EX-99.1 2 a19-4886_1ex99d1.htm EX-99.1

Exhibit 99.1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Suzano Papel e Celulose S.A. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers Auditores Independentes

São Paulo, Brazil

February 21, 2019

We have served as the Company’s auditor since 2017.

Suzano Papel e Celulose S.A.
Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

Consolidated Balance Sheets

		Note		12/31/2018		12/31/2017
						Revised
						(Note 2.4)
Current assets
Cash and cash equivalents		5		4,387,453		1,076,833
Financial Investments		6		21,098,565		1,631,505
Trade accounts receivable		7		2,537,058		2,297,763
Inventories		8		1,853,104		1,198,265
Recoverable taxes		9		296,832		300,988
Derivative financial instruments		4		352,454		77,090
Advances to suppliers		10		98,533		86,499
Other assets				169,175		119,610
Assets held for sale				5,718		11,535
Total current assets				30,798,892		6,800,088
Non-current assets
Recoverable taxes		9		231,498		283,757
Deferred taxes		12		8,998		2,606
Derivative financial instruments		4		141,480		56,820
Advances to suppliers		10		218,493		221,555
Judicial deposits		21.5		129,005		113,613
Receivables from land expropriation		17		63,652		60,975
Other assets				30,283		31,466
				823,409		770,792
Biological assets		13		4,935,905		4,548,897
Property, plant and equipment		15		17,020,259		16,211,228
Intangible assets		16		339,841		188,426
Investments		14		14,338		6,764
				22,310,343		20,955,315
Total non-current assets				23,133,752		21,726,107
Total assets				53,932,644		28,526,195

The accompanying notes are an integral part of the consolidated financial statements.

1

Suzano Papel e Celulose S.A.
Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

Consolidated Balance Sheets

		Note		12/31/2018		12/31/2017
						Revised
						(Note 2.4)
Current liabilities
Trade accounts payable		18		632,565		621,179
Loans and financing		19.1		3,425,399		2,115,067
Debentures		19.3		1,297		—
Derivative financial instruments		4		596,530		23,819
Taxes payable				243,835		125,847
Payroll and charges				234,192		196,467
Liabilities for assets acquisitions and subsidiaries		24		476,954		83,155
Dividends payable				5,434		180,550
Advance from customers				75,159		92,545
Other liabilities				367,313		280,437
Total current liabilities				6,058,678		3,719,066
Non-current liabilities
Loans and financing		19.1		27,648,657		10,076,789
Debentures		19.3		4,662,156		—
Derivative financial instruments		4		1,040,170		104,077
Liabilities for assets acquisitions and subsidiaries		24		515,558		502,831
Provision for contingencies		21		351,270		317,069
Employee benefits		22		430,427		351,263
Deferred taxes		12		1,038,133		1,787,413
Share-based compensation plans		23		124,318		38,320
Other liabilities				37,342		12,756
Total non-current liabilities				35,848,031		13,190,518
Total liabilities				41,906,709		16,909,584
Equity
Share Capital		25.1		6,241,753		6,241,753
Capital reserves				674,221		394,801
Treasury shares		25.3		(218,265	)	(241,088	)
Retained earnings				2,992,590		2,922,817
Other reserves		25.5		2,321,708		2,298,328
Non-controlling interest in subsidiaries’ equity		14.1		13,928		—
				12,025,935		11,616,611
Total equity and liabilities				53,932,644		28,526,195

The accompanying notes are an integral part of the consolidated financial statements.

2

Suzano Papel e Celulose S.A.
Consolidated Financial Statements
Year ended December 31, 2018
In thousands of Brazilian reais (R$), except earnings/(loss) per share

Consolidated Statements of income

		Note		12/31/2018		12/31/2017		12/31/2016
Net sales revenue		27		13,443,376		10,580,673		9,839,162
Cost of sales		29		(6,922,331	)	(6,496,304	)	(6,563,080	)
Gross profit				6,521,045		4,084,369		3,276,082
Operating income (expenses)
Selling expenses		29		(598,726	)	(423,325	)	(416,310	)
General and administrative expenses		29		(825,209	)	(528,974	)	(427,100	)
Equity in earnings of associates		14		7,576		5,872		(7,127	)
Other operating income (expenses), net		29		(96,875	)	140,510		(1,150,561	)
				(1,513,235	)	(805,917	)	(2,001,098	)
Operating profit before net financial income (expenses)				5,007,810		3,278,452		1,274,984
Net financial income (expenses)		26
Financial income				459,707		379,049		2,277,924
Financial expenses				(5,302,220	)	(1,397,889	)	(1,156,204	)
				(4,842,513	)	(1,018,840	)	1,121,720
Net income before taxes				165,297		2,259,612		2,396,704
Income taxes		12
Current				(586,568	)	(202,187	)	(188,817	)
Deferred				741,084		(236,431	)	(530,072	)
				154,516		(438,618	)	(718,889	)
Net income for the year				319,814		1,820,994		1,677,815
Result of the period attributed to the controlling shareholders				319,693		—		—
Result of the period attributed to non-controlling shareholders				121		—		—
Basic earnings per share
Common		25.6		0.29236		1.66760		1.53922
Diluted earnings per share
Common		25.6		0.29199		1.66552		1.53430

The accompanying notes are an integral part of the consolidated financial statements.

3

Suzano Papel e Celulose S.A.
Consolidated Financial Statements
Year ended December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

Consolidated Statements of Comprehensive income

		Note		12/31/2018		12/31/2017		12/31/2016
Net income for the year				319,814		1,820,994		1,677,815
Items that will not be reclassified to profit or loss
Actuarial gain (loss)		22		(69,305	)	4,173		(54,422	)
Deferred income taxes on actuarial gain (loss)				23,564		(1,419	)	18,503
Item that may be subsequently reclassified to profit or loss
Exchange variation on conversion of financial statements and on foreig investments		14		137,546		38,006		(45,720	)
Total comprehensive income				411,619		1,861,754		1,596,176
Result for the year attributed to the controlling shareholders				411,498		1,861,754		1,596,176
Result for the year attributed to non-controlling shareholders				121		—		—

The accompanying notes are an integral part of the consolidated financial statements.

4

Suzano Papel e Celulose S.A.
Consolidated Financial Statements
Years ended December 31, 2018, 2017 and 2016
In thousands of Brazilian reais R$, unless otherwise indicated

Consolidated Statements of Changes in Equity

						Capital reserves								Retained reserve
		Note		Share Capital		Tax incentives		Stock options granted		Share issuance costs		Treasury shares		Legal Reserve		Reserve for capital increase		Special statutory reserve		Dividends proposed		Other reserves		Retained earnings		Total		Non- controlling interest		Total equity
Balances on December 31, 2015				6,241,753		75,317		23,091		(15,442	)	(288,858	)	231,926		469,889		—		—		2,450,083		—		9,187,759		—		9,187,759
Total comprehensive income (loss)
Net income for the year				—		—		—		—		—		—		—		—		—		—		1,677,815		1,677,815		—		1,677,815
Actuarial loss net of deferred taxes				—		—		—		—		—		—		—		—		—		(35,919	)	—		(35,919	)	—		(35,919	)
Exchange variation on conversion of financial statements of foreign subsidiaries				—		—		—		—		—		—		—		—		—		(45,720	)	—		(45,720	)	—		(45,720	)
Equity transactions with shareholders:
Stock options granted				—		—		3,341		—		—		—		—		—		—		—		—		3,341		—		3,341
Sale of treasury shares to meet stock-based compensation plan				—		—		—		—		8,515		—		—		—		—		—		—		8,515		—		8,515
Dividends distributed				—		—		—		—		—		—		(300,000	)	—		—		—		—		(300,000	)	—		(300,000	)
Reversal of time-barred dividends				—		—		—		—		—		—		—		—		—		—		26		26		—		26
Allocation of profit for the year:
Partial realization of assets’ deemed cost adjustment, net of deferred taxes				—		—		—		—		—		—		—		—		—		(53,877	)	53,877		—		—		—
Reserve for tax incentives Sudene-reduction of 75%				—		124,085		—		—		—		—		—		—		—		—		(124,085	)	—		—		—
Transfer between reserves				—		—		—		—		—		84,600		1,036,985		115,220		—		—		(1,236,805	)	—		—		—
Issue of treasury shares to employees				—		—		(6,678	)	—		6,678		—		—		—		—		—		—		—		—		—
Minimum mandatory dividends				—		—		—		—		—		—		—		—		—		—		(370,828	)	(370,828	)	—		(370,828	)
Balances at December 31, 2016				6,241,753		199,402		19,754		(15,442	)	(273,665	)	316,526		1,206,874		115,220		—		2,314,567		—		10,124,989		—		10,124,989
Total comprehensive income (loss)
Net income for the year				—		—		—		—		—		—		—		—		—		—		1,820,994		1,820,994		—		1,820,994
Actuarial gain net of deferred taxes		22		—		—		—		—		—		—		—		—		—		2,754		—		2,754		—		2,754
Exchange variation on conversion of financial statements of foreign subsidiaries				—		—		—		—		—		—		—		—		—		38,006		—		38,006		—		38,006
Transactions with shareholders:
Stock option program		23		—		—		1,521		—		—		—		—		—		—		—		—		1,521		—		1,521
Sale of treasury shares to meet stock-based compensation plan				—		—		—		—		8,514		—		—		—		—		—		—		8,514		—		8,514
Treasury shares acquired				—		—		—		—		(82	)	—		—		—		—		—		—		(82	)	—		(82	)
Interest on own capital		25		—		—		—		—		—		—		—		—		—		—		(199,835	)	(199,835	)	—		(199,835	)
Reversal of time-barred dividends				—		—		—		—		—		—		—		—		—		—		29		29		—		29
Partial realization of assets’ deemed cost adjustment, net of deferred taxes				—		—		—		—		—		—		—		—		—		(56,999	)	56,999		—		—		—
Cancelation of treasury		25.3		—		—		—		—		17,107		—		—		—		—		—		(17,107	)	—		—		—
Reserve for tax incentives Sudene-reduction of 75%				—		196,604		—		—		—		—		—		—		—		—		(196,604	)	—		—		—
Transfer between reserves				—		—		—		—		—		90,372		1,074,444		119,380		—		—		(1,284,196	)	—		—		—
Issue of treasury shares to employees				—		—		(7,038	)	—		7,038		—		—		—		—		—		—		—		—		—
Minimum mandatory dividends		25.7		—		—		—		—		—		—		—		—		—		—		(180,280	)	(180,280	)	—		(180,280	)
Balances at December 31, 2017				6,241,753		396,006		14,237		(15,442	)	(241,088	)	406,898		2,281,318		234,600		—		2,298,328		—		11,616,611		—		11,616,611
Total comprehensive income (loss)
Net income (loss) for the year				—		—		—		—		—		—		—		—		—		—		319,693		319,693		121		319,814
Actuarial gain (loss) net of deferred taxes		22		—		—		—		—		—		—		—		—		—		(45,741	)	—		(45,741	)	—		(45,741	)
Exchange variation on conversion of financial statements of foreign subsidiaries				—		—		—		—		—		—		—		—		—		137,546		—		137,546		—		137,546
Transactions with shareholders:
Stock options granted		23		—		—		5,170		—		—		—		—		—		—		—		—		5,170		—		5,170
Sale of treasury shares to meet stock-based compensation plan				—		—		—		—		8,516		—		—		—		—		—		—		8,516		—		8,516
Non-controlling interest arising on business combination		14.1		—		—		—		—		—		—		—		—		—		—		—		—		13,807		13,807
Reversal of time-barred dividends				—		—		—		—		—		—		—		66		—		—		—		66		—		66
Internal changes in equity:
Partial realization of assets’ deemed cost adjustment, net of deferred taxes				—		—				—		—		—		—		—		—		(68,424	)	68,424		—		—		—
Exercise of share option				—		—		(14,307	)	—		14,307		—		—		—		—		—		—		—		—		—
Reserve for tax incentives Sudene-reduction of 75%				—		288,557		—		—		—		—		—		—		—		—		(288,557	)	—		—		—
Constitution of special statutory reserve				—		—		—		—		—		—		—		7,882		—		—		(7,882	)	—		—		—
Constitution of the legal reserve				—		—		—		—		—		15,917		—		—		—		—		(15,917	)	—		—		—
Constitution of a reserve for capital increase				—		—		—		—		—		—		70,940		—		—		—		(70,940	)	—		—		—
Complementary Dividends for the year 2017				—		—		—		—		—		—		(29,976	)	—		—		—		—		(29,976	)	—		(29,976	)
Proposed dividends from management				—		—		—		—		—		—		(596,534	)	—		596,534		—		—		—		—		—
Dividends subject to approval				—		—		—		—		—		—		—		—		—		—		—		—		—		—
Minimum mandatory dividends		25.7		—		—		—		—		—		—		—		—		—		—		(3,466	)	(3,466	)	—		(3,466	)
Unrealized net revenue of 2017				—		—		—		—		—		—		4,880		62		—		—		(1,355	)	3,588		—		3,590
Balances at December 31, 2018				6,241,753		684,563		5,100		(15,442	)	(218,265	)	422,815		1,730,629		242,612		596,534		2,321,708		—		12,012,007		13,928		12,025,935

The accompanying notes are an integral part of the consolidated financial statements.

5

Suzano Papel e Celulose S.A.
Consolidated Financial Statements
Years ended December 31
In thousands of Brazilian reais (R$)

Consolidated Statements of Cash Flows

		Note		12/31/2018		12/31/2017		12/31/2016
Cash and cash equivalents from operating activities
Net (loss) income for the year				319,814		1,820,994		1,677,815
Adjustment to
Depreciation, depletion and amortization				1,563,223		1,402,778		1,403,518
(Income) loss from sale of property, plant and equipment and biological assets		29		(4,523	)	(29,005	)	(9,767	)
Equity in (earnings) loss of unconsolidated companies		14		(7,576	)	(5,872	)	7,127
Exchange and monetary variations, net				1,446,207		2,273		(1,442,918	)
Interest expenses, net				789,670		877,313		1,000,287
Derivative (gains) losses, net		26		2,735,196		(73,271	)	(528,839	)
Fair value adjustment of biological assets		13		129,187		(192,504	)	780,666
Deferred taxes		12		(741,084	)	236,431		530,072
Interest on employee benefits		22		35,920		38,022		36,856
Provision for contingencies		21		13,285		35,645		20,498
Share-based compensation plans		23		131,609		33,715		2,808
Allowance for doubtful accounts, net		7		6,450		32,397		17,005
Reversal of/(addition to) provision for discounts				27,681		(9,497	)	(35,497	)
Provision for (reversal of) inventory losses and write-offs		8		(34,560	)	42,027		9,564
Write-off of tax credits		9		—		5,438		—
Provision for losses (impairment) and write-off with property, plant and equipment and biological assets		29		18,103		66,707		316,646
Partial write-off of intangible assets				—		18,845		78,799
Other provisions				75,791		36,049		135,949
Decrease (increase) in assets
Trade accounts receivables				(186,026	)	(726,808	)	212,908
Inventories				(612,687	)	100,119		(47,846	)
Recoverable taxes				50,960		8,702		(39,689	)
Other current and non-current assets				(11,318	)	415,345		(483,406	)
Increase (decrease) in liabilities
Trade accounts payables				1,473		63,236		(4,696	)
Other current and non-current liabilities				192,566		(230,200	)	1,204,144
Tax payable				567,868		864,315		—
Payment of interest				(806,758	)	(1,006,869	)	(1,102,090	)
Other taxes and contributions paid				(135,265	)	(598,617	)	(545,751	)
Income taxes paid				(327,282	)	(121,177	)	(90,532	)
Actuarial liabilities		22.3		(26,061	)	(21,595	)	(15,410	)
Contingencies		21.1		(41,013	)	(17,077	)	(12,682	)
Net cash provided by operating activities				5,170,850		3,067,859		3,075,539
Cash flows from investing activities
Additions to property, plant and equipment		15		(1,251,486	)	(859,880	)	(885,999	)
Additions to intangible assets				(7,217	)	(8,054	)	(11,640	)
Additions to biological assets		13		(1,164,995	)	(912,368	)	(1,426,699	)
Proceeds from sale of assets				95,481		84,694		35,235
Additions (reduction) in financial investments, net				(19,340,022	)	687,274		(1,053,381	)
Acquisition of subsidiaries, net cash		14.1		(294,473	)	—		—
Net cash used in investing activities				(21,962,712	)	(1,008,334	)	(3,342,484	)
Cash flow from financing activities
Proceeds from loans and financing		19.1		20,964,722		2,561,954		5,665,635
Issue of Debentures				4,681,100		—		—
Payment of derivative transactions		4		(1,586,415	)	39,695		117,261
Payment of loans and financings		19.1		(3,738,577	)	(4,533,736	)	(4,853,038	)
Payment of dividends				(210,205	)	(570,568	)	(299,926	)
Sale of treasury shares to meet stock-based compensation plan				8,514		8,514		8,514
Liabilities for assets acquisitions		24		(84,090	)	(117,865	)	(72,364	)
Repurchase of treasury shares				—		(83	)	—
Net cash (used in) provided by financing activities				20,035,049		(2,612,089	)	566,082
Exchange variation on cash and cash equivalents				67,433		14,700		(161,686	)
Increase (reduction) in cash and cash equivalents				3,310,620		(537,864	)	137,451
Cash and cash equivalents at the beginning for the year		5		1,076,833		1,614,697		1,477,246
Cash and cash equivalents at the end for the year		5		4,387,453		1,076,833		1,614,697
Statement of the increase (reduction) in cash and cash equivalents				3,310,620		(537,864	)	137,451

The accompanying notes are an integral part of the consolidated financial statements.

6

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

1. Company Operations

Suzano Papel e Celulose S.A., (hereinafter referred to as the “Suzano”) and together with its subsidiaries hereinafter referred to as “the Company”, is a publicly-held corporation with registered office in the city of Salvador, state of Bahia, Brazil.

Suzano owns shares traded in B3 S.A. - Brazil, Bolsa, Balcão, Novo Mercado segment under the acronym (SUZB3).

On December 10, 2018, Suzano began trading its American Depositary Receipts (“ADRs”), Level II, pursuant to a program approved by the Brazilian Securities and Exchange Commission (“CVM”).

The Bank of New York Mellon is the depositary institution in the United States of America, responsible for issuing the respective depositary shares, at the rate of 1 (one) American Depositary Share (“ADSs”) for each 2 (two) common share and shall operate as a transfer agent.

Suzano ADRs are traded on the New York Stock Exchange (“NYSE”) under the symbol SUZ, CUSIP 86959K105 and ISIN BRSUZBACNOR0 (DR ISIN: US86959K1051).

The Company has 7 (seven) industrial units in the following States of Brazil: 1 (one) in Bahia, 1 (one) in Maranhão, 1 (one) in Ceará, 1 (one) in Pará and 3 (three) in São Paulo.

These units produce hardwood pulp from eucalyptus, paper (coated paper, paperboard, uncoated paper and cut size paper) and jumbo rolls of sanitary paper (consumer goods - tissue) to serve the domestic and foreign markets.

Pulp and paper are sold in the foreign market directly by Suzano, as well as through its subsidiaries in Argentina, the United States and Switzerland and its sales offices in China and England.

The Company’s corporate purpose also includes the commercial operation of eucalyptus forest for its own use and for sale to third parties, the operation of port terminals, and the holding of interest, as partner or shareholder, in any other company or project, and the generation and sale of electricity.

1.1.         Major events in 2018

a) Operational events

i)         Export prepayment financial transaction

On December 4, 2018, the Company contracted, through its wholly-owned subsidiary Suzano Pulp and Paper Europe SA (“Suzano Europa”), an export prepayment line, structured in a syndicated form, in the amount of US$ 2,3 billion (equivalent to R$ 8,8 billion) and with a total term of 5 and 4 years grace period and London Interbank Offered Rate (“LIBOR”) + 1.15%. Suzano was the guarantor of the transaction. The new operation does not have financial covenants.

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Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

ii)            Senior Notes Offer (“Notes 2047”)

On November 6, 2018, the Company reopened the issuance of “Senior Notes 2047” and issued on the foreign market, in the amount of US$ 500 million (equivalent to R$ 1,9 billion), with maturing in 29 years and were issued with coupon (interest) of 6.9% per year, which will be paid semi-annually.

iii)           Senior Notes Offer (“Notes 2029”)

On September 17, 2018, the Company issued in the foreign market, through its wholly-owned subsidiary Suzano Austria GmbH (“Suzano Austria”), Senior Notes in the amount of US$ 1 billion (equivalent to R$ 4.7 billion). The Notes mature in 11 years and were issued with a coupon (interest) of 6% per annum, which will be paid semi-annually.

iv)           Resources obtained

On August 27, 2018, the Company capitalized funds of the Export Credit Note (“NCE”) and the Rural Productive Credit (“CPR”) in the amount of R$ 511,000 and R$ 275,000, respectively, maturing in August 2026 and interest rate of 1.03% per annum plus Interbank Deposit Certificate (“CDI”), payable semi-annually.

