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

Hello. Good morning, everyone. A special good morning, good afternoon and good evening to our friends that are online as well. Welcome to Suzano Day 2022. We will talk about the Suzano of today, but also about the Suzano of tomorrow. That tomorrow is one where new winners such as Mercado Libre emerge, companies that are growing exponentially by providing new answers to consumers' and societies' needs while delivering solid results, and responding to questions increasingly being asked by new generations of global consumers. To talk about this transformation journey, I introduce to you Stelleo Tolda, one of the founders of MercadoLibre.

Upon the conviction that technology is to change people's lives and a strong purpose of democratizing commerce through the connections that the Internet allowed, the consumer of the future will be faced with increasing choice. And that poses a great challenge for companies, which will be forced to facilitate the customer's choice whether through technology, through their brands or providing some sort of curation. Companies should have a clear strategy for the future. Quarterly results, on the other hand, should show a clear path towards executing on a strategic plan, but in no way should take precedence over the focus on inventing the future.

In 2024, Suzano will turn 100. There are 2 approach to this milestone. Being a century-old company that repeats in the future the success recipes on the past, or being a century-old company that celebrates and respects its legacy and success, while combining with this a constant quest for improvement, innovation and transformation. And to discuss the need of deliver results every quarter and the challenge of creating and scaling the future, let's welcome together with Marcelo on the live stream directly from Rio de Janeiro, Luiz Orenstein from Dynamo, an important investor in Suzano and an important name in value invest in Brazil. Thank you very much, Luiz, to be with us. Hi, Luiz.

Good morning to everybody. A pleasure to be here with you both. And thanks for having me.

It's a great pleasure to be with you today, Luiz. Thank you very much for joining us for this session. I would like to make some questions to you. We would like to [ shout ] a bit -- Marcelo Bacci and me. I'm going to start with a question, Luiz, that Dynamo's reports on Suzano tremendously nurture our motivation internally. And in short, how does Suzano see Suzano? We know that Dynamo didn't like very much commodities. How we see us?

We don't like commodities, that's a good start. So first of all, let me say something about commodities in general. As you all know, commodities producers are price takers, and they compete in a global arena with similar products. Commodities are usually profitable within a narrow band of fluctuations in volumes. And so what happens is that changes in the wrong direction. Due either -- let's say, to a relevant increase in supply or a sudden drop in demand weaken this unstable balance and may generate steep, sometimes unfortunately, lengthy declines in market prices. So this usually is a cause of concern among value investors as they, I mean, as we do not control the main value driver of this asset class, which is, of course, the price of the commodities. So -- but what about pulp, pulp in particular? As we understand, pulp market has some different conditions. In fact, maybe looking at it from a longer time scale, pulp shows a less historical volatility compared to other commodities. Supply side in pulp is more visible, as projects, as everybody knows, need huge areas, specific conditions. I'm talking here about climate and logistics mainly. And of course, a long time for forests to mature. So -- and regarding demand side, we see a more stable dynamics here because growth has been driven by macro events. I'm talking about increasing population, digitalization, whatever -- climate change, and even responsible consumption. So in a very, very -- I'm trying to give you a very short answer, although I think that I'm giving you already a long answer. But those are the reasons why we see a more positive environment for pulp as a commodity in the commodity space. And now about Suzano. There are many reasons why we find Suzano an interesting investment proposition. It's a very important investment in our portfolio. I'm going to list some examples of these reasons. A profitable safe business aligned with future trends, maybe number one. Diverse and well-defined growth vectors, maybe number two. The classics, market leader, low-cost producer, established a competitive edge, maybe number three. DNA, DNA of innovation, of course, and research with promising technological paths, as I think you all know, number four, maybe. The presence -- this is very important, the presence of a reference shareholder with owner mentality, long-term perspective and entrepreneurial skills, number five, maybe. The team, the management, very competent and motivated people. I think this is number six.

Thank you for your generous comments. Now Marcelo will make the second question to you now.

Luiz, you mentioned about the future and the short-term results. How do you see the balance between short-term and long-term results? What are the very important or the most important threats that the company should look for when balancing long term and short term?

I think here, we have to talk about ambidexterity because -- it's -- this is a big word, and even so it's easier to say it than to do it. Ambidexterity is a Schumpeterian dream for any company. So companies usually show a tendency to maintain the status quo, an impulse to reproduce what has worked before. As they face, I think, like a resistance to what is new, an internal aversion to experimentation and maybe moving away from the comfort zone of what's already known. So holding to this protocol is the best to lose relevance and lag behind. So ambidexterity, I think it's a word that you guys use a lot, offers a way out of this dilemma because it consists of the ability to be like amphibious, to preserve what has brought efficiency and has worked in the past. And sometimes, to be open to exploit -- at the same time to exploit changes that should be relevant for adapting to the future. So just to finish, ambidexterity, I think, is the name of the game because it confers a critical [ parity ] to established companies, which is the capacity to generate value using legacy, legacy structures. But at the same time, bridges are being built to take them to the future, a future that devises innovation to ensure competitiveness, again, and sustainability. And just to be clear, and to finish, as investors, as value investors, investors that look for fundamentals, we are sure that we know that Suzano has it, ambidexterity.

Thank you. Luiz. Due to the lack of time, I'm going to make your last question to you. What is the path to monetize sustainability and drive the ESG agenda of corporations? Brazil has a green power and a global reference. How it's to reach there?

Well, short answer here is, so -- it's hard. But first of all, I think now here, I think the name of the game is ESG because ESG is not a fashion. Each one of these ladders has deep roots in history. And we think ESG pays off, let me think -- we've been trying to push the companies we invest to take the way on this agenda. And we hope this will happen to Suzano. It remembers us the early days of Dynamo in the wild Far West of the capital market -- our capital market, many try to encourage owners to pursue higher standards of corporate governance. At first, it was hard, but then it became a win-win proposition. The same thing is going to happen with ESG, and I think this is the way out of the equation you gave me. And to finish, regarding Brazil as a green power, as you mentioned, well, we -- our ecosystems are a valuable asset for the entire world. We have -- if we do everything right, this country has everything it needs to become an environment superpower. And this is what Dynamo believes is going to happen here sooner or later. Let's hope that it's going to be sooner. And maybe just to finish, and really I'm finishing, in [ R&D ] today, the best place for a long-term investor to be in terms of capital structure, I think those companies with owners. Not in the old fashion, but with a more modern mindset, which take into account the interest of other stakeholders, as instrumental recognition, I mean, without giving up the aim of maximizing long-term value for shareholders. I have known [ Dougie Sheffer ] for a long, long time, and well, I think this is -- he is exactly the kind of owner we're looking for. He's the guy. And so -- now I'm finished. That's why we find Suzano precisely [ out of this ] group, the group of companies with what Italians call [ agionat owners ].

Thank you very much, Luiz. Thank you very much to be with us today for your support. And congratulations from what you are doing. Thank you, Luiz.

Thank you, Luiz.

A pleasure. Bye-bye.

Suzano is a success story because of its people. Our future is being built every day by combining cutting-edge innovation and sustainability. On that note, I would like to welcome Pablo Machado, our Executive Officer in China, to share with us what we are creating to our customers in regards of innovability.

[Audio Gap] serve them better with our sustainable fibers, thus assisting them to become more efficient and more sustainable. To achieve that, our first step is to deliver innovability. This hub aims at ensuring that we have the proper laboratorial and R&D structure to deeply understand our customers' challenges and needs, and offer them efficient and sustainable solutions on a technical perspective. It will also serve as a hub to promote what we call innovability or innovation as a service of sustainability. On the other hand, China is today a highly innovative environment. So we also expect that the innovability hub will enable us to learn with China and benefit from the innovative solutions that China is and will be generating.

As we have already mentioned a few times, Suzano's strategy is based on 5 important avenues. One of them, which is strongly associated with our purpose, is the ambition to play a leading role in sustainability. Sustainability is a fundamental reference of our past and present and also guides the future of the company and the role we aim to play in the world. That's also why today, we will begin the presentation on strategic avenues with sustainability. We believe in innovability. Scaling sustainability is only possible with innovation. For us, sustainability is neither a quick marketing win nor a fad. I'm pleased to invite to the stage Cristina White, our Chief Sustainability Officer. Welcome, Cris.

Thank you, Walter. It is a privilege to be here at Suzano. I actually chose to come to this company precisely because of its history in sustainability and the very robust team we have. Suzano has, in fact, embedded sustainability in its business decision-making. We have a very important bottoms-up and top-down approach. I am convinced that our footprint will allow Suzano to deliver very important transformation. Today I will limit my participation because I want to invite you all to participate in our second ESG call that will take place on June 23 of this year. And you will learn how we are progressing on our journey towards the regenerative business for a regenerative society. Please come learn how we are further integrating biodiversity and social development in our territory resilience approach, how Suzano is analyzing and addressing megatrends using a risk and opportunity lens in very important matters such as climate and social equity. And the basis of all this is precisely governance. We have achieved very critical milestones. 100% of our officers have at least one sustainability target tied to material issues for business. And this affects 10% of short-term variable compensation. Furthermore, and earlier than the ESG call, in the first half of May we will publish our 2021 annual and sustainability report. I know you're all readers. So please come and read our new report and provide your feedback. I also want to announce that we're revamping our Indicator Center. It will now be called Sustainability Center. You know that we have more than 500 indicators aligned to standards and frameworks that are very important to communicate non-financial information. So please provide your feedback. And now I want to hand it over to my colleague, Christian Orglmeister, who will talk how we're boldly expanding into new businesses.

