Klabin S.A. (KLBN11.SA), a leading paper and pulp company, has shared insights into its first quarter performance for 2024 during a recent earnings call. CEO Cristiano Teixeira emphasized the company's strategic focus on expanding its long fiber product portfolio and its resilience in niche markets. The successful commencement of the Figueira project marked a significant milestone, expected to boost productivity in the packaging segment.
Despite a decrease in net revenue due to lower pulp and kraftliner prices, Klabin maintained a healthy EBITDA margin and robust liquidity. The company also declared dividends amounting to R$330 million, set to be distributed in mid-May.
Key Takeaways
- Klabin's net debt rose to R$21.3 billion, influenced by USD appreciation against the BRL and negative free cash flow.
- The company's liquidity remains strong at R$14.3 billion, including R$11.8 billion in cash.
- A dividend payment of R$330 million was approved, with distribution scheduled for May 16.
- The newly operational Figueira corrugated box plant adds 190,000 tons to this year's capacity.
- Klabin's cost-reduction initiatives led to a 1% quarter-on-quarter cost decrease, beating the guidance for the year.
- The company maintains its cash cost guidance at R$3,100 per ton for 2024.
- Demand and price increases in the Kraftliner market are noted in the US and Europe, with expectations of continued growth.
- Klabin's portfolio is currently at an eight-week capacity, benefiting from its geographic position.
- The integration level between kraftliner and sack kraft is expected to fluctuate between 60% and 70%.
Company Outlook
- Klabin anticipates a demand growth of 3-4% in the packaging market for the current year.
- The company expects an 8% increase in production compared to 2023 due to the Figueira project.
- Klabin's strategic focus will be on monitoring market conditions and pursuing operational efficiencies.
Bearish Highlights
- Net revenue declined due to lower prices for pulp and kraftliner.
- Negative free cash flow contributed to an increase in net debt.
Bullish Highlights
- The Figueira project's start-up is expected to significantly enhance productivity in the packaging segment.
- Cost-reduction initiatives resulted in a 1% cost decrease from the previous quarter.
- Positive trends are observed in various market segments, including short fiber, fluff, coated boards, liner, corrugated boxes, and industrial bags.
Misses
- The company experienced a 4% reduction in planned investment for the Figueira plant, now at R$1.5 billion.
- The closing of the Caetê project is pending, subject to certain conditions.
Q&A Highlights
- Klabin's portfolio lead time has increased to around eight weeks due to strong demand.
- The company's geographic advantage has been underscored, particularly in the Pacific and Latin America.
- Klabin's PM28 machine mix is versatile, and the company aims for 60% production of coated boards by year-end.
- The integration between kraftliner and packaging has reduced in Q1, with specific targets for the future not provided.
- The company maintains its total cash cost guidance and expects fixed costs to remain stable with new project ramp-ups.
Klabin remains optimistic about its performance in the upcoming quarters, citing robust demand across its product portfolio and strategic initiatives aimed at enhancing operational efficiency and market positioning. The company's focus on cost management and its ability to adapt to market conditions will continue to be key factors in its success moving forward.
InvestingPro Insights
Klabin S.A. has demonstrated a strategic approach to maintaining its market position and delivering value to its shareholders, as evidenced by its recent performance data and insights from InvestingPro. Here are some key metrics and tips:
InvestingPro Data:
- Market Capitalization: $4.99 billion, signifying the company's substantial presence in the Containers & Packaging (NYSE:PKG) industry.
- P/E Ratio: 13.09, indicating that the stock may be reasonably valued in comparison to industry peers.
- Dividend Yield: 2.93%, reflecting Klabin's commitment to returning value to shareholders through consistent dividend payments.
InvestingPro Tips:
- Klabin's valuation implies a strong free cash flow yield, which is an attractive feature for investors looking for cash-generating investments.
- The company has maintained dividend payments for 23 consecutive years, showcasing its dedication to shareholder returns even amidst market fluctuations.
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Full transcript - Klabin Sa A (KLBAY) Q1 2024:
Operator: Good morning. Welcome to Klabin’s Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session when further instructions to participate will be provided. [Operator Instructions] As a reminder, this conference call is being recorded and being broadcast simultaneously via webcast, which can be accessed through Klabin’s Investor Relations website, where the presentation is also available. Forward-looking statements eventually made during this conference call in connection with Klabin’s business outlook, projections, operating and financial targets, and potential growth should be understood as merely forecasts based on the company’s management expectations in relation to the future of Klabin. Such expectations are highly dependent on market conditions, on Brazil’s overall economic performance, and on industry and international market behavior and, therefore, are subject to change. Present with us today are Mr. Cristiano Teixeira, CEO; Marcos Ivo, CFO and IRO as well as company officers. Initially, Mr. Cristiano Teixeira and Mr. Marcos Ivo will comment on the company’s performance during the first quarter of 2024. After that, the officers will be available to answer any questions that you may have. I now turn the call over to Klabin’s CEO, Mr. Teixeira. Please go ahead.