The net proceeds of NCE will be fully used to finance the Company’s exports and in the case of CPR to finance costing activities. For any amount that is the object of this fund-raising, the Company contracted the corresponding hedge to the exchange rate with a cost of 5.60% of the dollar pre-fixed per year plus exchange variation.

On July 31, 2018, the Company obtained funds in the form of an Export Credit Note in the amount of R$ 770,600, maturing in July 2026 with an interest rate of 0.99% per annum plus CDI, which will be paid semi-annually.

The net proceeds will be fully used to finance the Company’s exports. For all of the volume object of this fund-raising, the Company contracted the respective hedge to the exchange rate with a cost of 5.71% of the dollar pre-fixed per year plus exchange variation.

v)            Auction of the Port of Itaqui in Maranhão - (MA)

On July 27, 2018, the Company participated in the public auction, promoted by National Agency for Waterway Transportation (“ANTAQ”), a regulatory agency, to lease public areas and infrastructure for handling and storage of general paper and pulp. The Company presented the winning proposal for the initial concession of the 53,545 square meters area in the Port of Itaqui (MA) for the period of 25 years.

8

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

The new terminal project, estimated by ANTAQ at R$ 215 million, represents another step in the investment cycle carried out by the Company.

vi)           Debentures - 6th issue

On June 29, 2018, the Suzano issued R$ 4,681,100 in 6th issue, single series, non-convertible debentures maturing in June 2026 with interest rate of 112.50% of CDI.

For this debenture issue, the Company contracted the respective hedge at the exchange rate of 5.74% of the dollar pre-fixed per annum.

vii)          Acquisition of land and forests in the State of São Paulo

On February 5, 2018, Suzano entered into an Agreement for the Purchase of Forestry Assets, Purchase of Rural Properties, Purchase Option and Other Covenants, with Conditions Precedent, with Duratex S.A. (“Duratex”), through itself and its affiliates.

On April 4, 2018, the Administrative Council of Economic Defense (“CADE”) approved this transaction without restrictions. On August 31, the transaction was completed, and the assets acquired were:

(i) Around 9,500 (nine thousand and five hundred) hectares of rural land and one million and 1,200,000 m³ (two hundred thousand cubic meters) of forests, which reflects the potential of production of existing and already implemented forests in the areas acquired, for R$ 308.100 million; and

(ii) Option to purchase, exercised on July 2, 2018, for the acquisition approximately 20,000 twenty thousand hectares of rural properties in the same region and 5,600,000 m³ (five million and six hundred thousand) cubic meters of forests, which reflects the potential of production of existing and already implanted forests, for the price of R$ 749.3 million.

The amount of R$ 532,450 was paid on the respective closing dates and the remaining balance adjusted by the Extended Consumer Price Index (“IPCA”), with maturities of up to 12 months (Note 24).

viii)         Export prepayment facility

On February 8, 2018, the Company contracted, through its wholly-owned subsidiary Suzano Europa, an export prepayment transaction, structured in a syndicated form, in the amount of US $ 750 million, with a total term of 5 years and a 3-year grace period, and the London Interbank Offered Rate (LIBOR) + 1.35%, with Suzano and Suzano Trading Ltd (“Suzano Trading”), also a Suzano subsidiary, as guarantee the operation.

The proceeds were used for the settlement of the export prepayment financial transaction, as well as for the financing of export operations. The new operation brings the cost reduction in

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Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

dollars, lengthening the average term of the debt, and eliminating financial covenants. The operation reduces borrowing cost in U.S. dollar, extending the average debt term and eliminates financial covenants.

b) Corporate events

i) Operation with Fibria Celulose S.A. (“Fibria”)

On March 15, 2018, Suzano Holding S.A., jointly with other controlling shareholders of Suzano (collectively, the “Controlling Shareholders of the Company”), entered into with the controlling Shareholders of Fibria Celulose S.A. (“Fibria” and, jointly with Suzano, the “Companies”), Votorantim S.A. and BNDES Participações S.A. — (“BNDESPAR”) (collectively the “Controlling Shareholders of Fibria”), with Suzano as intervening consenting party, a Commitment to Vote and Assumption of Obligations, whereby the Controlling Shareholders of the Company and the Controlling Shareholders of Fibria agreed to exercise their voting rights to combine the operations and shareholding base of the Suzano and of Fibria, through corporate restructuring.

A corporate restructuring was submitted and approved to the shareholders of the Companies, which will result in the following:

(a)  the ownership, by Suzano, of all the shares issued by Fibria; and

(b) in the receipt by the shareholders of Fibria, for each common share issued by Fibria, of:

(i)      R$ 52.50 (fifty-two reais and fifty centavos), restated at the variation of the CDI rate from March 15, 2018 until to the effective payment date, adjusted for anticipated dividends 2018, liquidity a single installment on the date of consummation of the transaction; and

(ii)     0.4611 common shares of Suzano, to be delivered on the date of consummation of the operation.

Shareholders of Fibria holding American Depositary Shares (“ADSs”) will be entitled to receive Suzano ADSs, observing the same exchange ratio.

The shares and ADRs issued by Fibria will no longer be traded on B3 S.A. and the NYSE, respectively.

The consummation of the transaction for the fulfillment of some usual precedent conditions for this type of operation, including the approval by certain competition authorities in Brazil and abroad. The authorizations and approvals were obtained as follows:

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Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

i.        On June 1, 2018, The Federal Trade Commission, a competitive authority in the United States of America, granted early conclusion of the transaction analysis between Suzano and Fibria without restrictions.

ii.       On July 26, 2018, Suzano’s Board of Directors and Fiscal Council approved, among other matters, the conclusion of the Protocol and Justification between Suzano, Fibria Celulose SA and Eucalipto Holding SA, which establishes the terms and conditions of the corporate reorganization that allows the combination of the operations and shareholding bases of Suzano and Fibria.

iii.      On August 8, 2018, the Declaration of Efficiency was issued by the SEC of the United States of America for the registration statement filed by Suzano with the SEC to register their ADRs on the NYSE;

iv.     On August 31, 2018, the State of Administration for Market Regulation (“SAMR”), authority responsible for competition matters in China, approved the operation between Suzano and Fibria without restrictions in China.

v.      On September 6, 2018, the competition authority in Turkey approved the operation between Suzano and Fibria without restrictions.

vi.     On September 13, 2018, at Extraordinary General Meeting (“AGE”), all matters related to the corporate reorganization were approved with a view to combining the operations and shareholder base of the Companies.

vii.    On October 11, 2018, the Company received the notification from Administrative Council for Economic Defense (“CADE”), the Brazilian competition authority, approving without restrictions the transaction involving Suzano and Fibria.

viii.   On November 14, 2018, a decision was issued by the National Water Transportation Agency (“ANTAQ”), which, approved the alteration of the corporate control of Fibria its subsidiaries to the Company.

ix.     On November 29, 2018, the European competition authority, approved the operation between Suzano and Fibria subject to the early termination of the contract for the supply of short-fiber pulp between Fibria and Klabin SA (“Klabin”), within four months after the date of completion of the transaction.

With all previous conditions met, the 45-day deadline for consummation of the transaction was started, when the corporate reorganization was carried out, which includes the following steps:

a) Capital contribution by Suzano in Eucalipto Holding S.A. (“Holding”) in an amount equivalent to the cash portion to be used for settlement of the Cash Portion in favor of Fibria Shareholders;

b) Contribution of the Fibria investment by the Shareholders Fibria in the Holding for the amount restated as established in the Shareholders’ Agreement, upon the issuance by the Holding of new Common Shares - ON and Redeemable Preferred — PN.

c) Redemption of the PN shares by the Holding to the Shareholders of Fibria through payment of the cash installment; and

d) Merger of the Holding by Suzano, with the issuance and delivery of new common shares - Suzano’s ON shares to Fibria’s Shareholders, replacing the Holding’s ON shares held by them.

The transaction was completed on January 14, 2019 as disclosed in Note 32 i).

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Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

ii)        Acquisition of company in Tissue segment (Facepa)

On January 19, 2018, Brazil’s antitrust agency CADE approved without restrictions the acquisition of around 92.8% of the total capital of the mill of Facepa — Fábrica de Papel da Amazônia (“Facepa”) by Suzano.

On March 1, 2018, once the above conditions and all the approvals obtained from the relevant governmental authorities were implemented, Suzano acquired 100% of the control of Comércio, Administração e Participações Ltda. (“AGFA”), whose main asset is the 28.8% stake in Facepa, and directly acquired the 64% stake in Facepa’s controlling Shareholders, totaling a 92.8% interest in the share capital.

The total consideration of the transaction was R$ 307,876, being paid at the acquisition date amounted to R$ 267,876 and remaining R$ 40,000 is subject to non-realization of compensable losses by sellers and will be paid in two installments of R$ 20,000, in accordance with the agreement, with maturities in March 2023 and March 2028.

With the acquisition, in addition to Facepa’s units in Belém (PA) and Fortaleza (CE) of tissue, the Company already operates its own sanitary paper units in Mucuri (BA) and Imperatriz (MA). (Note 14.1)

iii)       Acquisition of company in the energy segment (PCH Mucuri)

On February 19, 2018, after the fulfillment of all the conditions precedent and after approval was obtained from competent Government Authorities, the operation for the acquisition of all the shares issued by Mucuri Energética S.A. (“PCH Mucuri”) was concluded. PCH Mucuri owns a small hydroelectric plant located in the Cities of Carlos Chagas and Pavão in the State of Minas Gerais. The amount paid for the acquisition was R$ 48,028. (Note 14.1).

iv)       Maxcel e Itacel

In the concession process in the Port of Itaqui, the following companies participated: Maxcel Empreendimentos e Participações S.A. (“Maxcel”), a wholly owned subsidiary of Suzano, and the Terminal de Celulose de Itaqui (“Itacel”). Maxcel participated as a conduit in the bidding process, having as obligation the constitution of a lessee as Specific Purpose Company (“SPE”). Itacel as well as a concession lessee is an integral subsidiary of Maxcel and is responsible for the operation and storage of pulp in the leased area. The amount invested for the constitution of these subsidiaries is R$ 46,922.

2. Presentation of the Financial Statements

2.1.         Preparation basis and presentation

The consolidated financial statements was prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

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Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

The main accounting polices applied in the preparation of these financial statements are presented in Note 3.

The financial statements were prepared using the historical cost as the basis of value, except for certain assets and liabilities financial and biological assets that are measured at fair value.

The preparation of financial statements requires the use of certain significant accounting estimates and the exercise of judgment by Management in the process of applying accounting practices. The areas requiring a higher level of judgment and which are more complex, as well as areas in which assumptions and estimates are significant for the financial statements, are disclosed in Note 3.1.26.

The Company affirms that all the information relevant to its financial statements is being evidenced and only these, which correspond to those used by the Management for its Administration.

The issuance of these financial statements was approved by the Company’s Board of Directors on February 21, 2019.

2.1.1.      Consolidated financial statements

The consolidated financial statements were prepared based on the information provided by Suzano and its subsidiaries on the reference date, as well as in accordance with consistent accounting practices.

The subsidiaries are consolidated from the date control is obtained until the date that control ceases to exist. In the case of joint venture with other Companies, these investments are accounted for under the equity method, both in the individual financial statements and in the consolidated financial statements.

The joint operations are companies in which the Company maintains the joint operation, contractually established, over its economic activity and that exists only when the strategic, financial and operational decisions related to the activity require the unanimous consent of the parties that share the control.

In the consolidation process, the balances in the balance sheet and income statement accounts corresponding to the transactions with subsidiaries are eliminated, as well as the unrealized gains and losses and the investments in these subsidiaries and their respective equity accounting results.

Companies included in the Company’s consolidated financial statements are the following:

13

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

								Interest in capital (%)
Investee		Nature of the main operation		Country		Type of interest		12/31/2018		12/31/2017
AGFA - Comércio, Administração e Participações Ltda. (“AGFA”) (a)		Investment in Facepa		Brazil		Direct		100	%	—
Asapir Produção Florestal e Comércio Ltda (“Asapir”)		Loan agreement		Brazil		Joint Operation		50	%	50	%
Comercial e Agrícola Paineiras Ltda (“Paineiras”)		Land lease		Brazil		Direct		100	%	100	%
Eucalipto Holding S.A (“Eucalipto”)		Holding		Brazil		Direct		100	%	—
Facepa - Fábrica de papel da Amazônia S.A. (“Facepa”) (a)		Production and sale of tissue paper		Brazil		Direct/Indirect		92.8	%	—
Futuragene Brasil Tecnologia Ltda (“Futuragene Brasil”)		Biotechnology research and development		Brazil		Indirect		100	%	100	%
FuturaGene Ltd (“Futuragene”)		Biotechnology research and development		United Kingdom		Indirect		100	%	100	%
Ibema Companhia Brasileira de Papel (“Ibema”)		Production and sale of paperboard		Brazil		Joint Venture		49.9	%	49.9	%
Maxcel Empreendimentos e Participações S.A. (“Maxcel”) (c)		Holding		Brazil		Direct		100	%	—
Mucuri Energética S.A. (“PCH Mucuri”) (b)		Energy generation and distribution		Brazil		Direct		100	%	—
Ondurman Empreendimentos Imobiliários Ltda (“Ondurman”)		Land lease		Brazil		Direct		100	%	100	%
Paineiras Logística e Transporte Ltda (“Paineiras Logística”)		Commissioning of road transport		Brazil		Direct		100	%	100	%
Stenfar S.A. Indll. Coml. Imp. Y. Exp. (“Stenfar”)		Sale of paper and IT materials		Argentina		Direct/Indirect		100	%	100	%
Sun Paper and Board Limited (“Sun Paper”)		Shared expenses		United Kingdom		Direct		100	%	100	%
Suzano Áustria GmbH (“Suzano Áustria”)		Capital raising		Austria		Direct		100	%	100	%
Suzano Luxembourg (“Suzano Luxemburgo”)		Not operational		Luxembourg		Direct		100	%	—
Suzano Pulp and Paper America Inc (“Suzano América”)		Sale of pulp and paper		United States		Direct		100	%	100	%
Suzano Pulp and Paper Europe S.A. (“Suzano Europa”)		Sale of pulp and paper		Switzerland		Direct		100	%	100	%
Suzano Trading Ltd (“Suzano Trading”)		Sale of pulp and paper		Cayman Islands		Direct		100	%	100	%
Terminal de Celulose de Itaqui S.A. (“Itacel”)		Port services		Brazil		Indirect		100	%	—

(a)           See Note 1.1 b), ii).

(b)           See Note 1.1 b), iii).

(c)           See Note 1.1 b), iv).

2.2.         Functional currency and presentation currency

The information included in the financial statements are measured using the currency of the main economic environment in which the subsidiary operates the (“functional currency”).

The financial statements are presented in Brazilian Real, which is Suzano’s functional currency, and also its presentation currency.

a)  Foreign-currency translation

Monetary assets and liabilities denominated in foreign currency are translated into the functional currency using the exchange rate effective on the respective balance sheets dates. Gains and losses resulting from the adjustment of these assets and liabilities, verified between the exchange rate effective on the date of transaction and end of years are recognized as financial income or expenses in the income statement.

b)  Foreign subsidiaries

Foreign subsidiaries prepare their individual financial statements in their functional currency.

The conversion process for the presentation of the consolidated financial statements, assets and liabilities monetary are converted from their functional currency to Reais using the exchange rate of the balance sheet dates and the respective income and expense accounts are determined by the rates monthly average of the exercises. Non-monetary assets and

14

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

liabilities are translated from their functional currency into Reais at the exchange rate of the date of the accounting transaction (historical rate).

Gains and losses resulting from the exchange variation calculated on the investments in subsidiaries abroad, measured by the equity method and the gains and losses resulting from the exchange variation determined in the conversion process for the consolidation of the Company’s financial statements, are recognized in the caption Other reserves and presented in other comprehensive income in Shareholders’ equity.

The functional currency of foreign subsidiaries are the following:

Subsidiary		Country		Currency name
Suzano Trading		Cayman Islands		U.S. Dollar
Suzano Luxemburgo		Luxembourg
Suzano América		United States
Suzano Áustria		Austria
FuturaGene		United Kingdom		Pound Sterling
Sun Paper
Suzano Europa		Switzerland		Swiss Franc
Stenfar		Argentina		Argentine Peso (a)

(a) Argentina presented a significant increase in inflation indicators in the first half of 2018, accompanied by a high degree of devaluation of the Argentine peso (ARS). On June 14, 2018, the National Institute of Statistics and Censuses of Argentina (“INDEC”) published the price index indicating that the inflation accumulated in the last 3 years exceeded 100%. And as established by IAS 29 — Accouting in a Hyperinflationary Economies, it was possible to conclude that as of July 1, 2018 Argentina was considered as a hyperinflationary economy.

The wholly-owned subsidiary Stenfar is headquartered in Argentina and has applied the requirements of IAS 29. Suzano has recognized the effects of these variations, considered intangible for the purpose of these financial statements, using the equity method, directly reflected in Other Reserves.

2.3.         Presentation of information by operating segment

On December 31, 2018, the Board of Directors has been identified as the Chief operating decision-maker, which is responsible for allocating resources and assessing performance of the operating segments. The operating segments are:

i)  Pulp: comprises production and sale of hardwood eucalyptus pulp and fluff mainly to supply the foreign market, with any surplus sold in the domestic market.

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Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

ii)  Paper: comprises production and sale of paper to meet the demands of both domestic and international markets. Consumer goods (tissue) sales are classified under this segment due to its immateriality.

2.4.         Revised of comparative figures

The financial statements as of December 31, 2017, presented for comparison purposes, were adjusted for a better presentation and comparison with the information for the period ended December 31, 2018. The reclassifications between items of Current Assets did not change the total of this group and also do not change the total of the Assets. The reclassifications were:

i) Other Assets in the amount of R$ 12,870, related to advances for the acquisition of wood for Advances to Suppliers;

3. Accounting practices adopted

The financial statements were prepared in accordance with accounting practices consistent with those used in the preparation of the annual financial statements as of December 31, 2017, except for the application of the new accounting pronouncements as of January 1, 2018, as described below. However, even with the application of the new pronouncements, there was no material impact on the financial statements, as already expected and mentioned in the financial statements as of December 31, 2017

3.1 Principal accounting policies

3.1.1 Cash and cash equivalents

Cash and cash equivalents includes balances of cash, banks and highly liquid investments maturing within 90 days from their initial contracting date, which are subject to insignificant risk of change in their value.

3.1.2 Financial assets and liabilities

a)            Overview

Financial instruments are recognized as of the date the Company becomes party of financial instruments contractual provisions. These are initially recorded at their fair value, plus transaction costs which are directly attributable to their acquisition or issuance, except for the financial assets and liabilities classified under the fair value through profit or loss category, where these costs are directly recorded as financial income. Their subsequent measure occurs every balance sheet date according to IFRS standards for each type of financial assets and liabilities category.

The Company does not adopt hedge accounting.

The fair value of financial instruments actively traded on the organized markets is determined based on the market quotes on the balance sheets closing dates. In the lack of an active market, the fair value is determined through valuation techniques, which include the use of

16

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

recent market arm’s length transactions, benchmark to the fair value of similar financial instruments, discounted cash flows analysis or other valuation models.

The gain or loss on the initial recognition of financial assets and liabilities arising from the difference between the fair value and the present value of the cash flows of the instrument discounted by the contractual rate, called “day one profit or loss”, is recognized in the income statement proportional to the term of the transaction, until the entire amount is considered at maturity, in case the fair value is not observable directly in the open market.

The adoption of IFRS 9 Financial Instruments as of January 1, 2018 resulted in the updating of accounting policies, however, there was no material impact or adjustments due to the new standard.

IFRS 9 replaces the provisions of IAS 39 that refer to recognition, classification and measurement of financial assets and liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

The transition method adopted by the Company was the retrospective transition model with modification, of which, the respective pronouncement becomes effective in the Company’s balance sheet as of the effective date, in the case, as of January 1, 2018, and the comparative figures are not altered to reflect the accounting practice adopted by the Company.

In relation to the change in classification and measurement brought by IFRS9, financial assets classified in 2018 and amortized cost in the previous year (2017) were classified as “loans and receivables”, with initial and subsequent measurements identical to the accounting practice current.

b) Financial assets

Classification and measurement

The Company classifies its financial assets in the following categories: (a) amortized cost and (b) at fair value through profit or loss. The classification depends on the purpose for which the financial assets were acquired, as explained below:

i. Amortized cost

The financial assets held by the Company are: (i) to receive contractual cash flow and not for sale with realization of profits and losses; and (ii) the contractual terms of which give rise, on specific dates, cash flows of payments of principal and interest on the principal amount outstanding.