Thank you, Cris. Hello, everyone. Happy to see you. Indeed, we've been making strong progress in our agenda to expand our addressable market in the 4 key routes that we've chosen in our strategic path. These routes are the textile market, the MFC, the biofuels and also, of course, carbon. All these routes are looking at targeted at very sizable potential markets, and this is what Suzano is about. Today, I will highlight to you our progress in 2 of these routes, specifically the textiles and the carbon. Well, in 2017, Suzano made an initial investment of EUR 5 million in a small startup up in Finland called Spinnova. It was the beginning of our ambition to take our wood-based fiber into the textile industry. Well, this startup is now a reality, with a market cap of over EUR 450 million and growing after its initial public offering. What you see here is our facility, our joint venture between Spinnova and Suzano called Woodspin. And we are very excited to see the progress, and we expect to have start of production by the end of this year. In this facility, we will be producing a very unique wood-based fiber that is highly desired by some of the key leading brands in the apparel industry. All of them already contacted and committed to the use of our fiber. They do that not only because of the technical characteristics of our fiber, but because they understand the importance of such material in addressing some of the key challenges that the textile industry faces regarding sustainability. To talk to you a little bit more about Spinnova and Woodspin and our wood-based fiber, let's listen to Janne Poranen, the Chairman and Founder of Spinnova.

First, I would like to thank you for this great opportunity to give our greetings from Finland. Spinnova has unique technology concept to produce the most sustainable textile fiber in the world. About 65% of all the textile fibers in the world are oil-based and about 25% are cotton. These are not solutions for the future, but the industry must find out something new and more sustainable. Our strategy is to work directly with the global textile brand owners who have committed to develop sustainable materials. They can help us to keep our story alive all the way to the consumers. When we are scaling our fiber volumes, it means that we are really making a big impact in global scale. Our main focus is to scale up the production volumes of wood-based textile fibers together with Suzano. Currently, we are implementing our first commercial step here in Finland. The start-up of the production will happen by the end of this year. This is just the beginning. We are fully committed to revolutionize the raw material base of the whole global textile industry for the better. And together with Suzano, we are able to do it. With these words, I would like to wish you a great Suzano Day, and thank you to whole Suzano team for our great collaboration.

Thank you, Janne. Another important route in our strategic agenda is our carbon agenda. Of course, you've been reading in the papers how we've been openly and actively advocating for regular markets both globally and also in Brazil. But we've been also advancing a lot in identifying potential projects where we can have certified carbon credits. Over the past year, after a very diligent and rigorous process, we have already identified over 30 million tons of carbon in potential projects to be certified. Of course, this needs to go through a very diligent process until they become carbon credits. And we're very excited that we are about to have 7.5 million tons of carbon credits to be commercialized in the voluntary market in a very near term. And I'm sure this will be also another source of growth for Suzano in the very near future. But expanding into new markets, it's not only a role of new businesses. We're also doing that within our current business model. And to talk to you about how we're doing this in the paper and packaging units, I invite Fabio to talk to you a little bit about that. Fabio?

Thank you, Chris. Good morning, everyone. It's a great pleasure to be here with you today in person. And in our Paper and Packaging business unit, we have a motto that says paper is the future. Last year, during our Suzano Day event, we shared with you our belief, strong belief, that paper products will lead the transition to a more sustainable world. And today, I'm glad to share with you here the latest advancements that we see in the world regarding regulation and also what we're doing at Suzano. As you can see here in this slide, new regulations have been advancing in the world in 2021. We have new countries such as Mexico, U.K. and India approving legislation that bans or regulates single-use plastics. And more important than that, if you look at the graphic, more than 50% of the single-use plastic usage today take place in countries that have already passed legislation that either bans or tax or plans to deal with the plastic pollution. Consumer mindset is also changing. There's an Ipsos poll with 20,000 different consumers in 28 different countries that shows that 75% of the people that were interviewed for this poll, they want plastics -- single use plastics to be banned as soon as possible. And some of them are willing to pay a little bit more for a more sustainable packaging. We are very glad as well that early March this year, a group of world leaders from 175 different countries sat together at the UN, at the United Nations, and approved a new legislation that will have the aim to end plastic pollution and also endorse new legislation that will deal with plastics consumption by 2024. And this UN plastic treaty that was approved that is undergoing now, and it will be approved in 2024, it's also endorsed by 25 leading major consumer companies, showing the importance of full supply chain endorsement for the deal. So with that in mind, with this context, I'm going to share with you now what we're doing at Suzano at the Paper and Packaging business unit. In the past 2 years, we have been working on our portfolio, developing new products to help our customers and their customers, the end users, towards this journey into a more sustainable world. And you can see here that only started in 2018 when we launched our Bluecup. Some of you guys have also probably went to McDonald's or some of these fast food service companies and you probably used one of our cups there. 2019, we developed the loop straw. And in 2020, we have here new products being added to the system like the green bag. It's a bag of paper replacing plastic bag. And the [ TP cycle ], which is a product that's been targeted in the circular economy. And in 2021, we have a big leap in sales with the addition of a [ kraft ] liner that we're targeting the white top liner industry. The Bluecup Bio, which is the first product that we are adding to -- bringing to the market with a bio-based barrier. And the Greenpack, which is a product that we believe has a very supportive future into flexible packaging. And in 2022, we aim to reach 60,000 tons of sales which is for us a very big exponential growth, and we're not going to stop there. And also here, you can see that we are aiming to replace plastics in some of our packaging products that we, Suzano, have as well, like the [ Mimmo ] product and also the A4 cut size product. Also reducing Suzano plastic consumption as we move. So with that in mind, as we go through this journey towards a more sustainable future, having strong partnerships is very important for us. I'm going to share with you one of these partnerships. It's a project that we have done with Johnson & Johnson, where our Greenpack product is being there, replacing plastics in one of Johnson & Johnson's most famous feminine care brand, [ Simple Live ]. Let's go to the video, please. [Presentation]

I would like to start by thanking Suzano for inviting us to share our thoughts, goals and advances towards sustainability. J&J is uniquely positioned with the power of our brands to keep protecting the health of our people and also the planet. Circular economy for example, when also post-consumer packaging, are 2 pillars that we truly care about. And this is all part of a bigger and bolder initiative called Healthy Life's Mission in J&J, where we are committed to investing $800 million toward sustainability in the next 10 years. And our brands play a very important role. And a great example is the recent partnership we have developed with Suzano for [ Saint Delivery Eco ], where we have reduced 50% of its plastic. We have used, in the past, bamboo layer, and both internal and external packaging are made out of paper. In addition, 80% of the composition of the materials are made out of renewable sources, which ensure sustainability and safety from the beginning until the end of the process. All of that attending consumer needs, we strongly believe in the power of these partnerships. It's through these alliances that we will build a more sustainable world today and tomorrow. Thanks for inviting us.

Very cool, isn't it? So we have all these products that we have talked about. They are shown in the lobby there, so you can see by yourselves and touch it and feel it. The history of Suzano is fueled by success stores on seizing new opportunities. It's no surprise that this is the foundation of another of our strategic avenues. The one which address advance in the links of the chain always driven by competitive advantage. Dear Luis, please tell us where we stand on that.

Thank you, Fabio. Morning, everyone. As you know, Suzano has already advanced in the value chain, always with competitive advantage. We have different businesses, as you're seeing on the screen. And today, we are going a deep dive on the tissue business. When we think about the market in Brazil, there is still room for growth on the per capita consumption of tissue. If you compare the Brazilian per capita consumption with our neighboring countries, we see that some of them have -- they have double the consumption that we have in Brazil. Another source of growth are within the categories on the tissue segment beyond toilet paper. If you compare the Brazilian consumption with the global consumption, we also can grow on other categories within tissue. Another point is Brazil is a fragmented market. If you compare it to other Latin American countries, all of them have already gone through a consolidation process. However, this process has already started in Brazil, as we are going to mention in the next slides. And third, we launched our tissue business in 2018. First, we started and prioritized the North and Northeast regions of Brazil where we achieved market leadership with 66% market share in the North and 28% market share in the Northeast region. Afterwards, we moved down to the Midwest and Southeast regions of Brazil, reaching in 2021 11.2% market share on a nation basis and the third position among all the players in the tissue market in Brazil. This growth was based in 3 pillars. The first one is distribution. We have been growing our distribution channel throughout the country over these 4 years. And now we've reached 55% weighted distribution in the country. And I invite you all to try our 3-ply Mimmo product. Here in Sao Paulo, you're going to find it on the major retailers, but also I invite everyone online to find it on the [ bigs ] and the major cities in Brazil. The second pillar is brand building. We have been building our brands from scratch since 2018. And for example, we have the Mimmo brand. We have achieved a significant position in all states that we've been playing with this brand. And the third pillar is production. We have already achieved our maximum installed capacity, both in terms of production and sales. And then comes the question, so what's next for Suzano? Let's talk about 3 trends that we see in the market. The first one, we have several smaller regional players in Brazil with old assets. And they will be required to invest in CapEx in order to have competitive assets to be in this market in the future. The second trend is regarding the larger players. The larger players have already started to be consolidated in this market. And this trend is going to continue. And the third one, there is a premiumization going on in Brazil for several years, and this will continue in the next years, which is moving from 1-ply products to 2- and 3-ply products. For Suzano, we have options for growth. We can either grow through good projects in Brazil organically or we can grow through regional acquisitions that we might evaluate in the country. So we've been discussing our tissue strategy in Brazil. But tissue, globally speaking, it is also a very good source of growth for pulp. Now I would like to invite Leo to give us a broader perspective of our pulp strategy. Thank you.