Cristiano Teixeira: Thank you. Good morning. Welcome to Klabin’s earnings conference call to discuss the results of the first quarter of 2024. I’d like you to be with me on Slide 3. I will make some comments on the Q1 ‘24 performance, and then you will hear more detailed information by our business officers. For starters, let’s speak about long fiber. At the top, on the left hand corner, I’d like to draw your attention to the fact that one-third of the shipment of fibers in Q1 ‘24, was one fiber, with a price differential of almost a $300 premium of one fiber over the other. We have been debating this thesis with you. It’s kind of a conceptual thesis, but it takes into account some factors, which I will mention here with a direct link with Klabin’s intent to expand our long fiber product portfolio, which combines and couples our Caetê Project. Last year, we had about well, the long fiber market had about 25 million tons a year. Last year, almost 3 million tons were out due to shutdown of production, basically following companies in the north hemisphere manufacturing long fiber. And, with this price differential, this was a relatively stable curve considering the price of fluff worldwide. We saw a price deterioration mainly because of the north hemisphere cash cost. So, this started happening last year, and there has been no announcements of investments in long fiber worldwide. So, it’s a sector of 25 million tons. And, in this context, Klabin stands out with a product with the same quality, characteristics as the long fiber in the northern hemisphere. And, we are among the main brands that use our long fiber products. So considering the strategic designing of the company and our resilience, we operate in niche markets, which are more resilient, more stable, with greater competitiveness, vis-a-vis the northern hemisphere. So, we are the only company in the southern hemisphere offering this kind of differential. So, our thesis is not that there are no possibilities of replacement of long fiber by short fiber. On the contrary, we benefited from that. We showed that in Eukaliner, as you know, and I’ll be talking more about that. But, in the replacement of fluff, which will benefit us as well, we like to draw your attention to the fact that in this market, we’ve been working more and more with products, with greater added value of fluff, with greater competitiveness. This is indeed the differential that we have, that we always like to draw your attention to. In short fiber just for your reference, it’s a market of about a 145 million tons. We always like to point out the loss of more than 1 million tons last year due to unscheduled stoppages, which shows that we can consider this in our calculations. We believe that this will be more and more reflected in the curves of the companies that work with pulp price curves. This will be considered. This will be a reference in the price curve. In other words, there’s non-recurring loss in short fiber. So, we had an important quarter, and Marcos Ivo, will speak more about this in terms of pulp cash cost. And, it shows efficiency that we have been pursuing at the company, not just in G&A and the word, but also in other areas of the company. As regards coated boards and Kraftliner, of course, we have to mention the moment we had in Brazil and in Latin America. This is a theme that has been debated in many segments, the overcapacity of China and its effect in many regions of the world. Brazil was not an exception in this context. We also suffered just like other industries with the offering of Chinese products in Brazil. This will be mentioned by our coated boards officer later, but I would like to point out that even in this scenario, with deflation due to an overproduction in China, which has impacted many sectors around the world and also ours, in this kind of situation, still Klabin posted growth in Brazil with the shipment of coated boards, showing that the Chinese coated boards that arrived in Brazil competed with less added value products and Klabin, now focusing with the technology of PM28 with more added value products. So, this reinforces what I said about pulp. We’re going to niche products with higher added value, and, of course, this also applies to coated boards, not to speak about LPB, which we know the high-end product of every sector. Speaking a little about Kraftliner, we’re now transitioning also to packaging. I would also like to mention the level of integration and conversion at Klabin, 63%. I’d like to point out something that you should not overlook. We have been using as much as possible the paper of Paper Machine 22, which is a highly technological paper. And, again, we spoke about that fiber transition, right, using short fiber. And, this used to be long fiber in the past, but leaving this for products that can and need to work with a lower paperweight and especially because of market conditions, there’s a demand for better surface quality for printing. So, again, it’s another niche product. So, I’d like to mention how the conversion of Klabin’s paper, integrating the whole benefit of a low paperweight, but the value that this can represent to you by the measurement in square meters. So, I’d like to point out the benefit we’ve been able to deliver in competitiveness and cash cost. We followed the market in terms of shipment, the market of packaging and paper. So, we followed the market in terms of growth in Q1, but the box sold in area in square meter or considering units, we followed the market in volume of 5.6%, but we produced less in tons. So, the differential between the area in a lighter box, in fewer tons, this differential is cost, and it’s competitiveness that we can include in our result. And lastly, I’d like to make a reference. You will soon be getting some information from our packaging officer. I’d like to draw your attention to Figueira Project. Well, Figueira Project I had the pleasure of visiting Project Figueira. Just yesterday, we started production and billing. We have a first line team, another great project team at Klabin being able to deliver the project before the deadline. In the last 15 years, Klabin is seen as an excellent company in terms of delivering projects, and I’d like to mention something about this project. I hope that soon you will have an opportunity to see it in person. But, we were able to make some one of the great leaps in productivity in packaging, most likely the biggest leap in Klabin’s history because at this site, we’ll produce double about the same high technology unit at Klabin. We’ll produce but with half the team. So, the productivity by tons shipped by person at this plant is most likely the most efficient in the world. It’s most likely the highest, the greatest leap in competitiveness that Klabin ever had. You’ll get more data on the project soon. So, I will end my part, and I will turn the floor to Marcos Ivo, to speak about the quarter, and then we’ll come back.
