Klabin S.A.

Cristiano Teixeira - Chief Executive Officer Gustavo Sousa - Chief Financial Officer Francisco Razzolini - Planning, Project & Industrial Technology Officer Flavio Deganutti - Commercial Officer, Paper Area Douglas Dalmasi - Director, Industrial Bags

Thiago Lofiego - Bradesco Corretora Renato Maruichi - Santander Carlos de Alba - Morgan Stanley Ivano Westin - Credit Suisse Marcos Assumpção - Itaú BBA Milton Sullyvan - XP

Thank you, very much and welcome to Klabin's conference call about the results of the second quarter of '18. The second quarter was very challenging for all companies in Brazil mainly those having to do with consumption and Klabin was not an exception and we did feel the impact of the truckers strike.

And as part of that Klabin was able to deliver cash generation measured by EBITDA 49% increase in relation to the second quarter of '17. And during the last call we talked about Klabin reaching its optimum efficiency of productivity in the third and fourth quarters, which can also be seen already by us in June and July and therefore this will remain over the second half of this year.

Cash generation in the third and fourth quarters will have an impact of - strong impact on our deleveraging and Gustavo will be talking about that, therefore keeping the preparation of Klabin for another growth cycle. Now, I would like to give the floor to Gustavo when he's going to talk in detail about our figures and then we will come back when we have the Q&A session.

Thank you, Christian. Good morning everyone.

Starting our presentation on slide number two, as Christian said, we delivered 884 million EBITDA, which means a 49% increase vis-à-vis we the same period last year. And even during this period that had the truckers strike we were able to deliver the highest quarterly EBITDA in the history of Klabin.

Our revenue from sales BRL2.2 billion or 13% increase vis-à-vis in the second quarter of '17 driven by the increase in the average prices of our main products, the average price of the second quarter of 2018 vis-à-vis the second quarter '17. Our short fiber grew 33% and kraftliner 31% increase.

Our sales revenues of kraftliner were BRL 239 million, a growth of 33% vis-à-vis the same period last year. Production of pulp in June totaled 139,000 tons, which is a record of production since the beginning of our Puma operation, which shows the stability of the operation after the strike.

Our EBITDA margin reached 40% in the quarter vis-à-vis 30% last year. Now going slide number three.

We have our net revenue and the adjusted EBITDA breakdown. As I said before, the improvement in international prices together with the exchange rate allowed us to increase our net revenue by 13% and our adjusted EBITDA with that is growing consistently once again with 49% vis-à-vis the same period last year and also with a very important 40% mark.

Now going to slide number four. We had in the second quarter first, the stoppage of our plant, which is a recurrent event in the second quarter.

So the Puma had a stoppage and this led us to an increase or a drop of 13% sales of pulp. Net revenue due to the exchange rate and the prices of our products grew 29% and as I said, the average price went up 33% and long fiber 35%.

Kraftliner, an increasing in the average price of 31%, which was not the major drivers of the growth of the net revenue, 33% for Kraftliner. Going to slide number five, we have some remarks about our performance.

In pulp, the stoppage and the strike - the stoppage of the Puma of course they had an impact on the quarter, but when we look for specifically at June, remember that the stoppage for maintenance purposes occurred at the end of March and that the strike had an effect mainly on May, so in June we see a stabilization of operations with a record production by Puma, 39,000 tons. And another important point related to the Puma plant is our cash cost for the production of pulp, which in June with BRL651 per ton.

On Slide 6, we have a view of our debt. So we closed the quarter with a gross debt of BLR19.5 billion, our cash and cash equivalents BLR6.9 billion and the net debt practically 12.5 billion.

And it is important to see that as our gross debt is 64% in foreign currency where we have oscillation in the exchange rate, this generates an impact on our mark-to-market at the end of the period. This is exactly what happened at the end of June especially in the last week of June we saw a hike in the dollar and we closed the quarter at BLR3.86 vis-à-vis the closing of March 30 in '17 and this effect of mark-to-market of the debt of the company, which is US dollar denominated led to a slight increase in our leverage, which closed June by 3.9 times.

