Empresas CMPC SA

SGO:CMPC

Earnings Call Transcript

[Operator]

Hello, everyone, and welcome to the Empresas CMPC Second Quarter Earnings 2021 Results Conference Call. On the call with us today are, Ignacio Goldsack, Chief Financial Officer; and Colomba Henriquez, Head of Investor Relations.

Please note that statements made today during the presentation and Q&A may include forward-looking statements to assist you in understanding our expectations for future performance. These statements are subject to some risks that could cause actual results and events to differ materially, and I'll refer you to the company's press release and regulatory filings for discussions of those risks. In addition, statements during this call, including statements related to conditions in the global pulp, personal care, forestry products, and paper and packaging markets are based on management's views as of today and is to be expected that future developments may cause these views to change. Please consider the information presented in this light. The company may at some point elect to update the forward-looking statements made today, but specifically disclaims any obligation to do so, except where required by law.

And now I'll turn the floor over to Mr. Ignacio Goldsack, Chief Financial Officer. Please Mr. Goldsack, you may proceed.

[Ignacio Trebilcock, executive]

Thank you, and welcome, everyone, to our second quarter 2021 results conference call. Starting on Slide #3 of the presentation. Second quarter results show a relevant improvement compared to the last quarter on the back of the increase in pulp prices we have seen globally. Our average realized prices increased 30% for hardwood and 26% for softwood compared to the last quarter, reflecting the big increase we saw on the first half of the year.

The Biopackaging business continued to post solid results with higher prices offsetting the increase in costs we have seen throughout the year. The Softys business on the other hand continues to be affected by the lower demand from the away-from-home segment and the higher costs of raw materials.

Cash generation was solid during the quarter, allowing us to continue to increase the leverage ratio, which is now below our internal policy range.

Now turning to Slide #4. As I mentioned earlier, the pulp market continued to improve during the second quarter. This effect more than offset the lower sales volumes we posted, generating a 52% increase in pulp EBITDA on a quarter-on-quarter basis and more than doubling the EBITDA compared to the second quarter of last year.

Biopackaging also posted a slight improvement on its EBITDA as a result of higher average prices and lower administrative expenses. On the other side, the Softys business posted a 6% decrease on EBITDA compared to the previous quarter, mainly as a result of higher operating costs.

On a consolidated basis, the company's second quarter EBITDA reached $467 million, increasing 34% compared to the previous quarter and 82% compared to the same quarter of last year. As a result of the increased EBITDA, net income reached $244 million, increasing from the $73 million we posted last quarter.

As I mentioned earlier, free cash flow generation was strong during the quarter, reaching $130 million, allowing us to continue the deleverage.

Now I would like to turn the call over Colomba Henriquez, our Head of Investor Relations, who will provide more detail in our results. Please go ahead, Colomba.

[Colomba Benavente, executive]

Thank you, Ignacio, and Good morning, everyone. Please turn to Slide 5 of our presentation, where there is more information on consolidated operating costs and other operating expenses for the second quarter of 2021.

Cost of goods sold reached $910 million, increasing 2% compared to the previous quarter and 5% compared to the same period of last year. Consolidated operating costs represented 58% of total revenue compared to 62% in 1Q '21 and 65% in 2Q '20. The sequential and year-over-year increase is mainly explained by higher fiber costs in Softys and Biopackaging, as well as higher personal care products raw materials. There were also higher maintenance cost inputs.

Consolidated other operating expenses reached $195 million for the quarter, up 2% quarter-on-quarter and 9% year-over-year, representing 12% of total revenue compared to 13% in 1Q '21 and 14% in 2Q '20. This quarter-over-quarter result is explained by higher expenses in pulp related to the appreciation of the Brazilian real and the Chilean peso, and higher distribution costs in Softys, while the year-over-year increase is related to the appreciation of the Chilean peso, a higher distribution cost in Softys and Biopackaging.

Please move to Slide 6, where we can see more detail on our pulp business results. Pulp production reached 1,043,000 tons, stable quarter-on-quarter and 2% lower year-over-year. Compared to the previous quarter, higher pulp production in Guaiba II was completely offset by the maintenance downtimes we carry out during the quarter in Santa Fe I and Guaiba I. Compared to the second quarter of last year, production was lower because of the 2 maintenance we carried out.