Includes balance of cash and cash equivalents and trade accounts receivable. Any changes are recognized in the income statement under “Financial income” or “Financial expenses”, depending on the income statement.

ii. Financial assets measured at fair value through profit or loss

This category includes financial assets held for trading, assets designated in the initial recognition at fair value through profit or loss and derivatives. They are classified as held for trading if originated with the purpose of sale or repurchase in the short term and measured at

17

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

their fair value at every balance sheet date. Interest rates, exchange variation and those variations deriving from fair value valuation are recognized as financial income or Expenses in the Income statement when incurred.

c) Financial liabilities

Financial liabilities are classified between the categories below according to the nature of financial instruments contracted or issued:

i. Financial liabilities measured at fair value through profit or loss

These include financial liabilities usually traded before maturity, liabilities designated in the initial recognition at fair value through profit or loss and derivatives. They are measured by their fair value at every balance sheet date. Interest rates, monetary restatement, exchange variation and those variations deriving from fair value valuation, where applicable, are recognized in the income statement when incurred.

ii. Liabilities at amortized cost

Loans and financing are initially recognized at fair value, net of any attributable transaction costs, and subsequently presented at amortized cost using the effective interest rate method. Interest, monetary restatement and exchange variation, when applicable, are recognized in income, when incurred.

3.1.3 Trade accounts receivable

Trade accounts receivable are recorded at nominal value billed at the date of sale in the normal course of business of the Company, adjusted to the present value when applicable, plus exchange variation when denominated in foreign currency. Due to the average term of receipt of the securities, their value corresponds to the fair value. If the term of receipt is equivalent to one year or less, the accounts receivable are classified in Current assets. Otherwise, they are presented in Non-current assets.

Beginning January 1, 2018, with the adoption of IFRS 9 - Financial Instruments, the Company selected the expected loss model at the time of billing based on the use of a provisions matrix with a simplified approach. Until December 31, 2017, the impairment was determined based on the less incurred. When necessary, based on individual analysis, the provision for expected loss is supplemented. The adoption of this new methodology did not have a material impact on the income statement.

3.1.4 Inventories

Inventories are shown at the lowest value between average acquisition or production cost, net of recoverable taxes, and its net realizable value. Imports in transit are presented at the cost incurred until the balance sheet date. Cost of wood transferred from biological assets is equivalent to its fair value plus harvest and freight costs.

18

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

The balance of inventories is presented net of estimated losses established to support impairment losses identified or estimated by Management.

3.1.5 Non-current assets held for sale

Non-current assets held for sale are classified as such if it is highly probable that they will be recovered primarily through sale instead of their continuous use and when sale is highly probable.

They are measured by the lowest amount between their book value and their fair value less selling expenses.

Possible impairment loss is initially allocated to goodwill, in the case of investment, and then to remaining assets and liabilities. Losses arising from this valuation are recognized in profit or loss. Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortized or depreciated.

3.1.6 Biological assets

The Company’s biological assets are reforested eucalyptus forests, with a training cycle between planting and harvesting of approximately seven years, measured at fair value.

In determining the fair value, the discounted cash flow method was used according to the projected productivity cycle of these assets. Significant assumptions in determining the fair value of biological assets are stated in Note 13. The measurement of the fair value of biological assets is made on a semi-annual basis, since it considers that this interval is sufficient for there to be no significant lag in the fair value of the assets registered in its financial statements.

The gain or loss on the variation of the fair value of the biological assets is recognized in the income statement for the period in which they occur, under other operating income / expenses. The value of the biological asset depletion is measured by the amount of the biological asset depleted (harvested) and measured at its fair value.

3.1.7 Investments

Investments are represented by interests in other companies controlled, jointly controlled and joint venture, evaluated by the equity method. Foreign exchange variation on investments abroad is classified as other reserves in shareholders’ equity and realized on the disposal or write-off of the investment.

Gains or losses arising from transactions between these Companies are eliminated in the consolidation for equity accounting purposes and in the consolidated balance sheet.

19

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

3.1.8 Business combination

Business combinations are accounted for using the acquisition method when control is transferred to the Company. The consideration is measured at fair value, as well as identifiable net assets acquired.

Gains on an advantageous purchase are recognized immediately in the result. The transaction costs are recorded in the income statement as incurred, except for costs related to the issuance of debt instruments or equity instruments, which are presented as debt reduction or equity, respectively.

Goodwill calculated on a business combination transaction is annually tested for impairment or when an indicator of impairment is identified.

Transactions in the acquisition of shares with shared control over the net assets traded apply complementary guidance to IFRS 3 - Business Combination, IFRS 11 - Joint Arrangements and IAS 28 - Investments in Associates and Joint Ventures.

Based on the equity method, investment in a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted for recognition of changes in the Company’s share in the joint venture’s Shareholders’ equity as of the acquisition date. The goodwill relating to the joint venture, if any, is included in the carrying amount of the investment, but is not an intangible asset and can not be amortized.

Other intangible assets identified in the transaction should be allocated in proportion to the Company’s interest, by the difference between the carrying amounts recorded in the Company and its fair value calculated (value of the assets) and are amortized, if applicable.

3.1.9 Property, plant and equipment

Property, plant and equipment items are recorded at the cost of acquisition or construction, net of recoverable taxes, including interest and other financial charges incurred during the project design or development, less accumulated depreciation and accumulated impairment losses, when incurred.

Items of property, plant and equipment are depreciated using the straight-line method in the profit or loss statement of the year, based on the economic-useful life of each item (Note 15) and leased assets are depreciated for the shorter period between the estimated useful life of the asset and the term of the agreement.

On December 31, 2018 the Company revised the useful life of its assets based on use and estimated use of assets and did not identify the need for adjustments to the used economic useful life.

Maintenance and repair expenses of key industrial equipment that do not significantly increase the useful life of these assets, referred to as General Stoppage costs, are recorded directly is the income statement in the year when they are incurred in Costs of goods sold.

20

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

3.1.10 Intangible assets

i) Goodwill based on expected future profitability

Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill should be attributed to one or more Cash Generating Units (“CGU’s”), which are subject to impairment tests at least once a year and it’s not amortized.

ii) Intangible assets with defined useful life

Other intangible assets acquired by the Company that have defined useful lives are measured at cost, less amortization based on the useful lives and accumulated impairment losses, when incurred.

3.1.11 Impairment of non-financial assets

Assets with indefinite useful life, such as goodwill, are not subject to amortization and are tested annually to identify possible need for impairment. Goodwill impairment is reviewed annually or more frequently if events or changes in circumstances indicate possible impairment.

Assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the book value cannot be recovered. An impairment loss is recognized when the book value of an asset exceeds its recoverable value, which is the highest between the fair value of an asset less its disposal costs and value in use.

For the purposes of impairment assessment assets are grouped in the lowest levels for which cash in flows are identified separately CGU. For this test, goodwill is allocated to the CGU or groups of CGU that should benefit from the business combination from which the goodwill originated, and are identified according to the operating segment.

Non-financial assets, except goodwill, which have been adjusted for impairment, are reviewed subsequently for analysis of a possible reversal of impairment on the balance sheet date. Goodwill impairment recognized in the income statement should not be reversed.

3.1.12 Dividends and interest on own capital

At the end of the year, the distribution of dividends or interest on own Capital is recognized as a liability, based on the corporate law and the Company’s bylaws, up to the limit of mandatory minimum dividends, unless declared earlier. If declared after the date of the balance sheet, the excess portion of the dividends declared by Management is presented under the heading Dividends proposed, together with the reserves of profits in stockholders’ equity. When the excess amount is approved by the shareholders the portion is then transferred to the current liabilities.

21

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

3.1.13 Other assets and liabilities (current and non-current)

Assets are recognized only when it is probable that the economic benefit associated with the transaction will flow to the entity and its cost or value can be measured reliably.

A liability is recognized when the Company has a legal or constructive obligation arising from a past event, and it is probable that an economic resource will be required to settle this liability.

3.1.14 Trade accounts payable

Trade accounts payable are obligations payable for goods or services that were acquired in the normal course of business. They are classified as current liabilities if payment is due in up to one year, or non-current liabilities if payable in a longer term.

They are initially recognized at their fair value and, subsequently, measured at amortized cost using the effective tax rate method, if applicable.

3.1.15 Loans and financing

Loans and financing are initially recognized at their fair value, net of costs incurred in the transaction and are subsequently stated at amortized cost. Any difference between the amounts raised (net of transaction costs) and the total amount payable is recognized in the statement of income during the period in which the loans are outstanding, using the effective tax rate method.

Loans and financing are classified as current liabilities unless the Company has an unconditional right to defer the settlement of liabilities for at least 12 months after the balance sheet date.

General and specific loan costs directly attributed to the acquisition, construction or production of a qualified asset, which is an asset that necessarily demands a substantial period of time to be ready for use or sale, are capitalized as a part of the cost of asset when it is probable that they will result in future economic benefits for the entity and that these costs may be measured with reliability. Other loan costs are recognized as expense in the period they are incurred.

3.1.16 Current and deferred income tax and social contribution

The current and deferred income tax and social contribution are calculated based on the tax laws in force on the balance sheet date in countries where the Company operates, and are recognized in the income statement, except at the proportion they are related with items directly recorded in Shareholders’ equity.

Deferred income tax and social contribution are recognized using the balance sheet method on temporary differences between the tax bases of assets and liabilities and their amounts in the financial statements, except in business combinations whose initial recognition of an asset or liability does not affect the accounting or tax result.

Current and deferred tax assets and liabilities are presented net in balance sheet when there is the legal right and intention to offset them upon the calculation of current assets, and when they are related to the same tax authority and the same legal entity.

22

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

Deferred income tax and social contribution assets arising from tax losses, tax credits and unused deductible temporary differences are recognized when it is probable that future profits subject to taxation will be available to be used against such assets.

Deferred income tax and social contribution assets are revised at each reporting date and will be derecognized as their realization is no longer probable.

3.1.17 Contingent assets and liabilities

Contingent assets are not recorded. They only become active and are recorded when their realization is virtually certain and especially in the case of judicial disposals, when judicial decisions favorable to the Company have been res judicata and the amount can be measured with safety.

For contingent liabilities, the following criteria are observed: (i) contingent liabilities with remote probability of loss assessment, are not provisioned or disclosed; (ii) contingent liability with possible probability of loss assessment, no provision is recorded, however, they are disclosed in the notes to the financial statements.

3.1.18 Provisions

Provisions are recognized when: (i) the Company has a current and constructive obligation as a result of past events; (ii) it is probable that an outflow of funds is necessary to settle the obligation; and (iii) the value can be estimated with reliability. Provisions do not include future operating losses.

3.1.19 Employee benefits

The employee benefits are evaluated by an independent actuary and reviewed by Management in order to determine the commitments with health care plans and life insurance provided to active employees and retirees, at the end of each year.

Actuarial gains and losses are recognized directly in Shareholders’ equity. The interest incurred on the actuarial liability is recorded directly in the income statement under financial expenses.

3.1.20 Share based payments

The Company’s executives and managers receive their compensation partially as share-based payment plans to be settled in cash and shares, and alternatively in cash.

Plan-related expenses are firstly recognized in the income statement as a corresponding entry to financial liabilities during the vesting period (grace period) when services will be rendered. The financial liability is measured by its fair value every balance sheet date and its variation is recorded in the income statement as administrative expenses.

23

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

However, at the option exercise date, if such options are exercised by executive in order to receive Company shares, financial liabilities are reclassified to a shareholders’ equity account called “Stock options reserve”. In case of option exercise paid in cash, the Company settles the financial liability.

3.1.21 Government grants and assistance

Government grants and assistance are recognized when it is reasonably certain that the conditions established by the granting Governmental Authority were observed and that these subsidies will be obtained. These are recorded as revenue or expense deduction in the income statement for the period of enjoyment of benefit and subsequently are allocated to the tax incentives reserve under Shareholders’ equity.

3.1.22 Adjustment at present value of assets and liabilities

The measurement of the discounting to the present value is made on the initial recognition of short and long-term monetary assets and liabilities recognized as material. For the purposes of recording and determining materiality, the present value adjustment is calculated taking into account contractual cash flows and explicit interest rates, and implicit interest rates in certain cases, of respective assets and liabilities.

3.1.23 Share Capital

Common shares are classified under Shareholders’ equity.

Incremental costs directly attributable to the issue of new shares or options are stated under shareholders’ equity as a deduction from the amount raised, net of taxes.

3.1.24 Revenue recognition

The Company adopted IFRS 15 - Revenue from Contracts with Clients as of January 1, 2018, which resulted in changes in accounting policies, opting for the modified transition method, whose comparative figures were not restated. There was no material impact or adjustments in January 1st , 2018 due to the new standard.

The Company follows the conceptual framework of the revenue recognition standard that is based on the five-step model: (i) identification of contracts with customers; (ii) identification of performance obligations in contracts; (iii) transaction price determination; (iv) allocation of the transaction price to the performance obligation provided for in the contracts and (v) recognition of revenue when the performance obligation is met.

Revenue is recognized when there is no longer a performance obligation to be met by the Company, therefore, when the control of the products is transferred to the customer and the customer has the ability to determine its use and obtain substantially all the benefits of the product.

24

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

In the previous years, sales revenue was recognized when its amounts can be measured reliably, significant risks and rewards inherent to the product were transferred to the buyer, that is, the Company no longer had any relation with the goods sold and it was probable that the economic benefits will be generated for the Company. Revenues were not recognized if there was significant uncertainty to their realization. Operating revenue from product sales were stated at their net amounts excluding taxes, returns, unconditional discounts and bonus to clients.

a) Sale of products

The recognition of revenue from domestic sales and foreign of pulp and paper is based on the following principles:

(i) Internal market - sales are mainly made on credit. Revenue is recognized when the customer receives the product, either at the carrier’s premises or at its own premises, whereby ownership benefits are transferred and the performance obligation is met.

(ii) Foreign market - export orders are usually serviced by third-party warehouses located near strategic markets; sales are mostly made on credit. The export contracts establish the International Trade Terms (“Incoterms”) applicable to each transaction, which are also used to define the transfer of control of the goods.

b) Sale of energy

· Energy produced in the pulp production process in the Mucuri and Imperatriz units

Revenue from this sale is considered as a by-product and deducted from the cost of the main product in these units.

· PCH Mucuri

Suzano’s wholly-owned subsidiary, is engaged in the generation and sale of electricity. Revenues from the sale of electricity, considered immaterial for the purpose of these financial statements, are presented under other operating income.

3.1.25 Leases

Financial leasing contracts usually involve fixed assets and the Company holds substantially all the risks and benefits of the asset. The asset is recognized at the lower of the present value of the minimum mandatory installments of the contract and the fair value of the asset, plus, when applicable, the initial direct costs incurred and depreciated by the lower of the useful life of the asset or contract term. The corresponding obligations, net of financial charges, are presented under the heading of Loans.

The portion of the lease paid is allocated, part of the liability and part of the financial burden, so that a constant rate is obtained on the balance of the outstanding debt. Financial interest is

25

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

recognized in income for the period during the period of the lease to produce a constant periodic rate of interest on the remaining balance of the liability in each period.

Operating liquidation contracts (net of any incentives received from the lessor) are recognized in the income statement of the period when payment of the contract installments.

3.1.26 Critical estimates, judgments and accounting assumptions

When preparing these financial statements, Management used estimates, judgments and accounting assumptions about the future affecting the application of the Companies’ accounting practices and the amounts of assets, liabilities, income and expenses.  Actual results may differ from such estimates.

The Company reviews its estimates and assumptions continuously and any change thereof is prospectively recognized.

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

i. Fair value measurement

The Company selects methods and uses judgments in the assumptions for determining the fair value as well as defining the sensitivity analysis scenarios.

When measuring the fair value of an asset or liability, the Company uses market data as much as possible. Fair values are classified at different hierarchy levels based on the inputs used for valuation techniques (Note 4.7).

Significant changes in the assumptions used may affect the Company’s equity position.

Additional information on the assumptions used to measure relevant fair values are included in the following notes to the financial statements:

a) Note 4 — Financial instruments and risks;

b) Note 13 — Biological assets;

c) Note 23 — Share-based compensation plans.

ii. Financial Instruments (derivatives and non-derivatives)

In order to determine the fair value of financial instruments that are not traded on an active market, valuation techniques are used by the Company.

The Company uses recent operations contracted with third parties, reference to other instruments that are substantially similar, cash flow analysis and others that have the minimum

26

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

possible information generated by the Administration. The Company also uses its judgment to define the scenarios presented in the sensitivity analysis (Note 4).

iii. Biological assets

The discounted cash flow methodology is used to calculate the fair value of forest biological assets, whereby several critical economic and forest assumptions are made with a high level of judgment (Note 3.1.6 and 13).

The critical assumptions used in the calculation of fair value include: (i) Annual Average Increase (“IMA”) - Due to the exposure of forests to climatic conditions, pest risk, fires and other risk factors that may impact on the estimated production of future forest wood; (ii) Discount rate - Due to the macroeconomic assumptions and market risk that are not under the control of the Company; and (iii) Selling price - market conditions are related to the level of supply and demand of the wood in each region.

iv. Useful life and recoverable value of tangible and intangible assets

The useful life of relevant tangible assets was defined by management and in the specifications of machine and equipment manufacturers, at the operational level of industrial units and the quality of preventive and corrective maintenance. The intangible assets with defined useful life are defined by management. These estimated involves a high degree of judgment and uncertainties.

If events or changes in circumstances occur that indicate that the carrying amount of an asset or group of assets may not be recoverable based on future cash flows, Management adjusts the balance to its recoverable amount.

v. Deferred income tax and social contribution

The recognition and amount of deferred tax assets depend on the future generation of taxable income, which requires the use of estimates related to the Company’s future performance.

These estimates are part of a long-term plan, which is reviewed annually by Management and submitted to Board of Directors for the approval. This plan is drawn up using several macroeconomic variables, such as exchange and interest rates; variables in the market segment, such as curves of expected offer/supply and projected sale prices; operating variables, such as expected production costs and volumes. This set of variables evidences the Company’s level of judgment regarding the expected materialization of these assumptions and uncertainties.

Management understands that, based on projected results and recorded results, the realization of deferred credit assets is probable (Note 12).

27

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

vi. Actuarial liability

The Company has actuarial commitments of post-employment benefits related to health insurance for former employees. These commitments and costs depend on a series of economic and demographic assumptions, mainly discount rates, long-term inflation, variation in medical and hospital costs, and variability in the actuarial table used, which imply some level of judgment regarding the assumptions adopted.

These estimates are reviewed annually by management and can differ from the actual results due to changes in market and economic conditions (Note 22).

vii. Provisions and Contingencies

The Company is currently involved in certain labor, civil and tax proceedings. The provision for legal proceeds is recorded based on Management’s evaluation and on the advice of internal and external legal counsel and are subject to a high level of judgment (Note 21).

3.2 New standards, revisions and interpretation not yet in force.

The following accounting standards / interpretations have been issued and approved by the International Accounting Standards Board (“IASB”), which are not yet in force and the Company did not adopt them in advance for the preparation of this financial statements. The new standards are presented below:

i) IFRS 16 - Leasing operations

This standard replaces the existing guidance in IAS 17 and essentially determines that lessees will have to recognize future liabilities in their liabilities and their right to use the leased asset for practically all lease agreements, financial and operating leases have the same accounting treatment, and certain short-term or low-value contracts fall outside the scope of this new standard. The standard is applicable as of January 1, 2019.

The Company will adopt IFRS 16 on January 1, 2019 using a modified retrospective approach that results in the prospective application of the standard. The modified retrospective approach does not require updating the accounting information of the previous period.

In adopting IFRS 16, the Company recognizes the lease liabilities in relation to the contracts that meet the definition of lease, in accordance with the principles of the new standard. These liabilities will be measured at the present value of the remaining lease payments, discounted based on the incremental loan rate on January 1, 2019. Assets associated with the right of use will be measured at the amount equal to the lease liability on January 1, 2019 , with no impact on retained earnings.

In the initial adoption, the Company will use the following practical expedients allowed by the standard:

a) The use of a single discount rate for a portfolio of leases with fairly similar characteristics;

28

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

b) Leases whose maturity will occur within 12 months of the date of initial adoption of the standard, accounting will be as short-term leases (directly in the income statement);

c) The accounting of lease payments as expenses in the case of leases for which the underlying asset is of low value; and

d) The use of past perception in determining the lease term, when the agreement contains options to extend or terminate the lease.

The adoption of the standard will result in the recognition of rights-of-use assets and lease liabilities in the estimated amount of R$ 1,112,615 on January 1, 2019. The greater impact produced by this standard is related to the recognition in the balance of the lease agreements of land used for the formation of eucalyptus forests, with deadlines of up to 3 cycles of forest formation, around 21 years. The amounts calculated up to the closing of these financial statements, which represent an increase in liabilities and in the right to use assets, are presented below:

Asset		Present value of  liabilities (a)			Discount rate (b)
Land		R$	990,928		5.78	%
Property		R$	18,452		5.78	%
Machine and Equipment		R$	103,235		5.13	%
Total		R$	1,112,615

(a) Net tax liability

(b) To determine the discount rates, quotes were obtained from financial institutions for contracts with characteristics and average terms similar to the lease agreements.

ii) IFRIC 23:  Uncertainty over Income Tax Treatments

The standard clarifies the way of accounting for tax positions related to Income Tax and Social Contribution. This rule is applicable when there are uncertainties as to the acceptance of the treatment by the Fiscal Authority. If acceptance is not likely, the values of tax assets and liabilities should be adjusted to reflect the best resolution of the uncertainty.