Marcos Ivo: Thank you, Cristiano. Good morning, everyone. Thank you for joining us. On Page 4 of the presentation, net revenue in the quarter was R$4.4 billion, down 8% year-on-year. This decrease is due to drops in pulp and kraftliner prices, in addition to the appreciation of the Brazilian currency against the dollar, which was partially offset by the higher sales volume. Adjusted EBITDA was R$1.652 billion in the first quarter of 2024 with a margin of 37%. Moving to Page 5, pulp sales volume was at 362,000 tons in the period impacted by a non-recurring maintenance stoppage in the production line. The average price of long fiber and fluff driven by fluff was $949 per ton in the period, representing a spread of $290 on short fiber. Showing the high added value of long fiber plus that, Cristiano talked about extensively in the opening remarks. The cash cost of pulp production was R$1,263 per ton in the quarter, down 7% from the same quarter last year, and down 4% quarter-on-quarter. On Page 6, in the paper and packaging segment, the highlights are the increased output of Paper Machines 27 and Paper Machines 28 and the strong demand for kraftliner and corrugated boxes. In paper, the volume sold increased 16% year-on-year, reflecting this production ramp-up, the strengthening of kraftliner demand and access to new markets in coated board. Net revenue of this segment grew 3% in the first quarter of ‘24 versus the same period in 2023. In packaging, the sales volume of corrugated boxes rose 6% in Q1 2024 versus Q1 ‘23, mainly driven by increased demand from processed foods and dairy products. Net revenue of corrugated boxes grew 1% year-on-year. Moving on to Slide 7, total cash cost per ton was R$2,984 in the quarter, representing a 9% decrease year-on-year and a 1% decrease quarter-on-quarter. Note that this cost is below our total cash cost guidance of R$3,100 per ton for the year of 2024. Moving on to Page 8, Klabin ended the first quarter of 2024 with net debt of R$21.3 billion, an increase of approximately R$1.2 billion quarter-on-quarter. This increase is substantially explained by the negative effect of the appreciation of the U.S. dollar against the BRL on our net debt in foreign currency with no material cash effect in the period and also by the negative free cash flow in the quarter. Leverage measured by net debt over adjusted ratio in U.S. dollars ended the quarter at 3.5 times within the parameters established in the company’s financial indebtedness policy. Moving on to the next page, Klabin’s liquidity remains robust and ended the quarter at R$14.3 billion. This liquidity is made up of R$11.8 billion in cash and the remainder in an undrawn revolving credit facility. Note, that this cash position already reflects the funds in dollars that will be used for the payment of the Caetê project scheduled for the end of Q2 2024. As mentioned in a material fact of December 20, 2023. It is worth remembering that the closing of Caetê project still depends on the usual suspensive conditions for this type of deal. As for the average maturity of the debt at the end of the quarter was 90 months, and the maturities of 2024 and 2025 totaled R$3.1 billion. Moving on to Page 10, according to the notice to shareholders published yesterday, the company approved the payment of dividends in the amount of R$330 million to be paid on May 16. On an accrual basis, the dividends distributed to shareholders in the last 12 months ended in March totaled R$1.281 billion. This amount represents a dividend yield of 5.3%. I now turn the floor to Douglas Dalmasi, who will bring us details about this important project that is Project Figueira.