Thanks, Luis. Good morning, everyone. I'm so glad to be here and seeing so many friends again, so many familiar faces in person, very excited for this event. And I'm going to share with you, in my today's presentation, our view for the supply and demand for hardwood pulp for the next 5 years. Again, we will focus on hardwood pulp, obviously as it's more related to our business. First, going through the organic growth demand dynamics. We believe that during these next 5 years, the growth will add up to 4.7 million tons. The demand for hardwood pulp is being sustained by ongoing demand, growth in demand for tissue grades, for specialties and for packaging. All of these 3 grades have growth rates that range from 1.5% to 3% per year. But as we have been saying already in several of our events and in past Suzano Days, we believe that there is much more to that when we're talking about demand. And we always mention the 2 avenues of additional demand growth, which are the fiber-to-fiber alternatives and possibilities as well as the fossil-to-fiber possibilities. And in this year's event, I will bring you in depth in 2 of the fiber-to-fibers initiatives that we are already seeing, that are already taking place and which are not considered in most organic growth models in terms of demand. First of all, I would like to invite us all to take a deeper view on the tissue market globally. It's amazing how much growth and how much growth in furnish hardwood pulp has been having throughout the past years. As you can notice on the graph on the last 10 years, there was a 17 percentage point growth in the furnish of hardwood pulp in tissue production. And we have several models at Suzano to analyze the future, and we are sharing with you our most conservative model, which forecasts an addition of only 2 points -- 2 percentage point growth for the next 5 years. And you'll see how that translates to volume in a while. And what are the reasons why we believe this is happening and this will continue to happen? First of all, the machinery that produces tissue, the new technology is more flexible. So it can use a broad range of fibers and mix them and blend them. And this enables our clients to use more and more hardwood pulp. Second, as we have presented on our last Suzano Day, there is a lot of investments in R&D and in fiber improvements. So our eucalyptus pulp and fiber is gaining strength, which is measured in tensile, and it's also gaining smoothness, which is appreciated for tissue production. Third reason is because the growth in terms of softwood, in terms of future projects, confirmed projects, are much less than what we see as a demand growth. So that will leave space for hardwood more and more in the future. Fourth, and this is a very important item, recycle grade, especially sorted office papers, which are printing, writing papers or the recycle grades that are generated in the offices, this has been declining significantly. If you note in the graph right here, coincidentally with the COVID pandemic there was a huge decline in availability and usage of recycled SOP grades, which then are immediately substituted by virgin fiber, being hardwood the main product being used. And last but not least, the competitiveness of hardwood versus softwood. We all know that we are now living a moment in time where the gap between fibers and prices are among the highest. And this obviously benefits fiber substitution. And if we consider only this 2 percentage points evolution for the next 5 years -- and again, this is not included in any of the organic growth models -- we will have an addition of 1 million tons of pulp -- of hardwood pulp demand for the next 5 years. Now I'm going to take you to our next avenue in terms of fiber-to-fiber. And this year is a bit more recent than what's going on in tissue, which is the change in dynamics and packaging in China. In China, as you all know, is among -- is the leader manufacturer of cartonboard, paperboard globally. Throughout the past 4 years, we have seen a huge increase in market participation or in production share of ivory board over duplex or recycled boards. They have increased more than 16% during this -- 14 percentage points during these last 4 years. And why is this important for us? Because when you're talking about duplex board, the usage of hardwood pulp is very, very limited. It's not more than 3% as they're using recycled fibers. Now when you move to an ivory board, which is a white board, the usage of hardwood pulp is significantly bigger. It reaches 35%. Again, we are bringing to you our conservative models for the future, for the next 5 years. In this conservative model of Suzano, we are expecting that this growth will add an additional 4 percentage points to ivory board production in terms of share in China. These are already announced projects, already announced machines coming online in the next years, and this will significantly impact our market, adding additional demand, not only as board production growth, but always also as there is a migration from the duplex board, which used less pulp, to a virgin board that uses 35% hardwood pulp. The reasons that are behind this transition are several, of which I already mentioned in our slide on tissue, but I would like to bring one additional one, which is the packaging premiumization. We are being actively called by our customers in Brazil, through Fabio's team and also internationally through our customers, for brand owners requesting a packaging that can better reproduce their brand. The images not only outside the packaging but also inside. And this is obviously more -- it's easier to be done when we're talking about virgin fiber, white packaging, rather than a recycled box. And again, if you do the mathematics, on our conservative model of this additional 4 percentage points with a 35% furnish of pulp, we come also to an additional 1 million tons of hardwood demand. Again, this is very conservative. There are consultancies to our business and in the packaging business that accounts that the market share of production in China of Ivory boards will easily surpass 75% in the next 5 years. So again, now revising our model of demand. We've shown initially our organic growth forecast, 4.7 million tons. And just by adding these 2 initiatives of fiber to fiber, we reached 43.1 million tons by 2026, which is this new 2 million-ton addition. And on top of that, there are still additional opportunities on fiber to fiber. A lot of printing writing is done globally still using recycled grades, which as we have seen are less available. And also, there is a big opportunity brought to us by wood availability in Northern Hemisphere and also in Southeastern Asian markets, and that will open more slots of opportunities for hardwood pulp as well. Last but not least, and linking with Fabio again and the initiatives of substituting single-use plastic by paper products, this is something that we strongly believe and we believe that this will unleash potential for a new market for hardwood pulp as well. Now coming into supply. So here in our analysis, we got all the supply that has come on board until the end of 2021, and we're evaluating the new capacity that we announced looking forward. So the main projects we all know are [ Ralcomapa ], UPM Paso de los Toros and Suzano Cerrado. And in our net capacity growth, we are also considering the already announced closures and the already announced conversions, which already surpassed 1.2 million tons on this next 5-year cycle. With that being said, and adding up all these numbers, we come up to an additional net capacity of 6.9 million tons for the next 5 years. In this number, we did not include something that is very important that all of you have an eye on, which is the supply risks or the unforecasted downtimes that are happening more and more and more to our sector due to exogenous factors, but also due to the age of the equipment, mainly on the Northern Hemisphere. Historically, this number accounted for 700,000 tons a year of unplanned downtimes for softwood and hardwood. The last 2 years, this number was 2 million tons. So this brings -- obviously, the delta of these numbers bring a big impact to the supply dynamics. And as we speak, today there are 3 very relevant pulp producers, one in the U.S.A., one in Finland and one in Spain. And all of the 3 of them have force majeure letters to their customers as we speak, and are not supplying and are not taking any new orders as of this moment, and some of them for already a couple of months ago. So the situation tends to be and become more and more critical. And I'm going to use the space here. I know several of our customers follow our Suzano Day. And just to send a message that we are actually trying our utmost efforts to maintain our supply chains flowing so that we have pulp arriving to them. We all know the logistics issues that are going throughout the world. We are coming from very low stocks, below optimum stock levels. We have exited all spot markets and deals. We are focusing all our volumes, all our sales to owner and to make sure our supply chain to our customers are maintained unaffected despite such a difficult moment. Coming back to the presentation. Now when we look at our forecast for demand, 43.1 million tons by 2026 and of supply -- net supply growth, 47.5 million tons, we reach a very healthy operating rate of 91%, which is even higher than it was last year. Again, in this number for demand, we are not including those additional opportunities of fiber to fiber nor fossil to fiber. There is no number added to this year. And also, we didn't decrease the supply side on the deltas of ongoing, unplanned for downtimes that we're seeing happening more and more. So there are opportunities to further increase this operating rate in future years as well. Now obviously, we know that this is a 5-year forecast. And when we analyze on a shorter period of time, especially after a project has ramped up and the volume is available. There can be momentarily an oversupply in the market, which usually last few months. And that's why we want to share with you our last slide here on the pulp side of our presentation, which is our view on how inflationary pressure is setting a completely new standard and threshold for floor prices in the pulp market. I'm glad to share with you a report that was issued by one of the main consultancies, Hawkins Wright, a few days ago. So maybe many of you have not seen it yet. In this report in the dark blue line, we see the marginal cost of production through time. And in the golden or brown line, we see the BHKP price in China, all this is delivered to China, okay? So same base. And we see that through time, the marginal cost of production serves as a great proxy of what the floor price will be. Obviously, there are moments that it tends to be low, but then obviously, it shoots up again. And on the report published by Hawkins Wright, the marginal cost of production for this first quarter is $545. I know you guys asked these questions to us several times, where do we see the marginal cost of production, so this is the best reference we now have, $545. And there is a forecast that by the end of the year into early 2023, the marginal cost of production will reach almost $570 per ton due to, obviously, all the inflation on costs that our industry in general has been living since 2021 in a more escalating way. So we really believe that this year will set a new threshold for floor prices for the coming months, years and cycle. With that said, I shared with you our positive view on supply and demand. We are very positive on that. Fiber to fiber is becoming a reality and adding more and more demand to our business. We also understand our position in the global cash -- cost curve for pulp. And that's why we have recently announced our Cerrado project, which will be the most competitive eucalyptus pulp project in the world. To give us a little bit more details on Cerrado, I would now like to invite Aires up to stage.

