20-F 1 tm219075d1_20f.htm 20-F

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

 

FORM 20-F

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2020

 

Commission file number 001-38755

 

Suzano S.A.
(Exact name of Registrant as specified in its charter)
 
Suzano Inc.
(Translation of Registrant’s name into English)
 
Federative Republic of Brazil
(Jurisdiction of incorporation or organization)
 

Av. Professor Magalhães Neto, 1,752 

10th Floor, Rooms 1010 and 1011 

Salvador, Brazil 41810-012 

(Address of principal executive offices)
 

Marcelo Feriozzi Bacci 

Chief Financial and Investor Relations Officer 

Telephone: +55 11 3503-9000 

Email: ri@suzano.com.br 

Av. Faria Lima, 1,355 – 7th Floor 

São Paulo, Brazil, 01452-919 

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

 

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

 

Title of each class: 

Trading Symbol 

Name of each exchange on which registered: 

Common Shares, without par value   New York Stock Exchange*
American Depositary Shares (as evidenced by American Depositary Receipts), each representing two Common Shares New York Stock Exchange
4.000% Notes due 2025, issued by Fibria Overseas Finance Ltd. FBR/25 New York Stock Exchange
5.500% Notes due 2027, issued by Fibria Overseas Finance Ltd. FBR/27 New York Stock Exchange
5.250% Notes due 2024, issued by Fibria Overseas Finance Ltd. FBR/24 New York Stock Exchange
6.000% Notes due 2029, issued by Suzano Austria GmbH SUZ/29 New York Stock Exchange
5.000% Notes due 2030, issued by Suzano Austria GmbH SUZ/30 New York Stock Exchange
3.750% Notes due 2031, issued by Suzano Austria GmbH SUZ/31 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

 

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

 

The number of outstanding shares of stock of Suzano S.A. as of December 31, 2020 was:

 

1,361,263,584 common shares, without par value

 

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

☒ Yes   ☐ 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. 

☐ Yes   ☒ 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. 

☒ Yes   ☐ No

 

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

☒ Yes   ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☒   Accelerated filer ☐   Non-accelerated filer ☐   Emerging growth company ☐

 

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. ☐

 

 

†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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report 

☒ Yes   ☐ No

 

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

 

U.S. GAAP ☐   International Financial Reporting Standards as issued
by the International Accounting Standards Board ☒
  Other ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17 ☐   Item 18 ☐

 

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). 

☐ Yes   ☒ No

 

 

 

 

TABLE OF CONTENTS 

 

Page

 

FORWARD-LOOKING STATEMENTS 1
GLOSSARY OF CERTAIN TERMS USED IN THIS ANNUAL REPORT 2
PRESENTATION OF FINANCIAL AND OTHER INFORMATION 3
PART I 4
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 4
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 4
ITEM 3. KEY INFORMATION 4
A.   Selected Financial Data 4
B.   Capitalization and Indebtedness 7
C.   Reasons for the Offer and Use of Proceeds 7
D.   Risk Factors 7
ITEM 4. INFORMATION ON THE COMPANY 25
A.   History and Development of the Company 25
B.   Business Overview 26
ITEM 4. A. INFORMATION ON THE COMPANY 52
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 52
A.   Operating Results 57
B.   Liquidity and Capital Resources 61
C.   Research and development, patents and licenses, etc. 67
D.   Trend Information 71
E.   Off-Balance Sheet Arrangements 72
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 73
A.   Directors and Senior Management 73
B.   Compensation 80
C.   Board Practices 84
D.   Employees 84
E.   Share Ownership 85
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 86
A.   Major Shareholders 86
B.   Related-Party Transactions 87
C.   Interests of Experts and Counsel 87
ITEM 8. FINANCIAL INFORMATION 87
A.   Consolidated Statements and Other Financial Information 87
B.   Significant Changes 93
ITEM 9. THE OFFER AND LISTING 94
A.   Offer and Listing Details 94
B.   Plan of Distribution 94
C.   Markets 94
D.   Selling Shareholders 96

 

i 

 

 

E.   Dilution 96
F.   Expenses of the Issue 96
ITEM 10. ADDITIONAL INFORMATION 97
A.   Share Capital 97
B.   Memorandum and Articles of Association 97
C.   Material Contracts 102
D.   Exchange Controls 102
E.   Taxation Brazilian Tax Considerations 103
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 107
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 110
PART II 111
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 111
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 112
ITEM 15. CONTROLS AND PROCEDURES 113
ITEM 16. A. AUDIT COMMITTEE FINANCIAL EXPERT 114
ITEM 16. B. CODE OF ETHICS 115
ITEM 16. C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 116
ITEM 16. D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 117
ITEM 16. E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 118
ITEM 16. F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT 119
ITEM 16. G. CORPORATE GOVERNANCE 120
ITEM 16. H. MINE SAFETY DISCLOSURE 122
PART III 123
ITEM 17. FINANCIAL STATEMENTS 123
ITEM 18. FINANCIAL STATEMENTS 124
ITEM 19. EXHIBITS 125

 

 

 ii

 

FORWARD-LOOKING STATEMENTS

 

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

 

the outbreak of the COVID-19 pandemic and its impacts on the sanitary and health conditions in Brazil and in our principal export markets, as well as any impact on our business, financial condition, results of operations and prospects, including impacts in the demand for printing and writing papers, and any further actions that alter our business operations, as may be required by local authorities, or that we determine are in the best interests of our employees, communities and clients;

our management and future operation;

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

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

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

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

the competitive nature of the industries in which we operate;

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

the cost and availability of financing;

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

the implementation of our financing strategy and capital expenditure plans;

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

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

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

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

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

 

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

 1

 

GLOSSARY OF CERTAIN TERMS USED IN THIS ANNUAL REPORT

 

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

 

ADENE Agency for the Development of the Northeastern Brazil, or Agência de Desenvolvimento do Nordeste.
ADR American Depositary Receipts.
ADS American Depositary Shares.
ANTAQ Brazilian regulatory agency regulating aquatic transportation, or Agência Nacional de Transportes Aquaviários.
B3 B3 S.A. – Brasil, Bolsa, Balcão, the São Paulo Stock Exchange.
BNDES The Brazilian Development Bank, or Banco Nacional de Desenvolvimento Econômico e Social.
BNDESPAR BNDES Participações S.A.
Brazilian Corporation Law Brazilian Law No. 6.404/76, as amended.
CADE Brazilian antitrust authority, or Conselho Administrativo de Defesa Econômica.
COFINS Contribution for the Financing of Social Security, or Contribuição para o Financiamento da Seguridade Social.
CONFAZ National Board of Financial Policy, or Conselho Nacional de Política Fazendária.
CSLL Social Contribution on Net Income, or Contribuição Social Sobre o Lucro Líquido.
CVM Brazilian Securities Commission, or Comissão de Valores Mobiliários.
Exchange Act U.S. Securities Exchange Act of 1934, as amended.
FGTS Government Severance Indemnity Fund for Employees, or Fundo de Garantia do Tempo de Serviço.
GHG Greenhouse gas.
IBÁ Brazilian Tree Industry, or Indústria Brasileira de Árvores.
IBAMA Brazilian Federal Environmental Agency, or Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis.
ICMS Tax on Sale of Goods and Services, or Imposto sobre Circulação de Mercadorias e Serviços.
IFC International Finance Corporation.
INCRA Brazilian Institute for Land Reform, or Instituto Nacional de Colonização e Reforma Agrária.
INPI National Industrial Property Institute, or Instituto Nacional da Propriedade Industrial
INSS Social Security Contributions, or Instituto Nacional do Seguro Social.
IPCA Inflation Rate Index for Consumer Goods, or Índice Nacional de Preços ao Consumidor Amplo
IPI Tax on Manufactured Products, or Imposto sobre Produtos Industrializados.
IRPJ Corporate Income Taxes, or Imposto de Renda Pessoa Jurídica.
ISS Tax on Services, or Imposto Sobre Serviços.
PIS Social Integration Program, or Programa de Integração Social.
PPPC Pulp and Paper Products Council.
RFB Brazilian Internal Revenue, or Receita Federal do Brasil.
Securities Act U.S. Securities Act of 1933, as amended.
SUDENE Superintendence for Development of the Northeast, or Superintendência do Desenvolvimento do Nordeste.
TJLP Brazilian Long-Term Interest Rate, or Taxa de Juros de Longo Prazo.

 2

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

 

We have prepared our consolidated financial statements as of December 31, 2020 and 2019 and for each of the three years ended December 31, 2020, included herein, in compliance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The selected financial information should be read together with our consolidated financial statements, including the notes thereto.

 

Our functional currency and that of all our subsidiaries is the real, which is also the currency used for the preparation and presentation of our consolidated financial statements, except for investments in associates abroad related to Ensyn Corporation, F&E Technologies LLC and Spinnova OY. See note 3.2.5. to our audited consolidated financial statements.

 

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

 

The financial information and certain other information presented in a number of tables in this annual report have been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this annual report reflect calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based on the rounded numbers.

 

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

 3

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3. KEY INFORMATION

 

A.           Selected Financial Data

 

For a discussion of our financial and operating data for the years ended December 31, 2020 and 2019, see “Item 5. Operating and Financial Review and Prospects.”

 

OTHER FINANCIAL DATA

 

   Year ended December 31, 
   2020   2019   2018   2017   2016 
   (in thousands of R$, unless otherwise indicated) 
Gross margin (1)    37.7%   20.3%   48.5%   38.6%   33.3%
Operating margin (2)    27.7%   10.1%   37.3%   31.0%   13.0%
Capital expenditures (3)    4,897,860    4,868,427    2,423,698    1,780,302    2,324,338 
Depreciation, amortization and depletion (4)    6,772,781    5,844,855    1,563,223    1,402,778    1,403,518 
Cash flow provided by (used in):                          
Operating activities    13,124,636    7,576,437    5,169,448    3,067,332    3,075,539 
Investing activities    (736,417)   (11,695,019)   (21,961,310)   (1,007,807)   (3,342,484)
Financing activities    (9,785,139)   3,141,809    20,035,049    (2,612,089)   566,082 

 

 

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

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

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

(4)Solely for the year ended December 31, 2019, depreciation, amortization and depletion includes the amortization of fair value adjustment on the business combination with Fibria/Facepa/Ibema, except for the fair value amortization of inventories and contingencies related to the business combination with Fibria. Solely for the year ended December 31, 2020, depreciation, amortization and depletion includes subleasing of ships.

 

OPERATIONAL DATA

 

   As at and for the year ended December 31, 
   2020   2019   2018   2017   2016 
Number of employees    15,653    14,534    9,385    7,830    7,483 
Nominal production (millions of tons)                          
Pulp    9.8    9.4    3.5    3.5    3.5 
Paper    1.2    1.2    1.3    1.2    1.2 
Nominal production capacity (millions of tons)                          
Pulp    10.9    10.9    3.6    3.6    3.6 
Paper    1.4    1.4    1.4    1.4    1.3 
Sales volumes (thousand metric tons)                          
Domestic market pulp    786,621    830,962    298,005    376,502    410,564 
Export market pulp    10,036,495    8,580,691    2,927,714    3,255,329    3,117,814 
Total market pulp    10,823,116    9,411,653    3,225,719    3,631,831    3,528,378 
Sales volumes (thousand metric tons)                          
Domestic market paper    801,819    853,412    878,374    815,917    826,408 
Export market paper    375,062    403,051    377,263    374,190    361,996 
Total market paper    1,176,881    1,256,463    1,255,637    1,190,108    1,188,404 
Total sales volumes market paper and pulp    11,999,997    10,668,116    4,481,356    4,821,938    4,716,782 

 4

 

Special Note Regarding Non-IFRS Financial Measures

 

A non-IFRS financial measure is any financial measure that is presented other than in accordance with all relevant accounting standards under IFRS. We disclose EBITDA and Adjusted EBITDA for Suzano in this annual report, which are considered to be non-IFRS financial measures. EBITDA is calculated as Net income (loss) plus Net financial result, Income and social contribution taxes, and Depreciation, amortization and depletion. Adjusted EBITDA for Suzano is defined as EBITDA as further adjusted to add or exclude: (i) exceptional adjustments as defined by management are those with no impact on Suzano’s ongoing business, such as Expenses with Fibria’s transaction, Amortization of fair value adjustment on business combination with Fibria, Indemnity – FACEPA, Contract renegotiation, Losango Project Adjustments, COVID-19 - Social actions, COVID-19 - Operating expenses, Fair value adjustment (others), ITBI Provision and fees, Sale of judicial credits, Shut down – 5.1 Project Mucuri facility, Non-Compete Executives, Fees of counsel, Tax credits - gains in tax lawsuit (ICMS from the PIS/COFINS calculation basis) and Agreement White Martins and (ii) non-cash adjustments are those adjustments that have impacted the income statements without a cash impact on Suzano, such as Accrual (reversal) of losses on ICMS credits, Impairment of non-financial assets, Accruals for losses on PIS and COFINS credits, Labor lawsuits provision, Fair value adjustment of biological assets, Result from sale and disposal of property, plant and equipment and biological assets, Income from associates and joint ventures, Reconciliation adjustments and Write-off of physical inventory.

 

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

 

Our management believes that disclosure of our EBITDA and Adjusted EBITDA provide useful information to investors, financial analysts and the public in their review of our operating performance and their comparison of our operating performance to the operating performance of other companies in the same industry and other industries.

 

For example, interest expense is dependent on the capital structure and credit rating of a company. However, debt levels, credit ratings and, therefore, the impact of interest expense on earnings vary significantly between companies. Similarly, the tax positions of individual companies can vary because of their differing abilities to take advantage of tax benefits and the differing jurisdictions in which they transact business. Finally, companies differ in the age and method of acquisition of productive assets, and thus the relative costs of those assets, as well as in the depreciation method (straight-line, accelerated or units of production), which can result in considerable variation in depreciation and amortization expenses between companies. Therefore, for comparison purposes, our management believes that our EBITIDA and Adjusted EBITDA are useful measures of operating profitability because they exclude these elements of earnings that do not provide information about the current operations of existing assets.

 

Moreover, other companies may calculate EBITDA and Adjusted EBITDA differently, and therefore our presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures used by other companies. Each of these non-IFRS financial measures are important measures to assess our financial and operating performance. We believe that the disclosure of EBITDA and Adjusted EBITDA provides useful supplemental information to investors and financial analysts in their review of our operating performance and in the comparison of such operating performance to the operating performance of other companies in the same industry or in other industries that have different capital structures, debt levels and/or income tax rates. The presentation of non-IFRS financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with IFRS.

 

See below for a reconciliation of our net income (loss) to EBITDA and Adjusted EBITDA.

 

Adjusted EBITDA (R$ million)  2020   2019 
EBITDA Reconciliation          
Net income (loss)   (10,714.9)   (2,814.7)
(+/–) Net financial result   26,085.5    6,725.8 
(+/–) Income and social contribution taxes   (6,927.2)   (1,282.5)
(+) Depreciation, amortization and depletion (1)   6,772.8    5,844.8 
EBITDA   15,216.2    8,473.4 
Expenses with Fibria’s Transaction(2)   1.0    79.9 
Amortization of fair value adjustment on business combination with Fibria(3)       2,247.1 
Indemnity – FACEPA(4)       4.1 

 5

 

Adjusted EBITDA (R$ million)  2020   2019 
Accrual (reversal) of losses on ICMS credits(5)   (79.0)   181.1 
Contract renegotiation(6)   6.7    45.7 
Losango Project Adjustments(7)       57.8 
Impairment of non-financial assets(5)   45.4     
COVID-19 - Social actions(8)   48.6     
COVID-19 - Operating expenses(9)   136.1     
Fair value adjustment (others)(10)       (32.7)
ITBI provision and fees(11)   10.5     
Accruals for losses on PIS and COFINS credits(5)   11.1    21.1 
Labor lawsuits provision(5)       32.2 
Fair value adjustment of biological assets(5)   (466.5)   (185.4)
Sale of judicial credits(12)       (86.6)
Result from sale and disposal of property, plant and equipment and biological assets(5)   25.5    42.7 
Shut down – 5.1 Project Mucuri facility(13)   29.7     
Income from associates and joint ventures(5)   (36.1)   (32.0)
Non-Compete Executives(14)       3.8 
Fees of counsel(15)       2.4 
Reconciliation adjustments(5)       (3.0)
Tax credits - gains in tax lawsuit (ICMS from the PIS/COFINS calculation basis)(16)       (128.1)
Agreement White Martins(17)   0.4     
Write-off of physical inventory(5)       0.1 
Adjusted EBITDA   14,949.6    10,723.6 

 

(1)Solely for the year ended December 31, 2019, depreciation, amortization and depletion includes the amortization of fair value adjustment on the business combination with Fibria/Facepa/Ibema, except for the fair value amortization of inventories and contingencies related to the business combination with Fibria. Solely for the year ended December 31, 2020, depreciation, amortization and depletion includes subleasing of ships.

(2)Exceptional: Expenses incurred due to the business combination with Fibria.

(3)Exceptional: Amortization of fair value adjustment on business combination with Fibria related to contingencies and inventory.

(4)Exceptional: expenses related to the dismantling of machinery at Facepa.

(5)Non cash adjustments

(6)Exceptional: Penalties on contractual terminations with some suppliers due to operational synergies arising from business combination with Fibria.

(7)Exceptional: Provisions related to the Losango project, mainly, write-off of advances of forestry development program and write-off of wood stock in the field.

(8)Exceptional: Disbursements made for carrying out the social actions implemented by Suzano.

(9)Exceptional: Includes, mainly, expenses in the facilities units for the upgrading of cafeterias and workplaces, expansion of the frequency of conservation, cleaning, hygiene and maintenance of common areas, public transport with more space between passengers, distribution of masks and realization rapid tests on employees working in facilities units.

(10)Exceptional: Bargain purchase Spinnova. In 2019, the Company revaluated the investment, previously classified as financial investment measured through other comprehensive income.

(11)Exceptional: Provision for Property Transfer Tax ("ITBI") payments and fees referring to the regularization of land acquired prior to 2015.

(12)Exceptional: The amount refers to the sale of credits related to a lawsuit against Centrais Elétricas Brasileiras S.A. (Eletrobrás).

(13)Exceptional: Refers to a 2016 project of the Mucuri facility that was discontinued.

(14)Exceptional: Non-compete payment made to an executive of the Company.

(15)Exceptional: Fees of legal counsel arising from successful causes related to exceptional events.

(16)Exceptional: For certain tax credits to be recovered, the Company has received final favorable court decisions in 2019 and recorded an asset of R$128.1 relating to PIS and COFINS tax credits within recoverable taxes and a gain in the statement of income (loss) within other operational results, regarding certain claims for the calculation period from 2006 to July 2018.

(17)Exceptional: Fine for termination due to supply incidents.

 6

 

B.           Capitalization and Indebtedness

 

Not applicable.

 

C.           Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D.           Risk Factors

 

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

 

Risks Relating to the Pulp and Paper Industry

 

Our products’ prices are greatly affected by international market prices, which vary depending on a number of factors that are beyond our control and could adversely affect our results of operations and financial conditions and our ability to operate our plants in an economically viable manner.

 

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

 

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

 

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

 

We are highly dependent on our planted forest areas for the supply of wood, which is essential to our production processes, and any damage to our forest areas or impact on prices of land we seek to purchase for our forests may adversely affect us.

 

Most of the wood used in our production processes is supplied by our own forestry operations, which include planted forest areas located in close proximity to our production facilities. The wood market in Brazil is very regional and limited in wood availability, as most pulp and paper producers are integrated and utilize wood grown in their own planted forests to meet their wood requirements.

 

Our planted forests are subject to natural threats, such as drought, fire, pests and diseases, which may reduce our supply of wood or increase the price of wood we acquire. Our planted areas are also subject to other threats, considering their wide territorial coverage and proximity to a significant number of neighbors and local communities, including loss of possession due to social unrest or squatter invasion, land title disputes, wood theft, or arson, which may result in real damage to our planting and transit areas and may adversely affect our results.

 

In addition, the physical effects of climate change may materially and adversely affect our operations, for example by changing air temperature and water levels, and subjecting us to unusual or different weather-related risks. Any climate changes that negatively affect the favorable climate conditions in Brazil may adversely affect the growth rate and quality of our plantations, or our production costs. Although we cannot predict the impact of changing global climate conditions, any such occurrences may increase our liabilities and capital expenditures and adversely affect our business, financial condition and results of operations.

 7

 

Additionally, in acquiring land for our timber plantations, we compete with other crops, as well as with cattle breeders, which could ultimately raise land prices or make it more difficult for us to contract independent third parties to cultivate eucalyptus.

 

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

 

In Brazil, some regions might have drought conditions during some seasons of the year, which could result in acute shortages of water and/or implementation of rationing to restrict usage. Some of our units are located in the affected areas and we cannot assure that our processes for efficient use of water and contingency plans will be able to avoid impacts from severe droughts or governmental measures to address drought conditions on our units’ operations, which could have an adverse effect on our business and results of operations.

 

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

 

We face operational risks that may result in partial or temporary suspension of our operations and in loss of production. Such outages may be caused by factors associated with equipment failure, information system disruptions or failures (including due to cyber-attacks), accidents, fires, strikes, invasions, weather, exposure to natural disasters, regional water crisis, electricity power outages and chemical product spills, accidents involving water reservoirs, landfills, revocation of licenses, among other operational and environmental hazards. The occurrence of these events may, among other impacts, result in serious damage to our property, assets and reputation, liability for damages to the environment and third parties, a decrease in production or an increase in production costs, any of which may adversely affect our financial condition and results of operations.

 

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

 

We have entered into contracts with third parties to provide transportation and logistics services. The early termination of these contracts or our inability to renew them or negotiate new contracts with other service providers with similar conditions could adversely affect our financial and operating condition. In addition, the majority of our suppliers of transportation operate under concessions granted by the Brazilian government. The loss or non- renewal of such concessions without timely replacement for new concessions to third parties that are capable of continuing the services provided and willing to do so on similar terms as the previous service providers may also adversely affect our results of operations and financial condition.

 

Additionally, we are subject to quality control risks associated with our products, which may affect our consumer market and customers. In this sense, we note that our products have several properties that influence the processes of our customers, as well as the quality of the products they produce. Accordingly, we are also subject to any potential claims relating to the quality of our products, which may have a material adverse effect on our results of operations and financial condition. 

 8

 

We depend on third-party suppliers for a material portion of our wood requirements and also depend on few suppliers for certain raw materials. Significant reductions in supply or increases in price of these materials could adversely affect our production, products’ mix, margin or availability and, consequently, our results of operations.

 

Our wood resources are not sufficient to satisfy our production needs, and accordingly we seek additional wood supply from third parties through agreements to purchase standing forests or for purchases of wood delivered to our factories. Medium- and long-term supply agreements with wood suppliers may vary between one to three forest cycles, each cycle lasting approximately seven years. Lease agreements or forest partnerships have an average term of 14 to 15 years. Wood price conditions are subject to cyclical and circumstantial variations of wood demand in the different regions where we operate. A material failure to obtain wood from third party suppliers or a material interruption in our current supply arrangements may result in a significant reduction in available wood for processing at our plants, which may adversely affect our production and, accordingly, our results of operations and financial condition.

 

In addition, we have few sources for certain raw materials that are essential for the production of pulp and paper, including fuel oil, bleached chemo thermo mechanical pulp, natural gas and third-party industry technology (maintenance). We enter into medium and long term supply agreements with such suppliers. Any significant reduction in the supply or increase in prices, on behalf of the relevant supplier, of any of these raw materials, as well as our inability to maintain the relationship or find suitable substitutes for these suppliers, could adversely affect our products’ mix, margin or availability and, consequently, our results of operations.

 

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

 

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

 

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

 

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

 

In addition, the oversupply of coated paper in the world market, the antidumping measures adopted in other countries and the use of imported coated paper for alternative purposes, especially during periods of prolonged appreciation of the real against the U.S. dollar, may increase competition in Brazil from producers of imported paper. Moreover, if the Brazilian federal government were to decrease import taxes, or in the event of sustained appreciation of the real against the U.S. dollar, competition in Brazil from international producers may increase. The occurrence or continuation of any of the foregoing events could adversely affect us.

 

Additionally, the pulp and paper markets are served by numerous companies located in different countries. If we are unable to remain competitive against these producers in the future, our market share may be adversely affected. Other companies operating in the same segments may compete with us for acquisition and alliance opportunities. Strategic acquisitions or alliances by our competitors could affect our ability to enter into or consummate acquisitions and alliances that are necessary to expand our business. Further, we may face elevated costs associated with restructuring and/or financing in relation to acquisitions or strategic partnerships in comparison to our competitor companies. Companies that are better positioned to enter into acquisitions or alliances may benefit from preferable production costs, which may affect our competitiveness and market share.