And if we look at our leverage and this is what the yellow curve shows in the chart, already measured in US dollars we see the production trajectory the downward trend of our leverage. In our release that we published yesterday, we have a specific chart that shows that if we were to discount this one off effect of increase in the exchange rate in the last week of June, our leverage would have been lower than 3.4 times and although we do not give a guidance for our leverage there is a simulation that all investors and analysts can do.

The interpreter apologizes because the sound is very bad here and I can only hear half of what he says. On Slide seven [indiscernible] the interpreter apologizes however are not receiving the sound.

And this is enough to cover thirty four times amortization of this debt. Now going to slide number eight, where we have the free cash flow we see the improvement of this metric especially due to the operating performance which is growing increasingly.

So the increase in the EBITDA make it possible to us to increase our free cash flow with a stable CapEx already stabilized in June and with that in the last 12 months we had a free cash flow, adjusted free cash flow of BLR2 billion, which is the free cash flow of 10.4% in the last 12 months. Now going to slide number nine, we have a view of our - view the dividend view, 3.4% in the last 12 months and we see that here we also include in the figure of the last 12 months BLR650 million.

We already included the payment of dividends that will be made on August 15 and that refers to the second quarter of 2018, which is a BLR175 million. With that we finalize our presentation and we open for questions.

Thank you

Good morning. I have two questions question.

Cristiano, the first one in relation to the next steps towards growth, you have already mentioned you leverage that is going to a more reasonable level and I believe that this will support the new cycle of growth and what is the timing for that in order for you to make the announcement and what are the next steps so that you may be able to announce that? And the project part of Kraft and paper board or coated board.

Not together but separately but maybe you could make this announcement at the same time and what about the CapEx? And the second question has to do with the cash cost for pulp.

This level of June could be considered as a normal level do you think without a stoppage or do you believe there is more still to take from the machine?

Thank you, Thiago. Let's talk about growth and then I will ask Francisco to talk about the cash cut for pulp.

About growth, the talks are happening in a very positive way with the controlling shareholders and we have this method of deleveraging of the company that we are complying with and this was the mandate for us for these two years to generate the highest possible cash and we are very much helped by the price of pulp and by the US dollars well to this. At the end or by the end of the year the projections that you make yourselves it should reach about three times and this ratio already places Klabin due to its history of stability and consistency and results already places Klabin as a strong candidate looking at world trend regarding investment in packaging award, which is our DNA and we are sure.

We are very comfortable with the studies that we are tracking and we are - we know very well about all the price trends and the product mixes and CapEx for this investment is going very well and we in fact should be delivering to the controlling shareholders around August or the necessary information so that we may start a true debate with a lot of content and of course we have already started these talks. But we will have more content by the end of the year and we keep our forecast that we would be ready for that provided these selves are successful and we will reach the end of the year with a possibility of announcing a new cycle of investment.

And I would like to take the opportunity to clarify to you a point that I see is not yet clear because we ourselves were telling the story a little bit differently a few years ago. With Puma ready and generating results higher than our expectations regarding output of efficiency, we - in fact we were prepared already to start the studies regarding the new project and we did study quite a lot of them and in fact as we have already been saying even based on world market trend Kraftliner - it really took the place and I think this should be made very clear.

It took the place of the paperboard machine and the coated board machine and with this change there is a new need for pulp and the new investment starts with a new line of brown pulp together with the current Puma. And this new brown pulp line will be integrated the first moment should it be approved.

It will be integrated to a craft machine and afterward to a coated board machine and in practice this means that Puma will be the same, it will be kept the same and when we think about the cycle of investment that we start discussing with you and that we have already been discussing with our controlling shareholders, we are talking about an additional line for pulp or brown pulp around one million tons integrated to two paper machines. So this is the project and I apologize for the long answer, but I took the opportunity to clarify something that was not really very clear yet.

Now I would like to give the floor to Francisco and maybe Gustavo as well if you want to add to the cash cost the pulp cash cost.

Thiago and other members of our conference I wish you good morning. This is Francisco Razzolini.

