Suzano S.A. — Form 20-F summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing. Financial statements are audited and prepared under IFRS, with amounts presented in Brazilian reais (R$). Unless stated otherwise, financial figures below are in R$ billions.
Business context
Suzano produces eucalyptus pulp and paper, with operations in Brazil and substantial exports. Its 2018 results are for Suzano before its acquisition of Fibria; Fibria’s assets, liabilities and results are not included in those historical financial statements. The merger closed on January 14, 2019, and Fibria merged into Suzano on April 1, 2019. The combined company reported installed eucalyptus pulp capacity of 10.9 million metric tons annually.
Key financial metrics
| Metric | 2018 | 2017 | Change / context |
|---|---|---|---|
| Net sales revenue | R$13.443bn | R$10.581bn | Up 27.1% |
| Gross profit / margin | R$6.521bn / 48.5% | R$4.084bn / 38.6% | Profit up 59.7%; margin expanded |
| Operating profit / margin | R$5.008bn / 37.3% | R$3.278bn / 31.0% | Profit up 52.7% |
| Net income | R$0.320bn | R$1.821bn | Down 82.4% |
| Adjusted EBITDA | R$6.818bn | R$4.635bn | Up about 47%; non-IFRS measure |
| Cash from operating activities | R$5.171bn | R$3.068bn | Up R$2.103bn |
| Cash used in investing activities | R$21.963bn | R$1.008bn | Primarily reflects R$19.340bn net increase in financial investments |
| Cash from financing activities | R$20.035bn | Cash used: R$2.612bn | Fundraising supported merger financing |
| Capital expenditures | R$2.424bn cash invested | R$1.780bn | Selected-data measure; incurred capex was reported as R$2.796bn in 2018 |
| Debt and liquidity | Debt R$35.738bn; cash and financial investments R$25.486bn | Debt R$12.192bn; cash and financial investments R$2.708bn | Year-end net debt R$10.251bn; current assets R$30.799bn versus current liabilities R$6.059bn |
Net income was pressured by net financial expenses of R$4.843bn, compared with R$1.019bn in 2017. Management attributed the deterioration principally to exchange and monetary variation losses and derivative losses. Adjusted EBITDA excludes a range of specified non-recurring and non-cash items; Suzano cautions that its calculation may not be comparable with similarly titled measures used by other companies.
Material changes versus 2017
- Revenue growth reflected higher pulp prices in U.S. dollars, a weaker real, and higher paper prices. Pulp revenue rose 26.9%; paper revenue rose 27.3%.
- Gross and operating margins improved, while cost of sales increased 6.6%. The reported market-pulp cash production cost rose to R$658 per ton including downtime, from R$626.
- Pulp sales volume fell 10.8% to 3.226 million tons, as Suzano rebuilt inventories and faced weaker Chinese market conditions in November and December. Paper sales volume rose 6.2% to 1.256 million tons.
- Financial investments at year-end rose sharply, alongside substantial new borrowing and issuance of R$4.681bn in debentures. Year-end net debt was R$10.251bn, versus R$9.484bn in 2017.
Outlook, commentary and risks
- Outlook and spending: No quantified earnings or price guidance is provided in the filing. Suzano indicated approximately R$2.4bn of 2019 capex. Disclosed logistics projects included estimated DP World Santos investments of about R$432m in 2019 and R$153m in 2020, with operations expected to begin in 2020.
- Merger: The company expects strategic scale and synergies, but warns that integration challenges, costs, employee retention and failure to realize expected benefits could adversely affect results. Its preliminary estimate of merger goodwill was R$7.897bn, subject to purchase-price allocation and future impairment testing.
- Leverage and liquidity: Suzano reported R$35.7bn of debt at year-end; Fibria separately reported R$20.7bn. These are pre-merger amounts, not a pro forma combined debt figure. The company cautions that the merger increases leverage and debt-service demands.
- Market and operating exposure: Pulp prices are cyclical and sensitive to global supply, demand and Chinese purchasing. Other risks include foreign-exchange and interest-rate movements, derivatives, logistics interruptions, wood supply, drought, fire, pests, environmental requirements and Brazilian political and economic conditions. A May 2018 truck-driver strike temporarily disrupted production.
- Legal and regulatory matters: Suzano reported R$351m of provisions for probable contingencies and R$1.206bn of unprovided claims assessed as reasonably possible. Tax incentives and tax-credit recoverability are subject to legal, regulatory and renewal risks. Fibria had separate litigation and contingent exposures; these are not included in Suzano’s historical balance sheet.
- Accounting and controls: Suzano estimated that adopting IFRS 16 in 2019 would add about R$1.113bn in right-of-use assets and lease liabilities. Management said disclosure controls were effective, but this report did not include management’s assessment or the auditor’s opinion on internal control over financial reporting.
Important facts for investors to verify
- Review post-merger filings for combined debt, liquidity, cash generation, covenant headroom, integration costs and realized synergies; do not treat the separate pre-merger debt figures as a combined pro forma balance.
- Check the final allocation and subsequent impairment testing of the preliminary R$7.897bn merger goodwill and acquired intangible assets.
- Reconcile cash capex with incurred capex and assess the timing, funding and returns of the disclosed logistics and expansion projects.
- Monitor pulp pricing and demand, particularly in China, alongside sales volumes, inventories and production costs.
- Track material legal and tax cases, tax incentive renewals, environmental permits, and the valuation and cash effects of derivative positions.