20-F 1 a19-5355_120f.htm 20-F

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For the fiscal year ended DECEMBER 31, 2018


Commission file number 001-38755


Suzano S.A.

(formerly Suzano Papel e Celulose S.A.)

(Exact name of Registrant as specified in its charter)


Suzano Inc.

(formerly Suzano Paper and Pulp Inc.)

(Translation of Registrant’s name into English)


Federative Republic of Brazil

(Jurisdiction of incorporation or organization)


Av. Professor Magalhães Neto, 1,752

10th Floor, Rooms 1010 and 1011

Salvador, Brazil 41810-012

(Address of principal executive offices)


Marcelo Feriozzi Bacci

Chief Financial and Investor Relations Officer

Telephone: +55 11 3503-9000

Email: ri@suzano.com.br

Av. Faria Lima, 1,355 – 7th Floor

São Paulo, Brazil, 01452-919

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)


Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title of each class:


Name of each exchange on which registered:

Common Shares, without par value


New York Stock Exchange*

American Depositary Shares (as evidenced by American Depositary Receipts), each representing two Common Shares


New York Stock Exchange




4.000% Notes due 2025, issued by Fibria Overseas Finance Ltd.


New York Stock Exchange

5.500% Notes due 2027, issued by Fibria Overseas Finance Ltd.


New York Stock Exchange

5.250% Notes due 2024, issued by Fibria Overseas Finance Ltd.


New York Stock Exchange



*              Not for trading purposes but only in connection with the registration on the New York Stock Exchange of American Depositary Shares representing those common shares.


Securities registered or to be registered pursuant to Section 12(g) of the Act: None


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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None


The number of outstanding shares of stock of Suzano S.A. (formerly Suzano Papel e Celulose S.A.) as of December 31, 2018 was:


1,105,826,145 common shares, without par value


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes   x No


If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes   x No


Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes   o No


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x Yes   o No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o


Accelerated filer o


Non-accelerated filer x


Emerging growth company o


If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o


†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.


Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:




International Financial Reporting Standards as issued
by the International Accounting Standards Board


Other o


If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No


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Selected Financial Data




Capitalization and Indebtedness




Reasons for the Offer and Use of Proceeds




Risk Factors










Operating Results




Liquidity and Capital Resources




Research and development, patents and licenses, etc.




Trend Information




Off-Balance Sheet Arrangements




Tabular Disclosure of Contractual Obligations






Directors and Senior Management








Board Practices








Share Ownership






Major Shareholders




Related-Party Transactions




Interests of Experts and Counsel






Consolidated Statements and Other Financial Information




Significant Changes






Offer and Listing Details




Plan of Distribution








Selling Shareholders








Expenses of the Issue






Share Capital




Memorandum and Articles of Association




Material Contracts




Exchange Controls










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This annual report includes forward-looking statements, principally in “Item 3. Key Information — Risk Factors,” “Item 4. Information on Suzano — Business Overview” and “Item 5. Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current expectations about future events and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and assumptions, including among other things:


·                  our management and future operation;

·                  the implementation of our principal operational strategies, including our potential participation in acquisitions, joint venture transactions or other investment opportunities;

·                  general economic, political and business conditions, both in Brazil and in our principal export markets;

·                  industry trends and the general level of demand for, and change in the market prices of, our products;

·                  existing and future governmental regulation, including tax, labor, pension and environmental laws and regulations and import tariffs in Brazil and in other markets in which we operate or to which we export our products;

·                  the competitive nature of the industries in which we operate;

·                  our level of capitalization, including the levels of our indebtedness and overall leverage;

·                  the cost and availability of financing;

·                  our compliance with the covenants contained in the instruments governing our indebtedness;

·                  the implementation of our financing strategy and capital expenditure plans;

·                  inflation and fluctuations in currency exchange rates, including the Brazilian real and the U.S. dollar;

·                  legal and administrative proceedings to which we are or may become a party;

·                  the volatility of the prices of the raw materials we sell or purchase to use in our business;

·                  other statements included in this annual report that are not historical; and

·                  other factors or trends affecting our financial condition or results of operations, including those factors identified or discussed in “Item 3. Key Information — Risk Factors.”


The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “hope,” “intend,” “may,” “might,” “should,” “would,” “will,” “understand” and similar words are intended to identify forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur and are not guarantees of future performance. Our actual results and performance may differ substantially from the forward-looking statements included in this annual report.



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Herein, “Suzano”, the “Company”, “we”, “us” and “our” refer to Suzano and its consolidated subsidiaries, unless the context otherwise requires. References to “Fibria” refer to “Fibria Celulose S.A.” and references to the “Companies” refer to Suzano and Fibria. All references herein to the “real”, “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars”, “dollars” or “US$” are to United States dollars, the official currency of the United States.




Agency for the Development of the Northeastern Brazil, or Agência de Desenvolvimento do Nordeste.



American Depositary Receipts.



American Depositary Shares.



The Brazilian regulatory agency regulating aquatic transportation, or Agência Nacional de Transportes Aquaviários.



The São Paulo Stock Exchange.



The Brazilian Development Bank, or Banco Nacional de Desenvolvimento Econômico e Social.



BNDES Participações S.A.

Brazilian Corporation Law


Brazilian Law No. 6.404/76, as amended.



Brazilian antitrust authority, or Conselho Administrativo de Defesa Econômica.



Contribution for the Financing of Social Security, or Contribuição para o Financiamento da Seguridade Social.



National Board of Financial Policy, or Conselho Nacional de Política Fazendária.



Social Contribution on Net Income, or Contribuição Social Sobre o Lucro Líquido.



The Brazilian Securities and Exchange Commission, or Comissão de Valores Mobiliários.



Government Severance Indemnity Fund for Employees, or Fundo de Garantia do Tempo de Serviço.



Greenhouse gas.



Brazilian Tree Industry, or Indústria Brasileira de Árvores.



Brazilian Federal Environmental Agency, or Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis.



Tax on Sale of Goods and Services, or Imposto sobre Circulação de Mercadorias e Serviços.



Brazilian Institute for Land Reform, or Instituto Nacional de Colinização e Reforma Agrária.



National Industrial Property Institute, or Instituto Nacional da Propriedade Industrial



Social Security Contributions, or Instituto Nacional do Seguro Social.



Inflation Rate Index for Consumer Goods, or Índice Nacional de Preços ao Consumidor Amplo



Tax on Manufactured Products, or Imposto sobre Produtos Industrializados.



Corporate Income Taxes, or Imposto de Renda Pessoa Jurídica.



Tax on Services, or Imposto Sobre Serviços.



Social Integration Program, or Programa de Integração Social.



Pulp and Paper Products Council.



Brazilian Internal Revenue, or Receita Federal do Brasil.



Superintendence for Development of the Northeast, or Superintendência do Desenvolvimento do Nordeste.



Brazilian Long-Term Interest Rate, or Taxa de Juros de Longo Prazo.



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We have prepared our consolidated financial statements as of December 31, 2018 and 2017 and for each of the three years for the period ended December 31, 2018, included herein, in compliance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The selected financial information should be read together with our consolidated financial statements, including the notes thereto.


Our functional currency and that of all our Brazilian subsidiaries is the real, which is also the currency used for the preparation and presentation of our consolidated financial statements.


We make statements in this annual report about our competitive position and our market share in, and the market size of, the market pulp and paper industry. We have made these statements on the basis of statistics and other information from third-party sources that we believe are reliable.


Because the merger of shares (incorporação de ações) (the “Merger”), set forth in the Merger Agreement entered into by Suzano and Fibria on July 26, 2018 (the “Merger Agreement”) was consummated in January 2019, our results of operations and financial condition for the historical periods discussed in this section do not reflect or include the results of operations or any assets or liabilities of Fibria. We began consolidating Fibria and its subsidiaries as from January 1, 2019, and, accordingly, our results of operations and financial condition in future periods may not necessarily be comparable to our results of operations and financial condition for historical periods, including those discussed below. For information on Fibria’s results of operations and financial condition for these periods, see Fibria’s audited consolidated statements at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 that were submitted by Fibria to the SEC on Form 6-K on February 22, 2019. In this section, we include, solely for convenience purposes, certain information on Fibria’s results of operations, cash flows and financial condition, including indebtedness and other contractual liabilities, that was extracted from Fibria’s audited consolidated financial statements. However, this information is not indicative of any future results of operations or financial condition of Fibria, or of our company and Fibria operating on a combined basis.



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Not applicable.




Not applicable.




A.                                    Selected Financial Data


The following table presents a summary of our selected financial and operating data at the dates and for each of the periods indicated. You should read the following information together with our audited consolidated financial statements, “Presentation of Financial and Other Data” and “Item 5. Operating and Financial Review and Prospects.”


The information below does not reflect our acquisition of Fibria, which closed in January 2019. For financial and operating information on Fibria at December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016, see Fibria’s audited consolidated financial statements as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016, submitted to the SEC by Fibria on Form 6-K on February 22, 2019.






For the year ended December 31,
















(in thousands of R$), except per share data














Net sales revenue












Cost of sales












Gross profit
























Operating income (expenses)












Selling expenses












General and administrative expenses












Equity in earnings of associates










Other operating income (expenses), net












Operating profit before net financial income (expenses)
























Net financial income (expenses)












Financial income












Financial expenses












Net income (loss) before taxes












Income taxes




































Net income (loss) for the year












Income (loss) for the year attributed to the controlling shareholders








Income for the year attributed to non-controlling shareholders








Basic earnings (loss) per share (1)




































Diluted earnings (loss) per share (2)

























(1) Basic earnings per share is calculated using the income attributable to controlling shareholders divided by the weighted average number of outstanding common shares.


(2) Diluted earnings per share is calculated based on the results attributable to the controlling shareholders divided by the weighted average number of outstanding common shares, subtracted from the potential dilutive effect generated by the conversion of all common shares.



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As of December 31,






2017 (1)










(in thousands of R$)














Current assets












Cash and cash equivalents












Financial investments











Trade accounts receivables
























Recoverable taxes












Derivative financial instruments












Advances to suppliers












Other assets
























Assets held for sale










Total current assets
























Non—current assets












Receivables from other related parties








Recoverable taxes












Deferred taxes












Derivative financial instruments












Advances to suppliers












Judicial deposits












Receivables from land expropriation












Other assets




































Biological assets












Property, plant and equipment












Intangible assets














































Total non—current assets
























Total assets













(1) The financial statements as of December 31, 2017, presented for comparison purposes, were adjusted for a better presentation and comparison with the information for the period ended December 31, 2018. The reclassifications in the line item “current assets” did not change the total of “current assets,” nor the total of our “assets.” The reclassifications were made to “other assets” in the amount of R$ 12,870 and related to advances for the acquisition of wood for “advances to suppliers.”



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As of December 31,
















(in thousands of R$)


























Current liabilities












Trade accounts payables












Loans and financing




















Derivative financial instruments












Taxes payable












Payroll and charges












Liabilities for assets acquisitions












Dividends payable












Advance from customers












Other liabilities












Total current liabilities
























Non—current liabilities












Loans and financing




















Derivative financial instruments












Liabilities for assets acquisitions












Provision for contingencies












Employee benefits












Deferred taxes












Share-based compensation plans












Other liabilities












Total non—current liabilities
























Total liabilities




































Share capital












Capital reserves












Treasury shares












Retained earnings












Other reserves












Non-controlling interest in subsidiaries’ equity








Total equity
























Total equity and liabilities














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Year ended December 31,
















(in thousands of R$, unless otherwise indicated)














Gross margin (1)












Operating margin (2)












Capital expenditures (3)












Depreciation, amortization and depletion












Cash flow provided by (used in):












Operating activities












Investing activities












Financing activities

















As at and for the year ended December 31,


























Number of employees












Nominal production (millions of tons)




































Nominal production capacity (millions of tons)




































Sales volumes (thousand metric tons)












Domestic market pulp












Export market pulp












Total market pulp












Sales volumes (thousand metric tons)












Domestic market paper












Export market paper












Total market paper












Total sales volumes market paper and pulp













(1)         The gross margin calculation consists of dividing gross profit by net revenues.

(2)         The operating margin calculation consists of dividing income before financial income and expenses by net revenues.

(3)         Relates to capital expenditures cash invested for the acquisition of property, plant and equipment and intangible assets and biological assets.


Special Note Regarding Non-IFRS Financial Measures


A non-IFRS financial measure is any financial measure that is presented other than in accordance with all relevant accounting standards under IFRS. We disclose Adjusted EBITDA for Suzano in this annual report, which are considered non-IFRS financial measures in accordance with CVM Instruction 527.  EBITDA is defined by the CVM, as earnings before net financial results, taxes, depreciation and amortization, or EBITDA. We are presenting Adjusted EBITDA in this annual report. Adjusted EBITDA for Suzano is defined as EBITDA as further adjusted to add or exclude, from the amount of equity income, expenses with Fibria’s transaction (the Merger), fair value adjustment of biological assets, complement of provision for variable remuneration, provision for intangible assets — research agreement (Futuragene), provision for wood inventory damaged, provision for losses with sales and scrapping of forest machines, sale of distribution center (Anchieta), provision (reversal) for losses with property, plant and equipment, write-offs, taxes, doubtful accounts and provision of contingencies, land conflict agreement, equity in earnings of associates, land invasion — landless movement (MST — Movimento dos Sem-Terra), reconciliation adjustments, tax credits, write-off of IPI credits — (São Paulo) subsidiary, wood inventory adjustment, issue with genetic material — arrangement leasing — (Vale Florestar), Additional Provision for — Complement — share-based compensation plan (long-term), provision related to PERT (programa de regularização tributária) — tax regularization program, donations and sponsorships, tax review (PIS and COFINS), agreement Valmet, write-off of inventory, windstorm Maranhão, insurance claim (Muruci and Imperatriz).


The non-IFRS financial measures described in this annual report are not a substitute for the IFRS measures of net income or other performance measures.



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Our management believes that disclosure of Suzano’s Adjusted EBITDA provides useful information to investors, financial analysts and the public in their review of our operating performance and their comparison of our operating performance to the operating performance of other companies in the same industry and other industries. This is because Adjusted EBITDA is generally perceived as more objective and comparable measures of operating performance. For example, interest expense is dependent on the capital structure and credit rating of a company. However, debt levels, credit ratings and, therefore, the impact of interest expense on earnings vary significantly between companies. Similarly, the tax positions of individual companies can vary because of their differing abilities to take advantage of tax benefits and the differing jurisdictions in which they transact business. Finally, companies differ in the age and method of acquisition of productive assets, and thus the relative costs of those assets, as well as in the depreciation method (straight-line, accelerated or units of production), which can result in considerable variation in depreciation and amortization expenses between companies. Therefore, for comparison purposes, our management believes that Suzano’s Adjusted EBITDA is useful as objective and comparable measures of operating profitability because it excludes these elements of earnings that do not provide information about the current operations of existing assets.


Moreover, our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted EBITDA in the same fashion.


This non-IFRS financial measure is an important measure used by our management to assess our financial and operating performance. Management used the amount of Adjusted EBITDA The presentation of non-IFRS financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with IFRS. We urge you to review the reconciliations of the non-IFRS financial measures presented.


For information on Fibria’s Adjusted EBITDA, please see Fibria’s earnings release for the year ended December 31, 2018, submitted to the SEC on Form 6-K on February 22, 2019.




Adjusted EBITDA (R$ million)






EBITDA Reconciliation






Net income (loss)






(+/–) Net financial result






(+/–) Income and social contribution taxes






(+) Depreciation, amortization and depletion












Expenses with Fibria’s Transaction





Fair value adjustment of biological assets






Complement of provision for Variable Remuneration





Provision for intangible assets — Research agreement (Futuragene)





Provision for wood inventory damaged





Provision for losses with sales and scrapping of forest machines





Sale of Distribution Center — Anchieta





Provision (reversal) for losses with property, plant and equipment, write-offs, taxes, doubtful accounts and provision of contingencies






Land conflict agreement





Equity in earnings of associates






Land invasion - landless movement (MST Movimento Sem Terra)





Reconciliation adjustments






Tax Credits





Write-off of IPI credits - (São Paulo) subsidiary





Wood Inventory Adjustment





Issue with genetic material - Arrangement Leasing - Vale Florestar





Additional Provision for — Complement — share-based compensation plan (long-term)





Provision related to PERT (Programa de Regularização Tributária) - Tax Regularization Program





Donations and Sponsorships





Review Tax (PIS and Cofins)





Agreement Valmet





Write-off of Inventory





Windstorm Maranhão





Insurance claim (Muruci and Imperatriz)





Retroactive contributions — Antidumping





Adjusted EBITDA








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B.                                    Capitalization and Indebtedness


Not applicable.


C.                                    Reasons for the Offer and Use of Proceeds


Not applicable.