And about the pulp plant, our unit, it has been performing very well. After the stoppage, we had a slight reduction in the capacity during the strike period, but we resumed at full stream and the plant is operating about 7% higher than its nominal capacity.

Power generation went back to very good levels, excellent performance in this area as well and this has been giving us the possibility to reduce the cash cost in a significant fashion as was said during the conference BLR650 and our average cost for manufacturing. And I would like to remind you that this is a mix of the production of hardwood and softwood and fluff and this is a very good level at a very satisfactory result.

We still have the potential for some slight improvements, but it should continue along the same line for the next few months.

Thank you and could you please add something to what you have just said. I understand what you said about the project, but the IRR will certainly be better than having their paper project integrated directly with Puma, but way back then when Puma was designed, I think it was based on the optimization of your forests and the integration of the new paper machine.

So what about the strategy and how could we think about Puma from now on five, ten years horizon? Will you continue with this business line of market pulp?

Well, we do a very long strategic evaluation and Puma remains as it is. We will keep the market pulp with 1.5 million tons in the market.

And this new line will be integrated to paper machines and it is by means of this brown pulp that we have now integrated with the paper machines that we reinforce our DNA of more added value products and mainly in the concept of integration and in the near future after the integration with paper and conversion for packaging as well. So Puma will continue to be about 1.5 million tons and will not be integrated in principle in paper, integration with paper will be in the new line.

Thank you, Cristiano.

Good morning everyone. My first question has to do with the price of paper in the domestic market and you announced an increase in Kraftliner prices in June.

So could you talk about the implementation of this price increase and do you see any room for additional increases also for prices of other products? And secondly could you talk about the environment for domestic demand today?

What is your expectation regarding the different product lines corrugated paper and Kraftliner et cetera in terms of the growth that you expect in demand after the effects of the trucker strike.

Thank you for your questions. Continuing in the format that we are proposing to you I'm going to bring first Flavio Deganutti in charge of the paper area to talk about the dynamic of the paper market and afterwards Douglas will be taking the floor and Douglas Dalmasi will be talking about packaging and the domestic market demand.

Good morning everyone. Thank you for the question.

We continue with being moderately bullish and this has to do with the domestic market mainly as we try to make these products more profitable. Kraftliner and coated board, we have already announced some increases in June and July and this is mostly driven by the external market by export.

In the two products that I represent Kraftliner and coated board, we expect a virtuous growth in Europe and the United States which are the main producers and exporters in the world and so the prices can - have price increases because of that. So we expect a long cycle around two years of valuation of appreciation of these two papers.

Now I would like to give the four to Douglas and he will talk about the packaging market.

Good morning, this is Douglas. Good morning everyone.

In the second half corrugated paper is always stronger than the first half of the year due to some seasonal factors such as the fruit harvest and also the increase in demand. We are projecting a stronger market for the second half with a moderate demand from Brazil, but with a higher volume due to the factors that I have just referred to.

In the bag market the domestic market does not show any reaction from civil construction yet, however we are rather successful when other markets that we have been developing recently in the last couple of years and we are being rather successful in terms of replacing other products. So our expectation is to continue a major growth in the second half of this year, but still giving preference to the margins of the other products that Klabin sells.

Perfect, thank you.

I would like to talk about leverage in terms of size et cetera, the funding charter is not trivial and the leveraging reached six times the EBITDA. So what lessons have you learned from Puma and that you could be applying to the new round of growth?

What level of leverage becomes a concern to you? And the second question is whether you intend to have any M&A activities in the corrugated box market domestically.

So because of cost pressures and some companies are not able to transfer this increase to the final product and maybe this could lead you to have an inorganic growth by M&A's in the domestic market.

Renato, thank you for the question, this is Gustavo. Well, your point is very clear and we track this and there are many lessons that we have learnt.

There are some points that you have to place into perspective. Puma was a transformational project, so the proportion of this new investment vis-à-vis what was the cash generation of the company at the time tends to be much higher vis-à-vis what we're starting right now of the company.