Good morning, everyone. Thank you for coming. The most important message from Cerrado project is that we are on time and on budget. We are approaching the end of rainy season [ hima zuppardo ] with the earth works 95% complete and the underground works, 60% ready. Paving continues at a fast pace. This is to provide excellent working conditions for the next stage of project construction. We also completed a large part of temporary facilities for work such as a cafeteria to support 10,000 workers per day, a [ project softs ] water treatment and others. We already have more than 4,500 accommodation positions ready. And we currently have approximately 2,500 workers on site. Our fiscal progress is currently at 8%, and we have already started the piling process in the project. And the product should arrive in December with 43% fiscal progress, thus maintaining our start-up forecast for the second half of 2024. The total CapEx is also in line with our forecast, subject to core inflation correction. But so far, so good. Another very relevant point of Cerrado project is in addition to economic component that has already been talking about is the environmental component. This [ mill ] will bring a very high energy efficiency. From this graph on the screen, we can see that Cerrado project even produce approximately 23% of Suzano startup volume will add a 64% growth to Suzano's average energy generation per ton. In other words, Suzano's average megawatts hour per ton generation, which today is 0.14, will rise to 0.23 megawatts hour per ton after the project ramp up. These are huge impact on the energy issue and the relevant environment component of this project. Moving ahead, being the best class in the total pulp costs represents another strategic avenue for us. And it's also about making our current [ assets ] increasingly more competitive. Let me show what we have done on this front. On Suzano Day last year, we have shown you a pipeline of 32 projects with a CapEx approximately of BRL 2 billion that could generate a reduction of BRL 150 per ton in Suzano's operation disbursement. In this regard, we have approved and we are in implementation phase of a project in the [ jacariz bitting system ], improving the energy efficiency in the [ new ]. This CapEx project of approximately BRL 6 million, that will reduce the [ Jacariz ] cash costs by BRL 150 per ton, or in other words, BRL 12 per ton in Suzano's cash cost. For 2022, this CapEx is included in the guidance, CapEx guidance already informed by Suzano and the startup of this project is scheduled for mid of 2023. We continually evaluate the implementation of other modernization projects that bring greater competitiveness to our assets. And we implement them whenever the balance sheet allows and the capital allocation proves to be attractive. I now invite Marcelo to show the great detail the evolution of our competitiveness. Marcelo [indiscernible].

Thank you, Aires. All right. So in our journey through competitiveness, we have seen our total operational disbursement, which is a concept that we brought a few years ago, go from BRL 1,580 back in 2019 to BRL 1,670 last year in 2021. In this 2-year period, we saw a very significant inflationary effect that affected this number with BRL 347. But with our internal measures of competitiveness, of productivity, we have been able to compensate 3 quarters of inflationary effect, bringing the number down by BRL 262. Looking forward, our goal is to bring our total operational disbursement per ton back to BRL 1,500 per ton in 2027. And that will be done with 2 major initiatives on our side. The first is additional performance gains and the productivity gains that will come from processes and also from investments, the payback of the investments such as the one that Aires just showed to you in [ Jacari ]. And also with the incorporation of the Cerrado project into our base, Cerrado has a lower cost, and this will affect our average. And the good news is that during this period, but still in 2027, Cerrado will still have potential to further reduce this number because the forestry base of Cerrado will not be stable yet by 2027. So this trajectory here will enable Suzano to increase the annual free cash flow generation when compare '27 to '21 by BRL 2.3 billion by reducing CapEx and costs according to this curve that we project here. I also wanted to -- since Cerrado is an important part of the journey, I wanted to touch a little bit on the execution risks related to Cerrado. Aires also shared with us some information about the project, and I would like to give a more long-term perspective on this. First, Suzano has implemented half of the new projects in pulp in Latin America in the last 20 years, responsible for 40% of the capacity addition in the region. We have shown over this period an average execution time for projects of this nature of 30 months versus a market average of 40 months. And the latest project that we implemented [ Rez lagoas 2 ] has become benchmark in the market in terms of delivery time, learning curve and also cash cost. So we do have the know-how in-house to implement organic growth projects. In relation to leverage, this is a very interesting graph that shows the leverage ratio of different companies in time when starting projects of the same nature of Cerrado project. So you can see here that we start at a point that is not too different from other companies in the past, including Suzano, and including some of our competitors. But when you look at the projections by analysts, some of them are sitting here today, and also by rating agencies, they expect Suzano to finish Cerrado project at a leverage ratio below what we had at the beginning. And that's the effect of the CapEx efficiency and the scale we have today, which is completely different from the other projects in the past. And that has been recognized by our creditors and also recognized by the rating agencies in the latest reports they have. Also looking at the capital structure that we have today and the liquidity position, it's also important to mention to you that the [ inside the fence ] CapEx of Cerrado represents 0.7x our last 12 months' EBITDA, which is a number completely different from the references in our industry in the past and also 0.7x the liquidity position we had by the beginning of the project, which is also completely different from situations of the past, including our own situation, for instance, in the Imperatriz project back about 10 years ago. Also, the market risk profile of the Cerrado project, given its low-cost profile, is also very different and very special. We have shared with you by the time we announced the project that we expect the total operational disbursement for Cerrado at $280 per ton at cruise speed, which is below the average that we have today. And today, Suzano is the lowest-cost producer. So this is a very competitive project. So when you look at this number and you look at the marginal cost curve that Leo shared with us in the past, a few slides ago, that gives you a very strong sense of what is the capacity of this project to generate additional cash to the company. On the capital structure side, we have also a very important protection to the macro scenario that we see today. And I would like to share with you some important information here and highlight our resilience to a higher interest rate environment. Suzano has today that schedule and a debt profile with an average cost of 4.3% a year in dollars, 100% in dollars, that gives us protection to the appreciation of the currency like we're seeing today. 89 months average tenor and 90% of our debt is at fixed rate, directly or through swaps. If you look at the next 3 years, 100% of the maturities we have in the next 3 years are at fixed rate. So this gives us -- to Suzano, significant protection to a higher interest rate environment that we're seeing globally, and especially here in Brazil. And when you look at the FX position that we have today, we can even say that the higher interest rate environment may be beneficial to Suzano. And I'm going to share with you a very interesting set of curves here. The first one, the green curve, was the curve of FX rates, futures rate between the spot and 18 months forward, back in the beginning of 2021. Spot was 5 25, 18 months forward was 5 47. Today, because of the change in interest rates, even for a lower -- the day we did this graph, the spot rate was 4 81, which is similar to what we have today. But the future rate 18 months forward was already 5 53, even higher than what we had in the past when the spot was a lot higher. So because of our hedging strategy and the way we operate FX, we benefit from this curve, and we will continue to be benefiting from this curve. Today, we have a portfolio of hedges of $4.5 billion. With an average put -- we use 0 cost collars as you all know, an average put of 5 49, which is, again, giving us a significant protection. So this is all to say that coming back to how this relates to the Cerrado project. First, we have a proven track record in implementing projects. Second, we have a very low liquidity risk, a very high protection to market scenario, sound financial position and also a significant cost competitiveness. So this brings us the question that we pose to you is when the market will start to give credit in our valuation to this project that has a very, very low execution risk. With that, I'll turn it back to Walter.

Thank you, Marcelo. I would like now to invite you for a completely different view. Paul Polman was the CEO of Unilever for more than 10 years. He's a true icon and legend due to his ability to always drive great results and build tremendous value of his company, while being one of the world's greatest sustainability advocates, which I should be said, he is still today. To learn his views about the evolving nature of ESG in the coming years, I welcome Paul Polman.

