Suzano S.A. (SUZB3) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for holding, and welcome to Suzano's conference call for an update about how the company has been navigating on the current COVID-19 context. [Operator Instructions] Before proceeding, please be aware that any forward-looking statements are based on the beliefs and assumptions of Suzano's management and all information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur in the future. You should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Suzano and could cause results to differ materially from those expressed in such forward-looking statements. Now I would like to turn the floor over to Mr. Walter Schalka. Please, Mr. Walter, you may proceed.

Thank you very much. Good morning, ladies and gentlemen. Thank you very much for joining us to this session. The idea today is to share with you all the information related to the company, how the company is navigating around this COVID-19 situation. We believe on -- overcommunication is the practice that we are doing right now. We have been talking to all the major stakeholders of the company. We have been in discussions with every single plant with a video session with 100% of our employees. We have been in discussions with our large and small suppliers and as well with large pulp customers in the world, with large paper customers in Brazil, with all the health authorities and all the mayors and communities where we are located. And we believe that this is a transparency process that is critical for us. It's part of our action plan at this point of time. Probably you have been reading a lot about this COVID-19, we have discussed and we have forecasted. The issue here is not to give the answers to you about all the potential implications of COVID-19 to Suzano, as we may know, uncertainty leads to even more conservative approach on our side. We have been -- how we are going to tackle the situation. We are preparing for the worst and hoping for the best. We have been working on our management focus, and this is Slide #4, with 3 different dimensions. First, how we are going to tackle our people, how we're going to protect the well-being of our people, how we are going to impact the society. As you may know, we have 3 different pillars on our culture. One of them is people that inspire and transform; the second is create and share value with all stakeholders; and the third one it's only good for us if it's good for the world. Then society is a critical point for us, we are going to discuss with you how we are going to impacting -- mitigating the situation in the society. And the third issue is business continuity, how we are going to operate our situation. Of course, we cannot share the quarter numbers with you because we are in the black-out period at this point of time. The idea is to give a brief overview to you how we are going to operate at our facilities and how the market is reacting to that. On the Slide #5, we are going to talk about the main measures to protect our people. First of all, we have been mentioned -- I think it's important to mention to you that we have 100% of our people on the back office, in the home office. We do have right now from one day to the other. In the last 3.5 weeks, we have 4,000 people in home office right now. We're operating extremely well. All of our offices, except for the Chinese offices, are shutting down at this point of time, are closed, and everyone is at home. And we are operating very smooth during this period of time. As we had the experience of the Chinese situation on the beginning, we decided to try to mitigate the contacts, and then we decide to -- the cancellation of all events, trips and visits to the mills and face-to-face meetings. The idea is to create that kind of isolation at the plant, then we decided that people from São Paulo could not travel to the plant and vice versa. And we did -- and this was very positive to protect as -- since many of our facilities are somehow isolated from the main large areas of Brazil. Since the beginning, we decided to remove all the pregnants, all the patients with chronic disease and everyone over 60 years old to put at home. And we have more than 600 people in this situation, everyone is at home to protect people. Every shift, we are sanitizing with a disinfection plan on every single part of our plants and on the forest side as well. We decided to keep the operations with the minimum-required people at the plant, all the essential people only stay at the plant. Everyone is at home right now -- the others are at home right now. And to give an example to you, we have the intern, the engineering people, everyone that is not required to be at the plant is at home at this point of time. Of course, we gave guidance in terms of distance. We are measuring body temperature every single day in every single plant at the mill gates. The density on the chartered buses are decreased to less than 50%. We are not giving any more self-service food to everyone. We are very giving boxes and more spacing between tables and chairs. Every supplier that is required to be at the plant, we are not allowed them to be at the plant, but sometimes for maintenance reason we need them at the plant. And then they need to be part of a very screening questionnaire. We have adoption of quarantine in case of risk of contamination. We are quarantining some people for safety only. Till now, we have just 4 positive cases at the company, 3 of them is already recovered. One of them is -- just one with mild symptoms, all of them with very light symptoms. And everyone is in recovery process. We are doing extremely well on this point as well. We decide to postpone all the maintenance or the annual shutdowns at this point of time. And we have a very cautious process of information to everyone. How we are going to impact the society? First of all, we decide to keep -- the Slide #6, we are -- decide to keep all the jobs. We are going to guarantee the jobs to every single employee of the company during this pandemic period. As well for the third-party suppliers, there is at home at this point of time. And some people, there's outsourced people, we are going to guarantee for that at least 60 