When we look at the market consensus for EBITDA this year, BRL4 billion, close to BLR4 billion and we compare this to the volume of investment that Cristiano has already referred to in the previous question. These are totally different projects of different proportions, nevertheless this doesn't mean that we look at these projects without taking into account our concerns with leveraging and the projects are still being started.

We do not have the financial policy defined and this will be announced together with the project, but what we can say for the time being is that we wouldn't like to exceed during the cycle even considering the oscillation of prices in our main product, the level 4.5 times leverage. So this is why I want to make this very clear, when we look at our leverage chart, the trend - the downward trend is there for this year, for next year and even if we consider a certain level of price stress in simulations that we do for the next two years, we understand that first the level of 4.5 times would be an interesting level in a moment of price stress and then it would go back to normal levels.

But right now preliminarily this will all be communicated once the projects are approved. What you can expect is that if we approve the projects close to the end of the year, you will receive a very clear communication about the financial policy that will be supporting this growth.

Regarding your second question I would like to give the floor to Cristiano.

Regarding M&A's and - more specifically M&A's and as you asked, every time we have a call we reinforce the following. Klabin believes in a in a consolidated packaging market mainly in order to cope with the demand from the large companies that are here in Brazil.

And a large company or a large corporation in order to be able to comply with this high demand reinforces the fact that Klabin is already present in this market. In the bag area we hold over 50% market share already, in fluff we also have over 50% of the domestic market and in packaging we have around 18% market share specifically in corrugated boxes.

In corrugated boxes and corrugated boxes packaging we see a strategic need in the future to increase our market share and further consolidating the sector. We believe that this consolidation is healthy and it should come from acquisitions.

So we are always mentioning this to you, nevertheless given the limitations that all companies face this is a moment in which we have to focus on cash generation to invest in paper, which is our major strength together with our competitive fibers that we produce. So our focus now is growth in our paper machines, however this does not remove our focus from consolidation mainly in corrugated box market and we are paying attention to that and if the opportunity arises then we will be consolidating.

So you do have some scenarios in which you consider organic growth and by acquisition as well. Well, let me understand your questions.

I didn't understand your question. Organic, yes it is growth in paper in our current base of production of packaging paper and this is what establishes the strength Klabin in order to continue growing in conversion in Brazil and abroad, but the second part of your question I couldn't hear.

My point is maybe M&A's will happen when the opportunity arises and not really in the best timing. So if the opportunity arises for you to carry out an M&A together with your organic growth you will go after it, is this what - this is my question.

Well let me establish a caveat here about our leveraging policy. Provided we protect our leveraging policy the opportunities will be started, priority number one is growth in papers.

But this does not remove Klabin from the possibility of study, possibilities for M&A, focusing on results be it from consolidation or from synergy, but as I said before always protecting the leveraging policy of the company. You have to first of all respect the leveraging of the company and then you turn your eyes to our priority which is paper for packaging and then consolidation of the sector.

Very clear, thank you.

Yes, good morning. Thank you very much.

So the first question is on volume growth. I mean, when I looked at the year-on-year growth for the different divisions, pulp, packaging and - or conversion and packaging paper.

There also seem to be a growth really in a more declining year-on-year. Could you comment as to why do you feel this is the case, is the company losing some market share or is the company just trying to prioritize margin or average realized price rather than volumes?

And what can you expect in the second half of the year and for the year as a whole, can these volume growth improve in the second half of the year the? The next question I have is regarding total cash cost.

Francisco already mentioned about Puma production cash cost having some additional room for improvement, but what about our total cash cost for the company, it grew 6% in the quarter year-on-year, what do you expect going forward in the second half? And then if I may squeeze a third question here, what can you comment Cristiano regarding the company's plan B in case Fibria decides to - or to ask Susannah and Femea [ph] in their combination to cancel the Fibria and Kabin contract?

If the company prepared - what do you see as options for the company to sell its pulp outside Latin America? Thank you.

Thank you, Carlos for your questions. So let's start by talking about the growth in packaging paper.

And in fact in the first half of this year we gave preference to margins. And this meant slightly reducing our offer of papers at home to our conversion areas.