Pulp prices during the second quarter of 2021 reached $883 per ton for softwood and $687 per ton for hardwood, a 26% and a 30% increase, respectively, compared to the previous quarter. Year-over-year prices were even higher with a 67% increase in softwood and a 49% increase in hardwood.

Total market pulp sales volumes decreased 9% quarter-over-quarter and increased 1% year-over-year. Looking at our quarter-over-quarter performance, we saw 15% decrease in softwood sales with lower sales to Asia and Latin America and a 8% decrease in hardwood with lower shipments to Asia and Europe.

For the year-over-year comparison, sales volumes decreased 6% for softwood, also related to lower exports to Asia and Latin America, and increased 3% for hardwood with higher exports to Europe. Pulp inventories increased compared to last quarter as a result of the delay of some shipments.

Revenues for the pulp business totaled $653 million, increasing 17% quarter-over-quarter and 54% year-over-year. Third-party forestry sale volumes increased by 10% quarter-over-quarter due to higher sawn wood and sawing logs volumes.

Year-over-year, sales volumes to third parties increased by 24%, driven by an increase in sawing logs in Argentina. Average prices decreased 3% quarter-over-quarter and 17% year-over-year as a result of a change in the product mix and lower pulpwood prices.

Forestry revenues totaled $121 million, showing a 6% sequential increase and a 3% annual increase. Revenues for our pulp and forestry business increased by 15% sequentially and 42% compared to 2Q '20. EBITDA increased 52% sequentially and 137% compared to 2Q '20, while EBITDA margin reached 49.9%.

The quarter-over-quarter EBITDA increase was primarily due to higher prices for hardwood and softwood pulp, which was partly offset by higher corporate expenses related to the negative effect of the Chilean peso and Brazilian real appreciation, as well as maintenance costs. In the year-over-year comparison, the increase also comes from the higher pulp prices, as well as slightly higher sale volumes.

On the other side, just like the quarter-over-quarter comparison, we had higher expenses related to the appreciation of the Chilean peso and the Brazilian real, as well as higher maintenance costs.

Now let's move on to Slide 7, where we will take a closer look at the Softys business. Softys revenues increased by 6% quarter-over-quarter and 9% year-over-year, reaching $542 million. Tissue paper sales volumes decreased 1% compared to the previous quarter and 3% compared to 2Q '20. Quarter-over-quarter, we registered lower sales in Peru and Mexico, compensated by higher sales volumes in Chile and Argentina. Year-over-year, the result is related to a high comparison base of 2Q '20, , where we registered an increase in sales volumes in most countries due to COVID-19.

Personal care sales volumes decreased by 1% quarter-over-quarter and were stable year-over-year. The quarter-over-quarter decrease was mainly driven by higher wet wipes volume and offset by lower diaper sales volumes. In the year-over-year comparison, we benefited from higher wet wipes sales in Chile and Peru and higher diaper sales in Brazil.

Average sales prices, measured in U.S. dollars, increased 10% for tissue paper and 1% for personal care products compared to 1Q '21. The increase in tissue paper prices is related to higher prices in local currencies; and in the case of personal care products, it is related to a change in the product mix.

Softys EBITDA reached $57 million during the quarter, decreasing 6% quarter-on-quarter and 25% year-over-year. EBITDA margin reached 10.6%. The quarter-on-quarter decrease relates to higher operating costs due to higher fiber costs and raw materials for personal care products. This was compensated by lower administrative expenses and higher average prices. The year-over-year decrease is also driven by higher raw materials costs, compensated by higher average prices for tissue paper and lower COVID-19 expenses.

It is important to note that during the second quarter of 2020, we registered $6.2 million in tax credits in Brazil, which affected the year-over-year comparisons.

Now let's move to Slide 8, to see further details on the Biopackaging results. Sales volumes to third parties decreased by 5% quarter-over-quarter as a result of lower seasonal volumes of corrugated boxes and molded pulp trays, as well as lower volumes of corrugated paper. Year-over-year, volumes increased 12%, explained by a significant increase in paper sack sales in Peru, Mexico, and Chile. Also there was an increase in corrugated boxes in Chile and higher export of boxboards.