IFRIC 23 does not introduce new disclosures but reinforces the need to comply with existing disclosure requirements on (i) judgments made; (ii) assumptions or other estimates used; and (iii) the potential impact of uncertainties that are not reflected in the financial statements. The standard is applicable as of January 1, 2019.

The Company has evaluated the changes introduced by this new standard and based on the analyzes carried out, did not identify material changes that have an impact on its financial statements.

29

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

The transition method adopted by the Company is the retrospective transition model with modification, from which, the respective pronouncement becomes effective in the Company’s balance sheet as of the date of adoption, in the case, January 1, 2019, and the comparative figures are not altered to reflect the accounting practice adopted by the Company.

4. Financial Instruments and Risks

4.1 Management of financial risks

a) Overview

The Company’s Management is focused on generating consistent and sustainable results over time. Factors of external risk related to fluctuations in market prices, exchange variations and volatility of macroeconomic indexes may introduce an unwelcome level of volatility in the Company’s cash flows and income statement. To manage this volatility, in a way that does not distort or hinder its consistent growth over a long time, Suzano has policies and procedures for managing market risk.

These policies aim to: (i) protect the Company’s cash flows and assets against fluctuations in the market prices of raw material and products, exchange rates and interest rates, price and adjustment indexes, or other assets or instruments traded in liquid or other markets (“market risk”) to which the value of the assets, liabilities and cash flows are exposed; and (ii) optimize the process of contracting financial instruments for protection against exposure to risk, drawing on natural hedges and correlations between the prices of different assets and markets, avoiding any waste of funds used to contract inefficient operations. All financial transactions entered into by the Company have the objective of protecting it against existing exposures, with the assumption of new risks prohibited, except those arising from its operating activities.

The process to manage market risk comprises the following sequential and recurring phases: (i) identification of risk factors and the exposure of the value of the assets, cash flows and results of the Company to market risks; (ii) measuring and reporting the values at risk; (iii) evaluating and formulating strategies for managing market risks; and (iv) implementing and monitoring the performance of strategies.

The Company uses liquid financial instruments: (i) does not contract leveraged operations or other forms of embedded options that change its purpose of protection (hedge); (ii) it does not have double indexed debt or other forms of implied options; and (iii) does not have any operations that require margin deposits or other forms of collateral for counterparty credit risk.

The main financial risk factors considered by Management are:

· Liquidity risk;

· Credit risk;

· Currency risk;

· Interest rate risks;

30

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

· Risk of changes in commodity prices; and

· Capital risk.

The Company does not apply hedge accounting. Therefore, all results (gains and losses) from derivative operations (settled and outstanding) are fully recognized in the Consolidated Statements of income/(loss), as presented in Note 26.

b) Measurement

Transactions with financial instruments with higher liquidity are recognized in the Company’s financial statements and presented below. During the year there were no reclassifications between categories.

		Note		12/31/2018		12/31/2017
Assets
At fair value through profit or loss
Financial investments		6		21,098,565		1,631,505
Derivative financial instruments		4.3		493,934		133,910
At amortized costs
Cash and cash equivalents		5		4,387,453		1,076,833
Trade accounts receivable		7		2,537,058		2,297,763
				28,517,010		5,140,011
Liabilities
At amortized cost (a)
Trade accounts payable		18		632,565		621,179
Loans and financing		19.1		31,074,056		12,191,856
Debentures		19.3		4,663,453		—
Liabilities for asset acquisition and subsidiaries		24		992,512		585,986
At fair value through profit or loss
Derivative financial instruments		4.5		1,636,700		127,896
				38,999,286		13,526,917

(a) In 2017, it was classified as “loans and receivables”

31

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

c) Fair value versus book value

The financial instruments included in the balance sheets, are presented at their contractual amounts. Financial investments and derivative contracts, used exclusively for hedging purposes, are valued at fair value.

In order to determine the market values of assets or financial instruments traded in public and liquid markets, the market closing prices were used at the balance sheet dates. The fair value of interest rate swaps and indexes is calculated as the present value of their future cash flows discounted at the current interest rates available for operations with similar remaining terms and maturities. This calculation is based on the quotations of B3 and ANBIMA for interest rate operations in reais and the British Bankers Association and Bloomberg for Libor rate transactions. The fair value of forward or forward exchange contracts is determined using the forward exchange rates prevailing at the balance sheet dates, in accordance with B3 prices.

In order to determine the fair value of assets or financial instruments traded in over-the-counter or liquid markets, a number of assumptions and methods based on normal market conditions (not for liquidation or forced sale) are used at each balance sheet date, including the use of option pricing models such as Black & Scholes, and estimates of discounted future cash flows. The fair value of oil bunker pricing contracts is obtained based on the Platts index.

The result of the trading of financial instruments is recognized at the closing or contracting dates, where the Company undertakes to buy or sell these instruments. The obligations arising from the contracting of financial instruments are eliminated from our financial statements only when these instruments expire or when the risks, obligations and rights arising therefrom are transferred.

The comparison between the fair value and the book value of the outstanding financial instruments can be shown as follows:

32

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2018				12/31/2017
		Book Value		Fair Value		Book Value		Fair Value
Assets
Cash and cash equivalents		4,387,453		4,387,453		1,076,833		1,076,833
Financial investments		21,098,565		21,098,565		1,631,505		1,631,505
Trade accounts receivable		2,537,058		2,537,058		2,297,763		2,297,763
Derivative financial instruments (a)		493,934		493,934		133,910		133,910
		28,517,010		28,517,010		5,140,011		5,140,011
Liabilities
Trade accounts payables		632,565		632,565		621,179		621,179
Loans and financing (a)		31,074,056		35,326,676		12,191,856		13,755,352
Debentures		4,663,453		4,957,382		—		—
Liabilities for asset acquisitions and subsidiaries (a)		992,512		948,522		585,986		564,292
Derivative financial instruments (a)		1,636,700		1,636,700		127,896		127,896
		38,999,286		43,501,845		13,526,917		15,068,719

(a) Current and non-current

4.2 Liquidity risk

The Company’s guidance is to maintain a strong cash and financial investment position to meet its financial and operating obligations. The amount kept as cash is used for payments expected in the normal course of its operations, while the surplus amount is invested in highly liquid financial investments.

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are undiscounted, and include contractual interest payments, therefore, may not be reconciled with the amounts disclosed in the balance sheet.

33

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2018
		Total Book  Value		Total  Future  Value		Up to 1  year		1 - 2  years		2 - 5  years		More than  5 years
Liabilities
Trade accounts payables		632,565		632,565		632,565		—		—		—
Loans and financing		31,074,056		45,997,323		4,818,397		3,672,268		16,850,840		20,655,818
Debentures		4,663,453		8,022,759		340,044		419,401		1,521,757		5,741,556
Liabilities for asset acquisitions and subsidiaries		992,512		1,099,331		495,862		100,715		316,730		186,023
Derivative financial instruments		1,636,700		2,149,710		790,679		736,715		465,853		156,462
Other accounts payable		404,655		404,655		367,314		37,341		—		—
		39,403,941		58,306,342		7,444,861		4,966,440		19,155,180		26,739,859

		12/31/2017
		Total Book  Value		Total  Future  Value		Up to 1  year		1 - 2  years		2 - 5  years		More than  5 years
Liabilities
Trade accounts payables		621,179		621,179		621,179		—		—		—
Loans and financing		12,191,856		15,897,299		2,704,902		2,686,542		4,930,467		5,575,388
Liabilities for asset acquisitions and subsidiaries		585,986		713,723		95,284		9,698		187,686		421,055
Derivative financial instruments		127,896		97,412		24,092		63,971		9,349		—
Other accounts payable		293,193		293,193		280,436		12,757		—		—
		13,820,110		17,622,806		3,725,893		2,772,968		5,127,502		5,996,443

4.3 Credit risk

The Company has sales and credit policies, determined by the Management, which aim to mitigate any risks arising from their clients’ default. This is achieved through meticulous selection of the client portfolio, which takes into account payment capacity (credit analysis) and diversification of sales (risk pooling), as well as the guarantees or financial instruments contracted to reduce these risks, such as credit insurance policies, both for exports and domestic sales.

The Company’s credit evaluation matrix is based on an analysis of the qualitative and quantitative aspects for determining credit limits to clients on an individual basis. After analyses, they are submitted for approval according to established hierarchy. In some cases, the approval from the management’s meeting and the Credit Committee is applicable.

The Company, in order to mitigate credit risk, maintains its financial operations diversified among banks, with a main focus on first-tier financial institutions classified as high-grade by the main risk rating agencies.

The book value of financial assets representing the exposure to credit risk on the date of the financial statements was as follows:

34

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		Note		12/31/2018		12/31/2017
Assets
Cash and cash equivalents		5		4,387,453		1,076,833
Financial investments		6		21,098,565		1,631,505
Trade accounts receivable		7		2,537,058		2,297,763
Derivative financial instruments				493,934		133,910
				28,517,010		5,140,011

The Other Parties, mostly financial institutions with whom the Company conducts transactions classified under cash and cash equivalents, financial investments and derivatives financial instruments, are rated by the rating agencies. The risk rating is as follows:

		Cash and cash equivalents and financial investments				Derivative financial instruments
Risk rating (a)		12/31/2018		12/31/2017		12/31/2018		12/31/2017
AAA		19,736,151		2,168,810		141,296		65,510
AA+		5,257,518		169,881		—		51,231
AA		68,207		207,925		259,711		3,143
AA-		422,899		113,623		—		14,026
A		80		45,753		51,281		—
A-		1,160		2,330		—		—
BB		2		16		41,646		—
		25,486,018		2,708,338		493,934		133,910

(a) We use the Brazilian Risk Rating and the rating is given by agencies Fitch Ratings, Standard & Poor’s and Moody’s.

The risk rating of trade accounts receivable is as follows:

35

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2018		12/31/2017
Low Risk (a)		2,447,184		2,262,628
Average Risk (b)		66,587		21,016
High Risk (c)		60,466		52,859
		2,574,237		2,336,503

(a) Not past due and delay up to 30 days

(b) Overdue between 30 and 90 days

(c) Overdue more than 90 days and renegotiated with the client or with security interest.

Part of the above amounts do not consider part of the supplementary Allowance for Doubtful Accounts calculated on an individual basis for each customer in default of R$ 37,179 and R$ 38,740 an December 31, 2018 and 2017, respectively.

4.4       Market risk

The Company is exposed to several market risks, the main ones being the variation in exchange rates, interest rates, inflation rates and commodity prices that may affect its results and financial situation.

To reduce the impacts on results in adverse scenarios, the Company has processes to monitor exposures and policies that support the implementation of risk management.

The policies establish the limits and instruments to be implemented for the purpose of: (i) protecting cash flow due to currency mismatch, (ii) mitigating exposure to interest rates, (iii) reducing the impacts of fluctuation in commodity prices, and (iv) change of debt indexes.

The market risk management process comprises identification, assessment and implementation of the strategy, with the actual contracting of adequate financial instruments.

4.4.1. Exchange rate risk

The contracting of financing and the currency derivative policy of the Company are guided by the fact that around 70% of net revenue comes from exports with prices negotiated in U.S. dollar, while most of the production costs is tied to the Brazilian real (BRL). This structure allows the Company to contract export financing in U.S. dollar and to reconcile financing payments with the flows of receivables from sales in foreign market, using the international bond market as an important portion of its capital structure, and providing a natural cash hedge for these commitments.

In addition, the Company contracts short positions in the futures markets, including strategies involving options, to ensure attractive levels of operating margins for a portion of revenue. Sales in the futures market are limited to a percentage of the net surplus foreign currency (net

36

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

exposure) over an 18-month time horizon and therefore are matched to the availability of currency for sale in the short term.

The net exposure of assets and liabilities in foreign currency which is substantially in U.S. dollars, are demonstrated below:

		12/31/2018		12/31/2017
Assets
Cash and cash equivalents		1,143,968		585,541
Trade accounts receivable		1,661,108		1,544,633
Derivative financial instruments		493,685		133,910
		3,298,761		2,264,084
Liabilities
Trade accounts payables		(72,680	)	(45,548	)
Loans and financing		(26,384,721	)	(8,616,807	)
Liabilities for asset acquisitions and subsidiaries		(333,049	)	(332,193	)
Derivative financial instruments		(1,464,569	)	(126,781	)
		(28,255,019	)	(9,121,329	)
Liability exposure		(24,956,258	)	(6,857,245	)

Foreign denominated balances are primarily denominated in US Dollars.

Sensitivity analysis — foreign exchange exposure

For market risk analysis, the Company uses scenarios to jointly evaluate the long and short positions in foreign currency, and the possible effects on its results. The probable scenario represents the amounts already booked, as they reflect the translation into Brazilian reais on the base date of the balance sheet.

The other scenarios were created considering the depreciation of the Brazilian real against the U.S. Dollar at the rates of 25% and 50%.

This analysis assumes that all other variables, in particular interest rates, remain constant, the following table presents the potential impacts on results assuming these scenarios:

37

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2018
		As of		Effect on Income and Equity
		Probable		Possible Increase ( ∆ 25%)		Remote Increase ( ∆ 50%)
Cash and cash equivalents		1,143,968		285,992		571,984
Trade accounts receivable		1,661,108		415,277		830,554
Trade accounts payables		(72,680	)	(18,170	)	(36,340	)
Loans and financing		(26,384,721	)	(6,596,180	)	(13,192,361	)
Liabilities for asset acquisitions		(333,049	)	(83,262	)	(166,524	)
Derivatives Non Deliverable Forward (“NDF”) (a)		17,041		(137,748	)	(275,191	)
Derivatives Swap (a)		(853,141	)	(2,458,607	)	(4,915,329	)
Derivatives Options (a)		(134,784	)	(2,352,766	)	(5,111,182	)
				(10,945,465	)	(22,294,390	)

(a) For the notional values of the derivatives, see Note 4.5

4.4.2 Interest rate risk

Fluctuations in interest rates could result in increase or decrease in costs of new financing and operations already contracted.

The Company constantly seeks alternatives to use financial instruments in order to avoid negative impacts on its cash flows.

Given Libor’s risk of extinction over the next few years the Company has negotiating its contracts with clauses that envisage the discontinuation of the interest rate. The majority of the debt already has some clause of substitution of the rate by a reference index or interest rate equivalent, for the contracts that do not have a specification a clause of renegotiation between the parties was added. The derivative contracts linked to Libor envisage that there will be a negotiation between the parties for the definition of a new rate or an equivalent fee will be provided by the calculation agent.

Over the next few years, until Libor expires, the company will actively work to reflect an equivalent replacement rate in all of its contracts

Sensitivity analysis — exposure to interest rates

For market risk analysis, the Company uses scenarios to evaluate the sensitivity that variations in operations impacted by the rates: CDI, Long Term Interest Rate (“TJLP”), Special System for Settlement and Custody (“SELIC”) and London Interbank Offered Rate (“LIBOR”) may have on its results. The probable scenario represents the amounts already booked, as they reflect the best estimates of the Management.

This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant. The other scenarios were developed considering appreciation of 25% and 50% in the market interest rates. The following table shows the potential impacts on the results in the event of these scenarios:

38

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2018
		As of		Effect on Income and Equity
		Probable		Possible Increase ( ∆ 25%)		Remote Increase ( ∆ 50%)
CDI
Cash and cash equivalents		3,243,485		53,931		108,701
Financial investments		19,049,284		316,741		638,412
Loans and financing		(4,078,631	)	316,741		638,412
Debentures		(4,663,453	)	(374,854	)	(453,602	)
Derivative Swaps		(853,141	)	866,857		1,746,549
Derivative Options		(134,813	)	(74,269	)	(146,411	)
				1,105,149		2,532,061
Special System for Settlement and Custody (“SELIC”)
Financial investments		2,049,281		34,074		68,679
				34,074		68,679
TJLP
Loans and financing		(213,178	)	(3,597	)	(7,195	)
				(3,597	)	(7,195	)
LIBOR
Loans and financing		(13,038,092	)	(88,855	)	(177,709	)
Derivative Swap		(170,708	)	238,030		471,025
				149,176		293,316

This sensitivity analysis should be analyzed in the context of the subsequent event described in Note 32. a.), since a substantial part of that balance was consumed in payment of the Fibria transaction.

4.4.3 Commodity price risk

The Company is exposed to commodity prices that reflect mainly on the pulp sale price in the foreign market. The dynamics of opening and closing production capacities in the global market and the macroeconomic conditions may have an impact on the operating results.

39

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

It is not possible to guarantee that the price will be maintained at levels favorable to the results. The Company can use financial instruments to reduce the sale price of a part of its production; however, at times, contracting a hedge for pulp price may not be available.

The Company is also exposed to international oil prices, which reflects on logistical costs for selling to the export market.

On December 31, 2018 there is long position in bunker oil R$ 5 million to hedge its logistics costs. (December 31, 2017, there is no long position in bunker oil)

		12/31/2018
		Probable		Possible Increase ( ∆ 25%)		Remote Increase ( ∆ 50%)
Oil derivative		(1,140	)	2,399		3,735
		(1,140	)	2,399		3,735

4.5 Derivative financial instruments

The Company determines the fair value of derivative contracts and recognizes that these amounts can differ from the amounts realized in the event of early settlement. The amounts reported by the Company are based on an estimate and using data provided from a third party, which is reviewed by Management.

a) Outstanding derivatives by type of contract

On December 31, 2018 and 2017, the consolidated positions of outstanding derivatives are presented below:

40

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		Notional value in US$				Fair value
		12/31/2018		12/31/2017		12/31/2018		12/31/2017
Cash flow
Undesignated exchange hedge
Zero-cost collar (R$ vs. US$)		2,340,000		1,485,000		(41,122	)	25,822
NDF (R$ x US$)		50,000		—		6,749		—
Fixed Swap (US$) vs. CDI		—		50,000		—		5,356
Fixed Swap CDI vs. US$		—		50,000		—		(2,485	)
Subtotal		2,390,000		1,585,000		(34,374	)	28,693
Debt hedge
Exchange hedge
Swap CDI vs. Fixed (US$)		752,110		291,725		(377,020	)	(21,562	)
Subtotal		752,110		291,725		(377,020	)	(21,562	)
Interest hedge
Swap LIBOR vs. Fixed (US$)		757,143		19,841		(33,663	)	(1,117	)
Subtotal		757,143		19,841		(33,663	)	(1,117	)
Hedge de Commodity (a)
Swap Bunker		5,344		—		(1,140	)	—
Subtotal		5,344		—		(1,140	)	—
Total in derivatives (Cash Flow)		3,904,597		1,896,566		(446,196	)	6,014
Fibria’s operation
Undesignated exchange hedge
Zero cost collar (R$ x US$)		700,000		—		(93,692	)	—
NDF (R$ x US$)		100,000		—		10,287		—
Subtotal		800,000		—		(83,405	)	—
Debt hedge
Exchange hedge
Swap CDI x Fixed (US$)		1,650,000		—		(476,121	)	—
Subtotal		1,650,000		—		(476,121	)	—
Interest hedge
Swap Libor x Fixed (US$)		2,000,000		—		(137,044	)	—
Subtotal		2,000,000		—		(137,044	)	—
Total in derivatives (Fibria’s operation)		4,450,000		—		(696,570	)	—
Total in derivatives		8,354,597		1,896,566		(1,142,766	)	6,014
Current assets						352,454		77,090
Non-current assets						141,480		56,820
Current liabilities						(596,530	)	(23,819	)
Non-current liabilities						(1,040,170	)	(104,077	)
						(1,142,766	)	6,014

(a) The commodity hedge amount was contracted through the subsidiary Suzano Trading.

41

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

Fair value does not represent an obligation for immediate disbursement or cash receipt, given that such effect will only occur on the dates of contractual fulfillment or on the maturity of each transaction, when the result will be determined, depending on the case and market conditions on the agreed dates.

Contracts outstanding on December 31, 2018 are over-the-counter operations without any margin or early settlement clause imposed due to mark-to-market variations.

Each existing contract and respective protected risks are described below:

i) CDI Swap x Fixed US$: positions in conventional swaps by changing the rate of Interbank Deposits (DI) by pre-fixed dollar rate. The objective is to change the debt index in Reais to dollars;

ii) NDF US$: Positions sold in futures contracts of dollars, with the purpose of protecting the cash flow of exports.

iii) Swap Fixed US$ x CDI: positions in conventional swaps exchanging pre-fixed rate variation in dollars by Interbank Deposits (DI) rate. The objective is to revert debts in dollars to Reais;

iv) Swap LIBOR x Fixed: positions in conventional swaps exchanging post-fixed rate for a pre-fixed rate in dollars. The objective is to protect the cash flow of variations in the US interest rate;

v) Zero-Cost Collar: positions in an instrument consisting of the simultaneous combination of the purchase of put options and the sale of US dollar call options, with the same principal and maturity, in order to protect the cash flow of exports. This strategy establishes an interval where there is no deposit or receipt of financial margin on the position adjustments.

vi) Swap Bunker (oil): positions purchased in oil bunker, with the objective of protecting logistics costs related to the contracting of maritime freight.

