Company Quick10K Filing
Fibria Celulose
20-F 2017-12-31 Annual: 2017-12-31
20-F 2016-12-31 Annual: 2016-12-31
20-F 2015-12-31 Annual: 2015-12-31
VSAR Versartis 24
WISH Wright Investors 9
TAKD Transakt 7
ENRT Enertopia 1
RNVA Rennova Health 0
SRVA Sirva 0
HDHC High Desert Holding 0
SADDP Saddlebrook Resorts 0
BHAC Barington/Hilco Acquisition 0
INCT InCapta 0
FBR 2017-12-31
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on Fibria
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Conduct
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Changes in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-12.1 a18-2311_1ex12d1.htm
EX-12.2 a18-2311_1ex12d2.htm
EX-13.1 a18-2311_1ex13d1.htm
EX-13.2 a18-2311_1ex13d2.htm
EX-23.01 a18-2311_1ex23d01.htm

Fibria Celulose Earnings 2017-12-31

FBR 20F Annual Report

Balance SheetIncome StatementCash Flow

20-F 1 a18-2311_120f.htm 20-F

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For the fiscal year ended DECEMBER 31, 2017


Commission file number 1-15018


Fibria Celulose S.A.

(Exact name of Registrant as specified in its charter)



(Translation of Registrant’s name into English)


Federative Republic of Brazil

(Jurisdiction of incorporation or organization)


Rua Fidêncio Ramos, 302, 3rd floor

04551-010, São Paulo, SP, Brazil

(Address of principal executive offices)


Guilherme Perboyre Cavalcanti

Chief Financial Officer and Investor Relations Officer

Phone: (55 11) 2138-4565

Fax: (55 11) 2138-4065


(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 one share of Common Stock


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 each class of stock of Fibria Celulose S.A. as of



December 31, 2017:




553,934,646 Shares of Common Stock


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

x Yes   o 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

o 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 x


Accelerated filer o


Non-accelerated filer o


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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All references in this annual report to:


·                  “Fibria”, “we”, “our”, “us” and the “Company” are to Fibria Celulose S.A. (formerly Votorantim Celulose e Papel S.A.) and its consolidated subsidiaries (unless the context otherwise requires);


·                  “Votorantim Group” are to the group of companies, controlled by the Ermírio de Moraes family;


·                  “Votorantim Participações S.A.” or “VPar” are to the holding company of Votorantim Industrial S.A which was merged into Votorantim S.A. on January 1, 2016;


·                  Votorantim S.A. (current corporate name of Votorantim Industrial S.A.), “Votorantim Industrial S.A.”, or “VSA,” are to one of our controlling shareholders;


·                  “Aracruz” are to Aracruz Celulose S.A. and its subsidiaries;


·                  “Aracruz Acquisition” are to our acquisition of 100% equity interest in Aracruz as a result of (1) Fibria’s acquisition in the first half of 2009 of (a) Arapar S.A., or Arapar, and São Teófilo Representações e Participações S.A., or São Teófilo, whose sole assets consisted of 12.35% of the total share capital, including 28.0% of the voting share capital, of Aracruz and (b) 12.35% of the total share capital, including 28.0% of the voting share capital, of Aracruz from Mr. Joseph Yacoub Safra and Mr. Moises Yacoub Safra, or the Safra Family, (2) the acquisition of 13,828,307 common shares of Aracruz, representing 3.04% of the outstanding common shares of Aracruz and 1.34% of the total share capital of Aracruz, in the mandatory tender offer launched by Fibria that took place on July 1, 2009, (3) the acquisition of 56,880,857 common share of Aracruz from BNDES on May 27, 2009, and (4) the Stock Swap Merger as described in Item 4. Information on Fibria — A. History and Development of Fibria;


·                  “BNDES” are to the Brazilian National Bank for Social and Economic Development owned by the Brazilian federal government;


·                  “BNDESPar” are to BNDES Participações S.A., a wholly owned subsidiary of BNDES, the Brazilian economic and social development bank owned by the Brazilian federal government;


·                  the “Ermírio de Moraes family” are to the families of Antônio Ermírio de Moraes, Ermírio Pereira de Moraes, Maria Helena de Moraes Scripilliti and José Ermírio de Moraes (in memoriam);


·                  the “Brazilian government” are to the federal government of the Federative Republic of Brazil and its agencies;


·                  Real,” “Reais” or “R$” are to Brazilian Reais, the official currency of Brazil;


·                  “U.S.$”, “Dollars” or “U.S. Dollars” are to United States Dollars;


·                  “ton” and “MT” are to one metric ton (1,000 kilograms). One kilogram equals approximately 2.2 pounds;


·                  “kiloton” are to one thousand metric tons (1,000 tons);


·                  “BEKP” are to bleached eucalyptus kraft pulp;


·                  “ADSs” are to our American Depositary Shares, each representing one of our common shares;


·                  “CVM” are to the Comissão de Valores Mobiliários, the Brazilian securities commission;


·                  “Central Bank” are to the Brazilian Central Bank, the monetary authority of Brazil;


·                  “VCP” are to Votorantim Celulose e Papel S.A. or Fibria before the merger of Aracruz;


·                  “Fibria Trading” are to Fibria Trading International KFT;



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·                  “Fibria - MS” are to Fibria — MS Celulose Sul Matogrossense, company that was merged into Fibria in December 2017


·                  “Portocel” are to a port facility in the State of Espírito Santo, which is operated by Portocel — Terminal Especializado de Barra do Riacho S.A., a subsidiary with 51% interest held by Fibria and 49% interest held by Celulose Nipo-Brasileira S.A. — CENIBRA;


·    “Veracel” are to Veracel Celulose S.A., a joint operation with 50% interest held by Fibria and 50% interest held by Stora Enso Amsterdam B.V.


·                  “Parkia” are to Parkia Participações S.A.


·                  “Commission” are to the Securities and Exchange Commission;


·                  “IFRS” are to International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB);


·                  “NYSE” are to the New York Stock Exchange; and


·                  “B3” are to B3 S.A-  Brasil, Bolsa e Balcão


As used in this annual report, one hectare equals approximately 2.471 acres and one kilometer equals approximately 0.621 miles. References in this annual report to nominal production capacity or production capacity mean annual projected capacity for which the facility was designed, with the facility operating under optimal conditions, 24 hours a day, for 365 days a year and subject to reductions in rates of production for scheduled maintenance only. Actual production capacity may vary depending on operating conditions, the grades of pulp produced and other factors.




We have prepared our consolidated financial statements as of December 31, 2017 and 2016 and for each of the three years in the period ended December 31, 2017 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, included elsewhere in this annual report.


The Brazilian Real is Fibria’s functional currency including for our subsidiaries located in Brazil, and is also the currency used for the preparation and presentation of the consolidated financial statements.


We make statements in this annual report about our competitive position and market share in, and the market size of, the market pulp industry. We have made these statements on the basis of statistics and other information from third-party sources that we believe are reliable. We derive this third-party information principally from monthly reports published by IBÁ — Indústria Brasileira de Árvores (Brazilian Tree Industry), RISI (Resource Information Systems Inc.), PPPC (Pulp and Paper Product Council), Brian McClay, Poyry and Hawkins Wright, all of them specialized consultants in the pulp market. Although we have no reason to believe that any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share, market size or market growth data provided by third parties or by industry or general publications.




This annual report includes forward-looking statements, principally in “Item 3. Key Information — D. Risk Factors”, “Item 4. Information on Fibria — B. 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 direction and future operation;


·                  the implementation of our principal operating strategies; including our potential participation in acquisition or joint venture transactions or other investment opportunities;



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·                  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 — D. 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 could differ substantially.



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Not applicable.




Not applicable.




A.                                    Selected Financial Data


IFRS Summary Financial and Operating Data


The following table presents a summary of our selected financial and operating data at the dates and for each of the periods indicated. The following information should be read together with our 2017 consolidated financial statements, including the notes thereto, included elsewhere in this annual report, “Presentation of Financial and Other Data” and “Item 5. Operating and Financial Review and Prospects”.



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Year ended


Year ended


Year ended


Year ended


Year ended














(in thousands of Reais, unless otherwise indicated)












Net revenues












Cost of sales












Gross profit
























Selling, general and administrative












Equity in results of joint-venture











Other operating income and expenses, net
























Income before financial income and expenses












Financial income












Financial expenses












Result of derivative financial instruments, net












Foreign exchange gain (loss) and indexation charges, net
























Income (loss) before income taxes












Current income tax (expense)












Deferred income tax (expense)












Net income (loss)
























Net income (loss) attributable to shareholders of the Company












Net income attributable to non-controlling interest












Net income (loss)












Basic earnings (loss) per share (in Reais) (1):












Diluted earnings (loss) per share (in Reais)(1):












Weighted average number of shares outstanding (in thousands):












Dividends per share (in Reais):











Dividends per share (in Dollars) (2):












(1)                 Based on the weighted average number of shares outstanding for each year.

(2)                 For convenience purposes only, amounts in reais for the December 2017, 2016, 2015, 2014 and 2013 have been translated to U.S. dollars using a rate of R$3.3080 to US$1.00, the commercial selling rate for Dollars at December 31, 2017 as reported by the Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted into Dollars at that or at any other exchange rate.



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(in thousands of Reais)




As at


As at


As at


As at


As at


















































Cash and cash equivalents












Marketable securities












Derivative financial instruments












Trade accounts receivable, net












Accounts receivable - land and buildings sold




















Recoverable taxes












Assets held for sale








Other assets




























































Marketable securities












Derivative financial instruments












Related parties receivables












Recoverable taxes












Advances to suppliers












Judicial deposits












Deferred taxes












Assets held for sale










Other assets
























Biological assets












Property, plant and equipment












Intangible assets
















































Total assets















As at


As at


As at


As at


As at




December 31,


December 31,


December 31,


December 31,


December 31,














Liabilities and shareholders’ equity
























Loans and financing












Derivative financial instruments












Trade payables












Payroll, profit sharing and related charges












Taxes payable












Liabilities related to the assets held for sale








Dividends payables












Other payables






































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As at


As at


As at


As at


As at






































Loans and financing












Derivative financial instruments












Taxes payables








Deferred taxes











Provision for legal proceeds, net












Liabilities related to the assets held for sale










Other payables
















































Total liabilities
























Shareholders’ equity












Share capital












Share capital reserve












Treasury shares












Other reserves












Statutory reserves
























Equity attributable to shareholders of the Company












Equity attributable to non-controlling interests
























Total shareholders’ equity
























Total liabilities and shareholders’ equity














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Year ended


Year ended


Year ended


Year ended


Year ended


(in thousands of Reais, unless otherwise


December 31,


December 31,


December 31,


December 31,


December 31,


























Gross margin(3)












Operating margin(4)












Capital expenditures(5) 












Depreciation, amortization and depletion












Cash flow provided by (used in):












Operating activities












Investing activities












Financing activities

















As at and for


As at and for


As at and for


As at and for


As at and for




the year ended


the year ended


the year ended


the year ended


the year ended




December 31,


December 31,


December 31,


December 31,


December 31,


























Number of employees












Nominal production capacity (thousand metric tons)
































Sales volumes (thousand metric tons):












Domestic market pulp












Export market pulp












Total market pulp













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

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

(5)   Relates to cash invested for the acquisition of property, plant and equipment and intangible assets and forests, including the expenditures with respect to related to the Horizonte 2 Project, where R$2,538 million were invested during the year, and advances for acquisition of timber from forestry partnership program.


Exchange Rates


Since 1999, the Central Bank has allowed the U.S. Dollar-Real exchange rate to float freely, and since then, the exchange rate has fluctuated considerably. The Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict the Central Bank’s behavior related to the exchange rate market. The Real may depreciate or appreciate significantly against the Dollar in the future.



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The following tables set forth the exchange rate, expressed in Reais per Dollar (R$/U.S.$) for the periods indicated, as reported by the Central Bank.




Exchange Rate of Reais per U.S.$ 1.00


Year Ended December 31,







































































Month Ended




















September 30, 2017










October 31, 2017










November 30, 2017










December 31, 2017










January 31, 2018










February 16, 2018











Source: Brazilian Central Bank.

(1)                                 Represents the daily average exchange rate during each of the relevant periods.


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 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 our Business


The market prices for our pulp products are cyclical.


The prices we are able to obtain for our products depend on prevailing world prices for market pulp. World pulp prices have historically been cyclical and subject to significant fluctuations over short periods depending on a number of factors, including:


·                  global demand for pulp products;


·                  global pulp production capacity and inventories;


·                  strategies adopted by major pulp producers; and


·                  availability of substitutes for our pulp products.


All of these factors are beyond our control.



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Price fluctuations occur not only from year to year but also within a given year as a result of global and regional economic conditions, capacity constraints, mill openings and closures, supply of and demand for both raw materials and finished products, among other factors. As a reference, we use prices published by RISI for North America and prices released by FOEX for Europe and China (which is used as a proxy for prices in Asia). In 2013, prices climbed during the first half of the year, due to relatively stable supply levels and strong demand. Nevertheless, as the summer in the Northern Hemisphere approached, slower seasonal demand introduced prices to a new cycle of decline that lasted until November, when prices started to show signs of recovery, ending the year at an annual average of U.S.$870 per ton in North America, U.S.$791 per ton in Europe and U.S.$673 per ton in Asia. In the beginning of 2014, however, prices were pressured by the new pulp capacities expected to come online during the first half of the year. Prices in all regions dropped until September, when the combination of more robust demand and low inventories levels led producers to implement a price increase effective from the fourth quarter. In 2014, average annual BEKP prices were U.S.$846 per ton in North America, U.S.$745 per ton in Europe and U.S.$609 per ton in Asia. In 2015, prices followed an upward trend for most of the year, reflecting both buoyant demand in all main markets and unexpected supply disruptions. The structurally well-balanced market encouraged many BEKP producers to announce four price increases during the year. In the fourth quarter of 2015, the economic downturn in China placed strong pressure on prices and, as a result, the average annual BEKP prices were U.S.$890 per ton in North America, U.S.$784 per ton in Europe and U.S.$641 per ton in Asia. Even though demand continued to grow in 2016, a large increase in pulp capacity in Asia had been forecasted. Although such capacity increase did not materialize as expected, the expectation itself placed intense pressure on prices, which decreased throughout the year. In 2016, average annual BEKP prices were U.S.$850 per ton in North America, U.S.$696 per ton in Europe and U.S.$517 per ton in Asia. The combination of a strong global demand pushed by all regions and significant unexpected supply disruptions created a favorable scenario for pulp prices during the entire year of 2017. There were price increase announcements in almost all months, resulting in an annual average price well above the previous year’s level. In 2017, average annual BEKP prices were U.S.$998 per ton in North America, U.S.$820 per ton in Europe and U.S.$640 per ton in Asia.


In addition, discounts from list prices are frequently granted by sellers, including us, to significant purchasers. Therefore, no assurance can be given that the prices for pulp will stabilize or not decline further in the future, or that demand for our products will not decline in the future. As a result, no assurance can be given that we will be able to operate our production facilities in a profitable manner in the future. A significant decline in the price of one or more of our products could have a material adverse effect on our net operating revenues, operating income and net income.


China’s importance in the global pulp markets has increased in recent years, driven by increasing domestic consumption. Any negative economic development in China could rapidly affect exports, adversely affecting our revenues, cash flow and profitability.


According to market statistics (PPPC), Chinese demand represented 34% of the global market pulp demand in 2017 and this consumption has increased at an annual average growth rate of 5.5% since 2005, above the global average of 1.3%. 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.


Global crises and subsequent economic slowdowns, may adversely affect global pulp demand. As a result, our financial condition and results of operations may be adversely affected.


Demand for our pulp products is directly linked to overall economic activity within those international markets in which we sell our products. After a steady period of growth between 2003 and 2007, the marked drop in demand resulting from the global economic crisis of 2008-2009 once again demonstrated the vulnerability of the pulp market to international volatility. From mid-2009 through 2010, the global economy recovered and provided improved conditions for the pulp market. In 2012, the unstable economic environment continued pressuring pulp demand; however, positive results in emerging regions offset the losses in mature markets, leading to higher pulp demand compared to the previous year. In 2013, however, despite the persistent tepid economic climate, pulp demand grew by 3.2% with improvements seen in almost all major regions of the globe, especially due to higher investments in new paper capacity. According to PPPC, 39 new tissue paper machines were installed in 2013 and other 59 new tissue paper machines were forecast to enter the market in 2014. The weak economic environment persisted through 2014, but the impact of the capacity expansions was felt in 2013 in all regions, mainly focused in the tissue market, combined with the installation of other new paper capacities mainly in China during the year, resulted again in a 1.7% increase in demand. In 2015, global pulp demand increased by 2.4% as a result of positive results in the main European economic indicators along with the continuing paper capacity expansion in China. In 2016, pulp demand continued to increase at a pace similar to that in previous years, mainly driven by Chinese demand and expansion.  The total pulp demand increase was 3.9% and eucalyptus pulp demand increase was 7.7%.  In China, pulp demand increased by 16.7% and eucalyptus demand increased by 23.8%.  2017 was not different and pulp demand continued to post gains supported by the good market environment in all regions, but mainly in China, during the year.  Demand growth in global market pulp and eucalyptus was 3.7% and 2.5%, respectively, and in China 7.6% and 1.5%, respectively.



