -- view.

And also, regarding the growth, don't forget that we mentioned that there are going to be some closures due to the age of some of the mills in North America and also in Europe and Scandinavia. So taking that into consideration, in the time frame, most probably with this distribution or mix, we'll be affecting those markets as well. But of course, the greatest growth is coming into China, but we see also a potential to some of the markets distributing better our pulp.

And India is also a market, which is coming in the future. That not only us, but all -- everybody's looking very close to the future of those markets. So the mix is going to be growing everywhere, but the better distribution and the location will suit us to serve better each market in terms of logistics because also we will have better alternatives to serve South America, to serve South Africa as well as the Middle East states and other places.

Okay. Thank you very much, Rogerio. The last question is regarding the wood mix of your projects. You mentioned in the material facts that BOE's project will be with 70% of owned force and 30% of third parties. Myarel, could you just mention or point out, what will be for Myarel and what you're expecting for the third project as well?

And if you could, I don't know if you mentioned that before in the previous call in Portuguese, about land prices in BOE, in Myarel as well?

Okay, Marcos. About land price, we will not talk about this today. Sorry about that. We are still talking with the -- our -- the farmers, that we are going to serve us, that we are going to have the partnership. We're still buying some. There's few cases, but it's still going on.

So we -- so far we have presented the -- you see that this -- for all these projects, but the third line, that's for [Laneay] in Mucari, for the line in BOE, for the Pocarie project and every single -- and considering also what we have or what we are considering about USD7 million for all this capacity. USD700 million for all this capacity. So this is extremely competitive costs for the land and for the formation of the forests as well.

So as we progress, probably, we are, for sure, we are going to go into the details about the distance and the contracts with the farmers that we are going to have so far this, I think, it's too early to talk about that.

In the BOE, we have already discussed it and we have a big demand for these -- having 70% of our own land. We have already this Myarel area. And then we have already bought most of the deal requirements, we can say very -- we are very strong and think that we have the first base already sold.

In the Mariel side, you see that we have this -- the forest that we have bought and we have the forest start project. And this is -- for the beginning, it's all what we need. But we have also, we are considering, and we are going to add some farmers to supply, and probably we are going to, as we progress with the production, we can add some more.

So we don't have the exact numbers, this is going to be what we are going to talk now after the announcement. We have already an office set up this division and we are going to start talking to the farmers to see if they are interested and, let's say, what they would like to offer us on this situation.

We would like to grow and have some of the production of some of the wood supplied by the farmers. This is -- it could be 10%, it could be 50%. This -- because this is our practice. You know that Suzano has more than 30 years of this experience. This is good for the division. This is good for the sustainability of the project. We have more partners in the region. We -- it's a better way to communicate to the benefits of this industry in the regions and having our partners.

But this is going to be -- for the announcement, we think that it is what -- enough to say that we have all the wood needed and we are going to see. [Intel] we have already a lot of conversations with the government, the government has already talked to us some. It is a big demand after the government to go through and develop these small farmers to work up with us in the future. So this is why we have already reserved it, because we are very sure that we are going to be achieved, about 30% with the probability.

We are going to be prepared in our prospects as we progress, for bigger capacity than what we are talking about now. Because this is the base line. If we -- in three or four years, if we have a single line with 1.5 and the market is -- and the cost benefits analysis give us a direction that is good to go and have a bigger lines, 1.5, 1.6, 1.45, we will -- we need to be prepared. And this is going to happen through more land available and also here we are not in a -- using the conservative approach, we are not adding the big, big, big, productivity targets that we have for the future. Let's see, but we are not adding anything to this project as we've done.

Okay. Thank you very much.

Thank you, Juan.

This concludes the question and answer section. At this time, I would like to turn the floor back over to Mr. Antonio Maciel Neto for any closing remarks.

Okay. Thank you very much for taking this time with us this morning. A very important day for Suzano, in this relationship with the analysts. I know this is a lot of information that we provided. You guys had asked for more information about our growth plans, now we have some of them saying that it's too much information to be digested during this day. So we have the -- we will be very happy to take your questions. Our relations investor, new manager, he is here today, [Andrea Porkestine], with -- along with the team, and they -- we -- Bernardo, myself and in the future, Andrea, everybody's going to be to answer the questions, to provide the clarifications.

We have plans, as for the end of the year, to invite you, some of the analysts that would like to visit these sites. We are going to prepare to see if this year, next year, to see if we can have a trip where we can have everybody to see the results of the -- our R&D in eucalyptus in that region, to see the alternatives, the railroads and everything. Let's see if in the future we get together in some of this.

But as we progress now, be very, very -- we'll be very, very happy and we'll take the questions, try to give the information and we ask you to understand that we have still some information that we are not going to be able to disclose as for the normal business, as we progress.

But this is what I can say for you now, on behalf of our team here, that we have a very strong and very competitive growth plan that -- and Suzano in a unique position to announce a growth plan like this. We feel this competitiveness due to the -- to our predecessors working here and mainly in recession development in the first site.

As we progress, we would just like to highlight that we are going to continue working in our efficiencies, in our excellence, operational excellence. You have seen the progress on our results. This is going to continue being a big focus for us, working very hard on improving it and improving our results on the operational excellence. Bernard's going to play a bigger and bigger role on this situation as it is going to transfer the investor relations to Andrea, and so he's going to have more time available to go in to concentrate on the excellence, operational excellence, bring all his experience to this.

We have announced today, our second big area, which is our (inaudible) growth. And this is, I think, has gone. And we are going to deliver now. And we have a lot of (inaudible), let's say, which will be new projects, new business, alternatives of MNA that we have in front of us. We have announced that next Friday, a new organization where [Andrea Dock's] is going to lead, to take care of this.

So we -- you will see -- you could see with the financials that we're talking about. And also with the group, Suzano, let's say decision and willing to invest more in the business. And also the support from the capital markets that we will be able to participate in the future business as we see the opportunities and the good products.

Today, we have -- he also participated for the first time in the call, (inaudible), who was working on the pulp business and now is taking care of the paper and the next call, you guys are going to have the opportunity to talk to him about the paper business as we progress.

So thank you very much for being with us. Thank you very much for all the support. We hope to see you soon.

Thank you. This does conclude today's presentation. You may now disconnect your line. Have a nice day.