42

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

b) Fair value by maturity date

Derivatives mature as follows:

Maturity of		Net Fair value
derivatives		12/31/2018		12/31/2017
In 2018		—		53,270
In 2019		(244,069	)	(16,064	)
In 2020		(180,333	)	(31,192	)
In 2021		87,851		—
In 2022		83,692		—
In 2023		80,052		—
In 2024		82,963		—
In 2025		(486,958	)	—
In 2026		(565,964	)	—
		(1,142,766	)	6,014

c) Long and short position of outstanding derivatives

On December 31, 2018 and 2017, the consolidated positions of outstanding derivatives are presented below:

		Notional value						Fair value
		Currency		12/31/2018		12/31/2017		12/31/2018		12/31/2017
Debt hedge
Assets
Swap CDI vs. Fixed (US$)		R$		8,722,620		950,000		119,178		22,525
Swap LIBOR vs. Fixed (US$)		US$		2,757,143		19,841		—		65,517
Subtotal								119,178		88,042
Liabilities
Swap CDI vs. Fixed (US$)		US$		2,402,110		291,725		(972,319	)	(44,087	)
Swap LIBOR vs. Fixed (US$)		US$		2,757,143		19,841		(170,707	)	(66,634	)
Subtotal								(1,143,026	)	(110,721	)
Total swap agreements								(1,023,848	)	(22,679	)
Cash flow
Zero-cost collar (US$ vs. R$)		US$		3,040,000		1,485,000		(134,814	)	25,822
Swap Fixed (US$) vs. CDI		US$		—		50,000		—		5,356
NDF (R$ x US$)		US$		150,000		—		17,036		—
Swap Bunker		US$		5,344		—		(1,140	)	—
Swap CDI x Fixed (US$)		US$		—		50,000		—		(2,485	)
Subtotal								(118,918	)	28,693
Total in derivatives								(1,142,766	)	6,014

43

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

d) Settled derivatives

In the year ended December 31, 2018 and 2017, the consolidated positions of settled derivatives were as follows:

		Cash paid / Received amount (In thousand of R$)
		12/31/2018		12/31/2017
Cash flow
Exchange hedge
Zero-cost collar (R$ vs. US$)		(110,271	)	28,159
NDF (R$ vs. US$)		(1,235,448	)	11,110
NDF (MXN vs. US$)		—		39
Subtotal		(1,345,719	)	39,308
Commodity hedge
Bunker (oil)		—		2,631
Subtotal		—		2,631
Debt hedge
Exchange hedge
Swap CDI vs. Fixed (US$)		19,145		78,411
Swap Fixed (US$) vs. CDI		—		(8,809	)
Swap CDI vs. Libor (US$)		—		(162,769	)
Subtotal		19,145		(93,167	)
Interest hedge
Swap LIBOR vs. Fixed (US$)		(4,939	)	(2,588	)
Swap Coupon vs. Fixed (US$)		—		15,824
Subtotal		(4,939	)	13,236
Total in derivatives (a)		(1,331,513	)	(37,992	)

(a) On December 31, 2018, there was a payment of the derivative premium in the amount of R$ 254,902 and on December 31, 2017 there was a receipt of R$ 77,687 of unhedged options and, therefore, are not presented in the table above.

4.6       Capital management

The main objective of Company’s capital Management is to ensure and maintain a solid credit rating, in addition to mitigating risks that may affect capital availability in business development.

44

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

The Company monitors constantly significant indicators, such as:

i) consolidated financial leverage index, which is the total net debt divided by adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”);

ii) management of contractual financial covenants, maintaining safety margin to not exceed these covenants. Management prioritizes new loans denominated in the same currency of its main cash generation source, in order to obtain a natural hedge in the long term for its cash flow. The Company manages its capital structure and makes adjustments based on changes in economic conditions.

		12/31/2018		12/31/2017
Loans and financing		31,074,056		12,191,856
Debentures		4,663,453		—
(-) Cash and financial investments		(25,486,018	)	(2,708,338	)
Net debt		10,251,491		9,483,518
Shareholders’ equity controlling		12,012,007		11,616,611
Shareholders’ equity non-controlling		13,928		—
Shareholders’ equity and net debt		22,277,426		21,100,129

This sensitivity analysis should be analyzed in the context of the subsequent event described in Note 32 a), since a substantial part of that balance was consumed in payment of the Fibria transaction.

4.7 Fair value hierarchy

The financial instruments and other financial statement items assessed at fair value are presented in accordance with the levels defined below:

All the information relevant to Company’s financial statements, and only this information, is reported and corresponds to that used by the Management for its activities.

· Level 1 — Prices quoted (unadjusted) in active markets for identical assets or liabilities;

· Level 2 — Inputs other than the prices quoted in active markets included in Level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices); and

· Level 3 — Inputs for assets or liabilities that are not based on observable market variables (unobservable inputs).

45

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2018
		Fair value		Level 1		Level 2		Level 3
Assets
Financial investments		21,098,565		14,933,513		6,165,052		—
Derivative financial instruments		493,934		—		493,934		—
Biological assets (a)		4,935,905		—		—		4,935,905
		26,528,404		14,933,513		6,658,986		4,935,905
Liabilities
Derivative financial instruments		1,636,700		—		1,636,700		—
		1,636,700		—		1,636,700		—

		12/31/2017
		Fair value		Level 1		Level 2		Level 3
Assets
Financial Investments		1,631,505		—		1,631,505		—
Derivative financial instruments		133,910		—		133,910		—
Biological assets (a)		4,548,897		—		—		4,548,897
		6,314,312		—		1,765,415		4,548,897
Liabilities
Derivative financial instruments		127,896		—		127,896		—
		127,896		—		127,896		—

(a) Changes in fair value of biological assets and other details regarding assumptions used to measure such values are shown in Note 13.

4.8 Guarantees

The Company is guaranteed by letters of credit and credit insurance policies. As of December 31, 2018, the consolidated operations of accounts receivable indexed to exports amounted to US$ 365 million, equivalent to R$ 1,417,026 at that date (December 31, 2017 US$ 429 million, equivalent to R$ 1,421,446).

46

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

5. Cash and Cash Equivalents

		12/31/2018		12/31/2017
Cash and banks
Local currency		28,233		19,124
Foreign currency		1,123,533		583,604
		1,151,766		602,728
Financial investments
Local currency		3,215,252		472,168
Foreign currency		20,435		1,937
		3,235,687		474,105
		4,387,453		1,076,833

Financial investments in local currency are low risk and highly liquid and correspond to investments indexed to the CDI. On December 31, 2018, the interest rates on financial investments ranged of 99.46% of CDI index (December 31, 2017, the interest rates ranged 110.60% of CDI index).

6. Financial Investments

		12/31/2018		12/31/2017
Financial assets measured at fair value through profit or loss held for trading
Investment funds (a)		14,933,513		1,593,066
Bank Deposit Certificates (“CDB”) (b)		4,115,771		38,439
Government Securities (c)		2,049,281		—
		21,098,565		1,631,505

(a) Investment funds invest in fixed income instruments, diversified between private institution bonds and government bonds, are remunerated at a rate between 99.19% and 100.17% of CDI index rate on December 31, 2018. Investment portfolios are frequently monitored by the Company for the purpose of checking compliance with the investment policy, which seeks low risk and high liquidity of securities. The risk classification of these assets is described in Note 4.3.

(b) Bank Deposit Certificates (“CDBs”) were remunerated on average at 101.37% of the CDI (December 31, 2017, was remunerated at 102.48%).

47

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

(c) Government securities are investments in Treasury Financial Letter (“LFT”) remunerated at 100% of the SELIC rate.

7. Trade Accounts Receivable

7.1 Breakdown of balances

		12/31/2018		12/31/2017
Domestic customers
Third parties		853,684		735,627
Receivables Investment Fund (“FIDC”) (a)		22,299		25,825
Related parties		36,727		28,652
Foreign customers
Third parties		1,661,527		1,546,399
Allowance for doubtful accounts		(37,179	)	(38,740	)
		2,537,058		2,297,763

(a) In 2017 the Company created the FIDC, that is a vehicle with the purpose with of acquiring credit rights originated from sales made by Suzano to facilitate credit to certain clients. FIDC is an investment fund that acquires receivables and securities representing credit rights. The FIDC has a two year term with renew rights under certain conditions. On December 31, 2018 Suzano has a co-obligation and retains substantial credit risk, accordingly Suzano recorded an accounts receivable of R$ 22,299 and a liability of R$ 22,054 net of transaction costs. (Note 19). (December 31, 2017 R$ 25,825 and R$ 24.665 respectively).

7.2 Past due securities

		12/31/2018		12/31/2017
Past due:
Up to 30 days		291,050		67,239
From 31 and 60 days		54,845		16,066
From 61 and 90 days		10,982		3,949
From 91 and 120 days		7,446		2,831
From 121 and 180 days		6,285		9,423
Over 180 days		47,262		39,905
		417,870		139,413
% Total overdue receivables.		16	%	6	%

48

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

7.3 Changes in allowance for doubtful accounts

		12/31/2018		12/31/2017
Balance at beginning of the year		(38,740	)	(44,517	)
Credits accrued in the period		(11,578	)	(38,486	)
Credits recovered in the period		5,128		6,089
Credits definitively written-off from position		8,993		36,726
Exchange variation		(982	)	1,448
Balance at the end of the year		(37,179	)	(38,740	)

The Company has guarantees for overdue securities in its commercial transactions, through credit insurance policies, letters of credit and collateral. Part of these guarantees is equivalent to the need to recognize allowance for doubtful accounts, in accordance with the credit policy (Note 4.3).

8. Inventories

		12/31/2018		12/31/2017
Finished goods
Pulp
Domestic		167,317		82,008
Foreign		485,226		198,380
Paper
Domestic		227,303		207,059
Foreign		67,872		67,223
Work in process		52,882		63,797
Raw materials		626,150		399,086
Spare Parts		226,354		180,712
		1,853,104		1,198,265

As of December 31, 2018, inventories are net of estimated losses in the amounts of R$ 33,195 (December 31, 2017, R$ 51,911).

49

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

8.1 Changes in provision for losses

		12/31/2018		12/31/2017
Balance at the beginning of the year		(51,911	)	(28,206	)
Constitution/Reversal of provisions		(4,732	)	(31,482	)
Write-off inventories (a)		23,447		7,777
Balance at the end of the year		(33,195	)	(51,911	)

(a) In 2018, it refers substantially to the definitive write-off (non-recurring losses) with raw material in the production process.

The additions and reversals of estimated and direct losses are recognized in the statement of income under the item Cost of the product.

In the year ending December 31, 2018, additional write-offs for specific projects were directly recognized in the income statement in the amount of R$ 29,828 (On December 31, 2017 was R$ 7,687).

No inventory item was given as guarantee or liability guarantee for the years presented.

9. Recoverable taxes

		12/31/2018		12/31/2017
Withholding tax and prepaid income tax and social contribution		103,939		58,823
PIS and COFINS - on acquisition of fixed assets (a)		55,518		58,767
PIS and COFINS - other operations		12,426		50,077
ICMS - on acquisition of fixed assets (b)		78,154		71,603
ICMS - other operations (c)		215,361		280,384
Reintegra Program (d)		48,879		71,376
Other taxes and contributions		24,845		4,298
Provision for the impairment of ICMS credits (e)		(10,792	)	(10,583	)
		528,330		584,745
Current assets		296,832		300,988
Non-current assets		231,498		283,757

(a) Social Integration Program (PIS) and Social Contribution on Revenue (COFINS) Credits whose realization is linked to the depreciation period of the corresponding asset.

50

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

(b) Value-added Tax on Sales and Services (“ICMS”) - Credits from the entry of goods destined for property, plant and equipment are recognized in the ratio of 1/48 from the entry and on a monthly basis, as per the bookkeeping of ICMS Control on Property, Plant and Equipment — CIAP.

(c) ICMS credits accrued due to the volume of exports and credit generated in operations of entry of products.  Credits are concentrated in the state of Maranhão, where the Company realizes the credits through “Transfer of Accrued Credit” (sale of credits to third parties), after approval from the State Ministry of Finance. Credits are also being realized through consumption in its consumer goods (tissue) operations in the domestic market.

(d) Special Regime of Tax Refunds for Export Companies (“Reintegra”). Reintegra is a program that aims to refund the residual costs of taxes paid throughout the exportation chain to taxpayers, in order to make them more competitive on international markets. The Brazilian law 13,670/2018 changes the Reintegra rate from 2% to 0.10% as of June 2018.

(e) Provision for discount on sale to third parties of accrued credit of ICMS in item “c” above.

The Company is the plaintiff in lawsuits that discuss the right to deduct ICMS from the basis of calculation of PIS and COFINS contributions, which have not yet become final and unappealable, including any changes in the applicable legislation after the enactment of Law n° 12,973/2014.

Due to a favorable ruling issued in the writs of the writ of mandamus, which is still pending final judgment, the Company, legally protected, initiated the exclusion of ICMS from the basis of calculation of said contributions as of the month of August 2018.

The PIS and COFINS credit recoverable will be duly accounted for after the final judgment of the actions of which it is an Author and taking into consideration the terms of the understanding of the Federal Supreme Court in the general repercussion on Extraordinary Appeal n° 574,706, still pending completion.

10. Advances to suppliers

		12/31/2018		12/31/2017
Advance to Suppliers
Forestry development program (a)		231,063		237,466
Advance for the purchase of finished product		—		33,324
Advance to suppliers (b)		85,963		37,264
		317,026		308,054
Current assets		98,533		86,499
Non current assets		218,493		221,555

(a) The Forestry development program consists of an incentive partnership scheme for regional forest production, where independent producers plant eucalyptus in their own land to supply the agricultural product (wood) to Suzano. Suzano provides eucalyptus seedlings, input subsidies, and cash advances, and the latter are not subject to valuation at present value since they will be settled, preferably, in forests. In addition, the Company

51

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

supports producers through technical advice on forest management but does not have joint control over decisions effectively implemented.

At the end of the production cycles, the Company has contractually guaranteed the right to make an offer to purchase the forest and/or wood for market value, however, this right does not prevent producers from negotiating the forest and / or wood with other market participants, provided that the incentive amounts are fully paid.

(b) Advances to suppliers for the purchase of third-party materials, services and timber.

11. Related parties transactions

For transactions with related parties, it is determined that the usual market prices and conditions for these transactions are observed, as well as the corporate governance practices adopted by the Company and those recommended and/or required by the legislation.

Related parties		Type of operation		Type of interest
Bexma Comercial Ltda. (“Bexma”)		Administrative expenses		Controlled by key management personnel
Bizma Investimentos Ltda. (“Bizma”)		Investment fund management		Controlled by key management personnel
Central Distribuidora de Papéis Ltda. (“Central”)		Sale of paper		Controlled by close family personnel
Ibema Cia Brasileira de Papel (“Ibema”)		Sale of paper		Joint venture
Instituto Ecofuturo - Futuro para o Desenvolvimento Sustentável (“Ecofuturo”)		Social services		Controlled by key management personnel
IPLF Holding S.A. (“IPLF”)		Shared corporate costs and expenses		Controlled by key management personnel
Lazam MDS Corretora e Adm. Seguros S.A. (“Lazam-MDS”)		Insurance advisory and consulting		Controlled by key management personnel
Mabex Representações e Participações Ltda. (“Mabex”)		Aircraft services (freight)		Controlled by key management personnel
Nemonorte Imóveis e Participações Ltda. (“Nemonorte”)		Real estate advisory		Controlled by key management personnel
Suzano Holding S.A. (“Holding”)		Grant of suretyship and administrative costs		Immediate Parent

11.1 Balance Sheets and Transactions on December 31, 2018

		Assets		Liabilities
		Current		Current
		Trade				Income Statement
Item of balance sheet		receivables		Trade payables		Income		Expenses
Administrators		—		—		541		—
Holding		3		128		901		(13,624	)
IPLF		—		—		4		—
Nemonorte		—		—		—		(491	)
Bexma		1		—		10		—
Lazam - MDS		—		—		—		(31	)
Ecofuturo		—		33		2		(4,186	)
Ibema		36,721	(a)	1,643		116,566	(a)	(9,314	)
Bizma		2		—		16		—
Mabex		—		—		—		(390	)
		36,727		1,804		118,040		(28,036	)

(a) Pulp and paper sales operations.

52

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

11.2 Balance Sheets and Transactions on December 31, 2017

		Assets		Liabilities
		Current		Current
		Trade				Income Statement
Item of balance sheet		receivables		Trade payables		Income		Expenses
Administrators		—		—		221		—
Holding		—		141		374		(14,177	)
IPLF		—		—		28		—
Central		—		—		4,056		—
Nemonorte		—		—		—		(1,233	)
Mabex		—		—		—		(294	)
Bexma		—		—		13		—
Lazam - MDS		—		—		—		(372	)
Ecofuturo		4		45		5		(3,789	)
Ibema		28,628	(a)	6,954		83,706	(a)	(38,707	)
		28,632		7,140		88,403		(58,572	)

(a) Pulp and paper sales operations.

11.3 Management compensation

In the year ending December 31, 2018 and 2017, expenses related to the compensation of key management personnel which include the Board of Directors, the Audit Committee, Fiscal Council and Board of Executive Officers, in addition to certain executives, recognized in the statement of income for the year, are shown below:

		12/31/2018		12/31/2017		12/31/2016
Short-term benefits
Salary or compensation		48,663		24,774		20,593
Direct and indirect benefits		2,828		2,959		1,997
Bonus		16,752		26,819		20,181
		68,243		54,552		42,771
Long-term benefits
Share-based compensation		62,150		33,554		29,323
		62,150		33,554		29,323
		130,393		88,106		72,094

Short-term benefits include fixed compensation (salaries and fees, vacation, mandatory “13th

53

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

salary” bonus), and payroll charges (company share of contributions to social security — INSS) and variable compensation such as profit sharing, bonus and benefits (company car, health plan, meal voucher, grocery voucher, life insurance and private pension plan).

Long-term benefits include the stock option plan and phantom shares for executives and key Management members, in accordance with the specific regulations (see Note 23).

12. Current and deferred taxes

The Company, based on expected generation of future taxable income as determined by a technical study approved by Management, recognized deferred tax assets over temporary differences, income and social contribution tax loss carryforwards, which do not expire.

Deferred income and social contribution taxes are originated as follows:

		12/31/2018		12/31/2017
Income tax loss carryforward		310,293		575,248
Social contribution tax loss carryforward		6,627		29,830
Provision for tax, civil and labor liabilities		101,667		103,631
Temporary differences provision (operational and others)		286,616		203,831
Exchange variation losses (net) - payable on a cash basis for tax purposes		534,093		82,793
Losses on derivatives		291,254		29,943
Unrealized profit		227,830		103,376
Other temporary differences		15,579		8,674
Non-current assets		1,773,959		1,137,326
Tax benefit of goodwill - goodwill not amortized for accouting purposes		13,161		10,063
Property, plant and equipment - deemed cost adjustment		1,552,579		1,603,987
Tax accelerated depreciation		1,196,182		1,183,115
Other temporary differences		41,172		124,968
Non-current liabilities		2,803,094		2,922,133
Total non-current assets, net		8,998		2,606
Total non-current liabilities, net		1,038,133		1,787,413

The income tax loss carryforward, negative basis of social contribution and accelerated depreciation are only achieved by the Income Tax (IRPJ).

The breakdown of accumulated tax losses and social contribution tax loss carryforwards is shown below:

54

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2018		12/31/2017
Tax loss carryforward		1,241,172		2,300,993
Social contribution tax loss carryforward		73,633		331,445

12.1 Reconciliation of the effects of income tax and social contribution on profit or loss

		12/31/2018		12/31/2017
Net income (loss) before taxes		165,297		2,259,612
Income tax and social contribution benefit (expense) at statutory nominal rate - 34%		(56,201	)	(768,268	)
Tax effect on permanent differences:
Taxation on profit of subsidiaries abroad		(160,252	)	(104,918	)
Tax incentive - Reduction SUDENE (a)		261,910		196,604
Equity method		2,576		1,996
Taxation difference - Subsidiaries (b)		62,813		151,504
Credit related to Reintegra program		37,627		39,180
Interest on own capital		—		67,944
Higher taxation on foreign subsidiaries		(2,553	)	(11,789	)
Tax Incentives applied to Income Tax (d)		20,505		9,414
Unrealized profit on operations with subsidiaries (c)		16,786		17,011
Other		(28,694	)	(3,273	)
		154,518		(438,618	)
Income tax
Current		(300,438	)	(80,607	)
Deferred		604,190		(189,203	)
		303,752		(269,810	)
Social Contribution
Current		(286,130	)	(121,580	)
Deferred		136,894		(47,228	)
		(149,236	)	(168,808	)
Income and social contribution benefits (expenses) on the year		154,516		(438,618	)
Effective rate of income and social contribution tax expenses (e)		-93.5	%	19.4	%

55

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

(a) Refers to the benefit of reducing 75% of the income tax calculated based on Profits form exploration on the units Mucuri (BA) and Imperatriz (MA).

