Suzano SA (SUZ) 2015 Q4 法說會逐字稿

(Interpreted). Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Suzano Papel e Celulose conference call to discuss the results of the fourth quarter of 2015. All participants will be in listen-only mode during the Company's presentation, to be made by Mr. Walter Schalka, CEO of the Company. (Operator Instructions).

We would like to inform you that some statements in this presentation may be projections or forward-looking statements. Such statements are subject to known and unknown risks and uncertainties that could cause these expectations not to materialize or the actual results to differ materially from those expected.

These risks include changes in the future demand for the Company's products, changes in factors that affect domestic and international product prices, also changes in the structure, changes in the seasonality of the markets, pricing actions by competitors, foreign currency fluctuations and changes in the political and economic environment in Brazil, emerging markets and international markets.

Now, I would like to give the floor to Mr. Schalka, who will start the presentation. Thank you.

(Interpreted). Good morning, everyone. It's a great pleasure to be with you once again. Thank you very much for participating in Suzano Papel e Celulose's earnings call.

I would like to mention the presence of our officers, who are willing to answer your questions: Marcelo Bacci, our CFO and Market Relations Officer; Carlos Griner, our Human Resources and Sustainability Officer; Alexandre Chueri, our Executive Officer for the Forestry Area.

And I would like to start by saying that 2015 was a historic year for Suzano. We reached many records in our operation, and we would like to talk a little bit about them now.

Our operating cash generation was BRL3.5b, and we understand that operating cash generation is the best indicator in order to measure value when you compare this with the asset base of the Company, because it gives the right dimension of the EBITDA, minus sustaining CapEx, and it shows over time the evolution achieved by Suzano.

Just to remind you, in 2013 we had BRL1.1b, 2014 BRL1.5b, and this year we more than doubled. We reached BRL3.5b. And this stems from two major moves. The first move was the increase in volume.

Our sales volume this year was 350,000 tons higher than the volume of sales that we had in the previous year, driven by many production records, and we will be getting into that in a few minutes, and also the increase of margin per ton. We understand this as being fundamental the margin per ton grew, because of the price evolution and also because of the mitigation of costs or drop in costs. On the other hand, we reached a margin per ton that is BRL1,016 per year, and in the last two quarters we had about BRL1,200 per ton.

With that, we reached a record EBITDA of BRL4.59b for the year, 87% higher year on year, at a margin of about 45%. EBITDA margin for us is not a very relevant criterion. We believe that absolute EBITDA and absolute cash generation are much more relevant. But as the market follows this indicator, we are emphasizing this for this reason in the fourth quarter.

It was slightly below our expectations, our result, and we have results of BRL1.226b of EBITDA, coming from some factors, among which the general downtime that was already estimated for Mucuri and Limeira, and also because we brought forward the Mucuri downtime because of the Mucuri River level and also the lower volume of pulp in the quarter, with an increase of 100,000 tons during the period of inventory.

In the year, we had the lowest SG&A over revenue ever, 11.9% (sic - see slide 3 "8.5%") vis-a-vis 9.5 -- 11.5% (sic - see slide 3 "9.5%") in the previous year, so this is very representative for BRL10b in terms of sales.

Net debt, adjusted net debt, is with a downward trend, 2.7 times in reais and 2.3 times in dollars. According to the policy that we had already mentioned to the market of deleveraging, we continue with this policy and we are reducing gradually this ratio.

We reached a production record of 4.5m tons, 8.4% increase year on year. Revenue, 40% increase year on year and BRL10.2b.

Besides having reached expressive records, we gained fundamental steps in our strategy. And I would like to focus a little bit on this point, because we have three points in our strategy.

The first one is structural competitiveness. We not only evolved this year, but we also announced our 5.1 project. In 2018, we intend to reach 5.1m tons in projection, and with a reduction of cash costs, $150 at [3.80], which was the basis that we used, and $125 per ton in 2021. This would give us an increase in our competitive advantage globally.

And the other point is a retrofit of the industrial units. There were many actions last year and we continue to have actions underway this year, liability management over BRL4b, with a reduction in the debt cost. We will talk about it, and this is in the first project. We have a growing direct sale of paper, and which gives us a better possibility to increase loyalty on the part of our clients and a higher dominance of the channel.

And this is a fundamental key for the changes that we are doing, this cultural transformation in which we give autonomy and we increase the possibility of developing people inside the Company itself, so that the processes become more robust and also that people become more and more skilled and more and more results being delivered. We are planting the base for better results in the future.