D.                                    Risk Factors


We are subject to various risks and uncertainties resulting from changing competitive, economic, political, environmental and social conditions that could harm our business, results of operations or financial condition. The risks described below, although not being the only ones we face are the most important ones according to our ability to identify material risks. Other risks that we presently believe are not material could also adversely affect us.


Risks Relating to the Merger


The expected benefits from operating as a combined enterprise with Fibria may not be achieved.


The integration of two large companies, such as Suzano and Fibria, presents significant challenges. We cannot provide any assurance that we will be able to integrate our and Fibria’s operations without encountering difficulties, which may include, among other things, the loss of key employees, diversion of management attention, the disruption of our respective ongoing businesses or possible inconsistencies in standards, procedures and policies. There can also be no assurance as to the extent to which the synergies anticipated or expected from the Merger, or as to the timing for their realization, or as to the expenses that will be incurred in connection with realizing synergic benefits from the Merger. In particular, we may not be able to realize anticipated cost savings from the combination of the companies’ production facilities, or anticipated synergic benefits from the joint acquisition of raw materials, sharing of improved production techniques and integration of administrative departments. If we do not realize the expected benefits or synergies from the Merger, our results of operations and financial condition and the trading price for our securities may be adversely affected.


We expect to record a significant amount of goodwill and intangible assets as a result of the Merger, which may be subject to impairment under certain circumstances in future periods in accordance with applicable accounting regulations.


We expect to recognize a significant amount of goodwill and record several intangible assets as a result of the Merger. Prior to the consummation of the Merger, we performed a preliminary analysis of the fair market value of the assets of Fibria to be acquired and liabilities to be assumed in the Merger. We currently estimate a total preliminary goodwill of R$7,897.1 million in connection with the Merger. For further information, see note 32.(i) to our audited consolidated financial statements. Under IFRS, goodwill and intangible assets with undetermined useful life are not subject to amortization and are tested annually to identify possible need for impairment, or more often if any event or circumstance indicates that an impairment loss may have been incurred. Other intangible assets that have determined useful lives are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever there is an indication of impairment. In addition, under IFRS we are required to perform an impairment analysis of assets with undetermined useful life when the book value of our net assets exceeds our market capitalization. As a result, we may be required to recognize an impairment of goodwill or other intangible assets in future periods if required under IFRS, which could adversely affect our financial condition and results of operations or the trading price of our securities.


Following completion of the Merger, we are more leveraged than we were prior to the Merger, and a material portion of our cash flow may need to be used to service our debt obligations.


As of December 31, 2018, Suzano had R$35.7 billion of consolidated total debt and Fibria had R$20.7 billion of consolidated total debt. Accordingly, after giving effect to the completion of the Merger, Suzano will have a significantly higher amount of consolidated total debt, taking into consideration our and Fibria’s pre-Merger consolidated debt and the additional debt incurred by us to finance the Merger. We are subject to the risks normally associated with significant amounts of debt, which could have important consequences to



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investors. Our indebtedness could, among other things: (i) require us to use a substantial portion of our cash flow from operations to pay our obligations, thereby reducing the availability of our cash flow to fund working capital, operations, capital expenditures, dividend payments, strategic acquisitions, expansion of our operations and other business activities; (ii) increase our vulnerability to general adverse economic and industry conditions; (iii) limit, along with financial and other restrictive covenants in our debt instruments, our ability to borrow additional funds or dispose of assets; and (iv) place us at a competitive disadvantage compared to our competitors that have less debt. We may also need to refinance all or a portion of our debt on or before maturity, and we may not be able to do this on commercially reasonable terms or at all.


Additionally, a default under our financial agreements that is not waived by the relevant creditors may result in an acceleration of the maturity of the outstanding balance of such debt, and may also accelerate the maturity of other debt that benefits from cross-default or cross-acceleration provisions. For more information, see Item 5. “Operating and Financial Review and Prospects —Indebtedness.” If such events were to occur, our financial condition and share price could be adversely affected.


Risks Relating to the Pulp and Paper Industry


Our products’ prices are greatly affected by international market prices, which vary depending on a number of factors that are beyond our control.


Pulp markets are typically cyclical, and our pulp prices follow international market prices, which are determined by supply and demand, global pulp production capacity and global economic conditions. Such prices can also be affected by exchange rate fluctuations between the currencies of main producing and consuming countries, movement of inventories, diverging price expectations, business strategies adopted by other producers and availability of substitutes for our products, among others. All of these factors are beyond our control and may have a significant impact on the prices for pulp and, consequently, on our operational margins, profitability and ROIC. Fluctuations in pulp price may lead us to adopt changes in our commercial strategy or production, which also may adversely affect our financial condition and results of operation.


Paper prices are also determined by supply and demand conditions in the markets in which they are sold, and are affected by various factors, including the fluctuation in pulp prices and the specific characteristics of the markets in which we operate.


We cannot assure that pulp and paper market prices and demand for our products will remain favorable to us, and any adverse price or demand fluctuations, which may occur rapidly in our markets, could adversely affect our results of operations and financial conditions and our ability to operate our plants in an economically viable manner.


We are highly dependent on our planted forest areas for the supply of wood, which is essential to our production processes, and any damage to our forest areas may adversely affect us.


Most of the wood used in our production processes is supplied by our own forestry operations, which include planted forest areas located in close proximity to our production facilities. The wood market in Brazil is very limited, as most pulp and paper producers utilize wood extracted from their own planted forests to meet their wood requirements. In addition, in acquiring land for our forests, we compete with cultivators of other crops, which could ultimately raise the purchase price of land or make it more difficult to hire third parties to cultivate the eucalyptus required to meet our production needs. Still, our planted forests are subject to natural threats, such as drought, fire, pests and diseases, which may reduce our supply of wood or increase the price of wood we acquire.


Our planted forest areas are also subject to other threats, considering their wide territorial coverage and proximity to a significant number of neighbors and local communities, including loss of possession due to social unrest or squatter invasion, theft of our timber, or arson, which may result in real damage to our planting and transit areas and may significantly adversely affect our results.


In addition, the physical effects of climate change may materially and adversely affect our operations, for example by changing air temperature and water levels, and subjecting us to unusual or different weather-related risks. Our forest areas are located in regions which have ideal climate conditions for a short growing cycle. Any climate changes that negatively affect such favorable climate conditions in Brazil may adversely affect the growth rate and quality of our plantations, or our production costs. Although we cannot predict the



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impact of changing global climate conditions, any such occurrences may increase our liabilities and capital expenditures and adversely affect our business, financial condition and results of operations.


Drought in some regions of Brazil, resulting in water scarcity and related rationing, may adversely affect our business and results of operations.


Some regions might have drought conditions during some seasons of the year, which could result in acute shortages of water and/or implementation of rationing to restrict usage. Although some of our units are located in the affected areas, this would not affect all of our operations simultaneously. Suzano units have processes in place for the efficient use of water. In order to maintain and improve our units’ efficiency in water usage, our operations teams periodically review such processes. We also have a contingency plan in place for the units that could possibly be affected by water shortages. Nevertheless, we cannot assure that severe droughts or governmental measures to address drought conditions will not have an impact on our units’ operations, with a resulting adverse effect on our business and results of operations.


We face significant operational risks that can result in the partial shutdown of our operations, which may adversely affect our financial condition and results of operations.


We face operational risks that may result in partial or temporary suspension of our operations and in loss of production. Such outages may be caused by factors associated with equipment failure, accidents, fires, strikes, weather, exposure to natural disasters, electricity power outages and chemical product spills, among other operational and environmental hazards. The occurrence of these events may, among other impacts, result in serious damage to our property, assets and reputation, a decrease in production or an increase in production costs, any of which may adversely affect our financial condition and results of operations.


During the normal course of our business, we depend on the continuous availability of logistics and transportation networks, including roads, railways, warehouses and ports, among others. Such operations may be disrupted by factors beyond our control, such as social movements, natural disasters, electricity shortages and labor strikes. For example, the general strike of truck drivers in May 2018 throughout Brazil resulted in a temporary suspension of our production operations over some days, which in turn caused losses in production of our pulp and paper products. In order to end the strike, the Brazilian federal government made several concessions to the truck drivers, which may have an adverse effect on our costs of inbound and outbound logistics. Any interruption in the supply of inputs for the operation of our industrial and forestry units or in the delivery of our finished products to clients could cause a material adverse impact on our results of operations.


We have entered into contracts with third parties to provide transportation and logistics services. The early termination of these contracts or our inability to renew them or negotiate new contracts with other service providers with similar conditions could adversely affect our financial and operating condition. In addition, the majority of our suppliers of transportation operate under concessions granted by the Brazilian government and the loss or non-renewal of such concessions may also have a material adverse effect on our results of operations and financial condition.


We depend on few suppliers for certain raw materials, such as fuel oil, caustic soda, bleached chemo thermo mechanical pulp (“BCTPM”), natural gas and paper and pulp industrial capital goods, its services and maintenance.


We have few sources for certain raw materials that are essential for the production of pulp and paper, including fuel oil, caustic soda, BCTPM, natural gas and third-party industry technology (maintenance). We enter into medium and long term supply agreements with such suppliers. Any significant reduction in the supply or increase in prices, on behalf of the relevant supplier, of any of these raw materials could adversely affect our products’ mix, margin or availability and, consequently, our results of operations.


Investments by us or our competitors to enhance pulp production capacity in the future may adversely affect the market price for our products.


New capacity projects may create an imbalance between supply and demand that may cause a reduction in pulp prices. Investments in new capacity may have an impact on pulp prices and, consequently, on our financial condition or results of operations.



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We face significant competition in some of our lines of business, which may adversely affect our market share in the pulp and paper industries and our profitability.


The pulp and paper markets are extremely competitive. We face substantial competition in both domestic and international markets from a large number of companies, some of which have extensive access to financial resources and low capital costs. In the domestic market, we face competition from national products, produced by companies of Brazilian and international groups, and imported products. In the international market, we compete against companies with large production and distribution capacities, significant consumer base and great variety of products.


Pulp imports do not presently represent serious competition for us in the domestic market due to the low logistical and production costs of local producers. However, the oversupply of coated paper in the world market, the antidumping measures adopted in other countries and the use of imported coated paper for alternative purposes, especially during periods of prolonged appreciation of the real against the U.S. dollar, may increase competition in Brazil from producers of imported paper. Additionally, if the Brazilian federal government were to decrease import taxes, or in the event of sustained appreciation of the real against the U.S. dollar, competition in Brazil from international producers may increase. The occurrence or continuation of any of the foregoing events could adversely affect us.


Additionally, the pulp and paper markets are served by numerous companies located in different countries. If we are unable to remain competitive against these producers in the future, our market share may be adversely affected.


Liquidity restriction periods may increase our financial costs, limit the terms or even preclude the funding in the market, which may adversely affect our operations.


Brazilian paper and pulp companies have made significant investments during the last few years in order to compete more efficiently and on a larger scale in the international market. This trend towards consolidation has enhanced the need for resources and diversification of financing sources among national and foreign financial institutions.


In this context, we depend on third-party capital to conduct our business, by means of financing transactions to support our investments and working capital. In liquidity restriction periods, such as the ones of 2008 and 2009 that occurred due to the international financial crisis, credit lines may become excessively short, expensive or even unavailable. Under these circumstances, there is a higher risk of not achieving success in financing and refinancing transactions, meaning that there is a higher possibility of failure in obtaining financing in the market in order to pay down existing indebtedness, as well as a higher risk of raising these funds at an elevated cost, which may adversely affect our results of operations or financial condition.


More stringent environmental regulation could increase our expenditures, which may adversely affect our results of operations or financial condition.


Our activities are subject to extensive environmental regulation, including in relation to gas emissions, liquid effluents and solid residues disposal, reforestation and odor control, and maintenance of a land reserve and permanent preservation areas. Furthermore, our activities, both industrial and forestry, require periodic renewal of environmental permits.


Environmental standards that are applicable to us are issued at the federal, state and municipal levels, and changes in the laws, rules, policies or procedures adopted in the enforcement of the current laws may adversely affect us. In Brazil, violations of environmental laws, regulations and authorizations could result in administrative, civil or criminal penalties for us, our management and our employees, including fines, imprisonment, interruption of our activities and dissolution of our corporate entity.


Governmental agencies or other competent authorities may provide new rules or additional regulations even stricter than the ones in force, or they may pursue a stricter interpretation of the existing laws and regulations, which could require us to invest additional resources in environmental compliance or to restrict our ability to operate as currently done. Additionally, noncompliance with or a violation of any such laws and regulations could result in the revocation of our licenses and suspension of our activities or in our responsibility for environmental remediation costs, which could be substantial. Moreover, failure to comply with environmental laws and regulations could restrict our ability to obtain financing from financial institutions.


In December 2015, several countries (including Brazil) signed the Paris Agreement, a new global environmental agreement adopting the Intended Nationally Determined Contributions, or “INDCs”, as the



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measures taken to reduce its emissions after 2020. The INDC that applies to Brazil provides for an increase in the share of sustainable biofuels and other sources of renewable energy in the Brazilian national energy mix, as well as zero deforestation, reforestation, forest restoration and enhancement of the native forest management. We may be materially affected by the regulation related to greenhouse gases and climate change, which causes an increase in capital expenditures and investments to comply with such laws, and indirectly, by changes in prices for transportation, energy and other inputs. In addition, the physical effects of climate change also may materially and adversely affect our operations, such as by changing air temperature and water levels, and subjecting us to unusual or different weather related risks. Both the regulations related to climate change and the changes in existing regulations, as well as the physical effects of climate change generally, could result in increased liabilities and capital expenditures, all of which could have a material adverse effect on our business and results of operations.


Failure to obtain or maintain the necessary permits, licenses and concessions could adversely affect our operations.


We depend on the issuance of permits, licenses and concessions from various governmental agencies in order to undertake certain activities. In order to obtain licenses for certain activities that are expected to have a significant environmental impact, certain investments in conservation are required to offset such impact. Furthermore, we have licenses to operate our plants, which are usually valid for five years from the date of issuance and may be renewed for equal periods. The operational licenses require, among other things, that we periodically report our compliance with emissions standards set by environmental agencies.


Failure to obtain, renew or comply with our operating licenses as applicable may cause delays in our deployment of new activities, increased costs, monetary fines or even suspension of the affected activity.


Global or regional economic conditions and events may adversely affect the demand for and the price of our products.


Demand for pulp and paper is directly related to the growth of the world economy and economic conditions. Currently, Europe, China and North America are the main consumer markets of the industry. According to market statistics (PPPC), Chinese demand represented 34% of the global market pulp demand in 2018 and 2017 and this demand has increased at an compound annual growth rate of 10.0% since 2005, above the global average of 2.4%. The recent investments in paper and board machines in China have been boosting pulp demand in China; however, the volatility of Chinese demand due to speculative buying movement is a key risk for any short-term demand forecast.


Any slowing of economic growth in Europe, China and North America could adversely affect the price and volume of our exports and thus impact our operating performance and our financial results until such excess volume of supply can be allocated to other markets.


Our exports are subject to special risks that may adversely affect our business.


We export to different regions of the world, which makes us subject to special political and regulatory risks, including currency controls in countries where we have payments receivable, possible formal or informal trade barriers and incentive policies and subsidies favoring local producers in many regions.


Thus, our future financial performance will depend on the economic, political, environmental and social conditions of our main export markets (Europe, Asia and North America). Thus, our future financial performance will depend on the economic, political and social conditions of our main export markets (Europe, Asia and North America). As a result, factors that are beyond our control include:


·                  imposition of barriers to trade or the granting of commercial incentives in favor of local producers;


·                  changes in economic policies and/or conditions of the countries to which we export, which may affect our export capacity and, consequently, our business and operating results;


·                  logistics costs, including disruptions in shipping or reduced availability of freight transportation;


·                  significant fluctuations in global demand for pulp products, which could impact our sales, operating income and cash flows;



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·                  the deterioration of global economic conditions, which could impair the financial condition of some of our customers or foreign suppliers, thereby increasing bad debts or non-performance by our foreign suppliers;


·                  changes in revenues due to variations in foreign currency exchange rates;


·                  controls on currency exchange; and


·                  adverse consequences deriving from the need to comply with more stringent regulatory requirements in foreign countries, including environmental rules, regulations and certification requirements.


More stringent trade barriers in key export markets may adversely affect us.


The competitiveness of Brazilian companies has led certain countries to establish trade barriers to limit the access of Brazilian companies to their markets or even to subsidize local producers, particularly with respect to paper products. Some countries may impose quotas on Brazilian products, and delays in allocating these quotas or changes in laws or policies regarding these quotas can adversely affect our exports.