days their salaries, 100% of their salaries. We have several actions in terms of donation. Sorry, I forgot to mention that we decide to anticipate 50% of the 13th salary that used to be paid in November are going to be paid now in April to 100% of our employees. We are donating personal-use materials, such as toilet paper, napkins and disposable diapers to the communities around our plant. We bought alcohol 70 degrees as well to distribute to our employee, to third-party outsourcing people and to the communities as well. And we are supporting 2 major initiatives right now to impact the society in terms of hospitals. And we are -- in 2 dimensions, one of them is ventilators. We bought ventilators from China. The ventilators are going to arrive in Brazil next week, and we are going to distribute that in the federal government as well on every single state where we operate. We have been in contact with the health secretaries in every single state, and we are going to give some of these ventilators to these different states and to the federal government as well. And on top of that, we are bringing 1 million N-95 masks from China as well. We are going to distribute for federal government and different states. I think it's a major impact since ventilators is the bottleneck to save lives. On top of that, Suzano decides to support one Brazilian company called Magnamed in order to allow -- they are ventilator producers. We are going to support them, and we are supporting them over the last 45 days to increase their production. They used to produce 200 ventilators a month, and we are going to produce 6,500 ventilators during the next 90 days. All of them are going to the federal government that is going to distribute in several states of Brazil. Just to remember that Brazil has right now total number of 65,000 ventilators. Only with this action, we are going to increase in 10% the total ventilators that we have in Brazil. We are very pleased to participate with other companies on this support that is critical for Brazilian society. And we are supporting improvements on the hospitals where we operate as well. And I think the combination of all of these actions going to bring to us one total amount of around BRL 50 million of investment to the society. Talking a little bit about our business. First of all, let's talk about operations. We have been -- since the beginning of the last 3 months, we have been working on risk assessment of all operations. We have been going through forest. We have been going through industrial and logistics, inbound and outbound. And we have been taking measures to protect that. We have a business continuity plan for 100% of the operations with different level of contingency. What happened -- if happens the situation, then we have a contingent number 1, 2 and 3 for every single situation that we have in forest, in industrial and logistics operations. We are very comfort. Right now, we are running 100% of our plants on a normal pace with (sic) [ without ] any disruption at this point of time. It's the same with wood, it's the same with logistics. But we are prepared if something happens in the future -- in the near future to take all the required actions to protect our operations. We have a crisis management team working and having daily meetings how we are going to operate on every single major change that could face since it's a very dynamic situation. We decide to push our inventories, pulp and paper inventories closer to the end customer, then we are pushing on all logistics chain materials, shipping more volumes to Europe, U.S. and China. And then we are going to see some increase in the terminals of the volumes. But meaning that we are getting -- we are decreasing our inventory at Brazilian operations at our plants and increasing inventory levels at the customer -- as close as possible to the customer. To protect our operations as well, we decide to increase our wood availability at the plant. Then we are increasing -- there would be our inventories that we have at the plant and all the required raw materials, increased chemicals and other raw materials as well. Just a matter of protecting, if you have any kind of logistics or disruption in the supply chain. We have been in a very close contact with our suppliers and service providers. We are doing -- and customers as well. We are doing this on a daily basis, and we know exactly what is going on. Until now, it's a very smooth operation, but we are preparing for more difficult times, if happen. We decided to have a budget revision on discretionary reimbursement, CapEx and OpEx. We are going to revert to you the numbers on our quarter conference call. We are going to give guidance to you how we are going to have this. It's a major reduction that we are doing on CapEx and OpEx on different lines of our operations. We decided to have the hiring freeze, salaries and promotion postponement since the beginning. We -- Marcelo is going to share with you some of our actions related with liquidity. We have been monitor and mitigate all the credit risk. We didn't have any major impact on that, but we are monitoring all the time. And we have a very -- despite of the fact that we are -- everyone at home right now in home office, we have a system that is tracking all the major KPIs in the company all the time to see a quick response if happens something different. Then we believe that through that, we are protecting our operations, we are protecting our business. Marcelo is going to make some comments as well on our pulp volumes. And I think it's very important to you to have our perception what is going on in the market right now. Just to finalize this issue, I'd like to mention that we believe and we have the World Health Organization in several different countries in the world consider pulp and paper as essential to the society. And we have been working to deliver to 2 billion people our products all over the world. We continue, and this is a very important issue to impact the society with our products that is required of daily life such as sanitary paper, such as diapers, such as packaging and so on and so on. Now I'm going to pass to Marcelo, who is going to share with you some financial highlights.