Well, first of all, thank you, Walter, for the opportunity and your great leadership. I've seen the same leadership from my friend, Daniel Feffer, with whom I chair the ICC Board. I have lots of respect for the company, not surprisingly because you are taking sustainability very seriously, putting risk and opportunities at the center of both strategy and governance. You as a company certainly care about your role and responsibilities in society. You go beyond just selling pulp and paper. And you do this in a challenging environment like Brazil. Being ranked amongst the top 15 companies with the best sustainability practices by GlobeScan certainly recognizes your efforts to hardwire sustainability across your strategies, and not just tick the CSR box. Not surprisingly, you are, amongst other things, joining the science-based target initiative. And you use finance for good with creative things like the ESG or diversity targets linked to debt. You look at your responsibilities holistically, including all stakeholders, and rightfully so. The world is 4.6 billion years old. And if we put this on the scale of 46 years, human beings have only been around 4 hours. The Industrial Revolution started 1 minute ago. And in that time, we cut 50% of the world's forests. In the past 5 decades, we've lost 68% of the world's species. Some people call it the sixth greatest extinction. COVID, in fact, is a direct result of the destruction of our biodiversity. Last year, World Overshoot Day (sic) [ Earth Overshoot Day ], which is the day that we used up more resources than the world can replenish, was July 29. After that day, we're literally stealing from future generations. We're living well beyond the planetary boundaries. And we're discovering that we can't have unlimited growth on the finite planet, and anything you can do forever is, by definition, unsustainable. Most companies are still in the less bad or CSR mode. And we saw this in Glasgow. Commitments to reduce a little bit of CO2 or plastics in the ocean or deforestation. But when you have overshot your planetary boundaries, less bad is simply not good enough anymore. We need to think restorative, reparative, regenerative, and we call this net positive. How to profit from solving the world's problems, not creating them. That's the only way society will accept you longer term. And I know that you're thinking net positive by aiming to remove 40 million tons of CO2 from the atmosphere by 2030, by expanding conservation areas and native forests, by modernizing equipment and using renewable energy. These commitments and actions get to the heart of the type of business that the world needs. It was also great to see Walter and your company leading in efficacy at the COP26 in Glasgow and the company being actively advocating faster action, especially around the most burning issue of climate change. COVID has cost us $17 trillion just to save lives and livelihoods, many times more than it would have cost us to prevent the issues in the first place. People have discovered that the cost of inaction is now greater than the cost of action, and that makes it such an attractive business opportunity. And companies like yours not only understand this, but actively lead the transition needed. I always say it's harder to make the dust, and it's also better to make the dust than eat the dust. Good luck on the journey. Thank you for leading it. Thank you for setting the bar higher. The future of humanity depends on it. The world needs it.

Thank you, Paul. It's a great opportunity to be with your comments here. I'm very proud to see what Suzano is doing with 16,000 people working every day to improve the company. But we have to look for the future. We always look for the future. And I would like to share with you the outlook that we have with 4 different positions that we believe that is critical for us in the future. The first point I would like to raise to you is the balance between short and long term. Of course, we will continue to deliver short-term results, quarterly results, every time improving the operations' efficiency, how we can do better every single day. But we have to look to the future. We have to think big, and how we are going to operate in the future in a way that we can transform the company and transform the society at the same moment. The second point that is critical, and I think Leo make this point very clear to you, is that we want to expand the addressable market. We believe that hardwood pulp would be part of the solution for the future in terms of replacing other materials that could be a major impact on the demand side. That would allow us to keep growing the organization. As growing is a very important target for us for the future, I think we are on the right side of the equation. The third point that is quite critical for us is ESG, and ESG is not offset. ESG is something very important for us. It's something that is in our DNA that we have been working for several decades on this area. And we will be -- continue to be on protagonism and activism. We need to be very clear and loud that we need to change and address the climate change issues that we have and the other issues that is critical to our society. And being a very intense capital industry that we have to allocate every single year huge CapEx on our operations, track record on capital allocation is critical for us. And then we had a very solid track record on that. But we understand that how important is the capital allocation for the future. And this is critical since we want to keep creating value to our shareholders that we have been doing in the last many years, this is critical for us. And this is very -- something that we are being very focused on our daily and strategic views. Now I would like to give one different view for you that Suzano makes its voice loud and clear in global sustainability activism. While building the company we are today and that we will be in the future, we have often maintained a low profile. We work quietly to deliver and to excel. [Presentation]

Now I would like to invite our C-level colleagues to join me here on the stage to the Q&A session. Thank you very much. Since we have a hybrid, we have people online and have people here with us, thank you very much for being with us today here. We will split then, we are going to have one question coming from the audience here, and then we are going to have the next one coming from the online, okay? I'm going to start asking Carlos De Alba to make the first question from Morgan Stanley. Thank you, Carlos.

I have a couple of questions if I may, first on the tissue market. Given that we're talking about the outlook, vision that the company has in terms of the capacity that you want to reach and also the geographic scope, you want to keep concentrated the operations here in Brazil, the market here in Brazil, you want to also reach other areas in South America or the Americas for that matter? And my second question is on pulp, maybe a combined question. One is on the market side, the other is on the cost side. On the market side, is there any rough number or range that we can think about the fossil to fiber substitution? I know that in the presentation as far as I could see, it says that it's just sort of a reference bar or number. But if we can have a quantification or a range, an approximation, that will be very useful. And lastly, on the marginal cost, is there any vision that the company has as to how the marginal costs will evolve in the longer term given that we see every time larger mills coming on at the low -- at the very low end of the cost curve. So it's a very significant question where the marginal cost will be in the future because that will help determine where the prices will be.

Thank you, Carlos. Then if someone would like to make the question next time here in the audience, please raise your hand, and we are going to make the -- pass the word to you, okay? The first part, I'm going to ask Luis, and then Leo, if you can answer the second question, please.

Well, thanks for the question. I'm going to answer the first one regarding the tissue market. We like to take a step-by-step approach. So first, we want to -- we still see a lot of opportunities in the consolidation of the Brazilian market. So that's our primary focus, and that's what we are working on in the Brazilian market. There is still some areas that we have options to grow in terms -- geographically and also in terms of channel. So there is still room in Brazil for us to keep growing.

Okay. Carlos, thank you for your question. The first part of it, the demand side equation coming from fiber to fiber. We again have several scenarios inside Suzano much more positive than the scenarios, and the growth is tremendous. It's almost exponential when we compare to the numbers that I have shared today. But they impress to a point that we prefer to share with you guys our most conservative model, which shows this amazing increase of 1 million ton additional just from hardwood and tissue furnish and as well 1 million tons in paperboard with this ivory board share in terms of production increasing and increasing and increasing each time more in China. So I think that for our expectation at this time in terms of sharing knowledge, we would stick to that point of considering these set points. But if you compare our views with consultancies, which you all know, and you compare their view on how much more ivory board will grow in China, and what's the space more to achieve in terms of hardwood and tissue production. As I mentioned, in Brazil, it's 100% and then you can add up easily and figure out several additional scenarios, which obviously are much more positive than the one that I have presented. In terms of the cash costs looking forward or the marginal cost of production, we obviously understand this is a cyclical movement, maybe not a structural movement. But this is something that will be a reality, that has been in '21 and certainly will be a reality for '22 and maybe the upcoming years as well. Our view is that since the supply demand dynamics is balanced that the new incoming capacity at a lower marginal cost shouldn't take this group of mills out of place yet. So this will still mean and play a very important role when we're talking about floor pricing. This is where we have to look in terms of where do we expect that prices will eventually fall, reach to then recoup up and to reestablish positive indications.

And if you see in the graph, Carlos, that we present to you, on the blue side, we saw what is the bottom price or the lowest price that we can see. Sometimes it's going a little bit lower than that for a limited period of time. But we believe that this cash cost curve in terms of what would be the minimum cash cost will grow in the near future. We are seeing inflation on commodities that is impacting, and you saw the forecast of Hawkins Wright. And we believe that this is going to create a kind of floor on the next years in terms of pulp price. Now let's go for the people that is online. I hope that the connection would be good.

Walter, can you hear me okay?

Yes, we are hearing you.

It's Jon Brandt from HSBC. First, I wanted to ask about, I guess, supply demand and more on the supply side. So demand for BHK has grown significantly over the past 20 years, and you painted a very optimistic scenario on where it should go not only in the next 5 years but really over the next 10, 15, 20 years with fiber to fiber and fossil to fiber. So I guess I'm wondering where do you see the potential bottlenecks? I mean, land availability is becoming harder to come by. Southeast Asia is running out of land. Chile is running out of land for forestry bases and even parts of Brazil. So how do you -- how does the industry overcome that challenge? Is it through better productivity through GMOs and improvement in technology? Is it through new regions with similar climates such as Africa or other parts of Latin America? So I guess that's my first question. My second question really relates to the tissue business. You've had very good returns. Certainly, you're growing, but it remains small in the life of Suzano. If we look at tissue producers in other parts of the world and in LatAm, they tend to trade at a premium given the returns. The market really isn't giving you any credit for your tissue business. So I'm wondering how do you change that? What are the plans to really create value for shareholders through this business?

Thank you for your question. I'm going to answer your first question. I think you are right. The limits that we have for growth in the near future would be the availability of land and wood. I think we are getting to the limit where we are not going to see new projects coming on stream due to the lack in the short term of land and wood. Our policy has been to expand our asset base in the last many years, and we continue to do it. I was explaining in the hall today that we are planting 800,000 trees every single day. Guys, 800,000 trees every single day. This is how we are doing on our forest, our plant-based trees. In addition to that, we have expanding and regenerating net native areas as well. We have right now 1 million hectares of native areas preserved, and this is our DNA. We will continue to expand. But in short term, we do not believe that we are going to see new projects coming on stream due to the lack of wood and land. If you see the wood costs in Brazil are going up, and the reason behind is lack of supply. And we see that this is the same situation that we are seeing in Southeast Asia. And now with the situation in Russia, we are going to have even more difficult wood supply to other countries such as Finland and Sweden. We believe that this is a limitation that we are going to see in the future, and this is going to create a very good environment for demand and supply, as Leo mentioned to you. Now I'm going to pass to you or to you. Who do you prefer to answer the tissue market?

I can take that one. You're right, Jon, tissue is still very small in our portfolio. Although it's growing fast, it grows from a very small base. But one of the avenues of value creation that we're showing here clearly states that we want to advance in the value chain, and tissue is important in that regard. We will be all the time analyzing alternatives to unlock this value. We may have at someday depending on the size that we reach a separate entity for tissue. We may have other organizational designs. But today, we are still focusing on growing the business slowly and robustly, as Luis said, before we consider any of those alternatives.

I'm seeing Thiago on screen, but let's go for the audience, please. We have a gentleman here with -- okay.

My name is Leonardo Correa from BTG Pactual. So first, I'm going to deviate a bit on the traditional questions of pulp pricing and supply demand. I'm going to focus a bit on the optionalities, on adjacencies that we called in the past, right? Walter, you were very clear on the Spinnova initiative. We're seeing the biofuel initiative. We're seeing a series of initiatives with tremendous long-term potential, right? The market still doesn't visualize this, and the market still doesn't price this in, at least that's our impression. And Suzano is allocating billions and billions and billions of reais still in pulp. So there seems to be a bit of a decoupling, right, in terms of the initiatives that have tremendous long-term opportunity. We're still not seeing the capital being allocated to these sources of upside. So I just wanted to see and understand from you how you expect these developments to gain scale to really make a difference for Suzano in the bigger context of things? And the second question I have is on ESG, right? Clearly, a huge topic of interest and a main source of this presentation. I mean, I think the intangible effects are very clear, I think, to everyone in the audience. It's a fantastic environmental, social. I mean, all the intangibles are -- and the tangibles are fantastic. I think the impression we have is that sometimes the economic benefits from a shareholder perspective are not visualized and not perceived and not priced in. So I wanted to get your sense and maybe Bacci can help us out on understanding how, from an economic perspective as well, the ESG benefits bring this upside for the company.

Thank you, Leo, for your question. If Christian can start answering, he's going to ask for more money. I know his answer. And then Fernando, if it can complement as well.

Yes. Thank you. It was a wonderful question. I love it. Walter, can we talk after this? So I think it's important that you understand that these new businesses, they take time to develop, okay? And they are -- I mean, they face technical challenges where new technology is being developed. It's not a tech company in sort of use as your fintech where in 3 months, you can have a new company, you're ready to go. So the investments they follow through this rigorous process of [ fell ] and approval of technical readiness, okay? If you look back, the investments have been growing 10x, 20x over the year, year after year. And as this business will scale up these investments, I'm sure they will come. This is a very open conversation we have in our Board, and I have never received a no answer from the Board in any of the investments that we required. So of course, we will present those CapEx as they come and when technology is ready.

Thank you, Christian. And just some more perspective on this. First of all, good afternoon. I think we have to take this as a journey. And if you take into account the research that we're applying in innovation at this moment in the company, 2/3 of the budget that we're applying for innovation are dedicated to the future, not to supply new solutions for the business as is, but to develop the new business that we have just presented to you. So as Christian said, it's a journey. It takes time, but we're investing now in terms of the solutions in the lab in pilot scale in order to support the new decisions related to that. And we have presented today, for example, our initiative with Spinnova. We started there 5 years ago. And when we started, there was not -- it was just a dream. And today it is a reality. We're building our first commercial plant on that. But it started in the lab 5 years ago. And like Spinnova, have several other initiatives like that going on in our labs today.

I'm going to pass to Marcelo.

If I can complement on that, we are in a very special situation here where the existing business or the basic business that we have is still growing and growing significantly, as Leo said. So we are making significant investments in the new businesses, but this is shadowed by the investments we do in the larger business just because they are -- it is still growing. And there's a lot of potential still to be extracted as a low-cost producer and world leader in the main business. So I think over time, we will see the relative importance of the new businesses take more room in relation to the traditional. But the traditional business will most likely continue to grow, and we will be dedicating more and more resources to them. And as we grow and we gain scale, I think we are -- we will be -- we already are, and we will continue to be in a very interesting position of being able to do one thing and the other. Today, we have the ability to invest in the existing business and also to invest in the new businesses without any major capital restrictions.

And Leo, just to complement the answer, I am in a very difficult position because Christian is asking some money for new projects, Aires to retrofit the plants that you have a better energy or to have lower cost. Fabio is asking money for the -- how we are going to grow the paper and packaging business. Leo is asking money about the fluff business that he wants to grow as well. I have Cris, there is -- Cristina there is asking money to take 200 people out of poverty. I have this guy, he is asking money to grow the tissue business.

I don't ask any more.

I have Carlos Anibal that want to expand our logistics, expand our forest base, our -- expand our new areas of growth for the future, not only for Cerrado but for other projects. I have Fernando is asking for a new area of new plant for development, R&D and new investments on that. Then what we are doing this, and this is the last point of our presentation is to discuss capital allocation at the time. And on the other hand, I have a lot of shareholders that is asking for more dividends, and some of them are asking for buyback programs. This is very important to us. We are right here to create value to our shareholders all the time. Then we are looking for capital allocation. We have several projects on stream. And we are looking not only return on capital employed, but the strategic position as well. And this is how we define how we allocate. We have one of the pillars of our culture is create value and share value with all the stakeholders. And this is the beauty. This is the art. This is the challenge that we have every single day. We have a lot of these guys here asking for more funds and you as well. And our way is how we are balanced the situation at the time. And I'm very pleased to tell you that we have been doing this, creating value to all the shareholders, all the stakeholders.

And Leo, on your second question on ESG monetization, I think we have already some examples of monetization going on, and let's take the debt profile. Today, 40% of our debt is already ESG-related with reduced cost in relation to the plan debt. So that's about -- close to $6 billion that is costing on average maybe something like 10 basis points below what the normal cost of funding would be. Some of the transactions had an even higher premium. So this is a very immediate and clear and is already going on monetization of the ESG strategy. And we have other things going -- coming in the near future. Christian showed the carbon market, which is going to be another way to monetize. Aires showed the benefit of the energy generation surplus that we're going to have also in Cerrado that will turn into revenues over time. So there are several ways to monetize ESG, and some of them are more clear. Some we will find out in the journey, but we firmly believe that this is not a cost. This is not something that imposes cost to the business, but rather it's an opportunity for us to grow and to increase revenues and generate value.

Thank you. Now let's go for the next question online question, I think, was Thiago Lofiego.

Thiago Lofiego from Bradesco BBI here. My first question goes back to the capital allocation, and you mentioned a little bit already, Walter. So considering the free cash flow generation that the company will have in the coming years, and now the company is a much larger company than what it used to be. So that means that projects are not as relevant from a balance sheet perspective as they used to be, and you showed that in one of the slides. Why not changing the dividend policy towards a higher payout, higher percentage of free cash flow generation? And basically considering that even if you do that, most likely you will be able to deliver on all of your growth fronts or maybe the company's thinking about other investment routes, further consolidation. So I just want to hear a little bit more about that. Second question, still about capital allocation, but more specific about dissolving wood pulp. So how do you see this opportunity? I know you're talking about Spinnova, but would you consider basically switching one of your -- or converting one of your regular pulp lines to dissolving pulp lines in the next couple of years? Is that a -- is that reasonable to expect? Or that's not within the plans?

Don't mind, guys, I'm going to ask the first question. Thank you, Thiago. I think it's very important to mention to you that when we merged Suzano and Fibria, we had at that time a net debt of $13.7 billion. This was early 2019. Now 3 years later from that, our net debt on last quarter was $10.4 billion. We reduced our debt in $3.3 billion. And as Marcelo presented to you, our target was to reach $10 billion because our idea is to have a threshold of $800 per ton. As we are going to expand our capacity, we will be able to have a higher debt, meaning that will not be necessary allocate capital to reduce our net debt on the next coming years. And this is very positive to you. We cannot forget we are in the middle of a very huge project that would invest more than BRL 19 billion on this project. And we are very conservative, and we will continue to be conservative. But as we will not be required to reduce our net debt for the future, then we are going to source our funds to allocate in different areas. We can, in the future, discuss about dividends policy. We can discuss about buybacks. We have several projects coming on stream for the future in terms of capital allocation that could be in paper packaging, can be in tissue, can be in new projects or new areas, expanding addressable markets, can be in forest and other areas in logistics. Just 1 week ago, we had a new birth in the Itaqui project. We cannot forget that we invest in Santos project with the Vertere project, then we are investing in Itaqui. We are all the time improving our logistics as well. We just signed an agreement to have new vessels to service with a Chinese company, COSCO, that is going to serve on the near future our needs for the China pulp volumes that we all the time looking for on capital allocation. And of course, we will -- makes discussions internally with the C-level of the organization and to be approved by the Board, recommended and approved by the Board how we are going to allocate capital in the future. This is critical, Thiago, and we are going to pay a lot of attention to that. And we will revisit all the needs and requirements of our shareholders as well on these discussions.

On the dissolving question, Thiago, let me give you a brief answer here. First, when developing new business, it's important that you have 2 critical things. One is sound technology that produces something that has a strong appeal from the clients. So you have the commercial appeal as well. On the textile business, we are approaching this through different -- 2 different ways, right? One is what's been Spinnova staple fiber that is technically cleaner and better environmentally than dissolving routes, but still needs development. And we are investing and developing this. And as you've seen, it has have strong appeal from the market -- from the apparel brand leaders. So we're very comfortable that this will scale up at its pace and will have its commercial space. Going into dissolving, it's -- could be a very easy move for Suzano to move into that. We have a project ready. But we believe to enter this market, we have to have also the commercial side ready. And in the textile business, it's important that you go beyond dissolving into [ list codes ] and also reaching the fiber producers -- and fiber producers. So we are studying that. It's part of our strategy, and we'll continue working on that, but it's clearly one potential route for us for sure.

He's raising his hand all the time. Let's give him the opportunity.

Rafael Barcellos from Santander. Congratulations for the event. I have a question, first question related to your long-term strategy. So in the long term, I mean, is it possible to see Suzano moving more to downstream operations? And I mean, could we see, for example, in the coming years, biosolutions division inside Suzano and how relevant could it be in the future? And my second question relates to the paper business. So given the fact that some printing writing producers have shifted production to packaging grades, for example, do you think Suzano could do something similar with its printing and writing division? And what is your long-term view for this division particularly?

The first question, Rafael, thank you very much for the question is how we are going to operate in the future in terms of shareholder issue. We believe that we not have any specific divisions that could be, at this point of time, spin-off. And we will treat or to have partners in this kind of business. But it's -- we can do it for the future, of course. Every time that any single business is expanding their size would be a possibility to discuss how we are going to create even more value to our shareholders. This one example is the tissue business right now is treated completely as a separate business. Luis is paying pulp price and not pulp cost, he's paying at the cost at the market level, then we are managing the tissue business as a completely separate business in our operations and to see how he would be able to create value paying price and not cost because of cost would be very easy to him to make a return on capital employed. But we will look for how we are going to operate in the future. Let's move now to the...

Let me just complement your answer, Walter. One thing to highlight is our internal governance for these different businesses. Today, we presented to you 8 different businesses here with different levels of maturity from the pulp, which is major global to new business being developed. And we try at Suzano to give independence for all those businesses so that they can have the speed required to be competitive in the market and to reach the market on the right time. So this is very relevant, the internal governance that was created to allow those business to prosper and to have the right speed internally at Suzano.

Rafael, thanks for your question on the paper side. For sure, we are looking at all these conversions done worldwide packaging also. But you know that most of the conversions are done by players that are not integrated or either have a cost point, which is not very competitive. On our side, we have assets that are today, even for print and writing in our first quartile on the cost position. So we're very competitive. And most of our business is done locally here in Brazil in South America, where we don't see the market changing [ domestically ], how -- in a way that we see changing in the most developed countries. So -- but taking all of that into consideration, so we have a good business today that allows us to look carefully in each one of the optionalities that we have, considering all of them. We're studying machine conversions, which is hard to do when we have assets that are bringing us good value today. But we are also looking at different ways of growing the business, debottlenecking. And I shared today here options that we have of bringing products in the same assets that we have today, replacing some segments, market segments that are not growing or decreasing due to digitalization with products that we can produce in the same machines that we have with no major investments or very small adjustments in these machines. But we're also considering conversions in our optionalities and other ways of growing the packaging as well.

Now let's go for the next one in the online question. Let's have on the audience then we move.

Daniel Sasson from Itau. My first question, I'd like to bring Anibal to the game. Walter mentioned a bit about lack of wood and forest over the next years for new projects. Anibal, how do you guys strategically think about your forest asset base? Do you think of expanding into other countries, not only in Brazil, maybe in South America, I believe, would be the go-to place for you guys? And how do you balance the pros and cons of maybe building a plant outside Brazil, maybe diversify your climate risks or climate exposure or things like that. And maybe, Walter, if I may. You -- what do you think are the things that we, analysts and investors, might be overlooking in the story of Suzano in terms of valuation, in terms of how we should think about the contribution of all the businesses you just discussed? What do you think -- do you think that the market is not appropriately valuing the fact that you have a fixed cost of debt in a world of price interest rates or that the market doesn't give you value for all of your initiatives and the value that could be unlocked ahead? If you could comment a bit about that, that would be great.

I'm going to pass first to Carlos [Technical Difficulty] and he's very calm, I'm going to pass this to him.

Thank you, Walter, and good afternoon, everyone. I'm very happy to see you all again here. And Daniel a special thanks to you for bringing me to the stage again. I was missing that. On the forest side, I would say that we have been dedicating most of our efforts right now of our Cerrado projects. As I have mentioned to you before, we have a big challenge there. We're going to have over the coming 3 or 4 years, [indiscernible], a forest base of around 600,000 hectares. There is a lot. We have a pretty solid plan in place in order to reach that. So this is -- or that has been our major goal. Of course, we also have some expansions in the other sites in the other forests. But again, Cerrado has been our priority for the time being. We do have some analysis discussions and studies about a project outside Brazil, but again, in a very preliminary stage.

Well, let me just -- one point here, Daniel. Thanks for the question. It's not only about plant more, but it's about plant better. So we are investing every day in new technology in order to speed up the process of delivering new clones. For example, now for Mato Grosso do Sul, we have a big challenge there. Climate change is a reality. But just last year, we increased our field trial net in 140 new field trials in order to select the best [indiscernible] cultural practice and also the best one for each site. So it's important about mention about the amount of trees that we are planting every day. But again, we need to select the best practice and the best clones every day. And as you saw in the last video, we have the biggest genome collection in the world. So we are using this in favor of us, even taking into account that we are in a biological -- in a biology challenge. This is a big challenge, but also our competitiveness advantage. So let's take this into account.

Daniel, you make a very sensitive question. And I'm going to address to the sell-side market to many online this year that he's hearing us here today or online. Every time that you write a report that telling that our multiple, EBITDA multiple is 7 or 7.5x, somebody says 7, somebody say 7.5x, Marcelo and Camila get a call on the next day, saying, why this guy is telling that we still be traded at 7 or 7.5x? So sometimes say, no because you are in the commodity business, and you are not growing. Who is growing more than Suzano on the last 10 years? No, no. The next reason behind that is that you're intense in capital and the interest rates, but we have a 4.3% fixed rate for the future. Why our work is not going down on your analysis? No, because you are volatile in terms of cash generation. And see, last year, we have the average pulp price in the last 10 years was $610 per ton. Last year, by chance, was $608 per ton, and we had $23.5 billion -- BRL 23.5 billion, sorry, on EBITDA. See, this is the average EBITDA that we should have for this average price and the average FX as well. But in FX, we are hedged, as Marcelo presented to us. That's it. Though, because you do not have avenues for the future, see. We saw Christian and -- presenting the avenues for us on new addressable markets. You see Leo presenting towards what we are going to do it. We are talking about textile. We are talking about bio oil. We are talking about carbon. We are talking about expanding hardwood pulp in the market. Then we are in the growth market. We are growing for the next coming years. We are delivering a very good track record in terms of results. We have 16,000 people working every day to improve this company, and we are delivering every single quarter better results. And then our belief is that the market is not understanding well about Suzano, and it's not recognized on the share price. But tell you the truth, Daniel, we are not worried about that because we think long term. And we think that the market will recognize that for the near future. And exactly the same was -- Marcelo was mentioning about Cerrado project, this is the best project in the world and in a company that is the lowest cost producer in the world. We are going to have a project is even better, not the average, better than the best. And then this needs to be understanding and recognized by the market, but we believe that it's going to happen in the near future. But just to let you know, when you write a report, there is 7 or 7.5x, Marcelo and Camila will get a call on the next day.

If I can add to that, I think Walter did a very good summary of all the points that sometimes are not taken into account by the market. And I would add the final one, which is related to ESG. I think the world is -- a lot of companies in the world are being challenged in their business models in energy generation around aspects of the business, about how sustainable the businesses are over time in terms of the natural resources it uses. And that creates risk for businesses. In our case, I think because of all the nature of our business that we showed today, the risk of our business is low and will be perceived as even lower in the past, especially because of the positive externalities that you generate. So I think one thing looking very long term that sometimes, in my view, the market is missing is the fact that we have a significantly lower business risk long term than most of the business that we see around.

