Suzano SA Q2 FY2024 earnings call

• Invested in Lenzing in Austria and Pactiv in the US to test markets, with no impact on balance sheet but potential for future scaling.
• Cerrado project's Ribas mill startup, with sales ramp-up expected by year-end.
• EBITDA of R$6.3 billion for paper segment and R$5.5 billion for pulp segment, showing business resilience.
• Focus on deleveraging the company even before Cerrado's full operation.
• Capital allocation with four consecutive share repurchase programs, approaching end of fourth, and launching fifth with 40 million shares to be bought over 18 months.

In the second quarter, Suzano's paper business saw domestic market print and write demand increase 12% in the first two months of the quarter year-over-year, with growth in both uncoated and coated paper grades. Paperboard demand rose 14% during the same period, driven by increased packaging consumption from food and beverage and pharmaceutical sectors. EBITDA for the paper segment was R$6.3 billion. The pulp business had an EBITDA of R$5.5 billion with a 60% EBITDA margin, supported by higher prices, favorable FX, solid volumes, and good cost performance. Average export price was $701 per ton, 12% higher than the first quarter of the year.

• Anticipate healthy demand in all regions in the second half of 2024. North America and Europe to have solid paper productions, China paper production to continue positively.
• Cerrado project's Ribas mill sales ramp-up expected by year-end with bulk pulp supply to major markets.
• Expect pulp inventories in Chinese ports and hands of paper customers to remain below normalized levels in the next month.
• Cash costs in coming quarters ex-downtimes to remain stable compared to first quarter, with third quarter foreseen to have a low single-digit increase due to FX and Cerrado startup, and fourth quarter expecting best performance after Cerrado ramp-up.

• Market uncertainties and price cycles in pulp market.
• Logistics challenges, including vessel delays and port congestions impacting export volumes.
• FX impact on cash costs as some chemicals are dollar-linked.
• Uncertainties in pulp inventory levels and unexpected closures affecting availability.

Q: On pulp prices, what's the view on current demand from China at current price levels and if customers can skip purchases?

A: Customers have been reducing orders since April, pulp inventories at ports and with customers are below normalized levels. With September being a big seasonality period, expect customers to recover purchases. Our price adjustment aimed to get the market active again, with some customers becoming interested in buying pulp again.

Q: On capital allocation and downstream strategy, explain effective acquisition's role in going further downstream and fiber to fiber substitution in US?

A: Lenzing deal positions Suzano in the textile market with increasing fiber substitution and demand for fiber-based products. In US, assets in Pine Bluff and Waynesville target liquid packaging segment, with potential for fiber to fiber substitution in future product portfolio and production increases.

Q: On shifting volumes from China to Europe and US, and production downtime plans?

A: Volumes in Europe and US are based on contracts, with little short-term movement space. Production decisions are based on marginal cost and price, using a methodology to maximize asset value.

Q: On capital allocation and potential acquisitions, smaller vs larger transactions?

A: Focus on assets that allow differentiation and value generation, with discipline in capital allocation. Current strategy includes smaller transactions and share buybacks, with future decisions based on best potential returns.

Q: On Beto's first conclusions and cost evolution with Cerrado?

A: Suzano is well-managed with strong facilities and talent pool. Cash cost expected to have a small single-digit increase in Q3 due to FX and Cerrado startup, with Q4 expecting best performance after Cerrado ramp-up.