Suzano CEO Schalka's vision for the future

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Suzano CEO Schalka's vision for the future

August 24, 2015 - 00:11

Walter Shalka, CEO, Suzano

Choosing a Latin American CEO of the Year was a relatively easy task this year. Suzano's Walter Schalka was by far the most popular pick among analysts. He was cited for his good work on cost reduction, the optimization of existing assets and the reduction in Suzano's leverage and risk.

Then, of course, there is his vision for new products that are discussed in the following interview. Another said that Schalka answers the questions the market poses, "even the more complex ones."

It has not always been smooth sailing but as one voter noted, Schalka has the ability to overcome difficulties and to change the company's strategy when necessary.

Beyond the finances and the bricks and mortar, his employees are never far from his mind. He is given credit for improving the organizational environment and uniting the employees. As he alludes to in this interview, meritocracy, employee empowerment and career advancement are important principles underpinning the Suzano model.

PPI: What was your reaction to being named as RISI's Latin American CEO of the Year?

Schalka: I was surprised. Surprised because Suzano has taken a series of steps towards structural competitiveness and, as of 2014, we had yet to capture a significant portion of the benefits. We believe we're on the right path, pursuing return on capital employed and working to meet the expectations of our stakeholders. We know that we still have many steps to take. At any rate, I'm very pleased with the recognition of our team of more than 8,000 people who are working hard every day to create a stronger and more competitive company.

How has the startup curve gone for the Maranhão project?

Our startup curve has been similar to that of other pulp projects. We believe the results are good, considering that this is a new industrial frontier in Brazil and that the forests weren't planted by us. And we faced important challenges in terms of infrastructure.

In the article in PPI (January 2015), it was mentioned that there is room for a second line but the forestry base was an issue. Is Suzano already looking to expand its forestry base with the hope of installing a second line?

The company is currently working to deleverage and improve its structural competitiveness. We feel the race for capacity that has been happening in the industry for some time has not generated return on capital employed on a recurring basis in line with the expectations of companies' shareholders. We're focused on improving our structural competitiveness and on working in adjacent businesses.

With 4.7 million tonnes/yr of pulp capacity, Suzano is the world's second largest producer of bleached eucalyptus pulp. Yet, you also have 40% of Brazil's papermaking capacity. And, you are about to start producing fluff pulp. With many other companies focusing on "core" businesses, can you discuss Suzano's diversification strategy and why it works for the company?

Our goal is to extract value from both our current and future forestry asset base. We know that there is much more value added in a forest than that represented by the production of pulp and paper, which today is its most traditional use. We want to pursue all potential complementary opportunities that can generate value over time. We already have two:

FuturaGene, which we believe, will come to represent a revolution in competitiveness in the forestry industry;

Fluff pulp, which reinforces the innovation that is part of Suzano's corporate DNA.

You have stated that Suzano is: "working with a new model to spread sales and increase our market share in Brazil even though we expect lower sales in the country." Can you explain the new model further please?

Suzano believes that forging stronger relationships with clients plays a fundamental role in its strategy to boost competitiveness and offer quality customer service. And to achieve this through the new distribution model we've been using, we brought SPP-KSR, our distributor, into the Suzano structure and transformed our plants and distribution centers into supply points for final customers. We believe that, over time, the process for improving customer relations will create a new dynamic in the way the industry operates.

How and why did the fluff pulp project come about? You will be the first to supply fluff pulp based on short fiber eucalyptus; what kind of research needed to be done to show the feasibility of the project. Did you have partners (e.g. academia, suppliers)?

In 2014, the global fluff market reached 5.6 million tonnes and we're building a 100,000-tonne project. The project's structure is flexible. Using the same machine, we can produce either paper or fluff pulp. So this is a gradual process for entering the market and for testing this new technology for using hardwood in this type of application. We believe the chances for success are very high. And, if successful, we will have created a new operational area. We've been developing this technology over the last five years and testing has demonstrated the efficiency of using hardwood to replace a percentage of softwood pulp in diapers and sanitary napkins. We also see an additional market that is growing very rapidly: adult diapers. The demand for it is directly tied to the natural aging of the population. This market should grow significantly.

What does the approval of FutureGene mean for Suzano? What benefits is the company trying to realize? What type of yield increase is the company hoping to achieve?

Tests over the last 14 years show productivity gains of nearly 20% in H421 eucalyptus over traditional eucalyptus clones. All tests were submitted to Brazil's regulatory authority, the National Biosafety Technical Commission (CTNBio), and subjected to analysis over a period of one year and three months. The company has decided to increase its testing base over the coming years, but this will not account for a significant share of total planted area. We could license this technology to other companies that are interested, including competitors. It is important to note that, from the social standpoint, this technology will be made available at no cost to all outgrowers partners.

First quarter results were very promising for Suzano. Do you see continued growth through 2015? Is the focus on continuing to reduce your leverage?

The company has benefitted from favorable market conditions in terms of exchange rates and pulp prices have yet to reflect the industry's true potential. Pulp prices in US dollar are still very stable in comparison with last year. The company is currently focused on gaining structural competitiveness and on deleveraging by consistently reducing its costs and debt. We're on the right path. In the future, we would work to mitigate the effect of exchange rates, which is a variable we don't control. We're preparing the company for more aggressive conditions in the macroeconomic scenario. Despite this backdrop, we're constantly working to improve our return on capital employed.

Is Suzano looking at any investments in the biotechnology sector as it relates to cellulose, such as biofuels, cellulose-based products?

As I mentioned earlier, we understand that forests hold potential that goes far beyond traditional products, such as pulp and paper. Yes, we're researching other technologies and, once we're closer to commercial implementation, we'll announce them to the market.

Why did Suzano purchase 49.9% of Ibema? Ibema was looking for a partner but what does it do for Suzano?

We believe the Embu Unit has a better fit with the Ibema profile, given its smaller scale. We also believe that Ibema has the capacity to manage the merger of these two operations and to create more value from it.

Can you comment on your management style and the corporate culture at Suzano?

Yes, I'd like to comment on the cultural transformation Suzano is undergoing. We're gradually implementing new processes in the areas of meritocracy, empowerment, eliminating silos in various areas and career advancement. We have a strong people training and development program and a consistent philosophy of challenging the status quo by identifying excellence and the action plans to fill these gaps. We are aggressive on variable compensation aligned with our sustainable objects and results. And we're doing all of this without losing sight of the external landscape, i.e., our customers, our community, the environment and our suppliers. This is a more holistic organizational process that is comprehensive and seeks to gradually and increasingly satisfy each of our stakeholders. We're a company with the power to transform. And this power is driving Suzano's evolution. This culture creates a wave of opportunities. It's really great to see a company in a difficult macro scenario overcome by seeking new ways to operate and continuous evolution.

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