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A decline in the level of activity in either the domestic or the international markets within which we operate could adversely affect both the demand for and the price of our products and have a material adverse effect on us.


The deterioration of global economic conditions could, among other things:


·                  further negatively impact global demand for paper, reducing investments in new paper capacity and/or leading to paper mills closures, which would directly impact pulp consumption, or further lower market prices for our products, which could result in a continued reduction of our sales, operating income and cash flows;


·                  make it more difficult or costly for us to obtain financing for our operations or investments or to refinance our debt in the future;


·                  impair the financial condition of some of our customers, suppliers or counterparties to our derivative instruments, thereby increasing customer bad debts or non-performance by suppliers or counterparties;


·                  decrease the value of certain of our investments; and/or


·                  impair the financial viability of our insurers.


New projects that have started up and others that  may come to market in the future may adversely affect our competitiveness.


Market players have concluded the new pulp production capacity installations in South America and Asia. Better than expected demand and some adjustments in the supply base, with closures of old and inefficient capacities, supported the balance of market fundamentals. It is important to note, however, that there is a risk that the installation of new capacities could result in a possible loss of market share, reduction of pulp prices and shortage of raw materials, resulting an increase in wood and other input prices. Therefore, our results of operations and financial condition could be adversely affected.


Our exports expose us to political and economic risks in foreign countries.


Our sales outside Brazil accounted for 91% of our total consolidated net revenues during the years ended December 31, 2017, 90% during the year ended December 31, 2016 and 91% during the year ended December 31, 2015. Our exports, primarily to Asia, Europe and North America, expose us to risks not faced by companies operating solely in Brazil or any other single country. For example, our exports may be affected by import restrictions and tariffs, other trade protection measures and import or export licensing requirements.


Additionally, the international pulp industry is highly competitive. Certain of our competitors may have greater financial strength and access to cheaper sources of capital, and consequently have the ability to support strategic expenditures directed to increase their market share.


Our future financial performance will depend significantly on economic conditions in our principal export markets. Other risks associated with our international activities include:


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


·                  the entrance of new pulp producers or mergers and acquisitions between existing producers, which could adversely affect our competitiveness in the market;


·                  the inability to successfully continue to expand our production capacity at the same pace as our competitors could negatively affect our market share;


·                  the deterioration of global economic conditions could impair the financial condition of some of our customers, suppliers or counterparties to our derivative instruments, thereby increasing customer bad debts or non-performance by suppliers or counterparties;


·                  the downward pressure on pulp prices may affect our profitability;



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·                  changes in foreign currency exchange rates (against the U.S. Dollar) and inflation in the foreign countries in which we operate;


·                  exchange and international trade controls;


·                  changes in a specific country’s or regions economic conditions;


·                  crisis in financial markets and the threat of a global economic slowdown;


·                  cultural differences; such business practices;


·                  adverse consequences deriving from changes in regulatory requirements, including environmental rules, regulations and certification requirements;


·                  difficulties and costs associated with complying with, and enforcing remedies under, a wide variety of complex international laws, treaties, and regulations;


·                  adverse consequences from changes in tax laws;


·                  economic protectionism resulting in changes in tax laws and tariffs that reduce incentives for exports; and


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


While we attempt to manage certain of these risks through the use of risk management programs, it cannot and does not fully eliminate these risks. An occurrence of any of these events may negatively impact our ability to transact business in certain existing or developing markets and have a material adverse effect on our business.


We face significant competition, which may adversely affect our market share and profitability.


The pulp industry is highly competitive. In the international pulp market, certain of our competitors may have greater financial strength and access to cheaper sources of capital, and consequently have the ability to support strategic expenditures directed to increase their market share. Our market share may be adversely affected if we are unable to successfully continue to expand our production capacity at the same pace as our competitors.


In addition, most markets for pulp are served by several suppliers, often from different countries. Many factors influence our 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. Some of our competitors may have greater financial and marketing resources, and greater breadth of product offerings than we do. If we are unable to remain competitive with these producers in the future, our market share may be adversely affected.


In addition, downward pressure on the prices of pulp by our competitors may affect our profitability.


Competition for land for use as eucalyptus forests for purposes of pulp production or for other crops, such as soybeans, sugar cane and other commodities, may affect any eventual and future expansion.


Greater global demand for certain commodities, especially for grains, bio-fuel and animal protein, may impact our forestry operations in two ways:


·                  greater competition for land could impact its price. Grain, bio-fuel and animal protein production generally are economically superior to forestry activities, and as a result, prospective increases in land values may inhibit expansion of new forests.


·                  for the same reason, we may face difficulties in convincing third-party partners to begin or to expand eucalyptus production for use in the pulp industry.



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Risks Related to Our Operations


We may not be able to adjust production volume in a timely or cost-efficient manner in response to changes in demand.


If we have to operate at significant idle capacity during periods of weak demand, we may be exposed to higher unit production costs since a significant portion of our cost structure is fixed in the short-term due to the high capital intensity of pulp operations. In addition, efforts to reduce costs during periods of weak demand could be limited by labor regulations or previous labor or government agreements. Conversely, during periods of high demand, our ability to rapidly increase production capacity is limited, which could render us unable to satisfy demand for our products. If we are unable to satisfy excess customer demand, we may lose market share.


We may be materially adversely affected if operations at the transportation, storage, distribution and port facilities we own or utilize were to experience significant interruption.


Our operations are dependent upon the uninterrupted operation of transportation, storage, distribution and port facilities that we own or utilize. Operations at these facilities could be partially or completely shut down, temporarily or permanently, as a result of any number of circumstances that are not under our control, such as:


·                  catastrophic events;


·                  strikes or other labor difficulties;


·                  other disruptions in means of transportation; and


·                  suspension or termination of concessions granted to us or to our commercial partners or independent contractors relating to the right to provide a specific service.


Any significant interruption at these facilities or inability to transport products to or from these facilities (including through exports) or to or from our customers for any reason may materially adversely affect us.


Our insurance coverage may be insufficient to cover our losses.


Our insurance may be insufficient to cover losses that we might incur. The insurance that we maintain to cover damages to our facilities caused by fire, general third-party liability for accidents and operational risks, and international and domestic transportation. We do not maintain insurance coverage against any risks related to our forests, such as caused by pests and diseases, fire or drought. The occurrence of losses or other damages not covered by insurance or that exceed our insurance limits could result in unexpected additional costs and shortage of wood supply to our mills. “See Item 4. Information on Fibria — B. Business Overview — Insurance.”


We conduct certain of our operations through joint ventures and subsidiaries that we do not solely control.


In October 2000, Aracruz Celulose S.A. (which was merged with Votorantim Celulose e Papel S.A.) acquired a 45% stake in Veracel Celulose S.A., a joint venture with Stora Enso Amsterdam B.V. (the current corporate name of Stora Enso OYJ) (“Stora Enso”) that operates a pulp plant and forests in the south of the State of Bahia.


In January 2003, Aracruz increased its equity interest in Veracel to 50% and since then Stora Enso has owned the remaining 50% of the equity interests in Veracel.


We, as legal successor of Aracruz, are party to a shareholders’ agreement with Stora Enso, regulating the relationship between the shareholders with respect to Veracel, pursuant to which the parties have the right to nominate an equal number of board members.


Under this shareholders’ agreement, each shareholder may be required to make capital contributions and, if any of the parties fails to comply with any of its obligations regarding Veracel’s funding needs in connection with a pre-agreed investment and capital contribution plan, the other shareholder shall have the right to require the defaulting shareholder to transfer all of its equity interests in Veracel to the other shareholder at a discounted market value.



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In view of the shared control of Veracel as described above, we may not unilaterally make major decisions with respect to this entity. In addition, the existing contractual arrangement with respect to Veracel may constrain our ability to take actions that would be in our best interests, and may prevent us from refraining them from taking actions that would be adverse to our interests.


We also own a 51% equity interest in Portocel, (the company is the only port in Brazil that specializes in shipping pulp) jointly with Celulose Nipo-Brasileira — Cenibra (“Cenibra”), which owns the remaining 49% of the equity interests in Portocel.


Although we have majority control of Portocel, we are party to a shareholders’ agreement with Cenibra, which regulates the relationship between the shareholders. Such agreement establishes that the major decisions regarding Portocel must be made pursuant to a unanimous vote of its shareholders.


If we are unable to manage potential problems and risks related to acquisitions, and alliances, our business and growth prospects may suffer. Some of our competitors may be better positioned to acquire other pulp business.


We may, as part of our business strategy, acquire other businesses in Brazil or elsewhere or enter into alliances. Our management is unable to predict whether or when any prospective acquisitions or alliances will occur, or the likelihood of a material transaction being completed on favorable terms and conditions. Our ability to continue to expand successfully through acquisitions or alliances depends on many factors, including our ability to identify acquisitions and negotiate, finance and close transactions. Even if we complete future acquisitions, we could fail to successfully integrate the operations, services and products of any acquired company. 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 alliance strategy;


·                  the acquisitions could increase our costs;


·                  our management’s attention could be diverted from other business concerns; and


·                  we could lose key employees of the acquired company.


Our failure to integrate new businesses or manage new alliances successfully could adversely affect our business and financial performance. Furthermore, the global pulp and paper industry is undergoing consolidation, and many companies compete for acquisition and alliance opportunities in our industry. Some of our competitors have greater financial and other resources than we do. This may reduce the likelihood that we will be successful in completing acquisitions and alliances necessary for the expansion of our business. In addition, any major acquisition we consider may be subject to regulatory approval. We may not be successful in obtaining required regulatory approvals on a timely basis or at all.


The loss of certain of our customers or their ability to pay us could cause a significant impact on our results of operations, cash flows and financial condition.


Our three largest customers represented 46% of our net revenue in 2017. Although such sales are supported by long-term contracts, if we are unable to replace the sales volumes represented by any of these important customers, the loss of any of these customers could have a material adverse effect on our results of operations, cash flows and financial condition.


As part of its relationship with its clients, the Company grants payment terms in accordance with its internal evaluation as to the capacity of payment of each client. In the event of a deterioration in such payment capacity, where the credit risk is not covered by



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trade credit insurance or other credit enhancement, such as letters of credit, including changes that result from the economic, political or regulatory situation of the Company’s clients at any time, such client’s capacity to meet their payment obligations could be adversely affected. If a significant number of the Company’s clients become incapable of paying, the Company’s results of operations, including its cash flow, could be materially impacted.


We may be subject to labor disputes from time to time that may adversely affect us.


Most of our employees are represented by unions or equivalent bodies and are covered by collective bargaining or similar agreements, which are subject to periodic renegotiation. In addition, we may not successfully conclude our labor negotiations on satisfactory terms, which may result in a significant increase in the cost of labor or may result in work stoppages or labor disturbances that disrupt our operations. Any such cost increases, work stoppages or disturbances could materially adversely affect us.


An electricity shortage and related electricity rationing may adversely affect our business and results of operations.


Hydroelectric power is a major source of energy for Brazilian industry. Low levels of investment and below average rainfall have in the past resulted in low reservoir levels of critical hydroelectric capacity in Brazil’s southeast, central west and northeast regions. Alternative sources of power generation have often been delayed due to regulatory and other issues. For example, the Brazilian government instituted a rationing and consumption reduction program to reduce electricity consumption from mid-2001 to early 2002. This program established limits on energy consumption by industrial, commercial and residential users.


In 2017, we generated internally approximately 123% of the electric energy requirements for our pulp production process. Of the total amount of thermal and electrical energy we self-generated, 91% was from renewable fuels, such as biomass and black liquor which are byproducts of the pulp production process, and 9% was from non-renewable fuels that we purchased, such as fuel oil and natural gas. Nonetheless, if Brazil experiences shortages in available electricity (whether due to hydrological conditions, infrastructure limitations or otherwise), similar or other policies may be put into place to limit or ration electrical power utilization. Although we believe we are adequately prepared with respect to energy since we are self-sufficient and even sell the overflow electric energy to the Brazilian grid, our sales may be adversely affected by the negative effect the energy shortage may have on the macroeconomic environment. In addition, we may also be adversely affected by the impact of the energy shortage on the activities of our main suppliers of raw materials. Any such shortage and related electricity rationing could have a material adverse effect on our business and results of operations.



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Drought in some regions of Brazil, resulting in water scarcity and related rationing, may adversely affect our business and results of operations. Other impacts on water supply, such as environmental problems and regulatory restrictions, could adversely affect our business and result of operations.


Some regions of Brazil are currently experiencing drought conditions, resulting in acute shortage of water and the implementation of rationing to control usage. Even though we believe that not all of our operations will be affected by these conditions, certain of our units are located in the affected areas. Although our units are already very efficient in water usage, we continue to improve the mill’s efficiency in water consumption and have defined a contingency plans for all the possible affected units, if required. Nevertheless, we cannot assure that very severe droughts or governmental measures to address drought conditions will not have the effect of impacting our units’ operations, with the resulting adverse effect on our business and results of operations.


Other impacts on the water supply, such as 2015’s environmental accident affecting the Rio Doce, or regulatory actions to limit access to water could have a significant and adverse effect on our business operations. For example, as a consequence of the mine tailings contamination of the Rio Doce in November 2015, our Aracruz unit was required to suspend its use of water from that river for its operations for a short period. No impact was recorded, however, because the Aracruz Unit has a reservoir sufficient to sustain it for up to five months, which had at the time of the accident at least 90 days of water supply. Nonetheless, no assurance can be given that future environmental events or governmental regulatory action will not materially and adversely affect the access to sufficient water for our operations.


Various other risks could have a material adverse effect on our operational and financial results.


Our operations are subject to various other risks affecting our forests and manufacturing processes, including fire, drought, disease, strikes, port closings, shipping costs, electrical failures and factory explosions, and limited supply, increased cost and poor quality of inputs in our manufacturing process such as chemicals, any of which could have a material adverse effect on our operational and financial results.


Failures in our information technology systems and/or security breaches related to confidential, strategical or operational information can harm our business


Our business depends on information technology systems to effectively manage our production processes. Therefore, interruptions in these systems caused by employee error or attacks, external cyber-attacks, obsolescence or technical failures can deeply harm our business operations. Besides, any failure of our systems related to sensitive information could disrupt our business and result in production errors, processing inefficiencies and the loss of sales and customers, which in turn could result in decreased revenue, increased costs and excess or out-of-stock inventory levels resulting in a material adverse effect on our business results and financial condition. Additionally, cyberattacks or internal actions, including negligence or misconduct of our employees and suppliers, may have a negative impact on our reputation, our relationship with external entities (government, regulators, partners, among others) and our strategic positioning with relation to our competitors.


Financial Risks


Our consolidated indebtedness will require that a portion of our cash flow be used to pay the principal and interest with respect to that indebtedness.


As of December 31, 2017, our total consolidated indebtedness amounted to R$19,299 million, of which 91.2% represented long-term indebtedness.


The level of our indebtedness could have important consequences to our shareholders and the holders of our ADSs, including the following:


·                  investment in pulp production requires a substantial amount of funds in order to form forests, maintain or production capacity, build infrastructure and preserve the environment. This need for significant capital is an important source of financial risk for the pulp industry. Our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements or other purposes could be limited;


·                  a portion of our cash flow from operations will need to be dedicated to the payment of principal and interest on our indebtedness and may not be available for other purposes;


·                  our level of indebtedness could limit our flexibility in planning for, or reacting to changes in, our business; and


·                  our level of indebtedness could make us more vulnerable in the event of a downturn in our business.



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Exchange rate instability may adversely affect our financial condition and results of operations and the market price of our shares and ADSs.


In 2013, the positive outlook of a recovering economy in the US and in the Eurozone caused a rapid depreciation of several Emerging Markets currencies, including the Real. As a result, in 2013 the U.S Dollar appreciated by 14.6% against the Real. In 2014, mainly as a result of Brazil’s macroeconomics scenario and general global uncertainties, the U.S Dollar appreciated by 13.4% against the Real. In 2015, the worsening in Brazil’s economic, political and fiscal conditions resulted in the rating agencies S&P, Fitch and Moody’s downgrading the Brazil sovereign rating below investment grade. As a result of the downgrade and other factors, the U.S Dollar appreciated by 47% against the Real. In 2016, the Brazilian political scenario, the impeachment of former president Dilma Roussef and the global scenario (including the UK decision to leave the European Union, the election of Donald Trump as president of the United States and the decision of the U.S. Federal Reserve to raise the federal funds rate) resulted in highly volatile currency exchange rates. As a result the Dollar depreciated by 16.5% against the Real. In 2017, despite the political and fiscal scenarios remained critical in Brazil, the end of the recession and the decline in the interest rate and inflation resulted in a less volatile currency exchange rates. The Dollar appreciated 1.5% against the Real. See item 11. Quantitative and Qualitative Disclosures About Market Risk.


