Good morning, and welcome to Klabin's audio conference. At this time, all participants are in listen-only mode. Later, we will hold a Q&A session when further instructions will be given. In the interest of time, we kindly ask analysts to limit questions to two. Should you require assistance during the call, please press star zero to reach the operator. As a reminder, this conference is being recorded and broadcast live via webcast, and you may access it at Klabin's IR website, where you will also find the presentation for download. Forward-looking statements that might be made during this call in relation to Klabin's business outlooks, projections, operating and financial targets regarding potential growth should be understood as forecasts based on the company's expectations in relation to Klabin's future.
Such expectations are highly dependent on market conditions, on the overall economic performance of the industry, the country, the industry, and on the international market. Therefore, they are subject to change. With us today, Mr. Cristiano Teixeira, CEO, Mr. Marcos Ivo, CFO and IR officer, and officers of the company. Mr. Teixeira and Mr. Ivo will comment on the company's performance in the third quarter of 2022, and after that, the officers will be available to answer any questions you might have. Now I would like to turn the call over to Mr. Cristiano Teixeira. Please, Mr. Teixeira, the floor is yours.
Thank you. Welcome to the earnings call for Klabin regarding the third quarter of 2022. Even in a market that is challenging, with an increase in energy costs in Europe and inflationary scenario in the world with higher interest rates, we had again an EBITDA that was a record. Our results show sound results, a reduction in financial leverage, our ROIC that reflects the ability to combine efficient capital allocation, shareholder value generation, and also, value generation for our shareholders. About markets and the pulp business and its differential in fibers, especially with fluff, we had a record EBITDA since the beginning of fluff operation.
In paper, we have an accommodation in the demand for a kraftliner and coated board. A higher demand awaits the startup of MP28, which not only has 65% of construction concluded, but also is ahead in its go-to-market and volumes contracted that will increase catering to food and beverage industries such as dairy and beer. In packaging, we have a great moment for corrugated boxes and industrial bags, where apparently we are seeing a recovery of the Brazilian economy.
Now I turn the floor to Marcos Ivo to talk about the financial highlights on the third quarter of 2022.
Thank you very much, Cristiano. Good morning, everyone. Thank you very much for being with us in this conference call. We have delivered once again growing results with a record for a quarter in a sales volume, also, net revenue and EBITDA, once again showing the strength of the business model of Klabin and its high predictability, results. Among the highlights in the period, I should mention three: Net revenue of BRL 5.5 billion, up 26% in the annual comparison. Cash generation per ton of BRL 1,794, up 4% vis-à-vis the third quarter of 2021. Dividends and interest on equity of BRL 1.6 billion in the last 12 months.
On page four, sales volume was up 4% in the comparison with the same quarter of 2021, driven by the volume of Eukaliner produced by Machine 27. Thanks to a higher sales volume and price increases in the last quarters, net revenue reached BRL 5.5 billion in the period, increase in 26% in the annual comparison. Adjusted EBITDA was BRL 2.3 billion in the third quarter of this year, 20% higher vis-à-vis the third quarter of last year. EBITDA was supported by a higher sales volume and price adjustments, which more than offset the increase in the production cash cost. Now turning to slide number five, benefiting from the higher prices in the annual comparison, as well as the flexible sales mix among geographies and the portfolio with three types of fibers, hardwood, softwood, and fluff.
The average net price per ton was $935, 28% higher than 3Q21, driving up the EBITDA of pulp, which reached the record level of BRL 1.2 billion in the quarter. Pulp production cash cost was $270 per ton in the quarter, vis-à-vis $258 in the prior quarter. Now turning to page six. Adjusted free cash flow net of discretionary items and expansion projects was positive BRL 1.2 billion in the quarter. In the last 12 months, adjusted free cash flow was BRL 3.4 billion, and that represents a free cash flow yield of 13.6%. Now on page seven.
At the end of September, Klabin's net debt was BRL 21.4 billion, an increase of BRL 910 million when compared to June 2022. That increase is explained by the FX negative impact on the dollar-denominated debt and also a negative free cash flow in the period. Leverage measured by the indicator net debt over EBITDA in dollars ended September at 2.6x, the same level that we had in the prior quarter and close to the minimum level of the financial debt policy of the company. Now moving to the next slide. Klabin's liquidity is still sound and ended the quarter at BRL 9 billion, and that liquidity consists on BRL 6.3 billion in cash and the remaining in revolving credit line.
