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Good morning, ladies and gentlemen, thank you for waiting. Welcome to the conference call of Suzano Pulp and Paper to discuss results for fourth quarter of 2017. Participants will be in listen-only mode during the presentation of Mr. Walter Schalka, Chief Executive Officer; Carlos Anibal, Pulp Executive Officer; Leonardo Grimaldi, Paper Executive Officer; and Marcelo Bacci, Financial and Investor Relations Executive Officer. Afterwards, we'll begin the question-and-answer session and further instructions will be provided. [Operator Instructions]. We inform that certain statements in this call are projections and forward-looking statements. Such statements are subject to known and unknown risks and uncertainties that could cause the expectations expressed not to materialize or to differ substantially from the expected results. These risks include, among others, changes in future demands for the Company's products, changes in factors affecting the domestic and international prices of product, changes in the cost structure, changes in the seasonality of markets, changes in competitors prices, foreign exchange variation and changes in political and economic scenario of Brazil and even emerging and international markets. I will hand over the call to Mr. Schalka, who will begin. Thank you.
Good morning, everyone, it's a great pleasure to have you -- with you here. I would like to thank you everyone for joining us for this presentation where we are going to show the results -- and present the results of the fourth quarter and yearly results of Suzano in 2017. With us we have Carlos Anibal, Leonardo Grimaldi, Alexandre Chueri, Julia, Renato Tyszler, Fabio Prado and Marcelo Bacci. We have all the management team at this conference and please in the end of the process, if you want to have Q&A session to any of our -- part of management committee, feel free to make the questions. We would like to start telling that we are very pleased with the results that we are delivering today. I think we had a record year in the 2017, the best-ever quarter [ on ] the fourth quarter in our history and we are very pleased not only with that, but with the fact that we are facing new rules for the future and new alternative in terms of creating optionality to create value for our shareholders. I think the highlights that I'd like to mention to you is the very low cash cost that we had last year. It's the third year in a row on a nominal basis that we are going south in terms of our cash cost. Our cash cost last year was BRL 599 per ton. We -- end of the year we are upgraded one notch on the Fitch to be investment grade and I think this is showing that we are building on our history a very strong balance sheet for the future. Our cash generation capacity I think it's one of the highlights that we have. We had BRL 3.5 billion last year on cash generation that we understand, that is the right KPI to be tracked in our industry. [ Be it CapEx is a very important part of our cost of our expenses, we need to have a much better view comparing not ] EBITDA as the right KPI of our industry, but the operating cash flow and we had extremely good generation last year. And we have a very low income tax not only now but for the future since we have some fiscal benefits due to the fact that we have 2 of our major plants located in the North and Northeast part of Brazil. And we continue to bring new alternatives in terms of value creation. Right now, we are very close and we are going to be more -- disclose information to you very close to the closing of our Facepa acquisition and Fabio is going to tell you a little bit about that. And we are preparing ourself as an optionality to have a new power plant in Sao Paulo -- in the central part of Sao Paulo. If you talk a little bit about our results of last quarter, as a highlight, we have the cash generation, almost BRL 1.1 billion in this quarter; the highest-ever EBITDA on a quarter is BRL 1.4 billion. We have a very good EBITDA per ton in the pulp side, I think we are performing extremely well and the price is going north, that is helping us. We have BRL 1,222 per ton. All of these numbers are much higher than last year and the last quarter as well. If you see the return on capital employed, on the last quarter on annualized basis going to be 19%, it's a very good number and we understand this is feasible that we keep this level in the 2018. That is very positive and we had record sales almost 1.3 million tons on the quarter. If you see the full year results of the company, as I mentioned, the operational cash flow was BRL 3.5 billion, EBITDA is BRL 4.6 billion. The pulp cash cost as I mentioned is below BRL 600. Record sales, almost 4.8 million tons of sales. The return on capital employed of 14.5% and this we understand that this number every quarter now is going north since we are delivering better results every quarter and this is helping us to deleverage the company at a very fast pace. Last year, we had 2.6x net debt over EBITDA, now we are at 2.1x net debt over EBITDA, very close to the floor that we disclosed to the market as our financial target, that would be below -- between 2x and 3x net debt over EBITDA. Now I'm going to pass to Leonardo, who is going to talk a little bit about the paper business performance.