(b) Refers, substantially, to the difference between the nominal rate of the Company and its subsidiaries in Brazil and abroad.

(c) Refers to the cost of inventories that correspond to results not yet realized in intercompany operations

(d) Income tax deduction amount referring to the use of the PAT (Worker Feeding Program) benefit and donations made in cultural and sports projects.

(e) In 2018, the effective rate of (93.5%) was determined mainly due to lower net income before taxes and an increase in the tax benefit of the operating profit.

12.2 Tax incentives

Suzano has a tax incentive for the partial reduction of the income tax obtained by the operations carried out in areas of the Northeast Development Superintendency (SUDENE) in the Mucuri (BA) and Imperatriz (MA) regions. The IRPJ reduction incentive is calculated based on the activity profit (operating profit), and takes into account the allocation of the operating profit by the incentive production levels for each product. The Incentive of Lines 1 and 2 of Mucuri (BA) expire respectively in 2024 and 2027 and the unit of Imperatriz in 2024.

During the period from 2006 to 2018, Suzano benefited from Accelerated Incentive Depreciation (“DAI”), which was applicable to the acquisition of property, plant and equipment and consisted of the depreciation of the asset in the same year of acquisition or until the 4th year after the acquisition. This benefit expired on December 31, 2018.

13. Biological assets

The changes in the balances of biological assets in the years ended on the respective dates are shown below:

56

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

Balances on December 31, 2016		4,072,528
Additions (a)		912,368
Depletion for the year		(551,135	)
Gain on adjustment to fair value		192,504
Disposal of forests		(28,030	)
Other write-offs		(49,338	)
Balances on December 31, 2017		4,548,897
Additions (a)		1,285,490
Depletion for the year		(709,547	)
Loss on adjustment to fair value		(129,187	)
Disposal of forests		(47,124	)
Other write-offs		(12,624	)
Balances on December 31, 2018		4,935,905

(a) Refers to the formation and acquisition of forests of which R$ 852,156 of forest formation and R$ 433,334 of forest acquisition. (December 31, 2017, R$ 775,954 and R$ 136,414, respectively). The costs incurred to lease lands with subsidiaries are eliminated.

The Company’s biological assets are mainly made of eucalyptus forest for reforestation used to supply wood to pulp and paper mills and are located in the states of São Paulo, Bahia, Espirito Santo, Maranhão, Minas Gerais, Pará, Piauí and Tocantins. Permanent preservation and legal reserve areas were not included in the calculation of fair value due to its nature.

The assumptions used in determining the fair value of biological assets were:

i) Average cycle of forest formation of 7 years;

ii) Forests are measured at their fair value as of the plantation year;

iii) Mean annual increment — IMA consists of the estimated volume of production of wood with bark in m3 per hectare, ascertained based on the genetic material used in each region, forestry policies and forest management, production potential, climate factors and soil conditions;

iv) The estimated average standard cost per hectare includes expenses on forestry and forest management each year of formation of the biological cycle of the forests, plus costs of land lease agreements and own land opportunity cost;

v) The average eucalyptus gross sale prices were based on specialized research on transactions made by the Company with third parties or weighted by the cost of formation plus cost of capital plus estimated margin for regions where there is no market benchmark available;

vi) Discount rate used in cash flows is calculated based on capital structure and other economic assumptions for a participant in the independent business of selling timber (forests).

57

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

The pricing model considers net cash flows, after deduction of taxes on profit at the applicable rates.

Main assumptions for calculation of fair value of the biological assets:

Assumptions Used		12/31/2018		12/31/2017		12/31/2016
Planted useful area (hectare)		463,801		466,535		450,474
Mature assets		68,207		73,897		84,084
Immature assets		395,594		392,638		366,390
Average annual growth (IMA) - m /hectare		29.93		28.89		33.80
Average gross sale price of eucalyptus - R$/m3		68.62		69.19		53.45
Utilization cost of Company’s assets that contribute - %		4.50	%	4.44	%	5.00	%
Discount rate - %		9.36	%	9.11	%	10.54	%

The Company manages the financial risks related to agricultural activities in a preventive manner, by reducing risks from edaphoclimatic factors. The weather is monitored through meteorological stations and, in the event of pests and diseases, our Department of Forestry Research and Development, an area specialized in physiological and phytosanitary aspects, has procedures to diagnose and act rapidly against any occurrences and losses.

Sensitivity analysis

The calculation of fair value of the biological assets falls under Level 3 in the hierarchy set forth in IFRS 13 — Measurement of Fair Value, due to the complexity and structure of calculation.

The main assumptions, IMA, discount rate, and selling price stand out as being the most sensitive where increases or reductions in these assumptions generate significant gains or losses in the measurement of fair value.

14. Investments

		Joint Venture
		Ibema
Balance at December 31, 2016		873
Equity method		5,872
Other		19
Balance at December 31, 2017		6,764
Equity method		7,574
Balance at December 31, 2018		14,338

The financial information of joint venture in 2018 and 2017 are shown below:

58

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		Joint Venture
		Ibema
		12/31/2018		12/31/2017
Equity interest %		49.9	%	49.9	%
Total assets		335,029		334,827
Total liabilities		317,572		334,009
Adjusted equity (a)		17,458		818
Net income for the year		16,415		9,790

(a) Adjusted for unrealized profits with parent company.

14.1. Business Combination

Suzano incurred costs related to the acquisition described in the following notes 14 i) and ii) of these assets, which were included in the statement of income for the period when incurred.

Net assets and intangibles were evaluated by Management and an independent appraisers was hired to assist in determining the fair values. The Income Approach methodology was used to determine the fair value of the assets and liabilities of Facepa and PCH Mucuri, which is based on the preparation of the future cash flow discounted to present value. This method considers that the fair value of an asset is related to the present value of the net cash flows generated by the asset in the future.

(i)   Facepa

On March 1, 2018, the Company acquired direct and indirect control of 92.84% of the shares of Facepa - Fábrica de Papel da Amazônia S.A.

The net assets acquired are presented below, and the accounting numbers are very close to the estimated fair value numbers:

59

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

Facepa Fabrica de Papel da Amazônia S.A.

		3/1/2018
Asset
Current
Cash and cash equivalents		12,743
Trade accounts receivable		49,315
Inventories		20,162
Recoverable taxes		13,710
Other assets		2,011
Total current assets		97,941
Non-current
Recoverable taxes		425
Judicial deposits		1,341
Other assets		290
Investment		423
Property, plant and equipment		77,431
Intangible		211
Total non-current assets		80,121
Total assets		178,062

		3/1/2018
Liabilities
Current
Trade accounts payable		21,814
Loans and financing		5,277
Taxes payable		8,087
Advances to suppliers		595
Dividends payable		1,717
Trade accounts payable with transaction		9,762
Other liabilities		1,214
Total current liabilities		48,466
Non-Current
Loans and financing		21,399
Labor provision		1,350
Other liabilities		418
Total non-current liabilities		23,167
Total net		106,429
Total liabilities		178,062

The assets identified in the valuation, based on their estimated fair values, are presented as follows:

		Values
Net assets of Facepa		106,428
Net assets acquired of AGFA (a)		590
Intangible - Trademarks		21,598
Intangible - Customer relationship		28,505
Intangible - Non-Compete		3,374
Property, plant and equipment		49,814
Total net assets at fair value		210,310
Total consideration transferred / to be transferred		307,876
Non-controlling interest (b)		15,016
Goodwill on business combination		112,582

(a) As mentioned in Note 1.1 b) iii), AGFA is a non-operating company and was acquired in the Facepa transaction, considering 100% of the shares. The balance of the net assets refer to accounts receivable with Facepa and balance in bank account.

(b) The non-controlling interest’s was proportionate share of the acquired entity’s net identifiable assets.
As of December 31, 2018, the non-controlling interest, net of amortization and depreciation equivalent to R$ 13,807.

60

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

Goodwill, which corresponds to 36.6% of the consideration transferred, is attributable mainly to the expectation of future profitability due to the operational synergies related to the tissue segment.

If the acquisition had occurred on January 1, 2018, consolidated pro-forma revenue and loss for the period ended 30 September 2018 would have been R$ 271.413 (unaudited) and R$ 3.759 respectively (unaudited). This information regarding net revenue and loss was obtained through the aggregation of the amounts of the acquiring and acquired Companies

(ii)   PCH Mucuri

On February 19, 2018, the Company acquired control of 100.00% of the shares of PCH Mucuri.

The net assets acquired are presented below, and the accounting numbers are very close to the fair value numbers:

Mucuri Energética S.A.

		2/19/2018
Asset
Current
Cash and cash equivalents		8,692
Trade accounts receivable		2,663
Recoverable taxes		111
Prepaid expenses		17
Total current assets		11,483
Non-current
Judicial deposits		1,682
Financial investments		2,472
Property, plant and equipment		110,459
Intangible		118
Total non-current assets		114,731
Total assets		126,214

		2/19/2018
Liabilities
Current
Trade accounts payable		255
Loans and financing		5,439
Taxes payable		540
Sectoral provisions		12,328
Other liabilities		73
Total current liabilities		18,635
Non-current
Loans and financing		47,808
Provision for contingency		12,050
Total non-current liabilities		59,858
Total net asset		47,721
Total liabilities		126,214

The net assets evaluated based on their fair values are shown below:

61

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		Values
Net assets acquired		47,721
Total net assets at fair value		47,721
Total consideration transferred		48,028
Goodwill on business combination		307

If the acquisition had occurred on 1 January 2018, consolidated pro-forma revenue and loss for the period ended 30 September 2018 would have been R$ 19,040 (unaudited) and R$ 110,907 (unaudited) respectively. This information regarding net revenue and profit was obtained through the aggregation of the amounts of the acquiring and acquired companies and does not represent the actual amounts consolidated for the period.

The net revenue and profit that impacted the consolidation are R$ 15,803 and R$ 1,915, respectively.

62

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

15. Property, Plant and Equipment

		Buildings		Machinery and equipment		Other assets		Land and farms		Added value		Work in progress		Total
Annual average depreciation rate		3.51	%	5.42	%	17.81	%	—		—		—		—
Cost
Balances on December 31, 2016		2,683,827		15,345,570		299,131		4,368,577		—		390,671		23,087,775
Transfers		141,161		485,182		3,297		3,920		—		(633,560	)	—
Transfers between other assets		(4,500	)	4,434		(7,035	)	—		—		(8,705	)	(15,806	)
Additions		4,648		106,422		6,527		2,257		—		731,740		851,594
Write-offs	(a)	(9,463	)	(95,277	)	(13,525	)	(26,161	)	—		(4,697	)	(149,123	)
Interest capitalization		—		—		—		—		—		8,286		8,286
Balances on December 31, 2017		2,815,673		15,846,331		288,395		4,348,592		—		483,735	(b)	23,782,726
Transfers		127,015		439,553		12,881		750,824		—		(1,330,273	)	—
Transfers between other assets		4,500		1,867		1,318		—		—		(8,945	)	(1,260	)
Additions		2,319		143,058		25,913		705		—		1,321,350		1,493,345
Acquisition Facepa		18,505		46,165		1,920		7,446		49,814		3,395		127,245
Acquistion PCH Mucuri		102,176		3,831		26		4,291		—		2		110,326
Write-offs	(a)	(8,654	)	(67,280	)	(1,183	)	(34,523	)	—		—		(111,640	)
Interest capitalization		—		—		—		—		—		1,772		1,772
Balances on December 31, 2018		3,061,534		16,413,525		329,270		5,077,336		49,814		471,036	(b)	25,402,515
Depreciation
Balances on December 31, 2016		(762,686	)	(5,908,943	)	(180,866	)	—		—		—		(6,852,495	)
Transfers		8		270		(278	)	—		—		—		—
Write-offs	(a)	3,172		64,536		13,145		—		—		—		80,853
Depreciation		(70,315	)	(701,822	)	(27,719	)	—		—		—		(799,856	)
Balances on December 31, 2017		(829,821	)	(6,545,959	)	(195,718	)	—		—		—		(7,571,498	)
Transfers		7		1,391		(1,398	)	—		—		—		—
Write-offs	(a)	1,462		60,506		196		—		—		—		62,164
Depreciation		(78,264	)	(760,634	)	(29,844	)	—		(4,178	)	—		(872,920	)
Balances on December 31, 2018		(906,616	)	(7,244,696	)	(226,764	)	—		(4,178	)	—		(8,382,254	)
Net
Balances on December 31, 2017		1,985,852		9,300,372		92,677		4,348,592		—		483,735	(b)	16,211,228
Balances on December 31, 2018		2,154,918		9,168,829		102,506		5,077,336		45,636		471,036	(b)	17,020,259

(a) In addition to disposals, write-offs include obsolescence and scrapping;

(b) The balance of work in progress comes from investments made in line with its strategy to maximize return for shareholders, of which: (i) adjacent business - R$ 69,140; (ii) structural competitiveness - R$ 247,550; and (iii) other investments - R$ 154,346 (On December 31, 2017, (i) adjacent business - R$ 134,299; (ii) structural competitiveness - R$ 264,606; and (iii) other investments - R$ 84,830).

Machinery and equipment include amounts recognized as financial leasing outlined in Note 19.6.

63

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

15.1. Assets given as collateral

On December 31, 2018, assets given as collateral in loan operations and lawsuits amounted to R$ 11,505,386 (R$ 11,571,632 on December 31, 2017).

15.2. Capitalized expenses

On December 31, 2018, interests were capitalized in the amount of R$ 1,772 referring to the investments in adjacent business and structural competitiveness (December 31, 2017 the amount of R$ 8,286 referring to the same investments).

The amount considers acquisitions net of investments at the average rate of 0.54% per month.

16. Intangible Assets

16.1. Goodwill

		12/31/2018		12/31/2017
Vale Florestar S.A.		45,435		45,435
Paineiras Logística		10		10
PCH Mucuri (a)		307		—
Facepa (a)		112,582		—
		158,334		45,445

(a) Companies acquired in the first quarter of 2018. (Note 14.1)

On December 31, 2018, the Company performed the impairment test of Vale Florestar goodwill considering the same land leasing contracts at the time of acquisition and the use of the areas for current forestry formation, as well as economic assumptions similar to those used for the calculation of the fair value of biological assets in the Pará region at the date of these financial statements.

For the goodwill of Facepa and Mucuri PCH, calculated in 2018 in the business combination (Note 14.1), the same study was used at the base date of this financial statement.

On December 2018, the Company did not identify any need to reduce the book value of these assets.

64

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

16.2. Intangible assets with undetermined useful life

On December 31, 2018 and December 31, 2017, the amount related to other intangible assets with indefinite useful life was R$1,196.

16.3. Intangible assets with determined useful life

		Trademarks and patents		Softwares		Customer relationship		Non Compete		R&D Agreements		Total
Useful life (years)		8.4		5		2.5		5		18.8
Acquisition cost		1,635		120,718		—		—		196,023		318,376
Accumulated amortization		(920	)	(49,533	)	—		—		(94,976	)	(145,429	)
Balances on December 31, 2016		715		71,185		—		—		101,047		172,947
Acquisitions		—		8,054		—		—		—		8,054
Foreign currency translation adjustment		—		—		—		—		1,284		1,284
Amortization		(105	)	(21,825	)	—		—		(8,339	)	(30,268	)
Write-offs		—		—		—		—		(18,937	)	(18,937	)
Transfers and others		—		8,705		—		—		—		8,705
Book balance		610		66,119		—		—		75,055		141,785
Acquisition cost		1,635		137,477		—		—		178,370		317,482
Accumulated amortization		(1,025	)	(71,358	)	—		—		(103,315	)	(175,698	)
Balances on December 31, 2017		610		66,119		—		—		75,055		141,785
Acquisitions		—		7,217		—		—		—		7,217
Acquisition PCH Mucuri/Facepa		17		749		—		—		—		766
Acquisition of assets identified in FACEPA (PPA)		21,598		—		28,505		3,374		—		53,477
Foreign currency translation adjustment		—		—		—		—		12,461		12,461
Amortization		(100	)	(23,390	)	—		—		(7,610	)	(31,100	)
Amortization PCH Mucuri/Facepa		(13	)	(528	)	—		—		—		(541	)
Amortization of assets identified in FACEPA (PPA)		(2,635	)	—		(9,502	)	(562	)	—		(12,699	)
Transfers and others		—		8,945		—		—		—		8,945
Book balance		19,477		59,112		19,003		2,812		79,906		180,311
Acquisition cost		23,250		154,388		28,505		3,374		190,831		400,348
Accumulated amortization		(3,773	)	(95,276	)	(9,502	)	(562	)	(110,925	)	(220,037	)
Balances on December 31, 2018		19,477		59,112		19,003		2,812		79,906		180,311

17. Receivables from land expropriation

On July 1, 1987, the merged subsidiary Companhia Santista de Papel filed an Action for Damages for Indirect Expropriation, in order to obtain indemnification for an owned property, which had been declared as a public use area (property included in the State Serra do Mar State Park, in the city of Cubatão, state of São Paulo). On December 2, 2004, the action resulted in a final and unappealable decision in favor of the Company.

Suzano’s Management and legal advisors expect the expropriation amount to be transferred until the year 2024, when all expropriation amounts must be settled.

On December 31, 2018 the total receivables from land expropriation is R$ 63,652 (December 31, 2017, the amount was R$ 60,975).

65

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

18. Trade accounts payable

		12/31/2018		12/31/2017
Domestic suppliers		559,885		575,631
Foreign suppliers		72,680		45,548
		632,565		621,179

19. Financing

19.1. Loans and Financing

						Annual average
						interest rate
				Index		on 12/31/2018		Maturity		12/31/2018		12/31/2017
Property, plant and equipment:
BNDES - Finem		(a)	(b)	Fixed rate /TJLP		7.18	%	2019 to 2030		333,289		339,798
BNDES - Finem		(b)		Currency basket / US$		7.13	%	2019 to 2022		161,517		165,125
BNDES - Finame		(a)		Fixed rate /TJLP		5.08	%	2018 to 2024		2,980		4,708
FNE - BNB		(b)		Fixed rate		6.46	%	2024 to 2026		217,014		244,452
FINEP		(b)		Fixed rate		4.00	%	2020		12,860		20,577
Financial lease				CDI/US$		—		2019 to 2022		18,225		19,686
Export Credit Agency - ECA		(b)	(c)	US$/LIBOR		4.13	%	2022		797,074		864,761
										1,542,959		1,659,107
Working capital:
Export financing				US$/LIBOR		4.27	%	2021 a 2022		2,171,390		844,388
Export credit note		(f)		CDI		6.69	%	2019 a 2026		3,799,257		2,907,200
Senior Notes		(d)		US$/Fixed rate		6.28	%	2021 a 2047		11,406,027		4,730,800
Trade notes discount-Vendor				—		—		—		—		33,363
Syndicated Loan		(e)		US$/LIBOR		3.95	%	2023		11,825,134		1,986,691
Fund of Investments in Receivables		(h)		—		—		2019		22,054		24,665
Rural Producer Certificate		(g)		CDI		7.43	%	2026		279,838		—
Other				—		—		2019 a 2025		27,397		5,642
										29,531,097		10,532,749
										31,074,056		12,191,856
Current Portion (includes interest payaments)										3,425,399		2,115,067
Non-current Porties										27,648,657		10,076,789
Non-current loans and financing mature as follows:
2019										—		2,122,767
2020										2,229,429		2,599,279
2021										2,595,525		1,121,216
2022										3,259,465		123,745
2023										7,481,430		53,160
2024										39,960		34,084
2025										792,508		4,022,538
2026 onwards										11,250,340		—
										27,648,657		10,076,789

66

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

(a) Transaction subject to Long-term Interest Rate (“TJLP”) published by the Central Bank of Brazil. If the index rate exceed 6% p.a., the exceeding portion is included within the principal and subject to the interest.

(b) Loans and financing are secured, depending on the agreement, by (i) plant mortgages; (ii) rural properties; (iii) fiduciary sale of the asset being financed; (iv) guarantee from shareholders and (v) bank guarantee.

(c) In order to finance the importation of equipment for the production of pulp at the plant located in Maranhão, Suzano obtained financing in the approximate amount of US$ 535 million, with a term of up to 9.5 years, guaranteed by Finnvera and EKN (“Export Credit Agency”). These agreements establish clauses related to the maintenance of certain levels of leverage, which are checked for compliance twice a year (June and December). To date, the Company has complied with all covenants established in the contracts: consolidated net debt / consolidated EBITDA ratio of less than 2.85 and consolidated EBITDA / net interest expense greater than 2.0.