Douglas Dalmasi: Thank you, Marcos. Good morning to everyone. We’re here on Slide 11, and we’re very happy to share with you another major milestone in Klabin, the opening of the Figueira the start-up of the Figueira project, our new corrugated box plant that started operating last Monday, April 22nd, on time, on schedule, on budget, and at a moment where there’s demand in the market. On the left of the slide, as you can see, we have the production information. The new unit has a production capacity of 240,000 tons as we’ve showed before, and now we’re talking about an added capacity of a 190,000 million tons for this year. We’re expecting 70,000 tons of additional production for our 2024 capacity. At the center of this slide, the investment plan for the plant is also important information. Considering what has been done and what’s going to be disposed at the end towards the end of the project, we’re seeing a reduction of 4% of the planned investment, so R$1.5 billion. At today’s value that we approved in the beginning of 2022. So, in addition to the 4% reduction, there’s the monetary correction at today’s value at 500. So, it’s an important effect, an economic effect for the project. On the right side, we’re showing that the plant is coming at a very good moment at high heated demand. We always follow that this is an industry that grows above the GDP. The market, according to data from Empapel, grew 5.7% in the first quarter in terms of squared meters compared to the same period of last year. And, what’s projected for the GDP this year is two percentage points of growth. And, according to projections by Empapel, who projects the sector for the year, and even RISI, they’re both projecting higher growth. 3.4% percent projected by Empapel, 1.4 percentage points above the expected GDP growth, and RISI estimates growth of 4.3%. So, 2.3 percentage points higher than the GDP. So, as I said in the beginning, on time, on budget, and in a very good moment for the market. I’ll now move on to Slide 12 with some important pictures that make us very proud. In the upper left hand corner, there’s a photo of our team, the project team and operation at the plant. On the right, we see the corrugator machine, a state-of-the-art equipment with optimization and monitoring features for performance quality. This machine has a speed of 450 meters per minute. It’s a German machine running, it’s a new technology that is capable of running up to three orders simultaneously. So, it’s a triple output that brings important efficiency gains for the equipment and for the operation. Noting that we’re opening, starting now with one corrugator machine, but the site will have two corrugators, and the second is expected to start operating in the second half of this year. At the lower left hand corner, we have the conversion equipment, the Flexo Folder Gluer printer. That’s a Japanese machine with four printing colors, a speed of 21,000 boards per hour. The factory will have five printers like that. On the other side, we see a Rotary Die Cutter printer. This equipment brings leading technology with a high capacity that can print on the inside and outside of boxes. It’s an additional technology for us. And, I’d like to take this opportunity to thank everyone involved in this project, our Board, our directors, all of our employees, investors. We’re very happy to deliver this achievement for Klabin, and this reinforces our belief in our integrated business model. We are confident that this plant will be a fundamental pillar for Klabin’s future growth, very competitive, and one of the best in the world, as Chris said in the beginning. I’ll turn the floor back to Cristiano, who’ll continue with the presentation.
Cristiano Teixeira: Thank you. Actually, thank you, Douglas. Thank you, Marcos. Now, we will turn to the Q&A, and we’ll get back to you at the end.
Operator: Ladies and gentlemen, we will now begin the Q&A session. [Operator Instructions] Our first question comes from a Rafael Barcellos with Bradesco BBI. Go ahead, sir.
Rafael Barcellos: Good morning, everyone. Thank you for taking my questions. My first question is to Cristiano. Would like to understand if this more favorable pulp cycle will bring forward the decision for a new project that would require most significant investments for the company now that we’ve had a start-up of Figueira project? That’s number one. Second question, clinically be about the pulp market, I’d like to hear from you. What is your expectation regarding the implementation of pulp prices announced for May? And in long fiber, I understand why you said that Klabin have been opted for not announcing the price increase and still in long fiber, we saw some players announcing an increase, but it was more concentrated in China, not in Europe. So, perhaps if you could comment on this difference between China and Europe, that would be much appreciated? Thank you very much.
Cristiano Teixeira: Thank you, Rafael. Regarding new projects, the answer at this point is we are a 100% focused on the ramp up of PM28. Of course, now as Douglas presented, we are focused on using as much as possible the ramp-up of corrugated boxes. And, so we are always pursuing efficiency, particularly in the forestry area. We are consolidating a work to reduce fixed costs that started last year. So, we are truly focused now. We are not considering at this point taking anything new, to the Board of Directors, Nico?
Alexandre Nicolini: Hello, Rafael. Good morning. Thank you for the question. This regards price announcements for the month of May. These were recent announcements made last week by Klabin. The expectation is that we will implement these prices in all geographies given the current market context that you’ve been following. Basically, looking at the geographies, Europe, our mature countries, in general, continue to perform above the expectations. I’d like to remind you that we always were with a quarterly consumption forecast, so the numbers for Q2 are very positive numbers above what the Klabin can supply today in terms of eucalyptus. So, the trend continues to be very positive. It is a little different than the current situation in China. I’d like to remind you that in terms of demand, China is not at the same par of Europe, United States, and even Latin American countries, but China involves a supply restriction. We have all of this, even to losing China remained low. There were volume deviations from China, from South Pacific to other geographies because of a higher demand elsewhere. So, there’s a supply restriction, and also there are some logistics involved in the supply chain which remains very challenging. The expectation remains positive for the implementation of new price adjustments in May. As regards to your question on long fiber, unlike eucalyptus, in eucalyptus, we don’t hear official announcements of price increases in long fiber. Still, these announcements were made last month. You should remember that in the prior earnings conference call by Klabin, I mentioned that the trend is that the spread of prices between long fiber and short fiber will increase. We already see this happening. More than 2 million tons of capacity was shut down in the last 20 years in this first quarter alone because of also supply restriction and operating problems. Basically, 600,000 tons just vanished from the market. The expectation is that for the coming months from now onward, we’ll start seeing a gap difference between long fiber and short fiber in a range of about a $150 per ton. This should have an impact on fluff prices. And as to answer your probable next question, fluff prices have been shown to be resilient. The price increases announced were more timid compared to pulp and bales, but soon we’ll start seeing the impact of long fiber being transferred to price increases for fluff.