 

Other factors affecting our ability to compete include the entry of new competitors into the markets we serve, increased competition from overseas producers, our competitors’ pricing strategies, the introduction by our competitors of new technologies and equipment, our ability to anticipate and respond to changing customer preferences and our ability to maintain the cost-efficiency of our facilities. In addition, changes within these industries, including the consolidation of our competitors and our customers, may impact competitive dynamics. 

 9

 

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

 

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

 

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

 

More stringent environmental regulation could increase our expenditures and noncompliance with such regulation may result in administrative, civil and criminal liability, which may adversely affect us, our results of operations or financial condition.

 

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

 

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

 

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

 

In December 2015, several countries (including Brazil) signed the Paris Agreement, a new global environmental agreement adopting the Intended Nationally Determined Contributions, or “INDCs”, as the measures taken to reduce its emissions after 2020. The INDC that applies to Brazil provides for an increase in the share of sustainable biofuels and other sources of renewable energy in the Brazilian national energy mix, as well as zero deforestation, reforestation, forest restoration and enhancement of the native forest management. We may be materially affected by more restrictive environmental laws and regulations related to greenhouse gases and climate change, to the extent that such new laws or regulations may cause an increase in capital expenditures and investments to comply with such laws, and indirectly, by changes in prices for transportation, energy and other inputs. Both the regulations related to climate change and the changes in existing regulations, as well as the physical effects of climate change generally, could result in increased liabilities and capital expenditures, all of which could have a material adverse effect on our business and results of operations.

 

Failure to obtain, timely renew or maintain permits, licenses and concessions, grants and registrations necessary to develop our activities, as well as any cancellation thereof, could adversely affect our operations.

 

We depend on the issuance of permits, licenses, concessions, grants and registrations from various governmental agencies in order to undertake certain operational activities. Moreover, 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 permits, licenses, grants and registrations that are necessary to operate our plants, which are usually valid for five years from the date of issuance and may be timely renewed. Certain of these operational licenses require, among other things, that we periodically report our compliance with emissions standards set by environmental agencies. In addition, the expansion of our operations and/or changes in the applicable legislation may require that new licenses, permits and registrations be obtained from the competent authorities, and we cannot guarantee that we will be able to obtain them or obtain them in a timely manner, which cause delays in our deployment of new activities, increased costs, monetary fines or sentences to pay compensation. In case we are fined and/or penalized for a failure to obtain, timely renew or for the cancellation of our permits, licenses, grants and registrations, as well as for noncompliance with environmental legislation, our financial and operating results and image may be adversely affected. In addition, non-compliance with applicable environmental legislation may result in partial or total shutdowns of our operating activities, which may also adversely affect our financial position and image. 

 10

 

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

 

Demand for pulp and paper is directly related to the growth of the world economy and economic conditions. Currently, Europe, China and North America are the main consumer markets of the industry. Fluctuations in the value of local currency versus the U.S. dollar, downturns in economic activity, nationalization or any change in social, political or labor conditions in any of these countries or regions impacting matters such as sustainability, environmental regulations and trade policies and agreements, could negatively affect our financial results. Any slowing of economic growth in Europe, China and North America could adversely affect the price and volume of our exports and thus impact our operating performance.

 

According to market statistics (PPPC), Chinese demand represented 39% of the global market pulp demand in 2020 (versus 37% in 2019 and 33% in 2018), and this demand has increased at a compound annual growth rate of 9.4% since 2005, above the global average of 2.5%. 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. Such behavior was experienced during the year of 2019 when, according to the PPPC’s Chinese Demand report, demand for hardwood in China fell by 3.5% in the first 6 months of 2019 vs. the same period of the previous year. However, in the year-to-date analysis (FY 2019 vs FY 2018), there was an increase of 16.7%. In 2020, the speculative buying movement was not largely noticed with similar demand growth throughout the year.

 

The outbreak of coronavirus or other diseases may adversely affect our operations and financial results.

 

In light of our activities in the foreign market, our operations and results may be negatively impacted by the novel coronavirus (COVID-19) outbreak. Global or national health concerns, including the outbreak of pandemic or contagious disease, such as the COVID-19, may adversely affect us. Since December 2019, COVID-19 has spread in China and other countries, which continues to adversely impact global commercial activity and has contributed to significant volatility in the market. Such events or potential reactions and mandates from government authorities could cause disruption of regional or global supply chains and economic activity, including significant volatility in demand, which could adversely affect our operations and financial results. Prolonged closures, stoppages and shutdowns, if continuing, may disrupt our operations and the operations of our suppliers, service providers and customers and could materially, adversely affect our revenues, financial condition, profitability, and cash flows. The extent to which the coronavirus and/or other diseases impact our results will depend on future developments, which are highly uncertain and cannot be predicted in light of the rapid development and fluidity of this situation, including new information which may emerge concerning the severity of the coronavirus and/or other diseases and the actions to contain the or treat their impact, among others.

 

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

 

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

 11

 

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

 

imposition of barriers to trade by certain countries to limit the access of Brazilian companies to their markets or even to subsidize local producers, particularly with respect to paper products, or the granting of commercial incentives in favor of local producers;

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

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

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

the deterioration of global economic conditions, which could impair the financial condition of some of our customers or foreign suppliers, thereby increasing bad debts or non-performance by our foreign suppliers, as well as increasing our costs for financing and refinancing;

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

controls on currency exchange; and

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

 

Risks Relating to Our Company

 

We pursue certain transactions from time to time and we may not be able to achieve the expected benefits of such transactions or manage potential risks related to such transactions, which may adversely affect our business and growth prospects, as well as our results of operations and financial condition and the trading price for our securities.

 

In the course of our business, we analyze, pursue and carry out acquisitions, strategic alliances and divestitures, and, as part of our business strategy, we may acquire other assets or businesses or enter into further strategic partnerships in Brazil or other countries.

 

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

 

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

 

The expected synergies from operating as a combined company with other companies that merge into and with us may not be achieved.

 

We cannot provide any assurance as to the extent to which the synergies anticipated or expected from eventual future mergers, or as to the timing for their realization, or as to the expenses that will be incurred in connection with realizing synergic benefits. In particular, we may not be able to realize anticipated cost savings from combination of companies’ production facilities, or anticipated synergic benefits from joint acquisitions of raw materials, sharing of improved production techniques and integration of administrative departments.

 

If we are not able to achieve the synergies from eventual future mergers, our results of operations and financial condition and the trading price for our securities may be adversely affected. Even if we achieve the expected synergies eventual future mergers, we may not be able fully realize them within the anticipated timeframe. 

 12

 

We recorded a significant amount of goodwill and other intangible assets with determined useful life as a result of the Merger, which may be subject to impairment charges under certain circumstances in future periods in accordance with applicable accounting regulations and adversely affect our financial condition and results of operations or the trading price of our securities.

 

As of December 31, 2020, the value of our goodwill and other intangible assets with determined useful life relating to the Merger with Fibria were R$7,897.1 million and R$8,303.7 million, respectively. For further information, see notes 16 to our audited consolidated financial statements. Under IFRS, goodwill and intangible assets with undetermined useful life are not subject to amortization and are tested annually to identify possible need for impairment, or more often if any event or circumstance indicates that an impairment loss may have been incurred. Other intangible assets that have determined useful lives are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever there is an indication of impairment. In addition, under IFRS we are required to perform an impairment analysis of assets with undetermined useful life when the book value of our net assets exceeds our market capitalization. As a result, we may be required to record an impairment charge for goodwill or other intangible assets in future periods if required under IFRS, which could lead to decreased assets and reduced net income. If a significant write down were required, the charge could adversely affect our financial condition and results of operations or the trading price of our securities.

 

The level of our indebtedness could adversely affect our financial condition and a material portion of our cash flow may need to be used to service our debt obligations, which could impair our ability to operate our business.

 

As of December 31, 2020, we had R$72.9 billion of total consolidated outstanding indebtedness (which includes current and non-current loans, financing and debentures). We are subject to the risks normally associated with significant amounts of debt, which could have important consequences to investors. Our indebtedness could, among other things: (i) require us to use a substantial portion of our cash flow from operations to pay our obligations, thereby reducing the availability of our cash flow to fund working capital, operations, capital expenditures, dividend payments, strategic acquisitions, expansion of our operations and other business activities; (ii) increase our vulnerability to a downturn in general economic and industry conditions, and may make us unable to carry out capital spending that is important to our growth; (iii) limit, along with financial and other restrictive covenants in our debt instruments, our ability to incur additional debt or equity financing or dispose of assets; and (iv) decrease our ability to deleverage and place us at a competitive disadvantage compared to our competitors that have less debt.

 

In addition, we are subject to agreements governing our indebtedness that require us to meet and maintain certain covenants and financial ratios. A significant or prolonged downturn in general business and economic conditions, or other significant adverse developments with respect to our results of operations or financial condition, may affect our ability to comply with these covenants or meet those financial ratios and tests and could require us to take action to reduce our debt or to act in a manner contrary to our current business objectives. Moreover, the restrictions associated with these covenants and financial ratios may prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to execute our business strategy successfully or effectively compete with companies that are not similarly restricted. Additionally, despite these restrictions, we may be able to incur substantial additional indebtedness in the future, which might subject us to additional restrictive covenants that could affect our financial and operational flexibility and otherwise increase the risks associated with our indebtedness as noted above. We may also need to refinance all or a portion of our debt on or before maturity, and we may not be able to do this on commercially reasonable terms or at all.

 

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

 

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

 

We receive certain tax benefits by virtue of our investment projects in underdeveloped regions in Brazil, which are covered by the SUDENE and the RFB. We also benefit from tax incentives granted by states based on state laws. The program PROMARANHAO in the state of Maranhão and the program Desenvolve in the state of Bahia, published through Ordinance-GABIN nº 435/18 and Decree No. 18.270/18, respectively, are the most relevant ones for our operations. We cannot assure you that the tax incentives we currently benefit from will be maintained or renewed, particularly, but not exclusively, in light of deteriorating macroeconomic conditions that may lead to changes in current material incentives, such as the exemption of export revenues from social security contributions, the Regime Especial de Aquisição de Bens de Capital para Empresas Exportadoras, which is a special regime for the acquisition of capital goods by exporting companies, and Preponderante Exportador, among others. If such tax benefits are not effectively renewed, this could have a material adverse effect on our generation of net cash flow. In the event of constitutional challenges or if we fail to comply with specific obligations to which we are subject in connection with the tax benefits described above, such benefits may be suspended or cancelled, and we may be required to pay the taxes due in the last five years in full, plus penalties and interest, which may adversely affect us. 

 13

 

Our exports and international trading activities are also conducted under certain tax regimes, including rulings and incentives in some foreign countries, including Austria. These the tax rulings or benefits expire and have to be renewed from time to time. We cannot assure you that the tax regimes and incentives from which we currently benefit will be renewed or maintained in the future. In addition, we also benefit from provisions of international treaties entered into by the Brazilian federal government in order to avoid double taxation, such as the non-double taxation treaty between Brazil and Austria, pursuant to which profit earned by our wholly-owned subsidiary in Austria is not subject to double-taxation in Brazil. Although we believe in the validity of the provisions of international treaties, we brought a claim with judicial courts and are currently guaranteeing the enforceability of the Brazilian-Austria treaty by means of a preliminary injunction. If the Brazil-Austria treaty in deemed unenforceable, we may be materially adversely affected.

 

Fluctuations in interest rates, as well as our inability to manage risks associated with the replacement of benchmark indices, 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 Rate (Certificado de Depósito Interbancário, or “CDI”) and the Brazilian Long-Term Interest Rate (Taxa de Juros de Longo Prazo, or “TJLP”). The CDI rate has fluctuated significantly in the past in response to the expansion or contraction of the Brazilian economy, as it is an instrument for Brazilian Central Bank to manage inflation and pursuit its policies targets. The CDI rate was 1.90% p.a. as of December 31, 2020, while it was 4.40% p.a. and 6.40% p.a. as of December 31, 2019 and 2018, respectively. The TJLP rate was 4.55% p.a., 5.57% p.a. and 6.98% p.a. as of December 31, 2020, 2019 and 2018, respectively.

 

Although the CDI rate has declined, we cannot guarantee that rates will continue to decrease. A significant increase in interest rates may impact our ability to secure financing in acceptable terms and an increase in interest rates, particularly TJLP, CDI or LIBOR, or the inflation rate index for consumer goods, or IPCA, could have a material adverse effect on our financial expenses since a significant part of our debt (BNDES loans, Agribusiness Credit Receivable Certificates - CRA and Export Prepayment Facilities) is linked to these rates. On the other hand, a significant reduction in the CDI rate could adversely impact our financial revenues derived from investment activities, since a material portion of our cash is invested in Brazilian money market instruments that are linked to the CDI rate.

 

On March 5, 2021 the head of the United Kingdom Financial Conduct Authority (“FCA”) announced in a public statement the date of extinction of Libor 3-months (term to which Suzano's contracts are linked) for June 30th, 2023. Considering the extinction of LIBOR over the next few years, the Company is evaluating its contracts with clauses that envisage the discontinuation of the interest rate. Most debt contracts linked to LIBOR have a clause to replace this rate with a reference index or equivalent interest rate and, for contracts that do not have a specific clause, a renegotiation will be carried out between the parties. Derivative contracts linked to LIBOR provide for a negotiation between the parties to define a new rate or an equivalent rate will be provided by the Calculation Agent.

 

The Company identified all of its contracts subject to LIBOR reform that have not yet been subject to the transition to an alternative reference rate and has already started contacting the respective counterparties of each contract to ensure that the best market practices will be adopted at the time of transition of the index, these terms are still under negotiation between the parties. We cannot predict how the (i) provisions relating to the discontinuation of LIBOR we have been including in our contracts, (ii) negotiations with other parties for definition of new applicable rates, or (iii) determination of an equivalent fee by a calculation agent will be implemented in practice, and can give no assurance that such implementation will not have a material effect on our financing costs. 

 14

 

A failure or interruption of our third-party suppliers’ or our information technology systems or automated machinery may impact or paralyze our business and negatively impact our operations. Our third-party suppliers’ and our information technology system may also be vulnerable to external actions such as cyber-attacks, which can have a negative impact on our operations, reputation, improper access of confidential information and disruption of our systems integrity as well as result in fines, obligations to clients or legal litigation and have an adverse effect on the results of our business.

 

Our operations are heavily reliant on information technology systems to efficiently manage business processes. Therefore, disruptions to these systems may impact or even paralyze our business and negatively impact our operations. In addition, we collect and store data, including proprietary business information, and may have access to confidential or personal information in certain of our businesses that is subject to privacy and security laws, regulations and customer-imposed controls. Moreover, any failure of our third-party suppliers’ or our systems related to confidential information, caused by external cyber-attacks or internal actions, including negligence and/or misconduct of our employees, can have a negative impact on our reputation against competitors and external agents (government, regulators, suppliers and others).

 

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

 

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

 

While these measures are designed to deterrent, prevent, detect, and respond to unauthorized activities in our systems, we cannot assure that these, or the procedures adopted by third- party suppliers, would be to protect us from certain types of attacks, which may have a material adverse effect on our business and reputation.

 

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

 

Any failure to adapt to or comply with recent Brazilian regulations on data privacy may adversely affect our results and reputation.

 

On August 15, 2018, the Brazilian General Data Protection Law (Lei Geral de Proteção de Dados – LGPD) came into force. The LGPD regulates the use of personal data in Brazil. The LGPD significantly transformed the data protection system in Brazil and is in line with recent European legislation (the General Data Protection Regulation, or GDPR). The LGPD establishes detailed rules for the collection, use, processing and storage of personal data. It will affect all economic sectors, including the relationship between customers and suppliers of goods and services, employees and employers and other relationships in which personal data is collected, both in the digital and physical environment. Pursuant to the LGPD, security breaches that may result in significant risk or damage to personal data must be reported to the National Authority on Data Protection (Autoridade Nacional de Proteção de Dados – ANPD), the data protection regulatory body, within a reasonable time period. In light of the LGPD, our practices related to the treatment of personal data, including digital advertising, may undergo significant changes, generating additional costs to us due to the need to adapt such practices to the LGPD.

 

Failure to comply with the LGPD may result in formal warnings, public sanctions, the deletion of data, or the suspension of data processing activities. Furthermore, a company may be subject to a fine equal to up to 2% of its gross sales, or the gross sales of its economic group in Brazil, in the preceding fiscal year, excluding taxes, but limited to a total of R$50 million per violation. As a result, failure by us to adhere to the LGPD and any additional privacy laws or regulations enacted or approved in Brazil or in other jurisdictions in which we operate could adversely impact our business, financial condition or results of operations. 

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We cannot guarantee that our data protection program will be deemed sufficient by the ANPD to meet the provisions of the LGPD, nor that such program will prevent any failures in the protection of personal data processed by us, including with respect to cybersecurity incidents.

 

A downgrade in our credit ratings may increase our borrowing costs and/or restrict the availability of new capital or financings and have a material adverse effect on us.

 

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

 

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

 

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

 

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

 

In the ordinary course of our business dealings, we and our officers are, and may become, party to numerous tax, civil (including environmental) and labor disputes involving, among other remedies, significant monetary claims. An unfavorable outcome against us may result in our being required to pay substantial amounts of money, which could materially adversely affect our reputation, results of operations, cash flows and financial condition. Additionally, the amounts provisioned for legal proceedings may increase and existing provisions may become insufficient due to unfavorable outcomes in disputes against us. For more information on tax, civil (including environmental), labor and other proceedings, see Item 8. “Financial Information—Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings.”

 

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

 

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

 

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

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Social crisis in the relationship with communities and class entities, as well as, expropriation of any of our properties by the government affect the regular use, cause damage, or deprive us of the use of or fair value compensation of our properties.

 

Organized social movements in Brazil defend agrarian reform and the redistribution of property, with irregular occupations in rural areas being the best known form of action. Such occupations when in areas of the company may interrupt our forestry or industrial activities and, consequently, negatively affect our productive and operational results.

 

In addition to stoppages, land conflicts can cause a series of risks to the integrity of our employees who work in the field, possible damage to areas of high environmental value such as Permanent Preservation Areas and buffer zones of Environmental Conservation Units, in addition to reputational damage.

 

An alternative to this scenario is the negotiation with state governments or the federal government and social movements aiming to definitively solve occupations already installed, and to avoid new occupations. According to Brazilian law, governments can act directly on the expropriation of areas, as long as they are in legal and environmental compliance. If the Brazilian government expropriates any property used by us for developing our activities, the results of our operations may be adversely affected. Moreover, if a property owned by us is expropriated, our equity may be adversely affected because it is not possible to guarantee that the compensation paid by the government will be adequate to the losses borne by us. The risk associated with this alternative is that the financial compensation offered by the governments proves to be insufficient or until the compensation via public debt securities, which have limited liquidity, is forced.

 

Any changes in collective bargaining agreements or safety and outsourcing regulations could increase our labor-related costs or deteriorate labor relations with our employees, which could adversely affect us.

 

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

 

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

 

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

 

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

 

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

 

Our hedging activities may expose us to losses due to fluctuations in currency exchange rates or interest rates, which could have a material adverse effect on our results and financial condition.

 

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

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

 

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

 

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

 

As part of our strategy, we may decide to expand our existing production facilities or build new production facilities. The expansion or construction of a production facility involves various risks, such as engineering, construction, operational systems, integration with the existing mill on brownfield projects, regulatory and other expected or unexpected significant challenges. These risks 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 subject to risks, including:

 

we may either not be able to complete any expansion or new construction project on time or within the expected budget or be required by market conditions or other factors to delay the initiation of construction or the timetable to complete new projects or expansions, including adverse weather conditions, natural disasters, pandemics, fires, delays in supply, inputs or labor and accidents that impair or prevent the development of ongoing projects;

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

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

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

variations on exchange rate or product price may decrease significantly generated value by expansion project or new facilities;

climate changes could affect our forest base for new projects or brownfield, and significantly increase our wood cost;

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

 

Any of the above events could have a negative impact in our business and financial and operating results.

 

Our insurance coverage may be insufficient to cover our losses, especially in case of damage to our planted forests, which may cause a material adverse effect on our results and financial condition.

 

Our insurance coverage may be insufficient to cover losses to our forests, mills, dams, hydroelectric plants and other operating facilities caused by general third party liability for accidents, operational risks and international and domestic transportation if we suffer any catastrophic claim or if there is a particular clause excluding the coverage. In addition, we do not maintain insurance coverage against wars, unforeseeable fortuitous events, force majeure, interruption of certain activities, including due pandemics such as the current COVID-19 pandemic, as well as fire, thefts, pests, diseases, droughts and other risks to our forests. The incurrence of losses or other liabilities that are not covered by insurance, due to the limited extent of the insurance coverage, losses that exceed the limits of our insurance coverage or any other reason that prevents reimbursement or indemnification, could result in significant and unexpected additional costs, our ability to operate and/or shortage of wood supply, which may affect our production. Moreover, the terms and conditions for the renewal of our insurance policies may change in the future depending upon market circumstances and the type and amount of risks insured. See Item 4. “Information on the Company—Business Overview—Insurance.” 

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Risks Relating to Brazil

 

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This influence, as well as Brazilian political and economic conditions, may materially and adversely affect us, our activities and the trading prices of our shares.

 

We conduct a substantial amount of our operations in Brazil, and we sell part of our products to customers in the Brazilian market. For the year ended December 31, 2020, 16.3% of our net revenues were derived from Brazil. Accordingly, our financial condition and results of operations are substantially dependent on economic conditions in Brazil. Future developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, the consumption of our products. As a result, these developments could impair our business strategies, results of operations or financial condition.

 

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

 

political, economic and social instability;

monetary policies;

political elections;

inflation;

exchange rate fluctuations;

exchange controls and restrictions on remittances abroad;

tax policy and amendments to the tax legislation;

interest rates;

liquidity of domestic and foreign capital and lending markets;

government control of the production of our products;

restrictive environmental and real estate laws and regulations; and

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

 

Uncertainty as to whether the Brazilian federal government will implement changes in policy or regulations affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and the securities issued by Brazilian companies, including us. Accordingly, such uncertainties and other future developments in the Brazilian economy nay adversely affect our business, financial condition and results of operation, negatively impacting our available cash flows for payment, and the trading price of our common shares.

 

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

 

The Brazilian federal government has indicated its willingness to implement a tax reform agenda, including to (i) revoke the income tax exemption over the distribution of dividends, which, if promulgated, would increase tax expenses associated with any dividends or distributions, and (ii) decrease import tax (which would increase competition and the role of international competitors), both of which could impact our ability to pay future dividends. Any purported tax reform or change in fiscal policies, if proposed and implemented, may also significantly impact our business. If there is a tax reform or any changes in applicable laws and regulations that alter the applicable taxes or tax incentives/special regimes, either during or after their terms of validity, our business and results may be directly or indirectly affected.

 

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

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

 

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

 

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

 

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

 

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

 

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

 

Devaluations of the real relative to the U.S. dollar could create additional inflationary pressures in Brazil, lead to increases in interest rates, further limit our access to foreign financial markets and prompt the adoption of recessionary policies by the Brazilian federal government. Conversely, the depreciation of the real against the U.S. dollar may lead to a further deterioration of Brazil’s current account and balance of payments and cause a decrease in Brazilian exports. Any of the foregoing developments may negatively affect the Brazilian economy as a whole, and, consequently, our results. In recent years, the Central Bank of Brazil has occasionally intervened to control unstable movements in the foreign exchange rate. We cannot predict whether the Central Bank of Brazil will continue to let the real float freely. Accordingly, it is not possible to predict what impact the Brazilian federal government’s exchange rate policies may have on us. We cannot assure that in the future the Brazilian federal government will not impose a currency band within which the real U.S. dollar-real exchange rate could fluctuate or set fixed exchange rates, nor can we predict what impact such an event might have on our business, financial position or operating results.

 

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

 

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

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

 

Risks Relating to Our Shares and ADSs

 

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

 

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

 

You may be adversely affected if the Brazilian federal government imposes restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and, as it has done in the past, on the conversion of the real into foreign currencies. These restrictions could hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of shares, as the case may be, into U.S. dollars and the remittance of U.S. dollars abroad. We cannot assure that the government will not take this measure or similar measures in the future. Holders of 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, the 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 ADSs may face difficulties in serving process on or enforcing judgments against us and other persons, as well as may face difficulties in protecting their interests because we are subject to different corporate rules and regulations than a U.S. company.