Any of the aforementioned restrictions may affect our export volume and, as a result, our sales from export markets and our financial condition. In the case of newly created trade barriers in our key export markets, it may be difficult for us to sell our products in other markets at favorable conditions, which may cause a material adverse effect on us.


Risks Relating to Our Company


We receive certain tax benefits in Brazil that may be suspended, cancelled or not renewed, any of which may adversely affect our financial condition and free cash flow generation.


We receive certain tax benefits by virtue of our production facilities and investment projects in underdeveloped regions in Brazil, which are covered by the SUDENE and the RFB.


We also benefit from tax incentives based on state laws. PROMARANHAO in the state of Maranhão and Desenvolve in the state of Bahia, published through Ordinance-GABIN nº 435/18 and Decree No. 18.270/18, respectively, are the most relevant ones. We have complied with the legal requirements in order to attend the formalities of the Convention nº 190/2017 by the National Board of Financial Policy (Conselho Nacional de Política Fazendária, or “CONFAZ”) to validate the referred tax incentives and now we are pending confirmation from the tax authorities. We cannot assure you that the tax incentives we currently benefit from will be maintained or renewed, particularly, but not exclusively, in light of deteriorating macroeconomic conditions that may lead to changes in current material incentives, such as the exemption of export revenues from social security contributions, the Regime Especial de Aquisição de Bens de Capital para Empresas Exportadoras, which is a special regime for the acquisition of capital goods by exporting companies, and Preponderante Exportador, among others. If such tax benefits are not effectively renewed, this could have a material adverse effect on our generation of net cash flow. In the event of constitutional challenges or if we fail to comply with specific obligations to which we are subject in connection with the tax benefits described above, such benefits may be suspended or cancelled, and we may be required to pay the taxes due in the last five years in full, plus penalties and interest, which may adversely affect us.


With respect to our exports, we are a beneficiary of a special regime for the reintegration of tax values for exporting companies, called Reintegra (Regime Especial de Reintegração de Valores Tributários para as Empresas Exportadoras), which is a program created by the Brazilian federal government to encourage the export of manufactured products. The Brazilian government may decide to terminate or not renew Reintegra in the future, which could have a material adverse effect on our generation of free cash flow and, as a result, our results of operation and financial condition.


Fluctuations in interest rates could increase the cost of servicing our debt and negatively affect our overall financial performance.


Our financial results are affected by changes in interest rates, such as the London Interbank Offered Rate (“LIBOR”), the CDI and the Brazilian Long-Term Interest Rate (Taxa de Juros de Longo Prazo, or “TJLP”). LIBOR rates have significantly increased in recent years due to regulatory changes to U.S. money market funds (“MMFs”). The three-month LIBOR rate was 2.8076% p.a., 1.6943% p.a. and 0.9979% p.a. as of December 31, 2018, 2017 and 2016. The CDI rate has fluctuated significantly in the past in response to the



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expansion or contraction of the Brazilian economy, attempts to manage inflation, Brazilian government policies and other factors. After falling significantly during 2017, the CDI rate was 6.40% p.a. as of December 31, 2018, while it was 6.89% p.a. and 13.63% p.a. as of December 31, 2017 and 2016, respectively. The TJLP rate was 6.98% p.a. and 6.75% p.a. and 7.50% p.a. as of December 31, 2018, 2017 and 2016, respectively.


A significant increase in interest rates, particularly TJLP, CDI or LIBOR, or the inflation rate index for consumer goods, or IPCA, could have a material adverse effect on our financial expenses since a significant part of our debt (BNDES loans, Agribusiness Credit Receivable Certificates - CRA and Export Prepayment Facilities) is linked to these rates. On the other hand, a significant reduction in the CDI rate could adversely impact our financial revenues derived from investment activities, since a material portion of our cash is invested in Brazilian money market instruments that are linked to the CDI rate.


On July 27, 2017, the head of the Financial Conduct Authority (the “FCA”), announced the FCA’s intention to phase out the use of LIBOR by the end of 2021. Because the statements made by the head of the FCA are recent, there is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our financial expenses cannot yet be determined and, at this time, it is not possible to predict the effect of establishing any alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. Uncertainty as to the nature of such potential changes, the impact of using alternative reference rates or the content of other reforms may adversely affect our financial expenses or have a material adverse effect on our business and financial results. Given the risk of extinction of LIBOR in the near future, we have been actively negotiating contracts to which we are a party, that contain provisions relating to the discontinuation of LIBOR as the applicable interest rate. As a result, the majority of our debt instruments already include a provision on the substitution of LIBOR by a reference index or equivalent interest rate. Our derivative contracts linked to LIBOR provide that either there will be a negotiation between the parties for the definition of a new applicable rate or an equivalent fee will be determined by the calculation agent. We cannot predict, however, how these provisions will be implemented in practice, and can give no assurance that such implementation will not have a material effect on our financing costs.


If we are not able to manage the potential problems and risks related to acquisitions and strategic partnerships, our business and growth prospects could be adversely affected.


We have completed major acquisitions and formed strategic alliances, and, as part of our business strategy, we may acquire other assets or businesses or enter into strategic partnerships in Brazil or other countries. For example, we (as successor to Fibria) hold a 50% interest in Veracel, a joint operation with Stora Enso for the production of pulp, and a 51% interest in Portocel, our subsidiary (former subsdiary of Fibria) in which Celulose Nipo-Brasileira S.A. - CENIBRA holds the remaining 49% interest stake. In May 2014, Fibria (Stora Enso’s former partner in the joint operation) commenced an arbitration against Stora Enso for alleged breach of its obligations under certain provisions of the joint operation shareholders’ agreement. For further information on the arbitral proceeding, see Item 8. “Financial Information—Consolidated Statements and Other Financial Information—Civil Proceedings.” Disagreements with our joint operation partners, unexpected events or changes in market conditions, as well as the failure to successfully integrate new businesses or manage strategic alliances, could adversely affect our results of operations and financial condition or prevent us from realizing expected gains of these acquisitions or alliances.


If we attempt to engage in future acquisitions, we would be subject to certain risks, including that we could fail to select the best partners or fail to effectively plan and manage any strategic alliance. Moreover, any significant acquisition may be subject to regulatory approval in Brazil and abroad and, as a result, may not be consummated, which may have an adverse effect on the trading price of our securities.


Some of our competitors may be better positioned to acquire pulp and paper companies.


Other companies operating in the same segments may compete with us for acquisition and alliance opportunities. Strategic acquisitions or alliances by our competitors could affect our ability to enter into or consummate acquisitions and alliances that are necessary to expand our business, such as the Merger. Further, we may face elevated costs associated with restructuring and/or financing in relation to acquisitions or strategic partnerships in comparison to our competitor companies. Companies that are better positioned to enter into acquisitions or alliances may benefit from preferable production costs, which may affect our competitiveness.



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We could be harmed by a failure or interruption of our information technology systems or automated machinery.


Our operations are heavily reliant on information technology systems to efficiently manage production process. Therefore, disruptions to these systems, caused by obsolescence, technical failures or intentional acts, may impact or even paralyze our business and negatively impact our operations. In addition, any failure of our systems related to confidential information, caused by external cyber-attacks or internal actions, including negligence and/or misconduct of our employees, can have a negative impact on our reputation against competitors and external agents (government, regulators, suppliers and others).


Our information technology systems may be vulnerable to external actions such as natural disasters, viruses, cyber-attacks, and other security breaches. Any damage or interruption may cause a negative adverse effect on the results of our business, including fines, obligations to clients or legal litigation.


We may be subject to breaches of automation systems causing partial and / or temporary shutdowns of operations and/or improper access to strategic information, in addition to change or loss of relevant data. Costs to address the vulnerability and/or problems mentioned may be significant and may temporarily affect our operations.


We maintain technical, administrative and physical security controls and monitoring systems to deal with these threats. While these measures are designed to deterrent, prevent, detect, and respond to unauthorized activities in our systems, certain types of attacks may have a material adverse effect on our business and reputation.


In addition, any changes to existing safety regulations may impose additional obligations on us and result in an increase in our expenses with respect to safety equipment and procedures. For instance, changes imposing a reduced workday for safety reasons may result in reduced productivity, forcing us to hire additional staff. Similarly, provisions requiring us to install or buy additional safety equipment could increase our labor-related costs and adversely affect our operating costs and results.


A downgrade in our credit ratings may increase our borrowing costs and/or restrict the availability of new capital or financings.


The ratings address the likelihood, according to the respective evaluation methodology of each rating agency, of the payment of our debt and obligations at their maturity. The ratings also address the timely payment of interest and other costs on each interest payment date. The ratings are not a recommendation to purchase, hold or sell any security issued by us, and the ratings do not necessary affect the market price or suitability of any security issued by us for any particular investor. The assigned ratings to us may be raised, lowered or held constant depending, among other factors, on the rating agencies’ respective assessment of our financial strength or a change in methodology of credit assessment adopted by the credit risk agencies. We cannot assure you that our rating will remain for any given period of time or that the rating will not be lowered or withdrawn.


If our credit ratings are downgraded and the market were to perceive any such downgrade as a deterioration of our financial strength, our cost of borrowing would likely increase and our net income could decrease and our ability to obtain new financing may be adversely affected, all of which could have a material adverse effect on us.


In addition, our credit rating is sensitive to any change in Brazilian sovereign credit ratings. The credit ratings of the Brazilian sovereign were downgraded in 2016 and 2018, and are no longer investment grade according to the methodologies of the major global rating agencies. Any further lowering of Brazilian sovereign credit ratings may have additional adverse consequences on our ability to obtain financing or our cost of financing and, consequently, on our results of operations and financial condition.


Unfavorable outcomes in litigation may negatively affect our results of operations, cash flows and financial condition.


In the ordinary course of our business dealings, we and our officers are party to numerous tax, civil (including environmental) and labor disputes involving, among other penalties, significant monetary claims. An unfavorable outcome against us may result in our being required to pay substantial amounts of money, which could materially adversely affect our reputation, results of operations, cash flows and financial condition. Additionally, the amounts provisioned for legal proceedings may increase and existing provisions may become insufficient due to unfavorable outcomes in disputes against us. For more information on tax, civil (including



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environmental), labor and other proceedings, see Item 8. “Financial Information—Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings.”


We depend on third-party suppliers for a material portion of our wood requirements and may be adversely affected by shortages of wood or increases in its price.


Our wood resources are not sufficient to satisfy our production needs, and accordingly we seek additional wood supply from third parties through agreements to purchase standing forests or for purchases of wood delivered to our factories. Medium- and long-term supply agreements with wood suppliers may vary between 1 to 3 forest cycles, each cycle lasting approximately 7 years. Lease agreements or forest partnerships have an average term of 14 to 15 years. Wood price conditions are subject to cyclical and circumstantial variations of wood demand in the different regions where we operate.


A material failure to obtain wood from third party suppliers or a material interruption in our current supply arrangements may result in a significant reduction in available wood for processing at our plants, which may adversely affect our production and, accordingly, our results of operations and financial condition.


Changes in the credit risk of customers and suppliers to whom we have made advances, sales through credit lines or loans may adversely affect us.


In the markets in which we operate, it is typical, and often a condition for competitive participation, for pulp and paper producers to make advances to suppliers or to make sales to customers on credit. When we make advances, sales on credit or loans to our suppliers or customers, we assume their credit risk. Therefore, changes in the macroeconomic environment or the market conditions under which our suppliers and our customers operate, in addition to problems related to the management of our suppliers and clients, may significantly affect their ability to make payments to us, directly impacting our assets and working capital.


These practices also expose us to the risk of a significant divergence between the rates under which we obtain financing from third parties and the rates that we grant to our customers and suppliers. We cannot assure you that we will always be able to match the terms under which we provide financing to our customers and suppliers with the terms of financing provided to us. Any increase in our customers’ and suppliers’ credit risk or divergence between their and our capital costs may materially adversely affect our shareholders’ equity and results of operations.


Social crisis in the relationship with communities and class entities may affect the regular use, cause damage, or deprive us of the use of or fair value compensation of our properties.


Activist groups in Brazil advocate for land reform and property redistribution by invading and occupying rural areas, which can interrupt our forestry or industrial activities and, consequently, negatively affect our production and operational results. In addition, our land may be subject to expropriation by the Brazilian federal government. Under Brazilian law, the federal government, upon payment of compensation, may expropriate land that is not in compliance with mandated local “social functions,” including rational and adequate exploitation of land, adequate use of available natural resources, preservation of the environment and compliance with labor laws, among others. If the Brazilian federal government expropriates part of our properties, our results of operations may be adversely affected to the extent that the government’s compensation proves to be inadequate. Moreover, we may be forced to accept public debt bonds, which have limited liquidity, instead of cash as compensation for expropriated land.


Any deterioration of labor relations among our employees could adversely affect us.


We depend on intensive use of labor in our activities. Most of our employees are represented by unions, and their employment contracts are regulated by collective bargaining agreements. New collective bargaining agreements may have shorter terms than our previous agreements, and, if we are not able to negotiate collective bargaining agreements on acceptable terms to us, we may be subject to a significant increase in labor costs, deterioration of employee relations, slowdowns or work stoppages, which could have a material adverse effect on us.



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Additionally, changes in safety and outsourcing regulations may result in an increase in our labor-related costs. We may be considered secondarily liable for any employment obligations relating to such employees or a direct employment relationship may be established by the labor courts with the outsourced employees and us, according to the current regulation in force.


The introduction of a stricter legal framework regarding the use of outsourced employees or third-party subcontractors, and/or the imposition of additional obligations on the contractor of outsourced services, may increase our labor-related costs and may adversely affect our business and operations.


In accordance with existing labor laws and regulations, we are required to provide and ensure the proper use of safety equipment for our employees and other individuals working on our worksites. If we fail to provide all necessary safety equipment and ensure the proper use of the safety equipment, or if we work with companies that are not sufficiently committed to ensuring the safety of their own employees, we may be held liable for any accidents that take place at our worksites. Any accidents at our worksites may expose us to the payment of indemnifications, fines and penalties.


In addition, any changes to existing safety regulations may impose additional obligations on us and result in an increase in our expenses with respect to safety equipment and procedures. For instance, changes imposing a reduced workday for safety reasons may result in reduced productivity, forcing us to hire additional staff. Similarly, provisions requiring us to install or buy additional safety equipment could increase our labor-related costs and adversely affect our operating costs and results.


Our business may be adversely impacted by risks related to hedging activities.


We regularly enter into currency, interest rate, commodity price and inflation hedging transactions using financial derivatives instruments, such as future contracts, options and swaps, in accordance with our policies. We have traditionally used hedging transactions to, among others, (1) protect our revenue (which is primarily denominated in U.S. dollars) when converted to reais (our functional currency), (2) convert part of our debt which is denominated in reais into U.S. dollars, (3) swap floating interest rates of our debt to fixed interest rates, (4) swap floating monetary variation of our debt to fixed rate, and (5) swap part of our IPCA indexed debt to CDI.


We account for our derivative instruments at fair value, in accordance with IFRS. The fair value of such instruments may increase or decrease due to fluctuations in currency exchange rates or interest rates, among others, prior to their settlement date. As a result, we may incur unrealized losses due to these market risk factors. Fluctuations may also result from changes in economic conditions, investor sentiment, monetary and fiscal policies, the liquidity of global markets, international and regional political events, acts of war, terrorism, among others.


In the event that we cease to undertake hedging transactions to the extent necessary, we may be exposed to currency exchange, interest rate and inflation risks, which could materially adversely affect our results of operations and financial condition.


Delays in the expansion of our facilities, building new facilities or the ramp up of new or expanded facilities may increase our costs and adversely affect our results of operations and financial condition.


As part of our strategy to increase our international market share and improve our competitiveness through greater economies of scale, we may decide to expand our existing production facilities or build new production facilities. The expansion or construction of a production facility involves various risks. These risks involve engineering, construction, operational systems, integration with the existing mill on brownfield projects, regulatory and other expected or unexpected significant challenges that may delay or prevent the successful operation of the project or significantly increase our costs. Our ability to complete successfully any expansion or new construction project on time is also subject to financing and other risks, including:


·                  we may either not be able to complete any expansion or new construction project on time or within the expected budget or be required by market conditions or other factors to delay the initiation of construction or the timetable to complete new projects or expansions;

·                  our new or modified facilities may not operate at designed capacity, ramp up its learning curve as planned or may cost more to operate than we expect;

·                  we may not be able to sell our additional production at competitive prices;



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·                  we may not have cash, or be able to acquire financing, to implement our growth plans; and

·                  we may have a negative impact on existing mills that can result on operational instability.