We had four major events this year. We had the approval of CTNBio, which is the GMO eucalyptus. We are doing standard field trials now, increasing our base right now, and we have every day more certainty that this will be a revolution in our industry over time.

We announced our investment in lignin in Limeira as of the second quarter of 2017, and we announced the tissue production between Imperatriz and Mucuri, already acquired, in the second half of 2017, and startup of Eucafluff production.

Eucafluff has been widely accepted by the market. We already have many clients in commercial operations. This is a ramp-up operation. So the bigger the client, the longer the approval process, but we have been very successful and we have had success in all the cases in terms of approval of Eucafluff, not only because of its economic benefit but also because of expressive technical advantages with a better retention capacity.

And the good news about Eucafluff is that the process is happening at a faster pace than we imagined, and very successful one. We have just been given an award in the United States as one of the most relevant innovations in the industry in the last few years.

And lastly, with the redesign of the industry, we believe that the industry will become more sustainable in terms of the results. Last year, we did an operation that was signed at the beginning of this year, in the first working days, which is our Embu unit association JV.

And talking about the operational side, we had record production in 2015, 4.582m tons of production in 2015 and sales of 4.521m tons. As I said before, during the fourth quarter our production was impacted by downtime and also because of the inventories of pulp, and we also saw the implementation of increase in the price of paper and another one will be in force as of February 1 this year.

And looking at 2015, we had paper with a demand, a high demand, in the Brazilian scenario. [IBAS] said that there was a loss of 14% in the industry, and we saw a drop of 11% in the volume for the year, so a drop and not an increase, and this generated an increase in the exports of paper. We also saw the consolidation of Suzano+. And then, in pulp we saw an expressive growth in our volume in production and also in sales during 2015.

This generated net revenues of BRL10.2b, with an increase of 40% year on year, a very expressive growth. Cost per ton increased by 6.6%, being BRL1,368. In spite of the exchange rate, that has an impact mainly on dollar denominated products and our cost matrix is dollar referenced, and in spite of that we were able to mitigate that with major productivity gains that we achieved, and the cost goes up 6.6%, below inflation.

SG&A, that had been 9.5% last year. Now, we had 8.5%, with a gradual drop, and the EBITDA margin has been growing over time, going from 34% to 45%. The discipline on costs and expenses with this obsession of gaining productivity all the time are part of our strategy, and we'll continue in Suzano talking about cash costs, which is something very important.

In the quarter, we saw a stabilization of the cost of wood, as I had already said, that we would see a peak of the Mucuri wood in September/October and gradually dropping as of this time, and this effectively happened. So wood costs were stable and an increase in the other costs, and basically the amortization of fixed costs and also the use of energy fixed costs, as we saw a lower production. Of course, it was less diluted, and also the issue of energy.

Now, the good news about all that is that we are gradually reducing the participation of third party wood in Mucuri, as I had already announced, and also the average ranges. We will already see this in the first quarter of this year, and this is an ongoing, gradual process over 2016.

So we could have good news to inform about cash costs in the future, because productivity in the plants is going very well and the cost of wood has been dropping consistently in Mucuri. You can see that the increase from 2014 to 2015 was because of the cash costs of the Company regarding wood. So I think we are on the right track, and in 2016 we will see an important evolution in this indicator.

Talking about the financial structure of the Company, we saw a reduction in our indebtedness, and this is an ongoing reduction. The Imperatriz project in December 2013 had a 5.2 times net debt/EBITDA. This dropped to 4.1 times by the end of 2014, and now 2.7 times at the end of 2015. In dollars, this figure went from 4.8 to 2.3 times.

So we are getting close to the target that we had established for ourselves, which is 2.5 times net debt/EBITDA, and we are sure that we will quickly achieve this in 2016. Besides, we have been decreasing the average cost of our debt. Today, it is 84% CDI in reais and 4.2% in dollars. Our cash position is very robust, BRL2.4b. 3.3 years, average term.

The program of liability management, we have already had the fifth wave and we will have the sixth wave, and we will continue with this process in 2016. And as we see a better credit perception of the Company, this will allow us to further reduce the cost of our debt and the increase in the average term of our indebtedness.