 

We are organized under and are subject to the laws of Brazil and all our directors and executive officers and our independent registered public accounting firm reside or are based in Brazil. Substantially all of our assets and those of these other persons are located in Brazil. Moreover, our corporate affairs are governed by our bylaws and Brazilian Corporate 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. In addition, the rights of an ADS holder, which are derivative of the rights of holders of our common shares, to protect their interests are different under Brazilian Corporate Law than under the laws of other jurisdictions. Rules against insider trading and self-dealing and the preservation of shareholder interests may also be different in Brazil than in the United States. Furthermore, the structure of a class action in Brazil is different from that in the US, and under Brazilian law, shareholders in Brazilian companies do not have standing to bring a class action, and under our by-laws must, generally with respect to disputes concerning rules regarding the operation of the capital markets, arbitrate any such disputes.

 

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, the ADS holders may face greater difficulties in protecting their interests due to actions by us, our directors or executive officers than would shareholders of a U.S. corporation. 

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

 

Investments in securities, such as our common shares or ADSs, of issuers from emerging market countries, including Brazil, involve a higher degree of risk than investments in securities of issuers from more developed countries. The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and other jurisdictions, and may be regulated differently from the ways familiar to U.S. investors. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States. These features may substantially limit the ability to sell our shares, including our shares underlying the ADSs, at a price and time at which holders wish to do so and, as a result, could negatively impact the market price of these securities.

 

In addition, although our public float represented 53.4% (excluding Treasury Shares) of our total capital float as of December 31, 2020, only 3.1% were represented by ADSs. Moreover, our controlling shareholders (including related parties and management) hold 45.8% of our stock. Any potential sale by these shareholders could adversely affect the market price of our securities.

 

Holders of ADSs may find it difficult to exercise voting rights at our shareholders’ meetings.

 

Holders of ADSs do not have the same voting rights as holders of our shares. Holders of ADSs will not be our direct shareholders and will be unable to enforce directly the rights of shareholders under our bylaws and Brazilian Corporate Law, they are entitled to the contractual rights set forth for their benefit under the deposit agreement. Holders of ADSs will face practical limitations in exercising their voting rights because of the additional steps involved in our communications with ADS holders. For example, we are required to publish a notice of our shareholders’ meetings in specified newspapers in Brazil. Holders of our shares will be able to exercise their voting rights by attending a shareholders’ meeting in person or voting by proxy. By contrast, ADS holders will receive notice of a shareholders’ meeting by mail from The Bank of New York Mellon, as our depositary, following our notice to the depositary requesting the depository to do so. To exercise their voting rights, ADSs holders have to provide instructions to the depositary on a timely basis on how they wish to vote. In practice, the ability of a holder of ADSs to instruct the depositary as to voting will depend on the timing and procedures for providing instructions to the depositary, either directly or through the holder’s custodian and clearing system and this voting process necessarily will take longer for holders of ADSs than for holders of our shares.

 

Holders of ADSs also may not receive the voting materials in time to instruct the depositary to vote the shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the units underlying their ADSs are not voted as requested.

 

If holders of ADSs exchange their ADSs for underlying shares, they risk losing the ability to timely remit foreign currency abroad and other related 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. The conversion of ADSs directly into ownership of the underlying shares is governed by CMN Resolution No. 4,373/2014, and foreign investors who intend to proceed with such conversion are required to appoint a representative in Brazil for purposes of Annex I of CMN Resolution No. 4,373/2014, who will be in charge of keeping and updating the investors’ certificates of registrations with the Central Bank of Brazil, which entitles registered foreign investors to buy and sell directly on the B3. These arrangements may require additional expenses from the foreign investor. Moreover, if such representatives fail to obtain or update the relevant certificates of registration, investors may incur additional expenses or be subject to operational delays which could affect their ability to receive dividends or distributions relating to the shares or the return of their capital in a timely manner.

 

If holders of ADSs do not qualify under CMN 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. 

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Holders of our shares will be subject to, and holders of the ADSs could be subject to, Brazilian income tax on capital gains from sales of shares or ADSs. Brazilian Law No. 10,833/03 provides that gains on the disposition of assets located in Brazil by non-residents of Brazil, whether to other non- residents or to Brazilian residents, will be subject to Brazilian taxation. Our shares are expected to be treated as assets located in Brazil for purposes of the law, and gains on the disposition of our 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 the 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 thereof.

 

Holders of ADSs may be unable to exercise the preemptive rights relating to our shares underlying the ADSs.

 

Holders of ADSs may not be able to exercise the preemptive rights relating to our shares underlying their ADSs unless a registration statement under 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 ADSs that we will file any such registration statement. Unless we file a registration statement or an exemption from registration applies, holders of 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.

 

We may issue new shares, including in the form of ADSs, which may result in a dilution of our current shareholders’ stake.

 

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

 

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

 

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

 

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

 

Our controlling shareholders have the power to, among other things, appoint a majority of the members of our board of directors and to decide any matters requiring shareholder approval, including related-party transactions, corporate reorganizations and disposals, and the timing and payment of any future dividends, subject to the requirements of mandatory dividends under the Brazilian Corporation Law. 

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Our controlling shareholders may have an interest in making acquisitions, disposals of assets, partnerships, seeking financing or making other decisions that may conflict with the interests of the other shareholders.

 

Additionally, any of our controlling shareholders may opt to sell significant part or the totality of their respective equity to third parties. In case we cease to have controlling shareholders, the remaining shareholders may no longer have the right to the same protection granted by the Brazilian Corporation Law against the abuses practiced by other shareholders and, as consequence, they may face difficulty in the compensation for damages suffered.

 

Any unexpected change in our management, in our business strategy and policies, tentative of control acquisition or any dispute among shareholders regarding their rights, may adversely affect our business and operational results.

 

In case a group of shareholders arises acting together or bounded by a voting agreement, and such group cause to hold the decision control, we may suffer unexpected changes in our business strategy and policies, including through the mechanism of the replacement of the board of directors and statutory offices. In addition, we may turn more vulnerable to hostile takeovers attempts and conflicts arising from such attempts.

 

Judgments of Brazilian courts with respect to our shares and the ADSs will be payable only in reais

 

Our bylaws provide that we, our shareholders, our directors and officers and the members of our fiscal council shall submit to arbitration any and all disputes or controversies that may arise amongst ourselves relating to, or originating from, the application, validity, effectiveness, interpretation, violations and effects of violations of the provisions of Brazilian Corporate Law, our bylaws, the rules and regulations of the CMN, the Brazilian Central Bank and the CVM, as well as other rules and regulations applicable to the Brazilian capital markets and the rules and regulations of the Arbitration Regulation of the Market Arbitration Chamber. However, in specific situations, including whenever precautionary motions are needed for protection of rights, the dispute or controversy may have to be brought to a Brazilian court. If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our shares or the ADSs, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank of Brazil, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under our shares and ADSs.

 

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

 

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

 

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

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ITEM 4. INFORMATION ON THE COMPANY

 

A.          History and Development of the Company

 

We, Suzano S.A., were incorporated as a corporation on December 8, 1987 under the laws of Brazil. We have the legal status of a sociedade por ações, or a stock corporation, under the Brazilian Corporation Law. Our principal place of business is located at Avenida Brigadeiro Faria Lima, 1355, 7th floor, São Paulo, SP, 01452-919, Brazil (telephone: +55 11 3503-9000). Our shares are traded on the special listing segment of the B3 (Brasil, Bolsa, Balcão), which provides for the highest level of corporate governance in the Brazilian market, and our ADSs are traded on the New York Stock Exchange.

 

We are subject to reporting requirements under the Exchange Act and are required to file with the SEC, or furnish to the SEC, reports and other information. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. We also make available on our website’s investor relations page, free of charge, our annual report and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website address is http://ir.suzano.com.br, and investor information can be found therein under the caption “Investor Relations.” Information contained on our website is, however, not incorporated by reference in, and should not be considered a part of this annual report.

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

On October 6, 2020, BNDES Participações SA – BNDESPAR concluded the public offering for the secondary sale of its 150,217,425 shares held in Suzano, including 13,180,000 Shares in the form of American Depositary Shares , at a price per share of R$46.00, totaling R$6.9 billion, and ceased to be a shareholder.

 

B.           Business Overview

 

Industry

 

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

 

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

 

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

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Pulp can be produced by integrated paper producers or by market pulp producers who sell the pulp to nonintegrated or semi-integrated paper producers. In 2019, approximately 38% of global pulp virgin fiber production was “market pulp” (Hawkins Wright – The Outlook for Market Pulp (August 2020)); that is, pulp sold by pulp mills and bought by paper mills. We produce pulp for our own paper production (integrated pulp) and to sell to other papermakers (market pulp). We produce only hardwood pulp from our renewable forests of planted eucalyptus trees. Eucalyptus pulp is widely accepted among producers of printing and writing paper, specialty papers and tissue papers worldwide because of its properties and cash production cost, and it has represented an increasing percentage of the world production of hardwood pulp. Eucalyptus trees in Brazil have a shorter growth cycle than other hardwood trees (approximately seven years in Brazil) and higher yield per planted hectare.

 

 

Source: IBÁ (Brazilian Tree Industry - Indústria Brasileira de Árvores) – Annual Report 2019.

 

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

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Source: Hawkins Wright, 2020.

 

The key drivers of global virgin pulp demand growth are packaging, tissue and special paper. These grades presented a production compound annual growth rate (“CAGR”) from 2009 to 2020 of 1.6%, 3.4% and 1.2% respectively, according to AFRY.

 

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

 

 

Source: Pulp and Paper Products Council – PPPC S&D (2020). 

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Source: Pulp and Paper Products Council – PPPC S&D (2020).

 

 

Source: Pulp and Paper Products Council – PPPC (2020).

 

According to Hawkins Wright, in 2020, we were among the top 10 market pulp producers in terms of capacity, with a combined 14% market share of chemical market pulp capacity. Globally, there is no major project confirmed to increase capacity of chemical market pulp until 2021, and thus, nominal capacity increased slightly during 2020 in light of residual ramp-up and debottlenecking projects. 

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Source: Hawkins Wright, 2020.

 

 

Source: Pulp and Paper Products Council – PPPC S&D (2020).

 

Our Company

 

With more than 90 years of experience, we operate mainly in the pulp (paper grade and fluff) and paper (paperboard, printing and writing and tissue) segments. We believe that we are one of the largest vertically integrated producers of pulp and paper in Latin America and, according to Hawkins Wright, we were the largest producer of eucalypt pulp in the world and virgin market pulp in the world in 2020. As other Brazilian eucalyptus pulp producers, we have the lowest cost of pulp production in the world. We believe our modern technology of plantation and harvesting and our strategic location for plantation facilities are among our competitive strengths.

 

We believe we are one of Brazil’s largest paper producers, and based on data from IBÁ, we accounted for nearly 40% of the printing and writing paper and 25% of the paperboard produced in Brazil in 2020.

 

Our structure includes administrative offices in Salvador and São Paulo, two integrated pulp and paper production facilities in the state of São Paulo (Suzano and Limeira units), a non-integrated paper production facility in the state of São Paulo (Rio Verde unit), an integrated pulp, paper and tissue facility in the state of Bahia (Mucuri unit), an integrated pulp and tissue facility in the state of Maranhão (Imperatriz unit), two paper facilities in the states of Pará and Ceará (Facepa), and FuturaGene, a biotechnology research and development unit. We own one of the largest distribution structures for paper and graphic products in South America. Following the Merger, we also own pulp production facilities in the state of Espírito Santo (Aracruz unit), in the state of São Paulo state (Jacareí Unit), one unit with two production lines in Três Lagoas (in the state of Mato Grosso do Sul) and 50% equity participation in Veracel together with Stora Enso, an industrial unit located in Eunápolis (in the state of Bahia). On December 31, 2020, subsidiaries Facepa, and FuturaGene Brasil Tecnologia Ltda. were merged into Suzano. 

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Our eucalyptus pulp production satisfies 100% of our requirements for paper production, and we sell the remaining production as market pulp. As of December 31, 2020, our total eucalyptus pulp installed production capacity was 11.9 million tons per year, and our total production volume was 10.8 million tons, of which 9.8 million tons were produced as market pulp and the remainder was used for the production of 1.2 million tons of paper and paperboard.

 

The scale of our production capacity, the proximity of our planted forests to our mills and the integration of our pulp and paper production process allow us to benefit from substantial economies of scale and low production costs.

 

Our Limeira, Suzano, Rio Verde and Jacareí mills are located near the city of São Paulo, the largest consumer market in Brazil according to data from IBÁ and RISI. These mills are located approximately 90 km from the port of Santos, an important export hub, and approximately 190 km from our planted forests. They can supply both domestic and international markets in a competitive manner.

 

Our Mucuri and Aracruz units are focused primarily on export markets. Mucuri is located approximately 250 km from Portocel, a port specialized in exporting pulp located in the state of Espírito Santo, in which Suzano holds a 51% stake, while Aracruz is located only 3 km from Portocel.

 

The Imperatriz unit, in Maranhão, is also focused primarily on export markets. Its gateway for the external market is the Port of Itaqui, 600 km far from Imperatriz. Exports are carried from our mill to the ports by train, which allows for very competitive transportation costs.

 

The Três Lagoas unit, in Mato Grosso do Sul, is focused on export markets, and most of its volume is transported by train to the Port of Santos, where all exporting volumes are shipped. The relatively short distances between our planted forests, our mills and most of our Brazilian customers or export facilities provide us with relatively low transportation costs.

 

Pulp and Paper

 

We produce a variety of eucalyptus pulp and paper products, including pulp used in our paper production processes, as well as market pulp. We sell pulp to the Brazilian market and to the export market. We produce coated and uncoated printing and writing paper, paperboard, tissue paper, market pulp and fluff pulp. Within the printing and writing paper category, we produce products of different sizes and shapes, such as cut paper for general purposes (cut-size), folio size and reels. Our sales are not concentrated in any specific customer, in either the Brazilian or the export markets. For the year ended December 31, 2020, no single customer accounted for more than 10.0% of our consolidated net sales revenue.

 

Pulp and Paper Production Process

 

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

 

Planting and Harvesting Forests

 

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

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The management of our forests is the base that sustains our business, based on the planting and management of renewable forests, targeting of a competitive supply of wood through long-term planning and development and application of genetic improvements. As of December 31, 2020, we owned or leased approximately 2.5 million hectares of land, of which approximately 1.3 million hectares were used for eucalyptus cultivation and 1 million for forestry reserves, ensuring compliance with Brazilian law that determines the percentage of area required for legal and permanent preservation reserves, located mainly along the rivers. Remaining 0.2 million hectares are related to other uses such as roads. Our production units are in compliance with or exceed environmental standards – both Brazilian and international – for the production of pulp and paper.

 

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

 

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

 

Pulp Manufacturing

 

The pulp manufacturing process takes place in two stages:

 

The “Kraft” Cooking Process. The logs received in our pulp mills are first de-barked, if not already de-barked in the field, and chipped in small pieces. The wood chips are screened by size and then transferred with conveyors to the impregnation stage followed by a pressurization and feeding system to the digester where they are “cooked” with sodium sulfide and caustic soda. This “kraft” cooking process is known for minimizing damage to the pulp fibers and allows the recovery of chemicals, thereby preserving high uniformity and strength of the fibers for subsequent paper production or other uses. During the cooking process, the cellulose fibers are separated from lignin and resins to produce unbleached pulp fibers. The unbleached pulp is screened and washed and then submitted to a pre-bleaching stage where oxygen delignification takes place. The Kraft cooking combined with the pre-bleaching removes approximately 95.0% of the lignin. At this point, the pulp can already be used to make certain types of paperboard like in one of the paper machines of the Suzano mill. Although not our main product, unbleached pulp grades can be commercialized or used for specialty of packaging papers or boards. The lignin and by- products of the Kraft process form a substance known as “black liquor” that are separated and piped to evaporators, to increase the concentration of solids. Thereafter, the concentrated black liquor is burned in recovery boilers. In the recovery boilers, the black liquor is the main source of fuel to produce steam and electricity for the whole production process. Also, approximately 99.0% of the chemicals used in the kraft cooking process are recovered for reuse in a closed chemical recovery process loop. Only make up chemicals are required to recover losses.

 

Bleaching. To produce bleached pulp the unbleached pulp is submitted to a chemical bleaching process. The bleaching process promotes further selective delignification and increases brightness of the fibers. This process consists of a series of medium-consistency bleaching stages in towers. In each bleaching tower a different mixture of bleaching agents is applied and after each stage, the pulp is washed. Three or four bleaching stages are required to obtain a fully bleached pulp. Our modern and low environmental impact bleaching processes are elemental chlorine free (ECF). The bleaching process is designed to be harmless and utilizes chlorine-dioxide, sulfuric acid, caustic soda and oxygen peroxide and does not use elemental chlorine. At the end of the bleaching stages, the diluted bleached pulp, in its fluid state, is pumped to storage towers. Thereafter, the bleached pulp may be transferred directly to integrated operations in our own paper production or tissue paper facilities. Suzano produces paper in the Mucuri, Suzano and Limeira mills and also supplies slushed pulp to integrated paper producing customers in Jacarei (Ahlstrom Munksjö) or Três Lagoas (International Paper). The tissue paper production takes place in the Mucurí and Imperatriz mills. The majority bleached pulp is though sold as raw material after drying in big capacity drying machines and converted to bales. In the Suzano mill we are also producing dried pulp in rolls for fluff applications. 

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Paper and Tissue Paper Manufacturing

 

We produce (i) uncoated woodfree printing and writing paper at our Mucuri unit, Limeira unit, Suzano unit and Rio Verde unit; (ii) coated woodfree printing and writing paper at our Suzano unit and Limeira unit; (iii) paperboard at our Suzano unit and (iv) tissue papers at Mucurí, Imperatriz and Belém. We start the paper production process by sending the pulp to refiners, which increases the fibers’ resistance. The pulp slurry is then fed into the paper mill, where it is mixed with fillers and additives to provide the necessary properties required by paper grade and the end users. These additives include synthetic sizing, precipitated calcium carbonate, optical dyes, and others. During the paper and paperboard production, the sheet is formed, pressed and dried in a continuous process. At the end of the process, jumbo rolls are obtained and then converted into reels, folio sheets or cut-size paper. In the case of coated paper, the paper receives additional surface treatments with coating and additional drying before converting to reels or sized papers. Tissue papers are produced in dedicated tissue machines, different from other paper machines and seek for other characteristics like softness, volume and absorbance. Tissue paper production requires very little additives and mechanical preparation of the fibers (refining). The produced tissue paper mother rolls can be converted on site, converted in dedicated conversion units or sold.

 

Computerized systems control or monitor all process stages. The marketing, sales and production, personnel work close together to manage the programming and control of our paper production process. In this manner, we are able to plan, optimize and customize different product runs and to anticipate, respond and adapt to seasonal variations and customer preferences.

 

Pulp and Paper Production Schedule

 

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

 

Pulp Production and Sales

 

Pulp Production

 

We produce eucalyptus pulp to supply our paper production operations and for sale as market pulp. We describe below our pulp production recorded for the years ended on December 31, 2020, 2019 and 2018, as well as Fibria’s pulp production for the years ended on December 31, 2018, which information dates as of before the Merger, and is therefore not consolidated in our financial statements for such period.

 

We produced 9.8 million tons, 8.8 million tons and 3.5 million tons of market pulp in each of 2020, 2019 and 2018 fiscal years. Our pulp production in the years ended December 31, 2020, 2019 and 2018 accounted for 46.8%, 44.5%, and 16.6%, respectively, of the total pulp produced in Brazil during these periods, according to IBÁ.

 

The following table sets forth our total eucalyptus pulp production, total Brazilian pulp production and our eucalyptus pulp production as a percentage of total Brazilian pulp production for the years ended December 31, 2020, 2019 and 2018.

 

   For the year ended December 31, 
   2020   2019   2018 
   (in thousands of tons, except %) 
Suzano’s total pulp production   9,800    8,757    3,501 
Total Brazilian pulp production   20,953    19,691    21,085 
Total Brazilian production (%)   46.8    44.5    16.6 

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Fibria for the year ended December 31, 2018 (before the Merger)

 

Fibria produced 6.8 million tons of pulp in 2018 (including 50.0% of the pulp production of Veracel).

 

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

 

Fibria’s total eucalyptus pulp production was 6,758 thousand tons, which represented 32.1% of the, total Brazilian pulp production for the years ended December 31, 2018.

 

Pulp Sales

 

In the years ended December 31, 2020, 2019 and 2018, we sold 10.8 million tons, 9.4 million tons and 3.2 million tons of pulp as market pulp respectively, of which 7.3%, 8.8% and 9.2% was sold in the Brazilian domestic market and 92.7%, 91.2% and 90.8% was sold in the export market.

 

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

 

   For the year ended December 31, 
   2020   2019   2018 
   (in tons)
Suzano’s pulp sales volume               
Brazilian   786,621    830,962    298,005 
International   10,036,495    8,580,691    2,927,714 
Total   10,823,116    9,411,653    3,225,719 

 

Fibria for the year ended December 31, 2018 (before the Merger)

 

In the years ended December 31, 2018, Fibria sold 6.8 million tons of pulp as market pulp, of which 10.4% was sold in the Brazilian market and 89.6% was sold in the export market.

 

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

 

Pulp Exports

 

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

 

   For the year ended December 31, 
   2020   2019   2018 
Pulp net sales by geographic region  R$ (million)   Total (%)   R$ (million)   Total (%)   R$ (million)   Total (%) 
Brazil   1,609.4    6.3    1,833.9    8.7    744.6    8.5 
Asia   12,921.1    50.5    9,605.8    45.7    3,838.0    43.7 
Europe   6,409.9    25.1    5,950.8    28.3    2,810.9    32.0 
North America   4,341.0    17.0    3,592.6    17.1    1,340.9    15.3 
Others   296.9    1.2    44.6    0.2    48.9    0.5 
Exports   23,968.9    93.7    19,193.8    91.3    8,038.7    91.5 
Total   25,578.3    100.0    21,027.7    100.0    8,783.3    100.0 

 

Fibria for the years ended December 31, 2018 (before the Merger)

 

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

 

   For the year ended December 31, 2018 
Pulp net sales by geographic region  R$ (million)   Total (%) 
Brazil and others (1)   1,733.7    9.5 
Asia   7,384.6    40.4 
Europe   6,005.3    32.9 
North America   3,140.9    17.2 
Exports   16,530.8    90.5 
Total   18,264.5    100.0 

 

 

(1)Includes Portocel’s services revenue.

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Pulp Customers

 

In 2020, most of our sales were made under contracts to customers with whom we have a long-term relationship in the Brazilian and export markets. Most of our customers are tissue, printing and writing and specialty paper producers that value the high-quality pulp produced and the reliability of supply provided by us. The majority of deliveries to final customers during last year were made from our overseas terminals in the United States, Europe, Mediterranean and Asia.

 

Prices may vary among the different geographic regions in which our customers are located. For a specific region, usually the price arrangements under our sales contracts are consistent with each customer profile, varying according to volume negotiated, regularity of purchase and our commercial strategy. Our sales contracts provide for early termination in the event of a material breach, insolvency of one of the parties or a force majeure event of an extended duration.

 

Our customers generally purchase its products using credit provided by us, which has a diversified customer base for its pulp products. We believe we have a good knowledge base to manage our credit risk portfolio through financial (letters of credit and insurance) and non-financial instruments (guarantees).

 

Fibria

 

On May 4, 2015, Fibria (as intervening party and guarantor), Fibria International Trade GmbH and Klabin S.A. entered into a Eucalyptus Pulp Offtake Agreement (the “Offtake Agreement”) for the supply of hardwood pulp produced at the Klabin plant in the state of Paraná (Puma Project), which had its operational startup in 2016. The agreement established a firm commitment for acquisition by Fibria or its subsidiaries of a minimum of 900,000 tons per year of hardwood pulp, for exclusive sale by Fibria or its subsidiaries in countries outside South America. The additional volume produced by the new plant was being sold by Klabin directly as follows: (i) hardwood pulp in Brazil and South America, and (ii) softwood pulp and fluff in the global market. Although the original term of the Offtake Agreement was six years, following the Merger the parties thereto and Suzano entered into a termination agreement pursuant to which the parties agreed to terminate the Offtake Agreement prior to its term after a transitional period of five months starting in April 2019. This termination agreement was signed as part of the commitments submitted to the European Commission in order to receive the approval of the merger between Suzano and Fibria. As part of the agreement, the latest pulp purchase we made from Klabin took place in August 2019 and we sold the last volumes therefrom in the first half of 2020.