(d) In March 2017, Suzano Austria issued Senior Notes in the amount of US$ 300 million maturing in March 2047, with semiannual interest payment of 7.00% per annum and final return for investors of 7.38% per year. Additionally. In the last quarter of 2017, Suzano through its subsidiary Suzano Trading, repurchased Senior Notes in the amount of (i) US$ 456 million and, through Suzano Austria, reopened Senior Notes issues in the amount of US$ 200 million, with maturity in July 2026, and interest corresponding to 4.62% per annum, to be paid semi-annually in January and July, and (ii) US$ 200 million maturing in March 2047, with interest corresponding to 6.30% per annum, to be paid semi-annually in the months of March and September. In September 2018, a new issue of US$ 1.0 billion of Senior Notes with interest of 6% per annum and maturing in 2029 (Note 1.1 a) (iii) was issued. In November 2018 Suzano Austria reopened the issue of Senior Notes maturing in March 2047 in the amount of US$ 500 million, with interest corresponding to 6.85% per annum, to be paid semi-annually in March and September.

(e) In February 2018, the Company, through its subsidiary Suzano Europa, contracted a syndicated loan in the amount of US$ 750 million, with payment of quarterly interest and amortization of the principal between February 2021 and February 2023 (Note 1.1 a) x)).

(f) In the third quarter of 2018, two Export Credit Notes were contracted, amount of R$ 1.3 billion, indexed to CDI and maturing in 2026.

(g) In the third quarter of 2018, a Rural Financial Producer Certificate was contracted, amount of R$ 275 million, indexed to CDI and maturing in 2026.

(h) See Note 7.1 (a).

Certain financing agreements have financial and non-financial covenants. Financial covenants establish maximum levels of leverage, normally expressed as a ratio of Net Debt to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), which are met by the Company on the date of these financial statements. Non-financial covenants establish the maximum level of assignment of receivables, guarantees to third parties and sale of operating assets, which are also compliant.

67

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

19.2. Changes in loans and financing

Balances on December 31, 2016		14,012,779
Funding		2,561,954
Exchange variation		81,849
Settlement of principal		(4,533,736	)
Settlement of interest		(1,025,117	)
Interest expenses and other costs		1,041,995
Transaction costs and other costs (a)		52,132
Balances on December 31, 2017		12,191,856
Funding		20,964,722
Addition from acquisition of subsidiaries		79,923
Exchange variation		1,457,989
Settlement of principal		(3,738,577	)
Settlement of interest		(669,088	)
Interest expenses and other costs		873,344
Transaction costs and other costs (a)		(86,113	)
Balances on December 31, 2018		31,074,056

(a) Includes, in addition to the funding and amortization costs, goodwill and negative goodwill on the issuance of debt.

19.3. Debentures

The debentures 6 issuance occurred on June 29, 2018, in a single series, with a nominal unit value of R$ 1. The Debentures are not convertible into shares and have no covenants (Note 1.1 a) vi)).

12/31/2018

Issue

Serie

Issuance amount

Current

Non-current

Current and Non-current

Index

Annual rate of interest

Due date

6ª

Single

4,681,100

1,297

4,662,156

4,663,453

CDI

112.50

%

6/29/2026

Total

1,297

4,662,156

4,663,453

68

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

19.4. Transaction costs and premiums of securities issues

						Balance to be amortized
Nature		Total cost		Amortization		12/31/2018		12/31/2017
Senior Notes		134,754		(67,565	)	67,189		27,280
NCE		77,457		(57,262	)	20,195		23,076
Import (ECA)		101,811		(85,576	)	16,235		26,386
Syndicated Loan		57,467		(26,915	)	30,552		6,479
Debentures		20,295		(1,351	)	18,944		—
Other		7,728		(4,540	)	3,188		2,424
Total		399,512		(243,209	)	156,303		85,645

The cost of funding in foreign currency is amortized on the contractual dates based on the effective interest rate and the currency of origin and is converted into Brazilian reais for reporting purposes.

19.5. Guarantees for loans and financings

Some loan and financing contracts have clauses of guarantee of the financed equipment itself or other fixed assets indicated by the Company (Note 15.1).

19.6. Lease agreements

i) Financial lease agreements

The Company has financial lease agreements related to equipment used in the pulp and paper industrial process, in which the Company assumes the risks and benefits inherent to the property. Some agreements are denominated in U.S. dollar or the CDI overnight rate and contain purchase option clauses for these assets upon the expiration of the lease term, which varies from 5 to 15 years, for a price substantially lower than their fair value. Management intends to exercise the purchase options on the dates estimated in each agreement.

The amounts booked as property, plant and equipment, net of depreciation, and the present value of mandatory installments of the agreement (financing) corresponding to these assets are stated below:

69

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2018		12/31/2017
Machinery and equipment		108,160		108,160
(-) Accumulated depreciation		(101,318	)	(99,452	)
Property, plant and equipment, net		6,842		8,708
Present value of mandatory installments (financing):
Less than 1 year		5,608		4,632
From 1 to 5 years		12,617		15,054
Total present value of mandatory installments (financing)		18,225		19,686
Financial charges to be recognized in the future		2,115		2,770
Total mandatory installments at the expiration of agreements		20,340		22,456

ii) Operating lease agreements

The Company has operating lease agreements related to the leasing of areas, offices, real estate, telephone exchanges and installation services, which are denominated in Reais. The Management does not intend to purchase the assets at the end of the contract and the term of the contracts are not equivalent to the substantial part of the useful life of the assets.

Land lease agreements, used for the formation of eucalyptus forests, have maturities of up to 21 years (3 cycles of forest formation). The cost incurred with the payment of these contracts is recognized as cost of training of Biological Assets.

Operating lease payments are recognized as operating expenses in the Company’s income statement.

Description		Monthly installment amount		Index		Maturity
Administrative offices and deposits		1 to 1,163		IGP-M(a) and IPCA(b)/IBGE(c)		01/2019 to 01/2024
Call center and licenses		1 to 120		IGP-DI(d)		01/2029
Land		182 to 2,047		IGP-M, IPCA/IBGE and others		01/2019 to 06/2046

(a) General market price index calculated by the Getúlio Vargas Foundation (IGP-M)

(b) Broad Consumer Price Index (IPCA)

(c) Brazilian Institute of Geography and Statistics (IBGE)

70

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

(d) General prices Index - Internal Availability (IGP-DI)

The minimum payments of maturing operating will be as follows:

		12/31/2018
Less than 1 year		181,903
From 1 year to 3 years		484,200
From 3 years to 5 years		258,018
More than 5 years		524,120
Total installments due		1,448,241

20. Other commitments

Take or Pay contracts

The Company entered into long-term contracts of up to 6 years in Take or Pay with suppliers of electricity, natural gas (LPG), fuel, chemicals, oxygen, CO2 and transportation. The contracts contain clauses of termination and suspension of supply due to non-compliance with essential obligations.

On December 31, 2018, the amount involved in this type of contract amounts to R$ 5,763,658, considering the minimum contractual amounts.

21. Provision for Contingencies

21.1. Changes in provisions for contingencies

		Tax and social security		Labor		Civil		Total
Balance on 12/31/2016		206,365		38,430		1,839		246,634
New lawsuits		32,672		9,888		1,880		44,440
Reversals		(4,738	)	(3,720	)	(337	)	(8,795	)
Inflation adjustment		42,400		9,467		—		51,867
Settlement of lawsuits		(3,375	)	(13,702	)	—		(17,077	)
Balance on 12/31/2017		273,324		40,363		3,382		317,069
New lawsuits due to acquisition of subsidiaries		—		1,900		—		1,900
New lawsuits		49,754		28,716		150		78,620
Reversals		(13,605	)	(5,011	)	(394	)	(19,010	)
Inflation adjustment		5,747		7,481		475		13,703
Settlement of lawsuits		(18,350	)	(22,580	)	(81	)	(41,011	)
Balance on 12/31/2018		296,869		50,869		3,532		351,270

71

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

21.2. Tax and Social Security Suits and Proceedings

On December 31, 2018, the Company was a defendant in 407 administrative proceedings as well as tax and social security lawsuits in which the disputed matters related to diverse taxes such as IRPJ/Social Contribution (“CSLL”), PIS, COFINS, Tax on Industrialized Products (“IPI”), social security contribution, Rural Property Tax (“ITR”), State Value-Added Tax (“ICMS”), Tax on Services (“ISS”) and Urban Property Tax (“IPTU”), whose amounts are provisioned for when the likelihood of loss is deemed probable by the Company’s external legal counsel and the Management.

With regard to the installment set up by Provisional Measure n°. 783/2017, subsequently converted into Law n° 13,496/2017, also known as “PERT”, the Company opted for to migrate certain debts that were covered by REFIS - Law 11,941 / 09, which have not yet been consolidated, and include other debts with probable likelihood of loss in said Installment Program, being provisioned on December 31, 2018 the amounts of said debts in the amount of R$ 4,398, already discounting in this amount the statutory reductions and amounts paid in advance to the Federal Revenue Service, whose consolidation still depends on a regulatory act to be issued by the said Public Organ.

21.3. Labor claims

On December 31, 2018, the Company was a defendant in 3,459 labor claims (probable, possible and remote).

In general, labor claims are related primarily to matters frequently contested by employees in agribusiness companies, such as certain wages and/or severance payments, in addition to suits filed by outsourced employees of the Company.

21.4. Civil claims

On December 31, 2018, the Company is a defendant in approximately 453 civil claims (probable, possible and remote).

Civil proceedings are related primarily to payment of damages, such as those resulting from contractual obligations, traffic-related injuries, possessory actions, environmental claims and others.

21.5. Judicial deposits

As of December 31, 2018, the Company has the amount of R$ 129,005 referring to judicial deposits. (On December 31, 2017, the amount of R$ 113,613)

The amounts of R$ 44,395, R$ 79,605 and R$ 5,005 refer to tax and social security, labor and civil lawsuits, respectively. (On December 31, 2017, the amounts of R$ 69,599 and R$ 44,014 refer to tax, social security and labor lawsuits, respectively)

72

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

21.6. Lawsuits with possible contingencies

The Company is involved in tax, civil and labor lawsuits that are not provisioned, since they involve risk with probability of loss classified by Management and by its legal advisors as possible:

		12/31/2018		12/31/2017		12/31/2016
Tax and social secutiry		1,077,761		1,026,950		193,922
Labor		85,309		14,268		38,667
Civil		43,271		23,666		1,310
		1,206,341		1,064,884		233,899

The Company is a defendant in tax proceedings whose likelihood of loss is considered possible, in the total amount of R$ 1,077,761, for which there is no provision. Of this amount, R$ 848,428 refers to tax assessment notices of PIS and COFINS, from 2007 to 2013, which have not yet been finally decided on the merits within the scope of the Administrative Tribunal.

The other tax and social security lawsuits refer to various taxes, such as Social Security Contribution, IRPJ, ITR, ICMS, Withholding Income Tax (“IRRF”), PIS and COFINS, mainly due to differences in interpretation of applicable tax rules and information provided in ancillary obligations.

22. Employee benefits

22.1. Defined benefits plans

The Company guarantees coverage of healthcare costs for former employees who retired by 2003 (until 1998 for former employees of Ripasa, current Limeira unit), as well as their spouses for life and dependents while they are minors.

For other group of former employees, who exceptionally, according to the Company’s criteria and resolution or according with rights related to the compliance with pertinent legislation, the Company ensures the healthcare program.

The Company offers life insurance benefit provided to retirees.

73

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

22.2. Key actuarial economic and biometric assumptions used in the calculations of liability

		12/31/2018		12/31/2017
Discount rate - health plan		4,91% p.a		5.39% p.a
Discount rate - life insurance		4,91% p.a		5.39% p.a
Medical cost growth rate above basic inflation		3,25% p.a		3.25% p.a
Economic inflation		4,00% p.a		4.40% p.a
Biometric table of general mortality		AT-2000		AT-2000
Biometric table of mortality of disabled persons		IAPB 57		IAPB 57

On December 31, 2018, the sensitivity of the balance of actuarial liabilities to the changes in the main assumptions used, considering that all others remain unchanged, is as follows:

		Change		Increase in liability		Decrease in liabiliy
Discount rate		0.50%		Decrease of 5.67%		Increase of 6.25%
Medical cost growth rate		0.50%		Increase of 6.41%		Decrease of 5.86%
Mortality		1 year		Increase of 0.47%		Decrease of 2.27%

22.3. Changes in actuarial liabilities

Opening balance on December 31, 2016		339,009
Interest on actuarial liability		38,022
Actuarial gain		(4,173	)
Benefits paid in the year		(21,595	)
Balance at December 31, 2017		351,263
Interest on actuarial liability		35,920
Actuarial loss		69,305
Benefits paid in the year		(26,061	)
Closing balance on December 31, 2018		430,427

23. Share-Based Compensation Plans

For the year ended December 31, 2018, the Company has four (4) long term incentive plans share-based: (i) Payment in phantom shares plan in cash; (ii) Stock Options plan; (iii) Share appreciation rights (“SAR”) and (iv) Performance Share plan.

74

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

Certain executives, management and employees (beneficiaries) are entitled to the plan. The general acquisition conditions, such as exercise price, number of shares, vesting period and grant of stock options to these executives (beneficiaries) are defined in specific regulations in accordance with the guidelines and conditions established by the Company’s Board of Directors.

23.1. Phantom Stock Options (“PSO”)

Certain executives and key members of the Management have a long-term compensation plan linked to the share price with payment in cash.

Throughout 2017, the Company granted the SAR and PLUS 2017 (Share Appreciation Rights) (“SAR”) Programs of phantom stock options. In this program, the beneficiaries should invest 5% of the total amount corresponding to the number of options of phantom shares at the grant date and 20% after three years to acquire the option. The Company also granted Long-Term Incentive (LTI) programs to its key members as part of its retention policy. In this program, the beneficiary does not make any investment.

The vesting period of options may vary from 3 to 5 years, as of the grant date, in accordance with the characteristics of each plan.

The price of the share is calculated based on the average share quote of the 90 previous trading sessions starting from the closing quote on the last business day of the month prior to the month of the grant. The installments of these programs will be adjusted by the variation in the price of the Suzano’s shares (SUZB3) between the granting and the payment period. On dates when the SUZB3 shares is not traded, the quote of the previous trading session will be considered.

The phantom share options will only be due if the beneficiary is an employee of the Company on the payment date. In case of termination of the employment by initiative of the Company or by initiative of the beneficiary, before the vesting period is completed, the executive will not be entitled to receive all benefits, unless otherwise established in the agreements.

		12/31/2018		12/31/2017		12/31/2016
		Number of  shares		Number of  shares		Number of  shares
Available at the beginning of the year		5,055,519		3,048,991		3,570,103
Granted during the year		1,415,476		3,035,488		1,092,921
Intercompany transfer		—		—		32,061
Exercised (a)		(751,859	)	(695,532	)	(1,144,900	)
Exercised due to dismissal (a)		(153,601	)	(161,270	)	(138,896	)
Abandoned / prescribed due to dismissal		(520,178	)	(172,158	)	(362,298	)
Available at the end of the year		5,045,357		5,055,519		3,048,991

75

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

(a) For share options exercised and those exercised due to employment termination, the average price on December 31, 2018 and 2017 was R$ 47.77 and R$ 19.84, respectively.

On December 31, 2018, outstanding phantom shares option plans are as follows:

12/31/2018

Program		Grant date		2nd exercise  date		Fair value on  the grant  date			No. of options  granted
Deferral 2014		3/1/2015		3/1/2019		R$	10.80		187,263
SAR 2015		4/1/2015		4/1/2020		R$	11.69		3,635
SAR 2015 - September		9/1/2015		9/1/2020		R$	15.99		4,340
Deferral 2015		3/1/2016		3/1/2019		R$	16.93		72,096
Deferral 2015		3/1/2016		3/1/2020		R$	16.93		72,096
SAR 2016		4/1/2016		4/1/2021		R$	15.96		568,215
PLUS 2016		4/1/2016		4/1/2021		R$	15.96		192,142
SAR 2016 - October		10/3/2016		10/3/2021		R$	11.03		8,934
SAR 2017		4/3/2017		4/3/2022		R$	13.30		938,457
PLUS 2017		4/3/2017		4/3/2022		R$	13.30		235,578
ILP 2017 - 36		4/3/2017		4/3/2020		R$	13.30		304,512
ILP 2017 - 48		4/3/2017		4/3/2021		R$	13.30		304,512
ILP 2017 - 60		4/3/2017		4/3/2022		R$	13.30		304,512
ILP 2017 - CAB		5/1/2017		5/1/2020		R$	13.30		307,141
ILP 2017 - 36 Oct.		10/2/2020		10/2/2020		R$	15.87		126,444
ILP 2017 - 48 Oct.		10/2/2021		10/2/2021		R$	15.87		42,008
ILP 2017 - 60 Oct.		10/2/2022		10/2/2022		R$	15.87		42,008
Deferral 2017		3/1/2018		3/1/2021		R$	19.88		196,535
Deferral 2017		3/1/2018		3/1/2022		R$	19.88		196,535
ILP 2018		4/2/2018		2/4/2018		R$	21.45		15,851
SAR 2018		4/2/2018		2/4/2018		R$	21.45		841,735
PLUS 2018		4/2/2018		2/4/2018		R$	21.45		80,808
		TOTAL							5,045,357

23.2. Common stock option plan

Of the Company’s Stock Option Plans (SOPs), we have Program III, granted in 2013, which have all been settled, the last in 2018.

On January 1, 2018, the Company established a Restricted Shares plan based on the Company’s performance (Program IV). The Plan associates the amount of Restricted Shares granted to the Company’s performance in relation to the ROIC goal (Return Over Invested Capital). The size of the restricted stock grant is defined in financial terms and is subsequently

76

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

converted into shares based on the last 60 pre-announcements on December 31, 2018 of SUZB3 at B3 (Brazil, Bolsa, Balcão).

23.3. Measurement assumptions

In the case of the phantom shares plan, since the settlement is in cash, the fair value of options is remeasured at the end of each period based on the Monte Carlo (MMC) method, which is multiplied by the Total Shareholder Return (“TSR”) in the period (which varies between 75% and 125%, depending on the performance of SUZB3 in relation to its peers in Brazil).

The fair value of the plan of common shares of Program III, was estimated based on the binomial probability model, which considers the dividends distribution rate and the following assumptions:

		Indexes
		Options
Description of assumptions		Program III		SAR 2015		SAR 2016 and Plus 2016		SAR 2017 and Plus 2017		SAR 2018 and Plus 2018
Calculation Model		Binomial		Monte Carlo		Monte Carlo		Monte Carlo		Monte Carlo
Asset base price (per share)		R$ 7.73		R$ 42.46		R$ 42.46		R$ 42.46		R$ 42.46
Expectation of volatility (a)		40.47 % p.a.		44.36 % p.a.		44.36 % p.a.		44.36 % p.a.		44.36 % p.a.
Phantom stock/options average life expectancy (b)		Equal to option life
Dividends expectancy (c)		3.49 % p.a.		1% p.a.		1% p.a.		1% p.a.		1% p.a.
Risk-free weighted average interest rate (d)		8.99%		8.72%		8.72%		8.72%		8.72%

(a) The expectation of volatility was calculated for each exercise date, taking into account the remaining time to complete the vesting year, as well as the historical volatility of returns, considering a standard deviation of 745 observations of returns;

(b) The expectation of average life of phantom stocks and stock options was defined by the remaining term until the limit exercise date;

(c) The expectation of dividends was defined based on historical earnings per share of the Suzano;

(d) Risk-free weighted average interest rate used was the BRL yield curve (DI expectation) observed on the open market, which is the best comparison basis with the Brazilian market risk-free interest rates. The rate used for each exercise date changes according to the vesting year.

The amounts corresponding to the services received and recognized in the financial statements are presented below:

77

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		Liabilities and equity				Income Statement
		12/31/2018		12/31/2017		12/31/2018		12/31/2017		12/31/2016
Non-current liabilities
Provision for phantom stock plan		124,318		38,320		(126,439	)	(32,192	)	529
Shareholders’ equity
Stock option reserve		5,100		14,237		(5,170	)	(1,521	)	(3,337	)
Total general and administrative expenses from share-based transactions						(131,609	)	(33,713	)	(2,808	)

24. Liabilities for assets acquisitions and subsidiaries

		12/31/2018		12/31/2017
Assets acquisition
Land acquired from third parties (a)		91,085		102,059
Duratex (b)		385,397		—
		476,482		102,059
Business combination transaction
Facepa (c)		41,185		—
Vale Florestar Fundo de Investimento em Participações (“VFFIP”) (d)		474,845		483,927
		516,030		483,927
		992,512		585,986
Total current liabilities		476,954		83,155
Total non-current liabilities		515,558		502,831

(a) Refers to obligations with the acquisition of land, farms, reforestation and houses built in Maranhão, restated by the IPCA.

(b) Refers to the commitments related to the acquisition of rural properties and forests (biological assets), restated by the IPCA with maturity in August 2019.

(c) Acquired in March 2018, for the amount of R$ 307,876, upon payment of R$ 267,876 and the remaining R$ 40,000, restated at the Broad Consumer Price Index (“IPCA”), adjusted by any losses incurred through the payment date, in accordance with the agreement, with maturities in March 2023 and March 2028 (Note 1.1 b) ii)).