The company's cash position is enough to amortize the debt that we have due for the next 44 months. The average tenure for the debt at the end of the third quarter was of 113 months, which corresponds to around 9 years and a half. We should remind you that Klabin has contracted and not yet withdrawn credit lines in an amount that is over the CapEx that will be disbursed up to the conclusion of Puma II Project, as we have detailed in our results release.
Turning to page nine. According to the advisory to shareholders released yesterday, the company approved the dividend payout and interest on equity of BRL 502 million to be paid on November fourteenth. On an equity basis, the dividends paid to shareholders over the last 12 months totaled BRL 1,624 million. A clear evidence of Klabin's ability to combine growth and dividend payout while maintaining financial discipline in its capital structure. On page 10, the return on invested capital measured by ROIC reached 19.3% in the last 12 months. The consistent performance of ROIC, close to the level of 20% in several quarters, demonstrates the company's assertive capital allocation. On slide 11, MP 27, the first stage of the Puma II project, keeps on ramping up as planned, reaching production of 345,000 tons in the last 12 months.
The second phase of the project, which will have a coated board machine, is still under construction on schedule, having reached 65% of the physical execution in measurement carried out on October 16, and has its startup planned for the second quarter of next year. Since the beginning of the project, BRL 10.3 billion have been disbursed, of which BRL 934 billion in the third quarter of 2022. On slide 12, I share more details of the go-to-market of MP28, the second stage of the Puma II Project. MP28 already has approximately 60% of its volume sold. This machine will mainly serve food and beverage markets such as, for instance, beer packaging in CUK. In addition to growing demand, these markets have resilience in times of economic slowdown as an important characteristic.
The balance between supply and demand in the virgin board market, driven by growing demand, creates a good price outlook for 2023. This favors Machine 28's entry into the market. Moving on to the next page, I highlight that Klabin is following its ESG journey and working consistently to achieve the goals of the Klabin 2030 Agenda. Among the highlights of the quarter, I mention three. ANEFAC Transparency Trophy. Golden Tombstone Award in the debt securities category for issuing the sustainability-linked bond, being the first company in the world to link its biodiversity performance to financial security. The attendance of Klabin executives in events organized by the UN on climate change and sustainable finance. Lastly, on slide 14, I invite you all to join our Klabin Day, which will be held on November 30.
It will be a great opportunity to talk about the outlook for 2023 and the future of Klabin. From now on, Cristiano, the other officers and I will all be here for the question and answer session.
Ladies and gentlemen, we will now start the Q&A session. To ask a question, please press star one. If your question is answered, you may leave the queue by pressing star two. Our first question is from Rafael Barcellos, Santander.
Good morning, everyone. Thank you very much for taking my questions, and congratulations on the results. My first question is on coated board. This is a segment that sometimes we talk little about, but it's showing a good performance both in price realization as well as in the demand for the past few years.
You had a slide on the presentation talking about the 60% of the volume of MP28 is already contracted, even with the startup being programmed just for the second quarter of next year. My question here is to understand better your demand trends in the midterm, the mix in the domestic market and exports for the coated board unit that we can expect for 2023. Finally, whatever you can talk about price adjustments in this line of business, that would also be interesting. My second question is about capital allocation. We understand that Klabin is a growing company, that historically it has projects with attractive returns.
I would like to hear from you which are the main initiatives that you can already highlight that the company is analyzing today, considering that in around six months, the second machine for Puma II will be already concluded. Thank you.
Thank you, Rafael. Great questions. I have here Flávio and Marcos Ivo with me. They will help me in the answer. But I just have a quick reference here. This coated board machine is a machine that we have studied and we have analyzed it carefully for the past few years. We know about the power of this product. We are very happy about our long-term view in terms of trends, regarding what is also happening.
Because we see the replacement of plastic and consumption goods, and we see that proof that this answer will be related to the two other topics that you mentioned is that, you know, that proves the surgical capital allocation that Klabin has been doing in this last decade in terms of investments. Thank you very much for your question, and Flávio will start answering it, and then Marcos Ivo will take over.
Rafael, good morning. This is the most resilient market for packaging paper. It has three clear growth drivers, and they have to do with market mix. The first thing, the domestic market, we are growing organically, usually more than the GDP growth in the country. Here we have a greater growth expectation than what we are projecting for Brazil especially.
In addition to that, for special papers that are manufactured by Klabin, now the country is an importer and not much, but with the new capacity we'll be able to gain that market share. Another important growth comes from the replacement of a packaging made out of single-use plastic that happens in Brazil, which is a major manufacturer of beer. We have cans and bottles being manufactured. Anchored in this growth of the beverage world, Klabin is growing a little bit more than the organic in Brazil and whatever new plants where this market are built. This is a huge machine, and we're going to have a capacity of 460,000 tons, very close to the Brazilian market's capacity.