 

Paper Production and Sales

 

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

 

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

 

   For the year ended December 31, 
   2020   2019   2018 
Paper net revenues by geographic region  R$ (million)   Total (%)   R$ (million)   Total (%)   R$ (million)   Total (%) 
Brazil   3,358.2    68.8    3,480.3    69.8    3,307.1    71.0 
Central and South America (1)   723.6    14.8    710.1    14.2    774.7    16.6 
North America   263.3    5.4    382.6    7.7    210.8    4.5 
Europe   262.9    5.4    221.7    4.4    225.1    4.8 
Others   274.0    5.6    190.6    3.8    142.4    3.1 
Exports   1,523.8    31.2    1,505.0    30.2    1,353.0    29.0 
Total   4,882.0    100.0    4,985.3    100.0    4,660.1  

  

100.0 

 

 

(1)Excludes Brazil.

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Paper Customers

 

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

 

Seasonality

 

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

 

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

 

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

 

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

 

Raw Materials

 

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

 

Wood

 

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

 

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

 

Recycled Paper and Mechanical Pulp

 

Pre- and post-consumption recycled paper and mechanical pulp are used in the production of the middle layers of certain types of paperboard. Recycled paper is also the raw material used in the production of our Reciclato® paper, which, when production began in 2001, was the first recycled uncoated printing and writing paper produced on an industrial scale in Brazil.

 

Energy

 

Our primary source of energy, biomass (classified as an energy resource in the categories of forest energy biomass), is applied in our pulp and paper production processes and is generated by burning black liquor in the recovery boiler. See “—Pulp and Paper Production Process—Pulp.” 

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In addition to the black liquor, a fuel effluent inherent in the cellulose manufacturing process, a secondary source of energy, applied in our processes are bark, wood chips and waste, which are used as complementary fuels to meet the energy needs of the process, burned in auxiliary boilers.

 

In order to reduce own consumption and be self-sufficient in energy, a large part of the energy load is supplied by own generation, either through energy facilities within each plant, or by allocating energy from self-producing plants in another location to Suzano plants with energy deficits, thru CCEE (Brazilian Energy Clearing House).

 

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

 

Chemicals

 

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

 

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

 

Transportation

 

The cost of transportation of pulp and paper products to the consumer market is an important component of our competitiveness. In the years ended December 31, 2020, 2019 and 2018, logistics costs accounted for 23.7%, 15.0% and 17.8% of our cost of goods sold and selling expenses, respectively.

 

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

 

In addition, the Brazilian market may take advantage of Jacareí mill’s proximity to São Paulo and Rio de Janeiro, while the Aracruz mill has the one of the best logistics in the industry with a distance of approximately 3 kilometers to the Portocel port facility. The Tres Lagoas mill is located between two important railways in the southeast of Brazil, ensuring the cost competitiveness of this mill, although distance from the port is over 700 km. 

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Port Operations

 

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

 

We conduct operations in the port of Itaquí, (state of Maranhão), port of Santos (state of São Paulo) and port of Barra do Riacho (namely, Portocel - state of Espírito Santo).

 

Port of Itaqui

 

The port of Itaqui is located on the coast of the state of Maranhão. From this port, we exported in 2019 pulp produced at the Imperatriz mill, which is located approximately 700km away from the port of Itaquí. Since 2014 we operate warehouse within the port area to guarantee the continuity of its operations with Empresa Maranhense de Administraçao Portuária (EMAP), a public company held by the state government of Maranhão.

 

On July 27, 2018, we participated in a public auction conducted by ANTAQ for the concession of public areas and infrastructure for general cargo, especially pulp and paper in the port of Itaquí, for an initial period of 25 years. We were awarded the contract due to our proposal for Itaquí General Cargo Terminal (IQI18), in the amount of R$0.1 million. In 2020, we hired the companies responsible for building a warehouse of 73,000 tons and a berth to support long-term planning of Imperatriz mill at the port of Itaquí, with a construction deadline by 2022.

 

Port of Santos

 

The port of Santos is located on the coast of the state of São Paulo. From this port, we export pulp produced at the Jacareí and Três Lagoas, which are located approximately 150 and 750 kilometers away from the port of Santos, respectively. Through a concession, we operate terminals 13/14/15 (T13/14/15) and terminal 32 (T32) of the port of Santos.

 

In order to facilitate exports from Três Lagoas, we had a port services operation contract with a terminal operator called terminal 31 (Gearbulk Terminal) for an additional storage capacity of 40,000 metric tons of pulp at a specialized terminal where rail connection and vessel berth priority were also taken into consideration. We renewed this agreement with Gearbulk for two more years starting in May of 2019, but rescinded it free of charge in August 2020 as allowed by the agreement. We opted to end the agreement as the terminal was no longer needed due to the beginning of the operation at Vertere (DP World Santos).

 

Although the concession of T13/14/15 expired in September 2017, we timely requested its renewal before the Infrastructure Ministry, which has been approved under a temporary contract. We continued to operate T13/14/15 from May 2020 until October 2020, when the Company stopped operating at these terminals, also as a result of the beginning of the operation at Vertere.

 

Paper produced by us for exports is mainly shipped out of the port of Santos, which is located approximately 80 kilometers from the Suzano unit and about 250 km from the Limeira unit, where most of the paper production designated to export markets comes from. We also operate with containers at the port of Santos, mainly used in the paper and fluff business.

 

DP World Santos

 

On January 29, 2018, we contracted logistic operations services for transporting pulp, with a take-or-pay condition. These services are rendered by Empresa Brasileira de Terminais Portuários S.A. (Embraport), which has adopted the brand DP World Santos in its private use terminal (TUP) located at the left bank of the Santos estuary, in the state of São Paulo, where a logistic port installation dedicated to warehousing, handling and shipping pulp will be constructed. We invested R$187.8 million in 2018 and are investing approximately R$400 million until 2020. DP World Santos is wholly owned by global trade enabler DP World, one of the largest container port operators in the world, recognized in the industry for its efficiency.

 

The port operations started since the construction of a new warehouse, two berths and other harbor-logistics structures was completed, and the licenses were released in April 2020. Throughout 2020 we started the operation following the curve of the volume of the ramp up, gradually achieve the full capacity by the beginning of 2021. The port services will be conducted by DP World Santos until 2039, which term may be extended to 2042 subject to the renewal of the port authorization, as applicable. 

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Portocel

 

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

 

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

 

Marketing and Distribution

 

We have our own sales teams for our pulp and paper business units, which sell our products in both the Brazilian and international markets, to final consumer or distribution intermediaries. We sell our products in both the Brazilian and export markets. In the years ended December 31, 2020, 2019 and 2018, 83.7%, 79.6% and 69.9%, respectively, of our net sales revenue from market pulp and paper products was attributable to sales made outside of Brazil. In the year ended December 31, 2018, 90.5% of Fibria’s net sales revenue was attributable to sales made outside of Brazil. Domestically in Brazil, we have a sales staff consisting of employees operating in various regions of Brazil.

 

Pulp

 

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

 

Paper

 

In 2020, 68.8% of our paper sales were made in Brazil. In order to better serve this market, we have divided it into seven segments, designing different commercial and marketing strategies for each segment:

 

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

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

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

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

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

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

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

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

 

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

 

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

 

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

 

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

 

Competition

 

The pulp industry is highly competitive. The top 20 producers currently supply approximately 74.0% of the global virgin market pulp capacity according to Hawkins Wright. We face substantial competition from numerous producers of paper and hardwood market pulp, including major Brazilian producers, such as Eldorado, CMPC and Celulose Nipo Brasileira S.A. (Cenibra). Many factors influence competitive position, including mill efficiency and operating rates and the availability, quality and cost of wood, energy, water, chemicals, logistics and labor, and exchange rate fluctuations. Latin American pulp producers have structural cost advantages over other global competitors, mainly in North America and Europe, due to their shorter harvest periods and higher land productivity, which is only partially offset by geographical distance from the end markets. Many of our Latin America competitors enjoy cost advantages similar to ours, including low production costs, and have access to similar sources of funding to finance their expansion projects.

 

The international pulp and paper markets are highly competitive and involve a large number of producers worldwide. As a vertically integrated pulp and paper producer, we compete not only with other vertically integrated pulp and paper producers, but also with companies that produce only pulp or paper. Many of these producers have greater financial resources than we do and enjoy lower financing costs. However, as the largest producer of eucalyptus pulp in 2020, according to Hawkins Wright, we maintain our competitive advantage by keeping production costs low, maintaining long-term contracts with our customers and vertically integrating our operations.

 

Environmental Matters

 

General

 

We are committed to produce pulp and paper with a minimum of waste production and with the lowest impact on natural resources and the environment. Our continuing goal is to avoid and mitigate adverse impacts on the environment by controlling our emissions into the air and water, preserving biodiversity and by fully complying with Brazilian environmental regulations and recognized international environmental standards. 

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Our industrial units are ISO 14001 certified, which attests our environmental management system, where our Mucuri unit was the first in the pulp and paper sector globally to obtain this certification in 1996. We also have received other certifications, including ISO 9001 and ISO 45001. Our environmental protection investments in 2020 totaled R$195.3 million in respect of our industrial units.

 

Our forests units are certified by the Forest Stewardship Council (“FSC”) and the Programme for the Endorsement of Forest Certification (“PEFC”), which attests that our forest management is environmentally correct and socially just. The FSC seal, created by different multisector international organizations, has strong international recognition and it is also labeled in several of our products and our clients’ products. We operate, therefore, under strict compliance with environmental laws and regulations. Our environmental protection investments in 2020 totaled R$30.2 million in respect of our industrial units.

 

We are committed to respect and preserve the environment, through reducing our consumption of natural resources and mitigating the impacts of our activities. Our environmental policy and environmental management system are aligned with the most advanced international standards and seeks to:

 

Use natural resources in a balanced way, such as water, soil and inputs;

Conserve ecosystems and biodiversity;

Ensure efficiency in the treatment of atmospheric emissions and effluents;

Promote de reuse of waste and the reduction of its sending to landfills;

Optimize energy performance;

Help to combat climate change;

Respect all environmental legislation applicable to our operations.

 

Suzano reinforces its commitment to establish its plantations exclusively in areas previously anthropized by other uses, whose conversion has not occurred under its direct or indirect responsibility, committing itself to a zero deforestation policy.

 

At the forestry, R$53.8 million have been invested in monitoring and conserving natural resources and biodiversity, habitat restoration projects and implementation, sustainable development of local communities, meeting certification demands, environmental education programs, among others.

 

In addition, costs incurred to compliance with environmental law were approximately R$7.2 million.

 

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

 

Furthermore, we also have a strong commitment to community service and participate in and fund a variety of projects, including projects supported by the Instituto Ecofuturo, a non-governmental organization that we have created and sponsor, whose purpose is to generate and share knowledge and practices that contribute to creating a culture of sustainability. In 2020, we invested R$3.9 million on its maintenance.

 

Water

 

After the disclosure of Suzano's Long Term Goals – MLPs in February 2020, we deployed the goal of reducing specific water withdrawal by 15% by 2030, linked to SDG 12 – sustainable consumption and production, for each Industrial Mill and governance has been integrated into Suzano's management routine.

 

Considering the expected curve until 2030, we defined the annual and monthly targets for each Mill. The results of each Mill in relation to the intermediate targets are monitored monthly in a meeting with the Executive Officer of Pulp Operations, together with representatives of all Mills, integrating them with the governance of safety, production, quality and cost indicators. 

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Taking into consideration the Suzano governance model, the industrial directors, industrial managers and executives monitor the indicators of each Mill weekly. Any deviations are treated according to the management tools adopted in Suzano's Operational Excellence model.

 

The results are disclosed to all Suzano employees at the monthly results meetings of each Mill, engaging people in relation to the topic.

 

At the Units, the targets were stratified by consumer sector and sector performance is monitored at routine Production Meetings.

 

Also in 2020, improvement projects were identified for each Mill to be implemented by 2030 to achieve the goal. For the construction of this material, research was carried out on best practices adopted in the group, water balance sheets, management tools (such as Six Sigma and PDCA (Plan-Do-Check-Act cycle)) and innovation projects, through the “i9 focus on water” Program (I9 focus is an incentive Innovation Program, where a theme and several challenges are established, with Soft Money recognition for people with more innovative ideas), encouraging the operational team to insert ideas that may imply in reducing water consumption.

 

Solid Waste and Wastewater

 

Waste management is present in our processes and operations, both industrial and forestry. The treatment of effluents in all industrial units is carried out in our own Effluent Treatment Plants and includes primary (physical) and secondary (biological) treatment, a stage in which oxygen and nutrients are added and the pH is controlled. At Limeira, Jacareí, Três Lagoas and Maranhão Mills, the activated sludge technology is used for secondary treatment, while aerated lagoons are used at the Suzano and Aracruz Mills. The Mucuri Mill has used both technologies. The biological sludge generated at the effluent treatment plants has been treated in different eco-efficient ways, such as composting plants at the Limeira Mill, drying and burning at the Jacareí, Imperatriz and Três Lagoas Mills.

 

In addition to complying with the applicable rules on solid waste, our Mills have a waste management plan and operational procedures. Waste management includes daily monitoring and forums focused on reducing solid waste generation, increased recycling and internal reuse and reduction of shipment to landfills. The Mills also receive internal and external audits.

 

We also announced in February 2020 a very challenging goal of reducing 70% of waste sent to landfill by 2030.

 

In the Limeira and Jacareí Industrial Mills, in 2020 we reached the level of ZERO WASTE TO LANDFILLS. In the Três Lagoas Unit, in 2020 we completed the expansion of the Waste Treatment Plant where now including the treatment of organic and inorganic waste generated in the 2 Production Lines.

 

At the Imperatriz Mill we invested in 2020 in the construction of the Waste Treatment Plant, whose start-up is scheduled for the first quarter of 2021.

 

The soil acidity corrective program, applied at the Jacareí, Três Lagoas and Imperatriz Mills, consists of the transformation of inorganic residues generated in our industrial process, such as lime mud, dregs, grits and ashes, into soil pH correctors. With this product we stopped buying limestone on the market, benefiting forestry, reinforcing our commitment to the Circular Economy. Another advantage is that the surplus of this solution can be sold on the market in accordance with the rules of the Ministry of Agriculture

 

Biodiversity

 

Our forestry practices reflect our concern for the biodiversity conservation, from planning to implementation. Today we plan and implement our forest management operations using the mosaic landscapes approach, where eucalyptus stands are intermingled with native vegetation. We seek to connect the main native fragments, forming ecological corridors, contributing to the preservation of fauna and flora.

 

Furthermore, we also work with minimal cultivation, where planting is done with low soil interference (crop residues – twigs, leaves and bark – are kept on the ground, contributing to fertility and protecting against erosion). This model provides a suitable environment for conserving and maintaining biodiversity. 

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We maintain approximately 40% of our total land, or one million hectares for biodiversity conservation. This total includes permanent preservations areas (i.e. riparian forests), legal reserves, high-value conservation areas, and other natural areas dedicated to environmental preservation, where we carry out periodic monitoring of fauna and flora in order to ensure its perpetuity. This monitoring has occurred since 2008 in Bahia and Mato Grosso do Sul, 2009 in São Paulo, 2012 with new methodology in Espírito Santo and Minas Gerais, and since 2013 in Maranhão.

 

Our biodiversity management and the environmental practices related to the operational activities is monitored through external audits, according to responsible forest management standards of the FSC® (Forest Stewardship Council®) and PEFC / CERFLOR® (Brazilian Forest Certification Program).

 

Climate Change

 

Our approach towards climate change incorporates continued investigation, as well as the adoption of best practices, including research and development regarding GHG emissions in our industrial, forest and logistics operations and carbon removals in our plantations and native forests. We undertake these initiatives in order to maintain and improve our performance by considering climate change scenarios, adopting mitigating and adapting strategies and reducing emissions throughout our value chain.

 

The management of climate change related risks is integrated into our overall risk management, which follows the guidelines defined in our integrated risk management policy with respect to the process of communicating, prioritizing, treating, monitoring and analyzing risks. Priority risks associated with climate change are managed by certain internal departments in charge of monitoring the risk and are periodically monitored by our risk management department through an integrated multi-disciplinary ERM (Enterprise Risk Management) process. In addition, Suzano is a supporter of the Climate Related Financial Disclosures Task Force (TCFD) and was the first company in the pulp and paper sector to be the protagonist of a case study published in the TCFD Knowledge Hub in which it released the Indicators Center - digital platform with Suzano’s information related to climate change, in line with the measurement and transparency recommendations proposed by TCFD.

 

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

 

In 2010, we were the first pulp and paper company in Brazil to calculate our carbon footprint by measuring the emissions throughout our products’ entire life cycle, from raw materials production and distribution through their sale, use and disposal, which has a broader scope than the GHG inventory undertaken since 2003. With the goal to build on these studies and seek to measure and understand the impact of our production and the opportunities for improvement, we developed new life cycle analysis studies for some of our products, including Eucafluff, which comparative assessment expresses better performance in key impact categories.

 

In February 2020, we launched two public targets focused on climate change. First, we expect to remove 40 million tons of GHG from the atmosphere between 2020 and 2030. This number considers the net difference between carbon removal from eucalyptus plantations and native forests and emissions scopes 1, 2 and 3. Second, we plan to reduce by 15% our emission intensity (tCO2e/adt) including scopes 1 and 2 (baseline 2015). Both targets require systemic improvements and technological investments along our production chain and are necessary to ensure the Paris Agreement.

 

Furthermore, Suzano reuse the biomass and wood residues from the production process to generate a significant portion of their energy requirements. Approximately 86% of this energy comes from renewable fuels (such as black liquor and biomass), and the remaining 14% from non-renewable resources (such as natural gas and fuel oil). We are self-sufficient on Mucuri, Imperatriz and Três Lagoas units in terms of energy needs and some mills are even selling surplus energy back to the grid. In 2020, 193 MW of renewable electric energy were supplied to the public grid. This is aligned with another long-term goal to increase renewable energy exports by 50%, until 2030 (baseline 2018). 

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Furthermore, our industrial units produce renewable energy that supplies approximately 86% of the mill’s energy needs. Our Mucuri, Imperatriz and Três Lagoas units are almost self-sufficient in terms of energy needs and some mills are even selling surplus energy back to the grid. In 2020, 177.8 MW were supplied to the public grid. This is aligned with another long-term goal to increase renewable energy exports by 50%, until 2030 (baseline 2018).

 

We have also adopted a policy to reuse the energy resulting from our production process. Our industrial units produce a significant portion of their energy matrix requirements, and currently approximately 85% comes from renewable fuels (such as black liquor and biomass), and the remaining 15% from non-renewable resources (such as natural gas and fuel oil). We are self-sufficient in energy. In fact, we are currently selling energy to the grid. In 2020, we added 604,058.7 MWh to the public grid.

 

Sustainability Strategy

 

We believe sustainability is a core component of our corporate strategy and have implemented corporate governance practices, which seek to align our sustainability strategy with our business model. We have a sustainability committee that advises our board of directors. Our sustainability committee is led by the chairman of our board of directors and includes several independent members with diverse backgrounds. It meets three times a year to deliberate and evaluate the construction and implementation of our sustainability strategy.

 

For us, sustainability involves incorporating social and environmental aspects, long-term value generation strategies and stakeholder views into our 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 consider the growth and welfare of neighboring communities, preserving and recovering native forests, sequestering carbon, 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, investing in sustainability may decrease the risks we bear, create opportunities and make us stronger to meet the needs of an increasingly demanding market concerned about sustainable matters.

 

We seek to be a leader and agent of transformation with respect to sustainability. In 2019, we carried out a broad consultation process with over 90 organizations in Brazil, Europe, North America and Asia, 700 employees in regional workshops and over 200 respondents in an online survey. Desk research was also conducted including institutional risk matrices, materiality assessments, sector reports and benchmarks. This exercise resulted in the development of long-term goals that were approved by our board of executive officers, our sustainability committee and our board of directors, which we list below.

 

2030 Sustainability Goals:

 

Even more climate positive: Remove 40 million tons of carbon from the atmosphere (capture – emissions scope 1, 2 and 3).

Mitigate income inequality: Zero people below the poverty threshold in our area of influence (200,000 people).

Substitute plastics and petroleum by-products: Offer 10 million tons of renewable products.

 

Long-term Goals:

 

Water in the forest: Increase water availability in 100% of critical watersheds until 2030.

Water in industrial operations: Reduce water withdrawal by 15% until 2030.

Energy: Increase renewable energy exports by 50% until 2030.

Emissions: Reduce specific emissions by 15% (Scope 1 and 2) until 2030.

Waste: Reduce waste sent to landfill by 70%, until 2030.

Diversity and inclusion:

 

oPWDs – Guarantee 100% accessibility and inclusive environment and zero prejudice against people with disabilities, until 2025.

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oWomen – Reach 30% minimum of women in leadership roles (managers, directors and board), until 2025.

oBlacks - Reach 30% minimum of blacks in leadership roles (managers, directors and board), until 2025.

oLGBTI+ - Guarantee 100% inclusive environment and zero prejudice against LGBTI+, until 2025.

 

Education: Increase the Brazilian Education Index (IDEB) by 40% in our area of influence, until 2030.

 

The variable remuneration of 100% of the executive board is linked to at least one ESG related target. Since 2020, the board has a collective goal related to diversity and inclusion and individual goals linked to the performance of the long-term goals mentioned above.

 

Our sustainability strategy also identifies the most relevant issues for us and society, taking internal priorities and the stakeholder perceptions, the themes identified are incorporated in our internal strategy and guides our external disclosures. The process defined the following material themes: (i) climate change; (ii) ethics, governance and transparency; (iii) financial management; (iv) forest management; (v) human capital; (vi) innovation and technology; (vii) operational excellence and ecoefficiency; (viii) social development; (ix) value chain (suppliers and customers; and (x) water.

 

Our sustainability annual report adheres to the Global Reporting Initiative Standards guidelines for disclosure core level, as well as the framework of the International Integrated Reporting Council (IIRC) and in line with the United Nations Sustainable Development Goals (SDGs). Through these initiatives, we seek to annually account for how we address challenges and achieve results relating to our sustainability strategy and with respect to our role in society. Our sustainability annual report, developed on a voluntary basis, includes details of commitments and performance on the governance, economic, financial, social and environmental aspects of our business following the principles of materiality, stakeholder inclusiveness, sustainability context, completeness, balance, comparability, accuracy, timeliness, clarity and reliability. Our sustainability annual report is publicly disclosed in our website.

 

Brazilian Environmental Regulation

 

The Brazilian federal constitution assigns to the Brazilian federal government, the states, the federal district and the municipalities the authority to enact laws and issue regulations regarding environmental protection and preservation of Brazilian fauna and flora, as well as the power to enforce such laws. States can only enact laws and issue regulations to supplement federal law, exerting full legislative power only in the absence of federal regulations. The municipalities have authority to enact laws and issue regulations only with respect to matters of local interest or to supplement federal and state laws.

 

The Brazilian environmental policy establishes that activities (i) considered actually or potentially polluting; (ii) that use natural resources; or (iii) that, in any manner, may result in environmental degradation, are subject to prior environmental licensing. This procedure is necessary both for the initial installation or expansion of any facility that meets any of those characteristics. The environmental licensing process generally follows three consecutive stages: preliminary license, installation license and operating license.

 

Regarding licensing procedures, municipalities have the jurisdiction to license facilities that only have a local environmental impact, pursuant to definitions issued by the State Environmental Council. The Brazilian federal government is responsible for the environmental licensing of projects and activities: (i) within the Brazilian inland borders; (ii) located in the Brazilian territorial sea, continental platform or exclusive economic zone (which term is defined under Brazilian law); (iii) located in indigenous lands; (iv) located in national parks or other federal conservation areas; (v) between two or more Brazilian states; (vi) of military nature; (vii) regarding radioactive material and/or nuclear power; (viii) of national interest, as defined in the Executive Order No. 8,437/ 2015. Finally, the states are responsible for the environmental licensing of all the other activities located within their borders.

 

The preparation of an environmental impact study and its corresponding environmental impact report, or EIA/RIMA, is required for purposes of licensing activities with significant environmental impact. In any such event, the company is required to pay a compensation fee for negative environmental impacts caused by the relevant project. This fee can amount to up to 0.5% of the total cost of the project. Since most of our main activities began before the enacting of the law that established the environmental compensation fee, we were not required to pay such compensation in those cases (projects performed before the year 2000). However, the activities started after the enactment of the National System of Conservation Units – SNUC’s law are subject to the obligation to pay environmental compensation. Therefore, new projects may require additional investments to compensate for the environmental impact. 