Now, looking at our investment, we had very similar investment to 2014 in 2015. And as we have been informing the market, our investment in sustaining CapEx is BRL1.1b, and this is exactly what we had. And then we had investment of other nature as well, such as expansion of capacity, debottlenecking, search for competitiveness and retrofitting.

And along these lines, we had many projects implemented in 2015. The Suzano digester, that was started up this year; the Limeira digester, the last quarter, after the downtime; the biomass boiler, that will come this year; energy efficiency project, expressive increase in the volume of energy exported by several plants; retrofitting of the harvesting equipment, forestry logistics, with the introduction of over 140 light trucks; a reduction in total costs of forest logistics and fluff with the adjacent businesses. And this is an ongoing program, and this year we have already placed in the market a CapEx estimated for this year of BRL2.4b.

2016, we will be harvesting or attaining many objectives that we have established over time, the reduction in the cost of wood with a gradual reduction and progressive reduction of the average wages in Mucuri. Lower harvesting cost. We finalized last year the insourcing, total insourcing, in our own site for harvesting. And we will have a full-year impact, as you will see in 2016 reduction of industrial cost that capture our investments already made in many of our operations.

And we are announcing to the market that we sold energy from Imperatiriz at the end of the year in an annual auction, and we bought energy in Suzano and [Dominga]. Therefore, we are hedged as far as energy is concerned for this year.

And we have a new downtime schedule. This year, we will have no line one downtime in the Mucuri plant, a reduction to logistics costs and also the new trucks, the light trucks, in operation. And with a drop in the oil prices, we have a major benefit in the bunker. The cost of oil helps us to reduce costs. And we start to operate as of the third and the fourth quarter of 2015 100% railway outbound, with the fourth train of [BRI], which means there are three vacancies, and this reduces our transportation cost.

In paper, we will continue to sell directly and this helps, and also the price of paper. We have been gaining market share vis-a-vis the coated paper market, and this should continue to increase in 2016. We will have a higher volume of paper this year and a slight recovery due to the fact that this will be a better year and also because of the Olympics and the elections that are one-off, and that should generate a slight volume increase. And we have an expressive program for export, with a higher volume of paper this year.

So this year, we will be tapping into the fact that we planted many seedlings over the years, and we will be then taking advantage of that. We continue too with our philosophy of being the best, and this is part of our culture and this is an ongoing work done by our whole team. Our whole team is devoted to this, and we understand that being strong and kind and better every day is very important in our philosophy.

So, with that, I end my presentation, and I place myself and all the officers of the Company to answer your questions.

(Interpreted). (Operator Instructions). Lucas Ferreira, JPMorgan.

(Interpreted). Good morning, everyone. I have two questions to Carlos Anibal. Carlos, what about your reading of the Chinese market now, back from the holidays? Do you see any changes in the market already, volumes coming back? Do you have a positive outlook for the next few days regarding the negotiations? Could you give us some more details about inventory after the price adjustment?

And my second question is about paper. Can you give us a visibility about your price increase that you carried out? And I'd be -- there was something published about the increase in prices for printing and writing, and do you have any news about that? That would be very interesting.

(Interpreted). Good morning. This is Carlos. Thank you for your question, Lucas. Let's start with China. China had a very major increase, because the transition from the model of the Chinese economy, now it is based on consumption and before it was based on investment. And we have a very positive view of this transition. We believe that all commodities having to do with consumer goods will benefit from this change in the growth model of China, designed by the Chinese administration.

Although there was an important growth in 2015, and this is more relevant for us. It is important for the consumption of paper. And last year, the sales of consumer goods grew by almost 11% year on year. 2015 was a year marked by new capacities, new brands of tissue in China and some closures of polluting facilities as well, many factors that contributed to a major growth for imported pulp, approximately 17.5m tons last year, an expressive growth vis-a-vis the previous year, and also, eucalyptus pulp imports, almost 14% growth.

But right now, we have no reason to believe that 2016 will be different. We will have new capacities installed and continuing the closure of producing facilities, and the fact that the Chinese government is worried about the environmental issues is very good. And we see a consolidation in the pulp and paper industry, and this is -- and companies that use higher quality paper are constantly using virgin fiber. So the perspective for the year is very good regarding demand coming from the Chinese market.

And prices, we see some pressure on prices at the end of last year, and according to the market fundamentals prevailing at the time, and we see some pressure on prices in January. However, China went back to work. This last Monday, the market is still very -- well, more or less on a standstill, still. But we see the possibility of an increase as of next week. Basically, this is our reading about China.