For example, Fibria invested R$187.8 million in 2018 and we, as successor to Fibria, estimate to invest approximately R$432.0 million in 2019 and R$155.3 million in 2020 in logistics installation and operations in the terminal located in Santos, operated by Empresa Brasileira de Terminais Portuarios S.A. (Embraport). Operations in such terminal are expected to start in 2020. However, any delays or cost overruns may affect the planned construction and operations, which may adversely affect our business, financial condition and results of operations.


Our insurance coverage may be insufficient to cover our losses, especially in case of damage to our planted forests.


Our insurance coverage may be insufficient to cover losses to our forests, mills, dams, hydroelectric plants and other operating facilities caused by general third party liability for accidents, operational risks and international and domestic transportation if we suffer any catastrophic claim or if there is a particular clause excluding the coverage. In addition, we do not maintain insurance coverage against fire, thefts, pests, diseases, droughts and other risks to our forests. The incurrence of losses or other liabilities that are not covered by insurance, due to the limited extent of the insurance coverage, losses that exceed the limits of our insurance coverage or any other reason that prevents reimbursement or indemnification, could result in significant and unexpected additional costs, our ability to operate and/or shortage of wood supply, which may affect our production. Moreover, the terms and conditions for the renewal of our insurance policies may change in the future depending upon market circumstances and the type and amount of risks insured. See Item 4. “Information on the Company—Business Overview—Insurance.”


Risks Relating to Brazil


Brazilian economic and political conditions and perceptions of these conditions in the international market have a direct impact on our business and our access to international capital and debt markets, and could adversely affect our business, financial position and operating results.


We conduct a substantial amount of our operations in Brazil, and we sell part of our products to customers in the Brazilian market. For the year ended December 31, 2018, 30.1% of our net revenues were derived from Brazil. Accordingly, our financial condition and results of operations are substantially dependent on economic conditions in Brazil. Future developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, the consumption of our products. As a result, these developments could impair our business strategies, results of operations or financial condition.


The Brazilian economy has been characterized by frequent, and occasionally drastic, intervention by the Brazilian federal government, which has often changed monetary, credit and other policies to influence Brazil’s economy. The Brazilian federal government’s actions to control inflation and other policies have often involved wage and price controls, depreciation of the real, controls on remittances abroad, fluctuations of the Central Bank of Brazil’s base interest rate, as well as other measures. We have no control over, nor can we foresee, any measures or policies that the Brazilian federal government may adopt in the future. We may be materially adversely affected by changes in the policies of the Brazilian federal government, in addition to other general economic factors, including, without limitation:


·                  political, economic and social instability;

·                  monetary policies;

·                  political elections;

·                  inflation;

·                  exchange rate fluctuations;

·                  exchange controls and restrictions on remittances abroad;

·                  tax policy and amendments to the tax legislation;

·                  interest rates;

·                  liquidity of domestic and foreign capital and lending markets;

·                  government control of the production of our products;

·                  restrictive environmental and real estate laws and regulations; and

·                  other political, social and economic policies or developments in or affecting Brazil.



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Uncertainty as to whether the Brazilian federal government will implement changes in policy or regulations affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and the securities issued by Brazilian companies.


More recently, Brazil has experienced a severe political crisis and the Brazilian markets have been experiencing heightened volatility due to the uncertainties derived from the ongoing Car Wash (Lava Jato) investigation, which is being conducted by the Office of the Brazilian Federal Prosecutor, and its impact on the Brazilian economy and political environment. As a result of the ongoing Car Wash investigation, a number of senior politicians, including congressmen and officers of some of the major state-owned companies in Brazil have resigned or been arrested. Other senior elected officials and other public officials in Brazil are being investigated for allegations of unethical and illegal conduct identified during the Car Wash investigation. Further, in 2015, Brazilian prosecutors announced Operation Zelotes, an investigation into large corporations and banks that are alleged to have bribed tax officials to reduce their assessments. The matters that have come, and may continue to come, to light as a result of, or in connection with, the Car Wash or Zelotes investigations and related anti-corruption inquiries have adversely affected, and we expect that they will continue to adversely affect, the Brazilian markets and trading prices of securities issued by Brazilian issuers.


The Brazilian Congress also opened impeachment proceedings against President Dilma Rousseff on December 2, 2015 for allegedly breaking budget laws as she increased economic stimulus during her reelection campaign. On April 17, 2016, the Brazilian Lower House of Representatives voted in favor of the admissibility of the impeachment proceedings and the Brazilian Senate voted in favor of commencing the impeachment process on May 12, 2016, removing Ms. Rousseff from the presidency for up to 180 days to defend herself in her impeachment trial. Brazil’s Vice President, Michel Temer, was named Acting President of Brazil on May 12, 2016, in response to Ms. Rousseff’s temporary removal from office. On August 31, 2016, the Brazilian Senate voted in favor of the impeachment, thereby definitively removing Ms. Rousseff from office through the end of her term, and Mr. Temer was sworn in as the country’s new president. The impeachment proceedings resulted in volatility in the Brazilian markets, affecting the trading prices of securities issued by Brazilian issuers. Mr. Temer himself had corruption charges levied against him with the Supreme Court on June 26, 2017 by then-Prosecutor-General Rodrigo Janot. On August 2, 2017, the Brazilian House of Representatives voted to temporarily interrupt the investigation of such corruption charges against the President while he held office. On January 1, 2019, Jair Bolsonaro was sworn in as the country’s new president, following the presidential election of October 2018. We cannot predict the effects of these recent developments and the current ongoing political uncertainties on the Brazilian economy.


Further, the Brazilian economy has experienced a sharp downturn in recent years due, in part, to the interventionist economic and monetary policies of the Brazilian federal government and the global drop in commodities prices. As of this date, Brazil’s government has proposed to loosen its budget targets for all years through 2020, but it is uncertain whether the current government will be able to gather the required support in the Brazilian Congress to pass the reform. These economic developments and political challenges have led credit rating agencies to downgrade Brazil’s credit ratings on several occasions in recent years, which in turn had led to the downgrade of the credit ratings of numerous Brazilian companies. These and other future developments in the Brazilian economy and governmental policies may materially adversely affect us.


Uncertainty over whether the acting Brazilian federal government will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the securities issued abroad by Brazilian companies. Historically, the political scenario in Brazil has influenced the performance of the Brazilian economy; in particular, political crises have affected the confidence of investors and the public in general, which adversely affected economic development in Brazil. Any such uncertainty or political changes may likewise adversely affect our financial condition and results of operation.


Changes in Brazilian fiscal policies and tax laws may adversely affect us.


The Brazilian federal government has frequently implemented and may continue to implement changes in its fiscal policies, including, but not limited to, changes to tax rates, fees, sectorial charges and occasionally the collection of temporary contributions. Some of these measures may result in tax hikes that may negatively affect our business. Increases in taxes could also materially adversely impact industry profitability and the prices of our services, restrict our ability to do business in our existing and target markets and cause our financial results to be negatively impacted. If we are unable to pass on the additional costs associated with such fiscal policy changes to our clients through the prices we charge for our services, we may be adversely affected.



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Significant fluctuations in the exchange rate of the real against the value of the U.S. dollar may adversely affect our business, financial conditions or results of operations.


Fluctuations in the value of the real against the U.S. dollar can affect our financial condition and results of operations.


Our export revenues are directly affected by exchange rate variation. Depreciation of the real against the U.S. dollar will increase such revenues when denominated in reais, while appreciation of the real against the U.S. dollar will decrease such export revenues. Our revenues in the domestic market are also affected by exchange rate fluctuation, to the extent that imported products quoted in U.S. dollars become more or less competitive in the domestic market depending on the exchange rate variation.


Furthermore, some of our costs and operating expenses are also affected by fluctuations in the value of the real against the U.S. dollar, including export insurance, freight costs and the cost of certain chemicals we use as raw materials. Depreciation of the real against the U.S. dollar will increase such costs, while appreciation of the real against the U.S. dollar will reduce these costs.


Additionally, we may be adversely affected by depreciation of the real against the U.S. dollar, since a significant portion of our debt is expressed in U.S. dollars. Depreciation or appreciation of the real against the U.S. dollar may increase or decrease, as applicable, our financial expenses arising from these debt and other obligations in U.S. dollars, as well as adversely affect our ability to comply with certain financial covenants under financing agreements, which require us to maintain specific financial ratios. On the other hand, a significant appreciation of the real against the U.S. dollar or an appreciation during an extended period of time may significantly affect our cost structure and negatively affect our competitiveness in export markets.


As a result of inflationary pressures in recent years, the Brazilian real has been periodically devalued in relation to the U.S. dollar and other foreign currencies. The Brazilian federal government has in the past implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. From time to time, there have been significant fluctuations in the exchange rate between the Brazilian real, the U.S. dollar and other currencies. There can be no assurance that the real will not depreciate or be devalued again against the U.S. dollar or against any other foreign currency.


Devaluations of the real relative to the U.S. dollar could create additional inflationary pressures in Brazil, further lead to increases in interest rates, further limit our access to foreign financial markets and prompt the adoption of recessionary policies by the Brazilian federal government. Conversely, the appreciation of the real against the U.S. dollar may lead to a further deterioration of Brazil’s current account and balance of payments and cause a decrease in Brazilian exports. Any of the foregoing developments may negatively affect the Brazilian economy as a whole, and, consequently, our results.


The Central Bank of Brazil has occasionally intervened in recent years to control unstable movements in the foreign exchange rate. We cannot predict whether the Central Bank of Brazil will continue to let the real float freely. Accordingly, it is not possible to predict what impact the Brazilian federal government’s exchange rate policies may have on us. We cannot assure that in the future the Brazilian federal government will not impose a currency band within which the real U.S. dollar-real exchange rate could fluctuate or set fixed exchange rates, nor can we predict what impact such an event might have on our business, financial position or operating results.


Economic and market conditions in other countries, including in the United States and emerging market countries, may materially and adversely affect the Brazilian economy and, therefore, our financial condition.


The market for securities issued by Brazilian companies is influenced by economic and market conditions in Brazil, and, to varying degrees, market conditions in other countries, whether emerging market countries or not. Although economic conditions are different in each country, the reaction of investors to developments in one country may cause the domestic or international capital markets to fluctuate. Developments or conditions in other countries have at times significantly affected the availability of credit in the Brazilian economy and resulted in considerable outflows of funds and reductions in the amount of foreign currency invested in Brazil, as well as limited access to international capital markets, all of which may materially and adversely affect our ability to borrow funds at an acceptable interest rate or to raise equity capital when and if



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we should have such a need. We depend on third-party financing to carry out our activities, especially to finance our capital expenditures and working capital. In circumstances of limited liquidity, credit availability may be scarce, expensive or nonexistent, and we may face difficulties in our regular activities and in honoring our financial commitments.


Corruption investigations and media reports of alleged corruption in Brazil or other countries could materially adversely affect Brazilian markets, us, our industry and the trading price of our securities.


Brazilian markets have experienced heightened volatility due to the uncertainty in the local economy and political environment because of the ongoing corruption and bribery investigations by federal Brazilian prosecutors. The matters that have, and may continue to, come to light because of or in connection with the investigations have adversely affected, and are expected to continue to adversely affect, the Brazilian markets and trading prices of securities issued by certain Brazilian companies. Print, online and social media posts and reports have made allegations that certain Brazilian industries and conglomerates have been involved in conduct targeted by some of these investigations. Authorities in other countries are also investigating corruption associated with past actions involving certain Brazilian construction companies with operations in those countries. We cannot predict the duration of these investigations of which other companies might be involved or how far-reaching the effects of these investigations might be, including whether they will extend to our industry, which may lead to further volatility and a decrease in investor confidence, which in turn could have a material adverse effect on the Brazilian economy and the trading price of securities of Brazilian companies, including our company.


Risks Relating to Our Shares and ADSs


Exchange controls and restrictions on remittances abroad may adversely affect holders of our ADSs.


Brazilian laws provide that whenever a serious imbalance in Brazil’s balance of payments exists or is anticipated, the Brazilian federal government may impose temporary restrictions on the repatriation by foreign investors of the proceeds of their investment in Brazil and on the conversion of Brazilian currency into foreign currency. For example, for six months in 1989 and early 1990, the Brazilian federal government restricted all fund transfers that were owed to foreign equity investors and held by the Central Bank of Brazil, in order to preserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with Brazilian federal government directives. Although the Brazilian federal government has never exercised such a prerogative since, we cannot guarantee that the Brazilian federal government will not take similar actions in the future.


You may be adversely affected if the Brazilian federal government imposes restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and, as it has done in the past, on the conversion of the real into foreign currencies. These restrictions could hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of shares, as the case may be, into U.S. dollars and the remittance of U.S. dollars abroad. We cannot assure that the government will not take this measure or similar measures in the future. Holders of our ADSs could be adversely affected by delays in, or a refusal to grant, any required governmental approval for conversion of real payments and remittances abroad in respect of the shares, including the shares underlying the ADSs. In such a case, our ADS depositary will distribute reais or hold the reais it cannot convert for the account of the ADS holders who have not been paid.


Holders of our ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.


We are organized under and are subject to the laws of Brazil and all our directors and executive officers and our independent registered public accounting firm reside or are based in Brazil. Substantially all of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of the ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, our ADS holders may face greater difficulties in protecting their interests due to actions by us, our directors or executive officers than would shareholders of a U.S. corporation.



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The relative volatility and illiquidity of the markets for our securities may adversely affect holders of our shares and our ADSs.


Investments in securities, such as our common shares or ADSs, of issuers from emerging market countries, including Brazil, involve a higher degree of risk than investments in securities of issuers from more developed countries. The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and other jurisdictions, and may be regulated differently from the ways familiar to U.S. investors. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States. These features may substantially limit the ability to sell our shares, including our shares underlying our ADSs, at a price and time at which holders wish to do so. A liquid and active market may never develop for our shares or our ADSs, and as a result, the ability of holders of our shares or our ADSs to sell at the desired price or time may be significantly hindered.


Holders of our ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations than a U.S. company and holders of our shares and our ADSs may have fewer and less well-defined rights.


Holders of ADSs are not direct shareholders of our Company and are unable to enforce the rights of shareholders under our bylaws and Brazilian law, and holders of our shares are generally required under our bylaws to resolve any disputes with us through arbitration. Our corporate affairs are governed by our bylaws and Brazilian law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, or elsewhere outside Brazil. Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may also be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our shares or our ADSs at a potential disadvantage. The disclosure required of public companies in Brazil may also be less complete or informative than that required of publicly held companies in the United States or in certain other countries.


Holders of our ADSs do not have the same voting rights as our shareholders.


Holders of our ADSs do not have the same voting rights as holders of our shares. Holders of our ADSs are entitled to the contractual rights set forth for their benefit under the deposit agreement. ADS holders exercise voting rights by providing instructions to The Bank of New York Mellon, as our depositary, as opposed to attending shareholders meetings or voting by other means available to shareholders. In practice, the ability of a holder of ADSs to instruct the depositary as to voting will depend on the timing and procedures for providing instructions to the depositary, either directly or through the holder’s custodian and clearing system.


An exchange of ADSs for shares risks the loss of certain foreign currency remittance and Brazilian tax advantages.


The ADSs benefit from the certificate of foreign capital registration, which permits our depositary to convert dividends and other distributions with respect to common shares into foreign currency, and to remit the proceeds abroad. Holders of our ADSs who exchange their ADSs for shares will then be entitled to rely on the depositary’s certificate of foreign capital registration for five business days from the date of exchange. Thereafter, they will not be able to remit non-Brazilian currency abroad unless they obtain their own certificate of foreign capital registration, or unless they qualify under Resolution No. 4,373/2014 of the CMN, which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration. If holders of ADSs do not qualify under Resolution No. 4,373/2014, they will generally be subject to less favorable tax treatment on distributions with respect to our common shares. There can be no assurance that the certificate of registration of our depositary, or any certificate of foreign capital registration obtained by holders of ADSs, will not be affected by future legislative or regulatory changes, or that additional Brazilian law restrictions applicable to their investment in the ADSs may not be imposed in the future. Holders of our shares will be subject to, and holders of our ADSs could be subject to, Brazilian income tax on capital gains from sales of shares or ADSs.


Brazilian Law No. 10,833/03 provides that gains on the disposition of assets located in Brazil by non-residents of Brazil, whether to other non-residents or to Brazilian residents, will be subject to Brazilian taxation. Our shares are expected to be treated as assets located in Brazil for purposes of the law, and gains on the



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disposition of our shares, even by non-residents of Brazil, are expected to be subject to Brazilian taxation. In addition, our ADSs may be treated as assets located in Brazil for purposes of the law, and therefore gains on the disposition of our ADSs by non-residents of Brazil may be subject to Brazilian taxation. Although the holders of our ADSs outside Brazil may have grounds to assert that Law No. 10,833/00 does not apply to sales or other dispositions of ADSs, it is not possible to predict whether that understanding will ultimately prevail in the courts of Brazil given the general and unclear scope of Law No. 10,833/03 and the absence of judicial court rulings in respect thereof.