Rafael Barcellos: Excellent. Thank you very much.
Operator: Our next question is from Caio Greiner of BTG Pactual. You may proceed, sir.
Caio Greiner: Hello. Good morning to all. I have two questions. First, about packaging. You mentioned your growth forecast on demand forecast for this year, 3% to 4% by Empapel and RISI. So, could you share your volume growth expectation for this year for Klabin, specifically, what your strategy will be with the start-up of Figueira? You mentioned that you’re expecting to have 70,000 tons from Figueira and have that in the market. So, comparing it with what you produced and sold in 2023, that would be an 8% increase. Is this a fair statement, or did I misunderstand? Yes, we tend to perhaps turn on another machine and growth will be lower. I just want to understand the strategy of the company this year for packaging. Will you focus on gaining market share? And if so, you might have to give up some of the price and once you understand your strategy. Second question about cost. Ivo, mentioned in his initial remarks a cost falling 1% quarter-on-quarter, the cost is below the company’s guidance for the year. And, perhaps this was mainly driven by pulp in the status because of a reduction of third-party word. And, I’d like to know if this is a reflection of the initiatives related to Caetê project. And, this first below the guidance of the year, can we end up having an upside, a revision downward in terms of cost expectations for the year? Does the guidance continue to make sense, or do you think it’s too conservative? These are my questions. Thank you very much.
Douglas Dalmasi: Thank you, Caio, Douglas. Well, Caio, thank you for the question. You see, we will monitor market conditions and market growth, and we’ll seek efficiency in our other operations, which were included in project Figueira from the start. Figueira comes in as a satellite in Sao Paulo state. It brings us great efficiency in the region. It supplies a little bit of the South, the Midwest, and Sao Paulo, and Minas Gerais, so we choose higher costs, and we follow market growth. This is how we will operate during the year with this expectation of market growth. Marcos?
Marcos Ivo: Well, regarding costs, well, we need to connect this with what we have been talking to you about since mid-last year. Since mid-2023, we’ve been saying that with the start-up of Paper Machine 28, we would have a dilution of fixed costs impacting the cash cost of the company. Since then, we’ve been explaining a number of initiatives, both in administrative, functions and in operational areas here, particularly in forestry. In Klabin Day, we spoke at length about this, about what we were doing in the forestry department. And, these initiatives are now showing in Klabin’s numbers. This has definitely been helping us. It’s a pool of effects in our cash cost per ton. As regards the expectation for the year, we maintain the guidance that was published on December 20th when we mentioned the cash cost return of R$3,100 per ton for the year. This number is maintained. As for Q1, of course, we ran below that, but that’s not the right timing to review this. Because, as you know, along the quarters, there is some seasonality of costs involved. So, we maintain the cash cost guidance for 2024.
Caio Greiner: Thank you.
Operator: Next question, Daniel Sasson, Itaú. Please, you may go ahead.
Daniel Sasson: Good morning. Thank you for this opportunity. My first question may be for, Ivo. It’s just a follow-up about Caetê. Ivo, you said that the conclusion is still pending, that’s defensive conditions as is usual in this type of transaction. But if you could try and bear with us a little bit whether you’re already thinking about strategic alternatives to eventually accelerate the monetization of that excess hectares that you acquired, of the land acquired in this negotiation, or if what you intend to do is to do this a little bit later. So, that would help us understand and maybe price a little bit better the value that you have to unlock? And my second question is a follow-up, maybe to Douglas with the start-up of Figueira. Congratulations for the start-up on time and on budget, even below. But, if you can talk a little bit about the market conditions, do you think there’s room for maybe a consolidation movement or the large scale of informality in this industry more with family-owned companies that are not as structured, that that would prevent it and growing in this sector is organically, indeed, I think it’d be nice to understand. And on the same point, if you could share with us how it’s been, I mean, one year since the ramp-up of Horizonte. If you’re already on the level of using the capacity that you expected or if there’s any lessons learned from that ramp-up of Horizonte that could help in the Figueira ramp-up? Thank you.