Thank you, Walter. Good morning, everyone. Let's move to Page 9 to take a look at our liquidity position. We have been carrying, for a period of time already, a very conservative liquidity position. And during the first quarter of this year, we took some additional initiatives to further enhance our liquidity position. The first was to roll over some of our export repayments of $750 million that we pay down with an average maturity of 1.5 years, and we took a new one of $850 million with a maturity of 5 years at the same cost. In addition to that, we decided to prepay our 2021 bond of $190 million, and that was done on March 31st to take advantage of a financial advantage that we could have in doing that. And we decided to withdraw $500 million of revolving credit facilities that we have available. Effective April 1, 2020, we already have that money in our cash position at a cost of LIBOR plus 1.3% per year. With that, we have a pro forma liquidity in that profile, as you can see on the right-hand side of this graph. So the cash that we had at the end of the year pro forma with those initiatives that we took, mean that we have $2.4 billion of cash on hand, plus additional $200 million of other revolving credit facilities that we have not withdrawn yet, which means that we have enough in cash to pay for the next 3 years of maturities. We have $1.1 billion of maturities this year, $200 million next year, 2021, only $200 million and $900 million in '22. So our cash is enough to pay for this next 3 years, and 83% of our total debt matures in 2023 and onwards. So that means that we have a very comfortable and robust liquidity position that we believe is very well positioned to manage -- to help us manage this crisis period. Moving on to the following page. We have a discussion on FX, which, of course, is a very important topic for us. On the left-hand side of the graph, we see the potential impact that we have on our EBITDA and also on our derivatives position coming from the FX moves. So we basically run here a sensitivity analysis. So if you look at the column in the middle with an FX of 5, for instance, the effect of EBITDA in 2020 with an FX of 5 as compared to the FX that we had at the end of the year, 4.03. It would mean that in the next 3 quarters, we would have additional BRL 3.8 billion of EBITDA, all else constant in relation to an effect of 4.03. And the benefit in '21 would be $5 billion, of course, because we would be talking about 4 quarters instead of 3 quarters. The negative effect at the real at 5 that we would have in zero cost collars adjustments and also in the swaps that we have on our debt would mean BRL 3.2 billion this year and BRL 1.1 billion next year. And you see that the higher the FX is, the larger the benefit is for us. So of course, we're going to have the impact of our hedging position in the short term, but a more depreciated real is always accretive to the cash flow generation of the company. And in terms of sensitivity, every BRL 0.10 in the real to dollar relationship means BRL 500 million of EBITDA on an annual basis. On the right-hand side of the graph, we have the zero cost collar position that we have been carrying for a long period of time, and we haven't changed our policy in relation to that. So we have been rolling this position. And of course, the hedges that we did more recently for next year are much better positioned just because the market moved in the right direction for us. And the picture of the portfolio that we have for this year, the beginning of next year is basically the same that we reported at the end of last year. In addition to that, we took advantage of these market conditions to swap into fixed rate some of our exposure of floating rate, taking advantage of this very low interest rate environment that we're living today. And also we took also advantage of the low oil prices to hedge our position on oil prices for this year. Important to mention that we don't have any margin call requirement in any of our FX or other derivatives, which means that all the financial settlement of these contracts, they all take place at maturity. And the short-term movements on the currency don't create any issue in terms of liquidity for the company. Moving on to the pulp and paper market, we would like to make some comments about demand and supply. Starting with demand. The picture here on Page 12 shows the distribution of our pulp in terms of the industry of our clients. 61% of the pulp we sell, and this is the number for last year, for the last 12 months, 61% of the pulp that we sell goes to tissue producers, 20% to printing and writing, 16% to specialties and 3% to others, including packaging. When we look at the tissue industry, we see a positive trend in all regions. That has been the case in the last months and continues to be the case in our view. With an important migration from -- away-from-home consumption to at-home consumption that consumes a higher content of virgin fiber. So we have a positive view of tissue consumption in the coming months. Packaging is also being positively impacted by the increase in e-commerce and food delivery. And of course, the other 2 grades, specialties and printing and writing, are going to have a negative impact in the coming months. Printing and writing will have a sharp decrease, especially in Europe and the Americas, and the same will happen to the core paper. But -- and when we look at the -- all the grades together, we still believe that we are very well positioned to deal with the movements that are going to come in the market in the coming months. On the supply side, Page 13, we have seen lately a series of different announcements of capacity shutdowns, like the ones that you can see in the picture here. Every day, we're getting new information about plants that are closing, both because of the high cost compared to the low price environment that we have on the pulp side and also because of the effects related to COVID-19. On Page 14, we can see a summary on the left-hand side of the page, that the unexpected downtimes that we have seen so far in the first half of the year already account for 1 million ton reduction in the supply of pulp in the market, basically coming from Asia, Europe and North America. Of course, other factors still have to be considered where the result of them are still unknown to us. The closure of sawmills in North America are going to increase the risk of wood shortage in that region. The social isolation has created a situation where less paper are going to be collected and recycled, which means that potentially, we will have a higher demand for virgin fiber. On the other hand, many mills are likely to postpone scheduled maintenance downtimes, like is the case of Suzano, which means that in the short term, we can have a relatively higher supply in the market. And of course, we have a significant risk of interruption in the inbound and outbound chain that can contribute positively or negatively to the supply in the sector. So there's still a lot of uncertainties in front of us that we have to deal with. With that, I'm going to turn again to Walter to conclude with the takeaways of the presentation.

Thank you very much, Marcelo. On the Slide #15, I would like to share with you some critical issues that we are doing right now. First, I think we are very well positioned on the strong -- on our cost competitiveness. As you may know, our cash cost of fourth quarter last year was BRL 634 million. We mentioned to you that our target would be to go south during this year. And we are going in the right direction. Now we are going to have additional actions considering the actual situation that you have that probably will grow and enhance our position in terms of costs. Of course, if you think a little bit in U.S. dollars in different currencies, we are going south on a very fast pace that is helping our margins as well. We do have a much lower level of risk compared with our peers since we have several sites which operate. All of our sites are operating on a proper way right now, but we do have 7 different pulp production sites in Brazil. And of course, we can -- our risks are mitigated based on that. We have a geographic diversified revenues and customer bases. We are operating in different regions of the world with different moments of COVID-19 impact. China is operating extremely well right now. We are seeing some major impact, as Marcelo mentioned to you, printing and writing in Europe and Americas, but overall volumes are flowing as expected on our budget. We are very well linked with the Tissue segment. Tissue is going to keep growing for 2 different reasons. We believe that we are going to see structural growth on the tissue market due to the sanitary situation in the world. But in the short term, we have the benefit of shifting volumes from away-from-home to at-home consumption. We are seeing hardwood market gaining market share over recycled fiber and over softwood as well. Then we are gaining market share at this point of time. We would have the benefit of FX on our cash flow generation. As Marcelo mentioned to you, no financial risk up to 2022, even without free cash flow generation, there is not real. We didn't have any quarter where we are not presenting a very good cash flow generation, and we're very well protected. And no financial covenants at this point of time, and we are very conservative on our policies, on our financial policies. We have no dividend at all. Our hedging policies are in place. We are very well conservative on this process. And every action that we are doing is to protect our people, to impact the society and to the business continuity is we are very well organized and plan and the implementation of our team has been outstanding. I'm very proud from what our team is doing right now. Now I'm going to turn to the Q&A session. Please feel free to make any required questions to Marcelo and to myself.

[Operator Instructions] Our first question comes from Daniel Sasson, Itaú BBA.

Thanks, Walter and Marcelo for the presentation on the measures that the company has taken to mitigate the impacts of this crisis to your employees and to society with all the imports of masks, ventilators, et cetera. It's very good to hear that we have a committed company to these important matters. My first question is on the pulp price outlook. You mentioned the important supply curtailments seen in different regions in the first half of this year. Do you think, in your view -- and we have also seen some producers announcing price increases, do you think it's a scenario that is good for price increases in the short term? What would be your view on this matter, considering that we could potentially see a decline in printing and writing volumes? Do you think that the tissue market to more than offset that and a potential weakening in demand from Europe, although Chinese is now recovering? And over the past 2 quarters, you also carried the strategy of selling quarterly volumes for fixed prices. Do you think that it would still be the case going forward? Or are you already happy with the level of destocking that you reached over the past 2 quarters?

Thank you very much, Daniel. I'm going to answer these 2 questions that you made. I think it's very important to mention that demand and supply has some moving parts, and it's very difficult to forecast what is going on. And of course, we are seeing some impact on demand on printing and writing, but as well on the tissue market, a positive impact on that. On the supply side, we are seeing several situations for different reasons, for sanitary reasons and/or for market reasons that we are seeing some shutdown in the markets on different parts of the world. We believe that we continue to see that on a daily basis that is going to change the situation. This is creating a very difficult scenario to forecast what would be the balance between demand and supply. But as we mentioned last year, we will increase our production this year, but we are going to increase our sales as well comparing with last year. We are on the right trend on this direction. We are continuing to destocking our operations in the first quarter, and we are going to have the numbers in the -- on the quarter presentation. We believe that Tissue, as I mentioned to you, will continue to grow in the next few months for different reasons. We believe as we are much more focused on the tissue market comparing with the printing and writing. Tissue, almost all of them are nonintegrated plants, but printing and writing, they are semi-integrated plants, they are going to shut down all the plants, that meaning they are not going to create any major impact on the pulp market. It's a completely different situation than when we are shutting integrated and nonintegrated plant. Answering your second question is related with the fixed price. We announced a price increase in China of $30 starting on April 1st. We are not announcing any other price increases in Europe and Americas at this point of time. We believe that our policy of fixed prices in the Chinese market is gone. I think it's already done. We don't need to have any more this policy at this point of time. And we just announced prices for April now to our customers.

The next question comes from Carlos de Alba, Morgan Stanley.

It's good to see all the efforts that the company is doing for society in Brazil, congratulations for that. The questions I have is maybe, Walter, you can elaborate a little bit more on the terms of the ramp-up of the stock capacity that Suzano had last year that you mentioned already, that you're going to produce more and sell more this year, if you can give us a little bit more color on that, that would be helpful, particularly in line -- in light of the different trends in supply/demand that you highlighted before? And second, could you comment, please, on any cost or expense impact that you are seeing in the operations on the back of the ongoing situation? I understand that the company is -- has put plans to reduce CapEx and expenses. But I guess, those will take a little bit of time to unfold and flow to the cash flow and income statement. But in the shorter term or in the medium term, is the company seeing any cost pressures or expenses that you can highlight?

Thank you, Carlos, for your questions. First, related with our destocking policies. As we already know, we had a destocking of 1.1 million tons in the second half of last year, 450,000 and 650,000, roughly, tons in the 2 last quarters of last year. We had an additional destocking in the first quarter of this year. We are not going to share the numbers with you right now. We are going to wait for the quarter conference call. But as we -- last year, we mentioned to you that our idea would be to have higher production volumes and higher sales. We are in the right trend in this direction. Related of your second question related of costs. We do have some additional -- or less revenues from the energy side, as you may know the -- our -- the energy prices in Brazil are going down. And part of our volumes are on the spot market, and our volumes are okay, but the price is going down. In exchange of that, the fuel cost is going down at a very fast pace and more than mitigates that. As you may know, fuel cost is very important to us in different parts of the production. On the forest side, at some of our plants, it's running with oil on the line [ Qunes ]. And as well, we -- it's impacting our outbound as well from plant to the port and some of the shipments as well from the vessels. Then our fuel cost is going down, that is going to help us on this process. Then we are not seeing any major impact till now that is going to affect our cash cost and our total balance sheet. Some discretionary expenses, for conservative reasons, we are going to suspend it, then it's going to have some benefit on our balance sheet, but it's mainly going to impact in the second quarter of this year.

The next question comes from Jin Brandt, HSBC.

Thank you very much for the update. That's very helpful. I first wanted to ask you about the announced pulp price hike for Asia and the potential that, that could be -- introduce some reputational risk. Is there any concern that Suzano could be seen as increasing prices in response to the COVID-19 outbreak or do you think that's sort of a low risk? And then my second question, just back to production for this year and volumes. I know you don't give guidance for the year, but with the maintenance downtimes, if you could just give us a little bit more color on that. Are they being canceled? Are they being pushed out to the end of the year? And sort of how does your production outlook for this year look compared to when we spoke in the fourth quarter results? Have -- are you expecting higher production than you originally were at the beginning of the year?