Holders of our ADSs may not be able to exercise the preemptive rights relating to our shares.


Holders of our ADSs may not be able to exercise the preemptive rights relating to our shares underlying their ADSs unless a registration statement under the U.S. Securities Act of 1933, as amended (the “Securities Act”), is effective with respect to the rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares or other securities relating to these preemptive rights, and we cannot assure holders of our ADSs that we will file any such registration statement. Unless we file a registration statement or an exemption from registration applies, holders of our ADSs may receive only the net proceeds from the sale of their preemptive rights by the depositary or, if the preemptive rights cannot be sold, the rights will be allowed to lapse.


Our future issuances of new securities may result in a dilution of our shareholders’ stake.


We may seek to raise additional capital in the future through public or private issuances of shares or securities convertible into shares. According to article 172 of Brazilian Corporation Law, we may not be required to grant preemptive rights to our shareholders in the event of a capital increase through a public offering of shares or securities convertible into shares, which may result in a dilution of our current shareholders’ stake in our company.


The holders of our shares (including our shares underlying the ADSs) may not receive dividends or interest on capital.


According to our bylaws, our shareholders are entitled to receive a mandatory minimum annual dividend of the lower of (i) 25% of our annual net profit, calculated and adjusted under the terms of the Brazilian Corporation Law, or (ii) 10% of our operating cash generation in the corresponding fiscal period, which is calculated by subtracting the amount of the investments in maintenance of the respective fiscal year from the Adjusted EBITDA, as defined in our bylaws. Our bylaws allow for the payment of intermediary dividends, to the retained earnings account or the existing earnings reserves in the last yearly or six-month balance, by means of the annual dividend. We may also pay interest on own capital, as described by Brazilian law. The intermediary dividends and the interest on own capital declared in each fiscal period may be imputed to the mandatory dividend that results from the fiscal period in which they are distributed. At the general shareholders meeting, shareholders may decide on the capitalization, on the offset of our losses or on the net profit retention, as provided for in the Brazilian Corporation Law, with the aforementioned net profit not being made available for the payment of dividends or interest on own capital.


Our management is strongly influenced by our controlling shareholders and their interests may conflict with the interests of the other shareholders.


Our controlling shareholders have the power to, among other things, appoint a majority of the members of our board of directors and to decide any matters requiring shareholder approval, including related-party transactions, corporate reorganizations and disposals, and the timing and payment of any future dividends, subject to the requirements of mandatory dividends under the Brazilian Corporation Law. Our controlling shareholders may have an interest in making acquisitions, disposals of assets, partnerships, seeking financing or making other decisions that may conflict with the interests of the other shareholders.


As part of the negotiations regarding the terms of the Merger, our controlling shareholders entered into the BNDESPAR Shareholders Agreement with BNDESPAR, which, among other terms, provides for the right by BNDESPAR to nominate one independent member of our board of directors and for the requirement that we comply with certain company leverage limitations. These requirements apply for so long as BNDESPAR maintains a certain specified minimum ownership in Suzano, which was reached upon completion of the Merger on January 14, 2019. BNDESPAR also is a wholly owned subsidiary of, with separate operations from, the Brazilian development bank (“BNDES”), which has provided financing to Suzano. See Item 5. “Operating and



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Financial Review and Prospects—Sources and Uses of Funds—Indebtedness and Debt—BNDES Financing.” The provisions of the BNDESPAR Shareholders Agreement do not provide BNDESPAR with any rights that would result in it being deemed a controlling shareholder nor do they affect our controlling shareholders’ power to control the company. However, the provisions of the BNDESPAR Shareholders Agreement will limit our ability to increase our leverage and increase the independence requirements for our board members. See Item 7. “Major Shareholders and Related Party Transactions—Major Shareholders—BNDESPAR Shareholders Agreement.”


Judgments of Brazilian courts with respect to our shares will be payable only in reais.


If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our shares, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank of Brazil, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under our shares and ADSs.


As a foreign private issuer, we have different disclosure and other requirements than U.S. domestic registrants.


As a foreign private issuer, we may be subject to different disclosure and other requirements than domestic U.S. registrants. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we rely on exemptions from certain U.S. rules which will permit us to follow Brazilian legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.


Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days following the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days following the end of each fiscal year. As a result of the above, even though, following the declaration of effectiveness of the registration to which this prospectus is attached, we will be required to make submissions on Form 6-K disclosing the information that we have made or are required to make public pursuant to Brazilian law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.



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History and Development of the Company


We are incorporated under the laws of Brazil under the name Suzano S.A. (formerly Suzano Papel e Celulose S.A.), as a corporation with unlimited duration. We have the legal status of a sociedade por ações, or a stock corporation, under the Brazilian Corporation Law. Our principal place of business is located at Avenida Brigadeiro Faria Lima, 1355, 7th floor, São Paulo, SP, 01452-919, Brazil (telephone: +55 11 3503-9000). Our website address is http://ir.suzano.com.br. Investor information can be found on our website under the caption of “Investor Relations.” Information contained on our website is, however, not incorporated by reference in, and should not be considered a part of this annual report.


Our activities began in 1924, when Leon Feffer, our founder, first entered the paper business to resell national and imported paper used for business cards, writing pads and stationery. In the late 1930s, with the purchase of its first machine, the Suzano Group began to produce its own paper. In the 1950s, Companhia Suzano was formed, becoming what we believe to be the first global industrial-scale producer of eucalyptus pulp. In the mid-1960s, Companhia Suzano became the first paper producer to use 100% eucalyptus pulp in the production of printing and writing paper, according to “The History of the Pulp and Paper Industry in Brazil” (“A História da Indústria de Celulose e Papel no Brasil”), published by the Brazilian Technical Association of Paper and Pulp (Associação Brasileira Técnica de Papel e Celulose), or the ABTCP, in 2004.


On December 8, 1987, we were incorporated under the name Bahia Sul Celulose S.A., or Bahia Sul, as a joint venture between Companhia Vale do Rio Doce - CVRD (currently Vale S.A.), or Vale, and Companhia Suzano. In 2001, Companhia Suzano acquired all of the shares of Bahia Sul that were previously held by Vale, increasing its ownership interest to 100% of our voting stock and 73% of our total stock. In 2002, Companhia Suzano held an exchange offer of preferred shares without voting rights issued by Bahia Sul for new preferred shares without voting rights issued by us, in order to acquire all outstanding preferred shares of Bahia Sul. Upon completion of the exchange offer, Companhia Suzano’s share in Bahia Sul’s capital stock increased to 93.9%.


In 2004, Companhia Suzano merged into Bahia Sul, with the resulting entity named Suzano Bahia Sul Papel e Celulose S.A. In the same year, we listed our shares on the Level 1 segment of the BM&FBOVESPA (former name of B3), thus guaranteeing transparency in our operations and accountability to our shareholders. In July 2006, our corporate name was changed to our former name, Suzano Papel e Celulose S.A.


In 2012, we completed a R$1.5 billion capital increase through a public offering of new shares in the market. The proceeds of the capital increase were used, in part, to finance the construction of our new pulp production unit in the state of Maranhão, which began operations in March 2013.


In 2015, we announced a new three-pillar business strategy: structural competitiveness, adjacent businesses and reshaping the industry. As part of our structural competitiveness strategy, we announced investments to modernize and increase the capacity of our mills and to increase and locate the forest base closer to our mills. In addition to an expected increase in total production capacity, we believe that these projects have been contributing to an approach focused on cost structure optimization. Our adjacent businesses strategy seeks new uses of our asset base and diversification of our products. In 2015, we commenced the production of fluff pulp and announced investments in lignin and the tissue segment. As part of our strategy to reshape the industry, we explore new paths and seek opportunities for reducing our business exposure to market volatility.


In September 2017, we approved the admission of our shares for trading on the listing segment called Novo Mercado of B3, followed by the conversion of the preferred shares issued by us into common shares at the ratio of one preferred share, class “A” or class “B”, for one common share. In addition, we also approved the restatement of our bylaws to adapt them to Novo Mercado rules and a change of our methodology to calculate mandatory dividends, also reflecting best corporate governance practices. We concluded the migration to Novo Mercado segment of B3 in November 2017.


On March 15, 2018, each of Suzano Holding S.A., David Feffer, Daniel Feffer, Jorge Feffer and Ruben Feffer, on one hand, and Votorantim and BNDESPAR, on the other hand, along with Suzano, as intervening party, entered into a voting agreement (Compromisso de Voto e Assunção de Obrigações) (the “Voting Agreement”), pursuant to which the parties agreed on the terms and conditions of a merger of shares (incorporação de ações) of Fibria Celulose S.A. (“Fibria”) and Suzano (the “Merger”), and agreed to exercise their respective voting rights in favor of the Merger. On July 26, 2018, Suzano and Fibria entered into a merger



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agreement (the “Merger Agreement”), substantially in the form attached to the Voting Agreement, for the combination of the operations and shareholder bases of Fibria and Suzano through a corporate reorganization.


On December 10, 2018, we started trading our Level II ADRs, in accordance with the program approved by the CVM. The Bank of New York Mellon is acting as our depositary bank in the United States, responsible for issuing the respective depositary shares, at the ratio of one ADS for each two common shares. The ADR Program did not require any capital increase or issue of new shares. Its goal is to expand access by foreign investors to our company and increase our stock’s liquidity.


On January 14, 2019, following receipt of all required corporate and regulatory approvals, the Merger was consummated, and Fibria became our wholly owned subsidiary. On such date, holders of all of the issued and outstanding shares and ADSs of Fibria at the record date set in accordance with the Merger Agreement received shares and ADSs of our company, plus an amount of cash per share of Fibria (R$50.20) calculated pursuant to the Merger Agreement. Upon completion of the Merger, we became the world’s largest producer of market pulp, with an aggregate installed capacity of 10.9 million metric tons of eucalyptus pulp per year and a broad and diversified forest base. Furthermore, on April 1, 2019, Fibria merged with and into Suzano. As a result, the separate corporate existence of Fibria ceased, and Suzano continued as the surviving entity under the laws of Brazil. Accordingly, title to and possession of all property, interests, assets, rights, privileges, immunities, powers and franchises of Fibria vested in Suzano and all debt, liabilities, duties and obligations of Fibria became debt, liabilities, duties and obligations of Suzano.


Accordingly, throughout this section we present certain information on Fibria’s business and operations as of December 31, 2018, as such business and operations are, as of the date of this annual report, part of Suzano.


On April 1, 2019, our shareholders approved our name change from Suzano Papel e Celulose S.A. to Suzano S.A. at our extraordinary shareholders’ meeting. The change of our name was approved by the CVM on April 18, 2019 and became effective with retroactive effect to the date of approval by our shareholders.



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Business Overview




Pulp can be either recycled or virgin pulp. Recycled pulp is made from used materials, such as printing and writing papers, newsprint, packaging and other types of carton board, and then processed by chemicals in order to remove printing inks and other elements. Virgin pulp can be manufactured from a number of raw materials, such as wood, bagasse and bamboo, and it is classified based on the type of wood or fiber derived from the corresponding raw material as well as the processing system used and whether the pulp will be bleached. Bleached pulp is used for several purposes, including printing and writing, specialty, packaging paperboard and tissue papers. Unbleached pulp has a brown color and is used in the production of packages, corrugated board, paperboard, packaging papers, bags and tissue.


The most common raw material that we use to produce paper is wood pulp. Different tree species yield different fiber characteristics and, consequently, different paper attributes such as strength, softness and opacity.


There are two types of wood pulp: hardwood pulp and softwood pulp. Hardwood pulp is produced using hardwood trees, such as eucalyptus, aspen, birch, acacia, maple, oaks, beech trees and poplars, which have shorter fibers. Short fiber is generally best suited for the manufacture of products that require smoothness, brightness, uniformity an absorption properties, such as coated and uncoated printing and writing paper, tissue paper, specialty papers as image paper and décor laminate paper as well as packaging paperboard. Softwood pulp is produced using softwood trees (e.g. pine, spruce and fir) and is generally best suited for the manufacture of products that require greater durability and strength, such as kraftliner, newsprint, catalogues, boards, lightweight coated paper and tissue. However, paper producers mayalso substitute fibers used in the paper manufacturing process according to market availability by applying further processing, as refining mechanical treatment. The substitution depends on the raw materials and equipment available and the specifications of the final product.


Pulp can be produced by integrated paper producers or by market pulp producers who sell the pulp to nonintegrated or semi-integrated paper producers. In 2017, approximately 36% of global pulp virgin fiber production was “market pulp” (Hawkins Wright — The Outlook for Market Pulp (August 2018)); that is, pulp sold by pulp mills and bought by paper mills. We produce pulp for our own paper production (integrated pulp) and to sell to other papermakers (market pulp). We produce only hardwood pulp from our renewable forests of planted eucalyptus trees. Eucalyptus pulp is widely accepted among producers of printing and writing paper, specialty papers and tissue papers worldwide because of its properties and cash production cost, and it has represented an increasing percentage of the world production of hardwood pulp. Eucalyptus trees in Brazil have a shorter growth cycle than other hardwood trees (approximately seven years in Brazil) and higher yield per planted hectare.



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Source: “LatAm Pulp & Paper, Only a Maintenance Stoppage”, Credit Suisse Equity Research, April 19, 2016.


Brazil’s competitive advantage is driven by the fact that Brazil has the fastest tree growth rates in the world and the highest productivity rate. Thus, we believe that we are among Brazilian pulp producers that have the lowest production cost in the global market.



Source: Hawkins Wright, 2018, Suzano and Fibria.


The key drivers of global virgin pulp demand growth are packaging, tissue and special paper. These grades presented a production compound annual growth rate (“CAGR”) from 2007 to 2017 of 2.7%, 3.9% and 1.0% respectively.



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Paper consumption in China has been the main driver of demand growth over the past years. According to PPPC, global demand for pulp (including softwood pulp and hardwood pulp) and for tissue is expected to continue increasing in the following years.



Source: Pulp and Paper Products Council — PPPC S&D (2019).



Source: Pulp and Paper Products Council — PPPC S&D (2019).



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Source: Pulp and Paper Products Council — PPPC (2019).


According to Hawkins Wright, in 2018, Suzano and Fibria were among the top 10 market pulp producers in terms of capacity, with a combined 15.9% market share of chemical market pulp capacity. Globally, there is no major project confirmed to increase capacity of chemical market pulp until 2021, and thus, nominal capacity is expected to slightly increase during the 2019-2020 period when compared to previous years. In other words, there will be just residual ramp-up and debottlenecking projects for 2019 and beyond.



Source: Hawkins Wright, 2018, Suzano and Fibria.



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Source: Pulp and Paper Products Council — PPPC S&D (2019).


Capital Expenditures


Our principal capital expenditures are in industrial and forestry maintenance, and investment projects related to our structural competitiveness and adjacent business strategy. For more information, see Item 5.“Operating and Financial Review and Prospects—Sources and Uses of Funds—Capital Expenditures.”


Business Overview


With more than 90 years of experience, we operate mainly in the pulp (paper grade and fluff) and paper (paperboard, printing and writing and tissue) segments. We believe that we are one of the largest vertically integrated producers of pulp and paper in Latin America and, according to Hawkins Wright, Suzano was the second largest producer of eucalypt pulp in the world and the fourth largest producer of virgin market pulp in the world in 2018 (considering the nominal capacity before the Merger). As other Brazilian eucalyptus pulp producers, we have the lowest cost of pulp production in the world. We believe our modern technology of plantation and harvesting and our strategic location for plantation facilities are among our competitive strengths.


We believe we are one of Brazil’s largest paper producers, and based on data from IBÁ, we accounted for nearly 40% of the printing and writing paper and 26% of the paperboard produced in Brazil in 2017. Our share of Brazilian paper production remained unchanged following the Merger, as Fibria did not have any paper production.


Our structure includes administrative offices in Salvador and São Paulo, two integrated pulp and paper production facilities in the state of São Paulo (Suzano and Limeira units), a non-integrated paper production facility in the state of São Paulo (Rio Verde unit), an integrated pulp, paper and tissue facility in the state of Bahia (Mucuri unit), an integrated pulp and tissue facility in the state of Maranhão (Imperatriz unit), and FuturaGene, a biotechnology research and development subsidiary. We own one of the largest distribution structures for paper and graphic products in South America. Following the Merger, we also own pulp production facilities in the state of Espírito Santo (Aracruz unit), in the state of São Paulo state (Jacareí Unit), one unit with two production lines in Três Lagoas (in the state of Mato Grosso do Sul) and 50% equity participation in Veracel together with Stora Enso, an industrial unit located in Eunápolis (in the state of Bahia).