It has an important concentration in the export or an important appeal to the export market. Around 80% of what we sell here is based in the growth of the food market. Finally, this is a single moment. Having the machine with a state-of-the-art machine for softwood, this is the only machine that we are having now for 2022. This is the context we have as a main target exporting, but we are also tapping into opportunities in the domestic market, whether for imported products or the replacement of the single-use plastic.
Rafael, good morning. This is Marcos Ivo. Now, about capital allocation, Klabin will move on with its strategy. With that, we are able to combine growth and also proceedings payments, dividends payments to investors. That is, we return funds to investors via dividends. If you look at our dividend yields for this year, it has a percentage that is very attractive. We believe, as I mentioned, in the last 12 months in the comparable period, we paid dividends of BRL 1.6 billion, and we are able to do that also growing, choosing good growth projects considering the competitive advantages that Klabin has.
Therefore, yes, we do have opportunities to keep on growing in projects that generate high value. I believe that the ROIC shows the assertiveness of Klabin's capital allocation in the last decade. We are around 19%, as you have seen in this quarter. Now, looking ahead, right now Klabin is focused in the conclusion of PUMA II. We also have the remaining of the construction works, and the significant CapEx disbursements to happen.
We have conversion projects that were approved over the year. The Figueira Project, Horizonte Project, they will also have their startup, Horizonte Project in the first quarter of next year and Figueira in the first half of 2024. The company is working and taking care of its forests so that at the right moment we are able to have new growth projects. Right now we are focusing in concluding the growth projects that you already know.
Thank you very much, Marcos and Flávio. Rafael, just adding to the answers, and I feel I should comment. In the last few years, obviously, we have focused a lot on our pulp capacity, but we also brought in pulp with two dryers. We focused on softwood and on Klabin's niche. We focused on fluff. This has been a huge competitive advantage.
You can observe what is happening with fluff in the past few years. When we look at this coated board machine, we have this machine now, and we are seeing a strong trend, the migration, for this kind of product. That represents Klabin's history, which is much broader than most commoditized companies in the pulp business. Klabin is able to have, and I have a lot of respect for other companies in the industry, but Klabin can have the best of the main companies in the world have, industrial bags, corrugated box, and other products. That combination of results is that bringing these best results in our company.
Thank you, Cristiano and Ivo. Just a quick follow-up with Flávio. Flávio, is there anything that you can mention in terms of prices for coated board? Thank you once again.
Well, this is a resilient market because it is related to food market. Regardless, the macroeconomic context tends to have a best behavior. Also, the balance between supply and demand for commercial coated boards such as this one is very tight. That is because of the increased demand that we have seen the last two or three years. The price demand follows that rationale of that tight balance between supply and demand. Therefore, our price policies will be on along those lines.
Thank you very much.
The next question comes from Caio Greiner with BTG Pactual.
Hello. Good morning, everyone. Thank you. I have two questions. The first question is about cost. The earnings were very strong and solid, showing that you have a lot of consistency in your results. The cost of pulp, more specifically, going up 11%, I think it was the frustration this quarter. You had given a cost guidance which seemed to be flat and stable considering last quarter and the previous quarter, quarters one and two. What has changed since then? You said that the main reason was an increase in third-party timber, but I would like to understand that's something above your expectations. Could you comment on this? And also, how should we expect to check this cost performance over Q4? The second question, addressed to Nicolini.
I would like to go deeper into the pulp supply-demand dynamics in the coming months and the coming year. Pulp price is around $80 for a while, and I think it's exceeded everybody's expectation a couple of times. We keep on asking the same question: When does it expect to go down? There are some variables that are still question marks, so we'd like to have more color on this recession in the markets involved next year. To what extent should it have an impact on market pulp demand? How are you considering new capacities over the next year with some controversies and the project that is delayed and a slightly slower ramp up?
Also to understand, if you consider the consolidated price, how should we consider the supply-demand balance for 2023? Lastly, what is the potential for in the long term for the price issue? Thank you.
Thank you, Caio. Both Marcos and Nico are next to me, so all I want to do is to make an early remark. I'm sorry to make comments now, but Caio. Caio, if there is a strength at Klabin or among Klabin strength, I would mention the area of operational planning. Klabin today has a discipline known as S&OP operational planning, and we've been working on this for about five years, very strongly at the company, not only in the business area, in all business areas, but also in the forestry area. I haven't heard of any other forest area which owns such a short term or good short-term planning tool, so much impacted, favorably impacted in forestry as we have at Klabin.