Our production costs and operating expenses are substantially denominated in Brazilian Reais and most of our revenue and some assets are denominated in U.S. Dollars. In addition, 59% of our total debt, including swap transactions, is denominated in U.S. Dollars. As a result, exchange rate instability may adversely affect our financial condition and results of operations. It may also affect the amount of dividends we can distribute to our shareholders, including the holders of our ADSs and the market price of our shares and ADSs.


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


We regularly enter into currency, interest rate and inflation hedging transactions using financial derivatives instruments, through future contracts, options and swaps, in accordance with our Market Risk Management Policy. Hedging transactions aim, among others, to (1) protect our revenue (which is primarily denominated in U.S. Dollars) when converted to Brazilian Reais (our functional currency); (2) convert part of our debt which is denominated in Brazilian 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, interest rates, among others, prior to their settlement date. As a result, we may incur unrealized losses due to these market risks factors. These 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 the Company ceases undertaking hedging transactions to the extent necessary, the Company may be exposed to commodity price, exchange and interest rate risks. As a result, the Company’s financial performance could be adversely affected.


Our financing agreements include important covenants. Any default arising from a breach of such covenants could have a material adverse effect on us. In the event of a breach of such covenants, or for other factors affecting our financial condition, we may not be permitted to pay, or elect not to pay dividends.


We are party to several financing agreements that require us to maintain certain financial ratios or to comply with other specific covenants. These covenants and restrictions, some of which are subject to certain important exceptions, include among others:


·                  limitations on entering into certain transactions with affiliates;



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·                  limitations as to mergers or consolidations with any other person or selling or otherwise disposing of all or substantially all of our assets;


·                  the maintenance of maximum net debt to Adjusted EBITDA ratios; and


·                  the maintenance of minimum debt service coverage ratios.


Any default under the terms of our financing agreements that is not waived by the affected creditors may result in a decision by such creditors to accelerate the outstanding balance of the relevant debt. This may also result in the foreclosure on collateral and accelerate the maturity of debts under other financing agreements due to cross acceleration provisions. Our assets and cash flow may be insufficient to pay the full outstanding balance under such financing agreements, either upon their scheduled maturity dates or upon any acceleration of payments following an event of default. If such events were to occur, our financial condition would be adversely affected.


Defaults under the terms of our financing agreements may result in our inability to pay dividends. In addition, in accordance with its bylaws, the Company must pay its shareholders 25% of its adjusted annual net income as a compulsory dividend. The net income can be capitalized, used to compensate for a loss or even retained, as contemplated by Law 6,404/76, and therefore not be made available for payment of dividends. The Company can elect to not pay a dividend to its shareholders in its fiscal year if its management demonstrates, and if the general shareholders’ meeting approves, if that such payment would be inadvisable given the financial condition of the Company.


Any downgrade in our credit ratings could adversely affect the availability of new financing and increase our cost of capital.


In February 2013, Fitch changed the rating outlook for Fibria to positive from stable. In March 2013, S&P upgraded Fibria’s rating from BB/positive to BB+/stable. In September 2013, Moody’s changed our outlook from stable to positive. In February 2014, Fitch Ratings upgraded our credit rating to BBB- with a stable outlook, thereby granting us Investment Grade status. In March 2014, S&P revised our credit rating outlook from stable to positive. In April 2015, S&P upgraded our rating to BBB- with a stable outlook and in November 2015, Moody’s upgraded our rating to Baa3 with a stable outlook, giving us the status of an investment grade company for the three rating agencies. S&P and Fitch downgraded Brazil’s sovereign rating from BBB- to BB+ in September 2015 and December 2015, respectively, and in December 2015, Moody’s placed Brazil’s sovereign rating Baa3 for downgrade. In February 2016, S&P downgraded Brazil’s sovereign rating from BB+ to BB with a negative outlook and Moody’s downgraded Fibria to Ba1/Negative. In November 2016, Standard & Poor’s reaffirmed the investment grade rating but revised the Company’s outlook to negative from stable and in January 2017, Fitch reaffirmed the investment grade rating and maintained the stable outlook.


In November 2017, Standard & Poor’s reaffirmed the investment grade rating and revised the Company’s outlook to stable from negative and in December 2017, Fitch reaffirmed the investment grade rating and revised the Company’s outlook to positive from stable. In January 2018, S&P downgraded Brazil’s sovereign rating from BB to BB- with a stable outlook.


The global scale ratings currently assigned to our foreign currency debt are BBB-/Positive by Fitch, BBB-/Stable by S&P and Ba1/Negative by Moody’s. If our ratings were to be downgraded by the rating agencies due to any external factor (which could include a downgrade of the Brazilian sovereign rating), our own operating performance and/or increased debt levels, our cost of capital may increase. Any downgrade could also negatively affect our operating and financial results and the availability of future financing.


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


We are involved in numerous tax, civil and labor disputes involving significant monetary claims. For additional information, see Item 8.A “Consolidated Statements and Other Financial Information” and Note 25 to our 2017 Consolidated Financial Statements contained elsewhere in this Annual Report.


Additionally, we are continuously being audited by the Brazilian Federal Tax Authority with regard to our international structure, merger and acquisition transactions and the use of tax credits related to our raw materials.


If unfavorable decisions are rendered in one or more of these lawsuits, we could be required to pay substantial amounts, which could materially adversely affect our results of operations, cash flows and financial condition.


An impairment of goodwill or other intangible assets would adversely affect our financial condition and results of operations.


As a result of the Aracruz Acquisition, we have recognized R$4,230 million of goodwill and have recorded several intangible assets from the Aracruz business (including database, patents, chemical supplier and other supplier relationships) with a fair value of



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R$779 million at the acquisition date (R$118 million at December 31, 2017 and R$174 million at December 31, 2016). Under IFRS, goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually or more often if an event or circumstance indicates that an impairment loss may have been incurred. Other intangible assets with a finite life are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever there is an indication of impairment. As of December 31, 2017, we performed our annual impairment test of the Goodwill, which is allocated in Cash Generating Units (CGUs) Aracruz, Portocel and Veracel. In addition, as required by IAS 36, when the book value of the net assets of the Company exceeds its market capitalization, an impairment analysis of long-lived assets must be performed. As a result, we performed an impairment analysis of our long-lived assets. The recoverability test did not result in the need to recognize any impairment of goodwill and fixed assets. See “Item 5. Operating and Financial Review and Prospects — B. Discussion of Critical Accounting Policies” and Note 38 to our 2017 consolidated financial statements.


Changes in the value of the key assumptions used in the impairment tests could result in impairment charges in the future that could be significant and that could have an adverse effect on our results of operations and financial condition.


Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to our business


The Brazilian government frequently implements changes to tax regimes that may affect us. These amendments include changes in prevailing tax rates and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. Similarly to other Brazilian companies across multiple industries, we benefit from certain tax and other government-granted benefits. Some of these changes may result in increases in our tax payments, which could adversely affect industry profitability, restrict our ability to do business in our existing and target markets, impact the prices of our products and cause our financial results and cash flow to suffer.


We cannot assure that these current incentives will be maintained, renewed or that we will be able to obtain new incentives. The suspension, cancellation or non-renewal of which would have a material adverse effect on us.


For further information, see “Item 5A — Operating and Financial Review and Prospects—Operating Results”


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 Brazilian Interbank Deposit Certificate (Certificado de Depósito Interbancário known as CDI) and the Brazilian Long Term Interest Rate (Taxa de Juros de Longo Prazo known as TJLP). The LIBOR rates have significantly increased derived from regulatory changes to U.S. money market funds (MMFs). The LIBOR 3 months rate was 1.6943% p.a., 0.9979% p.a. and 0.6127% p.a. as of December 31, 2017, 2016 and 2015. The CDI rate has fluctuated significantly in the past in response to the expansion or contraction of the Brazilian economy, inflation control purpose, Brazilian government policies and other factors. After a significant drop during 2017, the CDI rate was 6.89% p.a., 13.63% p.a. and 14.14% p.a. as of December 31, 2017, 2016 and 2015, respectively. The TJLP rate was 6.75% p.a., 7.50% p.a. and 7.50% p.a. as of December 31, 2017, 2016 and 2015, respectively.


A significant increase in interest rates, particularly TJLP, CDI, IPCA or LIBOR, would have a material adverse effect on our financial expenses due to the fact that 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 the financial revenues derived from our investment activities since a relevant part of our cash is invested in Brazilian money market, linked to CDI. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”


On July 27, 2017, the head of the Financial Conduct Authority, or the FCA, announced the desire to phase out the use of LIBOR by the end of 2021. Because the statements made by the head of the FCA are recent in nature, 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 debt servicing cannot yet be determined and, at this time, it is not possible to predict the effect of any establishment of 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, alternative reference rates or other reforms may adversely affect our notes or have a material adverse effect on our business and financial results.



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Economic and market conditions in other countries, including in developing countries, may materially and adversely affect the Brazilian economy and, therefore, the market value of our shares and ADSs.


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, including Latin American and developing countries. Although economic conditions are different in each country, the reaction of investors to developments in one country may cause the capital markets in other countries to fluctuate. Developments or conditions in other countries, including developing countries, have at times significantly affected the availability of credit in the Brazilian economy and resulted in considerable outflows of funds and declines in the amount of foreign currency invested in Brazil. It has also 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 there should be a need for us to do so. The volatility in market prices for Brazilian securities has increased from time to time, and investors’ perception of increased risk due to crises in other countries, including developing countries, may also lead to a reduction in the market price of our shares and ADSs.


We benefit from certain tax and other government-granted benefits, the suspension, cancellation or non-renewal of which would have a material adverse effect on us.


Similarly to other Brazilian companies across multiple industries, we receive certain tax and other government-granted benefits, including incentives related to our export and research and development activities. For further information, see “Item 5A — Operating and Financial Review and Prospects—Operating Results.”


We cannot assure you that these incentives will be maintained or renewed or that we will be able to obtain new incentives. We could be materially adversely affected in the event our existing benefits are cancelled or not renewed.


Regulatory Risks


We are subject to regulatory risk associated with our national and international operations.


We operate in a global environment, and our activities extend over multiple jurisdictions and complex regulatory frameworks with increased enforcement activities worldwide. Fibria is subject to local, regional and international laws and regulations in such diverse areas as product safety, product claims, trademarks, competition, employee health and safety, the environment, corporate governance including anti-corruption, anti-bribery, anti-money laundering, listing and disclosure, employment and taxes.


Although we have a corporate governance, risk and compliance framework in place, we may be subject to breaches of  the law, our internal policies, procedures and controls by fraudulent behavior, corrupt practices and dishonesty by our directors, officers, executives, employees, contractors or other agents.


We are also subject to the issuance of permits and licenses from various governmental agencies in order to undertake certain of our 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 have a limited validity term and need to be renewed for subsequent periods, some of which  require, among other things, that we periodically report our compliance with environmental and social standards set by regulatory agencies.


Failure to comply with laws and regulations could expose us to a suspension of our operations or a delay of new activities if we are not able to renew or obtain our operating licenses. Additionally, such failure could also lead us to civil and/or criminal actions resulting in damages, fines and criminal sanctions against us and/or our employees with material adverse consequences for our costs performance, production, results of operation, financial condition and corporate reputation. Furthermore, even complying with laws and regulations, we are subject to delays on the procedures of issuing the new licenses by the governmental agencies expouse us to not obtain the new requested licenses as expected. Failure to obtain new licenses in due time could expouse us to delays on new activities.


We may be adversely affected by the imposition and enforcement of more stringent environmental regulations that would require us to spend additional funds. Furthermore, violations of environmental law, regulations and authorizations could result in significant penalties that could materially adversely affect our results of operations and financial condition.


Brazilian environmental legislation applicable to forestry and to industrial operations is complex because it encompasses federal, state and municipal regulations, which involve different requirements and restrictions for each location where the Company operates. As such, the Company may be obligated, among other requirements, to obtain specific permits issues by governmental authorities. The requirements contained in these permits can increase the operating costs in order to limit or adjust effects or potential effects on the environment or the health of the Company’s employees.



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Furthermore, violations of those laws, regulations and authorizations expose the Company, its management and its employees to administrative, civil and/or criminal penalties. The administrative and criminal penalties assessed in case of non-compliance with environmental legislation are applied independently of the obligation to repair possible environmental damage that results. On the civil side, entities that are proven to have contributed to the harm can be held liable for its remediation, which could result in substantial costs for the Company. As a consequence, when the Company engages third parties to act in connection with its operations, such as final disposal of waste, it can be held liable for eventual environmental damage cause by the these third parties.


Administrative infractions can result in substantial fines, suspension of operations, suspension of operating permits and imposition of restricted rights (such as barring entering into contracts with public entities, credit restriction, among other), in addition to criminal penalties for the Company.



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Failure to fulfill these laws, rules and authorizations also can result in the loss of certifications of forestry managements— Forest Stewardship Council® (FSC®) and Cerflor/Program for the Endorsement of Forest Certification (PEFC) — and the certification of environmental management — ISO 14001 — resulting in restrictions on the export of cellulose.


In addition, environmental laws and regulations in certain countries may be more stringent than the ones we are subject to in Brazil, which may lead to such countries imposing trade related sanctions against Brazil or our industry. Furthermore, our limited ability to comply with more stringent foreign environmental laws and regulations may prevent us from seeking lower financing cost from foreign governmental related or multilateral development organizations, which may condition future financing on our compliance with more stringent environmental laws and regulations.


Actions by federal or state legislatures or public enforcement authorities may adversely affect our operations.


In the past, the State of Espírito Santo, where our Aracruz mill is located, has enacted laws, which were subsequently repealed, to restrict the planting of eucalyptus forests for purposes of pulp production. Although injunctive relief against those state laws has been obtained, and new state legislation has revoked them, there can be no assurance that similar laws will not be enacted in the future, which would impose limitations or restrictions on planting eucalyptus in the regions where we operate.



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Delays in the expansion of our facilities, in building new facilities or learning curve ramp ups may affect our costs and results of operations.


As part of our strategy to increase our international market share and improve our competitiveness through greater economies of scale, we may expand our existing production facilities or build new production facilities. The expansion or construction of a production facility involves various risks. These risks include 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.


We may be adversely affected because:


·                  we may either not be able to complete any expansion or new construction project on time or within 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 attractive prices;


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


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


We have expanded our facilities at our Três Lagoas unit through a brownfield project known as Horizonte 2, which has a nominal production capacity of 1.95 million metric tons and started up in August 2017. Although we completed the project under budget, ahead of schedule, and are currently ramping it up, we may face unexpected delays until the completion of its learning curve, which may adversely affect us. For further details, please see “Item 4. D —Expansion. Horizonte 2 Project”.



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New laws and regulations relating to climate change and changes in existing regulation, as well as the physical effects of climate change, may result in increased liabilities and increased capital expenditures, which could have a material adverse effect on us.


A significant number of scientists, environmentalists, international organizations, regulators and other commentators maintain that global climate change has contributed, and will continue to contribute, to the increasing unpredictability, frequency and severity of natural disasters (including, but not limited to, hurricanes, droughts, tornadoes, freezes, other storms and fires) in certain parts of the world.


In 2009, Brazil and other countries adopted GHG emission reduction voluntary targets. Brazil had committed to cut its emissions below projected levels in 2020 and to set domestic targets for curbs on deforestation in its Amazon and Cerrado regions. In December of 2015, countries signed a new global accord, the Paris Agreement, in order to mitigate climate change, adopting Nationally Determined Contributings (NDCs) as the actions to reduce their the GHG emissions after 2020. The Brazilian NDC specifically states the increment of biofuels and other renewables in the national energy mix, zero illegal deforestation, reforestation, forest restoration and native forest management enhancement as national actions to fight the climate change. In this context, Fibria has been recognizing the risk of new laws and regulations relating to climate change and changes in existing regulation, monitoring international and local regulatory initiatives. The Company participated in COP21 debates in Paris, as a company from the forestry industry and member of the Brazilian Tree Industry (IBÁ), the World Business Council for Sustainable Development (WBCSD), and the Brazil Climate, Forest, and Agriculture Coalition. Fibria wishes to include forests as a viable economic, environmental, and social solution for carbon fixation, which is aligned with Brazilian NDC.


Although we expect that there will be increased regulation related to greenhouse gases and climate change that may materially affect us, directly through increased capital expenditures and investment to comply with such laws, and indirectly, by affecting prices for transportation, energy and other inputs. In addition, the physical effects of climate change also 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 plantations are located in regions which have ideal climatic conditions for a short growing cycle. Any climate changes that negatively affect such favorable climate conditions in Brazil could adversely affect the growth rate and quality of our plantations, or our production costs. Although we cannot predict the impact of changing global climate conditions, if any, or if legal, regulatory and social responses to concerns about global climate change, any such occurrences may increase our liabilities and capital expenditures and negatively affect our business, financial condition and results of operations.