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

 

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

 

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

 

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

partial or total suspension of activities;

forfeiture or restriction of tax incentives or benefits; and

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

 

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

 

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

 

Insurance

 

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

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Organizational Structure

 

The following chart shows our corporate structure as of December 31, 2020.

 

 

 

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Property, Plant and Equipment

 

Eucalyptus Planted Forests

 

General

  

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

 

 

 

Our planted forests along with those of our partners are concentrated in the south of the State of Bahia, in the state of Espírito Santo, in the state of Mato Grosso do Sul, in the state of São Paulo, in the east of the state of Minas Gerais, in the states of Rio de Janeiro and Rio Grande do Sul, in the states of Tocantins, Pará and in southwest of the state of Maranhão, and in north and east of the state of Maranhão and Piauí.

 

The table and chart below set forth the location and capacity of our planted eucalyptus forests as of December 31, 2020:

 

State 

Planted Area  

(thousand
hectares

  

Conservation
Area 

(thousand
hectares

  

Other 

(thousand
hectares
)

  

Total 

(thousand
hectares

 
São Paulo    225    126    17    368 
Minas Gerais    23    38    2    64 
Rio de Janeiro    2    1    0    3 
Mato Grosso do Sul    346    162    64    572 
Bahia(1)    247    195    64    464 
Espírito Santo    145    109    23    269 
Rio Grande do Sul    441    1    0    2 
Tocantins, Maranhão, Pará, and Piauí    288    382    92    762 
Total(2)    1,276    1,015    215    2,505 

 

 

(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 of 138 thousand hectares.

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Map of location of eucalyptus planted forests

 

Assisted Growth

 

For new plantings, we use both seeds and clones selected for their characteristics, such as height and diameter, productivity per hectare, lack of branches below the crown, suitability to local soil and climate conditions, and resistance to disease. Saplings grown from selected seeds and clones are initially cultivated inside climate-controlled greenhouses for 30 days. These saplings are then transferred to outdoor nurseries, where they are allowed to grow for another 70 to 90 days, after which they are moved to be planted.

 

We conduct research specific to each of our growing regions, utilizing general concepts of plant physiology and genetics. In the future, our productivity may increase through cloned hybrid cuttings or selected seeds. The research program also continues to seek ways to improve the uniformity of wood quality and maintain ecological balance by studying the soil, plant nutrition and pest control.

 

Harvesting

 

Eucalyptus trees are harvested by our employees and by independent contractors through an automated system and, in some cases, manually. Logs are generally transported to our pulp mills as needed and we store small amounts of logs at all of our production facilities. Logs to be used in our production facilities in São Paulo are currently stored in the forests for an average of two to five months to allow them to dry before transportation. In Bahia, logs are transferred to the mill 40 days after harvesting.

 

Plant Locations and Capacity

 

We produce pulp and paper products from nine modern operating facilities consisting of: (i) two integrated pulp and paper production facilities in the state of São Paulo (the Suzano and Limeira units) including fluff production, (ii) a non-integrated paper production facility in the state of São Paulo (the Rio Verde unit), and a Market Pulp production in the state of São Paulo (Jacareí unit), (iii) an integrated pulp, paper and tissue facility in the state of Bahia (the Mucuri unit), (iv) an integrated pulp and tissue facility in the state of Maranhão (the Imperatriz unit), (v) a market pulp production in the state of Mato Grosso do Sul (Três Lagoas unit), (vi) a market pulp production in the state of Espírito Santo (Aracruz unit) and (vii) two non-integrated tissue paper (Facepa) production in the states of Pará and Ceará (Belém unit and Fortaleza unit). The following table identifies our pulp and paper mills and sets forth the nominal total volume of the production capacity at each mill, as of December 31, 2020.

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    Production Capacity   
Unit/Location    Major Products    (in thousand tons per year)   
Mucuri unit — Bahia   Integrated Pulp     200  
    Market Pulp   1,480  
    Paper   250  
    Tissue   60  
Suzano unit — São Paulo   Integrated Pulp    450  
    Market Pulp   70  
    Fluff(1)   100  
    Paper(1)   550  
Limeira – São Paulo   Integrated Pulp     290  
    Market Pulp   400  
    Paper   400  
Rio Verde — São Paulo   Non-integrated Pulp      
    Market Pulp    
    Paper   50  
Imperatriz unit   Integrated Pulp     60  
    Market Pulp   1,590  
    Paper    
    Tissue   60  
Tissue Facepa (Belém & Fortaleza)   Non-integrated Pulp      
    Market Pulp    
    Tissue   50  
Aracruz – Espírito Santo   Market Pulp    2,340  
Três Lagoas – Mato Grosso do Sul   Market Pulp    3,250  
Jacareí – São Paulo   Market Pulp    1,100  
Veracel (2) – Bahia   Market Pulp    560  

 

 

(1)Flexibility to produce either fluff pulp or printing and writing paper.

(2)Represents 50% of the annual production capacity and production of Veracel’s pulp mill.

 

For the year ended on December 31, 2020, our facilities had produced 9.8 million tons of total market pulp and approximately 1.2 million tons of paper. The following table sets forth our total pulp and paper production for the periods indicated:

 

Production  2020   2019   2018 
   (in thousand tons/year) 
Market Pulp    9,800    8,757    3,501 
Paper    1,184    1,240    1,265 
Total production    10,984    9,996    4,767 

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ITEM 4. A. INFORMATION ON THE COMPANY

 

Not applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion of our financial condition and operating results should be read in conjunction with our audited consolidated financial statements as of December 31, 2020 and 2019, and for each of the three years ended December 31, 2020, and the accompanying notes thereto, which have been prepared in accordance with IFRS as issued by the IASB, as well as with the information presented under “Presentation of Financial and Other Data”. and “Item 3. Key Information — A. Selected Financial Data.”

 

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from those discussed in the forward-looking statements for several reasons, including, without limitation, the risks described in “Forward-Looking Statements”. and Item 3. “Key Information – Risk Factors.”

 

Overview

 

With more than 90 years of experience, we operate mainly in the pulp (paper grade and fluff) and paper (paperboard, printing and writing and tissue) segments. We believe that we are one of the largest vertically integrated producers of pulp and paper in Latin America and, according to Hawkins Wright, Suzano was the largest producer of eucalypt pulp and virgin market pulp in the world in 2020. As other Brazilian eucalyptus pulp producers, we have the lowest cost of pulp production in the world. We believe our modern technology of plantation and harvesting and our strategic location for plantation facilities are among our competitive strengths.

 

We believe we are one of Brazil’s largest paper producers, and based on data from IBÁ, we accounted for nearly 40% of the printing and writing paper and 25% of the paperboard produced in Brazil in 2020.

 

On July 26, 2018, Suzano and Fibria entered into the Merger Agreement for the combination of the operations and shareholder bases of Fibria and Suzano through a corporate reorganization. On January 14, 2019, following receipt of all required corporate and regulatory approvals, the Merger was consummated, and Fibria became our wholly owned subsidiary. Upon completion of the Merger, we became the world’s largest producer of market pulp, with an aggregate installed capacity of 10.9 million metric tons of eucalyptus pulp per year and a broad and diversified forest base.

 

Furthermore, on April 1, 2019, Fibria merged with and into Suzano. As a result, the separate corporate existence of Fibria ceased, and Suzano continued as the surviving entity under the laws of Brazil. Accordingly, title to and possession of all property, interests, assets, rights, privileges, immunities, powers and franchises of Fibria vested in Suzano and all debt, liabilities, duties and obligations of Fibria became debt, liabilities, duties and obligations of Suzano.

 

With respect to the outbreak of the COVID-19 pandemic, since the beginning we have adopted preventive and mitigating measures in line with the guidelines established by Brazilian and international authorities, Such measures are aimed at minimizing, to the extent possible, the harmful effects from the COVID-19 pandemic on the safety of our employees and the continuity of our businesses.

 

Our initiatives are based on three pillars:

 

(i)Protection for people: in order to provide security to our employees and third parties who are involved in our operations, we adopted a series of measures aimed at minimizing the exposure of our team and / or mitigating exposure risks.

 

(ii)Protection of society: one of our three cultural drivers is: “It is only good for us, if it is good for the world”. Therefore, from the beginning of the pandemic to the present, we have adopted a series of measures to protect society, including:

 

Donations of personal hygiene products produced by the us (e.g. toilet paper, napkins and disposable diapers) to vulnerable areas;

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Donations of 159 respirators and approximately one million hospital masks to the Federal and State Governments;

Partnerships with Positivo Tecnologia, Klabin, Flextronics and Embraer, to support Brazilian company Magnamed, in the production and delivery of respirators to the Federal Government. Our disbursement in this action was R$9.6 million;

Construction, together with Veracel, of a field hospital in the city of Teixeira de Freitas, State of Bahia, which was handed over to the state government and opened in July 2020;

Partnership with Fatec university of the city of Capão Bonito for the production of alcohol gel;

Lending of forklifts to move donations received by the Red Cross;

Maintenance of all direct jobs;

Support to payroll costs of service providers’ for 90 days (from March to June 2020);

Support programs to small suppliers and customers, as well as indigenous, quilombola and other communities.

 

The disbursements made to carry out the social actions implemented by us totaled R$48.6million through December 31, 2020.

 

(i)Protection for business: to date, we have continued with our normal operations and a crisis management committee has been implemented.

 

The World Health Organization (WHO) and several countries recognized the paper and pulp sector as a producer of essential goods, and therefore we have taken measures to ensure, to the greatest extent possible, operational normality and full service to its customers. Such measures include increasing the level of wood and raw material inventories in the factories and advancing its inventories of finished goods product, bringing them closer to their customers to mitigate possible risks of disruption in the factories' supply chain and the sale of products.

 

The current situation resulting from the COVID-19 also implies a higher credit risk, especially for its customers in the paper business. Thus, we have also been monitoring the evolution of this risk and implementing measures to mitigate it, and so far, there has been no significant financial impact.

 

Due to quarantine and isolation measures adopted globally, as well as school and office closures and switch to remote work, the demand for printing and writing papers was reduced. In light of this, Suzano and several other paper producers around the world temporarily reduced its paper production volume by means of temporary stoppage at paper production lines. Suzano temporarily suspended the paper production lines of the Mucuri and Rio Verde units, having resumed the activities at the beginning of July 2020.

 

Finally, it is worth noting that, as a result of the current scenario, the Company has made and maintained a vast communication effort to further increase the interaction with its main stakeholders, with the objective of guaranteeing the adequate transparency and flow of information with the them in a timely manner to the dynamics of the social and economic conjuncture.

 

We have activated our crisis management team to guarantee coordinated actions for risk mitigation and for contingency and business continuity plans. To date, our operations in Brazil and abroad have not been materially impacted. Nevertheless, given the operational risks arising from the health conditions of our own and third-party employees, as well as the potential legal restrictions that might be imposed due to the COVID-19 pandemic, we cannot assure that our operations and financial condition will not be impacted. For information on how the outbreak of the COVID-19 may affect our operations and financial results, see “Item 3. Key Information — Risk Factors — The outbreak of coronavirus or other diseases may adversely affect our operations and financial results.”

 

Foreign Currency Impact in Our Operations

 

As a predominantly exporting company, our results are exposed to exchange variations. As such, fluctuations in the exchange rate, especially with regards to the U.S. dollars, may impact our operating results. We issue debt securities in the international markets as an important part of the capital structure that is also exposed to fluctuations in the exchange rate. The mitigation of these risks comes from our own exports, which creates a natural hedge. Furthermore, we employ U.S. dollar sales, in futures markets, including strategies with options, as a way to ensure attractive levels of operating margins for a portion of our income. The sales in future markets are limited to a percent of the currency over the 18-month horizon and, as such, are dependent on the availability of exchange ready for sale in the short-term. 

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Pulp Business Unit

 

The global pulp markets in 2020 were heated throughout the year, despite the negative impacts of pandemic in the main economies worldwide. Changes in consumer behavior supported the strong increase of tissue and packaging papers demand, while the graphic paper consumption was hardly impacted by the economic slowdown and social isolation measures.

 

On the supply side, pulp availability remained relatively balanced, with over 2 million tons of pulp unexpectedly withdrawn from the market offsetting the increase in production by some producers and temporary conversions of integrated capacities of dissolving pulp to market pulp.

 

Our pulp production volume increased 12%, from 8.8 million tons in 2019 to 9.8 million tons in 2020. Our sales volume in 2020 increased 15%, from 9.4 million tons in 2019 to 10.8 million tons in 2020. The higher sales volume during the year was supported by the market fundamentals mentioned above.

 

Net revenue from pulp sales totaled R$25,578.3 million in 2020 (an increase of 21.6% compared to 2019), mainly due to (i) higher sale volume and (ii) the depreciation of the Brazilian real against the U.S. dollar. The share of pulp revenue from exports was 94%, while the domestic market accounted for 6%. With regard to distribution for end use, 64% of pulp sales went to sanitary paper production, 16% to printing and writing paper, 12% to special papers and 7% to packaging.

 

The average net pulp selling price was US$458/ton in 2020 (a decrease of 19% compared to 2019), while average net price in reais stood at R$2,363/ton (an increase of 5.8% compared to 2019). This divergence in prices in different currencies are related to lower pulp prices in the international markets on an annual average basis that were offset by a stronger Brazilian real against the U.S. dollar. Pulp cash cost ex-downtime was R$604/ton, 9% lower than in the previous year, due to lower wood and input costs (which were offset by the increase in average USD vs. BRL) as well as fixed costs.

 

Paper Business Unit

 

According to the IBÁ, domestic sales of printing & writing paper and paperboard contracted 12% in 2020 compared to 2019, while imports decreased 39%.

 

Our paper production decreased 5%, from 1.23 million tons in 2019 to 1.18 million tons in 2020. This decrease is explained by the reduction in printing and writing, which was offset by the COVID-19 pandemic effects. However, the decrease in printing and writing was partially counterbalanced by tissue production, positively affected by the pandemic. Paper sales stood 1.2 million tons in 2020 to 1.3 million tons in 2019.

 

In 2020, our net revenue from paper sales totaled R$4,882 million, decreasing 2.1% from the previous year. Net revenue from the domestic and export markets decreased 3.5% and increased 1.2%, respectively, with 68.8% coming from domestic sales and 31.2% from exports. The breakdown of our total revenue from paper sales in 2020 was: 83.6% in Latin America (including Brazil), 5.4% in North America and 11.0% in other regions. Average net paper price in 2020 was R$4.148/ton, 5% higher than in 2019.

 

In the domestic market, average net paper price was R$4.188/ton, increasing 3% in relation to 2019. In the international market, average price was US$788/ton, down 17% from 2019. In Brazilian real, the average price in the international market was R$4.063/ton, 9% higher than in 2019.

 

New Accounting Policies and Changes in the Accounting Policies Adopted

 

Change in the functional currency

 

Due to the Merger, we experienced several changes in our structure, activities and operations during the year of 2019 that led management to conclude that they needed to reassess the functional currency of our subsidiaries whose functional currency was different from Brazilian Reais

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Those facts resulted in the corporate reorganization, as well as impacted how management conducted our business in order to achieve the alignment between the cultures of the two companies, the unification of processes, operating, systems, tax strategies and synergy gains arising from the business combination. In this process some of our wholly-owned subsidiaries were considered an extension of the activities of the parent company.

 

These circumstances collectively justify the change in the functional currency to Brazilian Real and they have occurred gradually during 2019, therefore it was not practicable to determine the date of the change at a precise point during the reporting period. Thus, we changed the functional currency of those wholly-owned subsidiaries as of January 1, 2020.

 

The cumulative translation adjustment (“CTA”) arising from the translation of a foreign operation previously recognized in other comprehensive income will not be reclassified from equity to profit or loss until the disposal of the operations. The total or partial disposal of interest in wholly-owned subsidiaries occurs through sale or dissolution, of all or part of operation.

 

Therefore, the financial statements of foreign subsidiaries, whose functional currency are different from Brazilian Reais, were translated using the criteria established below:

 

(i)assets and liabilities are translated at the exchange rate in effect at period end;

 

(ii)revenues and expenses are translated based on the monthly average rate;

 

(iii)the cumulative effects of gains or losses upon translation are recognized as accumulated foreign currency translation adjustments component of other comprehensive income.

 

And as from January 1, 2020, the financial statements of foreign subsidiaries, whose functional currency became the Brazilian Real, are converted using the criteria established below:

 

(i)monetary assets and liabilities are translated at the exchange rate in effect at period-end;

 

(ii)non-monetary assets and liabilities are translated at the historical rate of the transaction;

 

(iii)revenues and expenses are translated based on monthly average rate;

 

(iv)the cumulative effects of gains or losses on the conversion of the above items are recorded in the financial result of the year.

 

Interest rate reform – IAS 39 / IFRS 7 and IFRS 9 - Phase 1 (Applicable on/or after January 1, 2020)

 

The above mentioned pronouncements were amended by the IASB in response to the ongoing reform of the Interbank offered rates (“Ibor”) and other reference interest rates, issuing a package of amendments to IFRS standards. According to the IASB, the changes are aimed at helping companies provide investors with useful information about the effects of the reform on its financial statements.

 

The changes made by the IASB in 2020 complement those issued in 2019 and consider the effects, in the financial statements, when a company substitutes, as a result of the reform, the old reference interest rate with an alternative.

 

The adoption of this pronouncement is divided into 2 (two) phases:

 

Phase 1: the changes to this phase were issued in September 2019 and provided temporary exemptions from the application of specific hedge accounting requirements for relationships affected by uncertainties that arise as a result of the IBOR reform (exemptions from Phase 1). We assessed the amendments and did not identify any impacts; and

Phase 2: the changes to this phase were issued in August 2020 and can be summarized as follows: changes in contractual cash flows, hedge accounting requirements and disclosures, as further discussed in Note 3.3.1 to our financial statements for the year ended December 31, 2020.

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New standards, revisions and interpretations not yet in force

 

Interest Rate Reform – IAS 39 / IFRS 7 and IFRS 9 – Phase 2 (Applicable on / or after January 1, 2021, early adoption permitted)

 

The new and changed standards and interpretations have been issued, but are not yet in force. We intend to adopt these new standards, changes and interpretations, if applicable, when they come into force and we do not expect them to have a material impact on the financial statements.

 

(i)changes in contractual cash flows: Practical expedient that allows to replace, as a consequence of the reform, the effective interest rate of a financial asset or financial liability with a new economically equivalent rate, without derecognition of the contract;

 

(ii)hedge accounting requirements: End of exemptions for evaluating the effectiveness of hedge accounting relationships (Phase 1); and

 

(iii)disclosure: Requirements about the disclosure of risks to which the entity is exposed by the reform, risk management and evolution of the IBORs transition.

 

Accounting Judgments, Estimates and Assumptions

 

This section focuses on critical accounting estimates and assumptions where the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and the impact of the estimates and assumptions on our financial condition or operating performance.

 

Our management has used estimates, judgments and accounting assumptions regarding the future that affect the application of our accounting practices and the amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates.

 

See below information on judgments and assumptions used while applying accounting policies that have significant effects on the amounts recognized in our audited consolidated financial statements and which have significant risk of causing material adjustments:

 

(i)control, significant influence and consolidation (see note 1.1 to our audited consolidated financial statements);

 

(ii)share-based payment transactions (see note 22 to our audited consolidated financial statements);

 

(iii)transfer of control for revenue recognition (see note 28 to our audited consolidated financial statements);

 

(iv)fair value of financial instruments (see note 4 to our audited consolidated financial statements);

 

(v)annual analysis of the impairment of non-financial assets (see notes 15 and 16 to our audited consolidated financial statements);

 

(vi)expected credit losses (see note 7 to our audited consolidated financial statements);

 

(vii)net realizable value provision for inventories (see note 8 to our audited consolidated financial statements);

 

(viii)annual analysis of recoverability of taxes (see notes 9 and 12 to our audited consolidated financial statements);

 

(ix)fair value of biological assets (see note 13 to our audited consolidated financial statements);

 

(x)useful life of property, plant and equipment and intangible assets with defined useful life (see notes 15 and 16 to our audited consolidated financial statements);

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(xi)annual analysis of recoverable amount of goodwill (see note 16 to our audited consolidated financial statements);

 

(xii)provision for legal liabilities (see note 20 to our audited consolidated financial statements);

 

(xiii)pension and post-employment plans (see note 21 to our audited consolidated financial statements); and

 

For more information, see note 3 to our audited consolidated financial statements.

 

A.          Operating Results

 

Results of operations

 

The following discussion of our results of operations is based on our audited consolidated financial statements as of December 31, 2020 and 2019 and for the three years ended December 31, 2020. For a discussion of our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018, please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations— Year ended December 31, 2019 Compared to Year Ended December 31, 2018” of our annual report on Form 20-F for the year ended December 31, 2019.

 

References to increases or decreases in any year or period are made by comparison with the corresponding prior year or period, except as the context otherwise indicates.

 

       For the year ended December 31, 
   2020   2020   2019   2018 
   US$ (3)   (in thousands of R$), except per share data 
Net sales    5,861,465    30,460,277    26,012,950    13,443,376 
Cost of sales    (3,649,687)   (18,966,331)   (20,743,482)   (6,922,331)
Gross profit    2,211,778    11,493,946    5,269,468    6,521,045 
                     
Operating income (expenses)                    
Selling    (418,468)   (2,174,652)   (1,905,279)   (598,726)
General and administrative    (277,713)   (1,443,192)   (1,173,358)   (825,209)
Income from associates and joint ventures    6,955    36,142    31,993    7,576 
Other, net    102,209    531,150    405,754    (96,875)
Operating profit before net financial income (expenses)    1,624,761    8,443,394    2,628,578    5,007,811 
                     
Net financial income (expenses)                    
Financial expenses    (858,126)   (4,459,425)   (4,178,848)   (1,500,374)
Financial income    63,016    327,475    493,246    459,707 
Derivative financial instruments    (1,813,205)   (9,422,682)   (1,075,252)   (2,735,196)
Monetary and exchange variations, net    (2,411,317)   (12,530,891)   (1,964,927)   (1,066,650)
Net income (loss) before taxes    (3,394,872)   (17,642,129)   (4,097,203)   165,298 
                     
Income taxes                    
Current    (35,008)   (181,926)   (246,110)   (586,568)
Deferred    1,368,007    7,109,120    1,528,571    741,084 
Net income (loss) for the period    (2,061,873)   (10,714,935)   (2,814,742)   319,814 
                     
Result of the period attributed to the controlling shareholders    (2,063,777)   (10,724,828)   (2,817,518)   319,693 
Result of the period attributed to non-controlling shareholders    1,904    9,893    2,776    121 
Earnings (loss) per share                    
Basic (1)    (1.52961)   (7.94890)   (2.08825)   0.29236 
Diluted (2)    (1.52961)   (7.94890)   (2.08825)   0.29199 

 

 

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

(2)Diluted earnings per share is calculated based on the results attributable to the controlling shareholders divided by the weighted average number of outstanding common shares, subtracted from the potential dilutive effect generated by the conversion of all common shares. Due to the loss recorded in the period, we do not consider the dilution effect in the calculation

(3)In thousands of US$, except per share data. For convenience purposes only, amounts in reais in the year ended December 31, 2020 have been translated to U.S. dollars using a rate of R$5.1967 to US$1.00, the commercial selling rate for U.S. dollars at December 31, 2020 as reported by the Central Bank of Brazil. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate.

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Year ended December 31, 2020 compared to year ended December 31, 2019

 

Net sales revenue

 

Our net sales revenue increased 17.1%, or R$4,447.3 million, from R$26,013.0 million in the year ended December 31, 2019 to R$30,460.3 million in the corresponding period in 2020, mainly due to (i) depreciation of the average real against the U.S. dollar, and (ii) a 15.0% increase in pulp sales volume when compared to the volume in the year ended December 31, 2019, partially offset by a 19.1% decrease in pulp prices in U.S. dollars.

 

Our net sales revenue from pulp increased 21.6%, or R$4,550.6 million, from R$21,027.7 million in the year ended December 31, 2019 to R$25,578.3 million in the corresponding period in 2020, mainly due to (i) depreciation of the average real against the U.S. dollar, and (ii) a 15.0% increase in pulp sales volume when compared to the volume in the year ended December 31, 2019, partially offset by a 19.1% decrease in pulp prices in U.S. dollars. Our net sales revenue from pulp represented 80.8% of total net sales revenue in the year ended December 31, 2019, compared to 84.0% in the corresponding period in 2020.