We simulate Klabin every week. We check costs, profitability, cash generation per product, contribution margin, et cetera. It is a fact that sometimes a given view, as you mentioned in the previous quarter, that we should expect to see stability and make things happen differently. That's a fact, and we cannot say that we won't keep on giving a different direction or guidance compared to what we said before. However, it's also the effect that this weekly simulation, whenever we follow one path or another, for instance, more pine or eucalyptus, et cetera, this is always related and primarily related to the company's earnings.
This comes before any other decision. I just conclude by saying that the driving force may have been different, but the purpose, which is to assure profitability and improve results, this is essential, and that's why we work on this weekly simulation. Over to you, Marcos.
Caio, I'm going to add to what Cristiano said about costs. In our release, there is a breakdown on the pulp cash cost, so I'm going to make reference to the accounts that are disclosed in our release. We had some one-off events in the pulp plan, which we don't expect to be repeated in the future, and they had an impact on cost of chemicals, fuels, and others. These three lines had a cost increase quarter-over-quarter, and that's something we don't expect to see down the road in the fourth quarter. We expect to see a reduction in those lines, which will also contribute to this reduction, is a ramp up of sulfuric acid and biomass gasification plans.
These were investments made by Klabin, as you know, and they are in their learning curve, and therefore, they will produce more daily, which will help in the reduction of chemicals, fuels and others, in addition to one-off events that we had in Q3. In the third quarter, when it comes to personnel/services, well, Klabin has a maintenance area, and in the third quarter we wanted to have a good transition, so we had an overlap of costs. This is also being addressed and fixed. As of October, we are going to have our own Klabin team. In addition to not having cost overlap, it will also bring economic benefits that led to this primarization.
Now, let's talk about timber, the fiber line. In addition to what Cristiano explained, in Q3, we had two factors. The first is related to climate. There was a lot of rainfall in Paraná State, and now timber is wetter in our plants and it increases specific timber use. This is very common in our industry to have these quarterly fluctuations. Another part is also related and very much connected to Cristiano's comment.
It has to do with this weekly planning that we perform. In the end, we had more third-party timber this quarter than we planned at first. If we put it all together, we expect to see a reduction in pulp cash costs over Q4 vis-à-vis the third quarter, particularly owing to the one-time events in Q3, which won't happen in the last part of the year.
Good morning, Caio. Nicolini speaking. Thank you for your question. Caio, I will begin by addressing the short-term scenario. In our view, it is maintained owing to a whole price stability context and also stable demand on regular contracts. I believe a little bit of the perception on some slowdown in demand by a couple of players is very much related to improved scenario in logistics, which eventually slightly reduced the bottlenecks and also delays.
It's worth mentioning they were not 100% solved yet. We're still facing problems, particularly container-wise, and this shrunk the spot market a little. Maybe that's why we have this sentiment about this loss of euphoria. I highlight again that sales in regular contracts remain at the same levels in the third quarter, and that's the outlook for the fourth quarter of the year. In terms of supply, there is no change in the scenario. As you know, there is no entry of new capacity, no startup that might affect the year. The hardwood market is very tight, better than softwood.
I highlight that in softwood the impact is low on Klabin or even low considering that exports of softwood is very little. We always try to focus on mix improvement and focusing more on fluff sales. This is expected to be maintained not only in Q4, but also from 2023 onwards. When it comes to eucalyptus price in October, we had a base of $1,030 in Europe. It's the same scenario for November. Prices always reflect the month, the previous month, so no change in course in Europe, U.S., not even Brazil. These are the prices published by indexes for October.
We do acknowledge that some paper segments and packaging segments have been more affected in mature markets, but the tissue segment remains quite robust. Please note that several manufacturers showed a price increase for tissue, and these were fully applied. Margins in several geographies also increased for this specific segment, and that's a segment that still performs very well in terms of consumption.
For the mid- to long-term scenario, considering a lot of uncertainty, macroeconomic uncertainties and also energy crisis in the E.U., it's hard to say how prices will behave as of next year. As for the entry of new capacities, we've been following the market. It's hard to say how much of hardwood we should see next year. We have a slight estimate of 1.2 million tons, some level of assertiveness. However, bear in mind that the gap left by birch in the northern hemisphere was quite significant. They stopped producing about one million tons, out of which 700 of market pulp. This gap is being filled by eucalyptus hardwood pulp. Considering all this, the concerns are more on a macroeconomic level and involving the energy crisis more than supply and demand.
Thank you, Cristiano, Ivo, and Nico.
Our next question is from Caio Ribeiro, Bank of America.
Good morning, everyone. I have two questions. First, about the spread between hardwood and softwood. After a long time above the average, and now it's gone back to historical levels and even a little bit lower. Do you already see a movement for fiber replacement from hardwood to softwood? Second, about corrugated box and coated board. I would like to know if with the World Cup now very close to us, if you see any positive impact in the demand in the short term. Thank you.
Thank you, Caio. We will start with Nico, and then Douglas Dalmasi will add.
Hello, Caio. Thank you for your question. It is a fact that softwood is playing a different role in comparison with the hardwood. We did have some small price adjustments in softwood, and the main driver here especially is on the supply side, considering that in the Nordic countries, they are no longer producing the birch hardwood, and now they are manufacturing the softwood more. That brought an additional supply to the market. The market had some adjustments. As you saw, these were not significant and that allowed price stability for softwood as well. I would like to stress that Klabin has almost no exposure to this international market. It's just here for the Brazilian market. The gap came down in terms of list price, yes, it is above the historical levels of $70-$80.
It's above $100 in terms of net price. Obviously, there is a significant difference, but I go back and look to British Columbia, where the manufacturers are having a hard time with climatic factors, especially, the wood availability. This is an alert to us, and that should affect the market in the next few months. We see the softwood market as a stable market, and we believe this gap will broaden more, next year.
Caio, good morning. This is Douglas. We are optimistic about the fourth quarter. We see a quarter that is stronger than last year's and the last quarter of last year, with around 2% or more in line with the third quarter. A good performance. Usually the fourth quarter is slower, right? That is a matter of the Brazilian economy and also the World Cup will boost the economy as well. We see the market with beer, for instance, that is heated up in Manaus and that region. That's a region that has
The manufacturing of a number of products such as TV sets, catering to this market that, you know, at the end of the year has a demand, you know, the holidays, the World Cup, we'll have Black Friday now. That is going to drive up retail. I'm very optimistic, and I think the World Cup helps in this optimism. Perfect.
That's very clear. Thank you very much.
The next question comes from Isabella Vasconcelos with Bradesco BBI.
Thank you for the opportunity. Good morning, everyone. I hope you're all fine. I have two questions on my end. I guess the first one is more related to the kraftliner foreign or international market. I wonder if you could make some comments on... Well, just as you mentioned about pulp, we want to understand the evolution, of margin, the impact of international demand, and the impact on your strategy in terms of bringing more volume or exporting less. Could you give us more color?
A second question is about carbon credit and certifications of carbon credits. How has this conversation evolved at the company? If you have any policy to share, these are my questions. Thank you.
Thank you, Isabella. I'll turn it over to Flávio, and then I come back to talk about carbon credit. Perhaps during Flávio's answer, maybe if Razzolini is connected, maybe he can answer as well. Francisco, just get ready for it. Flávio, over to you.
Good morning, Isabella. Thank you. We have years of very vibrant demand in kraftliner market. Our virgin kraft fiber communicates a lot with food business, fruit and protein. That's a market that despite having an acyclical behavior, it is more distant than a classic commodity, particularly with virgin kraft. This market relies on major economies. Inflation does have an impact on purchasing power. If we bring it with the fact that as economies open in 2021, part of consumption is oriented to services. It brought important accommodation and demand in the U.S. or also in Europe.
This is also connected to a second factor, which is capacity entry. This is more related to containerboard of recycled fiber, adding more capacity and therefore lower operation rates to these markets. Just one caveat about this great accommodation in the world. Inflation, particularly in big manufacturers in Europe, this is very relevant. Energy costs in Europe brought significant impact for most manufacturers. The floor of the cash cost, or those who had higher costs, they were very affected, having a price platform above what we have been seeing in previous years.
In practice, there is an accommodation, and this accommodation leads to some price reduction in international markets. Klabin makes use of its strategy to bring more and more into the domestic market.
Thank you, Flávio. Before we hand it over to Francisco, allow me just to make a comment on the first point mentioned by Flávio. Just to share the importance of integration that we constantly tell you about. Today, Klabin, with Machine 27 and with this capacity in which we've been investing and saying that it may bring a lot of potential in the future. Now into the future, Klabin will also always stand out as a big integrated local player with a lot of market share, maintaining and increasing corrugated box volumes in Brazil, and also a big global player.
The global dynamics will be increasingly more important to the company. Now, if I may just add in a detail on the company dynamism. Egg consumption, for instance. We've always been known as providing packaging for foods in all our product segments, about 70%, but mostly protein, fruit, white and red protein, et cetera. Look at this. Egg consumption doubled in Brazil in the last decade, very strongly now in the pandemic. Egg became a consumption item, not only at homes and industries as well. Klabin is there.
One of the most important items for us also when it comes to protein transportation is egg, and Klabin is a major box manufacturer for eggs. The dynamism of our market is represented by the dynamics of the food market in Brazil. Over to you, Francisco.
Hello. Can you hear me?
Yes, we can hear you.
Right. Good morning, Isabella. Good morning, everyone. Isabella, thank you for your question. That's a very important statement. We've been constantly debating carbon in general, and we constantly try to highlight what we mean by carbon balance, what is footprint and credit. It's important to say that about carbon credit. Klabin has been working on projects to have certifications. For the credits, we have several projects ongoing, some at the final stage. However, we understand that this is a moment of transition.
We even have carbon credits in the MDL, the Clean Development Mechanism that reflects the Kyoto Protocol. Since COP last year, we have the Paris Agreement, and we're working now on a new mechanism to regulate carbon credits. Why are we mentioning this? We see value of carbon credit in the regulated market. This is where we have interesting prices and prices that help to offset emissions in different countries. This market is not defined yet. Brazil made some steps. We have still a lot of room to grow. Despite COP 27 now having this whole global issue on recession, energy problem in different economies, some coming back to fossil fuels. A big topic that will be addressed in COP 27 will be this transition, this regulation of the new mechanism to replace MDL.
Klabin will keep on working on its studies and accumulating carbon credit and waiting for the right moment for any possible negotiations in future years. Right now, we don't see a lot of value in the voluntary market.
Very clear. Thank you. Our next question is in English. It's from Carlos de Alba from Morgan Stanley.
Yeah. Thank you very much. Good morning, everyone. One question regarding the cash flow generation that was quite strong in the quarter is, you know, at least relative to our estimates, but also a significant part of the cash flow operations came from a change in other liabilities, BRL 1.175 billion. I wonder if you can provide a little bit more color as to what does that represent. When looking at the balance sheet as published in the press release, I didn't see an increase of such magnitude in the liability part of the balance sheet. Any color would be really appreciated. In terms of, I guess I'll squeeze two more in my second part of the question.
One is on pulp costs. You may be further to the discussion that we had earlier. How do you see your pulp costs beyond the next quarter? Certainly year-on-year has been a dramatic increase in your cost for the reasons that you already alluded to and similar to what we have seen in other companies. As we go forward in the next year, two, three years, how do you see the pulp cost evolution for Klabin? Then finally, looking into the future, when do you think you'll be in a position to announce the next big growth cycle, you know, that the company has beyond the conversion projects that have already been mentioned earlier in the call? Thank you very much.
Thank you very much, Carlos. I will share the answer with Marcos Ivo, and I'll come back after he answers to talk about growth. He's going to talk about cash generation and also about cost estimates for pulp from now on. Let me make a quick observation on costs, and then we'll turn to Marcos.
Well, if we can say it the way I'm going to say it, and I hope all of you understand it. We have a good structural cost. Good here is quote and unquote good. I have to say that because we are in the middle of a growth cycle. We constantly tell you and explain it, and we have told you that bringing in Puma II with two paper machines and a site where we were already producing 1.6 million tons of three pulp fibers, that would represent an expansion that was significant in terms of looking for third-party wood. In this period where we would be using this wood, so discounting the cash flow of this project is very favorable to the company, even using the wood from third party.
Amidst this period of third-party wood consumption, we acquire the land close to Klabin, and we are planting therefore, we are working on the forestry side. In the second rotation, that is in the first year after first rotation, by the seventh or eighth year, we are already harvesting that wood. Structurally, we will see a drop of this wood cost. That is going to be significant for that cost and for that region. I think that is a huge wood consumption in that area, 15 million tons a year. So that's why I'm telling you this is a good moment of the company and this we have this quote and unquote good cost that we can see in the short term.
But obviously we already have almost two years and operations of the first machine, and we are already starting to see the seedlings being planted close to Klabin. In a few years, we'll be growing within our radius and that the structural cost will come down once again. Regardless that the structural answer, Marcos will have that understanding of cash generation and the short cycle, and I come back to talk about growth.
Okay, Carlos, about that cash, accounting cash flow on others, considering we have a number of lines, I would like you to understand that after we end the call, our IR team will send you a small table, a small chart, so that you can see. If you need further information, let us know and we'll go into the details. I also would like to take the opportunity of your question to draw everyone's attention to always increasing transparency and to make things easier for analysts and investors that analyze our financial statements. We have here a reconciliation of our cash movement in our release. That should help you in your analysis.
About pulp cash costs, I already mentioned something in the first or second question. I talked about the fourth quarter of the year. Now about 2023 on, as you said it yourself in your question, Carlos, we see the world with changing prices because the inflationary process. I also would like to tell you, we are working on our budget now. We are starting to work on our budget. Klabin Day on November 30 will be a good moment. We are going to be able to provide you with a better perspective of the figures for 2023 and the next years, especially because we also have positive changes at Klabin that will affect costs. I will give you one example. We talked a lot about coated board.
Now, Klabin is already seeing Machine 28 100% with coated board starting 2024. When we approved the business case and brought it to you, our time range was 10, over 10 years. The fact that now we have more coated board benefiting our EBITDA earlier, this is going to affect costs. That we can show all that in a very structured fashion, we are going to use Klabin Day, so please be patient, and we'll be able to provide you with full information in November.
Carlos, talking about growth, I think we can say it like that. We have a special moment right now in the company. Probably you saw when everyone spoke. The coated board machine is something that we had planned, and we now have a new dynamics. Just in the linking to what Marcos Ivo just said, we have been very dynamic choosing the product mix, always choosing what will provide the best profitability. This has been, obviously, this is not a surprise, but it has been mainly a confirmation of something that we believe in, for a long time, that the product line that we have as consumer board, that is a winning line. This can also be seen in American companies.
You can check that Klabin is in line with these companies and is reacting well to the market. About growth and new growth, I think we have a significant possibility. In 2023, we will continue working on our forestry base in the states that are of interest for us in the south of the country. We will continue working on that. It is the right moment, yes, to celebrate the start-up of Machine 28, the consolidation of Machine 27. We have a lot of capacity for a machine of coated board. I am willing to see your pricing with the sound and stable productivity entry that we are bringing to the market soon, and currently soon should be next year. We'll bring back news to you.
We'll talk about news. We are looking at fluff. We are looking at softwood fluff that will give us a special competitive advantage. We are also looking at other products such as graphics. Right now we are consolidating the beginning, the start-up of Machine 28 and maybe earlier than what we expected, and the consolidation of Machine 27, and also seize this good moment for our forest expansion in the south of the country.
All right. Thank you very much.
The next question comes from Marcio Farid with Goldman Sachs.
Good morning, everyone. Thank you for the opportunity. I guess most of my questions were already answered. I have two more specific questions, though. The first one about pulp. Nico, you mentioned about the strategy ongoing at the company to use flexibility and product options in different regions in order to add more profitability. I guess there's something that is commercially sensitive, but what about the strategy of diversification and products or regional and product diversification for next year? I know you reduce a lot of exposure into China next year, so how could we think about this commercial strategy going into 2023? The second question is about maintenance CapEx. We had a hard time to understand how we should consider it structurally.
We had inflation core relevant into all sectors for the last 12 months, and Klabin also changed a lot with new product lines and growth in the forest base. I don't know, Ivo, if there will be more news in Klabin Day, but could you give us some color about how to think about structural maintenance CapEx for the company today? It would be cool to learn more about it. Thank you.
Thank you, Marcio. Nico will be the first one to speak.
Marcio, good morning, and thank you for your question. Look, our assumption on product mix and diversification is ongoing. Based on the scenario that we had for this year and for next year, in-house, we work with unrestricted demand, trying to understand where the best opportunities are. What we did for 2022 also applies to 2023.
If we look at our product portfolio, naturally we have more energy invested in the fluff segment, as you know. A couple of new developments. October, we had the official launch of a new product known as Fluff eXcel, which is a hybrid product gaining a lot of traction and was already approved by big accounts, not only Brazil, but also abroad. That's a competitive advantage. Klabin is the only company in the world to have a single reel with two types of fiber, and that's a very important competitive edge. As for next year, obviously we have a concerning scenario, particularly concerning Europe. Chances are, and we disclosed it before, we tend to reduce our sales to that particular market with a higher concentration of sales in the US continent or American continent and exposure in Asia. It is a growing, important continent and also other specific markets.