Our eucalyptus pulp production satisfies 100% of our requirements for paper production, and we sell the remaining production as market pulp. As of December 31, 2018, our total eucalyptus pulp installed production capacity was 4.6 million tons per year, and our total production volume was 4.8 million tons, of which 3.5 million tons were produced as market pulp and the remainder was used for the production of 1.3 million tons of paper and paperboard.



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The scale of our production capacity, the proximity of our planted forests to our mills and the integration of our pulp and paper production process allow us to benefit from substantial economies of scale and low production costs. Our Limeira, Suzano and Rio Verde units are primarily focused on the Brazilian market and are located near the city of São Paulo, the largest consumer market in Brazil according to data from IBÁ and RISI, located approximately 90 km from the port of Santos, an important export hub, and approximately 190 km from our planted forests. Our Mucuri unit is focused primarily on export markets, and is located approximately 320 km from the port of Vitória, approximately 250 km from Portocel, a port specialized in exporting pulp and paper located in the state of Espírito Santo. The Imperatriz unit, in Maranhão, is also focused primarily on export markets and is located approximately 600 km from the port of Itaquí. Exports are carried from our units to the ports by rail, allowing for very competitive transportation costs. The relatively short distances between our planted forests, our mills and most of our Brazilian customers or export facilities provide us with relatively low transportation costs, which in turn results in lower total production costs.


Our shares are traded on the special listing segment of the B3 (Brasil, Bolsa, Balcão), which provides for the highest level of corporate governance in the Brazilian market, and our ADSs are traded on the New York Stock Exchange.


Pulp and Paper


We produce a variety of eucalyptus pulp and paper products, including pulp used in our paper production processes, as well as market pulp. We sell pulp to the Brazilian market and to the export market. We produce coated and uncoated printing and writing paper, paperboard, tissue paper, market pulp and fluff pulp. Within the printing and writing paper category, we produce products of different sizes and shapes, such as cut paper for general purposes (cut-size), folio size and reels. Our sales are not concentrated in any specific customer, in either the Brazilian or the export markets. For the year ended December 31, 2018, no single customer accounted for more than 10.0% of our consolidated net sales revenue.


Pulp and Paper Production Process


We have a three-stage paper production process: (i) planting and harvesting forests; (ii) pulp manufacturing; and (iii) paper manufacturing. Consistent with our strategy of conducting our business in accordance with the highest environmental standards, we use plantation and harvesting techniques that are environmentally friendly and sustainable, such as minimum-impact cultivation and soil preparation techniques that avoid erosion and maintain soil fertility along generations in order to promote high levels of efficiency and productivity.


Planting and Harvesting Forests


The development of our planted forests starts in our nurseries, where we use the most modern cloning technology available, and in third-party nurseries that use our genetic materials. The saplings we produce in our nurseries are a variety of eucalyptus that increases the production of pulp and are well suited for the climate and other geographic aspects of the micro-regions in which they will be planted. A harvester is used to cut, de-limb and de-bark the trees, and to cut them into logs. Part of the bark and leaves of the harvested trees is left in the planted forests. A forwarder carries the logs to the edge of the planting area, where a loader loads the logs onto a truck for transportation to the mill.


The management of our forests is the base that sustains our business, based on the planting and management of renewable forests, targeting of a competitive supply of wood through long-term planning and development and application of genetic improvements. As of December 31, 2018, we owned or leased approximately 1.3 million hectares of land, of which approximately 650,000 hectares were used for eucalyptus cultivation and the balance for forestry reserves, ensuring compliance with Brazilian law that determines the percentage of area required for legal and permanent preservation reserves, located mainly along the rivers. Our production units are in compliance with or exceed environmental standards — both Brazilian and international — for the production of pulp and paper.


In addition, as of December 31, 2018, Fibria owned or leased approximately 1,085,000 hectares (excluding the forestry partnership program areas) located in eight Brazilian states. Out of this total amount of forestry land, approximately 653,000 hectares consisted of planted areas, approximately 370,000 hectares consisted of conservation areas with native vegetation, or preserved areas, and 61,000 hectares related to other uses such as roads.



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Given the high degree of integration between the production of pulp and paper, we have a low conversion cost of pulp to paper.


Several factors account for our competitive advantage with regard to the cost of wood for the production of pulp: favorable topographic, climate and soil conditions in the regions of Brazil where we operate; advanced genetic improvement and harvesting technology; low average distances between our planted forests and mills, which are among the shortest in the world; our clone selection system, which improves our forests’ yield and industrial performance, integrating our forestry and industrial activities; and our advanced techniques to maximize soil potential, such as mosaic plantation and minimum environmental impact cultivation techniques. Together, these factors enable us to enjoy: a high and increasing average volume of wood per planted hectare; a higher concentration of fibers per ton of harvested wood; the sustainable development of our operations; relatively low operating costs; and eucalyptus tree harvest rotations of approximately seven years, a period shorter than the harvest rotation periods in other regions of the world.


Pulp Manufacturing


The pulp manufacturing process takes place in two stages:


The “Kraft” Cooking Process. The logs received in our pulp mills are further de-barked, if not already de-barked on the field, and fed through chipping machines. The wood chips are screened and then transferred by a conveyor system to the digester where they are “cooked” with sodium sulfide and caustic soda. This “kraft” cooking process is known for minimizing damage to the pulp fibers and allows for the recovery of chemicals, thereby preserving high uniformity and strength of the fibers for subsequent paper production. During the cooking process, the cellulose fibers are separated from lignin and resins to produce unbleached pulp. In a pre-bleaching stage, the unbleached pulp is then washed and subjected to an oxygen delignification process that, combined with the kraft process, removes approximately 95.0% of the lignin. At this point, a small portion of the pulp fiber that was produced is used to make certain types of paperboard in the Suzano mill. Although not the main product, unbleached pulp grades can be commercialized or used for specialty of packaging papers or boards. The lignin and by-products of the kraft process form a substance known as “black liquor” and are separated and piped to evaporators, to increase the concentration of solids. Thereafter, the black liquor is burned in recovery boilers. In the recovery boilers, the black liquor is as the main source of fuel to produce steam and electricity for the production process, and approximately 99.0% of the chemicals used in the kraft cooking process are recovered for reuse.


Bleaching. The next stage in manufacturing bleached pulp is the chemical bleaching process. The current bleaching processes of our mills consist of a series of medium-consistency bleaching stages in towers through which the delignified pulp passes. In each bleaching tower a different mixture of bleaching agents is applied and, after each stage, the pulp is washed. Three or four bleaching stages are required to obtain a fully bleached pulp. Production of conventional bleached pulp employs elemental chlorine. Our elemental chlorine free bleaching process is harmless and utilizes chlorine-dioxide, sulfuric acid, caustic soda and oxygen peroxide and does not use elemental chlorine. At the end of the bleaching stages, the diluted bleached pulp, in its fluid state, is pumped to storage towers. Thereafter, the bleached pulp may be transferred directly to our paper production, fluff pulp or tissue paper facilities in our Mucuri, Imperatriz, Suzano and Limeira units and by truck to our Rio Verde unit or, in the case of market pulp, to drying machines where the pulp will be dried, converted to sheets, cut and baled.


Paper Manufacturing


We produce (i) uncoated woodfree printing and writing paper at our Mucuri unit, Limeira unit, Suzano unit and Rio Verde unit; (ii) coated woodfree printing and writing paper at our Suzano unit and Limeira unit; and (iii) paperboard at our Suzano unit. We start the paper production process by sending the pulp to refiners, which increases the fibers’ resistance. The pulp slurry is then fed into the paper mill, where it is mixed with fillers and additives to provide the necessary properties required by the end users. These additives include synthetic sizing, precipitated calcium carbonate (the alkaline process), optical dyes, and others. During the paper and paperboard production process, the sheet is formed, pressed and dried. At the end of the process, jumbo rolls are converted into reels, folio sheets and cut-size paper. In the case of coated paper, the paper is subjected to further treatments, including coating one or both sides of the paper with ink, depending on the type of product and finishing, before being cut to the specifications of the customer or the converter.


We monitor production through a computerized system, which controls each stage of the production process. Our production, marketing and sales personnel manage the programming and control of our paper



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production process. In this manner, we are able to plan, optimize and customize different product runs and to anticipate, respond and adapt to seasonal variations and customer preferences.


Pulp and Paper Production Schedule


Our integrated pulp and paper mills operate three shifts, 24 hours a day, every day of the year, with the exception of scheduled maintenance periods. The dates of these maintenance periods are flexible and may be moved as a result of factors such as production, market conditions and supply of materials. We keep an inventory of certain spare parts that we consider critical to the production process or that are difficult to replace. We have also developed a close relationship with our suppliers to ensure access to spare parts.


Pulp Production and Sales


Pulp Production


We produce eucalyptus pulp to supply our paper production operations and for sale as market pulp. We describe below in separate subsections the pulp productions recorded for Suzano and Fibria in the periods indicated below.




Suzano produced 3.5 million tons of market pulp in each of 2018, 2017 and 2016. Suzano’s pulp production in the years ended December 31, 2018, 2017 and 2016 accounted for 16.6%, 18.2%, and 18.5%, respectively, of the total pulp produced in Brazil during these periods, according to IBÁ.


The following table sets forth Suzano’s total eucalyptus pulp production, total Brazilian pulp production and Suzano’s eucalyptus pulp production as a percentage of total Brazilian pulp production for the years ended December 31, 2018, 2017 and 2016.




For the year ended December 31,












(in thousands of tons, except %)


Suzano’s total pulp production








Total Brazilian hardwood pulp production








Total Brazilian production (%)











Fibria produced 6.8 million tons of pulp in 2018, 5.6 million tons of pulp in 2017 and 5.0 million tons of pulp in 2016 (in each case, including 50.0% of the pulp production of Veracel).


Fibria’s pulp production in the years ended December 31, 2018, 2017 and 2016 accounted for 32.1%, 28.9% and 26.7%, respectively, of the total pulp produced in Brazil during these periods, according to IBÁ.


The following table sets forth Fibria’s total eucalyptus pulp production, total Brazilian pulp production and Fibria’s eucalyptus pulp production as a percentage of total Brazilian pulp production for the years ended December 31, 2018, 2017 and 2016.




For the year ended December 31,












(in thousands of tons, except %)


Fibria’s total pulp production








Total Brazilian hardwood pulp production








Total Brazilian production (%)









Pulp Sales




In the years ended December 31, 2018, 2017 and 2016, Suzano sold 3.2 million tons, 3.6 million tons and 3.5 million tons of pulp as market pulp respectively, of which 9.2%, 10.3% and 11.7% was sold in the Brazilian domestic market and 90.8%, 89.7% and 88.3% was sold in the export market.



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The following table sets forth Suzano’s Brazilian domestic and export sales of pulp for the periods indicated.




For the year ended
December 31,












(in tons)


Suzano’s pulp sales volume



































In the years ended December 31, 2018, 2017 and 2016, Fibria sold 6.8 million tons, 6.2 million tons and 5.5 million tons of pulp as market pulp respectively, of which 10.4%, 10.7% and 10.0% was sold in the Brazilian market and 89.6%, 89.3% and 90.0% was sold in the export market.


The following table sets forth Fibria’s Brazilian and export sales of pulp for the periods indicated.




For the year ended
December 31,












(in tons)

Fibria’s pulp sales volume

































Pulp Exports




The table below sets forth Suzano’s pulp net sales by geographic region for the periods indicated.




For the year ended December 31,










Pulp net sales by
geographic region
























































North America


























































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The table below sets forth Fibria’s pulp net sales by geographic region for the periods indicated.




For the year ended December 31,










Pulp net sales by
geographic region














Brazil and others (1)










































North America











































(1) Includes Portocel’s services revenue.


Pulp Customers




Suzano has a long-term relationships with substantially all of its market pulp customers in the Brazilian domestic and export markets.


Prices may vary among the different geographic regions in which Suzano’s customers are located. Usually the price arrangements under Suzano’s sales contracts are consistent with prices for its other sales within the same region. Suzano’s sales contracts provide for early termination in the event of a material breach, insolvency of one of the parties or a force majeure event of an extended duration.


Suzano’s customers generally purchase its products using commercial credit provided by Suzano, which has a diversified customer base for its pulp products. Suzano believes it has a good knowledge base to manage its credit risk portfolio through financial (letters of credit and insurance) and non-financial instruments (guarantees).




For the years ended December 31, 2018, 2017 and 2016, most of Fibria’s sales were made under contracts, some of which contain exclusivity provisions. Historically, Fibria traditionally focused on tissue, printing and writing and specialty paper producers that value the high-quality pulp produced by Fibria and the reliability of supply provided by Fibria. The majority of Fibria’s sales to final customers during these periods are delivered from Fibria’s overseas terminals in the United States, Europe, Mediterranean and East Asia.


On May 4, 2015, Fibria (as intervening party and guarantor), Fibria International Trade GmbH and Klabin S.A. entered into a Eucalyptus Pulp Offtake Agreement (the “Offtake Agreement”) for the supply of hardwood pulp produced at the Klabin plant in the state of Paraná (Puma Project), which had its operational startup in 2016. The agreement established a firm commitment for acquisition by Fibria or its subsidiaries of a minimum of 900,000 tons per year of hardwood pulp, for exclusive sale by Fibria or its subsidiaries in countries outside South America. The additional volume produced by the new plant was being sold by Klabin directly as follows: (i) hardwood pulp in Brazil and South America, and (ii) softwood pulp and fluff in the global market. Although the original term of the Offtake Agreement term was six years, following the Merger the parties thereto and Suzano entered into a termination agreement pursuant to which the parties agreed to terminate the Offtake Agreement prior to its term after a transitional period of five months starting in April 2019. This termination agreement was signed as part of the commitments submitted to the European Commission in order to receive the approval of the merger between Suzano and Fibria.


Paper Production and Sales


We sell our paper products in Brazil and abroad. The markets we seek to serve are large and very competitive. Although price is very important in these markets, we believe that customers that have high-quality standards prefer our products due to the value and quality our paper imparts to their final products. This preference is shared among customers of all segments, from producers of notebooks and non-promotional materials, to more sophisticated customers, such as producers of promotional materials, high-quality packaging and art books.


The table below sets forth our paper net revenues by geographic region for the periods indicated.



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For the year ended December 31,










Paper net revenues by
geographic region




























Central and South America (1)














North America







































































(1) Excludes Brazil.


Paper Customers


Our customers generally purchase our products using commercial credit provided by our company. We have a diversified customer base for our paper products. We believe we have a good knowledge base to manage our credit risk portfolio through financial (letters of credit and insurance) and non-financial (guarantees) instruments. Additionally, we believe that our strategy to diversify our portfolio of paper clients improves our credit risk performance due to lower correlation between large, medium, small and micro sized clients.




Forest products, such as pulp and paper products, are typically cyclical. Changes in inventories are usually important in price determination. Furthermore, paper demand depends largely on general economic conditions, since production capacity slowly adjusts to changes in demand. Therefore, we can expect seasonal changes in paper net revenues in Brazil depending on such factors. Changes in production capacity may also affect prices.


Similarly, the pulp industry seasonality pattern has been historically correlated with that of paper production. World paper production normally increases by the end of the summer vacations in the northern hemisphere, as well as during the Christmas and New Year holidays. In Brazil, specifically, paper demand increases in the second half of the year, mainly due to the production of notebooks and books for the beginning of a new school year, which begins in February, and governmental programs such as the National Didactic Book Program (Programa Nacional do Livro Didático).


Compared to the pulp market, the market for paper has a larger number of producers and consumers and greater product differentiation. Although the price of paper is cyclical and historically tied to the price of pulp, with a slight time difference, it is generally considered less volatile than the price of pulp. The main factors affecting the price of paper are economic activity, ability to expand production and fluctuation in exchange rates.


Due to specific factors, including pulp and paper machine closures, start-up of new capacities, changes in the cost structure of the industry and the increase of global pulp demand, the seasonality trends observed in the past for the pulp industry may be subject to changes in the future. Nevertheless, seasonality has not caused significant impacts on us over the last three years. For this reason, we do not measure the impacts of seasonality in our results.


Raw Materials


The principal raw materials used in pulp and paper production are described below.




We use fibers from three primary sources for the production of our paper: (i) our pulp; (ii) recycled paper; and (iii) mechanical pulp. Recycled paper and mechanical pulp are used in the interior layers of certain types of paperboard. We use eucalyptus trees for the production of all of our pulp.


The management of our planted forests is a key resource for wood. For further information, see “—Business Overview—Pulp and Paper—Planting and Harvesting Forests.”