Do we have anyone online? Then let's go for the next question online, please. We cannot hear you.

Hello? Can you hear me?

And now we are hearing you perfectly. Thank you.

Okay. Perfect. Caio Ribeiro here from Bank of America. So I missed the last question. Unfortunately, I got disconnected for a few minutes, so I apologize if my questions are repeated. But I wanted to ask you, first of all, about incentive prices in the industry. And I know that you mentioned a lot about the marginal cost that you see today at $550 per ton and moving this year to $570. But looking in terms of new projects that are being announced, there seems to be a general consensus that incentive pricing is around $550 to $600 per ton. But given that we're seeing this lower availability of wood, lower availability of land and Russia also losing their FSC certification does have an impact here, I wanted to see if you see any reasons to believe that those numbers are conservative from an incentive pricing perspective? And then secondly, you mentioned in the video that you showed at the end of the presentation that Suzano has the largest database, right, of genome analysis for eucalyptus. And this reminds me of FuturaGene, right? And I wanted to see if you could talk about how you see transgenic clones playing a significant role in your business eventually in the future. And what are the hurdles at this point to unlock the use of transgenic clones on a commercial basis?

Thank you for the question. I'm going to answer the first question, Caio. And I think you are right about these incentive prices that could bring new projects coming on stream. We are all the time trying to reduce the volatility of the pulp prices. We do not believe that volatility, and I have been very vocal about that, that would be positive for our industry in the future. We have been sometimes the costs -- the prices are not good enough to give a return on capital employed. And sometimes, their prices are too high, there is bringing new players that is not competitive to the game as well. Then we believe that reducing volatility would be much better for our customers. Our customers -- and I can give an example of what's going on right now in the tissue market. They are very -- on a very difficult situation with lower container margins since the pulp price is going up and a much higher pace than that they could be able to pass to their customers and to the final consumers. Then we agree with you. This is a very sensitive question. And we will be discussing, analyzing and bringing our perspective to the market. I'm going to pass to Fernando that is going to answer the second question.

Yes. Thanks for the question. First of all, I think I'd like to emphasize that one strong pillar for Suzano is the combination of traditional breeding with biotech. So I think this is important to be understood because for us, every day, as I said in my previous answer, we are planting new field trials in the field in order to evaluate clones using the traditional methods of selection, crossing and so on. This is part of our business, and in fact, it's in the root of our strategy. But of course, we strongly believe that biotech can add a big value to this process. Because of that, we have our biotech company, FuturaGene, having labs in Israel and also in Brazil. And we are developing biotech tools. It's not only about GMO, but it's about biotech tools in general. For example, molecular markers in order to speed up the selection process, having the possibility of evaluating some traits in earlier age, for example. But GMO is also very important. We're not using this in commercial scale, not yet. We have events already approved in terms of legal aspects. But because of our certification procedures, we need to respect that, of course. And as you know, FSC and even PEFC, they do not allow the use of GMOs today. So what we are doing, we are developing the technical side of this. And also, we are in a daily -- in a continuous dialogue with those certification bodies in order to show to them that in our opinion, and we talked about this during our last ESG call, in our opinion, GMO is part of the solution, not the part of the problem. Because, for example, today, we have events already approved to increase the forest productivity. Again, it's to plant better, not plant more because we're able to use less land that we need if you are higher -- if you are able to generate higher productivity clones. And we have also events approved for the use -- for the tolerance of herbicide. So in this case, we can use less chemicals. So we think that GMO will be part of the solution in terms of ESG aspects as well. But of course, we understand that we need to dialogue with the society, with the certification bodies. But we are ready to go ahead once we have solved these certification issues because it will add value to our process, again, in order to plant better, not plant more. This is, I think, what we have to look for every day.

Thank you, Caio. In order to respect the timing of the event and respect your availability, thank you very much for joining us. We are going to have just one additional question here from the audience. And then we apologize for the people that were not able to make questions, but we will -- our Investor Relations team is available all the time, Marcelo and myself and all of our C-level, anytime for new additional questions offline, okay? Thank you very much. Let's go for the next one.

This is Gabriela [indiscernible]. I'm from Banco [indiscernible]. First of all, congratulations on the event and on the clarity of the new stats for the company. My first question is related to the new products and innovation that you've talked a lot. Is there like a target for example, by 2030, we would like our revenues to be -- to come like 30% coming from new products, something like that? And the second question is a bit more acid, but I'll ask anyway. You talked, Walter, a lot about the protagonist about Suzano related to ESG. But I'm sorry, but I could not fail to notice that we have 10 people on the stage all white, one woman. So diversity is the problem, not only for Suzano, but it's also an issue there. And I would like to know, you do have big targets for that, also linked to green bonds, as Bacci mentioned. But I understand that it is quite hard. And I would like to understand how are you working to achieve those targets, especially considering that other companies also have targets like that? And so demand is really heated. And so I would like to listen a little bit more about not the targets but how you achieve and become a protagonist at ESG.

Thank you, Gabriela. I'm going to pass to Christian to answer the first question. Just remembering before he answered that we have a target of 10 million tons to replace plastics to 2030. But he's going to expand a little bit more on that.

Yes, thank you. Thank you, Gabriela, for the question. I love this question, okay, because I was pushing to disclose our target, but it's an internal target yet. And we will not disclose any target at this point because exactly developing new businesses depend on technological and commercial approvals. And there is uncertainty on this, and we'd rather be conservative on this side. But take my word, we have strong ambitions and targets internally. And Walter gives me a call every week to say how is this going forward? I apologize for not giving you a number, but we do expect this to grow and to grow. I can tell you we're on the verge of the exponentiality curve in these businesses, and we're very happy to be in this position.

And the second question that you raised, Gabriela, is not acid, it's valid. I think you're right to make this question. And it's something that we need to address in the society. We need to increase our diversity on a society and on a company level as well. We set a target to have 30% of our leadership in 2025, meaning that in 3 years from now, that would be women. And 30% of the leadership in 2025 in 3 years from now to be black. And we are working as well in the 2 other groups. There is the [ LGBTI keep list ], and then we are working on the PCD as well. And then we are working on these 4 different dimensions. 100% of us and 100% of the employees of this company, we have a target -- short-term target to improve every single year this number, and we have been improving. I'm very pleased to tell you that we are going to announce now in May how we did last year, how we performed last year. And we have a major improvement in terms of number of women in the organization, number of women in leadership, number of black people in the leadership of the organization. But it's not enough. We agree there is not enough. We are not -- we didn't reach the target yet. And even when we reach the target of 30%, sure that we are going to have a new target after that. And it's all the levels of organizations. Of course, I'm not very pleased to see that we have just no blacks here and just one woman in this stage. We are going to change that. And we have several programs coming in place right now to develop women, black and to have more inclusion in terms of PCD and LGBTI. This is not something there is a side of the organization. It's a very important point. And since it's a very important point, we have every single one here, we have 4 targets for the year. One of these targets is related with that. This is very important to us.

If I can add to that, some of us here also work as sponsors of these diversity groups. And we've been very much involved in this, and I would like to share 2 pieces of information that I think are important for you. First, there will be our general assembly more or less a month from now. And we will be electing a new Board and the proposal has 3 women in the Board and also one member of the LGBTI community. So 9 Board members for diversity inclusion in these 9 Board members. The second, on the lower levels of the organization, if you look at the black community situation in Suzano, Suzano has 54% of black people in our -- among our employees. The Brazilian population is about 56% black, so very similar. The problem is how these people are progressing to the higher level. So we have a very solid program of identifying the talents and providing to them the training or the education that they didn't have because of social issues related to poverty, to make sure that we have the critical mass coming bottom-up in the case of the black community. So there's a lot going on, top down and bottom up. And we are positive that we will be achieving these results in the short term.

Now I'm going to my final remarks. I would like to start thanking everyone that is organizing this event. Thank you for everyone. That was perfect, the event. Thank you. It's not very easy to have all of this technology in place. There is not very easy. I'd like to thank you at the C-level that is presenting here, representing the 16,000 people that we have in the organization. In addition to that, we have 20,000 more people. There is third-party workers working every single day, mainly on [indiscernible] culture on the organization. And I would like to give a very clear message to you. We are here to transform. We are here to evolve every single day. To transform ourselves as a person, as a professional. To address issues such as Gabriela brought to us in terms of diversity, in terms of climate change. How we are going to be better in the future? How we are going to impact the society in the future? We have, right now, reaching 2 billion people every single day, every single month in the world, 2 billion people, but we can do even more. And here is the energy, is the vision that how we are going to do it for the -- how we are going to transform ourselves, the society for the future. We are not a perfect company. We are here to learn. We are here to be, every single day, a better company. And this is how we wake up in the morning, every single one of the 16,000 people to see how we can do better. I would like to thank you very much for the opportunity to be with you. I hope you have a very nice week. And let's work together to improve this company, to improve the society and to work for a better Brazil and a better world. Thank you very much, gentlemen and ladies.