We may be liable for certain payments to individuals employed by third-party contractors.


Under Brazilian law, outsourcing is permitted as long as certain requirements are met. In addition, Brazilian law provides that the contractor will be held liable on a secondary basis if the outsourced or subcontracted companies do not fulfill their labor obligations. In cases where the outsourced or subcontracted companies do not pay the workers the labor sums they are entitled to, the contractor, in our case Fibria, is responsible for those payments. These payments may have an adverse effect on our results of operation and financial condition. Recent changes to Brazilian labor laws have affected outsourcing, and we cannot predict how these changes will be further regulated and applied by local authorities and interpreted by Brazilian labor courts. It is also unpredictable how these laws will impact labor market, salaries and wages. If as a consequence of these new laws outsourcing becomes more restrictive or costly, our cash flow may be reduced, affecting our financial condition and results of operations.


Risks Related to our Shareholder Structure


The controlling shareholders have entered into a Shareholders Agreement, which regulates their power to control us.


We are jointly controlled by Votorantim S.A. (current corporate name of Votorantim Industrial S.A.) and BNDESPar. The controlling shareholders have entered into the First Amendment to the Shareholders Agreement dated October 29, 2014 that regulates their power, including the power to:


·                  elect members of our Board of Directors; and


·                  determine the outcome of any action requiring shareholders’ approval, including transactions with related parties, corporate reorganizations and dispositions and the timing and payment of any future dividends.



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Pursuant to the First Amendment to the Shareholders Agreement, the approval of certain matters depends on the affirmative vote of BNDESPar. See “Item 10. Additional Information — C. Material Contracts — Shareholders’ Agreement of Fibria”.


In addition, Banco Nacional de Desenvolvimento Econômico e Social - BNDES was the creditor with respect to approximately 16% of our consolidated indebtedness as of December 31, 2017 and we expect to continue to obtain loans from BNDES in the future. As one of our most significant shareholders and the subsidiary of one of our most important creditors, BNDESPar may exercise a significant influence over our business and corporate decisions, and its actions may be influenced by the policies of the Brazilian federal government, which may conflict with the interest of our shareholders and holders of our ADSs.


We currently engage in, and expect in the future to engage in, commercial and financial transactions, from time to time, with our controlling shareholders or their affiliates. Commercial and financial transactions between our affiliates and us create the potential for, or could result in, conflicts of interests. For a discussion of certain related party transactions, see “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions.”


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 results of operations and financial condition.


Our production operations are conducted in Brazil but our pulp is mainly sold to international customers in Asia, Europe, and North America. Accordingly, our financial condition and results of operations are in some ways dependent upon economic and political conditions in Brazil. The general cost of human capital, the cost of land (renting or buying) and the other general local supplies are points of concern. Nonetheless, future developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, such supplies. As a result, these developments could impair our business strategies, results of operations or financial condition. The Brazilian government tries to limit unusual market conditions, like supply prices, abnormal speculation and the foreign exchange-rates, frequently intervening in the Brazilian economy and occasionally makes material changes in policies and regulations. Our business, financial condition and results of operations may be adversely affected by changes in government policies as well as general economic and political factors, including but not limited to:


·                  currency fluctuations;



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·                  interest rates;


·                  liquidity of domestic capital and lending markets;


·                  availability of experienced labor;


·                  policies impacting Brazil’s logistical infrastructure;


·                  policies affecting Brazil’s forestry sector;


·                  tax policy;


·                  exchange control policies;


·                  other political, diplomatic, social and economic developments in or affecting Brazil; and


·                  inflation.


Brazil has historically experienced high rates of inflation. Inflation, as well as government efforts to combat inflation, had significant negative effects on the Brazilian economy, particularly prior to 1995. Inflation rates were 10.67% in 2015, 6.29% in 2016 and 2.95% in 2017, according to the Brazilian National Consumer Inflation Index (Índice Nacional de Preços ao Consumidor Amplo) or IPCA. Our cash production costs and operating expenses are substantially denominated in Brazilian Reais and tend to increase with Brazilian inflation because our suppliers and providers generally increase prices to reflect the depreciation of the currency. If the rate of Brazilian inflation increases more rapidly than any rate of appreciation of the U.S. Dollar, then, as expressed in U.S. Dollars, our operating expenses may increase. Inflation, actions to combat inflation and public speculation about possible additional actions also may contribute materially to economic uncertainty in Brazil and accordingly weaken investor confidence in Brazil, thus impacting our ability to access the international capital markets.


Historically, Brazil’s political scenario has influenced the performance of the Brazilian economy and political crises have affected the confidence of investors and the public, which resulted in economic slowdown and heightened volatility in the securities issued abroad by Brazilian companies. Brazil’s gross domestic product, or GDP, in real terms, had downturns of 3.80% and 3.60% in 2015 and 2016, respectively, according to Instituto Brasileiro de Geografia e Estatística — IBGE, Brazil’s official statistics agency. In 2017, GDP grew by 1.00%, according to the Focus Report estimates published by the Brazilian Central Bank.


Currently, Brazilian markets are experiencing heightened volatility due to the uncertainties derived from ongoing investigations of political corruption, money laundering bribery and tax fraud, among other things, including the Lava Jato investigation, and their impact on the Brazilian economy and political environment. Members of the Brazilian federal government and of the legislative branch, as well as senior officers of large state-owned companies and privately held companies, have been implicated in the various investigations. The investigations are ongoing, but to date a number of government officials and prominent business figures have been the subject of allegations or charged with or convicted of various criminal offenses, which has had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy. Brazil’s political scenario is further complicated by occurrences such as the impeachment of Brazil’s president, Dilma Rousseff, and new allegations against government officials. Vice President Michel Temer was sworn in as the new President of Brazil until the next presidential election in 2018. Political uncertainty has remained since Mr. Temer, the subject of allegations of misconduct, took office.


We cannot predict whether these events and other allegations will lead to further political and economic instability or whether new allegations against government officials will arise in the future. In addition, we cannot predict the outcome of any such allegations nor their effect on the Brazilian economy. Furthermore, future election results, developments in policies of the Brazilian government and/or the uncertainty of whether and when such policies and regulations may be implemented, all of which are beyond our control, could have a material adverse effect on us.



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Social movements and the possibility of expropriation may affect the normal use of, damage, or deprive us of the use of or fair value of, our properties.


Activist groups in Brazil advocate land reform and property redistribution by invading and occupying rural areas. Fibria has been working alongside the Landless Workers’ Movement (or MST), the Federal Land Reform Agency (INCRA) and the government of the State of Bahia, and have agreed to design and implement an agroforestry production and settlement model project since 2011. In 2012, the project was launched, benefiting hundreds of families in areas occupied by the MST. In 2017, participating families earned R$1.3 million as a result of the sales of the project’s agroforestry products. We cannot assure that our properties will not be subject to invasion or occupation by these or other activist groups. A land invasion or occupation could materially impair the normal use of our lands or have a material adverse effect on our results of operations, financial condition or the value of our common shares.


In addition, our land may be subject to expropriation by the Brazilian government. Under Brazilian law, the federal government 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, compliance with labor laws, etc. If the Brazilian government expropriates any of our properties, our results of operations may be adversely affected to the extent that the government’s compensation proves inadequate. Moreover, we may be forced to accept public debt bonds, which have limited liquidity, instead of cash as compensation for expropriated land.


We may be impacted by governmental actions affecting the Brazilian markets and economy.


The Brazilian government has exercised and continues to exercise substantial influence over many aspects of the private sector. The Brazilian government, for example, could impose some restrictions for the export market, by creating export duties for any product, including our main source of revenues (market pulp), affecting the margins and the profitability of the Company, as an exporting company. In addition, the Brazilian government through BNDES owns or controls many companies, including some of the largest in Brazil. For example, the BNDES, through its wholly-owned subsidiary company, BNDESPar, is a joint controlling shareholder of our Company together with Votorantim S.A., as per shareholder agreement terms, and so has historically been one of our important creditors.


Risks Relating to Our Shares and ADSs


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


One may be adversely affected if the Brazilian 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 or ADSs, 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 type of 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 resides or is 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.


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


Investments in securities, such as our common shares or ADSs, of issuers from emerging market countries, including Brazil, involves 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.


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 the common shares underlying the ADSs at a price and time at which holders wish to do so. At December 31, 2017, the aggregate market capitalization of the 61 companies listed on the São Paulo Stock Exchange Index (Ibovespa) was equivalent to approximately U.S.$779 billion, and the ten largest companies listed on the São Paulo Stock Exchange Index represented approximately 52% of the market capitalization in the year.


In comparison, the 505 companies listed in the S&P 500 had a market capitalization of approximately U.S.$24 trillion as of December 31, 2017. A liquid and active market may never develop for our common shares or ADSs, and as a result, the ability of our ADS holders to sell at the desired price or time may be significantly hindered.



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Holders of our ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations as a Brazilian company and our ADS holders 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 the Brazilian law. 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. Under Brazilian law, the rights of a holder of our common shares to protect its interests with respect to actions by us, our directors or executive officers may be fewer and less well defined than under the laws of other jurisdictions.


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 be less well defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our common shares or ADSs at a potential disadvantage. In addition, the disclosure required of public companies in Brazil may 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 may not be able to exercise their voting rights.


Holders of our ADSs may only exercise voting rights with respect to their underlying common shares in accordance with the provisions of the deposit agreement for our ADS program (“Fibria Deposit Agreement”). Under the Fibria Deposit Agreement, ADS holders may only vote by giving voting instructions to our Depositary. Because our Depositary appears on our share register and not the ADS holders, such holders are unable to exercise their right to vote without the representation of our Depositary unless they surrender their ADSs for cancellation in exchange for our common shares. In addition, pursuant to the Fibria Deposit Agreement, our Depositary will only notify our ADS holders of an upcoming vote and arrange to mail proxy cards to those holders if we request our Depositary to do so. Although Fibria’s Bylaws indicate that the first call for a shareholders’ meeting must be published at least 15 days in advance of the meeting, CVM Instruction nº 559, of March 27, 2015 states that companies with ADS program must convene a general shareholders’ meeting with a minimum of 30 days in advance. The second call must be published at least eight days in advance of the meeting, in the case of insufficient quorum to approve the matters included in the first meeting. Our Depositary and its agents are not liable for failure to mail proxy cards in time for ADS holders to vote the common shares underlying their ADSs or to carry out voting instructions in the manner as instructed or at all. As a result, holders of ADSs may not be able to exercise the voting rights attached to the common shares underlying their ADSs.


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 ADSs who exchange their ADSs for common 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 National Monetary Council (CMN - Conselho Monetário Nacional), 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. The common shares are expected to be treated as assets located in Brazil for purposes of the law, and gains on the disposition of common shares, even by non-residents of Brazil, are expected to be subject to Brazilian taxation. In addition, the ADSs may be treated as assets located in Brazil for purposes of the law, and therefore gains on the disposition of ADSs by non-residents of Brazil may be subject to Brazilian taxation. Although the holders of 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 thereto.



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


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


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 the common 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, 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 the common shares or the 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 United States 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 after 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 after the end of each fiscal year. As a result of the above, even though we are required to file reports on Form 6-K disclosing the information which 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.




A.                                    History and Development of Fibria


Fibria was incorporated under the laws of the Federative Republic of Brazil in July 1941, under the corporate name Indústrias de Papel Simão S.A., a corporation listed on the B3, which was acquired by Votorantim Group in September 1992. The Votorantim Group’s operations related to pulp and paper began in 1988 when the Votorantim Group acquired Celpav Celulose e Papel Ltda., or Celpav, a pulp and paper producer based in the State of São Paulo.


In 1995, the corporate name of Indústrias de Papel Simão S.A. was amended to Votorantim Celulose e Papel S.A. and in 1999, Celpav and Papel Simão subsequently merged.


On April 19, 2000, we completed a registered offering of 7,920,000 ADSs. Each ADS represented 500 preferred shares, and the ADSs were listed on NYSE, under the symbol “VCP.”


On November 5, 2009, we adopted the corporate name Fibria Celulose S.A. and on December 22, 2009, we concluded the merger of Aracruz into Fibria. See “Item 4. Information on Fibria — A. History and Development — the Aracruz Acquisition”. On November 18, 2009, the NYSE ticker symbol was changed to “FBR”.



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On May 20, 2010, the Company migrated to Novo Mercado listing segment, which imposes the most stringent corporate governance rules of any listing segment of the B3.


Currently, our headquarters and principal executive offices are located at Rua Fidêncio Ramos, 302, 3rd and 4th (part) floors floor, Edifício Vila Olímpia Corporate, Torre B, Vila Olímpia, CEP 04551-010, São Paulo, SP, Brazil (telephone: +55 11 2138-4565; and website address: Information contained on our website is, however, not incorporated by reference in, and should not be considered as part of, this annual report.


We have grown and expanded our operations through organic expansion of our pulp mills and paper production facilities, selective acquisitions of equity interests in other pulp and paper companies and have streamlined our operations through the disposition of assets and lines of business we deemed not a part of our core business.


The Losango Project


In 2005, we announced the beginning of the environmental licensing process for the implementation of a bleached eucalyptus pulp mill with an overall nominal capacity of 1.5 million tons of pulp per year to be built in the State of Rio Grande do Sul (the “Losango Project”). As a result of the Aracruz Acquisition in 2009, we had a different portfolio of possible expansion projects, including two former Aracruz Units (Veracel II and a fourth pulp production line at the Aracruz Unit) and this together with the Três Lagoas Unit, which started up in March 2009, were all brownfield projects. In view of that, we considered several alternatives for the Losango Project, including a full divestiture of the lands and forest. On June 30, 2011, management approved the divestiture of the Losango Project assets, and established a specific program to identify a potential buyer. As from June 30, 2011, we classified the assets of the Losango Project as held for sale.


On September 10, 2012, Fibria received and accepted a binding offer from CMPC Celulose Riograndense S.A. (“CMPC”) for the purchase of forestry assets and lands of Losango Project located in the State of Rio Grande do Sul, consisting of approximately 100 thousand hectares of owned areas and nearly 39 thousand hectares of forestland of eucalyptus in these owned areas and in third parties leased areas, for a total amount of R$615 million.


The transaction did not include the partnership program agreements developed in Losango areas, which will be maintained and honored by Fibria. On December 28, 2012, Fibria announced the conclusion, via signature of the Purchase and Sale Agreement (“Agreement”) by Fibria and CMPC, of the binding offer for the purchase described above, for a total amount of R$615 million. On the same date, Fibria also announced the approval of the operation by the Economic Defense Council, the receipt of the first installment in the amount of R$470 million and the deposit of the second installment in the amount of R$140 million in an escrow account which would be disbursed after the remaining applicable government approvals and other conditions precedent have been fulfilled. In November 2014, we received an additional R$7 million as an advance from CMPC. The remaining installment of R$5 million was to be paid to us upon the effective transfer of existing contracts related to the asset (the “Lease Agreement”) and applicable government approvals.


On March 31, 2017 the Purchase and Sale Agreement was amended to transfer to CMPC of 100% of Losango-FBR Florestal Ltda.’s shares (“Losango-FBR”) (owner of the biological assets) and of 49% of Losango-RS Administração e Participações Ltda’s shares (“Losango-RS”) (owner of the rural estates - lands), after the completion of the transfer of the rural estates’ titles and the approval of the transaction by the National Defense Counsel (Conselho de Defesa Nacional - CDN).


Thus also on March 31, 2017, the Company received, R$201,999 thousand, being: (i) R$50,000 thousand in cash and (ii) R$151,999 thousand through a credit in an escrow account which is in Fibria’s entitlement and that will be released after the obtainment of the approvals mentioned below and of other precedent conditions for the conclusion of the Losango Project. The updated amount in the escrow account as at December 31, 2017 was R$162,254 thousand (see Note 10 to our 2017 Consolidated Financial Statements for further details).


The remaining 51% of the Losango-RS’ shares will be transfer to CMPC after the approval by the National Institute of Colonization and Agrarian Reform (Instituto Nacional de Colonização e Reforma Agrária - INCRA) and other agencies, without the receipt of any additional value by the Company.


The ownership of 51% in the Losango-RS’s capital is not considered as a business under the accounting perspective, once it does not meet the definition of business as established by the existing accounting standards and, for this reason, we do not present any corresponding value in our accounting balances.