Okay, thanks, Walter and good morning, everyone. I'm going to comment on the paper business unit's result for the fourth quarter of 2017. We have presented a solid and positive quarter in terms of sales with an 8% growth compared to the third Q '17 and a 5% growth compared to the fourth Q '16. These positive figures were [ perceived ] both in Brazil and internationally. In Brazil, we had actually the best quarter in terms of sales since 2014. Our international sales, we have reached almost 100,000 tons in the quarter, very much in line with the third Q '17 and 7% higher compared to the fourth Q '16. Throughout last year, we have followed our strategy of using our commercial flexibility to sell 100% of our production allocating volumes between the Brazilian market and more than 60 countries worldwide. In 2017, we produced 1.16 million tons of paper and paperboard, slightly below 2016 mainly due to our flax production of [indiscernible] in one of our paper machines. Last November, we had a maintenance downtime at the Suzano mill, which is extremely relevant in terms of our paper and paperboard production. A maintenance downtime of this magnitude happens once every 30 months and was performed according to our expectations. It had however a relevant impact on our cost of goods sold and consequently on our margins for the quarter. Our EBITDA margin was BRL 780 per ton and our ROIC for the last 12 months was 12%. Now moving on to the next slide, we foresee a positive pricing scenario for 2018 mostly due to increasing costs, which affected paper producers in general. We expect that non-integrated producers are being pressured even harder especially due to the rising cost of pulp. We have put together a chart here to our right which shows the correlation between pulp and uncoated paper prices in several regions in the world, according to RISI. In China, we have seen paper prices increasing in a similar way to pulp prices. European prices have risen in 2017, but still insufficiently to cover the cost increase in pulp. Today, pulp list prices in Europe are higher than [ offset ] prices. In our view, this is not sustainable. Likewise, paper prices in Brazil have not moved sufficiently. Therefore, we believe there are 2 avenues for value looking forward. The first being new and higher price levels for our export volume and allocation and the second being price implementation in Brazil for all paper and paperboard grades. I would now like to invite Carlos Anibal to present the results for the pulp business unit.
Thanks, Leo, and good morning, everyone. We are very pleased with our numbers for Q4. It was another strong quarter for our pulp business and that was driven by strong operational performance and favorable markets conditions. In fact, market fundamentals were very supportive. Average Q4 price was almost [ $680 per ton and that is up plus $54 per ton in Q3 and almost $200 ] on Q4. Production and sales were record in 2017. We grew production 2% amounting 3.54 million tons and our sales went up 2.5%, reaching 3.61 million tons. I want to take the opportunity to draw your attention, very important information here, look at the difference between our sales and production in '17, that means that we have a [ very important ] reduction in our stock, 74,000 tons. We again, reduced drastically, our stocks compared to the end of '16. Important to say that we will be reducing our sales in the coming months. So we can bring our stocks to a still low, but much more reasonable level. EBITDA per ton increased BRL 134 on Q3 and almost BRL 550 on Q4. For the full year, we have an increase of 31% reaching [ BRL 1,077 ] per ton. And finally, let's talk about the ROIC. That has increased all over the year and we closed Q4 at 15.2%, What means that -- almost 5 points over what we have achieved end of last year. Moving to the next page, our cash cost excluding maintenance downtime for '17 was BRL 599 per ton, the lowest number of the last 3 years, a reduction of almost 4% compared to '16. Important to say that we keep our target for '18, BRL 570 per ton and looking at '21, '22, our number is still plus BRL 475, all nominal values related to 2016. Now I conclude my my presentation and I hand over to [ Fab ] so he can talk about our consumer goods business.