Marcos Ivo: Thank you, Sasson, Marcos. Sasson, as for Caetê, the suspensive conditions are being met in time. Everything’s moving along as expected. We’ve continued to estimate the conclusion to the end of second quarter. As for the strategic alternatives to monetize the land surplus or maybe partnership with the team that we’ve been working, we have been looking at it. We have studies and ongoing discussions about this, and we’re using time to our favor so that we can get to good designs for the company. What we can say is that, as for the base scenario, that’s the business case paired with the market that generated the reference return rate for the market, we are very confident we will deliver that. And, there is the possibility of advancing this. The directors are dedicating their time to this. So, this discussion, the studies are at the Director’s level. It is an important part of our agenda, but we don’t have anything sound to share with you yet. As soon as we do, we will share the information with you. But to summarize, the basic scenario published make us very confident. The forestry department is very prepared for the day this asset comes in, and that includes monetizing the surplus land. And, a lot of discussions going on and with the Directors to see how we can advance that. Douglas?
Douglas Dalmasi: Good morning, Sasson. Thank you for your question. Talking about the market, how do we see it? Since the end of last year, we’ve been seeing an acceleration of the domestic packaging market, especially starting in September, October. We saw the market growing greatly, and that happens in the first quarter as well. So, the market conditions are very good as concerns the domestic market in particular. So, the consumption level, the confidence level of people, it’s really happening. As you know, project what’s happening in the economy, and we see this industry going well for packaging. The seasonal markets, those that depend on export of fruits, for example, or protein, we also see that it is accelerated. The fruit market, Brazil is gaining market share compared to other countries, doing very well, growing at double-digit. And for the differences that we have in the different fibers, we do have a special competitive edge for our product, that Klabin has a great share of this market. So, we are enjoying this growth and our share and product differentiators. And, for proteins, it’s no different. You probably saw information about the Brazilian slaughterhouse that’s being cleared to export to China. So, accelerating protein export in this product requires a specific virgin fiber, and we do have a high market share of this market as we do with fruit. So, it’s excellent market conditions for us. The second part of your question about the consolidation, what we see in monitoring the market is what you saw in the world regarding the consolidation of Smart Capa in WestRock (NYSE:WRK) that is developing here in Brazil. It’s not a change yet, but on Klabin side, there’s nothing happening. I mean, there’s a lot going on. And to deliver, that was Horizonte to Figueira and we’re delivering always better than expected, better than our projections. And, in terms of Horizonte, it’s very special in the business case. The project was spot on. The technology having new technology helped us. It helps us learn, and it helps us in the Figueira ramp-up, that we have volumes that are above what was protected in the business case, especially considering the good opportunity of the growth of the fruit market in the region.
Daniel Sasson: Thank you very much.
Operator: Next question Caio Ribeiro, Bank of America. Please, Caio, go ahead.
Caio Ribeiro: Good morning. Thank you for this opportunity. Just a question from my side, talking a little bit more about the Kraftliner market. We have seen a series of price increases in the United States. That’s one of the main players. Since the beginning of the year, we’re seeing a growth in prices in Europe. So, I’d like to see if you can give more color about this market. After some years of price decreases, do you already perceive a sustainable improvement on demand to justify this international price increase now? Or do you see this as more of an opportunity? And I’d like to understand, in your opinion, if these announcements are somewhat motivated or driven by logistics issues? Thank you.
Jose Soares: Thank you, Caio. Soares. Good morning, Caio. Thank you for your question. Talking about Kraftliner prices, in the second quarter, we’re concluding an increase that we announced. We announced for April, $60 in all markets. For Europe, we announced EUR50. And now in May, we’ll be concluding this increase that was announced from March to April. So, the increase goes, as you said, there’s already a new wave taking place. Yesterday, there was an announcement for a recycled paper product producer increasing EUR80. And, you mentioned as well today, there was another announcement of a price of EUR60 to, for June. So, that shows that we’re going back. I mean, the demand has been better. There is an improvement in demand. In the United States, it’s going very well. The price increases there have not materialized, that increase of $70 that, from what we read and hear from the market, but it is about to be concluded. We’ve also seen the balance sheets of American companies reporting expressive growth at around 99% in the shipment of boxes. One manufacturer doesn’t mean that’s the entire market, but there are signs of a generalized improvement of demand. And, I believe that this is giving us the conditions for us to begin thinking about a second price increase round driven by demand now. The first round was due to car. And the second round, the demand really is strong. Today, to give you an idea, our portfolio today is at around eight weeks. We were running with portfolios of three to four weeks before, so now our portfolio is very sound. We’re moving forward with the production for eight weeks. So, this scenario is quite favorable. Logistics has also been helpful. I mean, Asian producers have difficulty getting to Europe. Europeans have difficulty getting to Asia. So, our geographic position has been helping us greatly, especially in the Pacific, in Latin America. In the Pacific side, we’ve been having demand increases from multiple clients due to issues in the Panama Canal because of droughts and this type of event. So, combining it all, the scenario is very favorable to Kraftliner at this time.