About paper, we are working with the expectation of a demand evolution for 2016 vis-a-vis 2015, but some factors could give us additional opportunities, such as the expectation of a national program and maybe additional demand coming from the Olympics and also because of the elections, as Walter said.

Some brands -- well, we saw revenues in paper increasing by 6%, average prices going up 14% on average, upwards 7% in the domestic market. And we had a demand, 14%, 15% of printing and writing paper, 5% paperboard, and our drop was about 11%, which is very positive in coated paper where we have already a strategy designed for a better use of our installed capacity and increasing our market participation.

It was very important in our new model, Suzano mais, or Suzano+. We have 20,000 printing offices here and where our papers are sold. So, increasing our commercial productivity, over 30,000 clients over this year, an outstanding result. In some months, we received over 200,000 telephone calls, so a very major improvement in our paper business. And this leads us to believe that we are very well positioned to reap the fruits in 2016, with the evolution in demand that we are forecasting.

With the participation of imports, which is very important for our business, we are advancing in the spaces that are being created. Imports dropped during the year by 37%, with a timid drop in the first quarter and in the last quarter a drop close to 60% in imports. So coated paper, 45%, uncoated, 50%, and this combination creates more space for us to occupy in this market, so that we may better cater to our clients and having the preference of our clients with a better logistic and better service level.

We made two important moves regarding our prices in the last quarter of last year. We reached our objective with the increase that we announced in August. And I told you during our last meeting that in the case of pulp, it would be a percentage wise lower volume, because we have two important programs and the prices are defined annually regarding schoolbooks. And we will see this mainly over the second quarter.

In February, we started the implementation of another increase in offset paper. And we will see a lot of discipline there, because we understand that we have prices that are really too low vis-a-vis our historical averages, because of the exchange rate situation.

I would like to remind you once again that part of this paper will be earmarked for the schoolbook program and the school notebooks as well. My expectation is that in the second quarter we will have an increase in our average price because of the mix of our products in this quarter.

If we look at the fourth quarter last year, we advanced the average price vis-a-vis the previous year. The expectation is that the figure will grow mainly as of the second quarter. Thank you.

(Interpreted). Marcos Assumpcao, Itau BBA.

(Interpreted). Good morning, everyone. The first question has to do with the price for pulp products. If you could talk about the net price of pulp in China vis-a-vis the end of 2015, you said that there was price pressure during the fourth quarter and also the beginning of January, so could you make this comparison? And what price level do you foresee, net price, that should start to lead to closure of capacities in the world, and where that should be?

(Interpreted). Thank you for the question. What I can tell you is that January had a low intensity of purchases by the clients in China, due to two main factors. The first one, the very strong purchase of softwood last year in China in the last quarter had an expressive growth in softwood. And they closed the year with a growth vis-a-vis 2014 mainly in the last four -- ever since the mid of 2015, softwood has been presenting a lower result vis-a-vis hardwood, reaching more expressive results in November and December.

Once again, you can see that there was a loss in terms of prices vis-a-vis the prices in November and December. In the case of softwood, there was a certain stability.

Looking ahead, I understand that what you said in China is that local producers would have a cash cost of $550, and we are getting close to a situation in which local producers are not able to combine with their cash costs, and that could be leading to higher sustainable prices in the next few months.

(Interpreted). When we look at the market in general, the fundamentals of supply and demand, what we see in Europe and in North America, in China, again, a slightly lower demand due to the two reasons that I mentioned. On the supply side, we see in December looking at pulp as a whole, hardwood and softwood, record production, record shipments, record production, leading to the fact that global inventories were lower than expected by one day.

The first quarter in general is marked by a higher availability of fiber, because of less downtime during this time. And some specific factors in Brazil could decrease the availability, an accident in the South plant that removed a few tons from the market between January and February in one of the machines that apparently has already started to produce.

But we see a scenario in which we have an equilibrium in inventories. We see a higher availability of inventories in China and growing in hardwood in Europe. This is what we can tell you about the market fundamentals right now.

(Interpreted). I have another question. You said that you had more non-performing loans. So what do you expect?

(Interpreted). This is Marcelo. The effect was not that big. We had around BRL18m, and the expectation, the tragic situation is not improving; quite the opposite. What we are doing, we are being more cautious. We prefer not to sell to some clients when we see that they have a more fragile financial situation. We are increasing the cost of other financial instruments to improve the credit products, and many other measures to try, mainly because of the price increase that we will have now, maintaining the credit situation under control. So we expect that with all these measures we are able to keep the situation under control.

(Interpreted). Thank you very much.

(Interpreted). Thiago Lofiego, BofA Merrill Lynch.

(Interpreted). Thank you very much. Good morning. I have two questions. I would like to understand the cost of wood, the peak in the fourth quarter, and what are the dynamics for the cash cost that you expect?

And what about dividend? What was the rationale for the BRL300m being approved by the Board and not more than that? I would like to understand, given the level of cash generation by the Company and the outlook, is there any chance of having interim dividend being paid out by the end of the year?

(Interpreted). The cost of wood for the fourth quarter. Well, this was a peak in Mucuri, and after the first quarter of 2016, it will be gradually reduced during the whole year. So the trend in Mucuri is to have a lower cost.

In relation to dividend, Thiago, we had a very wide-ranging debate with the Board about that, and we should be more conservative because we want to accelerate our deleveraging position, the leveraging process as a company. And this is why we approved a level of dividend that we ourselves consider is similar, BRL300m.

And about your question about the possibility of an interim dividend being paid out, such as we had last year, the answer is yes. We have already discussed that. And if the numbers that are projected by the Company are maintained at the level that we expect, almost certainly we will have interim dividend being paid out in the second half.

(Interpreted). About the costs, if you can maybe break down between the different regions and in order for me to understand, and if you expect any kind of pressure, cost pressure over this year and what could offset this? What are the main factors that we could think about to project the costs for 2016?

(Interpreted). My perception is that -- our view is that the costs in 2016 tend to be better than 2015. The distance will be slightly higher in Imperatriz, but the harvesting costs will be better in the region and one thing should offset the other. And the result of a major benefit in Mucuri, because there are reductions in the cost of harvesting and also a reduction in the average wages and also a reduction in the amount of third party wood in this region.

In Sao Paulo, it should be maintained stable. No big changes in the Limeira and Suzano units. On the other hand, if we look at specific consumption, due to the retrofit in the plants, we will see a better specific consumption at a plant, both of chemicals and wood, and we will see a higher volume of energy this year vis-a-vis the past year, the last year.

So, all in all, this leads us to believe that we will have a better year than last year. We do not foresee any area with a relevant impact on costs in 2016 vis-a-vis 2015.

(Interpreted). Perfect. Thank you very much, Walter.

(Interpreted). Leonardo Correa, BTG Pactual.

(Interpreted). Good morning, everyone. The first question is to Anibal, talking about the market. You talked about China, maybe stabilization because of the cash costs in the region. Maybe some producers are already in the red. Everybody looks at China as a lead indicator and the prices in Europe are based on the pressure and realization of volumes from China to Europe, and this year we saw some stability of prices in Europe. If you draw the correlation, the historical correlation, the drop is lower.

So I would like to hear from you your expectations regarding prices, more specifically in Europe, because it seems to be a more interesting market than China. So, to which extent is this sustainable? And here more about the demand in the region.

Besides, you said at the beginning of your presentation, you mentioned fluff. What about the acceptance of this innovative product? Very interesting market. So what is your outlook for volumes for fluff for this year and the next?

And could you please allow me another question, a very quick one, I apologize, regarding other expenses, which are almost BRL90m this quarter and I would like to see more details about that.

(Interpreted). This is Carlos speaking. I would like to start by making a remark about China. China reacts more quickly in two directions. When the price is going up, they go faster up, and when the prices are going down, they go down faster. Over the first nine months last year, the evolution of prices in China was higher than the evolution of prices in Europe. And what we see is at the end of the year, prices going down faster than in Europe.

And in our market, we know that there is a law of physics, the communication vessel, so to say, and the situation that we see in China we will see certainly in Europe. And we see at some ports an increase in the inventories of hardwood pulp. Once again, we see that in some regions we see relatively higher inventories than in the same period of the previous year.

In relation to fluff?

(Interpreted). Thank you for the question. This is Walter. We have a level of acceptance that is quite high. In all the cases that our product was tested, our product was approved. We have not had one single case of our product not being approved. Some bigger companies take longer to approve and the ritual involved is much slower than more agile and smaller companies, and for these companies we still don't have the approval for commercial sales. This is a process that is underway. So it's very difficult to tell you what will be the exact speed of growth.

But the good news that I would like to impart is that the speed is higher than we imagined, and apparently by the end of the year the volume will be higher than the one that we estimated before. This is because people -- or many people are replacing more than 30%, which was our initial estimate.

So things are going very smoothly in terms of fluff. The first quarter I think will be very timid in terms of fluff volume. The second quarter should be stronger, and the third and the fourth should be quite strong, based on the speed of approval that we have seen so far.

(Interpreted). This is Marcelo talking about other expenses. We had some extraordinary items at the end of the year, of different natures. BRL40m tax credit write-off (inaudible). They were related to the purchase of fuel oil that in the understanding of the state, it was not related to the plant operations and as part of the agreement that we signed with the state, the authorization to negotiate credit from now on, and the fact that we accepted and decided to question this. So we are talking about BRL40m in this other expenses and another non-cash item. Then, BRL20m write-off in the goodwill, the transaction with Ibema.

And finally, the more relevant point, we had many adjustments of forestry areas related to fires in forests and other forest items, but mainly fires because the weather was very dry and we had a higher incidence of fires. We recognize losses and provisions for areas that we know that there will be a loss in the amount of wood to be harvested. So this is the bulk of what we put under other operating expenses.

(Interpreted). Thank you very much.

(Interpreted). Carlos De Alba, Morgan Stanley.

Thank you very much. So my first question has to do with cost. I understand that from what you said on the pulp side, Mucuri costs will come down, but the rest, Imperatriz, Suzano, will probably stay flat. So if you could give us a little bit more comments regarding your expectations on the increase of your consolidated pulp cash costs, which definitely increased significantly year on year in the fourth quarter.

From now, do you expect the Company to be able to see pulp cash costs increasing below inflation, or at least in line with inflation, because clearly this is a big concern on the trend that we shall see, even though we understand that you at least in Mucuri you will reach the peak in terms of wood cost?

And then my second question has to do with any update that you may have on how the discussions with potential clients of the jumbo tissue machines or jumbo tissue products are going, and you have decided whether you will sell to the distributor there or if you are going to try to go more direct to clients. Thank you.

(Interpreted). Carlos, thank you very much for your questions. Let's talk about cash costs first, in relation to the fourth quarter and then the trend for 2016. The fourth quarter, as already said, we reached the peak of wood in Mucuri, which is very similar to the third quarter in the evolution of the cash cost of wood, and the fourth quarter was close to zero. As we mentioned before, we reached the peak of our wood cost in the Mucuri region at that time, and now we will see a downward trend in terms of volume and price of wood in the region of Mucuri, mainly, and marginally in Imperatriz as well.

My view about this year is that we have the possibility of having a nominal cash cost, nominal in reais, not mitigating inflation but lower than the cash costs that we had in the fourth quarter of last year. So we should see a downward trend in the volume and the cost per ton during this year. So I believe it will be another decisive victory on the part of the Company, if we are able to reach this and operate with negative inflation in reais in our cash costs, relative to the fourth quarter.

The second point of your question had to do with tissue. We acquired the tissue machine for the two sites, Mucuri and Imperatriz. They are twin machines, two double width. And we acquired them according to the budget that we had already drafted, so that means that we are according to the budget that we announced to the market. And right now, we are discussing with many players to sell double rolls.

But we had already said that should we not reach an agreement to sell jumbo rolls, we would also do the conversion, but we insist on the status of selling double rolls to converters that are or wish to be in the region. So the program is exactly according to schedule and according to the cost position and strategic conditions that were thought.

Thank you.

(Interpreted). Alan Glezer, Bradesco BBI.

(Interpreted). Good morning. Thank you for the opportunity. I have two questions. Both are related to the paper business. The first one has to do with the price increase for paper in the domestic market. With this gap, if you consider the prices in other parts of the world, what are you going to do there? And do you think that printing offices and other consumers would be able to transfer this to their end clients?

And the second question about paper has to do with the expansion of your vertical integration strategy to other regions in the Americas. In distribution, it was very well implemented and produced. So I would like to know about your plan for the implementation of distribution integration vertically in North America, Latin America, in general. So maybe you could clarify those questions.

(Interpreted). Thank you for the question. I will start by the second one. Our priority focuses to conclude the [cost elevation] of this model in the domestic market, and then our idea is to start to work with the other regions as well. Between the end of this year and the beginning of the next year, we could roll out this concept. As you said, they were very successful in the domestic market.

We have a very clear understanding about the market fundamentals that will allow us to implement and increase in this amount, almost 24% where we look at the exchange rate variables and prices in the international market, the price of pulp, which is very important for non-integrated producers. We have a whole array of factors that support this implementation. We recognize the magnitude of all that, and we believe that the best way to do this or to understand is to understand the challenges of our graphic production.

And this is the reason why we announced this last year for our non-coated paper, which has a situation different from coated paper where we have prices that could be raised because of the same fundamentals. And we are adopting a different strategy, which is to maximize our installed capacity in such a way as to our clients being able to buy a coated paper from a local producer, that is to say, Suzano.

(Interpreted). Thank you very much, Carlos. If you allow me another question about your strategy to sell pulp, we see a major change regionally, from 47% to Asia to 32% to the same region in the fourth quarter. Are you increasing the level of pulp sales to Asia in the first quarter of 2016? And how do you see the regional mix over this year?

(Interpreted). Let's go back to the first quarter. In the first three quarters of 2015, we worked with very low inventory. In the first quarter vis-a-vis the fourth quarter, we reduced our inventories and they were kept at excessively low levels until the end of the third quarter, because we understood we had a major opportunity to maximize our profitability at a very good market moment in the third quarter. It was the record in our sales volume.

As you said yourself, China was 47%; very good reception of our product in the other regions. In the fourth quarter, we saw pressure on eucalyptus pulp prices for China and we decided not to wait at the first moment. And we could take advantage of the fact that we had very low inventories in order to rebuild our inventories.

So this combination of an understanding of the market, the market fundamentals, and also the pressure on the part of China and the opportunity to reduce our inventories led us to have a lower volume of sales in the fourth quarter, but not for the year as a whole. In the last five years -- this year was different from the last five years. Our volume sold to China was around this range.

(Interpreted). Thank you for the answers.

(Interpreted). Jonathan Brandt, HSBC.

Hi. Good morning. I have two questions. The first, Carlos, I wanted to just verify something that you said. It sounded like you said that there was going to be some pulp price increases next week. I'm wondering if that means that you're going to be announcing a price increase similar to what we've seen in the softwood market, or if this is just your expectation on benchmark prices.

And then I was also wondering about liability management. If you guys could talk a little bit about what your target leverage ratios are. I know they're 2.7 but they're falling pretty quickly. Where your target ratios are, how much more there is to do on the liability management side from paying down the high cost of debt. What is your target cost of debt?

And then secondly, if you could talk a little bit about the paper market and the profitability, how the profitability is. And I know you don't disclose margins, but maybe there's a trend in those margins. Are they relatively stable? How is the export margin vis-a-vis the domestic margin?

And then, on the Eucofluff expansion, you had said that the feedback that you've gotten has been very positive and volumes have been better than you were expecting. Are you anticipating potentially increasing capacity even further? Is that something that we can expect in the next couple of years? Thank you.

(Interpreted). Jon, listen. Thank you for your question. If I understood correctly, your question is whether we expect to see a price increase for hardwood due to increases recently announced by softwood producers in Europe and in North America. Our understanding is different.

Softwood closed the year with lower inventories. We saw a drop in global inventories, very much related to a higher intensity of purchases by China in the last quarter. And this would have an effect on producers of softwood, believing that there would be room for price increases. So there were price increases announced for China. Apparently, they have not been implemented. And between February and March, $20 in Europe and in North America announced.

I have no way to talk about the degree of success in the implementation of the price increases. In the case of hardwood eucalyptus, we have no intention, no reason whatsoever for us to announce a price increase.

(Interpreted). This is Marcelo speaking. We want to reach 2.5 leverage. We are getting close to this figure, with 2.7 now. And we will certainly -- we will have a higher investment program this year and we intend to reach this 2.5 this year and further strengthening our balance sheet and preparing ourselves to make some strategic steps in the future. Thank you for the question.

(Interpreted). You asked about our position in the Fluff market. Given the fact that the market is receiving our fluff very well, our view, when we made the decision of having a fluff machine with 100,000 tons capacity, 95,000 capacity, when we made this decision, this was a way for us to test the fluff market and to see the response of the market vis-a-vis hardwood.

We understand that the fluff market is 5.6b tons globally, and between 30% and 40% conversion of volume of this market to hardwood. With that figure, we would open the possibility of having a market of about 2m tons for hardwood, and this is what we are going after. I believe that the success that we are achieving gives us the possibility to increase our share in the future with Eucafluff.