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As a result of the transfer of these assets to CMPC, the Company recognized the accounting effects related to the sale, generating a gain on sale that was recognized under “Other operating income and expense, net” in the Statement of profit or loss, as following (in thousand of Reais):




Proceeds from sale (*)






Costs of investments derecognized, classified as “Assets held for sale”






Expenses on sales (obtainment of licenses, register of the estates and others)












Gain on sale before income tax and social contribution












Income tax and social contribution expense - 34%












Gain on sale, net of income tax and social contribution





(*)             The amount was received as follows: payments in advance of R$470,000 thousand and R$7,000 thousand in December 2012 and November 2014, respectively and, the transfer of R$201,999 thousand in March 2017, as abovementioned.


Asset Exchange with International Paper


In February 2007, we transferred our Luiz Antonio pulp and paper mill and approximately 60,000 hectares of forest located in the State of São Paulo to International Paper Investments (Holland) B.V., a wholly owned subsidiary of International Paper, in exchange for the Três Lagoas pulp mill, which was then under construction, as well as approximately 100,000 hectares of surrounding forest. At the time that we received the Três Lagoas pulp mill, International Paper had fully funded the construction of this mill under a turn-key contract.


The Luiz Antonio mill had an annual production capacity of 410 kilotons of pulp and 355 kilotons of uncoated paper. As part of this transaction, we agreed to purchase 100 kilotons of BEKP per year on competitive terms for our use in other facilities under a long-term supply agreement.


In March 2009, we started operating our Três Lagoas mill located in the State of Mato Grosso do Sul. This mill successfully achieved its predicted capacity, increasing our annual capacity by 1.3 million tons of market pulp. The total amount invested in this project was R$3,991 million. This amount includes disbursements made directly from Fibria, as well as the assets we received through our Asset Swap Agreement with International Paper.


As part of this transaction, we granted International Paper the right to construct, at its cost, up to two paper machines adjacent to, and integrated with, the Três Lagoas pulp mill. International Paper exercised this option with respect to one of the paper mills and has constructed a paper mill with an annual production capacity of 200 to 250 kilotons of printing & writing paper adjacent to the Três Lagoas pulp mill. This paper mill commenced production in the first quarter of 2009. In connection with the exercise of this option, International Paper has entered into a long-term supply agreement under which we will provide International Paper with pulp and utilities and other services at rates based on our actual operating costs.


If International Paper exercises its right to build the second paper mill adjacent to the Três Lagoas pulp mill, the contract conditions will follow the ones established for the first paper mill:


·        we will be obligated to transfer certain parcels of real property to International Paper upon which the paper machine and ancillary facilities will be constructed; and


·        International Paper will enter into a long-term supply agreement under which we will provide International Paper with pulp and utilities and other services at rates to be determined having as reference certain operating costs.


In 2012, Fibria and International Paper agreed to extend International Paper’s option to build a new paper machine at the Três Lagoas unit. The new agreement gives International Paper the option to start-up the second paper machine between 2016 and 2018.


In 2012, we received a tax assessment with respect to this transaction. For additional information, see Item 8.A “Consolidated Statements and Other Financial Information”.



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Disposition of forestry assets and land


On November 15, 2013, we entered into a Share Purchase Agreement and Other Covenants with Parkia, for the sale of certain land located in the states of São Paulo, Mato Grosso do Sul, Bahia and Espírito Santo, for a total of approximately 210 thousand hectares, for the total amount of R$1,403 million. On December 30, 2013, the First Amendment to the Share Purchase Agreement and Other Covenants was concluded and signed, under which the total area subject to the transaction was adjusted to approximately 206 thousand hectares of lands, for the total amount of R$1,651 million of which R$500 million has been received by the Company upon signing the agreement. The remaining balance, in the amount of R$903 million, was received by us during the first quarter of 2014, after the fulfillment of certain obligations and legal registers performed by the Company.


We may be entitled to an additional amount, not to exceed R$248 million, in three separate payments, totaling the potential amount of R$1,650 million, which is contingent on the appreciation of the land during the period of 21 years and, if due, shall be paid in three installments, on the 7th, 14th and 21st anniversaries of the agreement.




On October 2, 2012, we entered into a strategic alliance with Ensyn Corporation, a private company incorporated in Delaware. This alliance included a US$20 million equity investment in Ensyn by the Company — the equivalent, at that time, to 6.66% of the equity interest of Ensyn — and the establishment of an equally owned joint venture to be incorporated in Delaware for future investments in the production of cellulosic liquid fuels and chemicals in Brazil. Furthermore, Fibria and Ensyn agreed to set up an equally owned joint venture (F&E Technologies LLC), which was duly incorporated in Delaware for future investments in the production of liquid fuels and chemicals from biomass in Brazil. In 2014, Fibria entered into an Amendment to the 2012 Share Purchase Agreement for the acquisition of approximately 3% of Ensyn’s capital for US$10 million, increasing our interest to 9.56% of Ensyn’s capital, and providing us with certain rights which if exercised, would allow us to subscribe additional US$5 million in Ensyn’s capital. In 2015, Fibria executed a new agreement for the purchase of approximately 3% of Ensyn’s capital for a payment of US$5 million in exchange for the warrant issued in favor of the Company in 2014. As a result of the acquisition of additional capital in 2015, the Company holds 12.62% of the share capital of Ensyn and has the option to invest in the future additional US$10 million in its capital.


In 2017, Fibria’s ownership interest was 12.11%, due to the investment by new minority shareholders in Ensyn’s capital. This event did not alter any of Fibria’s rights or obligations regarding Ensyn.


On November 18, 2016, we entered into a strategic alliance with CelluForce Inc., a private company incorporated in Canada. This alliance included a CAD $5.3 million equity investment in CelluForce by the Company, equal to 8.3% of the equity interests of CelluForce, and the right of exclusive supply of cellulose nanocrystals (“CNC”) in South America. The strategic alliance agreement also contains a provision that if CelluForce decides to establish a plant to produce CNCs in South America, we will have a right of first refusal to participate in such plant by means of a joint venture with CelluForce or through another structure to be agreed to by the parties. This transaction closed on November 18, 2016, with the execution of the definitive documents and the transfer of cash to CelluForce.


On July 6, 2017, we entered into a strategic alliance with Spinnova Oy., a private company incorporated in Finland focused on the development of low-cost and environmentally sustainable technologies for the production of raw materials for the textile industry. Spinnova’s technology uses wood fibers as the feedstock for the production of staple fibers that can be used directly in the non-wooven production or to produce yarns that can replace cotton, viscose, wool, etc. in textiles applications. This alliance included a EUR 5.0 million equity investment in Spinnova by the Company, equal to 18% of the equity interest of Spinnova, a Joint Development Agreement between the Company and Spinnova executed on October 17, 2017 for the development of a pilot production line to confirm the viability of technologies developed by Spinnova and pre-commercial scale production, and a term sheet with the main commercial conditions for the establishment of a joint venture between the Company and Spinnova for the production and trading of the product, if it reaches the commercial stage.


Aracruz Acquisition


Overview of Aracruz


Prior to its acquisition, Aracruz was the world’s largest producer of market pulp according to Hawkins Wright, with an annual pulp production capacity of approximately 2.9 million tons as of December 31, 2008, including 50% of the annual pulp production capacity of Veracel. As of that date, Aracruz’s forestry base consisted of total forests of approximately 403.7 thousand hectares located in three Brazilian states, including 50% of the forestry area of Veracel, consisting of approximately 258.5 thousand hectares of planted areas and approximately 145.2 thousand hectares of preserved areas.


Aracruz produced BEKP at its Aracruz and Guaíba pulp mills, and owned a 50% interest in Veracel, which owns and operates a pulp mill with an annual production capacity of 1.1 million tons as well as the related forestry assets. Aracruz produced uncoated paper at its Guaíba paper mill, which had an annual production capacity of 60 kilotons.


In 2008, Aracruz produced 3,106 kilotons of eucalyptus pulp, recorded consolidated net revenues from pulp sales of R$3,539 million, produced 56 kilotons of paper products and recorded consolidated net revenues from paper sales of R$115 million.



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Capital Increase


In April and May 2009, we issued and sold (1) 62.1 million common shares to our controlling shareholder, VSA, for R$1,180 million, which was paid through the application of R$1,000 million of previously issued advances for capital increases and R$180 million in cash, (2) 43.6 million preferred shares to BNDESPar in exchange for 56.9 million common shares of Aracruz, representing 12.49% of the total share capital, including 5.51% of the voting share capital, of Aracruz, (3) 95.8 million preferred shares to BNDESPar for R$1,820 million in cash and (4) an aggregate of 9.3 million preferred shares to the Lorentzen, Moreira Salles, Almeida Braga and Safra families for an aggregate of R$180 million.


In connection with this capital increase, BNDESPar subscribed to debentures issued by VSA that were convertible into common shares of our Company held by VSA. Under these debentures, VSA was obliged to invest the net proceeds it received from BNDESPar to purchase shares of our Company. On September 3, 2009, BNDESPar exercised its option to convert the VSA Debentures. As a result of this conversion, VSA transferred 30,526,316 common shares of our Company to BNDESPar, following which VSA owned 35.2% and BNDESPar owned 41.8% of our total share capital, as of September 30, 2009.


Conversion of VCP Preferred Shares to Common Shares


In connection with the Aracruz Acquisition, we began to implement a corporate reorganization to simplify our capital structure. On May 30, 2009, in order to prepare our Company for the eventual migration of our common shares to the Novo Mercado listing segment of the B3, our shareholders approved the conversion of all of our outstanding preferred shares into common shares at the exchange ratio of 0.91 common shares for one preferred share. This conversion became effective on August 12, 2009, as a result of which we now have a single class of stock comprised solely of common shares. As a result of this conversion, the interests of VSA and BNDESPar in the total share capital of our Company changed from 40.7% and 35.4%, respectively, to 35.2% and 40.8%, respectively.


Mandatory Tender Offer


On June 1, 2009, we announced the commencement of a mandatory tender offer for any and all outstanding common shares of Aracruz. The auction with respect to this tender offer took place on the B3 on July 1, 2009. In the auction, we acquired 13,828,307 common shares of Aracruz, representing 3.04% of the outstanding common shares of Aracruz and 1.34% of the outstanding share capital of Aracruz, for an aggregate purchase price of R$236.6 million, payable according to the same payment schedule agreed to by the Safra family and the former shareholders of Arapar and São Teófilo in connection with the Aracruz Acquisition. Following this transaction, we owned 43.89% of the total share capital, including 99.53% of the voting share capital, of Aracruz.


Stock Swap Merger


As part of our corporate reorganization, on August 24, 2009, Fibria and Aracruz each held extraordinary shareholders’ meetings at which the Stock Swap Merger was approved. Pursuant to Stock Swap Merger (1) each issued and outstanding common share of Aracruz (other than common shares held directly or indirectly by Fibria or with respect to which the holder exercises withdrawal rights) was exchanged for 0.1347 Fibria common shares; (2) each issued and outstanding preferred share of Aracruz (other than preferred shares held by Fibria) was exchanged for 0.1347 Fibria common shares; and (3) Aracruz became a wholly-owned subsidiary of Fibria. The settlement of the Stock Swap Merger occurred on November 17, 2009, through the facilities of the B3.


Under the Brazilian Corporation Law, holders of common shares and class A preferred shares of Aracruz who did not vote in favor of the Stock Swap Merger, including those who abstained from voting or did not attend the Aracruz Extraordinary Shareholders’ Meeting, were entitled to withdraw their capital from Aracruz during a withdrawal period that was scheduled to expire on



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September 28, 2009. On September 28, 2009, we and Aracruz announced that the deadline for the exercise of withdrawal rights was extended until November 12, 2009. On October 28, 2009, we filed an F-4 registration statement with the SEC, which was declared effective by the SEC on November 12, 2009, to register the issuance of our shares to holders of Aracruz’s class B preferred shares (including the class B preferred shares of Aracruz that were represented by ADRs) that were residents of the United States.


Following the Stock Swap Merger, VSA owned 29.3%, and BNDESPar owned 33.6% of our total share capital. The last trading day for one Aracruz ADR was November 17, 2009 and its final market price was U.S.$21.25. As of December 31, 2008 the market price for one Aracruz ADR was U.S.$11.28.


Merger of Arapar and São Teófilo into Fibria


As part of the corporate reorganization, the general shareholders’ meetings of each of Fibria, Arapar and São Teófilo approved on December 21, 2009, the merger of Arapar and São Teófilo with and into Fibria, with Fibria as the surviving entity. This merger was effective as of December 31, 2009.


Merger of Aracruz into Fibria


As part of the corporate reorganization and in order to maximize the synergies from the Aracruz Acquisition, effective as of December 31, 2009, Aracruz merged with and into Fibria, Fibria being the surviving entity.


Merger of its subsidiary Fibria-MS Celulose Sul Mato-Grossense Ltda.


On December 31, 2017, in order to simplify our corporate structure, the Company completed the merger of its subsidiary Fibria-MS, whose equity value was evaluated through the net book equity value. The merger did not produce effects on the Company’s consolidated financial statements once 100% of the Fibria-MS’s capital was held by the Company. The merger was approved in the Extraordinary General Meeting held on December 18, 2017.


Our Ownership Structure


We are jointly controlled by Votorantim S.A. (current corporate name of Votorantim Industrial S.A.) and BNDESPar, a subsidiary of BNDES. Votorantim S.A. in turn is controlled by Hejoassu Administração S.A. or Hejoassu, which is controlled by the Ermírio de Moraes family. As a result of the purchase of an additional equity interest in Aracruz and corporate re-organization of Fibria, both of which occurred during the first semester of 2009, our exchange offer for outstanding Aracruz shares and the merger of Aracruz into us, our ownership structure and principal investees as of December 31, 2017 is presented in the following chart.



As of December 31, 2017, our total shares amounted to 553,934,646 common shares.


B.            Business Overview


Pulp Industry Overview


The world pulp industry is mainly divided in two groups of grades: mechanical, which is the pulp produced only through the use of mechanical energy processes, and chemical, which is the pulp produced after the wood chips have been chemically treated with



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caustic soda. In the whole world, currently 173 million metric tons are consumed every year, from which 84% is chemical pulp, according to market statistics.


Both grades are sub-divided into two categories: integrated pulp, which is the pulp produced for captive paper production in the same company or group, and market pulp, which is pulp produced to be sold in the market. Market pulp consumption currently adds up to 61 million metric tons, which represents 42% of all chemical pulp produced.


Chemical market pulp can be broken down in many different grades, depending on the wood species. The two main groups are Hardwood, which is composed by the species with short cellulose fibers, and Softwood, assembling the other species, composed by long cellulose fibers. Short fiber pulp is more prone to be produced in tropical areas, while long fiber pulp is only produced in temperate areas. Hardwood represents 54% of total chemical market pulp demand with 33 million metric tons.


Fibria produces pulp from Eucalyptus, which is a species originally from Australia, but extremely well adapted to the Brazilian climate. Brazil is the country where Eucalyptus trees develop the highest yield in the whole world. Eucalyptus pulp is 73% of the whole Hardwood market, with a demand of 24 million metric tons in 2017.



(1)         Fiber Consumption, Recycled Fiber and Pulp: RISI | Market Pulp, Hardwood and Eucalyptus: PPPC



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Market Pulp Capacity


We are the world’s largest BHKP producer of market pulp with an installed capacity of 7.25 million metric tons of eucalyptus per year, as shown in the chart below (does not include the volumes from the contract with Klabin).


Market BHKP Pulp Capacity Ranking
(000 tons)



Source: Poyry December 2017


Eucalyptus pulp capacity has outgrown all other market pulp grades, having grown 87% between 2006 and 2017, to a total of almost 24 million metric tons, with most of this growth taking place in Latin America. Increased volumes by Latin American producers, who hold much larger buffer and in-transit stocks (as new mills in the region are further inland), bigger vessel space, Supplier Managed Owned Inventories where invoicing is made upon pulp consumption rather than delivery, and the increase in both distance and reach of the pulp geographical distribution with the increasing importance of China in the market in recent years, have increased the minimum inventory necessary for eucalyptus distribution. In 2017, the average of stock in days of supply for hardwood pulp was 40 days, an increase of 5 days since 2006 according to PPPC.



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Evolution of Bleached Hardwood Pulp producer’s inventory

(days of supply)



Source: PPPC (World-20)


Market Pulp Demand


Market pulp is used basically to produce four types of papers: Printing & Writing, Tissue, Specialty and Packaging. Printing & Writing papers are used for newspapers, magazines, catalogs, books, commercial printing, business forms, stationeries, copying and digital printing. Tissue paper is a lightweight paper basically used for personal hygiene. Types of tissue paper are hygienic tissue, facial tissues, paper towels, wrapping tissue, toilet tissue and table napkins. While specialty papers are papers that are made with specific qualification for a unique purpose. Types of specialty papers are carbonless paper, decorative paper, security paper, self - adhesive papers, and cigarette papers. Packaging includes all types of papers used by protecting products for distribution, sales and use, including containerboard, folding boxboard and liquid packaging board.


