Suzano S.A. — FY 2019 Form 20-F
Reporting period: Year ended December 31, 2019; this is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS and audited by PwC, which issued an unqualified opinion. Suzano completed its combination with Fibria in January 2019 and consolidated Fibria from January 1, making 2019 results not directly comparable with 2018.
Financial and operating performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Net sales revenue | R$26.013 billion | R$13.443 billion |
| Gross profit / margin | R$5.269 billion / 20.3% | R$6.521 billion / 48.5% |
| Operating profit before net financial result / margin | R$2.629 billion / 10.1% | R$5.008 billion / 37.3% |
| Net income (loss) | (R$2.815 billion) | R$320 million |
| EBITDA / Adjusted EBITDA | R$8.473 billion / R$10.724 billion | R$6.571 billion / R$6.818 billion |
| Cash from operating activities | R$7.576 billion | R$5.169 billion |
| Cash used in investing activities | (R$11.695 billion) | (R$21.961 billion) |
| Cash from financing activities | R$3.142 billion | R$20.035 billion |
Revenue rose 93.5%, principally because Fibria was consolidated for the full year; the increase should not be read as organic growth. Lower international pulp prices weighed on results: management reported an average pulp selling price of about US$566 per ton, down 25% year over year, while pulp cash cost excluding downtime was R$663 per ton, up 7%. Paper revenue increased 7.0%; paper production declined 2.0% and sales volume was broadly flat.
The net loss reflected weaker pulp prices, acquisition-related fair-value amortization, higher costs and a R$6.726 billion net financial expense, including interest, currency movements and derivatives. The company reported R$2.247 billion of Fibria fair-value amortization as an Adjusted EBITDA adjustment. Adjusted EBITDA is a non-IFRS measure; the filing cautions that it may not be comparable with similarly named measures at other companies.
Operating cash flow increased with the Fibria consolidation. Investing cash outflow included R$26.003 billion for the acquisition, offset in part by cash proceeds from marketable securities. Cash investment additions to property, plant and equipment, intangible assets and biological assets totaled about R$4.868 billion; separately, the filing reports capital expenditures incurred of R$5.779 billion.
Debt, liquidity and balance sheet
- Consolidated loans, financing and debentures were R$63.684 billion at year-end, versus R$35.738 billion in 2018. Current debt was R$6.228 billion. The company also recognized R$3.984 billion in lease liabilities under IFRS 16.
- Cash and cash equivalents were R$3.249 billion and marketable securities were R$6.151 billion. Current assets exceeded current liabilities by R$7.405 billion; the current ratio was 1.65.
- Total assets were R$97.908 billion, total liabilities R$79.820 billion and equity R$18.088 billion. The filing does not provide a clear headline net-debt figure in the summarized data.
- Undiscounted future payments on loans, financing and debentures were R$89.708 billion, including interest and exchange-rate effects. The company said it had no financial covenants and was in compliance with other borrowing covenants at year-end.
Changes, outlook, risks and unusual items
- Combination and comparability: Fibria’s acquisition added substantial production capacity, assets, debt and operating results. Suzano reported 9.7 million tons of total pulp production and 10.9 million tons of installed eucalyptus-pulp capacity at year-end; reported market pulp production was 8.8 million tons.
- 2020 spending: Management expected R$4.4 billion of capital expenditures in 2020, including port-logistics investments and potential land and forest purchases. No formal earnings or price guidance is stated in the supplied filing text.
- COVID-19: As of the filing, management said operations had not been materially affected and described employee-safety and continuity measures, while warning that effects on operations, financial condition and cash flows remained uncertain. On March 30, 2020, Suzano requested a US$500 million draw under credit facilities to increase cash; disbursement was expected April 2.
- Subsequent financing: In February 2020, the company entered an US$850 million export prepayment agreement, prepaid US$750 million of another facility and announced redemption of US$189.6 million of 2021 notes, subject to a make-whole premium.
- Legal matters: The company recorded R$3.512 billion of provisions net of judicial deposits for probable legal losses. Possible-loss claims totaled approximately R$10.780 billion, including R$7.504 billion in tax matters and R$2.996 billion in civil matters; these possible-loss amounts were not provisioned.
- Acquisition accounting and estimates: The Fibria combination generated R$7.897 billion of goodwill and R$9.203 billion of acquired finite-life intangible assets at year-end. PwC identified valuation of the acquired customer portfolio and contingent liabilities, pulp goodwill impairment testing, biological-asset valuation and tax litigation provisions as critical audit matters. No impairment of pulp goodwill was reported for 2019.
- Market and operating risks: Results are exposed to cyclical pulp prices, global demand—particularly in China—foreign-exchange and interest-rate movements, high debt, wood supply and forest risks, water availability, logistics, environmental regulation, litigation and potential disruption from COVID-19. The company does not insure its planted forests against fire and other listed forest risks.
- Dividends: No dividend was declared for FY 2019; R$600 million was approved for FY 2018 and paid in 2019.
Most important facts for investors to verify
- Separate merger-driven revenue and EBITDA growth from underlying performance; compare against combined Suzano-Fibria historical results where available.
- Track pulp prices, sales volumes, cash cost per ton and inventory conditions, and assess the sensitivity of earnings to further price changes.
- Reconcile gross debt, lease obligations, cash and marketable securities with scheduled maturities, refinancing needs and currency exposure.
- Review the assumptions behind acquisition goodwill, acquired intangibles and biological-asset valuations, and monitor future impairment charges.
- Follow the outcome and potential cash impact of the disclosed probable and possible legal claims, tax credits and tax incentives.
- Confirm COVID-19 effects, liquidity-facility drawdown and actual 2020 capital spending against management’s stated plans.