This does not mean that we are going to disregard the contract quite the opposite, we keep the major brands and we keep a very high TC that is to see a very high level of service and never leaving aside our major brands and our major contracts with any risk of supply and we obtain this market, we conquered this market and we will continue to keep it and we will continue to grow the market for packaging paper in Brazil. But it is true that at least in this quarter when international prices are very high, we change a little bit the very well-known flexibility that we have and we slightly change our traditional dynamic because we started to buy more recycled paper in the market and Kabin was a major barrier of recycled paper in and restrict the virgin's fiber paper for our conversions giving preference to all the sales that give us better margins.

But it it's really a very small variation, it never disrespects our contracts, it ever goes against those contracts and we only did in spot transactions. Regarding our cash cost, now talking about Klabin, I would like to ask Gustavo to help me in order to keep the dynamic of our presentation and then I will come back and - about the contract with our pulp client.

Carlos, thank you for the question. I will repeat your question because it was not very clear.

So that I can answer adequately, but I believe you mentioned the total cash cost of the company that had a 6% increase and as Francisco said specifically in relation to the pulp cash cost, we closed the second quarter with BRL743 per ton. If we were to take June, which was free from the strike effect, it would be BRL651 per ton and as Francisco said, the trend is to maintain this level and the possibility is to have some improvements over the next periods and for the remainder of Kabin, we had the relative stability of course, which is something that tends to happen with one important point we have to keep in mind that one of the things that are truckers strike brought about was the reduction of the Reintegra tax rate which was 2% and it became 0.1% and this already has some effect as of the second half of this year.

So this is an item that impacts one cost line that we will see in the next quarters and also we have the intention of keep cost at this level. Another important point I should mention is that historically Klabin schedules the stoppages for the first half, so in the third quarter and the fourth quarter we will not have cost impact related to maintenance stoppages.

Carlos, now I come back to talk about the contract. Klabin today definitely from when we started the Puma operation, Klabin today has a commercial area that is very robust.

Once we had to establish sales of fluff and softwood in international markets and hardwood for Latin America, Brazil included, so the commercial area is ready, it is prepared and it is a rather straight forward decision and it's based on opportunity and this is what we are turning our eyes to. We look at the advantages and the disadvantages of contracts and what are the pros and cons of our going to a market where we already have an operation, always taking into account the best possible margins for Klabin.

So what I can say is that we are currently evaluating and in order to be able to make a decision and we are very comfortable with the structure. So [indiscernible] should re-decide to go ahead without the contract, but we would also be very happy to continue with the contracts such as we have until today.

So what we have to check is what is best for Klabin and we are right in the middle of this evaluation now.

Thank you very much. If I may just to Gustavo - let me just make sure what I understood regarding what you said on the total unit cash cost for the company.

So it was BLR1,895 per ton in the second quarter, it increased 6% on an annual basis and what you mentioned if I understood correctly is that the company expects these unit cash cost to remain relatively stable in the second half of the year. Is this correct?

It is correct.

Alright, thank you very much everyone.

Good morning everyone. Thank you for the opportunity.

My question had to do with the sales mix for paper vis-à-vis the domestic and the foreign market. There was an increase in the participation of the domestic market, so I would like to know about the profitability at the current prices, exports vis-à-vis domestic sales and what kind of change could we expect for the future and what about the mix in the production of fluff in your total production and what about the price dynamics for fluff from now on?

Thank you, Ivano. I would like to give the floor first to Flavio then to Francisco Razzolini.

Hello, Ivano. Thank you for the question.

There is an important thing about the results in June specifically because we chose to use passive logistics because we were still affected by the strike in May. And once again compared with the 2017 base the base was lower.

And it brought a lot of growth for the domestic market in this quarter. However, profitability is very similar for both, a small disadvantage for the domestic market and we will be trying to fine tune this over the next quarter or half year.

Ivano, good morning, this is Francisco. About our fluff, as you know the acceptance of our fluff was very good and is very good.

We work with our flat portfolio totally full and we are totally sold for the year in the mix that proposed ourselves in terms of softwood fluff for the markets where we are positioning ourselves. The price dynamics for softwood, well the growth was extraordinary.