 

Our net sales revenue from pulp exports increased 24.9%, or R$4,775.1 million in 2020, from R$19,193.8 million in the year ended December 31, 2019 to R$23,968.8 million in the corresponding period in 2020, mainly due to (i) depreciation of the average real against the U.S. dollar, and (ii) a 17.0% increase in pulp export sales volume when compared to the volume in the year ended December 31, 2019, partially offset by a 18.3% decrease in pulp export prices in U.S. dollars. Net revenues from pulp exports represented 78.7% of total net revenues in the year ended December 31, 2020 (42.4% from Asia, 21.0% from Europe, 14.3% from North America and 1.0% from South and Central America).

 

Our average international net sales price of pulp in the year ended December 31, 2020 decreased 18.3%, or US$104/ton, from US$567/ton in the year ended December 31, 2019 to US$463/ton in the corresponding period in 2020. In the domestic market, our average net pulp sales price decreased 7%, or R$161/ton, from R$2,207/ton in the year ended December 31, 2019 to R$2,046/ton in the corresponding period in 2020.

 

Our net sales revenue from paper decreased 2.1%, or R$103.2 million, from R$4,985.3 million in the year ended December 31, 2019 to R$4,882.0 million in the corresponding period in 2020. Net sales revenue from paper represented 19.2% of total net sales in the year ended December 31, 2019, compared to 16.0% in the corresponding period in 2020. The decrease in net sales revenue from paper in the year ended December 31, 2020 compared to the corresponding period in 2019 is due to lower sales volume. Net revenues from paper exports represented 5.0% of total net revenues in the year ended December 31, 2020 (2.4% from South and Central America, 0.9% from North America, 0.9% from Europe, 0.6% from Asia and 0.3% from Africa). Our net sales revenue from paper in the domestic market decreased 3.5%, or R$122.1 million, from R$3,480.3 million in the year ended December 31, 2019 to R$3,358.2 million in the corresponding period in 2020, impacted mainly by sales volume decrease.

 

The average international net paper sales price in 2020 decreased 16.7%, or US$158/ton, from US$946/ton in the year ended December 31, 2019 to US$788/ton in the corresponding period in 2020. In the domestic market, the average net paper sales price increased 3%, or R$110/ton, from R$4,078/ton in the year ended in December 31, 2019 to R$4,188/ton in the corresponding period in 2020.

 

Cost of sales

 

Our total cost of sales decreased 8.6%, or R$1,777.2 million, from R$20,743.5 million in the year ended December 31, 2019 to R$18,966.3 million in the corresponding period in 2020, mainly due to (i) decrease of R$2,534.6 million in variable cost, (ii) decrease of R$1,362.0 in depreciation, depletion and amortization, partially offset by the depreciation of the average real against the U.S. dollar and higher sales volumes. 

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Gross profit

 

Our gross profit increased 118.1%, or R$6,224.4 million, from R$5,269.5 million in the year ended December 31, 2019 to R$11,493.9 million in the corresponding period in 2020, due to the factors mentioned above. Our gross margin in the year ended December 31, 2019 was 20.3% compared to 37.7% in the corresponding period in 2020. This increase is mainly due to the depreciation of the average real against the U.S. dollar benefiting net revenues and the decrease in cost of sales as explained above.

 

Selling, general and administrative

 

Our selling expenses increased 14.1%, or R$269.4 million, from R$1,905.3 million in the year ended December 31, 2019 to R$2,174.7 million in the corresponding period in 2020. The main variation is due to (i) the impact of the depreciation of the average real against the U.S. dollar on logistics cost, and (ii) higher sales volumes in the year ended December 31, 2020 compared to the same period in 2019.

 

Our general and administrative expenses increased 23.0%, or R$269.8 million, from R$1,173.4 million in the year ended December 31, 2019 to R$1,443.2 million in the corresponding period in 2020. The variation is due to (i) an increase of R$219.8 million in personnel expenses, (ii) expenses of R$89.7 million related to the COVID-19 pandemic occurred in 2020, and (iii) an increase of R$52.1 million in depreciation, amortization and depletion in the year ended December 31, 2020 compared to the same period in 2019.

 

Other, net

 

Our other operating income (expenses), increased R$125.4 million, from a gain of R$405.8 million in the year ended December 31, 2019 to a gain of R$531.2 million in the corresponding period in 2020. The increase is mainly due to: (i) an increase in the amount of R$281.1 million in the result on fair value adjustment of biological assets, (ii) increase of R$120.4 million on the sale and disposal of property, plant and equipment and biological assets and, (iii) increase of R$41.6 million on the sale of other products.

 

Operating profit before net financial income (expenses)

 

Our operating profit before net financial income (expense) increased 221.2%, or R$5,814.8 million, from a profit of R$2,628.6 million in the year ended December 31, 2019 to a profit of R$8,443.4 million in the corresponding period in 2020, due to the facts mentioned above. Our operating margin in the year ended December 31, 2019 was 10.1% compared to 27.7% in the corresponding period in 2020. This increase is mainly due to the depreciation of the average real against the U.S. dollar benefiting net revenues and the decrease in cost of sales as explained above.

 

Net financial income (expenses)

 

Our net financial income (expenses) decreased 287.8% or R$19,359.7 million, from a loss of R$6,725.8 million for the year ended December 31, 2019 to a loss of R$26,085.5 million in the corresponding period in 2020. This decrease was largely due to (i) an increase in expenses (income) from monetary and exchange rate variation, net of R$10,566.0 million, and (ii) an increase in expenses (income) from derivative financial instruments of R$8,347.4 million in the year ended December 31, 2020 compared to the same period of 2019 as described in note 27 to our audited consolidated financial statements.

 

Net income (loss) before taxes

 

Our net income (loss) before taxes decreased 330.6% or R$13,544.9 million, from a loss of R$4,097.2 million in the year ended December 31, 2019 to a loss of R$17,642.1 million in the same period in 2020. This result was largely impacted by the factors mentioned above.

 

Income taxes

 

Our income taxes increased 440.1% or R$5,644.7 million, from an income tax gain of R$1,282.5 million in the year ended December 31, 2019 compared to an income tax gain of R$6,927.2 million during the corresponding period in 2020. This increase was largely due to the fact that in the year ended December 31, 2020 the effective rate of income and social contribution tax expenses was 39.3% compared to 31.3% in the same period of 2019. The increase in the effective rate of income and social contribution tax expenses is mainly due to the increase of the tax effect on permanent differences in the year ended December 31, 2020 compared to the corresponding period in 2019, as follows (i) a decrease of R$1,398.8 million on Taxation (difference) on profit of wholly-owned subsidiaries abroad; (ii) an increase of R$580.4 million on intercompany transaction (Thin Capitalization – for further details, please refer to Financial Statements – note 12.2), (iii) a decrease of R$72.9 million on the offset of income taxes abroad, (iv) a decrease of R$67.3 million related to merged subsidiaries. 

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Net income (loss) for the year

 

Our net income decreased 280.7% or R$7,900.2 million, from a loss of R$2,814.7 million in the year ended December 31, 2019 to a net loss of R$10,714.9 million during the corresponding period in 2020. This result was mainly due to the factors mentioned above. 

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B.          Liquidity and Capital Resources

 

Sources and Uses of Funds

 

Our cash flow from operating, investing and financing activities is affected by various factors. The key factors that affect our cash flow from operations are (i) the volume of product sold and the market price of pulp, (ii) the exchange rate between reais and U.S. dollars and (iii) the cost of our raw materials. Investing activities are mainly affected by (i) our capital expenditure program and (ii) our decision to divest some of our assets, such as fixed assets and biological assets. Finally, our cash flow from financing activities is directly related to the level of new debt we have incurred and on the repayment of existing debt.

 

In our opinion, we believe that our working capital is sufficient for our present requirements. Our primary sources of liquidity have historically been cash flows from operating and financing activities and short-term and long-term borrowings.

 

Our material cash requirements have historically included the following:

 

working capital;

debt service; and

capital expenditures.

 

Long-term borrowings have generally been used to finance our major capital expenditure projects and have historically been sourced principally by either export prepayment contracts under which we, or one of our wholly owned subsidiaries, borrow funds by offering the guarantee of export contracts, issuance of Agribusiness Receivables Certificates (“CRA”), or capital expenditures acquisition financing programs offered by BNDES. The scheduled maturities of these long-term loans have been structured to match the expected cash flow from the conclusion of the related capital expenditure projects and, as a result, reduce the risk of any significant deterioration of our liquidity position. We also rely on bonds or notes issued in the international markets either by wholly-owned subsidiaries, mainly domiciled in other countries.

 

As of December 31, 2020 and 2019, our cash and cash equivalents were R$6,835.1 million and R$3,249.1 million, respectively. Of our cash and cash equivalents and marketable securities held as of December 31, 2020, 5% was denominated in reais invested in both public and private financial investments. The remaining 95% of our cash, cash equivalents and marketable securities was denominated in U.S. dollars.

 

If necessary, we also have access to an RCF (Revolving Credit Facility) up to 2024 in the total amount of US$500 million. The RFC funds are available to the us at any moment upon a notice of borrowing 3 business day prior to the disbursement.

 

The fair value of derivative financial instruments represented a net liability balance of R$6,776.0 million as of December 31, 2020.

 

As of December 31, 2020, our balance sheet presented a positive working capital balance (current assets less current liabilities) of R$9,785.2 million compared to R$7,405.0 million on December 31, 2019. Our current assets as of December 31, 2020 were equivalent to 2.2 times our current liabilities.

 

For 2021, we have already announced to the market, as approved by our Board of Directors, the intention to invest R$4.9 billion as maintenance capex (for further information please see “─Capital Expenditures” below). This will primarily be financed by the cash and cash equivalents and cash generation for 2021.

 

For the year of 2021, we also believe that we will be able to access either capital or banking markets, if necessary.

 

With respect to long term capital needs, we use a model of ten years to monitor our needs in a series of scenarios and variables, including currency exchange rates and commodity prices, with the intention to preserve the liquidity and improve the capital structure. In this context, we work to anticipate exercises of liability management to improve liquidity or if conditions are favorable. 

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All of our future liquidity conditions rely on a series of scenarios and may be adversely affected depending on market and other conditions. Actual liquidity may differ significantly for several reasons, including, without limitation, the risks described in “Forward-Looking Statements” and Item 3. “Key Information – Risk Factors.”

 

Operating Activities

 

Our net cash provided by operating activities totaled R$13,124.6 million in the year ended December 31, 2020, compared to net cash provided in operating activities of R$7,576.4 million in the year ended December 31, 2019. This increase of R$5,548.2 million was primarily due to higher operating cash generation.

 

Investing Activities

 

Our net cash used in investing activities totaled R$736.4 million during the year ended December 31, 2020, compared to net cash used in investing activities of R$11,695.0 million in the year ended December 31, 2019. During the year ended December 31, 2020 investing activities for which our used cash primarily consisted of (i) R$1,503.3 million used in additions to property, plant and equipment and (ii) R$3,392.3 million used in additions to biological assets and (iii) cash provided by marketable securities net in the amount of R$3,841.5 million.

 

Financing Activities

 

Our financing activities used net cash of R$9,785.1 million during the year ended December 31, 2020 compared to net cash provide in financing activities of R$3,141.8 million in the year ended December 31, 2019. During the year ended December 31, 2020, our principal sources of financing were (i) R$14,761.8 million in loans and financing and debentures, which mainly consisted of R$6,640.3 in Senior Notes (bonds), R$4,899.1 million in export pre-payment transactions (EPP), R$2,638.2 million in revolving credit facility and R$531.7 million in contracts with BNDES (Brazilian National Bank of Social and Economic Development). During the year ended December 31, 2020, our principal uses of financing included (i) repayment of R$19,092.8 million of loans, financing and debentures, (ii) payment of R$4,465.6 million of derivative transactions.

 

Capital Expenditures

 

Our capital expenditures (capital expenditures incurred – cash basis) totaled R$4,897.9 million (without projects from ICMS credit ES) in the year ended December 31, 2020, R$4,868.4 million in the in the year ended December 31, 2019. In the year ended December 31, 2020, the amount of R$3,406.2 million was allocated to industrial and forestry maintenance. Investments in projects related to structural competitiveness and adjacent businesses projects amounted to R$727.8 million and were allocated mainly to the expansion in port logistics, expansion and modernizations projects. Other investments amounted to R$91.0 million.

 

The approved budget of our capital expenditures for 2021, amounting to R$4,935 million (without projects from ICMS credit ES), encompasses remaining investments in projects previously disclosed to the market, such as investment in port logistics assets and potential new investments in lands and forests that may increase our future competitiveness and maintain options for the future growth of our business. 

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Indebtedness

 

As of December 31, 2020, our total consolidated outstanding indebtedness (which includes current and non-current loans, financing and debentures) was R$72,899.9 million, of which R$2,043.4 million represented current indebtedness (R$2,035.8 million refers to loans and financing and R$7.6 million refers to debentures) and R$70,856.5 million represented non-current indebtedness (R$65,441.4 million refers to loans and financing and R$5,415.1 million refers to debentures). The description of our consolidated financings and loans is presented below: 

 

         

Current 

  

Non-current 

  

Total 

 

Type 

 

Interest
rate 

 

Average
annual
interest
rate - % 

  

December 31,
2020 

  

December 31,
2019 

  

December 31,
2020 

  

December 31,
2019 

  

December 31,
2020 (1) 

  

December 31,
2020 

  

December 31,
2019 

 
         

(in thousands of R$) 

  

(in thousands of R$) 

  

(in thousands of US$) 

  

(in thousands of R$) 

 
In foreign currency                                           
BNDES  UMBNDES   4.8    2,506    26,307    24,486    27,620    5,194    26,992    53,927 
Bonds  Fixed   5.3    779,046    640,177    37,232,554    27,375,673    7,314,565    38,011,600    28,015,850 
Export credits (Pre-payment / ACC)  Libor/Fixed   1.6    718,623    1,994,868    19,400,208    15,431,478    3,871,463    20,118,831    17,426,346 
Others           2,516    3,481              484    2,516    3,481 
            1,502,691    2,664,833    56,657,248    42,834,771    11,191,706    58,159,939    45,499,604 
In local currency                                           
BNDES  TJLP   6.8    276,441    283,658    1,254,222    1,517,649    294,545    1,530,663    1,801,307 
BNDES  TLP   10.0    25,535    18,404    522,367    441,233    105,433    547,902    459,637 
BNDES  Fixed   4.9    29,115    39,325    47,177    77,333    14,681    76,292    116,658 
BNDES  SELIC   5.5    98,531    78,458    1,068,959    718,017    224,660    1,167,490    796,475 
FINAME  Fixed             4,781         9,564              14,345 
BNB  Fixed             37,815         156,904              194,719 
CRA (“Agribusiness Receivables Certificates”)  CDI/IPCA   7.6    32,156    2,860,938    3,025,527    2,952,451    588,389    3,057,683    5,813,389 
Export credit note  CDI   5.5    15,184    131,914    1,275,045    1,270,065    248,279    1,290,229    1,401,979 
Rural producer certificate  CDI   7.8    2,738    5,840    273,578    273,303    53,171    276,316    279,143 
Export credits (“Pre-payment”)  Fixed   7.6    77,570    77,694    1,313,661    1,312,586    267,714    1,391,231    1,390,280 
FCO (“Central West Fund”), FDCO (“Central West Development Fund”) and FINEP  Fixed             76,596         475,905              552,501 
Others (revolving cost, working capital, FDI and fair value adjustment on business combination)  Fixed   0.4    (24,165)   (62,302)   3,651    4,559    (3,948)   (20,514)   (57,743)
Debentures  CDI        7,590    9,997    5,415,061    5,412,035    1,043,480    5,422,651    5,422,032 
            540,695    3,563,118    14,199,248    14,621,604    2,836,404    14,739,943    18,184,722 
            2,043,386    6,227,951    70,856,496    57,456,375    14,028,110    72,899,882    63,684,326 
Interest on financing           935,010    886,886         136,799              1,023,685 
Non-current funding           1,108,376    5,341,065    70,856,496    57,319,576    14,028,110    72,899,882    62,660,641 
            2,043,386    6,227,951    70,856,496    57,456,375    14,028,110    72,899,882    63,684,326 

 

 

Notes:

 

(1)   For convenience purposes only, amounts in reais for the year ended December 31, 2020 have been translated to U.S. dollars using a rate of R$5.1967 to US$1.00, the commercial selling rate for U.S. dollars at December 31, 2020 as reported by the Central Bank of Brazil. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate. 

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Debt

 

Our major categories of long-term indebtedness are described below. The total amounts given below include accrued interest.

 

Export financing lines in the total outstanding amount of US$4,387.5 million (equivalent to R$22,800.3 million as of December 31, 2020). This category includes export credits (syndicated and bilateral loans), export credit note and export credits (“Pre-payment”).

U.S. dollar-denominated fixed rate notes in the total outstanding amount of US$7,314.6 million (equivalent to R$38,011.6 million as of December 31, 2020). We have issued in public offerings several series of fixed-rate debt securities, through our subsidiaries, guaranteed by us.

Certificates of Agribusiness Receivables in the total outstanding amount of US$588.4 million (equivalent to R$3,057.7 million as of December 31, 2020).

Debentures in the total outstanding amount of US$ 1,043.5 million (equivalent to R$ 5,422.7 million as of December 31, 2020).

 

We have a variety of credit lines available, as of December 31, 2020, including two revolving credit facilities with national and international banks, which will mature in 2021 and 2024, respectively. The revolving credit lines allow more efficient cash management, consistent with our strategic focus on cost of capital reduction. As of December 31, 2020, we had no outstanding drawn amounts under these facilities, and the total amount available under these facilities was US$692.4 million (R$3,598.3 million). On April 2, 2020, in order to increase our cash position, we withdrew the amount of US$500.0 and repaid in August 20, 2020.

 

Export Prepayment Agreements (EPP)

 

On February 14, 2020, the Company, through its subsidiary Suzano Pulp and Paper Europe S.A., Suzano Austria GmbH and Fibria Overseas Finance Ltd., signed an export prepayment agreement in the amount of US$850.0 million (equivalent at the transaction date to R$3,672.2 million) maturing in February of 2026, with quarterly interest payments of 1.15% per year plus the quarterly LIBOR.

 

On December 17, 2020, the Company, through its subsidiary Suzano International Trade GmbH, signed a bilateral export prepayment agreement in the amount of US$100.0 million (equivalent on the transaction date to R$517.4 million) maturing in one year, with annual interest rate of 1.3825%.

 

On December 23, 2020, the Company, through its subsidiary Suzano Pulp and Paper Europe SA, signed a bilateral export prepayment agreement in the amount of US$140.0 million (equivalent on the transaction date to R$709.4 million) maturing in one year, with annual interest rate of 1.35%.

 

On February 10, 2021, the Company, through its subsidiary Suzano Pulp and Paper Europe SA, signed a sustainability-linked export prepayment agreement in the amount of US$1.570.0 million (equivalent on the transaction date to R$8,481.8 million) maturing in six years, with quarterly interest rate payment of Libor plus 1.15%, which may be subject to positive or negative adjustments ranging from -2bps/+2bps per year depending on our progress in achieving certain milestones towards satisfying key performance metrics (KPIs) related to our industrial water withdrawals and greenhouse gas emissions, as confirmed by an independent external verifier.

 

All of the operations above are fully guaranteed by Suzano S.A.

 

Revolving credit facility

 

On April 02, 2020, the Company, through its subsidiary Suzano Pulp and Paper Europe S.A., withdrew the amount of US$500.0 million (equivalent on the transaction date to R$2,638.2 million) from its credit limit (revolving credit facility) maintained with certain financial institutions, with quarterly payments of LIBOR plus 1.30%, maturing in February 2024. On August 20, 2020 the Company repaid the full amount and the credit returned to be fully available until final maturity. 

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Banco Nacional de Desenvolvimento Econômico e Social (BNDES)

 

On June 29, 2020, the Company signed with BNDES a financing agreement in the amount of R$400.0 million, indexed by Selic interest rate plus 1.96% per year, maturing in February 2040, following the strategy of reducing the average cost of debt.

 

On December 22, 2020, the Company signed with the BNDES a financing agreement in the amount of R$131.8 million, which R$100.0 million refers to a second disbursement from the financing agreement above and R$31.8 million indexed by the long-term interest rate (TLP) plus 1.77% per year, maturing in November 2034.

 

On February 9, 2021, the Company early settled a financing agreement with BNDES in the principal amount of R$1,453.8 million, with original maturity in May 2026 and monthly interest rate indexed by Selic interest rate plus 3% per year and the long-term interest rate (TJLP) plus 2% per year, with a transaction cost in the amount of R$30,000.

 

Sustainability-linked Notes 2031 (Senior Notes 2031)

 

On September 14, 2020, the Company, through its subsidiary Suzano Austria GmbH, issued a principal amount of US$750.0 million in 3.750% Senior Notes due 2031 (equivalent to R$3,973.8 million on the transaction date) with a coupon of 3.750%, with semi-annual interest payments, maturing in 2031.

 

On November 19, 2020, we issued additional 3.750% Senior Notes due 2031, in the principal amount of US$500.0 million (equivalent to R$2,666.5 million on the transaction date).

 

These notes are linked to our ability to achieve, by December 31, 2025, a specified target reduction of Greenhouse Gas Emissions, as confirmed by an independent external verifier, under our new Sustainability-Linked Securities Framework adopted in September 2020. If we do not satisfy the Sustainability Performance Target and provide confirmation thereof to the Trustee together with a related confirmation by the external verifier at least 30 days prior to July 16, 2026, the coupon rate on the bonds will automatically step up by 25 bps to 4.000% per annum.

 

Fundo de Desenvolvimento do Centro Oeste (FDCO)

 

On December 28, 2020, the Company prepaid the financing agreement signed with the FDCO in the amount total R$512.0 million, with original maturity date in December in 2027 and semi-annual interest payment of 8.00% per year. It follows the Company strategy to reduce the average cost of debt.

 

Prepayment of Export Prepayment Agreements (EPP)

 

On February 14, 2020, the Company, through its subsidiary Suzano Pulp and Paper Europe S.A., prepaid an export prepayment agreement in the amount of US$755.9 million (equivalent on the transaction date to R$3,240.2 million), with original maturity in February 2023 and quarterly interest payments of 1.15% per year plus quarterly LIBOR.

 

On December 07, 2020, the Company, through its subsidiary Suzano Pulp and Paper Europe S.A., partially prepaid the export prepayment agreement in the total amount of US$300.0 million (equivalent on the transaction date to R$1,355.4 million), with original maturity in December 2023 and quarterly interest payment of 1.15% per year plus quarterly LIBOR.

 

On March 8, 2021, the Company, through its subsidiary Suzano Pulp and Paper Europe S.A., prepaid a portion of the export prepayment agreement in the principal amount of US$1,666.8 million (equivalent on the transaction date to R$9,558.2 million), with original maturity in December 2023 and quarterly interest payments of 1.15% per year plus quarterly LIBOR.

 

Senior Notes Partial Repurchases (Notes 2024, 2025 and 2026)

 

The resources obtained with the September 2020 issuance of 2031 Senior Notes were used to repurchase part of the Senior Notes issued by Fibria Overseas Finance Ltd. and Suzano Austria GmbH in concurrent tender offers, as follows (i) US$247.2 million (equivalent on the transaction date to R$1,303.5 million) with the price of 110.8% over the emission value plus the proportional interest of the Senior Notes issued by Fibria Overseas with coupon of 5.25% per year and maturity in May 2024 (Notes 2024); (ii) US$260.3 million (equivalent on the transaction date to R$1,372.8 million) with the price of 106.6% over the emission value plus proportional interest of the Senior Notes issued by Fibria Overseas with coupon of 4.00% per year and maturity in January 2025 (Notes 2025); and (iii) US$183.4 million (equivalent on the transaction date to R$967.1 million) with the price of 115.2% over the emission value plus proportional interest of the Senior Notes issued by Suzano Austria, with coupon of 5 75% per year and maturing in July 2026 (Notes 2026). The tender offers settled on September 15, 2020. 

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Covenants

 

Currently, we have no financial covenants. On December 31, 2020, we were in compliance with all other no financial covenants, which are required under certain long-term borrowings. 

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C.           Research and development, patents and licenses, etc.

 

Research and Development

 

Our research, development and innovation (“R&D&I”) efforts are organized under a Chief Technology and Innovation Officer. This initiative aims to increase synergy between areas, accelerating innovation that generates gains throughout the entire value chain. The integration is extended to all of our industrial and forestry areas in close collaboration with production, marketing and sales personnel.