Average sale prices increased by 8% sequentially and 14% annually. As a result, revenues increased by 2% quarter-over-quarter and 27% year-over-year, reaching $253 million. The packaging business EBITDA reached $41 million, increasing 3% compared to 1Q '21 and 53% compared to 2Q '20. EBITDA margin reached 16.4%.

The sequential result is mainly driven by higher prices in most product categories and lower administrative expenses. The annual increase is mainly from higher sale volumes, especially from paper sacks, boxboard, and corrugated boxes, as well as higher average prices.

I will now turn the call back to Ignacio.

[Ignacio Trebilcock, executive]

Thank you, Colomba. Please turn to Slide #9. Free cash flow was positive $130 million during the second quarter of the year. This is the result of the positive EBITDA figure as well as a positive effect in income taxes. This was compensated by the negative working capital variation, which is mainly due to the higher account receivables as a result of higher pulp prices.

Our gross debt increased 13% quarter-on-quarter and 4% year-on-year to approximately $4.5 billion as we issued a new bond for up to $500 million in the U.S. market. Therefore, our cash position increased to almost $1.5 billion at the end of this second quarter. This way, our net debt decreased 3% compared to the previous quarter and 6% compared to the same quarter of last year. Our net-debt-to-EBITDA ratio stood at 2.26x, decreasing from 2.76x in the first quarter 2021.

Moving to Slide 11. Yesterday, we announced the BioCMPC project, which is the expansion of the Guaiba II mill that will increase its capacity by 350,000 tons per year. Total investment is in the range of $530 million and is expected to start up by the end of 2023. The project will have benefits in terms of cost reductions for both production lines and we already have all the pulpwood to supply for the expansion.

The expansion will have eco-efficiency and several environmental benefits, like water usage reduction, reduction of carbon emissions, reduction of pollutants, among others, contributing to the achievement of our environmental targets. The project will also have several social benefits, like the construction of [ Lionel ] park around the Guaiba mill and the reutilization for a former CMPC building to be used for community cultural events.

Now moving to the next slide of the presentation. We closed the first half of the year with a solid financial position. We were able to continue decreasing our net debt while increasing our EBITDA generation. As a result, our leverage is currently below our internal policy range. This allows CMPC to continue advancing and execution of its growth strategy. We are making an important step in this regard with the announcement of the BioCMPC project.

We will also continue implementing productivity and efficiency initiatives in our pulp and paper mills to continue advancing in this path, that have already contributed to increase our production by lowering our costs, all this in line with our long-term vision and commitment to create value to all stakeholders.

I would like to mention that Mr. Francisco Ruiz-Tagle, CMPC's CEO; Mr. Raimundo Varela, our Pulp CEO; and Mr. Felipe Arancibia, our Softys CFO, are also joining the conference call. They will also be available to answer any questions you may have.

Operator, please, now open the floor for questions.

[Operator]

[Operator Instructions] Our first question comes from Caio Ribeiro.

[Caio Ribeiro, analyst]

So my first question is on the Guaiba expansion that you announced. I was just wondering if you could provide some details on the cash cost reduction that you expect and whether it's entirely associated with the higher fixed cost dilution or whether there are some other factors at play here as well, like higher electricity generation, which should help contribute to this?

And then secondly, my question would be on additional growth avenues that CMPC is analyzing, especially in the pulp business. Could you look to expand further via another greenfield project? And I know that you might have a limitation of availability of forestry assets, but perhaps could you look to expand by acquiring more forestry assets? Those are my 2 questions.

[Francisco Edwards, executive]

This is Francisco Ruiz-Tagle. In terms of the cash cost of the expansion of Guaiba mill, I can say that we're estimating a reduction, well, depending on the line, but around $5 per ton. What is very important here is we are reducing the cost in terms of energy generation. We are replacing the boiler -- the current boiler we have in the line using in Guaiba, the old boiler, coal boiler. And it means around $20 per ton reduction in energy costs. And the main reduction in cost has to be with the energy.

And regarding the future expansion of new projects, we are now very much concentrated in this debottlenecking project. And of course, we continue, as part of our study, working in the future and especially on the forest side. But for now, we are very much concentrating in doing a very good job on this expansion in Guaiba.

[Operator]

Our next question comes from George Staphos.

[George Staphos, analyst]

I wanted to piggyback on Guaiba and Caio's question. Can you talk a bit about what the next milestones are in terms of expanding the production at the Guaiba Line II? I'm not a paper engineer, but what are the next important steps around that path? Francisco, you mentioned replacing the boiler. Is there any work, any sensitivity that you need to have as you do this expansion relative to the prior boiler problems that you had at Guaiba, or are they unrelated? And will the project, the expansion, during the time that it is occurring, has any effect on your output at Guaiba overall?

And then I had 1 question for Raimundo. Raimundo, could you talk to some degree about how your sales into Asia have progressed during the third quarter?

[Francisco Edwards, executive]

Yes. In connection with your question about future expansion of the Guaiba mill, we believe that we're basically in terms of the pulp production, I'm not seeing probably future expansion in the same mill, important expansion. Probably we'll have some other minor debottlenecking projects, but we are not planning now expanding more that mill.

And in connection with your question about the boiler, actually this boiler is a backup boiler we have. This is not actually -- it is not to be with the investment we had in the Line II. Even the Line I has its own boiler, but it has to be actually with a boiler that is supporting the energy generation of the whole mill. I'm not sure if I'm answering your question.

[George Staphos, analyst]

You did. Just during the project, will you actually see a reduction in output because of the work being done at Guaiba, or will production occur at its nameplate capacity? That was really my question about output.

[Francisco Edwards, executive]

Okay. No, we're not seeing any reduction in output at all. Our organizational plans will actually continue in normal, regular production plans, and the same that you have seen till now.

[Raimundo Varela, executive]

This is Raimundo. I will take the second question of George, regarding the progress of sales in Asia. Our sales in Asia are progressing well. I think after the price correction in China in the short fiber, up to the levels that we are seeing now, the volume has been very good actually, and a lot of customers were kind of waiting. They have already purchased the volume and turned the business quite quickly. And I think the same applies for the long fiber.

And the rest of the Asian countries in general, demand has been quite good, in Korea, Japan, Taiwan, in general, the Southeast Asia, we are seeing quite stable overall demand.

[Operator]

Our next question comes from Rafael Barcellos.

[Rafael Barcellos, analyst]

My first question is related to pulp inventories. I mean you increased inventories quarter-over-quarter, right? So I just wanted to understand, if it was part of a strategy or if it was related to operational issues? And if so, what can we expect into the 3Q?

And my second question is about pulp markets. Could you please elaborate further on pulp buyer sentiment as now we are now approaching mid-August? I mean are you seeing buyer sentiment improving or not? And also if you could compare the price dynamics that you're now seeing in hardwood and softwood would be interesting to us.

[Raimundo Varela, executive]

Yes. This is Raimundo. I can take the question. I think our pulp stocks have gone up, but mainly because of the delay in shipments. I think we have had like the whole world, some issues with shipments during the Q1 and Q2. And as a consequence of that, some of the shipments get delay. And if that happens at the end of the month or the end of the quarter, then those shipments and invoicing gets passed to the next month. So we have had that impact, I would say, more or less, and the impact is about 70,000 to 80,000 tons that get delay. But it's business, that is already concluded with the price already fixed, but we are not able to invoice because the shipment -- the vessel is delayed or the loading is delayed. And that has been kind of a pattern that has happened for the last few months. We expect that to improve, but not extremely fast. I think it will take a little bit of time for that to sort itself. So -- but again, it's not an issue of lack of sales or nothing like that, that is only the delay in shipment.

And the market sentiment in general I think is -- it has been a very good market. I mean, we're in summer in the Northern Hemisphere -- we are not, but they are, our customers are -- and this is traditionally a few months where the market is a bit slow. So this year has been no different. The market has been a little slower during the Northern Hemisphere summer, but the dynamics, they are healthy. We see that with the price adjustments in Asia, the customers are back in the market with very good demand. Paper production has been good. The paper prices also correct, the economic environment in general, I think, we are positively surprised by the European economic environment, which is looking quite good actually. So the dynamics are good and the softwood versus hardwood I think, still the spread is quite wide. In Asia it is about $200. I would expect that maybe to narrow a little bit. And in Europe the spread is about $100, $120. So we expect that now the spreads will probably go to the level of $150 or something like that, something in that level.

[Colomba Benavente, executive]

The next question comes from Declan Hanlon from the webcast. So he is asking, "In connection with the new BioCNBC project, how will this be financed and what is the planned leverage target in this context over the next few years?"

[Ignacio Trebilcock, executive]

This is Ignacio Goldsack speaking. We are considering around $100 million of disbursements for this project for the remaining part of the year. Looking forward, we are analyzing alternative ways to finance this project. And regarding our financial policy, we expect to maintain the net-debt-to-EBITDA ratio within the range.

[Colomba Benavente, executive]

And another question from the webcast from Leopoldo Silva. "Will BioCMPC consume the plantations you're developing on the forestry front in Brazil? Forest for BioCMPC will come from your own plantations or third parties?"

I'm going to take that one. We already have all the pulpwood we need to supply for the BioCMPC project. So that is part of the plantations we have been developing over the past few years.

[Operator]

Our next question comes from Thiago Lofiego.

[Thiago Lofiego, analyst]

2 questions. Raimundo, back on the pulp market dynamics, how are the logistics constraints evolving at this point, and how are they impacting pulp supply in a global context? I guess the question here is, do you think that there could be any potential or any further price pressure on the downside on pulp prices as those logistics constraints normalize? Or do you think that we are now at a stable price environment with maybe some even upside towards the end of the year?

And the second question on capital allocation. So leverage now below 2x net-debt-to-EBITDA. You announced a small expansion on pulp. The capital intensity on tissue and packaging projects is generally low. So the question here is, any chance we see a higher dividend payout in 2022, right? For 2021, we understand the payout is going to be 100%, but for next year, any chance that we see a high payout as well? And what could be a good number in terms of a payout ratio for 2022? And then, also within the capital allocation question, can you comment on potential new growth steps on tissue and packaging?

[Raimundo Varela, executive]

Thiago, I'll take the first one. This is Raimundo. I don't think that the logistics issues will get solved very quickly. I think we are still seeing quite a lot of poor conditions everywhere, and vessels are usually delayed to load, and then having some issues or some slowdowns in the discharge because we have to wait. And then the container availability is still weak, I would say, actually with trouble to get enough containers at the right time and still it's a challenge. We have been talking to a lot of our shipping lines that we normally operate, et cetera, and with market participants, and in general, I think the view is that this is not going to get solved soon. I mean, it will take another, I don't know, 6 months, 9 months, 10 months for this to normalize.

So I think it will continue to put pressure on the supply chain. And as a consequence of that -- I think that it is something that all players and the customers are taking into consideration regarding the pricing or the approach of this issue. So I think in general, these logistic issues are more supportive of the price because it puts some risks on the price. But again, we see a market that is now behaving quite normal, the pulp is flowing in terms of pricing. So I think that the price and the demand will improve seasonally, as it always got in September to December. Some of the channels, sales channels like hotels, restaurants, et cetera, in Europe are eventually opening and we are seeing some better demand. So again, I think that the dynamics for September to December should be better than what we are seeing right now.

[Ignacio Trebilcock, executive]

Thiago, Ignacio speaking. I will take the second part of your question. Regarding the dividend policy, this is our Board of Directors decision, but we think it's reasonable to expect that the dividend policy should return to levels that we have in previous years, that means in the range of 30% to 50%.

[Operator]

Our next question comes from Carlos De Alba.

[Carlos de Alba, analyst]

So a couple of further questions on Guaiba II expansion. First, could you maybe update on the CapEx for this year and next year, given the new project? And also, how do you see the CapEx for the expansion, the $530 million over the next -- over the time of the construction and maybe the ramp-up of the project? And if you have any details as to how much of the $530 million is industrial and how much are other buckets, that will be useful.

And then also on the project, how much -- when you said that you already have the hardwood for the expansion, how much of that is your own forest and how much are you relying on third parties?

And then final question, if I may, on pulp production and shipments. Is there any color that you can provide on the level of production and/or shipments that you expect in the second half of the year? We have the maintenance schedule here in the press release. It seems fairly balanced versus what we saw in the second quarter. So is it a good assumption to put in the model something similar to the production and shipments that we saw in the second quarter?

[Francisco Edwards, executive]

Carlos, this is Francisco Ruiz-Tagle. In connection with the CapEx, I have to say that for the current year, we continue with our regular program of around $100 million in CapEx. We should probably add some extra CapEx considering this new approval of the Guaiba II expansion, probably will be somewhere around $550 million and $600 million this year, that range. We expect -- at least we know that for the year 2022, connected with Guaiba II, we should have around at least $350 million of CapEx. We haven't discussed yet the budget for the next year, for the other businesses. So what I have to say now is, yes, at least $350 million will come from this project.

And in connection with forest, you asked about the forest. The proportion, actually we are using of hard wood for this new -- for this expansion is coming mainly from our own forests. It's our own plantations. We are not depending very much at this time from third parties. And probably Raimundo could take the other question.

[Raimundo Varela, executive]

Carlos, yes, I mean we do have some maintenance in the second quarter and for the third and fourth quarter, which you have scheduled. But always on that, I see -- we see very good production level at our mills and the interim performance has been good and sales and shipments for the second half, I think it would be better. I hope we can solve some of the logistic problems towards the end of the year. Usually Q4 is very strong demand from everywhere, really. So I would -- yes, I think it's a reasonable assumption to assume that second half will be in tandem to first volume.

[Operator]

Our next question comes from Thiago Lofiego.

[Thiago Lofiego, analyst]

Yes, a very quick follow-up on the cost reduction for the Guaiba expansion, just want to get the number straight here. So you mentioned $5 per ton lower operating costs, and then on top of that, $20 per ton lower reduction -- lower energy costs, is that right?

[Francisco Edwards, executive]

Is that right? I mean the $20 cost reduction has to be Guaiba I. It's affecting basically Guaiba I. For the rest of the mill, it means that basically at Guaiba II we are seeing at least $5 per ton of reduction.

[Operator]

And our next question comes from George Staphos.

[George Staphos, analyst]

I want to switch gears a little bit to tissue. Felipe, can you talk a little bit about how volumes evolved during the quarter, it was -- is it possible to say whether your volumes were on budget, below budget, or better than budget? And what do you think we need to see in terms of pricing/volume market development, such that Softys can start putting up consistently increased year-on-year EBITDA over the next several quarters, recognizing obviously higher pulp prices are a big headwind?

[Felipe Arancibia;Softys;CFO Latam, executive]

Regarding volumes, quarter-over-quarters, volumes for consumer tissue business almost was flat quarter-over-quarter. This could be attributed to the fact that lockdowns are easing, so people return to work and less time on home. So this is related to tissue. On the bright side, our away-from-home businesses is starting to show recovery signs, reflected on the almost 2% increase quarter-over-quarter, mainly due to less lockdowns and restrictions. And finally, related to personal care businesses is performing very well, I would say, and we aim to continue improving our market position and we do compare year-over-year results.

Consumer tissue was 3% decrease, mainly due to the tough comparison, given our strong growth in the second quarter of last year, less people at home, reduced per capita consumptions, in some markets more aggressive competition, I would say. On the other side away-from-home businesses, we had 22.6% growth, mainly attribute to a lower basis of comparison since away-from-home was the most affected business during 2020, given the lockdowns held in most of the region.

Personal, let's say, in personal care business, has positive results in terms of volumes, reaching on a year-over-year increase, let's say, 1%. So this is related to volumes, right.

[George Staphos, analyst]

Yes. And my question just and I really, really appreciate all that detail. Were the volumes in tissue in line with your expectations, better than expected, or below budget? You had mentioned some more aggressive competition. So that was really more of my question, I'm sorry, just want to mention that.

[Felipe Arancibia;Softys;CFO Latam, executive]

Yes, I understand. So during the second quarter of 2021, our business continued to be affected by the pandemic conditions in Latin America, that's clear. And our result did not turn out as we expected and we are aware that it was a tough comparison given our strong growth in the second port of last year.

The external environment has proven to be even more volatile than our expectation at the beginning of the year until our last conference call estimation. So pandemic conditions, such as the stocking in both final consumer and retail clients reduced consumption, let's say, has been more affected than what we expected.

So depends on the countries and depends on the category, I would say that, in consumer tissue, was more, let's say, below our expectation. The other 2, away-from-home and personal care has been above our expectation. So if you are looking ahead, because of our pricing, implementation is largely on-track and we expect to make fully offset over the time, not only this year but over the time. We believe that we are reach our margin EBITDA target let's say in the range of 15% in the coming years. But we are not fully offset the higher cost this year, let's say, mainly due to 2 reasons. #1 is timing issue, because we announced price increase on March and take some time before you fully see in the market, this #1. And #2 is the commodity is still increasing. So these 2 main reasons is the reason why we are not being able to offset all the cost inflation during this year, but we believe entering Q1, Q2 in 2022, we'll be able to offset. So we maintain our, let's say, aim to 15% margin EBITDA.

I don't know George, if I answer your question now.

[George Staphos, analyst]

That was perfect.

[Colomba Benavente, executive]

We're going to take another question from the webcast. This one is from Luis Garcia and he says, "What is your view on the current social and political situation in Chile? What are the threats that could affect CMPC going forward?"

[Francisco Edwards, executive]

I will take that question. This is Francisco. Well, of course, we have been in a process of several elections and a process about defining the constitution for the future of Chile. So my impression is that this discussion has to take a high level -- I mean high-level discussion, and we still don't know what will be the end of this, the proposal of this new constitution. But we hope that all this process will continue and come, and we should be seeing some result about this in the future. There is a lot of different dialogues today running. And so we see the social situation in Chile, of course, it's not probably 100% calm, but I'm optimistic about the final result. And some uncertainty, of course, arrives when these processes are in progress, but I will say that there are many different political leaders now acting and discussing different point of views about different matters, education, pensions, taxes, et cetera, but I'm optimistic about a good result for the future.

About the threats for the company, I would say that, well, we probably are similar compared with the rest of the industries in terms of not receiving good proposal for some of the future development of the industry, but being on it, I believe that it has to be with this what I already mentioned and I'm not seeing very strong threat for this particular company or industry. And probably we will end this process with something that will be good for Chile. That's my opinion.

[Operator]

Our next question comes from Hernan Kisluk.

[Hernán Kisluk, analyst]

Actually, kind of a follow-up on the previous one, but on a couple of specific issues. So one of the changes that might come with the new constitution in Chile is regarding water rights. So I would like to understand what is your position in terms of the need of water in your mills in Chile, and what could change in that regard?

And the second question is regarding also the potential changes in land use, mostly in Southern Chile where many Mapuche communities are claiming ownership or certain rights on land, and this is also close to where you have your operations. So if you see any potential changes there on any potential agreements that you have to reach with local communities that could change the use of land in that place?

[Francisco Edwards, executive]

First, about the water rights, I have say that -- I mean, actually 2 sides, one on the usage of water in the mills. Actually, we're not seeing particular threats. Of course, we already have in progress several initiatives and also projects in order to reduce our water usage and we will also have a plan about reducing it in 25% within the next 3, 3.5 years. And in connection with the forest, you know that forests are not irrigated. Actually the forest grows because of the rain, and we are not seeing any problem on that side.

And in connection with the second part of your question, of course, we have in some areas that are not the most important for all the areas we are operating, there are some conflicts about land in particular. It will be -- we have said in the past that what is important here is to have the foundations, and what is important for the company looking to the future is to have good agreements, evidently with third parties about growing trees. We are working and having some initiatives in a very good manner with some Mapuche communities, but it's, of course, a matter of discussion.

I'm not seeing some prohibition about the use of land. Now probably this process about resolving some situations with some Mapuche areas will continue, but we are not seeing any threats connected with our plantations or over the future of the fiber supply for our mills.

[Operator]

Okay. And that was our final question. I'll turn it back over to management for closing remarks.

[Colomba Benavente, executive]

Thank you, all, so very much for joining us today. If you have any further questions or need anything else, please contact us and the Investor Relations department, and hope you have a great weekend.

[Operator]

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.