Okay, thanks, Carlos. Good morning, everyone. We are happy to announce that we have already started our conversion operations. In both factories, Mucuri and Imperatriz, we have already started making finished products. Our conversion capacity is 60,000 tons a year and we just launched I mean our Max Pure brand, it's the first consumer brand that Suzano launches in Brazil. It's a brand initially its targeting North and Northeast regions of Brazil and offer consumers more softness, more absorption and more performance. The second brand from Suzano will be launched in Q2 2018 and from the second half of 2018, we're going to present segmented results for the consumer business. If we move on, we are very happy to announce too that we acquired Facepa business in the North region of Brazil. Facepa is the largest toilet paper producer in Brazil's North and Northeast region. It is the market leader with dominant shares in the North region and very competitive shares in the Northeast region. It has a capacity of around 50,000 tonnes and has mills in both Belem in the state of Para and Fortaleza in the state of Ceara. The product that Facepa manufactures are toilet paper, paper towels, napkins and diapers. A key data for Facepa is revenue of BRL 350 million and adjusted EBITDA around BRL 58.3 million. The acquisition price was BRL 310 million, which drives to a multiple of 6.17. The acquisition has already been approved by the antitrust agency in Brazil, CADE, and the completion is expected to be done by the end of the first quarter 2018. Okay, what are the key highlights for us. I think, I mean, the goal from our consumer goods business is to be the market leader in the North and Northeast of Brazil by the end of 2018. What would be the differentials? What would be our competitiveness? Basically Suzano going to be among the Brazil's top 3 producers in capacity, around 170,000 tons. We will have consolidated brands and well-established distribution and sales channels. We expect to be operating Q4 2018 at an annual cash generation rate of BRL 120 million and around BRL 160 million one year after. Now I pass on to Marcelo, who is going to talk about the financial business.
Good morning, everyone. We're going to be talking here about our financial competitiveness and capital structure. Starting with capital discipline, we are showing here that in 2017, we completed the year with BRL 1.8 billion of CapEx, pretty much in line with the guidance that we had given before. For 2018, we are now including the BRL 300 million of acquisition of Facepa and also BRL 300 million of the first tranche of the acquisition of land and forests from Duratex that we'll be talking about at the end. So the number for this year now is BRL 2.4 billion and we don't anticipate any new number at this point. In terms of our sustaining CapEx, we would like to emphasize to you that we keep having a very competitive number that both on a nominal basis and also on a per ton basis has been performing very well over the last years and last year we had BRL 234 per ton of our sustaining CapEx. This year of 2018, we expect a similar number BRL 241 per ton, which is significantly lower when compared to any of our peers in the pulp business. Also on the tax side, we have some important points that I'd like to share with you. First on the income tax side, we had a total income tax payment in 2017 of [ around BRL 35 million ], which is a very low number and we expect this effective cash tax rate to go up a little bit in the coming years with the high profitability level that we have today, but will not be above 20% in the long run, which is a very competitive level when compared to the average 34% we have in Brazil given the benefits that we have which are linked to the fact that we operate in the North and Northeast part of Brazil. Also on the VAT side, we have a very comfortable situation when compared to the industry, everyone knows that any exporting business accumulates VAT in the chain and by having significant paper business and now a tissue business that is becoming more significant over the next years, we are going to have a very comfortable situation in terms of monetization of VAT. So that will not be an issue for us anymore. On the debt side, we had very important improvements on the year of 2017. We closed the year with BRL 9.5 billion of net debt with an average debt maturity of 7 years, which is a significant improvement from the situation of last year. The average cost of debt on a swap basis is 4.3% a year, which is very competitive especially when taken into consideration the average debt maturity. Our net debt-to-EBITDA reached 2.1x and gross debt-to-EBITDA, 2.6x, both of them reducing significantly from last year and we accelerated the pace of reduction in gross debt because of the very healthy level of cash generation that we're having, that allows us to work with less cash. We achieved at the end of the year an investment grade by Fitch. We expect to have another investment grade rating coming this year and this was an important achievement since it was the first non-financial company in Brazil to achieve that kind of upgrade since the beginning of the Brazilian crisis. Also during this year, we did some innovative transactions, especially the 30-year bond, which was the first one in our industry and those transactions allowed us to have a very comfortable amortization schedule with around BRL 2 billion of maturities in the coming 3 years and a significant part of our debt maturing after 2023. With that, I will pass back to Walter to talk about the acquisition of assets that we just announced.
Early this week, we announced a transaction on a relevant notice where we acquired the first tranche [ 9.5000 ] hectares in the Sao Paulo state and in addition to that 1.2 million cubic meters of wood. The transaction was BRL 308 million. The closing of this transaction will happen in the next 30, 40 days depending on the CADE approval, the antitrust regulator approval and this is accretive to our operations in Limeira. Just with these acquisitions, we are going to reduce our average distance from our Limeira plant to our forest and this is accretive to the company and this is on top of the BRL 570 of cash cost that we announced. We have one addition [ reduction on the direction going south ] of the cash cost. On top of that, we have one option that should be exercised by us till July 2 of this year where we could buy more 20,000 new hectares and 5.6 million cubic meters of wood. We are going to exercise that if we decide that we are going to have a new plant on that region. This would be subject to our board approved discussions, we didn't discuss yet, but we will bring to the attention to the board this discussion and if we decide that we are going to have a new plant on the region, then we will exercise this option. You can see on the next slide the map of the region where you can see the different colors, the actual Suzano forest, we have right now 61,000 hectares on the region already. On top of that, the acquisition that we had just implemented and announced this week there is the first tranche and then there we have the option for the second tranche and you can see that if we decided to have a plant on this specific region, we would have a very low cash cost. And this is one of the key drivers of value creation of our industries to perform well in terms of cash cost. The idea is that if we decide to have a plant, we are going to have on average radius below 110 kilometers on the region. And this could allow us to be much better prepared for the future with very low cash cost and enhance our total average cash cost of the company. I think this is one additional optionality to what we consider to be the main criteria for capital allocation that we have. As we mentioned during the Suzano day, the first criteria that we have for new investment would be return on invested capital. Of course, scalability is a crucial thing for this and this is as example we have the consumer goods that we start small, but end of this year we are going to be a leader in 1 specific region or 2 specific regions and we are going to be one of the top 3 companies in the country and we will continue to invest on this business, scalability is quite important issue. To have a sustainable competitive advantage, to create value and to protect, it's difficult to replicate the other criterias that we have to decide for new investment. The company will keep creating value to our shareholders, this is the mandate that we have from our board and we are going to keep delivering good results. I think we are very pleased with results that we did this year, but looking forward to new options to create value to our shareholders. With that, I would like to pass for the Q&A session.
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Marcos Assumpcao, Itau BBA.
First question, Walter, is on the exercise with the call option on Duratex. What are the factors that you are evaluating before you exercise that call. And if you go ahead with the project in the region, how much land do you already own in the region and how much would you need for a project in Sao Paulo state. Second question is more on the M&A side. You mentioned what are the criterias for new investments for the company. We believe and we have been saying that before the potential merger with [indiscernible] probably would meet all of that criterias. What do you think is preventing that to happen is my question and the second question also related to that is following the collapse of the class -- the share classes, a migration to Novo Mercado, how do you evaluate the re-rating of the stock so far? Thank you.
Marcos, thank you very much for the 2 questions. The first one related with Duratex view is that we are going to exercise this option if we decide to have a new plant on the region. It is going to be submitted to the board and our option exercise should be done before July 2, then it's going to be discussed in the next few months on our board. Of course, we are just going to exercise if we decide to have the new plant. We have already at the region around 70,000 hectares, and on top of that, we have the option to acquire 20,000 in addition to that. Then, we would have around 90,000 hectares and we could have a possibility to have a plant ballpark number of 1.5 million tons on the region. If necessary, we consider to acquire more lands and more forests in the future. Related with M&A, we prefer not to make any comment on that. We are going to pass this question. And related with the share class and the rerating of the company, we do not think that our shares right now represent the real value of the company. If you see any kind of multiples that we have in this industry related with EBITDA, related with operational cash flow that we understand there is better criteria. With the discounted cash flow, our shares are not representing the future value that we are creating for this company, but this is a process that we understand that the market will realize that in the next coming quarters since we deliver a good result, in fact they are going to see that the market will reflect the value of the company in our share prices in the coming quarters. I think with that, I am going to go to the next question.
The next question comes from Lucas Ferreira from JPMorgan.
So my first question is to Carlos Anibal. Carlos, how do we evaluate the supply and demand of the pulp markets now in the month of February since we have the Chinese New Year's. Apparently, if you look at the, like the export numbers from Latin America in December, maybe a lot of pulp coming to the market in the end of February. On the other hand, it seems like demand remains relatively stable with the outlook of some price hikes -- paper price hikes in China in March. So my point is do you guys expect prices in the region to remain flat and what's your outlook for [ group ] marketing in March? And then my second question is on the paper business and regarding our expectations for 2018. If you can comment on both in terms of implementation of the price hikes that the company has announced, how you have been evolving? If it's a year where you are expecting a rebound of demand and consequently margins, so these would be my 2 questions. Thank you.
Thanks for your question. Let me take the [ last one first ] and give a broader view on the pulp market and I want to do that starting from the demand. Actually, overall, we have a very positive view and that is supported by the [indiscernible] growth expectation and by China. In China, we have the new paper capacities. We believe that between '17 and '18, we're going to have around 3.3 million tons of new tissue papers and printer writing. We have the potential substitution of recycled paper. We have the [ coloring ] capacity closure. We have had that -- we have seen that in the past several years and again we have the tissue growth itself and that has been an important driver of the growth there in China. For the short-term, the demand is coming according to our expectation as in Europe and seasonally weaker in China and this is quite common now before the Chinese New Year. That will not be a point of concern for us right now. Mid and longer run, positive view supported by emerging economies and fundamentally China, [ have ] the Chinese government a cleaner China as a major goal, I think we can go on expecting positive effects on the pulp market globally speaking. Talking about the demand -- the supply side, sorry, short-term in one hand we see all the new project, additional capacity reaching the market, we see the restart of some [ views ] that were facing production, technical problems [ restrictions ]. On the other hand side, we have several planned shutdowns, maintenance shutdowns and also important to mention production reductions related to weather conditions and logistics constraints in the northern hemisphere. That combination in my view will determine the market behavior for the coming weeks. Mid and longer run, no major capacity is expected to start within the next 3 years. We also have -- we may have some surprises related to -- with availability and cost, unexpected shutdowns and [ conversion ], all that can lead to a supply constrained environment. [indiscernible] different regions and that was shown by [ DTDC ] numbers end of last year. So, again we have a positive view for the market. Regarding price announcements, we believe the conditions are in place and support our announcement for North America and Europe. In fact, we are already [ voicing customers and major customers in Europe at 1,030 which is the new price announcement for France ]. For China, we don't see the same support and we expect price stability in the short term. Well, this is our view on the market fundamentals.
Okay Lucas, this is Leonardo. I'm going to answer your question related to paper. For this year, for 2018, we expect that the domestic consumption in Brazil be very much in line with 2017. We are forecasting growth in some product lines like paperboard for example, but in the [ quarter offset ], we are considering a lower number due to the fact that the next National Textbook Program, the PNLD in 2018 will be 20% lower than what it was last year. And this volume was already confirmed by the government in the public [ then ] presented in July '17. So, all in all, we see the market very much stable. Therefore, we really believe that the big opportunity that we have is related to pricing. As I mentioned in my presentation, we foresee pricing upsides both in international markets and in Brazil. Price implementations are going on in Brazil for all [ grass board ] grades in the month of January. They have started already in cut phase as you know. We have announced for February and that has started in the beginning of this month. So, we are very positive that this trend will continue.
And now just a quick follow-up on the price implementation here in Brazil. If you see import as a threat to that.
It could have been in the past, but imports are now coming at a different level to Brazil, the imported prices are trading much higher than they were in the beginning of last year. So that actually is helping our price implementation as well.
The next question comes from Thiago Lofiego, Bradesco BBI.
I have 2 questions. Walter, if you exercise the call option with Duratex, so how much more land would you need to be able to add new capacity considering a potentially low average distance level or low cash cost levels for this potential new project. So just trying to understand how much more money you can or you would disburse if you decide to do the project in Sao Paulo. The second question is also related to the project considering the land cost in the region are higher, I'm not sure about potential forest productivity if you could also give some color on that, inbound and outbound logistics, fiscal benefits. So just thinking about the project as a whole, a potential new project in Sao Paulo as a whole. Is a project in this region really the best option in your view or are there any other options that you guys can think of and if you could compare, maybe returns of this potential new project to the Maranhao project to the returns that you got in the Maranhao project a few years ago. Thank you.
Thiago, thank you very much for the question. With this land, we have right now 70,000 hectares of land in the region with the possibility of exercise the call option, we will reach 90,000. There is enough to have a plant of 1.5 million tons if you consider that we have between 20% and 30% from third parties. That is the ballpark number that we have in the company right now, then we will have enough land and forests to the project. Comparing this project with other regions of the country, this area where we have excess forest and land right now have the highest forest productivity in the country with [ even ] higher than 50 cubic meters per year. Then, we decided that the most important thing to have on this plant is to mitigate or minimize the cash cost, then the wood cost on the cash cost is the most representative part on that, and the cost of the wood on this process -- on this plant will be the lowest on our -- all plants -- setup plants that we have right now. Then, we compare the alternatives that we have and this is the highest return on capital employed, the alternatives and the most [ hedging and protected results ] that we have. This, as we are going to have the lowest cash costs on our operations if we decided for the new plant.
Okay, thank you. Walter, if I may, just -- still on that question, what is the timing that you think is reasonable for us to protect the potential announcement of your growth project?
As we mentioned, our option will be done. The exercise time for this option is going to be July 2. We need to have, before that, the decision if we are going to proceed or not with this new investments to the new plant.
The next question comes from Karel Luketic, Bank of America Merrill Lynch.
I have 2 follow-ups. Actually, the first one is a follow-up on the recent question. Walter, if you could complement in terms of what you think would be the timing for the start-up of the potential mill if you go ahead with the decision by mid-year. And the second follow-up to an initial comment you made, Walter, as well, in terms of the recent acquisition from Duratex, the first tranche. You mentioned the dilution in terms of cash cost in the region. Do you have an idea of how much that impacts your average cash cost per ton on pulp?That will be great. Thank you.
Karel, good morning, thank you very much for the question. If we decided for the new plant, usually the timing for new projects is around 26 months, it's what we consider between 26 months and 27 months after the decision of the new plant. Talking a little bit about the cash cost, as you may see, our cash cost numbers right now, it's below BRL 600, and last year we are targeting BRL 570, but this project is going to be under BRL 500, and close to BRL 400 [ higher ], but close to BRL 400 as the cash cost on the second round of plantation on the region. And then, we are going to be in extremely good position on the average cash cost on our operations.
Our next question comes from Carlos De Alba, Morgan Stanley.
So Walter, I have a question for you regarding the potential in [indiscernible] actions of Suzano deciding to go ahead with a new formula, but assume an M&A opportunity with another pulp producer in Brazil. Is this something that you believe Suzano could do or you rather once you make the decision to go ahead with the pulp mill, you will exclusively focus on and executing the construction and ramp-up of the plant before we revisiting the potential idea of an M&A transaction. Then, Marcelo, just a clarification if I may on the tax rate. Is that what you call effective tax rate, is that the cash rate or is the effective tax rate that should appear in the income statement. And then finally, Carlos, you elaborated a very constructive outlook for pulp demand and that should support higher prices for pulp or at least stable prices, but what are the risks of substitution or demand destruction if we continue to see these kind of pulp prices and paper producers around the world maybe with the exception of China, really struggling to pass through the higher raw material costs. Thank you.
Carlos, It's Walter talking. Thank you very much for your questions. I will start with the first one. I think it's very important to set the expectations for everyone. Our philosophy is a value creation idea. We are not wanting to be bigger, we want to be better, we want to deliver better returns to our shareholders. If you want to be better, we must invest on new capacity or [ growing ] organically, this is one alternative that we are going to pursue. As looks like to us right now that this potential new plant on the region would create value for our shareholders on a steady basis, even considering the volatility of pulp prices for the future. As I mentioned before, we didn't decide about this investment yet, it's something that is going to be subject to board approval, and discussions on the board, but be sure that if we decided for that, we will make all the sensitivity analysis based on pulp prices and to have an exchange rate FX to consider if we are going to create value or not. We have very high expectations in terms of spreads of our work on every single project that we are doing right now and it's not going to be different to that. We are not going to compare this with the alternative for the many. As mentioned before, we are not going to comment on M&A transactions, but we are very focused on value creation to our shareholders and we are very disciplined on that -- [ just set this view ] to all of our shareholder base right now.
On the tax rate, Carlos. We are talking about cash tax rate in this case.
Carlos, this is Carlos. When I was speaking on virgin pulp substitution. Actually, we don't see that happening. We believe that virgin pulp-based products will gain market share of plastics due to the [ sustainability ] of this product. And as we believe that growing trends driven by legislation and environment are encouraging more paper-based products. So again, to summarize, we don't see that happening.
The next question comes from Renan Criscio, Credit Suisse.
My first question is on the liability management. So we saw a very interesting result in the liability management with the reduction of cost of debt and increasing maturity. So just trying to understand if you think there is room to grow further in this regard. You think you can reduce further or increase further the maturity of that or decreasing the cost or are you comfortable with the current debt structure? The second question is on the paper business. So can you talk a little bit more on the profitability this quarter. I understand that you had the higher costs because of the stoppage at Suzano unit, but if you can isolate the sector and at least give a ballpark on where this EBITDA margin would stand if it wasn't for this downside?
Okay. Renan, this is Marcelo speaking. I'll talk about liability management. There is room for more, yes, of course, we have done a lot. So marginally is becoming more difficult, but I think now with the upgrade that we got and the situation of the global markets, I think there is room to do more. This year we focused a lot on capital markets. Maybe on the bank markets, there is something that we can do in terms of both reducing the cost and increasing the average maturity, but it's becoming, of course, less impactful in terms of the global picture and it doesn't make sense for us to increase the average debt maturity much more than 7 years, but you can expect to see a bit more.
And Renan, this is Leonardo. Thank you for your question and you are right. Our maintenance downtime at the Suzano mill is the key effect for our lower EBITDA margins per ton in the fourth quarter. We don't give guidance of the [ number result of this maintenance downtime, but it would be much closer to the third quarter's results than what it was ].
Our next question comes from Juan Tavarez, Citi.
Just my first question, just to follow-up on paper profitability and on the margin side, you mentioned that maintenance downtime was one of the main reasons why we saw that EBITDA per ton come down, but I'm curious just kind of looking over the last year or so, it seems like it's been more cost driven than let's say sales mix driven and why there has been a compression in your paper margin. I'm just curious if you can give us some visibility aside from maintenance. Are there any other factors impacting your paper cost and I guess putting it into context of your pulp cash cost targets, should this start to benefit, [ so these ] initiatives are reducing your pulp cash costs start to benefit this paper business at all. So just to get some visibility there. And secondly, just on Walter, you commented on trying to be better at delivering returns. I'm curious what your thoughts are on increasing dividends or doing share buybacks on use of capital that way. Thank you.
Okay, Juan, thanks. This is Leonardo. If we analyze the margins of the paper business '17 versus '16, actually the key impact was exchange rate. The average exchange rate in '16, as you know was [ BRL 349, last year BRL 319 ] and this affected very much the profitability of our exports, which represents close to 30% of our sales. So year versus year, the main factor was driven by exchange rate and quarter -- versus third quarter, the main factor is maintenance downtime at the Suzano mill. We believe that, we have reached the low-end in terms of pricing and as I mentioned before, this is much of an upside to [ within that ]. So we are very positive that the future trends would now move in a different way than they have in the past months.
Juan, thank you very much. As Walter was talking, I think capital allocation is the critical issue that we are facing right now. Of course, we understand that with this low leverage rate that we have right now, we can increase the dividend yield in the company is something that we are considering for the near future, and [ now when the standards ] even if we decide for a new major investment, capital investment, that would be the potential new plan, we are not going to increase the net debt over EBITDA over the financial targets that we gave to the market before. And then, we are going to be ready to increase the dividend yields. We are not considering a buyback program at this point of time, but of course, we are always going to consider this and our potential alternative that we have. We believe that our long-term view is that, we are deleveraging the company at a very fast pace, and right now we don't need to deleverage anymore the company. Capital allocation is going and is right now, the major issue that we are in discussions, right now, how to keep creating value to our shareholders. We do not want to go South, [ then should times net debt to EBITDA ], I don't think there is necessary to do it, I think it's a very comfortable position. Just remembering to everyone, our financial policies are between 2x and 3x and if we decided for a new major CapEx program, it would be maximum 3.5x and we will keep this financial targets and this financial policies right now.
And just maybe just following up on the paper business, again finally to your pulp cash cost targets, will there be any benefit to your profitability in paper with a reduction in pulp cash costs or no? Are there 2 separate [ strategies ].
Yes, we have certain benefit we cannot forget that the Suzano plant, they are almost 100% integrated, that is affecting the results the other hand, just on the paper side, but on Limeira and Mucuri of course, we are going to have the benefits since -- largely they are pulp plants, -- delivering pulp to the paper business. We are going to have a minor impact on that. But we have other opportunities to reduce our cash cost in the paper side as well, and we always focus to look for opportunities to enhance our profitability. On the cost side as well, on the paper business.
Our next question comes from Lucas Ferreira, Banco JPMorgan.
My question is on the cost side, Walter. It seems like chemical prices have been going up a lot since oil is up and we had some large inflation in the chemicals. And I was just wondering how your target for costs for [ this year ] is updated within this large increases in chemical prices. Thank you.
Lucas, thank you for the question. We are facing yes some headwinds in terms of the chemical costs, that is going up, but even so with this scenario, we think that is achievable the targets that we are setting right now. Of course, we cannot forecast what is going to happen over the next coming month in terms of chemical product [ sales ] we have floating prices depending on international markets, on this and FX, and this could affect our costs, but we cannot forget that more than 90% of our cost is real related and large part of our cost is wood related, There is not going to be any major change. Sorry -- just going down the cost any major change going [ that way ]. Then, we believe that is continue to be achievable the targets that we set for this year.
We are now closing the question-and-answer session. I will pass the floor over to the company for the closing remarks.
I'd like to thank everyone for participating on this session. I think it's -- we are very proud from what we are doing right now. Suzano is delivering year-after-year, quarter-after-quarter better results and we are very proud of that, but we are looking forward to future. We are looking forward new opportunities to create values to our shareholders. We are looking forward to enhance our operation on every single part of the organization and to prepare our team, to prepare our employees to be better, [ at least ] we want to grow when we need to have a very clear plan of developing people in the organization. Thank you very much for participating with the session and I hope you have a nice day.
That concludes the conference call of Suzano Pulp and Paper. Thank you for your participation. Have a good day.