Caio Ribeiro: Excellent. Thank you very much, Soares. Very clear. Thank you for the details.
Operator: Next question from Ricardo Monegaglia, Safra.
Ricardo Monegaglia: Good morning, everyone. Congratulations on opening project Figueira. I have two questions. It was the question before about total cash cost, and you’ve mentioned a great benefit in fixed cost, given greater cost dilution. But, when we think about the second half, when we’re going to have more volume, but the fixed cost of Figueira project, will the trend be the total cash cost in the line item of fixed costs, will it be dropping, being flat? If you could give us some color on that, that would be great. My second question is about the integration between kraftliner and packaging. There was a reduction in Q1 compared to the levels of the second half of 2023. I just want to understand what the company is thinking. Should we see this kind of conversion, integration dropping in the next quarters? Is there any target of conversion that you’re pursuing? So, if you could also elaborate on that. Thank you very much.
Marcos Ivo: Thank you, Ricardo, Marcos. Well, Ricardo, as for cash cost, I’d like to address that we maintain the guidance of the company, R$3100. As regards fixed costs, you have data, which is public information regarding the ramp-ups of Paper Machines 27, Paper Machines 28. So, we will be increasing production, and the fixed cost does not change. Additionally, we mentioned we had a onetime, stoppage in Q1, so it’s non-recurring. It will not be repeated. This leads to higher output in the Ortigueira plant. So, that’s for the second quarter. So, you have information about this and all of the materials disclosed by the company. This leads us to have a greater dilution of fixed cost in Q2 actually compared to Q1. As for the start-up of Figueira project, naturally over there, we have a higher added value product. The value per ton is higher than in the other products of Klabin. But the impact on fixed cost is not substantial enough to impact the total cash cost of the company per ton. The effect of fixed cost dilution is greater and more representative. As for integration and conversion, Ricardo, I’d like to remind you of the calculation because I think this will help us reflect together, getting the reference of about 1 million tons in the quarter. Our pulp and fiber area, it’s not integrated, so it’s not included in the calculation base. Our coated board department is not integrated. It’s not included in the calculation base. The calculation base includes kraftliner and sack kraft, recycled paper, our recycled paper, 100% of it is consumed internally. So the percentage of conversion, of integration of over total production of liner, kraftliner, and sack kraft, well the level of integration will always be around 60% to 70%. So, if we consider the market, our liner accounts for 30% to 40%, and it’s 30% to 70% integrated. Now, this number will fluctuate during the cycles of the products, and it is in the fluctuations of the cycle that we operate the conversion level, always looking at the opportunity cost. Opportunity cost of integrating, a packaging if it’s better than the cost of exporting, we’ll integrate more. If the opposite is true, the export margin is higher than the domestic market, particularly for spot markets, will trend to manufacture more for the domestic market. So, the level of integration of sack kraft and kraftliner, the sum will be between 60% and 70%.
Ricardo Monegaglia: Perfect. Thank you very much.
Operator: Next question Gabriel Simoes, Goldman Sachs. Please, you may go ahead.
Gabriel Simoes: Thank you for taking my questions. I have two very quick questions. The first, you talked about the carryover effect of pulp and paper considering the logistic situation of the ports at this first quarter. So, does it make sense for us to have an, these volumes offset in the second quarter, or should we consider the incremental number that could come for that for each product? And my second question is a follow-up on the kraftliner market. If you can talk about, you talked a little bit about the positive outlook for demand and price, but if you could talk about the possibility of alternating the new machine at Puma II between coated boards and kraft. What’s the breakdown expectation you have for them for this year? And, in more structural terms, what you’re thinking about?
Cristiano Teixeira: Thank you, Gabriel. About the carryover, there’s no expectation. I mean, we confirmed that this carryover exists, but it’s I don’t know, if I’ll be able to explain myself briefly, but it’s already entered a phase. The carryover has been carried longer, so it’s already in the flow. I mean, I don’t see it being offset in the next quarter. Now, about the machines mix, Soares will talk about this.
Jose Soares: Thank you for your question, Gabriel. PM28, one of its strong features is that it is very versatile. It produces kraftliner, white top liner, and coated boards. So, we continue with coated boards at a strong pace for qualification of coated boards, especially LPB. That’s the more complex coated board. We already have some customers in an advanced qualification process. We believe that towards the middle of the year, towards July, we’ll already have some customers receiving or with product from PM28 certified. Some of them are ongoing, and we depend on the client’s speed in this qualification so that this machine can also start to get LPB coated boards for the second half of the year. In the meantime, more conventional coated boards are for beer, for fold, for this type of products are already being produced by PM28. And at the same time, we launched the product, with Eukaliner light. It’s a coated product, so it’s a high value product that today is much better for us to make that product rather than folding box board for export. So, we’re putting a lot of focus on this new product. It brings better margins than coated boards, and as we qualify the machine for the higher added value products. So, the machine today runs at around 45% for coated boards, and we continue to pursue the objective of getting to the end of the year at 60% depending of the level and the speed of qualification for our customers. It’s important to say that this qualification process will be extremely important because we see that in different segments. With the recovery of the demand, the machines that exist today, machine 7 and machine 9 for coated board, cannot cope with that. So, if we see fast increase in demand or a more serious logistic problem, we’ve been seeing logistic events occurring frequently. We will not be able to respond to the market without the PM28 being qualified. So, that’s the pace we’re working at with machine 28.
Gabriel Simoes: Excellent. Thank you for your answers.
Operator: As there are no more questions, I’d like to turn the floor to Mr. Cristiano Teixeira for his final statements, Mr. Teixeira. Please go ahead.
Cristiano Teixeira: Well, thank you. So, we continue with the trends dashboard. I am on Slide 13. We see the second quarter confirming what we already saw happening in Q1, in other words, a continued improvement. The curves of our markets kind of share the same characteristic. I’d like to remind you that the peak of demand, for our products tends to occur between the second half of September, October, and beginning of November. So, we continue on this improvement curve in Q2. I think that this was mentioned in some of the questions, and of course, we agree. We see that for short fiber, at a great measure, a good part of the benefit is coming from a demand of a greater lead time. So, when we qualify demand, it’s not necessarily coming from greater consumption. So, for that reason, we have an improvement, and demand, of course, helps. But in part, the benefit has been coming from logistics. Regarding prices, we continue with this improving trend much better than last year, partly recovering the curve, but still far from the equilibrium price in this sector for us to consider reinvestments. So, although there is an improvement trend, it’s still far from the equilibrium price for investments. As for fluff, here, yes. We also see benefit coming from a more qualified demand. I talked about a restricted supply. I spoke about this in the beginning of the call. I spoke about the price differences between the fibers. So, given the structural trend in fluff or given the consumption of geriatric diapers or the need for high-end products in the sector with long fiber. So, in addition to the trend for the next quarter, so we see the short-term, the benefit of this differential cash cost that we currently see at least. We see in our region with a long fiber from Parana, the most competitive long fiber in the world compared to long fiber producers in the northern hemisphere that have been suffering a lot with their cash cost. Even with a very favorable price curve of the product and with a stability level that was unprecedented for fluff. For coated boards, here, we also point out this wave of deflation driven by consumption products with China’s exports. So, some players changing, changing positions, and we also said that we protected from that via higher added value products, as Soares mentioned. As for liner, Soares also mentioned the United States. We see the United States still strong. We are here making reference to one American competitor that published strong numbers about 9%. Perhaps that is not the trend that we are going to see in the U.S. market as a whole. We still need to see how the other U.S. suppliers are performing, if they will follow this trend or if they will post negative numbers. But. if we see the United States growing 2% to 3% in the shipment of boxes in 2024, what does this mean? It means restricted exports of kraftliner. Exports account for 3 million tons to 3.5 million tons. If there is this restriction in U.S. exports, given a benefit of conversion in the U.S. market itself. This in and of itself as mentioned by, Soares, shows a trend of improved demand and pricing worldwide. This was mentioned by him, considering eight weeks for our portfolio. As for corrugated boxes, the demand forecast is drawing our attention. We expected 2024 to be a good year. The government has been doing their role with adequate management, trying to drive an improvement in the economy via consumption. In many sectors, we’re very much focused on consumption, about 70% of our packaging, goes to supermarket products. This morning, we saw adverse data posting very strong numbers in February. There is some inertia to replenish the inventories, but we are very encouraged by corrugated boxes and its level of demand. So, this seems to maintain the price level. But, if we have a demand increase, that is already a good sign for us for Klabin because we’ve been increasing capacity with Figueira. As for industrial banks, we have a good expectation for the second quarter and half. We have been monitoring our clients’ cemento players. There’s an expectation of improvement with FTTS, and this should drive MCNV. This should have a reflection on revenue and income. So, we should see a good scenario for industrial banks. So, these are our trends. This is these are the beacons that we discussed, at the management for the second quarter and second half of the year. Thank you very much for your attention, and I’ll see you in the next conference call.
Operator: Klabin S.A.’s earnings conference call has come to an end. I would like to thank you all for your participation, and we wish you a great day. Thank you very much.
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