Pulp demand grew in 2013 driven mainly by new paper capacity that entered the market during the year. The 3.2% increase (or 1.3 million extra tons) was supported mainly by hardwood sales to China (due to a strong growth in the tissue and woodfree paper sectors) and a surprising rebound in North America (resulting from new tissue capacities, an improvement in consumer spending and the replacement of integrated pulp by market pulp).


In 2014, the pulp demand increased by 1.5% (or 807 thousand tons). The main markets for pulp, North American, Europe and China, registered growth in pulp demand during the year as a result of the continuation of the wave of investments in new paper machines that started in 2013, especially in China. The favorable hardwood price level also contributed to pulp demand growth due to a certain level of substitution of other fiber sources such as recovered paper and nonwood pulp.


In 2015, the positive 2.4% growth in pulp demand (or 1.3 million extra tons) was due to improved economic environment mainly in Europe and North America, while China continued to see its paper capacity base expanding.


In 2016, pulp demand continued its consistent growth, adding 3.9% more (or 2.2 million additional tons), mainly driven by the increased demand in China, which grew 13.8% (or 2.4 million additional tons).


The year of 2017 was marked by the positive macroeconomic scenario in all regions which pushed pulp demand in the main markets. This factor combined with the continuation of the Chinese demand expansion due to the installation of new paper machines and low pulp inventories in hands of paper producers in the beginning of the year supported the 3.7% growth in pulp demand during 2017 (or 2.2 million tons).


Eucalyptus has replaced other fibers and gained the most of the furnish share in the recently installed paper machines. Due to this reason, eucalyptus pulp has presented the fastest growth rate among all pulp grades. In recent years, eucalyptus pulp demand increased 7.8% in 2013, 8.7% in 2014, 5.0% in 2015, 7.7% in 2016 and 2.5% in 2017.



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Total Market Pulp Demand & Eucalyptus Market Share



Source: PPPC Global 100


Pulp Price Dynamics


As a global commodity, market pulp prices are impacted by macroeconomic dynamics, as are the prices of any other commodity. The graph below is a comparison of the trend of market pulp prices (BEKP for eucalyptus) against the Economist Commodity Index since 2005.



Source: Hawkins Wright and The Economist, January 2018



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The main variable that is responsible in the formation of market pulp prices is the balance between supply and demand. This is the relationship between the availability of the pulp in the market for sale against the real demand for pulp in the market. This relation may be analyzed in the short term, medium term, and long term.


Short term for the pulp industry is normally defined as the next 12 months, during this period the primary variables that will impact the balance are: the operating rates of the pulp mills installed, the performance of the installed paper machines that will result in pulp consumption and the pulp inventory level in the whole supply chain. The most recent event that restricted pulp mills supply was the earthquake in Chile in 2010. Because of the earthquake, production in Chile had to stop, constraining supply and impacting directly the prices. In addition, the paper machines can affect the pulp demand as they adjust their productivity output to variations on the economic scenario and market seasonality. Printing & Writing papers demands are more affected by economic changes and seasonality than the demand for tissue paper, because tissue papers are part of human hygiene. As demand weakens and supply continues, constant inventories can increase and result in a negative impact in prices.


In the pulp industry we generally consider medium term a period from 1 to 5 years ahead. The result between the supply and demand in the medium term will be a reflection basically of the paper mills and pulp mills project announcements. The short term scenario and on the expected relative growth rate between the supply and demand, impact the pulp price projected to that period. This medium price expectation is of great importance, since companies use this value to decide about new mill projects.


The long term for the pulp industry is defined as above 5 years. Although production cost structure must be monitored in the short and medium term, the major impact come from the formation of pulp prices over the long term. The cost structure of the pulp industry will define the pulp equilibrium price, establishing a floor as a reference against which to measure the returns expected from the higher cost producers in developing their activities. The graph below shows cash production cost against production capacity tonnage, which impacts the pulp price:


Delivered Cash Cost in U.S.$/t and BHKP cumulative capacity


(BHKP Supply Curve CIF Europe — 2017)



Source: Hawkins Wright (December 2017)


Pulp prices are quoted by region and depending on its International Commercial Terms - Incoterms™. Regions have their own dynamics but the price that is used as a reference in the pulp industry continues to be the European prices as it continues to be the major consuming market pulp region. The graph below shows hardwood prices in the European market since 2006 and its historical volatility, resulted by the factors described above.



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Hardwood FOEX Europe





Source: FOEX


Fibria’s Profile


We are the world’s largest producer of market pulp, with an aggregate installed capacity of 7.25 million metric tons of eucalyptus pulp per year. We believe that we are one of the lowest-cost producers of BEKP in the world, primarily due to our economies of scale, modern  and strategically located production facilities, the short harvest cycle of our trees and our use of high-end technology in our operations. During the first half of 2009, we acquired control of Aracruz and have fully consolidated the results of operations of Aracruz into our consolidated financial statements as from January 1, 2009. In September 2009, we adopted the trademark “Fibria” for our pulp and paper operations.


Our forest base is broad and diversified. As of December 31, 2017, it was comprised of approximately 1,092 thousand hectares (owned and leased, excluding the forestry partnership program areas, the forest base linked to the sale of forest assets in Southern Bahia State and Losango) located in seven Brazilian states. Approximately 656 thousand hectares of our total forestry land consisted of planted areas, approximately 374 thousand hectares of conservation areas with native vegetation, or preserved areas, and 61 thousand hectares related to other uses such as roads.


We produce bleached eucalyptus kraft pulp at the following three pulp mills, 100% owned by us:


·                  the Aracruz pulp mill, located in the State of Espírito Santo with an annual production capacity of 2.34 million metric tons and which we acquired as part of the Aracruz Acquisition;


·                  the Três Lagoas pulp mill, located in the State of Mato Grosso do Sul with an annual production capacity of 3.25 million metric tons; and


·                  the Jacareí pulp mill, located in the State of São Paulo with an annual production capacity of 1.1 million metric tons.


In addition, we have a 50.0% interest in Veracel, which owns and operates a pulp mill in the municipality of Eunápolis, State of Bahia, with an annual production capacity of 1.12 million metric tons. Under IFRS, we include our proportionate share of the results of operations of Veracel in our consolidated results of operations.



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In 2017, we produced 5,642 kilotons of pulp (including 50.0% of the pulp production of Veracel) and recorded consolidated net revenues of R$11,739 million. In 2016, we produced 5,021 kilotons of pulp (including 50.0% of the pulp production of Veracel) and recorded consolidated net revenues of R$9,615 million, also including the pulp sales under the contract with Klabin.


In 2017, our pulp production had the following end-use destination: Tissue 49%, Printing & Writing 35% and Specialties 16%. In 2016, our pulp production had the following end-use destination: Tissue 48%, Printing & Writing 34% and Specialties 18%. This analysis shows our sensitivity and exposure to the tissue segment and to a lesser extent the Printing & Writing segment.


Export sales accounted for 90% of our pulp sales volume in 2017 and 2016. We export pulp products from terminals and a warehouse that we operate at the port of Santos, in the State of São Paulo. In order to maintain our export capacity in the long term, on December 9, 2015 we participated in a public auction promoted by the regulatory agency Agência Nacional de Transportes Aquaviários - ANTAQ, for the concession of the public areas and infrastructures for handling and storage of paper, pulp and general cargo at port of Santos for an initial period of 25 years. The Company was awarded the contract based on its proposal for the same Macuco Terminal (STS07 or Terminal 32), in the amount of R$115 million.



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We also export our pulp products from Portocel, a specialized port terminal that is operated by our subsidiary, Portocel Terminal Especializado de Barra do Riacho S.A., or Portocel, which is located approximately 3 kilometers from our Aracruz mill, in the State of Espírito Santo. We also operate a port terminal located in the city of Caravelas in the State of Bahia, from which we transport wood to our Aracruz mill, and a port terminal in the city of Belmonte, in the south of the State of Bahia, from which we transport pulp produced by Veracel to Portocel.


The following map sets forth the location of the production facilities and the port terminals we operate:



Our Strengths


Global leadership in market pulp


We are the world’s largest producer of market pulp in terms of production capacity with an annual aggregate installed capacity as of December 31, 2017 of 7.25 million tons and a focus on international markets. Based on information from the PPPC, we estimate that during 2017 we supplied 26% of the world demand for BEKP, 18% of the world demand for bleached hardwood kraft market pulp and 10% of the world demand for chemical market pulp.


We believe that our market leadership is based on the sustainability of our forest operations (reinforced by the shorter harvest cycle in Brazil as compared to other relevant countries), new technology (including modern facilities and advanced cloning methods), high productivity, strong customer base and long-term relationships with our customers.


Low production costs


Our efficiently structured operations in Brazil result in relatively low cash production costs. We believe that we are one of the lowest-cost producers of BEKP in the world. Our low production costs relative to many of our competitors are due to a number of factors, including:


·                  our significant economies of scale;


·                  our advanced forestry techniques in managing the planting, maintenance and harvesting of our forests;



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·                  our modern industrial plants;


·                  the comparatively short harvest cycle of our trees; and


·                  relatively low energy and chemical costs.


Climate and soil conditions in Brazil enable us to harvest our eucalyptus trees between 6 to 7 years after planting, while harvesting cycles of other forest species in the southern United States, Canada and Scandinavia can last from 25 to 70 years. Harvesting cycles of our main non-Brazilian competitors in the BEKP market (Spain, Portugal and Chile) are approximately 8 to 10 years.


In 2014, we enhanced our cost management culture with the implementation of the Zero Based Budgeting (ZBB) methodology, including operating expenses and capital expenditures as scope for the 2015 budgeting cycle. The ZBB annual budgeting is a very detailed, structured, and interactive process in order to facilitate meaningful financial debate among managers and executives. The ZBB process is based on developing deep visibility into cost drivers and using that visibility to set budget targets. We have hired the consulting firm Catalitica Experience to assist us on the ZBB implementation.


Modern production facilities


Our mills have adopted the latest designs, technologies and production processes as a result of significant investments we have made. The advanced technology and production processes used in our mills allow us to use a lower level of raw materials, mainly chemicals, which consequently reduces our production costs. In addition, our mills have advantages over older mills, particularly with respect to reduced emissions and solid waste disposal, providing for a more streamlined, efficient and environmental-friendly pulp production process. The Três Lagoas and Veracel mills have one of the lowest production costs of market pulp per ton in the world according to market consultant’s statistics when compared to Hawkins Wright 2017 chart presented above. This is the result of innovative technology, including modern processes and equipment associated with efficiency in forests and industrial operations, as well as short distances between forests and mills.


State-of-the-art research and technology


Fibria started its eucalyptus plantations at the end of the 1960s using seeds from the Rio Claro Forest Nursery (SP). At that time, four species were considered appropriate: Eucalyptus grandis, Eucalyptus saligna, Eucalyptus urophylla, and Eucalyptus alba. During the 1970s, specific provenances of E. grandis and E. urophylla proved to be the most suited to our environmental conditions and to the pulping process. Since then, many superior interspecific hybrid trees (E. grandis x E. urophylla) were generated and selected through classical breeding and used as clones for commercial plantations establishment. These eucalyptus improved clones presented significant gains in productivity, uniformity, and wood quality, giving Fibria an outstanding position on the world market. Fibria currently uses a different group of elite clones for each operational unit, which are replaced by new ones from time to time to ensure productivity evolution as well as sufficient genetic diversity at the landscape level. Innovative classical breeding technologies are constantly updated and applied for developing successive advanced generations of Eucalyptus clones.


In addition, Fibria is constantly working on alternative silvicultural methods to boost plantations productivity. The combination of silviculture and genetic improvement are essential to ensure sustainable production and the health of the ecosystems in the long term, which represents an extra challenge due to climate and economic uncertainties. The development of adapted genotypes along with the improvement obtained via silvicultural practices is critical for the sustaining of the environmental services provided by the forests for the generations to come. Thanks to continuous progress, the land currently used to supply our pulp mills is half the area that would have been required 40 years ago when forest productivity levels were much lower.


Product development has also provided important advances by both designing new functionalities and testing an innovative process setup on an industrial scale to meet the demands of the pulp and paper industry. These demands include sustainable use of natural resources, improving pulp production capacity while consuming the same or less amount of energy and chemicals for bleaching the pulp. For the papermaker, product development also aims to achieve production and product performance improvements by means of delivering customized pulp either with better machine performance, by replacing more expensive fibers or delivering improved end products properties to the consumer at the end of the value chain. Biorefinery is also part of Fibria’s strategy. Our updated roadmap on biorefinery, along with the establishment of strategic alliances, is paving the way for faster research and development of bioproducts and biofuels. Our ongoing projects and alliances envision different and more promising alternatives, not only through making use of forest biomass in nature, but also from the circling streams of the Kraft Process, such as those from lignin and modifying the pulp into microfibrillar and nanocellulose.



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Integrated operations


Our operations are vertically integrated, from production of eucalyptus seedlings in nurseries for our extensive forests, through plantation and forestry management (including harvesting, logging and wood transportation) to our production facilities, from which our products are transported to port terminals we operate for distribution to our clients.


We believe that our transportation and logistics activities are efficient and diversified. The strategic location of our facilities and their proximity to our forests allows us to have low transportation costs for wood delivered to our production facilities and for finished products delivered to port terminals for export. The average distance from our forests to our mills is less than that of many of our domestic and international competitors, resulting in logistical efficiencies (for example, certain of our competitors in China meet their raw material needs with wood they import from Russia).


Portocel, the port terminal we operate in the State of Espírito Santo, is located approximately three kilometers from our Aracruz pulp mill. This allows us to efficiently export pulp produced at our Aracruz pulp mill and to receive and export pulp from the Veracel facility. In addition, we export pulp and paper products from a terminal and warehouse that we operate at the port of Santos, in the State of São Paulo.


Customer base


We have long-term relationships with leading global paper manufacturers, particularly in the tissue segment. As of December 31, 2017 and December 31, 2016, most of our sales were made under contracts, some of which contain exclusivity provisions. We have traditionally focused on tissue and specialty paper producers that value the high-quality pulp we produce and the reliability of supply that we provide. Most of those producers have been our customers since our inception.


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 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 establishes 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 is being sold by Klabin directly as follows: hardwood pulp in Brazil and South America, and softwood pulp and fluff in the global market. The agreement term is six years, four of which at a minimum volume of 900,000 tons and two years of a gradual reduction of volume (phase out). The volumes for the fifth and sixth years shall be equivalent to 75% and 50%, respectively, of the volume delivered in the fourth year of the agreement. The sales volume envisaged in the agreement may be reduced at any time, through prior notification, by up to 250,000 tons for a future possible integration in packaging paper (waiver). The agreement may also be renewed by mutual agreement. The purchasing and selling price shall be based on the average net price charged by Fibria, FOB (Free on Board) Paranaguá. On July 30, 2015, the agreement was approved without any reservations by the Brazilian antitrust authority (Conselho Administrativo de Defesa Econômica — CADE). Fibria sold an additional 809 kilotons in 2017 as a result of our agreement with Klabin.


Conducting our operations in a sustainable way


We are committed to operating our businesses and resources in a sustainable manner in accordance with world-class sustainability standards. In 2017, we were included in the 2017/2018 portfolios of the Dow Jones Sustainability Index, or DJSI, for emerging markets, which include a selection of companies with the best corporate sustainability practices. Since 2005, we have also been listed in the Corporate Sustainability Index (ISE) — a list of companies whose shares are traded on the B3 that maintain an elevated commitment to improved practices in the areas of sustainability and corporate governance.


We believe sustainability is an essential component of our corporate strategy and have implemented corporate governance practices and a sustainability policy, which seek to align and implement our sustainability strategy into our business model. We have a Sustainability Committee that advises our Board of Directors which is led by the Chairman of the Board and includes several independent members with diverse backgrounds. Our Sustainability Committee meets three times a year to evaluate our sustainability strategy and its implementation. We also have an internal sustainability group, the Commission for the Systemic Analysis of Sustainability, comprised of a number of our Company’s executives, whose mission is to execute and evolve the Sustainability strategy, and each of our units has a local relationship commission that evaluates the requests from local stakeholders.


Materiality Assessment


In 2016, we updated our Materiality Assessment, which identified the most relevant issues for the Company and for society, taking into account its strategy and the perception of its stakeholders. The process included analysis of documents, interviews with



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executives and stakeholders, online and social media surveys and a discussion panel with experts. The process defined 13 material themes:


·                  Relationship with Communities


·                  Water Resource Management


·                  Sustainable Forest Management


·                  Climate Change


·                  Innovation and Technology


·                  Regional and Local Development


·                  Transparency and first mover/leader in institutional matters


·                  Supply Chain Management


·                  Business Expansion


·                  Human Capital Management


·                  Economic Management


·                  Relations with the Government


·                  Focus on the Customer


Long-term sustainability targets


In 2011, upon the recommendation of the Sustainability Committee, Fibria reinforced its commitment to this topic by introducing a set of Long-Term Targets that signal our path to 2025. The definition of these targets was based on a systems thinking methodology, carried out through a series of workshops over three months involving 40 executives from our 12 different departments with the coordination of experts from the Universidade do Vale dos Sinos (UNISINOS).