And fluff even because of demand and the pipeline of projects in 2015 and '16 was a little bit different than what we see now, it's a realignment of prices fluff bouncing back to the levels that we believe it should be. And right now we are renegotiating the volumes and prices for the next year and in our outlook we see the possibility of implementing prices for the near future as well.

So we are very bullish regarding our fluff agenda for the next few months.

Thank you

Good morning and congratulations for the result. Kraftliners first, we saw that the price went up over 70% in dollar in the last year in the international market and at the same time Klabin increased sales at the domestic market.

Maybe you could say a few words about the price and Amec in the domestic market and also the difference in profitability between the Kraftliner sales in the domestic market and for exports. And the second question has to do with the pulp cash cost.

Could you give us some more color about the difference of the cash cost that you had in June, BRL650 per ton. How much the hardwood should be lower and how much the softwood should be higher than that?

Thank you, Marcos for the questions. This is very much aligned with the previous question.

We had passive move in June for the domestic market because of the strike in May, so this was the fastest way that we had. So we had a good volume in the domestic market in June and we closed the quarter the way you saw, you have the figures.

Profitability today is very similar, a little bit less in the domestic market, so we do sell mainly Kraftliner volumes in the external market and the external market price continues to be - if it continues to be stable or higher and if the exchange rates continues the same in the long run respecting everything we have in terms of our commitments in the domestic market. We will buy more recycled and also supply our plants and sometimes export as much as possible according to the contract that we still have in force.

Marcos, good morning. Regarding the cash cost as we had already mentioned we are very positive in terms of at least keeping the same levels.

We see some upside potential domestically, but as you know we are living in a moment of very high energy prices, power prices in the spot market, there's as a total power that we sell to the system about 30% float. But it has already reached the peak, so maybe if we have more rainfall then the result will be a little bit lower in energy production, but we believe that the cash cost will continue to be in line with what we performed in June.

Regarding the difference between hardwood and softwood, we have around $50 difference, there is around $50 gap between one and the other.

Thank you. [indiscernible], UBS.

Thank you for the opportunity. I have one question to Luciano.

You have recently been mentioning how Klabin can add revenue with services to clients and what about your strategy in the last couple of years vis-à-vis your expectations and what potential gains could we expect coming from that and in the next few years.

Thank you [indiscernible]. Well, this is maybe one of the major things started by Klabin.

Klabin. pays a lot of attention to value adding and also solutions or by means of solutions be it from services or products that we have been working on very strongly.

Working with lighter products for instance and maintaining the physical resilience of the papers and working very strongly where R&D in what we call bio barriers, so that we may have a product that may replace fossil barriers and this will bring a lot of added value to Klabin papers or packaging papers besides improving the yield in our machines. Now in terms of services, we are also turning our eyes to the e-commerce area and how we can cater to this market in a dynamic fashion in an agile fashion in this market that is a big challenge.

We have been trying to put together our services to key accounts. Engineering project and the development of packaging bringing differentiated products and this market in the whole world will be very challenge by renewable packaging and the demand has already arrived at Klabin some years ago and we were already anticipating this and we are domfortable to say that we anticipated this trend of renewable packaging and paper packaging is maybe the major solution for renewable packaging mainly for food.

And as we pay a lot of attention to all these movements and we also receive all these requests from our clients, we are developing products that's a future strategy for Klabin, we focus on these products or new product that may add value be it developing other services or other products regarding - or the way I have just described.

Thank you.

Good morning, thank you for the question. I would like to go back to the pulp theme.

As we're seeing this new view so to say with Puma remaining as a producer of pulp, of market pulp, could you talk about the commercial area of Puma? When you answered to Carlos' question you said that you are analyzing the pros and cons of the contract and you said that from the viewpoint of the decision to be made by Klabin, so these are two different points.

So maybe I don't know whether you can mention some of the pros and cons regarding terminating the contract with Fibria. And could you tell us if the contract could be terminated just for the fact that the deal which has already been announced or not concluded?

So this is my first question about Puma okay.

Thank you, Milton. Well, you mentioned a new view quote unquote and I think it's important to say it this way this is a new view or a new vision and I just want to mention this.

It is not Puma remaining for a longer time this way, what we can say officially to you now is that Puma will remain the way it is now and Puma will not be integrated to papers in the 1.5 million tons volume. So Puma is a unit that is turned to the market, is market oriented and this is the way we see it as a short or medium and the long run that is to say market pulp.

Okay, so the second question about the commercial area and the contract. The commercial area as I said before is ready to go Klabin.

You follow Klabin very closely and you know very well that Klabin operates in both markets, domestic and international and it operates with sales to end users with a lot of experience as well in this kind of relationship itself to more packaging manufacturers and we compete with ourselves in many sectors and that compete with us in many sectors and with this commercial expertise which is very complex we were able - brilliantly I would say we were able to get into the fluff market with a recently created commercial area reaching over 50% market share in Brazil. And having fluff approved by all major brands internationally, with no restriction whatsoever and softwood as well and hardwood due to the strategy of this contract and the first time for this market outside Latin America.

The area was established for sales in Latin America and the clients that are the buyers of fluff and softwood are mostly the clients who also are acquire hardwood fiber. So this is a very well established channel, it's a very safe one and this is not a challenge as far as we are concerned.

I would like to remind you that the Klabin brand and this was in our agreement and as mentioned in the contract with a major client of hardwood at the time, the brand the Klabin brand was preserved and it was placed on all bills distributed all over the world. So we are very comfortable regarding the recognition by the market of our products and also the commercial expertise of Klabin.

However, this does not decrease and I'm just telling you about the relevance of the fact. We have the capacity of choosing the path that we want to follow, be it to stay directly in the market selling this product as Puma remains forever as a markets product, so we are not going to integrate Puma.

We will have a new line for brown fiber around one million tons and this new line will be integrated to the packaging paper line and for Puma will remain with 1.5. Now regarding the contract, the timing is the end of the closing, so this means that we still have some months ahead of us.

And we still have time to think about that and this is a decision to be made by Klabin alone as establishing the contract.

And changing focus now, when you talk about corporate governance and royalties and [indiscernible]. All he presentation that you are submitting to the board is it being done at the same time as the discussions about corporate governance or are they totally separate?

They are totally independent, they are totally separate. One thing has nothing to do with the other.

What I can assure you is that the controlling shareholder sees in the improvement of governance that we have carried out in the last two years and knows that this is an ongoing exercise on the part of a controlled company. And the controlling shareholders see the improvement in corporate governance as something totally better for everybody and they talk about this very comfortably and they direct Klabin to be a company better and better positioned in terms of governance.

So regarding corporate governance you can be sure that Klabin today is better than it was in the past and Klabin in the future will be better than Klabin today, always improving governance. But they are totally different issues or separate issues.

The ownership on the part of the controlling shareholder that is totally important right now and the entrepreneurship of the family of dating back 120 years is extremely important mainly now when we are discussing our growth and we must see this ownership as a major value for the company. And this does not exclude the improvement in governance which is another organic ongoing theme that we have.

Thank you

Thank you very much. We have reached the end of another call and I would like to convey a very quick message to all of you and about our expectations as well.

First, those who follow Klabin closely know how much we are tuned to the major trends in our sector. And mainly in packaging, it is very much linked to the mega trend of our consumers in Klabin, is totally tuned to that.

Recently we made important investments in R&D because of that and Klabin believes that the future that is already being built and that we already see how the future will look in our business. This will mean above all creating value for our shareholders in a sustainable fashion always.

And the hope context of the discussions that we have with the controlling shareholders is for this company creating value be it because of the product or be it because of the service solutions, always maximizing returns to our shareholders. Now, turning our attention to our expectations regarding the third quarter, what I can tell you is the following.

If the current conditions are maintained you could expect a very strong quarter with a strong cash generation and a strong cash flow further accelerating Klabin's deleveraging and bringing us to the levels that we mentioned so often and that I'm sure you are all expecting to see, so we expect a strong third quarter and the lower leveraging. Thank you very much and see you next time.