Right now, we have no technical study about the next steps that would be given by us. We are totally focused on fluff in terms of approval by all our clients, both local and global, and the success rates of that will allow us over time to analyze additional investment. But with all the adjacent businesses that we have, the issue of scalability, that is to say, the possibility of increasing our volume, is an essential condition. So we made this investment thinking about a much broader project in the future.

Thank you.

(Interpreted). Viccenzo Paternostro, Credit Suisse.

(Interpreted). Good morning, everyone. Thank you for the question. Starting by pulp and looking at the mismatch between production and sales in 2015, you had an increase in your inventory levels of almost 100,000 tons during the year. So I would like to understand what we could expect in terms of pulp sales for this year, because besides this higher inventory, you will not have a downtime that would be line one of Mucuri over the year, which would lead to -- which leads to higher production. I know that you don't give a guidance, but should we expect pulp sales close to 3.5m over 2016? Does it make sense?

And my second question is the following (inaudible) talking about the reduction in trade costs because of oil. So I would like to know if you could give us some indication regarding the magnitude of this drop. We know that all the cost to send pulp to China is between $50 and $60. So would you say it's closer to $10 to $20 because of the reduction in the bunker that Walter referred to? So these are my questions. Thank you.

(Interpreted). This is Carlos, Viccenzo. Thank you for the question. In the third quarter, this is when we had this 100,000 tons that you've referred to in the first three quarters. We worked with inventories that were lower, because we wanted to maximize opportunities that we saw in the market, and I understand that our strategy was rather successful. We took advantage of the lack of understanding regarding prices in the fourth quarter on the part of the clients in China.

So we tapped into this opportunity to increase our inventory levels that we consider absolutely normal, so that we may deliver a very good level of service to our clients. Our plan for 2016 is to sell our production, reaching the end of the year with normal inventory levels, with a minimum level in order to guarantee good service to our clients. So our idea is to sell the whole volume produced over 2016.

(Interpreted). Regarding trade, Viccenzo, thank you for the question. The order of magnitude is between $10 and $15, and of course this depends on the conditions over the year. So I'm making a projection based on the current condition of oil prices. So it's hard to imagine what will happen with the oil prices, but with the prices as they are today, magnitude would be from $10 to $15 in terms of cost reduction per ton.

(Interpreted). May I ask another question? It's quite similar to my first one, however, focusing on paper this time. Looking at the 2015 production, you said that it was impacted in part by the conversion in the fluff machine, and I would like to know what we can expect in terms of production of paper. 1.2, 1.25, what would be a reasonable figure for us to expect?

(Interpreted). This is Carlos, Viccenzo. We could expect a higher volume produced in 2016. 2015 was not typical, due to the occurrences that we have already mentioned. Our idea is to produce more paper, and I would say that most of the additional volume will be exported, will be sent to the external market. In 2015, we had a 4% increase in exported volume due to the stability of paper, and our idea for 2016 is that we should have a growth in our exported volumes due to the higher availability of production over the year.

(Interpreted). Thank you.

(Interpreted). Now we close our Q&A session. I would like to give the floor back to the Company for closing remarks.

(Interpreted). This is Walter. I would like to thank you very much for participating in this call, and I would like to make it clear to you that we are extremely motivated and energized because of the evolution that we have been delivering quarter after quarter, year after year.

We had a BRL1.260b EBITDA in 2012, BRL1.780b in 2013, BRL2.450b in 2014, and now almost BRL4.6b in 2015. This evolution came from the exchange rate issue, but not only on that. We have been making a big effort in all the areas, and the results that we have been obtaining in forestry, commercial, logistics, the industrial and all the internal areas, IT, auditing, a very good evolution in all the areas of the Company. And we are reporting our processes and qualifying our people, and we are getting ready for an even better future.

We are very happy with the results delivered in 2015. And we recognize that they could have been marginally better, but the most important is seeing that the Company has a constant evolution. And we are sure that 2016 will be even better than 2015 for the Company.

So I would like to thank all our employees, all our 8,000 employees that generated and delivered this great result last year and that have a very positive energy, so that we may bring you even better results this year. Thank you very much. Have a good day.

(Interpreted). Suzano Papel e Celulose conference call is closed. We thank you for participating and wish you all a good day. Thank you.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.