The discussions took into consideration priority issues outlined in Fibria’s Materiality Matrix and social and environmental risks identified in the Enterprise Risk Management (ERM) tool, and identified a set of 90 variables that directly or indirectly affect the management of forests and the production and sale of pulp. These variables have been grouped and form six key themes that will guide Fibria’s activities towards 2025: market and returns to shareholders; ecoefficiency; forest management model; relationship and communication with stakeholders; social acceptance and legitimacy; management of personnel and organizational culture.


The intersection of these issues led us to establish Long-Term Targets for 2025, which are annually monitored by the Executive Board. These targets are not exhaustive or static and can evolve or include new commitments, as the market, we or society demand it. Additionally, the Long-Term Targets do not replace the conventional tools of management, including Short-Term Targets, which will be aligned with the Long Term. In addition to the Long Term Targets highlighted below, Fibria announced in early 2017 Long Term Targets related to water usage.


The 2025 Long-Term Targets are the following:


Optimize the use of natural resources


Our target is to reduce by one-third the amount of land required for the production of pulp, by increasing productivity from 10 tons of pulp per hectare per year, in 2010, to 15 tons of pulp per hectare per year with new clones planted in 2025, through:


·      classical breeding




·      lower concentration of land



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·      greater availability of land for other purposes


·      increased competitiveness and greater return to shareholders


2017 results: 11.80 tons of pulp per hectare per year (potential of new clones effectively recommended for commercial plantations).


The graph below shows the expected productivity gains until 2025:




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Contribute to the mitigation of the greenhouse effect


Our target is to double the carbon absorption from the atmosphere, by increasing net capture from 5.5 million tCO2eq, in 2011, to 11.1 million tCO2eq, in 2025, through:


·                  increase in forest areas (eucalyptus plantations and native reserves)

·                  restoration with native species of degraded pasture areas

·                  initiatives of energy efficiency




·                  reducing atmospheric concentrations of greenhouse effect gases


Note: net annual capture is defined by the difference between the total capture by planted and native forests and the direct and indirect carbon emissions from forestry, industrial and logistics operations throughout the cycle of production of pulp, from the nursery to the customer.


2017 results: net capture of approximately 6.5 million tCO2eq.


Protect biodiversity


Our target is to promote environmental restoration in 40 thousand hectares of own land, between 2012 and 2025 through:


·                  plantation of native species

·                  stimulate the natural regeneration of native species




·                  enrichment of fauna and flora, including endangered species, in the Atlantic Rainforest and the Cerrado biomes

·                  expansion of environmental services - carbon capture and water availability and quality, among others - areas whose original features have been altered due to human activity


Note: target does not consider Fibria’s support in restoration projects in third party land, developed in partnerships with other organizations.


2017 results: 24.8 thousand hectares under restoration from 2012 to 2017.


Increase ecoefficiency


Our target is to reduce by 91% the amount of industrial solid waste disposed at landfills through:


Decrease from 60 kg per tonne of pulp in 2011 to 5 kg per tonne of pulp in 2025:


·                  reduction in the generation of waste by the mills

·                  reuse of waste in the soil




·                  reduction of the impacts and risks caused by industrial landfills

·                  increase in ecoefficiency of our production processes

·                  reduction in costs for the disposal of waste and substitution of supplies


2017 results: 51.1% reduction in industrial solid waste to landfills in relation to 2011.


Strengthen the interaction between business and society


Our target is to reach 80% of approval rate in neighboring communities through:


Elevation of the approval rate in neighboring communities from 50%, in 2011, to 80%, in 2025, through:



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·                  improvement in the quality of relationship with the communities

·                  support for local development projects

·                  inclusion of the community in our value chain




·                  harmonious coexistence with the neighboring communities

·                  enabling environment for local development


Note: approval rate measured through research.


2017 results: 70.6% of approval on average (research is conducted every three years).


Strengthen the interaction between business and society


Our target is to help the community make self-sustaining 70% of income generation projects supported by Fibria per:


Increase of self-sustaining projects from 5% in 2011 to 70% in 2025, through:


·                  expansion of the Rural Territory Development Program (PDRT)

·                  promotion of technical and management training, through partnerships and support of consultants

·                  attraction of other partners




·                  social inclusion of communities, reducing their socioeconomic vulnerability

·                  leadership of the community in its development

·                  increased managerial and technical skills of community members

·                  autonomy of the communities in relation to the private and public sectors

·                  stimulation of the construction of social capital

·                  reduction of conflicts and maintenance of good relations with neighboring communities


2017 results: 23.6% of the projects are considered self-sustainable.


Optimize water management


Our target unfolds within the forestry, nursery, and industry operations:


1.              Water in the forest:


Our objective is to accomplish landscape planning in critical watersheds, where there is high water demand and significant occupation by eucalyptus plantations. We are also focused on understanding the effects of climate change on water availability and disseminating technical knowledge about hydrology aiming to help our neighbors. We intend to accomplish this by:


·                  Determining a methodology able to quantify the impact of regional climate and different types of land use on water resources.

·                  Developing hydrological indicators to better evaluate landscape planning in these watersheds; and

·                  Determining an efficient plan to share technical knowledge with people located in the watersheds.




·                  Based on detailed monitoring of water use in the eucalyptus forests, Fibria aims to set a sort of quantitative goals, and then mitigate possible conflicts related to overlapping of water use; and

·                  This process enables decision making on the most appropriate landscape management for the production of high-productivity forests with less impact on water and environmental resources in Fibria’s areas.



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2017 results:


·                  Based on physical, social, and hydrological characteristics, we selected three watersheds to monitor.

·                  Established a strategic environmental monitoring plan; and

·                  Established monitoring indicators to evaluate the effect of management in the watershed in partnership with specialists from Luiz de Queiroz College of Agriculture (Esalq/USP).


2.              Water in nurseries:


Our target is to reduce by 17% water consumption per seedlings produced (liter/ seedlings produced), through:


·                  Use of substrate with higher water retention capacity

·                  Daily monitoring and management of water consumption

·                  Use of new technologies for seedling production

·                  Reuse of rainwater for irrigation




·                  less withdrawal of water from natural sources

·                  reduction of environmental impacts

·                  increased production efficiency; and


2017 results: 14.7% reduction in nursery water consumption per seedlings produced. The improvement in 2017 is primarily due to the increase in production of seedlings


3.              Water in the industry:


Our target is to reduce by 17% water consumption per ton of pulp produced (m³ of water/ton of pulp), through:


·                  Thematic Committees that study opportunities to improve water consumption at the mill

·                  Daily monitoring and management of water consumption

·                  Structured projects to replace water use to effluent use




·                  less withdrawal of water from natural sources

·                  reduction of waste water volume

·                  reduction of environmental impacts

·                  increased production efficiency; and

·                  reduction of water to be treated and consequently less use of chemicals


2017 results: 4.8% reduction in industrial water consumption per ton of pulp produced


Corporate Governance


Our Governance, Risk and Compliance (GRC) department, is directly linked to the Chairman of the Board of Directors and reports to the Statutory Audit Committee to ensure its independence. The GRC covers the following processes: Internal Audit, Corporate Governance, Risk Management, Internal Controls, Compliance, Ombudsman and encompasses the following compliance of policies; derivatives, debt and investments pricing; market and credit risk analyses; crisis management; business continuity planning and Enterprise Risk Management (ERM). The goal of the ERM is to identify and analyse Fibria and its wholly owned subsidiaries´s significant risk through a well-defined methodology that all significant risks are mapped and analyzed, with the appropriate treatment and control determined, in accordance with the Risk Management policies approved by the Board of Directors. See “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions” and “Item 16B — Code of Ethics”.


In 2015, we developed the Dividend Policy, the Policy of Authorities and our Sustainability Policy, all of which were approved by the Board of Directors and are available at our website, in order to maintain our business within the highest levels of integrity and transparency.



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The Dividend Policy marks an advance in our corporate governance, and one of its main purposes is to indicate to the market that the Management will base its dividend payment proposal on our cash flow generation, with respect to its indebtedness and liquidity policies, maintaining its commitment to investment-grade status and considering its strategic plan. In accordance with such policy, dividends in addition to the mandatory minimum will be announced in the annual financial statements. Throughout the year, if our financial situation exceeds the envisaged scenario, management may propose an extraordinary dividend.


In 2016, we reinforced the Competition Law Compliance Policy (Antitrust) and the Anticorruption Policy through trainings and workshops. The Code of Conduct is the basis of our identity. It is where we express our fundamental, non-negotiable values that indicate the directions we should take in order to maintain an honest and positive work attitude. In view of the current business challenges and in line with its Values and Beliefs, we reinforced our Compliance Program through several training programs in 2016. For Fibria, being in compliance means to comply with and enforce internal and external, laws, rules, regulations and commitments, whether they have been assumed voluntarily or imposed on the organization. This initiative represents the maturation of our governance model, an evolution resulting from the existing culture of compliance. The Compliance Program assumes the adoption of preventive compliance measures, creating positive evidence of protection for the organization, contributing to mitigating possible sanctions and preserving our reputation as an intangible asset.


In line with the Compliance Program, the GRC department established a governance process to the monitoring cockpit, which is a dashboard with the main Company’s obligations and business requirements. According to the seven program pillars, it includes Laws and Regulations; Licenses; Permits and Certifications; Contracts and Agreements; External Reporting; Support to Competition / Antitrust; Prevention of Losses and Fraud; and Anti-Corruption.


In 2016, the Controls and Compliance Area also performed a Risk Assessment on Relationships with Public Agents. This initiative was enacted to identify Fibria´s interactions with public agents such as politicians, government entities, among others.


According to the Compliance Program, the following themes were addressed throughout the year: Anticorruption, Antitrust, Legal Representations, Donations, Partnerships, Sponsorships, Portocel Internal Controls Review.


In 2017, a broad internal communication campaign was carried out throughout the Company, including the international offices, in order to strengthen its Compliance Program. The main goal of this campaign is to reinforce the ongoing compliance initiatives at Fibria within the Program, focusing on Anticorruption and Antitrust pillars.


Reflections on Ethics and Integrity themes were promoted through various communication pieces, which included posters, banners, e-mail marketing, internal contests and an interactive lecture with the philosopher Clóvis de Barros Filho. The goal was to raise awareness among employees and third parties about the importance of Antitrust and Anticorruption laws/practices and also educate about the expected conduct of each person in their day to day work.


Additionally in 2017, a specific review on corporate governance best practices at Fibria´s investees, Veracel and Portocel, was conducted, which mainly focused on internal regulation and policies.


At Veracel the main goal was to implement the Internal Regulations for the Executive Board, Board of Directors and for the Audit Committee.


At Portocel, the main goal was to enhance the corporate governance through the implementation of Internal Regulations for the Executive Board and Board of Directors. Also Portocel developed specific policies as it follows: Social and Environmental Investments, Anti-Corruption, Defense of Competition Law.


The entire monitoring process and environmental review is properly documented and reported to senior management on a quarterly basis, with annual sign-off of the control chart by all governing bodies through a specific tool, GRC Process Control, which increases adherence to best governance practices.


In compliance with section 404 of the Sarbanes-Oxley Act and CVM Instruction 480/92, the effectiveness of internal controls of the Company’s financial information is based on criteria established in COSO Internal Controls — Integrated Framework (2013).



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Our Strategies


Increase our market share in the international pulp market


We intend to benefit from our competitive strengths to further increase our market share in the international pulp market. We have focused our marketing efforts on the sale of BEKP to tissue manufacturers, a market segment that, in addition to being generally more stable than other market segments, has experienced global consumption growth at an average annual rate of approximately 3.3% during the period from 2007 to 2017, according to PPPC.


According to a 2017 forecast by PPPC, global tissue consumption is expected to continue to grow at the same rate of 3.3% from 2017 to 2021, with China accounting for approximately 44% of the total tissue consumption growth during this period.


We believe that we can further increase our market share by leveraging our long-term customer relationships and focusing on customer service and product customization. We continue to strive to meet our customers’ needs by supplying customized pulp products with specifications that facilitate their use in manufacturing specific paper products. We strive for a high degree of customer satisfaction and are working to further improve our inventory management, which we believe will allow us to reduce our delivery cycles and better service our customers.


On May 4, 2015, we entered into an offtake agreement with Klabin for the supply of eucalyptus hardwood pulp produced at the Klabin plant in the state of Paraná (the Puma Project), which comprises a pulp production capacity of 1.1 million tons of hardwood and 400 thousand tons of softwood and fluff and which had its operational startup in 2016. The agreement establishes a firm commitment for our acquisition of a minimum of 900,000 tons per year of hardwood pulp, for exclusive sale in countries outside South America. The additional volume produced by the new plant will be sold by Klabin directly as follows: hardwood pulp in Brazil and South America, and softwood pulp and fluff in the global market. The agreement term is six (6) years, with the last two years being a gradual phase out period, and may be renewed by mutual interest. The pulp volumes derived from the deal with Klabin are included in Fibria’s global commercial strategy. Besides our business rationale that Klabin’s volumes are being placed into the market in a smoother way with respect to impact on pulp prices than by a newcomer in the hardwood market pulp industry, due to our commercial and logistics expertise, the deal is allowing us to obtain logistics and commercial optimization and synergies, support our customers’ growth, enhance our ability to meet customers’ needs, and represents potential for the development of new customers.


Enhance our financial strength and corporate governance


Our total consolidated indebtedness as of December 31, 2017 and 2016 amounted to R$19,299 million and R$16,153 million, 91.2% and 93.0% of which represented long-term indebtedness, respectively. After a successful financing of the Horizonte 2 project, we remain in the search for competitive financing sources to improve our capital structure, recover and maintain our investment grade rating and secure financing for our growth strategy under favorable market conditions.



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As a credit quality recognition in 2017, Fitch reaffirmed the investment grade rating for Fibria and revised the Company’s outlook to positive from stable. S&P also reaffirmed the investment grade and revised the outlook to stable from negative, despite Brazil’s sovereign rating downgrade. For a more detailed description of our Liability Management Plan, see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Liability Management Plan.”


In 2015, Fibria launched a Dividend Policy, approved by the Board of Directors, which is available on our website. One of its main purposes is to indicate to the market that the management will base its dividend payment proposal on our cash flow generation, with respect to its indebtedness and liquidity policies, maintaining its commitment to investment-grade status and considering its strategic plan. In accordance with such policy, dividends in addition to the mandatory minimum will be announced in the annual financial statements. Throughout the year, if our financial situation exceeds the envisaged scenario, management may propose an extraordinary dividend.


Increase operating efficiencies


We intend to maintain the focus on our low-cost operations through greater operating efficiencies and economies of scale. To this end, we intend to continue to:


·                  focus on reducing our wood costs through increased eucalyptus yields by continuing to invest in the genetic improvement of our trees;


·                  take advantage of climate and soil conditions in Brazil and the short harvest cycle of eucalyptus trees; and


·                  improve the efficiency of our operations through further investment in harvesting equipment, production facilities and advanced information technology.


During 2015, we started to implement a new trailer to transport wood logs and woodchips, internally called PIFF, which is lighter than the regular trailer available in the market and allows a 10% yield increase on wood volume transportation. The PIFF trailer was developed by us with the Brazilian university UFSCAR and currently we are under process for intellectual property registration. With such new trailers, we focus on the wood costs reduction, which are among the most relevant of our pulp production costs and therefore a priority for us. Considering all the wood logs transportation by truck we have, the PIFF is currently operational on 100% of our Três Lagoas, 51% of our Jacareí unit and 35% of our Aracruz unit.



In 2015, we implemented a harvest mechanization project in our hilly-forested areas of Vale do Paraiba located in São Paulo state, which provides wood for our Jacareí unit. Previously, the mechanized harvest was locked up at 24 degrees steep. With the project, we increased our harvest productivity through mechanized operation in hilly areas until 35 degrees. Therefore, harvest



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with manual staff decreased significantly to areas extremely steep only. Besides the operational gain, mechanized operations also represents an improvement in safety. In 2016, all efforts of the harvesting operation were directed toward consolidation of mechanization in areas between 24 and 35 degrees. In 2017, Fibria implemented the artificial anchoring process, increasing the mechanization in the areas up to 35 degrees reducing by 18% the areas of mixed harvest. We also finalized the study of the implementation of the T-winch equipment (anchorage of machines), with implementation scheduled for 2018. The expectation is an advance in the process of mechanization of the areas between 35 and 40 degrees.



In 2015, we launched a maritime shipping project at Portocel to increase the wood cargo handling for our Aracruz unit, which started up in 2017. We expect this initiative improve our competitiveness through the reduction in wood costs.