Thank you, Jin, for your question. The first is related to the price hike. We are in the commodity business. We -- the prices went down from $750 to $460 in China in the last 18 months or something like that. And then we are not seeing any reason why it's a supply and demand balance over the time that we cannot increase prices on a commodity basis. We are not seeing any reputation risks on that. As the market is a little bit soft in Europe and Americas, we are not increasing prices at this point of time in these 2 regions. But the market is very strong in China at this point of time. The second question that you mentioned, as we are going to postpone the annual shutdowns from the second quarter to the third or fourth quarter. In the second quarter, of course, we are going to have higher production volumes than the initial forecast, but we are not going to see any major changes on the annual basis on the total volume that we are going to produce. We are not forecasting any potential increase on volume during the postponing of the annual shutdowns.

Our next question comes from George Staphos, Bank of America.

Marcelo, Walter, thanks for the details and for everything that Suzano is doing with COVID. I had 2 general questions. The first regarding China, on stocks and Tissue and then the other on finances. So with social distancing being what it is, how do you make sure that the data, the information, the intelligence that you're receiving in the field is as accurate as it normally would be? And relatedly, you mentioned that stocks will be increasing in China over the next month or so, how much of that volume do you estimate that shows up in the next 30 days is actually sold? And then if I could, of the Tissue volume increase that we're seeing, I know it's hard to say, but what are your customers saying reflects true structural increases in volumes? And what is just a stocking up? And then the last question, Marcelo, thank you for the details on your financial position, your liquidity, it all looks fine. So to the extent that you can comment, what are the conversations focused on with your rating agencies right now in terms of what's important to them over the next 6 to 12 months?

Thank you, George. I'm going to tackle the first question and then -- and answer the first question and then Marcelo is going for the second one. George, we are tracking all the major KPIs in China, talking with every single stakeholder. We are talking with the port authorities. We are talking about -- with our customers to understand their raw material inventories, their finished goods inventories, how they are performing, how they are selling. We are tracking every single week this information on every single plant of our customers. And I can tell you that on the Tissue business, everyone is running in China right now at full capacity. And at this point of time, the volumes are flowing very well to their customers, their finished goods levels are very low at this point of time. We are increasing capacity, not only to supply the market, but to increase their finished goods as well. We are doing the same with printing and writing. We are doing the same with Specialties. We are tracking customers. We are tracking ports, not only in China, but in every single part of the world. We believe that we are very well positioned in terms of demand and supply at this point of time. And we are going to see the numbers when we present the quarterly results. Now Marcelo, please.

George, thank you for your question. We have been in close contact with the rating agencies all the time. First, it's important to mention that when the assessment they have in different industries, don't put the pulp and paper industry as a primary source of concern for them. Of course, the fact that we have been considered an essential item protects a lot of our industry and the fact that consumption of products in our value chain have been preserved is something that makes them less concerned about our industry than to others. On the other hand, there's a lot of uncertainty going on. And I believe in the conversation we are having with them, they're focusing first on liquidity, which is very important point to be considered, especially in the short term and considering that there's a lot of uncertainty about how the sales will be in our value chain in the coming future. And they seem to be very well informed and comfortable with the liquidity situation we have. The second point that will have to be considered is how the company is responding to the crisis. Are we taking measures in terms of reducing costs and reducing disbursements, in general? And this is something that we've been discussing and showing them, and we will be -- when we're ready to do this probably by the time that we announce the Q1 results, we're going to share with the market some of the results that we've been achieving in cost reduction and CapEx reduction. I don't expect the rating agencies to run any review of ratings in the next few months. I think this is going to take place in the second half of this year. And the result of that assessment will depend a lot on what happens with liquidity back then at that point in time, what is going to be the result of our initiatives of cost reduction and CapEx reduction and most important, how the market is at that point, so -- in terms of the pulp market. So the key message here is that I don't expect any change in ratings in the next 3 months. And the review in the second half of this year is going to be a lot influenced by how the market is going to be behaving at that point in time.

Are we facing any connection problems?

The next question comes from Marcio Farid, JPMorgan.