Europe is the most important concern considering the energy crisis and where we expect to see the strongest impact starting 2023.
Thank you, Nico. Marcio, just adding to the comments. It's true, we're going to provide further information on Klabin Day. As we speak, actually, we are starting to work on our budget process. We can tell you already that there is inflation also in CapEx. CapEx inflation had a delay. It arrived a little bit later, so it is still present, and it's already appearing in our numbers and figures. However, it will also have an impact next year. Additionally, Klabin also changed the size. If you think about Machines 27 and 28, they already have their maintenance CapEx. For 27, 28 will start up next year, in addition to the greatest forestry scope.
On Klabin Day, in addition to giving the absolute numbers for 2023, we'll also give you some breakdowns in order to allow you to assess and to the market in general.
Thank you, Marcio Farid . Our next question is from Daniel Sasson, Itaú BBA.
Hello, everyone. Thank you very much for this opportunity and congratulations on the results, especially on the price realization in your areas. My questions have already been addressed, but I would like to have a follow-up in terms of CapEx. Not expansion CapEx, but maintenance CapEx. We are getting some questions about one-time CapEx, one-off CapEx, and that's also relevant, for instance, for maintenance of the Monte Alegre boiler. Can you share with us which are the options or expectations that you have for the CapEx in Monte Alegre specifically? And that is your main plant and paper, right?
My second question is about corrugated boxes. We have seen some consolidation recently in the market, in the local market. Actually, I would like to know if you still see opportunities to consolidate this market, if you believe that starting at a given moment, you might be cannibalizing sales of the company itself by acquiring competitors?
You know, that maybe clients don't want to be as exposed or at a risk of being supplied by a single provider, a single supplier. These are my questions. Thank you.
Thank you, Daniel. Well, I have a comment on CapEx for Monte Alegre that you mentioned, but we'll work that. We'll be working on that information in our Klabin Day. Douglas will talk about the market after that. Well, Daniel, Monte Alegre and the site that started to manufacture in the 1940s or at the end of the 1930s, 40,000 tons. Today, this is a site for 1 million tons, and that is a site that is fully stable. It is a global reference, and it has amazing abilities that are a reference in the industry.
For the last decades, we have received information and we are exchanging information on the operation about the site. We like to say that Ortigueira is the new site, but Monte Alegre is a powerful site, and we have a life expectation that is perennial and it's favorable condition, thanks to a good water condition, because it's close to two important rivers and also because of the forest productivity. Yes, looking at Monte Alegre, you know, we look at that as renewal. Renewing its operating capacity. With opportunities, we know about the average age of equipment, we know how important that is in a plant, and we work on that.
We study that as a major opportunity in Brazil, which is a country investing in the transformation of its paper and pulp units in all large companies in the sector. Yes, Klabin sees the updating of the site as a possibility, but bringing return to Klabin and with a possibility of great renewal, that is the idea for the site. This is a strong place for Klabin, and it will continue to be. I'll turn the floor to Douglas.
Hello, Daniel. Thank you for your question. On our side, what is in our agenda, you know it well. The Horizonte project, starting now in 2023, integrate in 2024. We always look at the industry on the side of competitiveness. These two sides will bring us a lot of competitiveness with state-of-the-art technology, scale, very high operating efficiency. As far as paper is concerned, we see the availability of paper in the market and competitiveness.
In the mid and the long term, we look at those that have competitiveness and availability will keep on growing, keeping up with the market growth and will be adjusting itself in terms of volume. That's how we are seeing the short-term projects for Klabin.
Thank you, Cristiano and Douglas.
There are no further questions. We'd like to give the floor to Mr. Cristiano Teixeira for the closing remarks.
Now I bring the outlook for the fourth quarter of 2022. In general, the fourth quarter of the year is still a strong seasonal period. This year, we already feel that the scenario is different, especially in the foreign market, with global economies reorganizing themselves in the midst of macroeconomic uncertainties. Despite this scenario, we remain firm in our vision of maintaining good cash generation measured by EBITDA, growing year-over-year and confident in the full capacity of our products to serve resilient markets such as food, beverages, and hygiene, with good expectations for the upcoming Black Friday and World Cup. I also strengthen our full commitment to the best ESG practices in the private sector in the world. Once again, Francisco and I will attend COP27 in the business leaders group.
Thank you all for joining us today, and I look forward to seeing you at Klabin Day, which will be held on November 13th.
This concludes Klabin's conference call. Thank you all for joining us today. Have a great day.