 

Our technology and innovation facilities are spread to meet the demands and particularities of all of our mills and forest units. The technology centers, where there are the main assets and laboratories, are located in:

 

Aracruz – state of Espírito Santo, Brazil – where efforts are towards the main business – pulp and forest development;

Itapetininga – state of São Paulo, Brazil – which concentrates biotechnology activities of Suzano and Futuragene;

Jacareí – state of São Paulo, Brazil – dedicated to work on activities related to our Eucalyptus Breeding Program;

Limeira – state of São Paulo, Brazil – focused on biorefinery and paper developments;

Burnaby – Canada – dedicated to biorefinery research; and

Rehovoth – Israel – where concentrates developments of Futuragene’s biotechnology.

 

In addition to the main technology centers, R&D&I is also present in all forest units: São Paulo, Mato Grosso do Sul, Espírito Santo, Bahia, and Maranhão. The efforts in R&D&I are conducted not only within our research facilities, but also in partnership with various universities, suppliers and private research institutes in Brazil and abroad.

 

By attempting to improve our processes to develop innovative and higher quality products in a sustainable way, our research and development activities are principally directed at increasing forestry productivity, reducing the operational costs and optimizing industrial processes, making our production more efficient and developing new products through (i) forest management with optimization of natural resources and costs; (ii) robust eucalyptus breeding program; (iii) improving the use of eucalyptus fiber in the manufacture of pulp, paper and paperboard; (iv) developing new applications for eucalyptus fiber including nanomaterials; and (v) developing a eucalyptus bio refinery to obtain renewable base chemicals.

 

With respect to forest technology and innovation, our efforts are targeted to eucalyptus breeding, biotechnology, forest management, soil nutrition and forest protection. Our goal is to continue improving our planted forest productivity and quality in a sustainable manner. With this purpose, our research group is selecting new eucalyptus clones based on growth, cellulose content and wood quality, making use of state of art techniques like genetic recombination through controlled pollination, use of genomic tools in the selection of new clones, extensive field evaluation (700 ongoing experiments) and laboratory analysis.

 

In 2020, our Forestry Breeding and Digital teams developed a system – called Tetrys – to help the silviculture team allocate the clones more precisely in available areas for planting.

 

Tetrys is an initiative to optimize MAIcel (adt/ha.year) in our plantation areas. Using the power of Machine Learning algorithms combined with Forest Inventory and Research data, this system defines the best clone(s) to be planted in a specific planting unit. The models used internally can therefore capitalize on the Genotypes by Environmental interaction. In addition, the system predicts the risk of productivity loss for each clone, considering both biotic and abiotic stress factors. Tetrys allowed the robust elaboration of plantation program for 2021, with more than 90 thousand hectares, and it helped the planning of our operational nurseries and the maximization of productivity.

 

Others important results are:

 

(i)Eucalyptus Breeding Population: we initiated the strategy defined last year. The parents of each population were selected and established. In several Forestry Units, we initiated the installation of experimental field trials with descendants from these populations, which will guarantee the generation of the clones for the next 10 years.

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(ii)Molecular Markers (MM): the use of MM was validated for important traits related to biotic and abiotic stresses in the Eucalyptus breeding program. More than 500 genetic materials were genotyped and associated with phenotype. As result, the data generated was used to validate the MM. Now, these MM are helping us screen our germplasm to assist the identification of potential individuals for cloning.

 

(iii)Clonal Nursery: a process for production of genetically certified seedlings, which is also free of pathogens, was implemented. In this process, our micropropagation laboratory is responsible for producing seedlings of operational clones, which are planted and propagated from safe sources of specific clones and then it is used to form the new operational mini gardens.

 

Biotechnology. We invest in innovation in biotechnology through our subsidiary FuturaGene, which aims at increasing the productivity of its eucalyptus plantations in a sustainable manner, increasing wood quality, insect and disease resistance and resilience. FuturaGene develops biotechnology solutions to improve plantation productivity by enhancing and protecting yield thus optimizing natural resource use efficiency. The aim of FuturaGene’s yield enhancement program is to produce wood using less land, therefore making land available for other uses such as for food production or biodiversity conservation. The yield protection program aims to lower chemical inputs and to enhance the resistance of trees to pests, diseases and the effects of climate change. The wood modification program also aims to produce feedstocks that reduce energy demand and lower chemical load in our mills.

 

FuturaGene’s first yield enhanced genetically modified eucalyptus variety that produces more wood when compared to conventional clones, approved for commercial use in Brazil in 2015. This variety has been crossed with leading eucalyptus parent varieties from our different operating forest geographies and the derivative varieties are being extensively tested in these different geographies, prior to commercialization. The potential future use of such high yield trees will form part of the solution to meet increasing global wood demand, which is expected to triple by 2050, whilst minimizing the need to irreversibly extract wood from natural forests, thus helping to mitigate the impact of forest destruction on climate change.

 

FuturaGene has made significant advances in its yield protection platform, which is focused on tackling threats to plant productivity, such as new pests and disease infestations that are increasing in amplitude as a result of climate change. FuturaGene’s program for developing herbicide resistance in trees, which will allow more efficient weed control with lowered chemical load and improved worker conditions, is in advanced regulatory field trials prior to submission of a dossier for commercial release. In developing these traits, FuturaGene utilizes a panoply of technologies including genetic modification, RNA interference (RNAi) and various state-of-the-art gene editing technologies, inter alia. These tools present a powerful armamentarium for selecting, identifying and modulating genes of interest.

 

In parallel, FuturaGene has been actively developing and enhancing its capabilities in bioinformatics and genomics. These tools both facilitate and guide FuturaGene’s work in biotechnology and are increasingly providing immediate assistance to our breeders for validating their genetic materials and guiding their breeding programs. The increased availability of genetic markers developed in these programs is expected to significantly reduce the development time for new conventional varieties for commercial deployment as well as to prevent the planting of new susceptible tree varieties, which can be pre-tested for disease and pest sensitivity. The first markers developed in this program are advancing to operational testing stage.

 

We remain open to share the technologies and tools developed by FuturaGene through business relationships or at no additional cost to its partner small growers in Brazil. In addition, FuturaGene has already provided technology on a royalty-free basis for the development of improved subsistence crops for food-insecure regions by academic partners.

 

Besides efforts in genetic field, we have sought innovations to ensure greater efficiency in forest management processes, aiming at greater productivity per planted area and cost reduction, while seeking to reduce the use of natural resources in this type of operation.

 

To achieve greater efficiency, in 2020 our entire forest base was reclassified based on environmental parameters and climate risk. Based on this new classification, it will be possible to generate management recommendations, clonal allocation and forest-based repositioning with important gains for productivity and optimization in the use of resources. 

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The topic of climate change is complex and strategic for us. Climate change is one of the main risks identified according to the Enterprise Risk Management methodology. From the point of view of forestry technology, after a comprehensive review of the theme, a technological roadmap will be prepared with actions to quantify the risk and impacts on forest productivity, with a focus on actions to form resilient forests and reposition the forest base.

 

In addition to the 2020 advances mentioned, four work fronts are particularly highlighted:

 

(i)Water resources – The risk of water availability is one of the highest priority issues for us. This is because, in addition to assuming a public goal related to the use of water, eucalyptus culture requires a series of precautions in the correct use of this resource. By 2030, we will manage 100% of the hydrographic basins considered critical in our studies, that is, those most demanded by us and also by our neighbors, which, therefore require greater attention. Currently, 40 hydrographic basins are classified as critical, in a total of 2006 basins with the presence of company plantations, that is, 2% of the total. We have the technology to make recommendations for reducing the use of water in critical areas and, mainly, to certify, based on remote sensing, the effectiveness of these recommendations in the regions where we are present;

 

(ii)Biological pest control – A pioneer in the use of biological control techniques, we are one of the companies that most invests in this subject. In 2020, we reached the production of 49 million natural pest enemies, which were released on 56,376 hectares, exceeding R$ 14 million in net avoided cost in the 2019/2020 biennium. In 2021 we will expand the biological control technique, through the installation of laboratories in Mato Grosso do Sul and Maranhão, in addition to those already existing in São Paulo and Espirito Santo;

 

(iii)The coppice (regrowth) management – It is the main alternative to reduce the costs of forest formation, but in order to generate productive forests, a lot of technology is needed in the entire process. In 2020, we consolidated the model for selecting areas with greater potential, based on technical premises; we designed the quality control of the forest in two phases; and we innovated with the anticipation of deforestation, which already produces in all units forests of higher quality and productive potential, in addition to providing fertilization recommendations for approximately 150 thousand hectares for all management regimes;

 

(iv)FenomicS Project – We introduced technologies for large-scale evaluation of our genetic materials, aiming to identify characteristics of resistance and tolerance to biotic and abiotic stresses. Fundamental to mitigate risks related to forest productivity, enhance the useful life of the recommended genetic materials and support the Suzano Genomics program.

 

Our R&D&I team continued the work towards the development of solutions that are innovative and sustainable – Innovability is the concept that guides our efforts to offer society new materials. 2020 challenged our team to deliver premium pulp in the challenging pandemic scenario. Meeting regulatory requirements, we developed pulp products to meet Chinese specification for the tissue market. We also offered the unbleached pulp, premium, that can be used in different paper grades. Also, on the product development, Suzano engaged in an effort to develop products for the packaging segment. The effort seeks to offer pulp to the packaging segment, developing new paper packaging, challenging the current furnishes and increasing the amount of eucalyptus in traditional packaging paper.

 

We have advanced in process optimization. We tested virtual sensors and develop machine learning models and entered the digital area in the production. In agreement with Suzano’s long term goals, we have mapped technologies of low and high technology readiness level (TRL) to repurpose industrial residues and reduce, therefore our residues disposal.

 

The year of 2020 marked the beginning of a new phase for the biorefinery. The partnership with Spinnova for textile production with MFC evolved, we are on the project phase of MFC pilot production specifically for this application that will start up in 2021. Other MFC applications like fiber cement and paper application were tested in industrial scale with results that shows we are on the right path. We also started the commissioning industrial phase and the commercial production of lignin in the end of 2020 at Limeira mill. Lignin is being currently used in wood board production in replacement of phenol-based resins and new applications were started in 2020 to increase the use of our bio based, renewable material in other value chains. Bio oil produced from our forests biomass initiative developed and we found higher added value fractions to be used besides biofuel. 

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The biggest challenge for the Paper, Consumer Goods and Fluff R&D team is to develop products capable to address the needs and most particular necessities of our customers, without forgetting to give proper attention to sustainability and all the legal requirements (national and international ones, depending on the product).

 

As a result, during 2020 the Paper R&D team launched 4 new products: Greenbag (paper for shopping bags), TPCycle (paperboard containing recycled fibers, post-consumption), Coated Blue Cup (paper for cups with waterproof coating) and the reshaped Blue Cup PE, offering to the market a product with better performance and more competitive costs (compared to the last version). We also made significant advances Flexible Packaging. In the search for sustainable solutions to replace plastic used in the cup and flexible packaging sector, we have been developing innovative solutions that are based on improving the physical-mechanical properties of the base paper and applying recyclable and biodegradable barriers on the surface of the paper. These barriers give to the paper properties of resistance to water, grease, water vapor, oxygen transmission and are also heat sealable. This replacement requires technical and economic challenges and for this reason, in 2020, several laboratory and industrial tests were carried out to approve a technology in different market players. Advances have been made, validating not only the performance and machinability of the products but also meeting the strict standards established by Organs regulatory agencies.

 

The Consumer Goods and Fluff R&D team also achieved important milestones during 2020. In this year the Consumer Goods innovation pipeline had focus on two strategic pillars: product competitiveness, bringing a higher differentiation for our tissue products on national market and allowing a better market positioning of our brand and an improved version of our kitchen towel. The second pillar is about portfolio expansion focusing on products where natural fibers are already used or can be introduced in the future.

 

The Fluff R&D 2020 pipeline had 2 important projects: Pulp Analysis, which focused on understand, among all the different Eucalyptus fibers that we produce in Brazilian territory, which one could bring the best quality for our fluff; and Process Modeling, focusing on a deep dive of our actual production process and understanding since the wood receiving until the final packaging, what are the main raw material and process variables that affect the fluff performance/quality. Both projects allowed R&D team to construct a solid know how about eucalyptus fluff, since the forest pool of genetic material until the product performance in our clients.

 

Intellectual Property

 

Suzano, Futuragene and Portocel currently have, in total, 400 granted patents and patent applications, 49 protected varieties of eucalyptus and more than 150 potential new eucalyptus varieties, which is under evaluation by Forestry Breeding Program.

 

Achievements during 2020 in the intellectual property field include filing of 11 new technologies were filed as patent and identification of 6 new variety of Eucalyptus for protection. The patents applications filed in 2020 is covering the following main topics:

 

process to produce microfibrillated cellulose and its uses in products compositions;

different methods to improve kraft process focused in pulp quality; and

use of lignin in plant nutrition.

 

Due to our investments in research and development activities, we are not dependent on any third party’s patent or trademark, license, royalty agreement, industrial agreement or new production process.

 

Trademarks

 

We have registered many of our trademarks, including, as the case may be, our multipurpose corporate trademark Suzano®, in countries across five continents, including, among others, the United States and Canada, countries of the European Union, and countries located in Latin America, Africa, Asia and Oceania.

 

In 2020, we requested the registration of the new corporate trademark in some strategic countries, 45 trademark renewals and received 23 approvals of different trademarks, including Blue Cup®, Blue Cup Bio®, Loop®, Ecolig®, Lignew®, Ligseal®, Ligflex®, Ligflow®, Ligsperse®, Paperfect®, TP White®, Report®, Report Multiuso®, Supremo Alta Alvura® and Suzano®, in countries across five continents. 

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D.          Trend Information

 

The primary trends which influence our sales and production and inventory levels are the patterns and cycles of pulp purchases by paper producers, pulp and paper prices, the level of pulp inventory in the hands of pulp producers in the global market, global economic conditions and the effect of currency fluctuations.

 

More recently, we have been subject to significant volatility in these trends due to the effects of the COVID-19 pandemic on global trade, foreign exchange and macroeconomic conditions. See “—Overview” for a discussion of the potential effects of the pandemic on our business. 

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E.          Off-Balance Sheet Arrangements

 

We participate in a number of off-balance sheet arrangements, mainly related to guarantees and take or pay contracts. We also have a number of swap transactions as described in “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” All of these transactions are further described elsewhere in this annual report. See notes 4 and 24 to our audited consolidated financial statements. 

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.          Directors and Senior Management

 

We are managed by our board of directors and by our executive officers. The address of our management is Avenida Brigadeiro Faria Lima, 1355, 7th Floor, São Paulo, State of São Paulo, Brazil.

 

Board of Directors

 

Our board of directors is the decision-making body responsible for determining general guidelines and policies for our business, including our overall long-term strategies, as well as the control and oversight of our performance. Our board of directors is also responsible for, among other things, supervising our executive officers’ actions. It holds meetings whenever called by its chairman, any of its vice-chairmen or our chief executive officer. Currently, our board of directors consists of ten members, seven of which are independent members. Under the provisions of the Novo Mercado, at least two or 20% of the members of our board of directors (whichever is the greater) must be independent directors, as defined under Brazilian law. The following table sets forth the name, age, position, date of election and term expiration of each of the members of our board of directors:

 

Name 

 

Age 

 

Position 

 

Date of Election 

 

Term of Expiration 

David Feffer   64   Chairman   May 22, 2020   May 22, 2022
Claudio Thomaz Lobo Sonder   79   Vice Chairman   May 22, 2020   May 22, 2022
Daniel Feffer   61   Vice Chairman   May 22, 2020   May 22, 2022
Nildemar Secches   72   Member   May 22, 2020   May 22, 2022
Rodrigo Kede de Freitas Lima   49   Member   May 22, 2020   May 22, 2022
Maria Priscila Rodini Vansetti Machado   62   Member   May 22, 2020   May 22, 2022
Ana Paula Pessoa   54   Member   May 22, 2020   May 22, 2022
Rodrigo Calvo Galindo   44   Member   May 22, 2020   May 22, 2022
Paulo Rogerio Caffarelli   55   Member   May 22, 2020   May 22, 2022
Hélio Lima Magalhães   69   Member   May 22, 2020   May 22, 2022

 

The following is a summary of the business experience of our current directors:

 

David Feffer. Mr. Feffer has served as chief executive officer of Suzano Holding S.A. since 2003, and currently serves as the chairman of our board of directors. In 2001, Mr. Feffer became a member of the board of directors and chief executive officer of Polpar S.A. and holds the following positions in other companies: (i) chief executive officer of IPLF Holding S.A. since 2004; and (ii) vice chief executive officer of Premesa S.A., a subsidiary company of Suzano Holding S.A., from 2001 to 2015 and chief executive officer of the company since April 2015. He is also a member of the following social and cultural organizations: chairman of the directors’ committee of the School ALEF Peretz, member of the decision making committee of the Israelita Albert Einstein Hospital (Associação Beneficiente Israelita Brasileira Hospital Albert Einstein); vice chairman of the directors’ committee and chairman of the senior board of Ecofuturo Institute – Future for Sustainable Development (Instituto Ecofuturo – Futuro para o Desenvolvimento Sustentável); and coordinator of the Nominating Committee of the executive board of the Arymax Foundation (Fundação Arymax). Mr. Feffer attended specialization courses at Harvard Business School, Columbia University, the Aspen Institute, Singularity University, Stanford University and IMD in Switzerland.

 

Claudio Thomaz Lobo Sonder. Mr. Sonder currently serves as vice chief executive officer since 2010 and chairman of the board of directors of Suzano Holding S.A. since 2018, member of the board of directors of the company since 2002, being its vice-chief since 2013. Since 2018, Mr. Sonder has also acted as the chairman of the board of directors and vice chief executive officer of IPLF Holding S.A. since 2010. From 2010 to May 2015, he was chief and in April 2015 he was appointed as vice chairman of the board of directors of Polpar S.A. Mr. Sonder also holds the following positions in other companies: (i) executive officer of Alden Desenvolvimento Imobiliário Ltda. since 2011; (ii) member of the directors’ committee and member of the senior board of Ecofuturo Institute – Future for Sustainable Development (Instituto Ecofuturo – Futuro para o Desenvolvimento Sustentável) since 2010; (iii) member of the board of directors of MDS, SGPS, S.A. since 2010 and its chairman of the board of directors since March 2018; (iv) executive officer of Premesa S.A. since April 2015; and (v) member of the board of curators since 2011 and member of the executive board of Fundação Arymax since 2013. Mr. Sonder is a former chairman of the board of directors and chief executive officer of Hoechst do Brasil Química e Farmacêutica S.A. (1983 1993). Mr. Sonder holds a degree in chemical engineering and economics from Mackenzie University and specializations obtained in Munich, Germany, and Boston, United States. 

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Daniel Feffer. Mr. Feffer currently serves as vice chairman of our board of directors and as a member of our sustainability and strategy committee. Mr. Feffer also holds the following positions in other companies: (i) chairman of the board of ICC Brasil; (ii) chairman of the board of curators of the Arymax Foundation (Fundação Arymax); (iii) chairman of the directors’ committee and vice chairman of the senior board of the Ecofuturo Institute – Future for Sustainable Development (Instituto Ecofuturo – Futuro para o Desenvolvimento Sustentável); (iv) member of the advisory board of IBÁ; (v) member of the board of IEDI – Instituto Econômico para Desenvolvimento Industrial; (vi) founding member of the board of Compromisso Todos Pela Educação; (vii) member of the strategy board of FIESP; (viii) member of the board of MBC – Movimento Brasil Competitivo; (ix) executive member of the board of ICC – Global; and (x) chairman of ITTI – Intelligent Tech & Trade Initiative. Mr. Feffer graduated from Mackenzie Law School and holds specializations from FGV in Brazil; Harvard University, and Massachusetts Institute of Technology (MIT) in the United States; IMD in Switzerland; and London Business School in England (LBS).

 

Nildemar Secches. Mr. Secches currently serves as a member of our board of directors and member of our sustainability and strategy committee since 2008. Mr. Secches also holds the following positions in other companies: (i) vice chairman of the board of directors of WEG S.A.; (ii) vice chairman of the board of directors of Iochpe Maxion S.A. since 1998; (iii) member of the board of directors of Ultrapar Participações S.A. since 2002; and (iv) vice-chief of the board of directors of Iochpe Maxion S.A. He served as a member of the board of directors of Itaú Unibanco between 2002 and 2017. From 1972 to 1990, Mr. Secches worked at BNDES, where he was a director from 1987 to 1990. From 1990 to 1994, Mr. Secches was the managing corporate officer of the Iochpe Maxion Industrial Holding Group and from 1995 to 2008 he was the president of Perdigão S.A., which specializes in the production of food. From 2007 to 2013, Mr. Secches was the chairman of the board of directors of BRFBRF - Brasil. He holds an undergraduate degree in mechanical engineering from the University of São Paulo, a graduate degree in finance from the Pontifical Catholic University of Rio de Janeiro and a doctoral degree in economy from UNICAMP (Campinas).

 

Rodrigo Kede de Freitas Lima. Mr. Kede currently serves as a member of our board of directors and audit committee. He is also the chief service officer of IBM in New York and a member of the advisory board of the FDC (Fundação Dom Cabral). Beginning in 1993, Mr. Kede has held the following positions during his time at IBM: (i) chief executive officer of IBM Latin America until 2017, (ii) chief executive officer of IBM Brasil until 2014, (iii) vice chief executive officer of IBM Service Unit – Brazil; global vice chief executive officer of strategy and processing of IBM Brasil; (iv) chief financial officer of IBM Latin America; and (v) chief financial officer for IBM Brasil. Mr. Kede has also served as chief executive officer and a member of the board of directors of TOTVS on 2015. Until 2017, he served as the chairman of the board of directors of the Brazilian Institute of Finance Executives (Instituto Brasileiro de Executivos Financeiros – IBEF) and AmCham (American Chamber of Commerce). Mr. Kede holds an undergraduate degree in mechanical and production engineering from the Pontifical Catholic University of Rio de Janeiro and an MBA from Instituto Brasileiro de Mercados de Capital, currently INSPER, and Harvard Business School.

 

Maria Priscila Rodini Vansetti Machado. Mrs. Vansetti currently serves as a member of our board of directors. In 2017, she was appointed global chief strategy and business development officer of Corteva Agrisciences, the agricultural division of DowDuPont. Mrs. Vansetti started at DuPont Brasil in 1981, beginning in the agricultural division and going on to hold leadership positions in the Regulatory, Institutional Relations and Research & Development areas. She transferred to Wilmington, Delaware in 1996, where she specialized in Development and Marketing, and in 2008 she was appointed business director of DuPont Canada. Mrs. Vansetti previously held the following positions: (i) global chief strategic planning officer of DuPont Crop Protection from September 2014 to September 2015; (ii) chief executive officer of DuPont Brasil; and (iii) vice chief executive officer of DuPont Crop Protection for DuPont Brazil and DuPont Latin America. Mrs. Vansetti currently serves as a member of the board of directors of the International Center in Indianapolis, Indiana, and of the Inter American Dialogue, in Washington, D.C. She has also been a member of the following social and cultural organizations: (i) member of the board of directors of AmCham (American Chamber of Commerce); (ii) member of the board of directors of the Brazilian Association of Chemical Industry (Associação Brasileira da Indústria Química – ABIQUIM); (iii) member of the agribusiness board of FIESP; and (iv) member of the board of directors of CropLife Canada. Mrs. Vansetti holds an undergraduate degree in agronomic engineering from Escola Superior de Agricultura “Luiz de Queiróz” of the University of São Paulo (ESALQ/USP) and a specialization in executive management and global strategy leadership from the Wharton School (University of Pennsylvania). 

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Ana Paula Pessoa. Ms. Pessoa currently serves as a member of our board of directors and audit committee. Ms. Pessoa is currently a partner, investor and board chairwoman at Kunumi AI, a leading artificial intelligence start-up in Brazil. She also holds the following positions in other companies: (i) independent board member and member of the audit committee of News Corporation, NY, since 2013, (ii) independent board member and member of the investment and corporate social responsibility committee of Vinci Group, Paris, since 2015, (iii) member of the innovation committee of Credit Suisse AG, Zurich, since 2018, (iv) board member of the board representing IFC at Aegea Saneamento, São Paulo, since 2018, (v) member of Global Advisory Council at Stanford University, California, since 2018, (vi) member of the consulting board of The Nature Conservancy Brazil since 2014, (vii) member of the audit committee for Fundação Roberto Marinho since 2007, and (viii) member of consulting board for Casa FIRJAN since 2018. Ms. Pessoa previously held the following positions: (a) CFO of the Rio 2016 Olympic and Paralympic Games from 2015 to 2017, (b) founder and managing director of Brunswick São Paulo from 2012 to 2015, (c) CFO of Infoglobo Comunicações from 2001 to 2011, and (d) several executive positions at the Globo Organizations since 1993. Additionally, Ms. Pessoa founded and was chair of Neemu Internet, which was sold in 2015 to Linx SA. Ms. Pessoa worked for the World Bank in D.C. and The United Nations Development Programme in New York and Benin, West Africa. Ms. Pessoa holds a bachelor in arts degree in economics and international relations with honors from Stanford University and master in arts degree in development economics also from Stanford University.