With the aim to maximize forestry operations productivity in the long-term, during 2015 we classified our forest base by categories, from “Diamond” to “Lead”, using an economic geo-model. We mapped all leased and owned forestry land using key indicators for silviculture, harvest and transportation activities on a current and future perspective approach on risks and opportunities, such as soil conditions, declivity, altitude, conservation areas, proximity to urban zones, roads availability, and transportation efficiency, among others. By gathering all such data and combining it, we were able to classify our forest base and settle targets towards a future category distribution as you can see on the chart below.



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With the structural change on our forest base from its current state to the target composition of categories that we expect to achieve in 10 years, we will be able to reduce our wood operating costs and capital expenditures and therefore increase our competitiveness. The dynamics of forest base change related to such goal means that we will seek for opportunities to purchase or lease more attractive areas, divest from unattractive tracts, as well as implement technologies that will lead us to the structural wood cost.


In December 2015, we executed a real estate purchase and sale commitment with VSA, for: (i) the selling by us of the rural real estate located in the cities of Votorantim and Sorocaba, in the State of São Paulo, totaling 5,042 hectares, for the amount of R$172 million and (ii) the purchase from VSA of the rural real estate located in Capão Bonito and Itapeva, also in the State of São Paulo, totaling 33,994 hectares, for the amount of R$452 million. Such transaction was intrinsically in accordance with our target composition of land categories. During 2017, according to our strategy to reduce the structural forestry cost in São Paulo unit, we purchased wood from the market for R$12 million with future leasing of this area of 993 hectares, with lower operational cost, higher productivity, lower declivity, average distance of 90 km from the mill and optimized transportation setup. This initiative allowed us to remove from the supply plan of this unit 1.77 thousand hectares, especially in Minas Gerais state, where there is lower productivity and average distance of 370 km from the mill. In Aracruz Unit, we purchased 729 hectares, with average distcance of 75 km from the mill, in line with the strategy of reducing operational cost, mitigation of climate change risk, and allowing future write offs of unattractive areas.


Continue to develop innovative technology in the forestry area


Technological research and development has made it possible to improve our productivity while reducing the impact of our operations on the environment. In the forestry area, an intense research program and the adoption of modern forestry practices have significantly increased our competitiveness. The genetic improvement of eucalyptus trees through classical breeding has allowed us to use superior clones in our plantations, resulting in higher productivity. We currently perform 100% of our planting operations with improved clones. Higher process efficiency and better seedling’s quality were achieved due to a pioneering procedure for eucalyptus vegetative propagation (cloning). In the decade ending 2010, the average annual amount of pulp produced by our forests was about 10.6 tons per hectare per year, compared to 6.4 tons during the 1970s. One of Fibria’s long-term targets is to reduce by one-third the amount of land required for the pulp production, through increasing productivity by classical breeding. The goal is to reach 15 tons of pulp per hectare per year in plantations established with new clones deployed by 2025.


By continuing to focus on cutting-edge technological research and development, we aim to strengthen our position as one of the leading developers of technology in the forestry area, to maintain our position as a low-cost producer while meeting our standards of high quality production, to increase the portfolio of products that we offer to our customers and to maintain our reputation as an environmentally friendly and socially responsible manufacturer, while increasing the value of our forestry biomass. For instance, in



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2012, Fibria and Ensyn Corporation created a strategic alliance involving a 50/50 joint venture for the production of cellulosic liquid fuels and chemicals in Brazil. More recently, in connection with Fibria’s vision of creating new products from its forest base, Fibria recorded a major advance on the lignin research front by acquiring the assets of the Canadian company Lignol Innovations, now known as Fibria Innovations and also acquired a participation in Celluforce, entering the nanocrystalline cellulose business. During 2017 Fibria also moved even further in this direction through the acquisition of shares in Spinnova, a Finnish startup that develops sustainable technologies for the textile industry using use wood fibers.




For Fibria, sustainability involves incorporating social and environmental aspects, long-term value generation strategies and stakeholder views resulting from dialogue into the business strategy and management. We are part of a value chain that gives importance to numerous aspects beyond traditional operations, such as developing a skilled and engaged workforce, managing and promoting projects that promote the growth and welfare of neighboring communities, preserving and recovering native forests, sequestering carbon, sustainable pest control, reducing waste, managing with transparency, and strengthening communication channels with civil society, the government and media. Sustainability embodies the recognition of public opinion, customer loyalty, employee pride and trust of partners and neighbors. Furthermore, it decreases risks, creates opportunities and makes us stronger to meet the needs of an increasingly demanding market that is mindful of the planet’s delicate balance.


Since 2015, Fibria has had a Sustainability Policy, approved by the Board of Directors and available on the Company’s Investor Relations website, making a further contribution to the governance of our aspirations, which are already an integral part of our business proposition.


In 2016, Fibria published a position paper on human rights, disclosing the Company’s commitment to respecting and supporting universally recognized basic human rights, as well as establishing principles and regulations to value and protect these rights in its direct or indirect activities and its production chain.


In 2017, Fibria published a Supplier Relationship Manual, in line with its Code of Conduct, that seeks to develop Fibria’s supply chain by ensuring transparency, consolidating its values and principles, and encouraging best practices.


Community Relations


We operate in seven Brazilian states and in over 242 municipalities, where Fibria owns mills, eucalyptus plantations and conservation areas. Neighboring our areas, there are independent wood suppliers with whom we hold long-term contracts for the supply of raw material for pulp. We have forged a wide range of relationships with diverse communities (traditional or otherwise), which are primarily impacted by its forestry activities. Therefore, quality relations with communities in the vicinity of our operations are crucial to our performance. We have continuously investing in community engagement processes and socio-environmental projects designed to foster social inclusion and improve the quality of life of neighboring populations. These programs help to strengthen its social capital, generate jobs and income, improve the locals’ quality of life, and above all establish a constructive dialogue in search of common solutions. Fibria seeks to ensure social legitimacy for its business by encouraging the integration of these communities into its forestry business, while seeking to establish planning and monitoring mechanisms aimed at identifying, preventing and mitigating the impacts of its activities.


Fibria’s Strategy for Community Relations and Social Investment includes five levels: survey and diagnosis of impacted communities, Relationship Prioritization Matrix, dialogue enhancement, relationship methods and tools, and monitoring. In 2016, over 7,000 families were benefited in multiple ways from their involvement in Fibria’s social-environmental programs. Since 2009, Fibria has invested over R$200 million in its programs of social development. In 2017, over 400 new families joined Fibria’s social projects, totaling 7,447 families with evidenced income being generated from these projects. In 2017, 4,000 families were involved in the Rural Territory Development Program (PDRT) in the states of São Paulo, Mato Grosso do Sul, Bahia and Espírito Santo. The increase in wages since the beginning of the project is equivalent to approximately 2 to 4 minimum monthly wages per family. These funds come from Fibria and third parties such as the BNDES, the Votorantim Institute and members of the Responsible Network, comprised primarily of the Company’s suppliers and customers.


Horizonte 2 and Sustainability


Fibria has created a series of initiatives alongside stakeholders to work on socio-environmental risks related to the Horizonte 2 Project, Três Lagoas Mill Expansion:


Working Group on Sustainability and Compliance: Given the complexity of the project and the number of people involved, Fibria and its suppliers must deal with a number of impacts and risks, and it is thus better to work together. To this end, the company



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organized the Working Group on Sustainability and Compliance, which comprises the largest suppliers of labor and representatives of all Fibria’s departments directly associated with the project. The Working Group maps social and environmental and compliance risks and opportunities, and prioritizing action plans to mitigate and address these.


Doing Good Program: To raise awareness and mitigate risks of child sexual exploitation and abuse in the Três Lagoas region, Fibria involved local players in order to develop a structured program to protect children and teenagers of Três Lagoas in a preventive manner. From May to October 2016, over 21 thousand workers from the region were engaged and 145 training workshops were given.


Public Management Support Program (PAGP): is a joint program involving the Votorantim Institute, the Inter-American Development Bank (IDB) and the local government of Três Lagoas who together support the improvement and modernization of public administration while coordinating partnerships and resources and fostering active transparency.


Relationship with specific communities


Fibria’s relationship with some communities particularly in the north of Espírito Santo and the south of Bahia, require special attention because they are historically more susceptible to conflicts, or are socially vulnerable. Fibria develops initiatives in which different entities — such as other companies, governments, third sector organizations and the communities themselves — are engaged, and seek to build, together, solutions of common interest. We have served the communities either directly or through engagement with other entities who can also contribute to finding solutions, such as the government, in its various echelons, NGOs and other companies. Some communities have received special attention from us, which has been developing specific social inclusion projects, often with input from government agencies and independent socioenvironmental agencies. This is the case of communities known as quilombolas (descended from former runaway slaves) and indigenous communities of the Tupiniquim and Guarani ethnicities. Members of the Landless Workers’ Movement (MST) and families of local fishermen are yet other cases in point.



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Engagement with Landless Movements


An area of approximately 11,000 hectares owned by Fibria in Prado (BA), comprised of five farms, occupied by members of the Landless Rural Workers Movement (MST) since 2000, has ceased being a point of social tension and has been transformed into a pioneering sustainable rural production experience. In partnership with the government of Bahia and the Escola Superior de Agricultura Luiz de Queiroz (Esalq/USP), Fibria has prepared a project for the production of a mix of agroforestry crops, maximizing the soil use in plots distributed to hundreds of registered families. Named the Alvorecer (Dawning) Project, the sustainable settlement is assisted by a specialized technical team whose members reside at the site. In 2013, the project gained new momentum with the startup of a mid-level agricultural school with capacity to teach 300 students per shift.


The Alvorecer Project initiative began in 2011 when the Company agreed to negotiate with the National Institute for Settlement and Land Reform in Bahia (INCRA/Bahia) and facilitate the expropriation of land. Since then, the project has been consolidating itself as the most advanced model of a cooperative agricultural production system in the country. During this period, 370 technicians were trained through the program “Yes You Can”. The subprojects “Plantas Medicinais e Medicamentos da Biodiversidade em Sistemas Produtivos Agroflorestais” and “Monitoramento e Análise das Condições de Vida e Saúde e Fortalecimento das Ações de Saúde” are contributing to a significant improvement in the participants’ health.


Relations with Governments


Fibria contributes to the development of public policies by means of various organizations of which it is a member, representing the forestry and the pulp and paper sectors.


Annual Report


Fibria adheres to the Global Reporting Initiative G4 guidelines for disclosure Comprehensive level, as well as the framework of the International Integrated Reporting Council (IIRC) and undergoes external verification. Through this process, we seek to annually account for how we are addressing challenges and achieving results, with regard to sustainability strategy and a vision for the future, as well as our role in society. The Annual Report includes details of commitments and performance on the governance, economic, financial, social and environmental aspects of the business following the principles of Materiality, Stakeholder Inclusiveness, Sustainability Context, Completeness, Balance, Comparability, Accuracy, Timeliness, Clarity and Reliability. The Annual Report is widely distributed to all of Fibria’s stakeholder groups, from community leaders to ESG and long-term investors and analysts.


Our Products




In 2017, we produced 5,642 kilotons of pulp representing 34% of total Brazilian hardwood pulp production. In the past few years, the share of Fibria in total Brazilian hardwood pulp production was, respectively, 38% and 32% in 2016 and 2015.


The following table sets forth the breakdown of our BEKP net revenues by region for the periods indicated.












(million Reais)


(million Reais)


(million Reais)
















Pulp Net Revenues




























North America

























































Pulp Production Process


The pulp production process can be summarized in the outline below, and is comprised of three main activities: Forestry, Industrial and Logistics:



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We only produce bleached eucalyptus kraft pulp from planted eucalyptus trees. Bleached eucalyptus kraft pulp is a high-quality variety of hardwood pulp. Eucalyptus is a hardwood tree, and its pulp has short fibers and is generally better suited to manufacturing tissue, coated and uncoated printing & writing paper and coated packaging boards. Short fibers are optimal for manufacturing wood-free paper with good printability, smoothness, brightness and uniformity.


Our pulp production is solely from wood extracted from eucalyptus trees grown in sustainable forest plantations. Eucalyptus trees are among the fastest-growing trees in the world given that climate and soil conditions in Brazil allow for eucalyptus tree harvest rotations of approximately 6 years, as compared to harvest rotations of approximately 10 to 12 years in Chile, and up to 25 years in the southern United States.


Our forestry operations are composed of four major activities: nurseries, silviculture, harvesting and transportation of wood from the forestry to the mills.


The process begins in the nurseries, where the seedlings are cultivated. We operate four nurseries located in the states of São Paulo, Mato Grosso do Sul, Espírito Santo and Bahia, with an aggregate annual production capacity of approximately 89 million seedlings. Our seedlings are 100% produced with cloning technology, one of the most advanced genetic processes for the formation eucalyptus trees in the world. Seedlings take between 70 to 120 days to be completely developed and set for planting in the forests when the silviculture process starts.


Eucalyptus planting is made respecting the most advanced technology related to soil cultivation combining the best practices of natural resources conservation and high productivity planting. As a result, it is possible to implement our forest base with minimum soil interference maintaining microorganisms and protection against erosion. Silviculture is responsible for the planting and maintenance of the forests until the harvesting process starts.


After approximately 6 to 7 years, the eucalyptus trees are harvested. We use advanced and automated harvesting equipment in our forests. After harvested, the wood logs are transported by either truck, rail or barge (or a combination of these) from the forests to our production facilities. During harvesting all barks, treetops and other biomass sources remain on the ground to preserve soil fertility. The logs are then transported to our production facilities where they are unloaded and then taken by conveyor belt to be debarked and chipped as will be described below.


Our forestry base is broad and diversified, comprised of total forestry area of approximately 1,092 thousand hectares as of December 31, 2017 located in 6 Brazilian states, consisting of approximately 656 thousand hectares of planted areas, approximately 374 thousand hectares of preserved areas (excluding the forest base linked to the sale of forest assets in Southern Bahia State and Losango), and 61 thousand hectares related to other uses such as roads.


The following table describes the location and the area of our forest base as of December 31, 2017:


















(in hectares)












São Paulo










Minas Gerais










Rio de Janeiro










Mato Grosso do Sul




















Espírito Santo










Rio Grande do Sul





















(1)                                 Includes the forests associated with the production facility of Veracel. Excludes forest base linked to the sale of forest assets in Southern Bahia State.


(2)                                 Excludes forestry partnership program areas (133 thousand hectares with 76 thousand forested hectares).



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Forest Preservation and Natural Resources


All of our wood comes from tree plantations rather than from native forests. Since the 1980s, we have been harvesting eucalyptus through uniform propagated seedlings from carefully selected trees, planted in already degraded pasture lands, which is assured by our forest management certifications. The characteristics of the seedlings we select are matched to different regions. This method allows us to (1) greatly increase forestry productivity, reducing the demand for new lands, (2) comply with environmental regulations, and (3) contribute to carbon reduction in the atmosphere.


Pursuant to the Brazilian Forestry Code (Law No. 12,727/ 2012), we are required to set aside 20% of our areas for preservation, conservation and environmental recovery. The Company is located in the Atlantic Rain Forest and Cerrado, two biodiversity hot spots, and in 2017, we maintained 374 thousand hectares, of our forest base for conservation purposes. These areas consist of either natural forests, riparian buffer zones, or natural vegetation with specific ecological characteristics. Furthermore, we maintain a restoration program to recover degraded areas and endangered flora species.


We also invest in environmental studies and continuous monitoring, together with national and international universities, research centers, specialized consultants and NGOs, in order to assure the environmental performance of our plantations and ensure the conservation of ecosystems and the availability of natural resources where we operate. This is done by imposing conservation and improvement measures in the forestry activities plans considering the area environmental conditions.


In 2017, we conducted participated or supported 58 initiatives related to biodiversity, water, climate change and forestry management improvement. The endeavors cover different types of water resources and biodiversity monitoring as well as endangered species protection, environmental education, carbon sequestration and landscape planning.


Forestry Certification System


We constantly seek alternatives and tools for the responsible production through voluntary certification and socio-environmental commitments. Certification systems are initiatives for continuous improvement of processes, environmental conservation and responsible development practices that benefit our relationship with society, government agencies, customers, suppliers, employees and other stakeholders.


Fibria has internationally recognized certifications in its operations, such as ISO 9001, ISO 14001, OHSAS 18001 and forest certification as FSC® and Cerflor/PEFC certifying responsible practices.


The main certifications for the forest industry are: the Forest Stewardship Council® (FSC®), given by an independent, non-governmental, not-for-profit organization and Cerflor created by the Brazilian program of forest certification, recognized internationally by the Program for the Endorsement of Forest Certification Schemes - PEFC. The forestry certification system is divided in two categories: Forest Management, which verifies whether the wood is produced according to high standards that protect the environment, and Chain of Custody, which verifies that the Company uses only certified wood as raw material.


In 2017 the new production line at the Três Lagoas Unit was included in the scopes of certifications.


The certification base involves the areas that are under the direct management of Fibria (own, leased and partnerships) and have the certifications as per the table below: