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

Good morning, everyone. It's a great pleasure to have you all here. We'd like to have one more Investor Day. We are very happy to be here with you. I would like to mention the presence here of a lot of analysts and investors and as well the President and CEO of [indiscernible]. Thank you very much for joining us here. It's a great pleasure to discuss with you what would be the future of Suzano. We have been talking to you several times about our vision of the future. And we are going to be in more details today how we are going to operate, how we are going to have capital allocation for the future. Our agenda today is that we are going to discuss about the highlights of 2023 3rd quarter results. After that, we are going to talk a little bit about business strategy. Every single C level of the organization except Pablo, there he is in China. He's going to join us here to present their specific area and what would be the potential implication for the industry in the future. And then Marcelo Bacci will come here to present to yourselves about our financial management. It's very important to mention on the third quarter results that we reinforce our operational performance, excellent operational performance and how we navigate on the situation of [indiscernible]. We deliver at this quarter an EBITDA of BRL 3.7 billion, meaning that even on a very difficult market scenario, we are performing very well comparing with our peers. And this brings our competitiveness to the surface, how we are doing on a much better result than the average of this industry. It's -- even I'd like to reinforce another very important point. It's the operational performance of the company. We have a deflation on our cost during this quarter. Our cash cost and Aires is going to tackle on that was BRL 861, much lower than the previous quarter, and this to improving on certain specific areas that he's going to detail for us. I'd like to bring one more point that is quite important. We are one of the major CapEx of our history right now. At this quarter, we had BRL 4.4 billion meaning roughly $900 million of investments during this quarter. Investments on modernization or investments on expansion of our business. And even with this scenario, we had just $0.2 billion on increase on our total debt. Our net debt was BRL 11.3 billion now is BRL 11.5 billion, meaning that we invest BRL 900 million. And even so with interest and other things, we have been increasing our debt in BRL 0.2 billion. Our net financial situation is very well prepared for the future. We have a very strong liquidity position right now. and we are very better prepared to our next level of investment. I would like to share with you about our business strategy. And it's very clear that we have been -- have a very good capital allocation, I think, indisputable that we had a very important capital allocation on the last years. We merged with Fibria. We increased our land banking when everybody was talking -- was discussing, was leasing, we are buying land at a very much lower cost that we have today. We are increasing value and preparing for the future. Carlos is going to discuss with you about our strategy on that area. We enter in the consumer goods that at that time was absolutely no relevant in the company, and we are gaining relevance on that. Yesterday, we announced a new investment of expansion on this business. Luis is going to discuss about that. We changed completely the business team of the paper business. That at some years ago, they said, "No, this is not a good business because it's -- we are going to have lower volumes in the printing and writing. " We are performing extremely well on this business. We are entering on new areas, on new dimensions. Fluff is one of the examples. 5 or 6 years ago, we decided to enter on that, everybody was telling, "No, this is not a good business. Why you are going for that? " Now we are showing that we are going to have a very good journey for the future. Then -- but we are very humble to recognize that our track record that is very good is not enough to justify our future. We need to be looking how we are going to operate better. And we have 2 things that we are devoting our efforts and our resources right now to prepare the future. One thing is capital allocation, very disciplined on capital allocation. We are going to discuss about this issue. Marcelo is going to go in more details on that. But this is very, very important, how we are going to allocate capital for the future in the company. And the second thing that is quite important as well is the fact that we are a start-up company, 100 years of start-up company. We are going to turn 100 years now in January in 3 months from now and we want to have this entrepreneurial spirit. We want to attract people. We want to develop people. We want to retain people to be better prepared for the future. And it's very important to have that our organization structure is well prepared to deliver results all the time to the company. We are very proud from what we are doing but culture is a quite important issue. That is not only related with HR. It's related with all the single areas of the organization. Then I would like to bring to your attention, the discussion of the culture. I'd like to invite Caro Carpenedo, there is going to discuss a little bit more in details review. Thank you.

Thank you, Walter. Good morning, everyone. It's a pleasure to be here with you. So we believe our value creation comes from our human capital and our strong culture. So the DNA of our culture comes from the founders and has evolved making us arrive in these 100 years. And we are going to continue to plan the seeds for the next 100 years. You all know our purpose renewing lives inspired by trees and also our 3 main drivers. We are people who inspire and transform, we want to create and share value and it's only good for us if it's good for the world. And we are constantly reinforcing them and making sure decisions are made thinking them into considerations based on them. But we also know that when companies grow, they tend to become slower and excessively bureaucratic. As Suzano is a company with growth, we tackle such trend and make sure we act investing and making sure our mindset, our entrepreneurial spirit, our agility and our innovation are embedded in our culture. We have been in 2023, we started a culture journey with involving all our team members. So we host dialogues with our operation. We look to identify what were the improvement opportunities. We also train all our -- over 900 leaders and we train them for today, but mostly important for tomorrow. We invest time in our people to forge Suzano's future. So as Walter said, this is not -- it can be an HR only topic. This is the whole leadership responsibility. It's a mission undertaken by all our leaders. And we follow and manage this closely. So we measure. We have a quarterly assessment and this is impacting the variable compensation of our leaders who are making sure we are spreading this and living throughout the whole organization. So now I would like to invite my colleague, Christian, to talk about our new ventures.

Thank you, Caro. Good morning, everyone. Pleasure to be here with you. As you know, Suzano's strategy is anchored in 5 avenues. I will start with you explaining a little bit more how we're evolving in the second one, how we're expanding the pie, expanding body into new markets. In fact, there has been a lot of progress over the last 12 months more than inaugurating our cellulosic fiber plants in Finland earlier this year. We also inaugurated our pilot plant in MFC here in Limeira. We are growing our lignine business, almost tripled our sales volumes, still small, but very promising. We are continuing to develop not only commercial applications, but also commercial agreements with global partners in our bio oil and green energy field. A very important field in the future for Suzano as well and we continue to certify new carbon credits and take them to the market. And finally, also important, we set up the Biomas project together with our partners not only to take care of the native forest, but also to restructure them as well. So a lot of progress in multiple fronts. And at the core of that, the essence of that is a word called innovation, right? Innovation for sustainability. And this is driven by a strong network of people pushed by Suzano Ventures. Suzano Ventures and our 3 R&D centers in Brazil, Israel and Canada. We also inaugurated this past year, our Innovability hub in China, which is connecting to a very dynamic, innovative ecosystem in the Asian markets. And this is allowing us to connect to a very broad set of entrepreneurs, startups, academia and different players that are driving innovation in not only in our industry but in the much broader world as we try to bring sustainability to the world. And we are very proud also to see the first effect of that of being elected the #1 most innovative company in Brazil this year. This is a very -- we are very proud of that. As Walter said, we are a 100-year startup. And to keep this mentality, this is a clear sign of the market that we're moving in the right direction. More specifically on Suzano Ventures. There was a lot of work this past 12 months. We assessed more than 350 startups all over the world in different geographies, all anchored in our 4 key verticals, biomaterials, packaging, forest tech and carbon. We decided to invest in 3 of them. Two of them already signed off, one in the U.K. around Eucalyptus Biomaterials, the other one in Israel, around Forest-Tech, and we're finalizing the third one as we speak, probably still this year in the Nordics. So this is how we are pushing innovation and sustainability into the company, but I know you all want to know how we're doing in the wood side as well. So I'll invite Carlos to take you through that. Carlos?

Very exciting. Thank you, Chris. Good morning, everyone. I'm happy to be here again to bring you an update about our Forest business. I want to start this session with a question. Before, I would say this is a $1 million question. But given the current wood prices, this is just truck of wood Question. Truck of wood question. What is the question? The question is, in the future, in the long run, worldwide, will there be enough wood? Will there be enough wood? The best way to answer that is to look at the wood supply and demand fundamentals. On the supply side, growing restrictions. On the demand side, growing markets. Let me bring here just one single example, which is Canada. Canada produced about 8 million tonnes of market pulp, 8 million tonnes. In the last 5 years, 3.5 million hectares of forest were burned 3.5. 58% of the commercial trees in British Columbia were killed by the Mountain Pine beetle through 2021, 58%. In Canada, they have what they call annual allowed cut area that number picked at 90 million tonnes years ago. Nowadays, 60, sorry, 60 million cubic meters. So it is hard. It is a bit challenging to quantify all that. But for sure, the wooden balance is there. And that situation can be even more severe in the future. Has that situation been different here in Brazil? Not at all. In Brazil, Euca planted area, Euca farms grew 10% between 2018 and 2021, which is the latest information available. In the same period, wood consumption increased by 26%. What is the outcome when you combine supply restrictions with growing demand? Wood market prices have been rising. It has doubled since 2018. It has doubled. We have been anticipating all that, recognizing all that in advance. We have been leasing more land and leasing at lower prices. We have been buying more land. We bought Parkia. We bought Caravelas. We have been planting more. We have been preparing ourselves to better face this very challenging situation on the wood side. We have been planting in the future indeed ,but not only planting. We are pursuing a productivity growth -- yield growth, MAI growth between '20 and '24. We have grown our planted area in about 22% and reaching almost 1.7 million hectares. I'm going to repeat that 1.7 million hectares. This is what we are planning to do. We have put in place a very solid a very robust wood productivity growth plan. We came up with a baseline curve with a growing yield. On top of that, we are defining one an ambition curve and one an aspirational curve. Why is that? Climate change will be there. And we need to deliver a growing MAI regardless what is going to happen on the climate side. And we know how to do that. We have an in-home -- in-house great achievement, which was Imperatriz. Since 2015, we increased our MAI Imperatriz in almost 92%. We increased our MAI Imperatriz, 92%. We know how to do it. How did we do that? Better genetic materials, better knowledge about the climate, about the micro zones, better silviculture practice. We are leasing more land. We are planting more. We are growing our productivity. What does that take us to? Radius, average radius between our Euca Farm and the forest reduction. Not only that, we've got to reduce our exposure to the third party market. So radius, as you can see, is going to come from the current 200 kilometers to 150 by 2030. Our exposure to the third market -- third-party market today is about 36% and then you come to only 13%. In that 13%, we're going to have only 6%, only 6% exposure to the spot market, which we consider to be a very healthy number. Last but not least important, let me bring you an update about Mato Grosso do Sul, where in Cerrado, we have a showcase of wood competitiveness. Euca Farm land bank established. We have all the land that we need for our plantation program. Our plantation program is going to be concluded by late this year, early next year. And we are also heavily investing in broadening our experiments to improve our silviculture practice, to improve our genetic material, to again in the end of the day, gain more productivity. I want to highlight some uniqueness of our Cerrado project, average radius between Euca Farm and [indiscernible] 65 kilometers. Six trailer trucks. We are planning to have that amounting 50% of our wood supply. And we are also innovating. We are taking advantage of the flat landscape to maximize or to launch the use of our mechanized process. We are mechanizing the plantation process there at Mato Grosso do Sul. With that, I want to invite my colleague, Aires Galhardo, who has led this fantastic. This is absolutely great project, Cerrado, to give us an update starting about our competitiveness. Aires, the floor is yours.

Thank you, Carlos. It's also a challenge to present after you. Hi, good morning, everyone. Suzano has investing in its all value chain from the forest to outbound logistics. The investments reflect our focus on continuously expanded our structural competitiveness, seeking greater efficiency, especially in face of a strong inflationary pressures. We are now announcing a new investment on the new power boiler in Aracruz Mill. Our investment around BRL 500 million, which will contribute in the maintenance -- mills maintenance CapEx and cash costs in the future. Some of the investments that we have made have already begun to benefit the cash cost performance, such as Energy Master Plan in Jacarei mill, which benefits the cash costs in the third quarter that achieved BRL 861 per tonne. We are seeing, for the fourth quarter, a new decrease in the cash cost of approximately a low single digit. Finally, in the export logistics of Pulp, Suzano will be the only player in Brazil to maximize the benefits of efficiency provides a new generation of 77,000 tonnes vessels that will soon enter the market. Only Suzano [ Terrenos ], in the left side of Santos and Itaqui ports have operational condition to load this new generation of vessels fully. Moving now to another important strategy avenue to Suzano. Maintain relevance in Pulp, we have the Cerrado project. In the Cerrado project, we have some important derisking to share with you. First one, we are already preparing for the startup that will take place soon. It's a reality. It's coming. Number two, Successful execution of the estimate product evolution curve. Number three, the total project CapEx remains as previous disclosed. Another one important, that's the financial progress runs below of the percentage of physical execution, reducing risks and benefiting the project returns. And finally, the structural and post wrap-up cash cost guidance continues as previous disclosure is here. Now I invite you to watch a video about Cerrado project. [Presentation]

I love it. As an individual, we haven't disclosed the project's evolution is catering in advance every quarter. Once again, confident in our results we are disclosing our planned ramp-up estimated, which reinforce our commitment in not only starting up successfully but also ramping up successfully as well, which we consider crucial for project returns. As the investments and how the project represents Suzano's vision on the demand for pulp and paper will be higher in the future. I invite Leo [indiscernible] to address you with our forward-looking view on Pulp Paper sector. Leo the floor is yours.

Thank you. We accept the challenge, Aires. Okay. Good morning, everyone. So nice to be here. I'm excited to share with you some new information regarding our view on hardwood pulp and the bleached chemical pulp fundamentals as well. I'm going to start my presentation by reviewing our 5-year forecast for demand and supply in hardwood pulp which is similar to our view presented last year. On the demand side of the equation, we forecast that additional to organic demand coming from usual uses of hardwood, we are also already perceiving an increasing demand coming from fiber substitution. And it is our view that by 2027, demand for hardwood will reach 44.4 million tons. On the supply side of the equation, new projects like Cerrado will bring approximately 6 million tons of additional capacity. So considering this information, the demand to capacity ratio that we forecast for 2027 is 93%, which is quite healthy. And this does not consider 3 opportunities. First, additional fiber-to-fiber demand coming towards hardware. Second, demand coming from fossil to fiber initiatives, as we have mentioned in the past. And third, the upside risk, upside risk coming from unplanned downtimes that have been increasing year-over-year. This year, I'm going to share with you a broader view on fiber to fiber which is our view on what's going on, on the softwood market in general. If you look at the graph, you will note that hardwood or BHKP, has been gaining share throughout the years and today, already reached 61% of the demand for bleached chemical pulp. Now I'm going to share with you a new graph, probably you have not considered this. And I ask you the question. Have you seen this before? Our team has put together all the capacity that has come or that will come on in terms of softwood globally. At the same pace, we have considered here all the already announced definite closures of softwood mills, definite closures. And that brings us to a scenario of a net negative capacity change in the softwood market, net negative. In the last 3 years, more than 2 million tonnes of net negative capacity and already today, with the announced closures, definite closures for '23 and '24, we come up to almost a new 1 million tonnes of net negative capacity change. More and more demand of fibers will be redirected to hardwood grades. Hardwood is increasing its furnish, not only in tissue, but also in packaging, as I have mentioned last year and also in specialty papers. This is an absolutely huge opportunity for us, huge opportunity. Now I'm going to go to the supply side of the equation and share with you our sales plan for Cerrado in 2024. Aires has just shared with us the ramp-up curve for Cerrado. Taking into consideration that ramp-up curve and the inventory buildup that we need to do in order to guarantee optimum operational levels as well as the supply chain commitments to our customers, we are forecasting to sell 700,000 tonnes of Cerrado pulp in 2024, with the bulk of this volume reaching markets in the fourth quarter of the year. We know we understand that volatility, price volatility should happen throughout this next 5-year period. But as has seen before, marginal cash cost serves as an anchor to these price values. You can see that clearly on the graph that we are presenting here. And we have just reviewed together with Hawkins Wright consultancy, the marginal cash cost estimates for 2024. Based on this study 1 month ago, the new forecast for marginal cash cost for 2024 reaches $560 per tonne by year-end, $560. And this does not include, obviously, volatility on commodities or wood availability or wood cost and how this can influence further this number. With that said, we have been noticing a lot of pricing trending below marginal cash cost for the last months. And as expected, there is a lot of unplanned downtime. In hardwood, we already see 1.4 million tonnes of unplanned shutdowns this year, 1.4 million tonnes. This is a new record year for unplanned downtime in harder and 60% of that are market-related decisions due to, obviously, prices below marginal cash costs. This helps, obviously, the market balance itself. With that said, now I'm going to move to a new chapter of my presentation, I'm very glad and proud to present to you for the first time our view on the Fluff pulp market globally. Fluff is a growing market and is expected to grow at a 4.2 CAGR for the next years, reaching almost 8 million tonnes by 2027. So this is the size of the addressable market in terms of Fluff pulp. The 2 main drivers for growth in Fluff pulp are adult incontinence products and also the growing demand for hygiene products in Asia, which represents almost 50% of the demand for fluff pulp products. On the supply side of the equation, it's very interesting to see that only 3 North American producers concentrate almost 80% of the global supply. As an example of innovation or innovability as we like to say, we have launched in 2016, as Walter mentioned, Eucafluff, which is the first fluff pulp in the world produced from planted eucalyptus trees. There were a lot of questions originally. And ever since the launching of this grade and with partnerships with customers and also machinery manufacturers, the product has proven itself. There are several advantages to Eucafluff. I would like to mention 2. One is that it brings more comfortable products and at the same time, it brings a huge advantage in terms of cost competitiveness. Already at this phase of Eucafluff, we already positioned among the lowest cash cost producers in the world in Phase 1. So today, we are very glad to announce a new phase of growth for Eucafluff at Suzano. We have disclosed yesterday night a new investment at our Limeira mill pulp line. We're converting it into a flex line that will produce Eucafluff for BHKP. This will give us an additional of 340,000 tonnes of fluff bringing our total fluff capacity to 440,000 tonnes. And the start-up of this new machine is expected to be on the fourth quarter of 2025. This will also improve our cost competitiveness even further. What we see here and what we are confident is that the trend that we have seen in this few years of existing in the Eucafluff is exactly the same as we have seen in the last few years with paper grade pulp. Led by Suzano, hardwood is disruptive and will be gaining more and more market share from softwood and other grades as well. With that said, I would now like to invite Fabio to share with us a little bit about our paper and packaging initiatives.

Good morning, everyone. It's a pleasure to be here with you today. After this exciting news about the Eucafluff, let's talk a little bit about another anchor of our strategy, which is advancing on the value chain. Let's look at the Paper and Packaging business unit. As you know, after the Afry, with paper demand during post-COVID and after also a strong process of destocking that happened afterwards in the past 12 months, we are now seems to be back with demand of paper back to the historical trend, which is shrinking demand doing to digitalization. As can be seen here on the screen, demand for uncoated wood free has shrunk 18 million tonnes since 2016, and the capacity has matched demand accordingly. I want to talk with you today about 2 things, 2 competitive advantage that sets the Suzano Paper and Packaging business aside from its competitors. First one is our cost competitiveness. As can we see the graphic, Suzano has the lowest cash cost for uncoated wood free of the entire industry. And why that? We have very effectively integration between our forest, our pulp mill and our paper mill. We have also run our paper mills very efficiently, and we have a relentless focus on cost and productivity. That's through different business cycles, and we are going to continue to do that in the future. Secondly, I want to share with you here today what we are doing. It's our business model, getting closer to our customers, and we have been doing that throughout the years. As you can be seen here, we're using technology and also logistics. We have advanced -- we have gained more than 3x, the number of customers that we reach directly throughout the years since 2014. And this year, we're going to be serving here in Brazil more than 45,000 customers directly. And why is that important? Because by serving these customers directly without someone in the middle of the chain, we bring higher margins for Suzano while also diminishing the credit risk which is something really important in the paper business. With that combination of a very cost-efficient mills, low cash cost and innovation. Here, we bring with you our challenge of reaching 60,000 tons of innovative products to market that we talked about in the last Suzano day. We accomplished it at the end of 2022 plus our focus on our go-to-market. We have advanced our EBITDA throughout the years to historical levels, and we're going to continue to do that in the future despite different market cycles. And I also want to highlight here after my colleague, Luis Bueno, which is going to be talking to you about the consumer goods, why it is important that -- the importance of our business model. We're replicating this business model in other countries of Latin America where we're also selling our paper and packaging products and this brings a platform that can be applied to our consumer goods products in the next years. So with that, I want to share with you -- Luis is going to be sharing with you some news about our consumer goods products here. Thank you, Luis.

Good morning, everyone. Regarding tissue, we have achieved market leadership with 24% market share after the KC acquisition. We are also very pleased with the synergies implemented so far, which goes beyond our initial forecast. But more important than that are the competitive advantages we have built over the years in this business. As you might know, distribution is a key success factor for consumer good companies, and we have achieved the biggest weighted distribution in our sector. We also have 6 plants spread all over the country, which gives us a way and allow us to serve our clients with lower logistics costs and quicker. We now have complementary brands in categories, and we now can serve our clients in all of their needs regardless of the price segments. We have modern plants, some of them integrated to pulp mills, and they are very competitive cost wise. When we put all of these together, this gives us the confidence to continue to invest in this business. And that's why we are announcing today a new investment on a tissue mill located in Aracruz, Espírito Santo integrated to our pulp mill with additional 60,000 tonnes of capacity, and this will allow us to better serve our customers, mostly on the Southeast region. But I imagine that they're also very eager to know about our sustainability program. And I would like to invite my friend, Fernando who will share with us all the news on sustainability. Fernando? It's all with you.

Hello, everyone. It's very good to see some good friends here. Sustainability is not a separate strategy for Suzano. It's intrinsic to our business as we have just seen in previous presentations. In the previous years of this event, I have been here to talk about innovation. But today, I'm glad to be here to talk about sustainability, mainly about delivers results of sustainability. I assume this area accumulating alongside innovation in order to boost to accelerate our innovability strategy. The powerful combination of innovation and sustainability. As we all know, in 2020, we launched our commitments to renewing life. Since then, we have been working hard in order to deliver our commitments. We have been implementing actions in order to accelerate the capture of our commitments then took the capture of our positive impacts. As you can see in these slides, Suzano is fully focused on material themes and delivers. And my focus today is to talk about results. And I'd like to share with you how we are evolving in 3 very important ones. The first 2 ones are related to tackling climate change, as you can see. So we have already reached half of our goal of removing 40 million tonnes of CO2 equivalent until 2025. If you go to this goal, we have a similar performance when you take into account reduction -- our goal of reduction, greenhouse gas emissions. Good to see that we are evolving. And another very important goal -- it's a very ambitious and very important one is related to our social transformation. So we want to decrease poverty, lifting 200,000 people above all the poverty line and we are evolving as planned as we have already -- 29,000 people have already left the poverty line. Good to hear that. Good to hear that. We know that we still have a long way to go, but we're keeping our programs and attracting partners to be part of this journey. Also, I'd like to talk about other very important commitment related to conserve biodiverse. In this case, we want to connect 0.5 million hectares of priority areas for conservation in 3 biomes. Cerrado, our Savanna, Atlantic Forest and Amazon. The execution plan has already been designed and have started the implementation of biodiversity corridors in order to connect some fragmented areas that we have -- fragmented native areas that we have in our operations and also with our communities. There is one important learning that I'd like to share with you in this journey. Partnerships are very, very important. So we want to go beyond our own actions. We went and we're acting as mobilizers in order to attract other actors to be part of this journey. And we are all -- you are all invited to come with us to transform the society. Moving ahead, I'd like to call your attention to a real life case related to the Cerrado project. We all know that this is a great project but Cerrado project goes beyond pulp production. As you can see in this table, we are doing a social transformation, social and environmental transformation in the [indiscernible] region. And we have prepared a video to show you how we are connecting the deliveries of Cerrado project with the sustainable development goals agenda from United Nations. So let's see the video. And after that, I will hand over to my friend, Marcelo Bacci, that will talk about our financial management. Thanks for your attention. [Presentation]

All right. Good morning, everyone. It's very, very good to be with all of you here and all the people online as well. Very challenging to come after this very inspirational video, and I'm trying to do my best to talk about this mundane things like returns and capital allocation. We just saw a great example of creating and sharing value which is the Cerrado project and the consequences that we have also on environmental and social issues. I'm going to be talking to you today about 2 different ways also that we use to create value. Financial management and capital allocation. In terms of financial management, it's important to communicate to all of you that we have been, over the years, tackling different sources of funding to optimize our cost of capital. We have been successfully tackling the bond market when the yields were very lower than where they are today. Doing transactions that prove to be very accretive to the company over time. More recently, the bond market has changed to a different level in terms of rates, and we changed our strategy to look at and to seek funding opportunities in other markets, like bank loans, multilateral agencies and also the domestic market. And this has proven to be very efficient for the company constantly reducing our weighted average cost of capital. In addition to that, we have over the last 2 or 3 years, decided to hedge our interest rate risk fixing the rate for all the variable rate related debt that we had. And that has created a situation where today, we have a positive or a negative carrying cost of our cash which is a very unusual situation to be in. Today, we invest our cash at a higher rate because these rates have been increasing over time, whereas the cost of debt has been more or less flat because we hedged the interest rate risk and because we anticipated the funding needs when the markets were a lot more efficient than where they are today. So this is a very important contribution to value creation through reducing cost of debt. In terms of capital allocation, I'd like to discuss 2 different things here. The first is how we put together our strategy in terms of ESG and our financial returns. We have incorporated into the ways we look at modernization projects, bringing the contribution that these projects can have to our long-term goals in terms of sustainability to the project analysis. Of course, the financial returns are determining to a decision in a project, but we also bring a 25% weight to the attractiveness of the project related to how they contribute or they go against our long-term goals of sustainability. This is an innovation, and this is to show very clearly that the financial returns have to be aligned and the company has to be working proactively all the time to seek how to deliver the results that Fernando just showed to all of us. Another important thing is to be very clear to all of you how we decide about capital allocation. This is a question that we get all the time. So we decided to bring here a very clear scheme to show you how we do it and to show you the track record of this decision-making process. Starting with the avenues of value creation that all of my colleagues discussed here within the perimeter of those avenues. We have several different opportunities that we face every day. Modernization projects, expansion, organic expansions, M&A and when analyzing all those opportunities, we ask ourselves a series of different questions that you see here on the green boxes about profitability, about fit to our financial indebtedness policy, fit to our sustainability policies, growth, scalability, profitability. If the answer is yes to all of these questions, this is a project that we should pursue. If the answer is no to any of these questions, we will not go ahead with any project being in M&A or anything. And if the answer is no, we will prefer to allocate this capital either to debt reduction or to cash returns to our shareholders. Of course, we take into consideration also the strategic features like diversification and other things. But this scheme is very clear to all of us in the company, and we follow this in a very disciplined way. And this has brought us over time to a track record that you can see here and we bring here the data since the merger with Fibria. We had a first phase in the first 2 years, where we allocated most of the resources that we generated in our business to debt reduction. And that was because we were in a situation where our debt was outside the limits of our indebtedness policy. So the priority was to bring the company within the limit of our indebtedness policy. And then we had a second phase after 2021, where we generated first more resources than in the first phase because we had an abnormal return, especially in the last 2 years. And having the company already inside the limits of our financial policy, we had the opportunity to allocate more capital to growth in projects like the Cerrado or M&A, like the KC acquisitions but we also had the opportunity to return cash to our shareholders because our capacity to generate good projects that will respond to -- yes, to all the questions that I showed to you was not enough to take care of all the capital that we were generating. So we don't have a need to allocate the capital inside the company. If we don't have the good projects, we will return the capital to the shareholders like we did in this last period. So we returned $1.4 billion to our shareholders through dividends and share buybacks. And finally, I'd like to say a word about the performance of our share buybacks. We had 3 programs in the last 1.5 years with an average tenor of about a year -- less than a year from today, we generated 17% return at current prices to our shareholders by buying back shares, 60 million shares at an average cost of BRL 46. This has been an incredible source of value creation to our shareholders as well. So thank you very much. I will turn back to Walter for his final remarks.

We -- it's very clear to us that what takes us to today do not represent what they're going to be in the future. We have been transforming the company all the time. But I'd like to bring some special words that is representing us. One is innovability. We are always looking for innovation with sustainability. I'm very pleased to see my colleagues here presenting our future here. This is representing the energy that we would like to have in this company, always transforming, always challenging ourselves. This is critical for ourselves. And it's not only inside the fence, we are looking for how we are going to impact over defense as well, looking for the communities and the society. Second point that is quite critical for us is discipline. We have financial discipline. We are very clear on this positioning. I would like to reinforce that financial discipline. There is our policy has been following very closely. But in addition to that, we have capital allocation discipline. I think it's very clear that the track record that we have been delivering to you, it's very good. If you see the video of the company comparing what the company was 5, 10, 20 years ago is a completely different company. And this is regardless the environment that we are facing, we are always and the word that was used today several times, relentless working to improve the company. And we have been doing every single time on that. We have been working on market expansion. Market expansion for us is critical, fiber to fiber, fossil to fiber. We are always looking for expanded pipe. And the combination of doing this and looking for differentiation can be caused, can be in service, can be in products. We are always transforming the society. Then I'm very pleased to deliver to you a very good company that we are doing, but more important that, as Caro said to us, we are preparing our future. We are planting our future all the time. When we are looking for Cerrado, we are looking for the expansion of our land banking, when we are looking for consumer goods, we are looking for fluff, we are looking for paper, we are looking for new business that we are working, we are always preparing the company for the future. Thank you very much for the opportunity to be with you. Now we are going to have in 1 minute from now the Q&A session. Thank you.

We are ready for further questions, please feel free to proceed. Raise your hand here. And we'll...

Good morning, everyone. Thanks for the opportunity and the presentation. Congrats on the results. My first question, Leo, I'm sure you get questions on the pulp trends soon. So I'd like to focus more on fluff, if you allow me to. Can you please share with us the potential limitations that you see for the Eucafluff product versus maybe more traditional softwood fluff. I know that you've been making tremendous advancements in terms of applications, technologically related, but if you could comment on that? And maybe more qualitatively, how margins for the eucalyptus base fluff compared to the softwood fluff that would be great. And maybe my second question, Aires, if you could comment a bit about maybe the biomass boiler is the project that you have less visibility in regards to the potential impacts for the overall results or costs in the Aracruz plant, if you could talk us through the relative gains or benefits that you expect to reach versus the older boiler that you have now in your plant, that would be great.

Thank you, Daniel. I'm glad to see the first question coming for fluff. They told me here that there would be no questions on pulp today. Just on fluff, so I'm delighted to see that. Yes. Obviously, as an innovation product, we had challenges on our path during this last 5, 6 years. There were a lot of questions from traditional competitors. As you know, the market was dominated -- is fully dominated by pine fluff, softwood fluff. So this was a challenge, but a very exciting moment because customers who were really to try to get out of that situation where there's a huge concentration of supply in the hands of 3 producers. At the same time, seeing the advantages that the product brings due to the fiber crates, it's much thinner. So it's more comfortable. It has a greater rewet, it's a dryer product and then also brings all the cost competitive advantages that I mentioned. So that made customers engage with us very energetically and also machinery manufacturers engage with us to make sure that this would bring a solution, a sustainable solution for customers who are producing all those grades like diapers, pads, feminine hygiene and adult incontinence products. Today, most of the products are blended. Customers are blending Eucafluff to pine fluff. But there are several customers from global companies, key brands that are already made from 100% euca pulp as well. We're very glad, as we have been saying, we have been oversold in this machine for the last few years. So we really believe it's the right time to start and to announce this new cycle of growth for Eucafluff.

Thanks, Daniel. And just to talk about the technology per se regarding fluff. Of course, we started with some easier markets, but we have a team dedicated to develop the quality of the fiber, the quality of the pulp. And we have a lab dedicated to that in our research center in Limeira. And now we have what we are calling education team that works together with our clients in order to develop the applications. So it's not by coincidence. It's a result of some years of true research dedicated to that.

And just to complement that, it's very important to mention that we have a premium on the fluff market over the paper grade market. We are going to have a little bit higher cost as well. But the difference that we have is going to more than justify the investment that we are doing right now. It's very important to mention there is a 7 million-ton market that right now is almost not in hardwood. I can guarantee to you that the years to come, I don't know, it's 5 or 10 years to come, it's going to be a 30%, 40% market that is going to be presenting on the short fiber that we are going to create in a market there is going to be 2 million, 3 million tons of pulp in the future. This is a huge opportunity for growth that we are facing. This is just the next phase, not the end game that we are facing on the fluff market.

You see we are very excited about fluff. Everyone wants the microphone, right? And Fernando is a huge partner in this run that we're having as well. As Walter mentioned, a fluff is tagged to [ SBSK ] plus a premium. And as I shared my view that there's going to be less and less softwood, so the price premium or the price differences between fibers, we see as increasing over time. So the benefit that we already see today due to the fact that it's tagged to [ SBSK ] plus a premium, we see as increasing and increasing over time.

Thank you, Daniel. Normally, we have a maintenance plan for 5 to 7 years. And when we constantly evaluate our equipment, and we noticed in recent years that our 2 power buyers in Aracruz probably in 2026, we achieved a level of comparability and performance that will increase a lot our CapEx expense in maintenance there, something as 40 million, 50 million per year. Then we have this opportunity of negotiation with some suppliers that took place to replace these 2 [indiscernible] new one that will reduce the mills maintenance CapEx. And probably, we have more comfortability and stoppage in the equipment where we will have our available steam to produce more energy, decreasing the cash cost.

Thank you very much for the presentation. Rodolfo De Angele from JPMorgan. I want to start by saying that I love to see the chart that you did on capital discipline. It's very, very clear. And that's the one question I've been getting a lot from investors. So I want to explore a little bit of the them. You -- I am positive on the pulp market as you seem to be. And I think looking forward, this company will have an interesting problem, which is to have a lot of cash to be allocated between the options that you will have. So I wanted to understand a little bit better, how do you think about where these opportunities are. We saw interesting organic growth being announced yesterday. So that's, of course, one of the alternatives, but where do you see the main opportunities for growth in the future? That's question number one. And the second question is another question we get a lot from investors. What is the view from the management team on the opportunity on the carbon side?

Yes. I'll tackle the first question. We see -- we continue to see opportunities on our core markets, having this view that Leo showed to us in terms of growth and with -- accelerated by the fact that we're going to see more and more substitutional fibers. We also see opportunities on the tissue market and on the new businesses in general. And as Fabio said, in growing or bringing our strategy, our go-to-market strategy on the Paper and Packaging business also potentially to other geographies. So there is a combination -- I think we have a lot of opportunities in front of us. That's why it's very important to be disciplined in terms of how to decide about the opportunities and not go after the one that is ready first. That's the main thing that we're worried about because the level of maturity of the different opportunities is different. So we need to avoid the trap of having to decide on whatever is ready and mature to be discussed first, but having a more structured approach on the opportunities, but this is basically how we see it.

When I'm meeting analysts or investors, the first question is how much is going to be the pulp price on the next quarter? And the second question is how you're going to allocate the capital that you're going to generate? The 2 questions always that we have. The first question I'm going to leave to Leo to answer to you. The second question, there is quite important that I'd like to mention to you it's that, first, we are agnostic about organic or inorganic. This is, for us -- this is not an issue for us. The second that we are very disciplined. I think the word discipline is critical for us. We are not going to be in a position that if you have excess capital on generation, we should invest on new business. We are only going to invest if we are going to deliver shareholder value because our philosophy is to create value and share value. We are not going to be here to destroy value to the shareholders on a matter for growth for growth, although we do not have this mentality, we never had this mentality. We are always focused on value creation. We have been very deep analysis on every single project that we present to you today, how we are going to build value on that specific projects? And you can ask me, Walter, this is not critical. But what's critical on Cerrado as a very -- we made huge analysis on the potential value creation risks that we have on Cerrado. We had a huge analysis how we are going to buy or lease land. What would be the best opportunity for us? We are always looking for the future. We are not planning the next quarter. We are planting today 1.2 million trees a day. When you are planting, we know that the trees are going to be harvested in 7 years. But we are seeing on the graph that Carlos shows to us that we are going to reduce a lot our dependence on third-party wood. We are going to increase the -- and reduce the radius that we are going to have. We are -- every single project that we are doing, we are looking for value creation. We are disciplined on that. Be sure ladies and gentlemen, that we are not going to make investments that is not creating value for the shareholders. Perhaps we are going to have some mistakes. This is a risk that we have always on capital allocation. But I think due to the fact that we have been discussing a lot on the C level of the organization and with the board level of the organization, the risks that we are going to have major mistakes on my perception is very low. The second issue is regarding carbon just to let you know that we keep working on certification of our carbon credits. We are working on that. We are waiting for a better view on regulated market and our voluntary market. We know that this is a long-term value creation. We are not in a hurry but we are on the right track. We have been certifying our carbon credits, and we'll keep doing that. And sometime in the future, we are going to sell some of these credits in order to monetize value. It's very important that in our accounting system, the value of these credits today is 0, then it's always an addition from what we have today.

Rafael Barcellos from Santander. Thanks for the event and for taking my questions. It's really interesting to see Suzano investing in each markets like fluff, right, particularly replacing less efficient hardwood pulp production with fluff capacity, right? So my first question here is really to understand whether or not the company can replicate this movement that you announced at Limeira in other mills. And the other question would be whether the solvent pulp could be an option here as well? And the second question is about your Paper division. I mean, what are your long-term goals for the division? What is your ambition in terms of size of the division and so on? Just to understand your thoughts on your long-term goals for the Paper side.

Thanks for the question. I'm going to start with the fluff part of it. In order to approve this investment in Limeira, we address absolutely all assets of Suzano, not only pulp but paper assets. Just to remember, the first conversion was the conversion of a paper machine. So yes, it is possible. The decision was based more due to the optimum return that we would have in that specific asset, but it can be scalable with conversions of other assets as well.

Thanks for the question. Regarding the Paper division, we still see lots of value that we can still capture with the current assets that we have, the current business model that I showed you today here. You have seen the evolution of EBITDA for this business from 10 years ago was less than half of what it is right now. And we still -- we were serving just in the early 2010, 2011, we have 17,000 customers. Now, we are serving 45,000 customers at higher margins. So there's still value to capture with the current business model. And we're looking at the innovation as well as a piece of transformation for this business using our current assets and trying to bring products that bring more value in the same assets that we are producing in print and writing. Remember that we have also a very low cost position in print and write. We're very cost efficient, even with what's going on in the market cycles, we can still capture value by just being very focused on the cost side. But as Walter mentioned here, we're relentlessly studying also opportunities, organic and inorganic. And at the proper moment, we're going to bring them and share with you.