 

Rodrigo Calvo Galindo. Mr. Galindo currently serves as a member of our board of directors. Rodrigo Calvo Galindo has been the Chief Executive Officer of COGNA EDUCAÇÃO S.A. since 01.01.2011. He has been managing educational institutions for over 28 years. He was CEO of Kroton Educacional, Director of Operations and Director of College Education at Kroton Educacional, CEO of Grupo Educacional IUNI, Administrative Dean of the University of Cuiabá and responsible for the management, accreditation and implementation of college education institutions in Bahia, Mato Grosso, Amapá, Acre and Rondônia. Rodrigo Calvo Galindo is currently a member of the Board of Directors of Cogna, Burger King Brasil, Clínica SIM and Endeavor and was a member of the Board of Directors of Arezzo.

 

Paulo Rogerio Caffarelli. Mr. Caffarelli currently serves as a member of our board of directors. Graduated in Law at PUC / Curitiba, with specialization in Foreign Trade (FAE / CDE Curitiba) and Law in International Trade (IBEJ Curitiba), he has an MBA in Corporate Law and Finance (FGV / RJ) and a master's degree in Business Management and Economics ( University of Brasilia). Since 11/2018 he is President of Cielo SA Joined Banco do Brasil in 1995 becoming Vice President of Wholesale, International Business and Private Banking and Capital Markets (BB BI) from 2011 to 2014 and serving as President of 05 / 2016 to 10/2018. He was Executive Secretary at the Ministry of Finance from 02/2014 to 02/2015 and also worked at Companhia Siderúrgica Nacional as Executive Corporate Director. In the last 5 years, he served, for a certain period, on the Board of Directors of the following companies: Banco do Brasil S.A.; Brasilprev; Elo Participações S.A.; Banco Votorantim; CBSS Visavale (Alelo); Valley; Brasilcap Capitalização and Banco Votorantim; he was also a member of the Advisory Board of Febraban – Brazilian Federation of Banks. He is currently a member of the Board of Directors of Cateno Gestão de Contas S.A.

 

Hélio Lima Magalhães. Mr. Magalhães currently serves as a member of our board of directors. Graduated in Electrical Engineering and Computer Science from The George Washington University (Washington DC / USA) and post-graduated in Computer Science from the Pontifical Catholic University of Rio de Janeiro. He is currently Chairman of the Independent Board of Directors of Banco do Brasil SA, appointed by the Ministry of Economy since June 2019, member of the Independent Board of Directors of Eletropaulo Metropolitana Eletricidade de São Paulo SA and Companhia Melhoramentos de São Paulo, and member and ex-President (from 2012 to 2017) of the Board of Directors of the American Chamber of Commerce - AMCHAM Brasil (São Paulo). He served as President of Citibank Brasil (São Paulo) from 2012 to 2017. He was also (i) Member of the Board of Directors of Grupo Melhoramentos, (ii) member of the Board of Directors of IRB RE Brasil from 2017 to 2019, (iii ) Member of the Board of Directors of the Credit Guarantee Fund from 2018 to 2019, (iv) Member of the Board of Directors of the Brazilian Federation of Banks (FEBRABAN) from 2012 to 2017, (v) member of the Board of Directors and member of the Executive Committee of Brasil US Business Council (Washington / US) from 2012 to 2017; (vi) Chairman of the Board of Directors of Elavon do Brasil (Means of Payment Company) from 2014 to 2016. 

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Executive Officers

 

Our executive officers are responsible for executing general business and all related and necessary or advisable measures, except for those matters attributed to our shareholders’ meeting or our board of directors, pursuant to applicable law and/or our bylaws. Our executive officers consist of a chief executive officer and four to nine executive officers, each of whom must be a Brazilian resident, with recognized technical and administrative experience. Our executive officers are appointed by our board of directors for one-year term and are eligible for re-election. Currently, our board of executive officers consists of seven executive officers. The following table sets forth selected information regarding the current members of our board of executive officers:

 

Name 

 

Age 

 

Position 

 

Date of Election 

 

Term of Expiration 

Walter Schalka   60   Chief Executive Officer   February 10, 2021   February 10, 2022
Marcelo Feriozzi Bacci   51   Chief Financial Officer and Investor Relations and Legal Director   February 10, 2021   February 10, 2022
Aires Galhardo   43   Executive Officer – Pulp Operation   February 10, 2021   February 10, 2022
Carlos Aníbal Fernandes De Almeida Jr   51   Executive Officer – Forestry, Logistics and Procurement   February 10, 2021   February 10, 2022
Leonardo Barretto De Araujo Grimaldi   46   Executive Officer – Commercial Pulp, People & Management   February 10, 2021   February 10, 2022
Christian Orga Orglmeister   47   Executive Officer – New Businesses, Strategy, IT, Digital and Communication   February 10, 2021   February 10, 2022
Fernando de Lellis Garcia Bertolucci   55   Executive Officer – Research & Development   February 10, 2021   February 10, 2022

 

The following is a summary of the business experience of our current executive officers who are not members of the board of directors or related committees:

 

Walter Schalka. Mr. Schalka is an engineer and graduated from Instituto Tecnológico da Aeronáutica (ITA) and has a post graduate degree in administration from FGV, and executive programs at IMD and Harvard Business School. Mr. Schalka joined us in January 2013 and has served as our chief executive officer since then. Mr. Schalka started his career at Citibank. In 1989, Mr. Schalka joined Dixie-Toga, where he became CEO in 1991, participating in the company’s expansion, merger of Toga and Dixie-Lalek in 1995 and transfer of control. In 1997, Mr. Schalka became chairman of Dixie-Toga. In 2005, he joined Grupo Votorantim as president of Votorantim Cimentos, being responsible for their operations in Brazil and 14 other countries.

 

Marcelo Feriozzi Bacci. Mr. Bacci Holds a B.A. in Public Administration from the Getulio Vargas Foundation (FGV) and an MBA from Stanford University Graduate School of Business. Currently he is the Chief Financial and Investor Relations Officer of Suzano Pulp and Paper. He also serves as a member of the Board of Ibema Papelcartão and Veracel. At Suzano, he is responsible for the Treasury, M&A, Credit, Investor Relations, Controllership, Shared Services, Taxes, Planning, Risk Management and Compliance and Procurement departments. He began his career at Unibanco in 1991 and later served as executive officer at Promon, as chief financial officer at Louis Dreyfus Company and as Vice-CEO of Suzano Holding.

 

Carlos Anibal de Almeida Jr. Mr. Almeida currently serves as the executive officer responsible for our pulp commercial and logistics unit. Before Suzano, Mr. Almeida worked for General Electric, where he ultimately held the position of sales general manager for the Latin American division of GE Industrial Systems. Mr. Almeida holds an electrical engineering degree from the Federal University of Minas Gerais and a master’s degree in business administration from IBMEC (São Paulo).

 

Leonardo Barretto de Araujo Grimaldi. Mr. Grimaldi currently serves as the executive officer for our paper business unit. Mr. Grimaldi joined us in 2000, having occupied different positions in our Marketing and Commercial areas until he became commercial operating officer in 2011. He is responsible for our global paper sales and has led the Suzano Mais initiative. Mr. Grimaldi holds a degree in business administration from FGV and has attended graduate programs at the Wharton School of Business and the Singularity University in Silicon Valley. 

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Aires Galhardo. Mr. Galhardo currently serves as our executive officer for pulp industrial, energy and engineering unit. Mr. Galhardo worked for Fibria Celulose S.A. as their forest manager from 2011 to January 2019. From 2005 to 2011, he was the general manager of forest and manager of forestry logistics at Votorantim Celulose e Papel S.A. and from 2000 to 2005 he was the logistics manager of Companhia de Bebidas das Américas – Ambev.

 

Fernando de Lellis Garcia Bertolucci. Fernando Bertolucci is Chief Technology & Innovation Officer at Suzano, responsible for leading the technological innovation process across the company. He holds a bachelor’s degree in Agronomy Engineering and a master’s degree in Genetic Improvement of Plants from the Federal University of Lavras, Higher School of Agriculture (ESAL/UFLA), and has 31 years of experience in the forestry products industry. He is currently responsible for technological development in the areas of Genetic Improvement, Biotechnology, Forest Management, Process Development, Pulp and Paper Products, Consumer Goods and Biorefinery and Biomaterials. He has a graduate degree and has completed specialization programs in Forest Management (UFLA), Corporate Management (Dom Cabral Foundation), Product Development (University of Cambridge), Strategic Innovation (IMD, Switzerland) and Global Executive Academy (MIT, USA).

 

Christian Orglmeister. Mr. Orglmeister currently serves as our executive officer – people & management. Mr. Orglmeister is responsible for the human resources, communication, strategy, information technology and digital areas. He started his career at Armazéns Gerais Columbia and joined the international consulting Arthur D. Little later. From 2000 to 2002 he worked at the logistics start up Intecom, then joined the operations area of A.T.Kearney. In 2006 he joined The Boston Consulting Group leading people, organization and governance practices and the family business practices on South America. Mr. Orglmeister became the managing director of BCG offices in Brazil in 2015. Since 2016 he is an independent member of our personnel committee. Mr. Orglmeister holds a degree in engineering from FEI, has a post graduate degree from FGV and master’s degree from TRIUM (LSE, HEC, e NYU).

 

Fiscal Council

 

Our fiscal council is a non-permanent corporate body comprised of three members, with an equal number of alternates, in case our shareholders request it to be convened at the annual general shareholders’ meeting. Under our bylaws, the members of our fiscal council must sign, before taking office, a compliance statement in accordance with the Novo Mercado rules.

 

Pursuant to the Brazilian Corporation Law, our fiscal council is independent from our management and our external auditors. In case our fiscal council is installed, members of our fiscal council serve a one-year term that ends at the shareholders’ meeting the year following their election. The fiscal council is primarily responsible for reviewing management’s activities, our audited consolidated financial statements and for reporting its findings to our shareholders.

 

The following table sets forth the name, position, date of appointment and term expiration for each member of our fiscal council, which has been convened as requested in the annual general shareholders’ meeting held on May 22, 2020:

 

Name 

 

Age 

 

Position 

 

Date of Election 

 

Term of Expiration (1) 

Eraldo Soares Peçanha   69   Member   April 27, 2021   2022
Luiz Augusto Marques Paes   59   Member   April 27, 2021   2022
Rubens Barletta   74   Member   April 27, 2021   2022
Kurt Janos Toth   73   Alternate   April 27, 2021   2022
Roberto Figueiredo Mello   72   Alternate   April 27, 2021   2022
Luiz Gonzaga Ramos Schubert   84   Alternate   April 27, 2021   2022

 

 

(1)The term of the mandates of the members of our fiscal council shall terminate on the date of our annual general shareholders’ meeting in charge of evaluating our audited consolidated financial statements for the year ended December 31, 2021.

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The following is a summary of the business experience of the current members of our fiscal council:

 

Eraldo Soares Peçanha. Mr. Peçanha currently serves as a member of our fiscal council. Mr. Peçanha has previously held the following positions in other companies: (i) internal audit and controller manager of Aracruz Celulose S.A. (1974 to 1996); (ii) controlling company and computing director of CSN Cia. Siderúrgica Nacional (1996 2003); (iii) controlling officer and executive director of corporate governance of Embratel SA (2003 2008); and (iv) executive director of customer services of Icatu Seguros S.A. (2008 2011). He is permanent member at Cadam S.A. since January 2017 and was at Vale, Net Serviços de Comunicação, Ideiasnet and JBS (December 2016 to a September 2017) and is also an alternate member at CCR, Tupy e Ouro Fino Saúde Animal, Ferrovia Centro Atlântica, Itá Energética e Officer Distribuidora Prod. Tecnologia. Since November 2018 he is member of the executive board of My News Channel. Since 2012, he has been working as a consultant in the fields of corporate governance, controlling and processes and accounting and financial systems. Mr. Peçanha holds a degree in accounting and business administration from Cândido Mendes University.

 

Luiz Augusto Marques Paes. Mr. Paes has been a permanent member of our fiscal council since 1991. He is the managing partner of Paes e Colauto – Sociedade de Advogados, where he provides legal advice and tax and corporate consulting. Mr. Paes is also a permanent member of the fiscal council of JSL S.A., Movida Participações S.A. and Cyrela Brazil Realty S.A. Empreendimentos e Participações. Mr. Paes holds a law degree from the University of São Paulo.

 

Rubens Barletta. Mr. Barletta is a permanent member of our fiscal council. Mr. Barletta is also a permanent member of the fiscal councils of the following companies: (i) Banco Alfa de Investimento S.A.; and (ii) Alfa Holdings S.A. From 1999 to 2010 he served as a permanent member of the fiscal council of Financeira Alfa S.A. – Crédito, Financiamento e Investimentos. Mr. Barletta has been a partner at Barletta, Schubert e Luiz Sociedade de Advogados, a firm specializing in private law, since 2009. From 1961 to 2008 he was an employee, intern and then partner at Escritório de Advocacia Augusto Lima S.C. Mr. Barletta holds a law degree from São Bernardo do Campo Law School.

 

Kurt Janos Toth. Mr. Toth currently serves as an alternate member of our fiscal council. Mr. Toth previously enjoyed a long tenure at BNDES, having occupied the following positions: (i) economist in the Internal Control Department(2006-2008); (ii) chief of the Credit Department (1988-2006); (iii) chief of the Industrial Projects Department – Capital Assets and Traditional Industries (1984-1986); (iv) manager of the Industrial Projects Department – Capital Assets and Traditional Industries (1978-1984); (v) economist in the Industrial Projects Department – Capital Assets and Traditional Industries (1973-1978); and intern (1971-1973). Mr. Toth is a permanent member of the fiscal councils of Tupy S.A. since 2017 and Brasiliana Participações S.A. since 2018. He has served as member of the fiscal councils of the following companies: (a) Eletropaulo Metropolitana Eletricidade de São Paulo S.A. (2015 2017); (b): AES Tietê S.A. (2008-2015); (c) AES Elpa S.A. (2012-2014); (d) Eletropaulo Comunicações Ltda. (2010-2011); (e) AES Communications Rio de Janeiro S.A. (2010-2011); (f) Centrais Elétricas Brasileiras S.A. – ELETROBRÁS (2003-2006); and (g) Companhia Vale do Rio Doce (1993/1994). Mr. Toth holds a degree in economics from the Universidade Federal Fluminense and post graduate degree from Pontifícia Universidade Católica – Rio de Janeiro.

 

Roberto Figueiredo Mello. Mr. Mello currently serves as an alternate member of our fiscal council and has been a partner at Pacaembu Serviços e Participações Ltda. since 1988. Mr. Mello has been a member of the fiscal council of Barclay’s Bank (1995-2002), an officer of Vocal Comércio Veículos Ltda. (1989-1998) and an officer of SPP – Nemo S.A. Coml. Exportadora (1986-1998). Mr. Mello holds a degree in law from the University of São Paulo.

 

Luiz Gonzaga Ramos Schubert. Mr. Schubert currently serves as an alternate member of our fiscal council. He is also a permanent member of the fiscal council of Financeira Alfa S.A. – Crédito, Financiamento e Investimentos and an alternate member of the fiscal council of Consórcio Alfa de Administração S.A. From 1999 to 2010, he held the position of permanent member of the fiscal council of Bank Alfa de Investimento S.A. Mr. Schubert is a partner at Barleta e Schubert Sociedade de Advogados, a firm specializing in private law, since 2009. From 1972 to March 2009, Mr. Schubert participated as an intern and then a member of the Law Offices of Augusto Lima S.C. Mr. Schubert holds a law degree from São Bernardo do Campo Law School.

 

Audit Committee

 

In 2011, the CVM approved an Instruction (No. 509/2011) governing the comitê de auditoria estatutário (statutory audit committee), an audit committee established under the bylaws of the issuer and subject to certain requirements under the CVM rules. Effective January 2018, the B3 listing rules for its Novo Mercado segment require that a company listed on the Novo Mercado (such as ours) create and implement an audit committee in accordance with the CVM rules. The Novo Mercado segment of B3 is a premium listing segment for Brazilian companies that meet the highest standards of corporate governance. For further information on the Novo Mercado listing segment, see Item 9. “The Offer and Listing–Markets–São Paulo Stock Exchange Corporate Governance Standards.” 

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On April 1, 2019, our shareholders approved an amendment to our bylaws requiring us to establish a statutory audit committee in accordance with CVM Instruction No. 509/2011. Our statutory audit committee is an advisory committee of our board of directors, and provides assistance in matters involving our accounting, internal controls, financial reporting and compliance. Our statutory audit committee also recommends the appointment of our independent auditors to our board of directors and evaluates the effectiveness of our internal financial and legal compliance controls. According to CVM Instruction No. 509/2011, our statutory audit committee must have at least three members, and not more than five members, which must be independent in accordance with the independence requirements of the CVM and at least one of whom must have recognized experience in corporate accounting. Additionally, CVM Instruction No. 509/2011 and the B3 Novo Mercado listing rules both require that at least one member of the audit committee be a board member, but they permit the appointment of other members who are not members of the board of directors provided such other members meet the independence requirements of the CVM. Our bylaws expressly require that our statutory audit committee consist of one or more persons who are members of our board of directors and one or more persons who are not members of our board of directors.

 

Our statutory audit committee is not equivalent to or comparable with a U.S. audit committee. Pursuant to Exchange Act Rule 10A-3(c)(3), which provides for an exemption under the rules of the U.S. Securities and Exchange Commission, or SEC, regarding the audit committees of listed companies, a foreign private issuer is not required to have an audit committee equivalent to or comparable with a U.S. audit committee if the foreign private issuer has a body established and selected pursuant to home country legal or listing provisions expressly requiring or permitting such a body, and if the body meets the requirements that (i) it be separate from the full board, (ii) its members not be elected by management, (iii) no executive officer be a member of the body, and (iv) home country legal or listing provisions set forth standards for the independence of the members of the body. We believe that our statutory audit committee complies with these requirements, and we rely on the exemption provided by Rule 10A-3(c)(3) under the Exchange Act. The following table sets forth the name, position, date of appointment and term expiration for each of the members of our audit committee:

 

Name   Position   Date of
Election
  Term Expiration
Ana Paula Pessoa   Chairperson   April 29, 2019   2021
Carlos Biedermann   Financial Expert   April 29, 2019   2021
Marcelo Moses de Oliveira Lyrio   Member   April 29, 2019   2021
Rodrigo Kede de Freitas Lima   Member   April 29, 2019   2021

 

The following is a summary of the business experience of the current members of our audit committee who are not members of our board of directors:

 

Carlos Biedermann. Mr. Biedermann currently serves as a member of our audit committee. Mr. Biedermann holds a B.A. in Business Administration and a B.A. in Public Administration from the Federal University of Rio Grande do Sul (UFRGS) and a graduate degree in Capital Markets from the Getulio Vargas Foundation (FGV). Currently he is (i) a member of our audit committee; (ii) a member of the audit committee of the Algar Group, a Brazilian holding company whose core business is information technology and telecommunications, agribusiness, construction, services and tourism; (iii) coordinator of the audit committee of the Cornélio Brennand Group, which operates in the real estate development, energy, glass and cement industries; (iv) a member of the audit committee of Grupo Solar, a manufacturing branch of the Coca-Cola System in Brazil; (v) a member of the board of the American Chamber of Commerce (AmCham) of Rio Grande do Sul; of the Association of Marketing and Sales Executives of Brazil (ADVB), and of Agenda 2020; (vi) chairman of the deliberative board of Grêmio FBPA; (vii) a member of the Advisory Board of Lojas Lebes; (viii) a member of the Audit Committee of Moinho Paulista S.A.; and (ix) a member of the board of directors of Maiojama. Previously, Mr. Biedermann was (a) a lead partner of PricewaterhouseCoopers (PwC) from 2002 to 2015; (b) chairman of the audit committee for five years and vice-president from 2013 to 2014 of the Brazilian Corporate Governance Institute (IBGC), a non-profit organization that works to promote best corporate governance practices; (c) a member of the board of directors for six years and director for two years of the Young Presidents Organization (YPO/WPO), a global network of executive officers; (d) the first independent member of the board of directors of Calçados Azaleia, a Brazilian footwear company; (e) a member of the administrative board for 15 years of Santa Casa de Misericórdia de Porto Alegre, a group of seven hospitals of various specialties located in Porto Alegre, Rio Grande do Sul; (f) a member of the audit committee of BB Seguridade, a Brazilian insurer of Banco do Brasil engaged in insurance products, private pension plans, capitalization and brokerage services; (g) a member of the board of directors of Valmont, a company operating in the agribusiness sector; and (h) chairman of the board of Porto Alegre Health Care, a non-profit group composed of public and private players focused on promoting the city of Porto Alegre and medical tourism. 

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Marcelo Moses de Oliveira Lyrio. Mr. Lyrio currently serves as a member of our audit committee. He has served as the chairman of the board of directors of Braskem S.A since April 2018, and is a founding partner of Prêncipio Assessoria Empresarial. Mr. Lyrio was a partner and co-founder of Signatura Lazard and Managing Director (MD) for Lazard in Brazil from 2004 to 2016, during which he worked as an advisor to large Brazilian and foreign business groups in connection with their local and international investments. Prior to Lazard, he worked from 1990 to 2004 at ING Bank and ING Barings in several areas of the institution, including as President for ING Brazil from 2001 through 2004. Mr. Lyrio holds a degree in economic sciences from the Pontifical Catholic University - PUC of Rio de Janeiro.

 

As of April 23, 2021, the members of our audit committee, on an individual basis and as a group, directly owned less than 1.0% of our common shares.

 

B.          Compensation

 

Aggregate compensation for the members of our board of directors and our executive officers is determined annually at our shareholders’ meeting, in accordance with our bylaws. Our board of directors is responsible for the distribution of such amount between its members and the members of our board of executive officers. Our shareholders’ meeting held on April 18, 2019 approved the global compensation for the members of our board of directors, fiscal council and board of executive officers for the fiscal year of 2019 in the amount of up to R$150 million.

 

For the years ended December 31, 2020, 2019, and 2018, the aggregate compensation of all of our directors, officers and members of our fiscal council was R$133.7 million, R$93.2 million and R$119.2 million, respectively, which includes bonuses in the aggregate amount of R$10.7 million, R$6.7 million and R$33.0 million, respectively. In addition, for 2020, 2019 and 2018 we paid an aggregate of R$0.522 million, R$0.516 million and R$0.415 million into our pension plan on behalf of our directors.

 

Information on elements of compensation for the year ended December 31, 2020 is detailed in the table below (the percentages reflect the percentage of total remuneration represented by the category)

 

Elements of Remuneration  Board of Directors   Board of Executive
Officers
(Statutory)
   Fiscal Council 
Fixed Remuneration   83.0%   19.7%   83.3%
Benefits   0.2%   0.7%   0.0%
Social Contribution   16.8%   4.3%   16.7%
Variable Remuneration   0.0%   9.4%   0.0%
Long Term Incentive Plan   0.0%   65.9%   0.0%
TOTAL   100.0%   100.0%   100.0%

 

In addition to receiving a fixed salary, our entire board of executive officers participate in a profit- sharing program based on the achievement of certain personal and corporate goals. We also provide the following benefits, among others, to certain members of our board of directors and our entire board of executive officers: life insurance, health care plans, dental care, meal vouchers, transport, payroll loans and private pension plans. In addition to the benefits, we offer our management team long-term incentive programs. A quick overview of such programs follows below.

 

Phantom Shares Plan

 

Our phantom shares plan is settled in cash and based on the market price of our shares. We grant the phantom shares in addition to the salaries of beneficiaries. The phantom shares vest within three years of working at Suzano and, after such period they can be redeemed by the beneficiary at an exercise price corresponding to a given percentage over the average market price of our shares at closing in the 90 trading days prior to the exercise date. 

 80

 

Phantom shares are granted to the eligible beneficiaries in accordance with general conditions established in specific regulations managed by the (non-statutory) people committee, under the guidelines and conditions defined thereby. Every year, the people committee establishes the corporate performance indicators (condition for acquisition) which, if achieved, entitle beneficiaries to receive phantom shares.

 

Annually, if certain performance targets are met, our main executiv