Recycled Paper and Mechanical Pulp


Pre- and post-consumption recycled paper and mechanical pulp are used in the production of the interior layers of certain types of paperboard. Recycled paper is also the raw material used in the production of



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our Reciclatoâ paper, which, when production began in 2001, was the first recycled uncoated printing and writing paper produced on an industrial scale in Brazil.




We use several sources of energy. Our primary source of energy, steam, is derived from our pulp and paper production process and is generated by burning black liquor in the recovery boiler. See “—Pulp and Paper Production Process—Pulp.” A secondary source of energy, also derived from our pulp and paper production process, involves the burning of wood waste (bark and thin wood) in auxiliary boilers. Our auxiliary boilers can also generate energy by burning natural gas and oil.


We aim to reduce our energy consumption and increase our self-sufficiency. At our Mucuri unit and our Imperatriz unit, we produce 100% of the energy consumed, mostly by means of renewable sources including wood waste reuse. This is possible because of the kraft chemical recovery process adopted in our mills, which allows us to recover chemicals used in the pulp production process and to use the wood residues from wood cooking to generate power. See “—Pulp Manufacturing—The “Kraft” Cooking Process.” At a later stage, the chemical recovery process is completed with quicklime that along with sodium sulphate and caustic soda form green liquor and white liquor, which is then reapplied to the wood cooking process with minimum make up. Therefore, our chemical recovery process allows us to generate power in an environmentally friendly manner.




A variety of chemicals, including sodium sulphate, sodium hydroxide (caustic soda), sodium chlorate, chloride, hydrogen peroxide and oxygen, are utilized in the paper production process, mainly in the pulp production phase. In the production of coated paper, we use various additives, primarily kaolin, calcium carbonate, latex, starch, bleaches and binders. The chemicals used in the pulp production process are recovered and recycled within our pulp mills.


All chemical waste is treated in order to conform to the most current standards and practices of the pulp and paper industry worldwide. The chemicals used in the pulp and paper industry are commonly used in a variety of other industrial activities and do not present a uniquely hazardous threat. Notwithstanding this fact, we strictly adhere to all safety rules and regulations related to the transport, storage and production of chemical products. In addition, we maintain an insurance policy to cover liability in the event of an accident in the transportation, storage or production of chemical products.






The cost of transportation of pulp and paper products to the consumer market is an important component of Suzano’s competitiveness. In the years ended December 31, 2018, 2017 and 2016, logistics costs accounted for 15.1%, 14.8% and 14.4% of our cost of goods sold, respectively.


Suzano’s scale of production, the proximity of its planted forests to its pulp mills and its planted forests in relation to its factories and the integration of the processes of pulp and paper production give Suzano substantial economies of scale and lower production costs. Suzano and Rio Verde units, in the state of São Paulo, are strategically located near Suzano’s major customers for paper products and approximately 90 kilometers from the port of Santos, and are located at an average distance of 190 kilometers from Suzano’s planted forests. The Limeira unit also has these advantages. Suzano’s Mucuri unit, which primarily services the external market, is strategically located at an average distance of 74 kilometers from Suzano’s planted forests and is approximately 250 kilometers from Portocel, a port that specializes in the exportation of paper and pulp, and approximately 320 kilometers from the port of Vitória. The Imperatriz unit, in Maranhão, which also primarily services the external market, is located approximately 600 kilometers from the port of Itaquí, and the associated planted forests are located an average of 184 kilometers from the port. The proximity of Suzano’s forests, factories, Brazilian clients and ports allows Suzano to enjoy relatively low transportation costs, which, in turn, provides a competitive cost structure for exports.




The location of Fibria’s mills (now operated by Suzano) also provide a variety of logistical options to reach our customers. The Brazilian market may take advantage of Jacareí mill’s proximity to São Paulo and Rio de Janeiro, while the Aracruz mill has the one of the best logistics in the industry with a distance of



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approximately 3 kilometers to the Portocel port facility. The Tres Lagoas mill is located between two important railways in the southeast of Brazil, ensuring the cost competitiveness of this mill, although distance from the port is over 700 km.


Port Operations


The pulp produced for export is shipped on dedicated vessels or partial-service vessels by carriers hired through long-term contracts to our terminals overseas, and is then delivered to our customers.




Suzano conducts operations in the port of Itaquí in the state of Maranhão, in the port of Santos in the state of Sao Paulo, and in the ports of Vitoria and Barra do Riacho (Portocel) in the state of Espírito Santo.


Port of Itaquí


The port of Itaquí is located on the coast of the state of Maranhão. From this port, Suzano exported in 2018 pulp produced at the Imperatriz mill, which is located approximately 700km away from the port of Itaquí. Suzano built a temporary warehouse within the port area to guarantee the continuity of its operations with Empresa Maranhense de Administraçao Portuária (EMAP), a public company held by the state government of Maranhão.


On July 27, 2018, Suzano participated in a public auction conducted by ANTAQ for the concession of public areas and infrastructure for general cargo, especially pulp and paper in the port of Itaquí, for an initial period of 25 years. Suzano was awarded the contract due to its proposal for Itaquí General Cargo Terminal (IQI18), in the amount of R$0.1 million. In 2019, Suzano will start building a warehouse of 73,000 tons and a berth to support long-term planning of Imperatriz mill at the port of Itaquí, with a preliminary budget of R$215.0 million, which may be spent in 2019 and 2020.




During 2018, Fibria conducted operations in two ports: the port of Santos in the state of São Paulo and the port of Barra do Riacho (Portocel) in the state of Espírito Santo.


Pursuant to a long-term agreement, South Korean Pan Ocean Co. Ltd. operated five vessels during 2018 exclusively dedicated to Fibria’s operations, and Fibria supplemented this service through contracts with partial-service chartered vessels, as required to meet its export needs. Beginning in May 2016, Fibria started to receive pulp from Klabin under the Offtake Agreement, which was delivered to Fibria on vessels that depart from the port of Paranaguá in the state of Paraná.


Port of Santos


The port of Santos is located on the coast of the state of São Paulo. From this port, Suzano, as successor to Fibria, exports pulp produced at the Jacareí and Três Lagoas, which are located approximately 150 and 750 kilometers away from the port of Santos, respectively. Suzano, as successor to Fibria, assumed Fibria’s concession to operate terminals 13/14/15 (T13/14/15) and terminal 32 (T32).


In order to facilitate exports from its Três Lagoas, Suzano, as successor to Fibria, has a port services operation contract with a terminal operator at Santos (T31) (Gearbulk Terminals) for an additional storage capacity of 50,000 metric tons of pulp at a specialized terminal where rail connection and vessel berth priority were also taken into consideration. Suzano and Gearbulk are in course of negotiations for the renewal of this agreement.


Although the concession of T13/14/15 expired in September 2017, Fibria timely requested its renewal before the Infrastructure Ministry, which is still pending for approval. Since September 2017, Fibria continued, and Suzano has been continuing, to operate T13/14/15 based on a judicial decision from the 14th Federal Civil Court (Federal Court of the 1st Region), which allows Suzano to continue operating these terminals while its request for renewal is pending a final administrative decision.


Paper produced by Suzano for exports is mainly shipped out of the port of Santos, which is located approximately 80 kilometers from the Suzano unit and about 250 km from the Limeira unit, where most of the paper production designated to export markets comes from.



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DP World Santos


On January 29, 2018, Fibria contracted logistic operations services for transporting pulp, with a take-or-pay condition. These services are rendered by Empresa Brasileira de Terminais Portuarios S.A. (Embraport), which has adopted the brand DP World Santos in its private use terminal (TUP) located at the left bank of the Santos estuary, in the state of São Paulo, where a logistic port installation dedicated to warehousing, handling and shipping pulp will be constructed. Fibria invested R$187.8 million in 2018 and we estimate that our company, as successor to Fibria, will invest approximately R$432.0 million in 2019 and R$153.3 million in 2020. DP World Santos is wholly owned by global trade enabler DP World, one of the largest container port operators in the world, recognized in the industry for its efficiency.


The port operations will start when the construction of a new warehouse and other harbor-logistics structures is completed, which is expected to occur in 2020. The port services will be conducted by DP World Santos until 2039, which term may be extended to 2042 subject to the renewal of the port authorization, as applicable.




The pulp produced for export at the Aracruz and Veracel pulp mills is shipped out of the port of Barra do Riacho (Portocel), which is located approximately 3 kilometers away from Aracruz and 260 nautical miles from Veracel’s barge terminal. Following completion of the Merger, we own 51% of Portocel, the company that operates the port terminal of Aracruz. The remaining 49% of Portocel is owned by Cenibra, another pulp manufacturer, which used to be one of Fibria’s competitors.


The Portocel is a modern facility that has the capacity to handle approximately 7.5million metric tons of pulp and wood per year, from their owners and other players like Suzano, and different type of material like aluminium, steel coils, granite and project cargo. Warehouse facilities at Portocel are capable of storing approximately 220,000 metric tons of pulp (static storage).


Marketing and Distribution


We have our own sales teams for our pulp and paper business units, which sell our products in both the Brazilian and international markets, to final consumer or distribution intermediaries. We sell our products in both the Brazilian and export markets. In the years ended December 31, 2018, 2017 and 2016, 69.9%, 69.5% and 66.7%, respectively, of Suzano’s net sales revenue from market pulp and paper products was attributable to sales made outside of Brazil, while 90.5%, 90.5% and 89.7% of Fibria’s net sales revenue was attributable to sales made outside of Brazil. Domestically in Brazil, we have a sales staff consisting of employees operating in various regions of Brazil.




Our pulp business unit’s commercial strategy is based on three pillars: strong relationships, long-term partnerships and differentiated services. To ensure proximity with our national and international customers and to ensure that our products are tailored to their needs, we use a Brazilian sales team, which services Latin America, and local sales teams in the United States, Switzerland, Austria and China. In Brazil and in each of our international offices, we have technical assistance departments that focus on our customers’ needs, with the purpose of providing our customers with smart technical solutions for their transition from other types of fiber to eucalyptus fiber. We organize annual technical workshops, in Brazil and in each of the countries where we operate, to share with our customers and international offices our innovative initiatives, technical developments and market strategy.




In 2018, 71.0% of our paper sales were made in Brazil. In order to better serve this market, we have divided it into seven segments, designing different commercial and marketing strategies for each segment:


·                  Packaging: this is the main end use of our paperboard sales and involves production of packaging for the pharmaceutical, cosmetic, tobacco, toys, clothing, shoes, food, beverage, hygiene and cleaning industries;

·                  Promotional: this segment mainly involves coated paper sales and production of promotional flyers, catalogues, displays and signs;



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·                  Editorial: this segment accounts for the production of books, magazines and newspapers and involves the sale of all of the paper types that we produce (coated, uncoated and paperboard);

·                  Notebooks: this segment involves the production of notebooks and diaries in both the local and export markets, and uses uncoated paper and paperboard;

·                  Mailing: this segment mainly involves the production of forms and invoices, which use uncoated paper;

·                  Office: this segment encompasses three sub-segments (copying, competition and corporate) and involves the commercialization of uncoated paper in cut-size format, mainly A4; and

·                  Retail: this segment involves the commercialization of uncoated paper in cut-size format, mainly A4, in stationery stores, self-service businesses and convenience stores.


In order to serve the first five segments listed above, we combine different distribution channels: large paper volumes are sold directly to publishers and converters and small paper volumes are sold through publishing distributors. In the office and retail segments, sales are made indirectly, through paper distributors and directly through our call center and e-commerce.


We own distributors for our paper and graphic products, one in Brazil and one in Argentina, Stenfar S.A.I.C. Importadora y Exportadora and Stenfar. For Brazilian distribution, we rely on four regional distribution centers: two in São Paulo, one in Serra (Espírito Santo) and one in São José dos Pinhais (Paraná), as well as our local distribution centers, in the cities of Campinas and Ribeirão Preto (state of São Paulo), Belém (state of Pará), Brasília (federal district), Campo Grande (state of Mato Grosso do Sul), Londrina (state of Paraná), Fortaleza (State of Ceará), Goiânia (State of Goiás), Manaus (State of Amazonas), Porto Alegre (State of Rio Grande do Sul), Recife (state of Pernambuco), Rio de Janeiro (state of Rio de Janeiro), Salvador (state of Bahia) and Uberlândia (state of Minas Gerais).


Other than distributing our own line of paperboard and printing and writing paper, we also distribute other product lines to reach the graphics, editorial and consumer segments and to public agencies. Stenfar is a company-owned distributor of paper and computer supplies operating in Argentina through which we conduct such distribution operations. Stenfar has been operating for more than 58 years and has an important and active presence in the market. Stenfar has three subsidiaries in Buenos Aires, Córdoba and Mar del Plata. Stenfar services the graphics, editorial and consumer segments and public agencies, working with printing and writing paper, paperboard and computer supplies. According to market estimates on paper and computer supplies distribution, we believe Stenfar is one of the largest distributors in its market in the area.


In addition to providing our customers a more complete portfolio of services and products, our distribution operations in Brazil and Stenfar’s distribution operations in Argentina reinforce our commitment to strengthen our distribution channels, enlarging our network and directly benefiting our clients through greater proximity and agility in serving them.


In addition to our own lines of paperboard and writing and printing paper, we also distribute other product lines, for the graphics, publishing, consumer, converter and government entities segments.




The pulp industry is highly competitive. The top 20 producers currently supply approximately 72.0% of the global virgin market pulp capacity according to Hawkins Wright. We face substantial competition from numerous producers of paper and hardwood market pulp, including major Brazilian producers, such as Eldorado, CMPC and Celulose Nipo Brasileira S.A. (Cenibra). Many factors influence competitive position, including mill efficiency and operating rates and the availability, quality and cost of wood, energy, water, chemicals, logistics and labor, and exchange rate fluctuations. Latin American pulp producers have structural cost advantages over other global competitors, mainly in North America and Europe, due to their shorter harvest periods and higher land productivity, which is only partially offset by geographical distance from the end markets. Many of our Latin America competitors enjoy cost advantages similar to ours, including low production costs, and have access to similar sources of funding to finance their expansion projects. The international pulp and paper markets are highly competitive and involve a large number of producers worldwide. As a vertically integrated pulp and paper producer, we compete not only with other vertically integrated pulp and paper producers, but also with companies that produce only pulp or paper. Many of these producers have greater financial resources than we do and enjoy lower financing costs. However, as the second largest producer of eucalyptus pulp in 2018, we maintain our competitive advantage by keeping production costs low, maintaining long-term contracts with our customers and vertically integrating our operations.



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Environmental Matters




We are committed to produce pulp and paper with a minimum of waste production and with the lowest impact on natural resources and the environment. Our continuing goal is to avoid and mitigate adverse impacts on the environment by controlling our emissions into the air and water, preserving biodiversity and by fully complying with Brazilian environmental regulations and recognized international environmental standards. In 1996, we were the first pulp and paper company in the world, and the first company in Brazil, to obtain the International Organization for Standardization 14001 (“ISO 14001”) certification for our planted forests in the state of Bahia. Our forests are also certified by the Forest Stewardship Council (“FSC”) and Programme for the Endorsement of Forest Certification (“PEFC”). Our environmental protection investments in 2018 totaled R$76.2 million in respect of our industrial units and R$36.7 million in respect of our forestry units. Our environmental policy seeks to:


·                  contribute to social and economic development while supporting environmental protection by the adoption of innovative management procedures and remaining a benchmark reference on environmental protection;

·                  prevent pollution, from research through installation, operation and commercialization of our products;

·                  develop and stimulate environmental education in a systemic and participative manner in order to promote environmental consciousness among our partners, collaborators and community;

·                  promote protection of water resources, seeking sustainable atmospheric and soil conditions and biodiversity conservation in the areas in which we operate; and

·                  extend and share our preservation and sustainable management programs among our community and organized sectors of society.


We are also committed to respect and preserve the environment, through reducing our consumption of natural resources and mitigating the impacts of our activities. At the forestry unit, R$64.2 million have been invested in monitoring and conserving natural resources and biodiversity, restoration projects, discussions with organized segments of civil society regarding best management practices, meeting certification demands, environmental education programs and sustainable development of local communities, among others.


Our environmental policy and environmental management system are aligned with the most advanced international standards. In 2017, costs incurred for compliance with environmental law were approximately R$11.0 million. We have the ISO 14001 certification, which attests to our environmental management system, at all of our industrial units, and our Mucuri unit was the first in the pulp and paper sector globally to obtain this certification in 1996. We also have received other certifications, including ISO 9001, OHSAS 18001, CERFLOR/PEFC (Program Endorsement Forest Council) and FSC, which attests that our forest management is environmentally correct and socially just. The FSC seal, created by different multisector international organizations, has strong international recognition and is also labeled in several of our products and our clients’ products. We operate, therefore, under strict compliance with environmental laws and regulations.


Our environmental commitments are also supported and monitored by relevant organizations and coalitions, including the Global Pact for the Environment, the Fundação Getulio Vargas /Centro de Estudos em Sustentabilidade (FGV-CES) and Coalizão Brasil Clima, Floresta e Agricultura (Climate, Forest and Agriculture Brazilian Coalition). In addition, we maintain a strong partnership with recognized forums and organizations to discuss and share knowledge on sustainability, including the World Wildlife Fund-Brazil, the World Wildlife Fund / New Generation Plantation, The Nature Conservancy, CI (International Conservation), The Forest Dialogue, Diálogos Florestais Nacionais (Brazilian Forest Dialogue), Fórum Florestal (Forest Forum), IBÁ, Instituto Ethos (Ethos Institute), the Brazilian Corporate Council for Sustainable Growth (Conselho Empresarial Brasileiro para o Desenvolvimento Sustentável) and the GHG Protocol Brazil.


We also have a strong commitment to community service and participate in and fund a variety of projects, including projects supported by the Instituto Ecofuturo, a non-governmental organization that we have created and sponsor, whose purpose is to generate and share knowledge and practices that contribute to creating a culture of sustainability. In 2018, we invested R$3.5 million on its maintenance.



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Our proactive management of water use and reuse utilizes tools and technologies that allow rational use of water resources, essential for the production of pulp and paper, both in terms of industrial operation and for forest productivity. We have been granted rights for water collection from rivers, wells and reservoirs for use in our unit’s mills and forests. We have a permanent commitment to increase the efficiency of operations and consequently reduce consumption — which has occurred every year through internal reuse and improvement of industrial processes.


In 2018, we leveraged our initiatives through important partnerships such as The Nature Conservancy, the world’s largest environmental organization. Through the “Nascentes do Rio Mucuri Project”, we commenced activities aimed at promoting the sustainability of the river, as well as encouraging initiatives to protect natural springs and restore native vegetation. The region chosen for this work has Atlantic Forest remnants, one of the most biodiverse biomes on the planet, and currently occupies only 12% of its original area in Brazil.


We also invested in the installation of new equipment and processes, such as the new drum displacer washer (reducing the chemical consumption, organic load and color of the treated effluent launched in the Tocantins River) in Imperatriz. On this project alone, we invested over R$74.0 million as a demonstration of our strong commitment to a better and more sustainable environment.


Solid Waste and Wastewater


Waste management is present in our processes and operations, both industrial and forestry. Wastewater treatment at all industrial sites takes place in our own Effluent Treatment Plants and includes the primary treatment (physical) and secondary treatment (biological), a stage in which oxygen and nutrients are added, and pH is controlled. At the Limeira, Jacareí, Três Lagoas and Maranhão units, activated sludge technology is used for secondary treatment, while aerated lagoons are used at the Suzano, Aracruz and Mucuri units. The biological sludge generated by effluent treatment plants is treated by different eco-efficient ways as composting plants at the Limeira, Suzano and Rio Verde units, drying and burning at Jacareí, Imperatriz and Três Lagoas units. In addition, as members of the IBÁ and the Business Commitment to Recycling (Cempre), we participate in discussions about the industry’s plans under the National Solid Waste Plan, established by the Brazilian federal government.


In respect of residues and effluents from our industrial units, we carry out a broad management program aimed at reducing residues and controlling potential risks to the environment. Moreover, we have established partnerships with third parties for the use of these residues as fertilizer and other recycled materials. In Jacareí and Três Lagoas units we established two processes to produce soil corrections certified by the Ministry of Agriculture, and the production derived from these processes supplies part of the forests plantation. Consequently, we now generate revenue from what previously were expenses, in addition to helping the environment. In 2009, the Environmental Company of the State of São Paulo (Companhia Ambiental do Estado de São Paulo), or Cetesb granted us a license to use the biomass ashes from the boilers in our Suzano unit as fertilizers in our forests in São Paulo, the first time such a license was granted in the industry.




Our forestry practices reflect our concern for biodiversity, from planning to implementation. Today we plan and implement our forest management operations using the mosaic landscapes approach, where eucalyptus stands are intermingled with native vegetation. We seek to connect the main native fragments, forming ecological corridors, contributing to the preservation of fauna and flora. Furthermore, we also work with minimal cultivation, where planting is done with low soil interference (crop residues - twigs, leaves and bark - are kept on the ground, contributing to fertility and protecting against erosion). This model provides a suitable environment for conserving and maintaining biodiversity.


We reserve approximately 37.6% of our total land, or 925.6 thousand hectares as environmental preservation areas. This total includes permanent preservations areas (i.e. riparian forests), legal reserves, high-value conservation areas, and other natural areas dedicated to environmental preservation, which exceed the requirements set by Brazilian law and global practice in the pulp and paper industry. We carry out periodic monitoring of fauna and flora in order to ensure its perpetuity. This monitoring has occurred since 2008 in Bahia and Mato Grosso do Sul, 2009 in São Paulo, 2012 with new methodology in Espírito Santo and Minas Gerais, and since 2013 in Maranhão.



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We continued our partnership with The Nature Conservancy (TNC), a non-governmental organization, to craft biodiversity conservation plans, which cover the remaining forest biomes in the Atlantic Forest, Cerrado and Caatinga, resulting in the Conservation Area Plan (PCA), which sets strategies for conserving biodiversity. We also continued our partnership with World Wildlife Fund-Brasil Corporate Partnership, where companies from a variety of industries exchange ideas and tools on how to improve their environmental management. We are the only company in the pulp and paper sector involved in the partnership. Also, we continued to participate in the regional forums of the Forestry Dialogues, such as the ones in the states of Espírito Santo, southern Bahia, São Paulo and Mato Grosso do Sul with NGOs, universities, and local communities and in The Forests Dialogue (TFD), an organization that promotes debate on sensitive issues in the world forestry industry while engaging forestry companies, NGOs, indigenous communities and multilateral agencies.


Climate Change


The issue of climate change incorporates our continuous search to adopt best practices in the management of GHG emissions, consisting of pillars of quantification, reduction and compensation.


In 2008, as one of the founding members, we began a partnership with FGV in the Brazilian program GHG Protocol, which aims to identify and account for emissions from the production process considering the direct emissions from our operational control sources (scope 1), indirect emissions from electricity consumption (scope 2) and activities associated with its production chain, but not controlled by us (scope 3). This tool is designed in accordance with the GHG Protocol methodology of the World Resources Institute (WRI).


Regarding the reduction of emissions, several continuous improvement campaigns are deployed in industrial plants and in forest areas, as well as technological investments in order to reduce the generation of greenhouse gases, increase environmental gains and meet the demands of customers, investors and consumers.


In 2010, we were the first pulp and paper company in Brazil to calculate our carbon footprint by measuring the gas emission throughout our products’ entire life cycle, from raw materials production and distribution through sale, use and disposal, which represents a broader exercise than the greenhouse gases inventory that we have been doing since 2003.


In order to measure and understand the impact of our production and the opportunities for improvement in our processes, in an analytical and strategic way, we are developing new studies of life cycle analysis for some of our products, among them Eucafluff, which has performed better than competitors in a few respects.


In the year ended December 31, 2018, along the climate committee led by IBÁ, we advanced the quality of our carbon stock measurement in our native areas — an important asset of the forestry segment, with great potential of contribution to the climate change, although not well known. In partnership with peer companies, we evaluated the possible existing techniques and technologies and developed a pilot project in the Vale do Paraíba region, which will help to calibrate the success of the final model.


We have also adopted a policy to reuse the energy resulting from our production process. Our industrial units produce a significant portion of their energy requirements, and currently approximately 85% comes from renewable fuels (such as black liquor and biomass), and the remaining 15% from non-renewable resources (such as natural gas and fuel oil). Our Mucuri and Imperatriz units are also almost self-sufficient in energy. In fact, currently both units are selling energy to the grid. In 2017 and in 2018, we added 689,000 MWh and 634,000 MWh to the public grid, respectively.


Brazilian Environmental Regulation


The Brazilian federal constitution assigns to the federal government, the states, the federal district and the municipalities the responsibility for environmental protection and preservation of Brazilian fauna and flora. The authority to enact laws and issue regulations with respect to environmental protection is exercised concurrently by the Brazilian federal government, the states and the municipalities. The municipalities have authority to enact laws and issue regulations only with respect to matters of local interest or to supplement federal and state laws.


The Brazilian environmental policy has established that the regular operation of activities that cause actual or potential pollutants, that use natural resources or that, in any manner, result in environmental degradation are subject to prior environmental licensing requirements. This procedure is necessary both for the



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initial installation of the facility and for any expansion of such facilities. The environmental licensing process basically follows three consecutive stages: preliminary license, installation license and operating license.


Regarding licensing procedures, municipalities have the jurisdiction to license facilities that only have a local environmental impact. Where the environmental impact of the facility is more widespread but still confined to one state, state governments have the jurisdiction to license such facilities. But if a facility generates an environmental impact on more than one state or involves a strategic interest (such as nuclear plants or indigenous lands), the federal government has jurisdiction to license the facilities.


Our activities are currently licensed by the following state agencies:


(i)                  the São Paulo State Secretariat for the Environment (Secretaria Estadual de Meio Ambiente de São Paulo), or SMA and the Environmental Company of the state of São Paulo (Companhia Ambiental do Estado de São Paulo), or CETESB;

(ii)               the State Council for Environmental Policy (Conselho Estadual de Política Ambiental), or COPAM and the State Foundation for the Environment (Fundação Estadual do Meio Ambiente), or FEAM, in the state of Minas Gerais;

(iii)            the State Council for the Environment (Conselho Estadual de Meio Ambiente), or CEPRAM and the Institute of Environment and Water Resources (Instituto do Meio Ambiente e Recursos Hídricos), or INEMA, in the state of Bahia;

(iv)           the State Institute of Environment and Water Resources or IEMA and Institute of Agricultural and Forest Defense of Espírito Santo or IDAF, in the state of Espírito Santo,

(v)              the State Secretariat for the Environment and Renewable Resources (Secretaria Estadual de Meio Ambiente e Recursos Naturais), or SEMA, in the state of Maranhão;

(vi)           the Nature Institute (Instituto da Natureza), or NATURATINS, in the state of Tocantins;

(vii)        the State Secretariat for the Environment and Water Resources (Secretaria Estadual de Meio Ambiente e Recursos Hídricos), or SEMAR, in the state of Piauí; the State Foundation for Environmental Protection Henrique Luiz Roessler or FEPAM in the state of Rio Grande do Sul and Institute of Environment of Mato Grosso do Sul or IMASUL in the state of Mato Grosso do Sul.


The preparation of an environmental impact study and its corresponding environmental impact report, or EIA/RIMA, is required for purposes of licensing activities with significant environmental impact. In any such event, investments are required in order to compensate for negative environmental impacts. The amount of investment made to compensate for the environmental impact must be up to 0.5% of the total cost of the development. Since our principal activities began before the environmental compensation law, we were not required to invest to compensate for the environmental impact for projects performed before the year 2000, as set forth in the law that established the National System of Conservation Units — SNUC. However, new activities started after the institution of SNUC are subject to environmental compensation, which may result in new investments to compensate for the environmental impact of new projects.


We have licenses for the operation of our plants, which are generally valid for five years from date of issuance and may be renewed for additional five-year periods. The operating permits require, among other things, that we periodically report our compliance with certain emissions standards set forth by the appropriate environmental agencies. With regard to our plans, we are currently either (i) in compliance with all operating and environmental licenses or (ii) in the process of renewing these licenses.


Our forestry activities are regulated by the federal government and the state governments of the states of São Paulo, Bahia, Espírito Santo, Minas Gerais, Rio Grande do Sul, Mato Grosso do Sul, Piauí, Tocantins and Maranhão. The planting and harvesting of trees can only be done in accordance with a plan previously approved by the state agencies, except for the States of São Paulo and Mato Grosso do Sul, where a forestry license is not required. Furthermore, in observance of the new Forestry Code (Federal Law n. 12,651/2012), in general, we must keep at least 20% of our landholdings covered with native forests or replanted with indigenous tree species as a legal reserve (reserva legal). Legal reserves must be registered with a new program named the Rural Environmental Registration (CAR — Cadastro Ambiental Rural). In such system, the land owners shall provide information on all the environmentally protected areas to the environmental agency. However, this restriction increases to 35% in the northern region savannah and up to 80% in the Amazon forest. Also, according to federal law, native vegetation from areas along rivers and other water bodies as well as steep slopes and hilltops are to be treated as permanent preservation areas, which are essential to the conservation of water resources, scenery, animal, human and plant health, biodiversity and soil in the area. Our forestry operations are in compliance with all applicable laws and regulations. See “—Environmental Matters.”



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Our operations are subject to various environmental laws and regulations, including those relating to air emissions, effluent discharges, solid waste, odor and reforestation. In Brazil, individuals or legal entities that violate environmental laws can be punished by criminal sanctions that range from fines, imprisonment and confinement, in the case of individuals, or dissolution, in the case of legal entities. In addition, administrative sanctions that can be imposed include, among others:


·                  fines that may reach up to R$10 million if operating without a license and R$50 million in the case of severe environmental damages;

·                  partial or total suspension of activities;

·                  forfeiture or restriction of tax incentives or benefits; and

·                  forfeiture or suspension of participation in credit lines with official credit establishments.


In addition to criminal and administrative sanctions, pursuant to Brazilian environmental laws, the violator must also provide compensation and reimbursement for the damage that was caused to the environment and third parties. At the civil level, there is joint and strict liability for environmental damages. This means that the obligation to compensate for the damage caused to the environment may affect each and every individual or legal entity directly or indirectly involved, regardless of the existence of actual fault by the agents. Therefore, the engagement of third parties to carry out any intervention in our operations, such as the final disposal of waste, does not exempt the contracting party from eventual damages to the environment caused by the contractor. In addition, environmental laws provide for the possibility of piercing the corporate veil, in relation to the controlling shareholder, whenever such corporate veil is an obstacle for the reimbursement of damages caused to the environment.


Using advanced technology, our operations comply with all applicable Brazilian laws and regulations, and we believe that we also meet all recognized international standards to which we or Brazil are signatories. In the past five years, we have not received any administrative penalties or warnings that might be considered relevant or material fines in respect of violations of Brazil’s environmental laws or policies.




We believe that we maintain adequate insurance coverage for our facilities with respect to our operational and commercial risks. Consistent with industry norms and practice in Brazil, we do not maintain insurance coverage for fire and other risks to our planted forests. Nonetheless, we adopt a series of measures, such as, maintenance of a firefighting brigade and keeping the lanes between our production units of eucalyptus trees unobstructed, which historically has significantly prevented the spread of fires. We use the amounts we would otherwise pay as premiums for fire insurance to implement preventive and safety measures, such as installing fire towers and fire control equipment and training firefighting personnel. It is our policy to maintain insurance coverage for our inventory of wood.



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Organizational Structure


The following chart shows our corporate structure as of December 31, 2018 (prior to the completion of the Merger).




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The Merger was consummated in January 2019, as a result of which Fibria became a direct, wholly-owned subsidiary of Suzano, and Fibria’s subsidiaries became indirect subsidiaries of Suzano. Further, on April 1, 2019, Fibria merged with and into Suzano, and ceased to exist as a separate company. The following chart shows our corporate structure as of April 1, 2019, following completion of the Merger and the subsequent merger of Fibria into Suzano.





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Property, Plant and Equipment


Eucalyptus Planted Forests




One of Suzano’s greatest strengths is that it is a fully integrated low-cost producer of pulp and paper. That is due, in part, to the low cost of cultivating and processing eucalyptus trees compared to other species. As shown in the illustration below, the short growth cycle of our eucalyptus trees — seven years — presents a significant competitive advantage in relation to the costs associated with other fibers. For more information about Suzano’s low wood costs, see “—Raw Materials—Wood.”



Suzano’s planted forests along with those of our partners are concentrated in the south of the State of Bahia, in the north of the state of Espírito Santo, in the state of São Paulo, in the east of the state of Minas Gerais, the states of Tocantins, Pará and in southwest of the state of Maranhão, and in north and east of the state of Maranhão and Piauí.


The table and chart below set forth the location and capacity of Suzano’s planted eucalyptus forests as of December 31, 2018:




Total Area (1)
(thousand hectares)


Planted Area
(thousand hectares)


Bahia, Espírito Santo and Minas Gerais






São Paulo






Tocantins, Maranhão, Pará, and Piauí













(1) Total area includes areas owned by Suzano and its partners.



Map of location of eucalyptus planted forests


In addition, the following table describes the location and the area of Fibria’s forest base as of December 31, 2018:



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Total Area
(thousand hectares)


Planted Area
(thousand hectares)


São Paulo






Minas Gerais






Rio de Janeiro






Mato Grosso do Sul