Marcelo, Walter, well done on the initiatives you have done for the society, community and for the company as well. I have 2 questions. The first one is on the printing paper side for your Brazil operations. I mean there's a chance here that demand could be depressed over the next months. So we're just trying to understand, I mean what we saw in other parts of the world is that some integrated paper producers, they are basically shutting down their paper machines, but they are drying more pulp, while they are saying -- they are selling less wet pulp to the market, so basically continue to run the pulp mills at the printing paper side. So just trying to understand what can you do here? Could you do something similar or would you rather just reduce production on printing paper on the Brazil operations? And on the second point, Marcelo, the table you highlighted, the EBITDA sensitivity is quite detailed and interesting. Just wanted to follow up on the cash adjustment of the swaps that you highlight here. Is this just the swap on the debt adjustments? Or do you also include the financial -- the interest expenses change because of the BRL change as well? Those are my questions.

Thank you, Marcio. I'm going to take the first question related with our printing and writing business. As you may know, part of our volumes is located in the Brazilian market. Part of that is to export. The Brazilian market is weaker. We are increasing our export policy. At this point of time -- we are not changing at this point of time our production at our printing and writing facility. Of course, we are tracking every week the situation. If necessary, we are going to have another action in this direction and see how we are going to operate this situation. Of course, we do have some spare drying capacity. But at this point of time, we are not changing our policy on the printing and writing business.

Marcio, the table on Page 10, they include the cash adjustment for swaps. The swaps basically, they protect the debt. So they are either FX swaps to turn BRL-denominated debt into dollar-denominated debt or floating into fixed. This amount that you see here includes the adjustment coming from FX and also from interest rate changes, assuming that interest rates stay where they are today.

Okay. But just a follow-up. I mean interest expenses in BRL would increase if the currency gets depreciated, right? Is that included on this table as well or that's another -- a different line?

No, that's not included here, this is just the derivatives.

The next question comes from Thiago Lofiego, Bradesco.

I'm sorry, before that, I just mentioned, there is -- I think it's the last question right now, you are not connected all the time. Just to let you know that I have another call in 5 minutes, and I'm going to answer Thiago but then we are going to end the session, okay?

Thank you, Walter, can you hear me?

Yes.

Okay. No, I have 2 quick questions here. Just back to your production and shipment strategy. You mentioned you plan to increase production and shipments this year. The question is if the scenario deteriorates further, be it because of a second wave or because of extended lockdowns globally, would you reconsider that production strategy? So as an example, if pulp demand globally falls 1 million tons, would you reconsider that strategy? The second question is on the oil price hedge, you mentioned, Bacci, could you tell us the notional and price levels for that hedging strategy?

Thank you, Thiago, for your question, related with the production. At this point of time, we are not forecasting any change on our budget in terms of production. We are going to increase production from last year. We are the lowest-cost producer -- one of the lowest-cost producers in the world. We are not seeing any reason why we will reduce production this year. We will keep our production running. Of course, we are tracking all the time. We are following all the situation. But at this point of time, our strategy is to keep running our facilities.

Thiago, on your question on oil hedges, the position of oil prices that we have that is floating is basically the bunker related to shipments. The notional of those hedges is around $100 million. And I cannot disclose the levels. This will be disclosed when we publish the results of the first quarter.

Ladies and gentlemen, thank you very much for your participation in this session. Our idea is to keep transparency as a critical issue in this very turbulent scenario and the moment that we have in our society. We are 100% focused on protecting our people and impact positively the society. We understand that is very important right now that we show that our values are implemented, our culture is implemented. Over the time, we are showing this. And not only that, but we believe that we are keeping -- running our operations in a very smooth and positive way to impact the society and reach 2 billion people with our products. We are very conservative on our financial policy. We will continue to be very conservative. As I mentioned at the beginning of our session, we are on a philosophy of preparing for the worst and hoping for the best. This is what we have been working at this point of time. And Suzano does not want to be just a spectator on this process, we want to act, act on a positive way to impact everyone and to mitigate the situation to everyone in the society. Thank you very much for that, and we will keep in touch with all of us. With any additional questions, Camila, Marcelo and myself, we are free to questions. We are ready to talk with everyone. We have been talking with every single stakeholder in the society, and we will keep this strategy in the near future. Thank you very much for that. Hope you have a very nice day.

Thank you. Suzano's conference call is finished. Have a nice day.