(d) On August 2014, Suzano acquired the Vale Florestar S.A. through VFFIP, for the total amount of R$ 528,941 with a down payment of R$ 44,998 and outstanding balance with due up to August 2029. The monthly settlements are subject to interest and restated at the variation of the U.S. dollar exchange rate and partially restated by variation of the Broad Consumer Price Index (“IPCA”).

78

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

25. Equity

25.1. Share Capital

On December 31, 2018, the share capital of Suzano is R$ 6,241,753, divided into 1,105,826,145 registered, book-entry common shares without par value.

The composition of the share capital is presented below:

		Common Shares
Shareholder		Number		(%)
Suzano Holding S.A.		367,612,234		33.24	%
Controlling Shareholders		185,693,440		16.80	%
Subtotal		553,305,674		50.04	%
Management		69,918,251		6.32	%
Treasury		12,042,004		1.09	%
BNDESPAR		75,909,985		6.86	%
Mondrian Investment Partners		72,878,900		6.59	%
Other shareholders		321,771,331		29.10	%
Total		1,105,826,145		100.00	%

By resolution of the Board of Directors, the capital may be increased, irrespective of any amendment to the Bylaws, up to the limit of 780,119,712 common shares, all exclusively book-entry shares.

On December 31, 2018, SUZB3 common shares ended the year quoted at R$ 38.08 (on December 31, 2017, SUZB3 was quoted at R$ 18.69).

25.2. Capital reserve

The Capital Reserve is composed of the balances of the tax incentive reserve, the stock option reserve, the treasury shares the and the costs directly attributable to the Share Offering, which are primarily composed of the expenses with the fees and commissions charged by legal counsel, consultants and auditors.

79

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

25.3. Treasury shares

		Number of shares										Average price per share
		Ordinary		Pref. A		Pref. B		Total		R$		(R$)
Balance on December 31, 2016		6,786,194		8,846,932		1,912,532		17,545,658		273,665		15.60
Shares sold (a)		—		(1,800,000	)	—		(1,800,000	)	(15,552	)	8.64
Shares transferred (b)		7,055,810		(7,055,810	)	—		—		—		—
Shares canceled (c)		—		—		(1,912,532	)	(1,912,532	)	(17,107	)	8.94
Repurchase of shares (d)		—		8,878		—		8,878		82		9.24
Balance on 12/31/2017		13,842,004		—		—		13,842,004		241,088		17.42
Shares sold (a)		(1,800,000	)	—		—		(1,800,000	)	(22,823	)	12.68
Balance on 12/31/2018		12,042,004		—		—		12,042,004		218,265		18.13

(a) Treasury shares used to meet the share-based compensation plan (Note 23).

(b) On September 29, 2017, the Company approved the proposal for migration to the Novo Mercado Listing Segment of B3 S.A. — Brasil, Bolsa, Balcão (“B3”) and the consequent conversion of all preferred shares issued by the Company into common shares at the ratio of one (1) preferred share, class “A” or class “B”, for one (1) common share.

(c) On April 28, 2017, the Annual and Extraordinary Shareholders Meeting approved the cancellation of 1,912,532 class “B” preferred shares.

(d) Repurchase of shares related to withdrawal rights exercised by shareholders who did not adhere to the conversion of preferred shares to common shares.

25.4. Retained earnings

The Reserve for Capital Increase is composed of 90% of the remaining balance of net income for the year, after dividends, and legal reserve and aims to ensure the Company adequate operational conditions.

The Special Statutory Reserve includes the remaining 10% of the remaining balance of net income for the year and aims to ensure the distribution of dividends.

80

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

25.5. Other reserves

		Conversion of debentures - 5th issue		Actuarial gains/losses(a)		Exchange variation/ Conversion reserves		Deemed cost(a)		Total
Balances on December 31, 2016		(45,745	)	(55,503	)	(11,384	)	2,427,199		2,314,567
Actuarial losses net of deferred income and social contribution taxes		—		2,754		—		—		2,754
Gains from conversion of operations abroad		—		—		38,006		—		38,006
Partial realization of cost adjustment attributed to assets, net of deferred income and social contribution taxes		—		—		—		(56,999	)	(56,999	)
Balances on December 31, 2017		(45,745	)	(52,749	)	26,622		2,370,200		2,298,328
Actuarial gain of deferred income tax and social contribution		—		(45,741	)	—		—		(45,741	)
Gains from conversion of operations abroad		—		—		137,546		—		137,546
Partial realization of cost adjustment attributed to assets, net of deferred income and social contribution taxes		—		—		—		(68,424	)	(68,424	)
Balances on December 31, 2018		(45,745	)	(98,490	)	164,168		2,301,776		2,321,708

(a) Net of deferred tax effects

25.6. Earnings per share

Basic

Basic earnings (loss) per share is calculated by dividing the profit attributable to the Company’s shareholders by the weighted average common shares issued during the year, excluding the common shares acquired by the Company and held as treasury shares.

As described in Note 27.3) b), in November 2017, the Company migrated to the Novo Mercado segment. Thus, all preferred shares were converted into common shares at the ratio of one preferred share for one common share. Considering that there was no change in capital stock, with mere conversion of preferred shares, for the purposes of calculation and presentation of earnings per share, this conversion was considered retrospectively.

		12/31/2018		12/31/2017		12/31/2016
Earnings attributed to shareholders		319,693		1,820,994		1,677,815
Weighted average number of shares in the year		1,105,826		1,106,297		1,107,739
Weighted average treasury shares		(12,333	)	(14,597	)	(17,696	)
Weighted average number of outstanding shares		1,093,493		1,091,700		1,090,043
Total basic earnings per common share		0.29236		1.66804		1.53922

Diluted

Diluted earnings per share is calculated by adjusting the weighted average of outstanding common shares assuming the conversion of all common shares that would cause dilution. The Company presents dilution potential: call options exercisable at the discretion of the holder.

81

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2018		12/31/2017		12/31/2016
Earnings attributed to shareholders		319,693		1,820,994		1,677,815
Weighted average number of shares in the year		1,093,493		1,091,700		1,090,043
Adjustment by stock options		1,386		2,428		3,493
Weighted average number of shares (diluted)		1,094,879		1,094,128		1,093,536
Total diluted earnings per common share		0.29199		1.66433		1.53430

25.7. Dividends

The minimum dividends for each fiscal year should be equivalent to the lowest of: (i) twenty-five percent (25%) of the net income from the year adjusted pursuant to article 202 of Brazilian Corporations Law; or (ii) ten percent (10%) of the Company’s operating cash generation in the respective fiscal year.”

On December 31, 2018, based on the criteria defined in the bylaws, mandatory minimum dividends were determined based on item i)

		12/31/2018
Net income for the year		318,339
Accrual of legal reserve - 5%		(15,917	)
Accrual of reserve for tax incentives		(288,557	)
Dividend calculation base		13,865
Minimum mandatory dividends - 25%		3,466

As a proposal of the Management, the amount of R$ 600,000 of total dividends will be submitted to Annual General Meeting/Extraordinary approval. The portion exceeding the mandatory minimum dividends, if approved, will be allocated to the profit reserves.

On December 31, 2017, the Company calculated dividends as follows:

82

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2017
Net Income for the year		1,807,433
Accrual of legal reserve - 5%		(90,372	)
Accrual of reserve for tax incentives		(196,604	)
Dividend calculation base		1,520,457
Minimum mandatory dividends - 25%		380,115
Dividends paid in advance as interest on own capital		(199,835	)
		180,280

The Company revised the calculation of the proposed dividends for the fiscal year ended December 31, 2017 as follows:

Article 26, c),  i)

Net Income under statutary book for the year		1,807,433
Net Income Allocation:
Legal Reserve 5% - Art. 31, “a” of the Bylaws and Art. 193 of Federal Law 6,404/76		90,372
Tax Incentive Result (Profit from Exploration) Art. 19 of Decree 1,598/77		196,604
Dividend distribution base		1,520,458
Proposed dividends		380,115
Interest on own capital		199,835
(-) Withholding Income Tax on interest on own capital		(29,975	)
Minimum mandatory dividends payable		210,255

Article 26, c),  ii)

Net Income under statutary book for the year		1,807,433
(-) Financial income		(379,049	)
(+) Financial expenses		1,397,889
(+) Depreciation/Amortization/Depletion		1,402,778
(+) IRPJ / CSLL		431,632
EBITDA		4,660,683
(-) Fair Value of Biological Assets		(192,504	)
(+) Other non-recurring adjustments		146,720
Adjusted EBITDA*		4,614,899
(-) Sustaining CAPEX		(1,099,771	)
Operating Cash Generation - GCO		3,515,128
Dividends - Art 26, “c” of the Bylaws		351,513
Interest on equity		199,835
(-) Withholding Income Tax on interest on own capital		(29,975	)
Minimum mandatory dividends payable		181,653

Based on the calculation above, the amount of R$ 351,513 was considered as minimum mandatory dividends for fiscal year 2017, of which the net amount of R$169,860 was paid as interest on own capital, with the balance of R$ 181,653 remaining payable. The difference of R$ 1,373 between the amount previously disclosed in December 31, 2017 (R$ 180,280) and the minimum dividend calculated in accordance with article 26, c), item ii) of the Bylaws off the Company was deemed immaterial by the Management and therefore the financial statements for the fiscal year ended December 31, 2017 will not be restated.

Even though the minimum mandatory dividend amounted R$ 351,513, Management submitted to the Annual Shareholders’ Meeting held on April 26, 2018 and approved the proposal for total dividends related to the fiscal year of 2017 in the amount of R$ 380,115, which was paid on December 11, 2017 by interest on equity the amount of R$ 199,835 and on May 9, 2018 the remaining balance.

83

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

26. Net Financial Result

		12/31/2018		12/31/2017		12/31/2016
Income from financial investments		442,378		285,888		333,168
Other financial income		17,329		19,890		48,636
Total financial income		459,707		305,778		381,804
Loan interest expenses		(1,075,567	)	(1,035,986	)	(991,796	)
Other interest expenses		(120,991	)	(108,410	)	(104,023	)
Other financial expenses		(303,816	)	(74,080	)	(60,385	)
Total financial expenses		(1,500,374	)	(1,218,476	)	(1,156,204	)
Monetary and exchange variations on loans and financing		(1,311,061	)	(163,418	)	1,619,202
Monetary and exchange variations on other assets and liabilities		244,411		(15,995	)	(251,921	)
Monetary and exchange variation, net		(1,066,650	)	(179,413	)	1,367,281
Derivative gain (loss)		(2,735,196	)	73,271		528,839
Financial income		459,707		379,049		2,277,924
Financial expenses		(5,302,220	)	(1,397,889	)	(1,156,204	)
Financial result, net		(4,842,513	)	(1,018,840	)	1,121,720

27. Net Sales Revenue

		12/31/2018		12/31/2017		12/31/2016
Gross sales		14,802,821		11,752,459		11,033,809
Deductions:
Present value adjustment		(4,984	)	—		(20,620	)
Returns and cancelations		(75,477	)	(50,199	)	(76,654	)
Discounts and rebates		(15,695	)	(6,589	)	(9,807	)
		14,706,665		11,695,671		10,926,728
Taxes on sales (a)		(1,263,289	)	(1,114,998	)	(1,087,566	)
Net sales revenue		13,443,376		10,580,673		9,839,162

(a) Includes the relative amount 2.5% of gross sales revenue in the domestic market, related to social contribution to the (INSS), pursuant to Law n° 12.546/11, Article 8, Annex I and their respective changes.

The table below shows the breakdown of consolidated net revenue by foreign and domestic markets, specifying the countries where sales in the export market are more significant:

84

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2018				12/31/2017				12/31/2016
		Net revenue		% Total net revenue		Net revenue		% Total net  revenue		Net revenue		% Total net  revenue
Domestic market (Brazil)		4,051,643		30	%	3,222,158		30	%	3,276,248		33	%
Foreign market		9,391,734		70	%	7,358,515		70	%	6,562,914		67	%
China		2,113,078		16	%	1,786,629		17	%	1,279,134		13	%
United States		1,346,863		10	%	1,392,159		13	%	1,359,651		14	%
Hong Kong		1,412,179		11	%	1,230,631		12	%	1,001,465		10	%
France		889,471		7	%	475,442		4	%	503,649		5	%
Germany		568,409		4	%	441,506		4	%	377,619		4	%
Italy		447,063		3	%	378,874		4	%	611,150		6	%
South Korea		160,286		1	%	19,974		0	%	205,132		2	%
Spain		198,692		1	%	246,184		2	%	132,323		1	%
Turkey		328,821		2	%	197,880		2	%	144,031		1	%
United Kingdom		235,441		2	%	195,828		2	%	186,436		2	%
Mexico		140,055		1	%	23,727		0	%	352,662		4	%
Argentina		157,715		1	%	160,207		2	%	158,425		2	%
Peru		200,017		1	%	128,083		1	%	101,807		1	%
Other countries		1,193,646		9	%	681,392		6	%	149,430		2	%
Total net revenue		13,443,376		100	%	10,580,673		100	%	9,839,162		100	%

28. Information by Segment and Geographic Areas

28.1. Criteria for identifying operating segments

The Company evaluates the performance of its business segments through the operating result. The information presented under “Not Segmented” is related to income statement and balance sheet items not directly attributed to the pulp and paper segments, such as, net financial result and income and social contribution taxes expenses, in addition to the balance sheet classification items of assets and liabilities.

The operating segments defined by Management are as follows:

i) Pulp: comprises production and sale of hardwood eucalyptus pulp and fluff mainly to supply the foreign market, with any surplus sold in the domestic market.

ii) Paper: comprises production and sale of paper to meet the demands of both domestic and foreign markets. Sales of the consumer goods segment (tissue) are classified in this segment due to the segment’s immateriality.

85

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

28.2. Information on operating segments

		12/31/2018
		Pulp		Paper		Not segmented		Total
Net sales revenue		8,783,272		4,660,104		—		13,443,376
Domestic market (Brazil)		744,566		3,307,076		—		4,051,642
Foreign market		8,038,706		1,353,028		—		9,391,734
Asia		3,837,998		101,695		—		3,939,693
Europe		2,810,899		225,111		—		3,036,010
North America		1,340,907		210,831		—		1,551,738
South and Central America		48,902		774,730		—		823,632
Africa		—		40,661		—		40,661
Cost of sales		(3,965,912	)	(2,956,419	)			(6,922,331	)
Gross profit		4,817,360		1,703,685		—		6,521,045
Gross margin (%)		54.8	%	36.6	%	—		48.5	%
Operating income (expenses)		(626,887	)	(886,347	)	—		(1,513,234	)
Selling expenses		(212,869	)	(385,857	)	—		(598,726	)
General and administrative expenses		(275,859	)	(549,350	)	—		(825,209	)
Other operating income (expenses), net		(138,159	)	41,284		—		(96,875	)
Equity pick-up		—		7,576		—		7,576
Operating profit before net financial income		4,190,473		817,337		—		5,007,811
Operating margin (%)		47.7	%	17.5	%	—		37.3	%
Financial result, net		—		—		(4,842,513	)	(4,842,513	)
Income (loss) before income taxes		4,190,473		817,337		(4,842,513	)	165,298
Income taxes		—		—		154,516		154,516
Net income (loss) for the year		4,190,473		817,337		(4,687,997	)	319,814
Profit margin for the year (%)		47.7	%	17.5	%	—		2.5	%
Depreciation, depletion and amortization		1,105,381		457,842		—		1,563,223
Total assets		19,798,067		7,487,686		26,646,891		53,932,644
Total liabilities		670,041		701,802		40,534,866		41,906,709
Controlling interest equity		—		—		12,012,007		12,012,007
Non-controlling interest in subsidiaries’ equity		—		—		13,928		13,928
Total equity		—		—		12,025,935		12,025,935
Products sold (in tons)		3,225,719		1,255,637		—		4,481,356
Foreign market		2,927,714		377,263		—		3,304,977
Domestic market (Brazil)		298,005		878,374		—		1,176,379

86

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2017
		Pulp		Paper		Not segmented		Total
Net sales revenue		6,920,494		3,660,179		—		10,580,673
Domestic market (Brazil)		624,320		2,597,838		—		3,222,158
Foreign market		6,296,174		1,062,341		—		7,358,515
Asia		2,976,504		32,950		—		3,009,454
Europe		2,262,162		139,572		—		2,401,734
North America		966,789		254,971		—		1,221,760
South and Central America		90,719		608,445		—		699,164
Africa		—		26,404		—		26,404
Cost of sales		(3,937,036	)	(2,559,268	)	—		(6,496,304	)
Gross profit		2,983,458		1,100,911		—		4,084,369
Gross margin (%)		43.1	%	30.1	%	—		38.6	%
Operating income (expenses)		(104,985	)	(749,449	)	48,517		(805,917	)
Selling expenses		(163,879	)	(259,446	)	—		(423,325	)
General and administrative expenses		(185,141	)	(343,833	)	—		(528,974	)
Other operating income (expenses), net		244,035		(152,042	)	48,517		140,510
Equity pick-up		—		5,872		—		5,872
Operating profit before net financial income		2,878,473		351,462		48,517		3,278,452
Operating margin (%)		41.6	%	9.6	%	—		31.0	%
Financial result, net		—		—		(1,018,840	)	(1,018,840	)
Income (loss) before income taxes		2,878,473		351,462		(970,323	)	2,259,612
Income taxes		—		—		(438,618	)	(438,618	)
Net income (loss) for the year		2,878,473		351,462		(1,408,941	)	1,820,994
Profit margin for the year (%)		41.6	%	9.6	%	—		17.2	%
Depreciation, depletion and amortization		1,007,280		395,498		—		1,402,778
Total assets		18,901,493		6,336,499		3,288,203		28,526,195
Total liabilities		637,451		643,594		15,628,539		16,909,584
Controlling interest equity		—		—		11,616,611		11,616,611
Non-controlling interest in subsidiaries’ equity		—		—		—		—
Total equity		—		—		11,616,611		11,616,611
Products sold (in tons)		3,631,831		1,190,108		—		4,821,938
Foreign market		3,255,329		374,190		—		3,629,519
Domestic market (Brazil)		376,502		815,917		—		1,192,419

87

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		12/31/2016
		Pulp		Paper		Not segmented		Total
Net sales revenue		6,144,123		3,695,039		—		9,839,162
Domestic market (Brazil)		703,820		2,572,428		—		3,276,248
Foreign market		5,440,303		1,122,611		—		6,562,914
Asia		2,502,344		32,054		—		2,534,398
Europe		1,962,469		143,036		—		2,105,505
North America		898,442		327,718		—		1,226,160
South and Central America		71,725		568,253		—		639,978
Africa		5,323		51,550		—		56,873
Cost of sales		(4,082,147	)	(2,480,933	)	—		(6,563,080	)
Gross profit		2,061,976		1,214,106		—		3,276,082
Gross margin (%)		33.6	%	32.9	%	—		33.3	%
Operating income (expenses)		(1,347,490	)	(653,608	)	—		(2,001,098	)
Selling expenses		(177,098	)	(239,212	)	—		(416,310	)
General and administrative expenses		(149,485	)	(277,615	)	—		(427,100	)
Other operating income (expenses), net		(1,020,907	)	(129,654	)	—		(1,150,561	)
Equity pick-up		—		(7,127	)	—		(7,127	)
Operating profit before net financial income		714,486		560,498		—		1,274,984
Operating margin (%)		11.6	%	15.2	%	—		13.0	%
Financial result, net		—		—		1,121,720		1,121,720
Income (loss) before income taxes		714,486		560,498		1,121,720		2,396,704
Income taxes		—		—		(718,889	)	(718,889	)
Net income (loss) for the year		714,486		560,498		402,831		1,677,815
Profit margin for the year (%)		11.6	%	15.2	%	—		17.1	%
Depreciation, depletion and amortization		1,006,222		397,296		—		1,403,518
Total assets		17,765,172		6,830,676		4,775,427		29,371,275
Total liabilities		815,332		704,409		17,726,545		19,246,286
Controlling interest equity		—		—		10,124,989		10,124,989
Non-controlling interest in subsidiaries’ equity		—		—		—		—
Total equity		—		—		10,124,989		10,124,989
Products sold (in tons)		3,528,378		1,188,404		—		4,716,782
Foreign market		3,117,814		361,996		—		3,479,810
Domestic market (Brazil)		410,564		826,408		—		1,236,972

(a) The Company evaluation based on operating segments is only made for assets and liabilities comprising the measurement of Return on Invested Capital (“ROIC”), since this is used in the decision-making process.

88

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

28.3. Net sales by products

The table below shows the breakdown of paper consolidated net sales by product:

		12/31/2018		12/31/2017		12/31/2016
Products
Market pulp (a)		8,783,274		6,920,494		6,144,123
Printing and writing paper (b)		3,834,380		2,265,093		2,233,995
Paperboard		764,701		1,273,540		1,357,829
Other		61,021		121.546		103.215
Total Revenue		13,443,376		10,580,673		9,839,162

(a) Fluff pulp is not material (around 1% of the total net sales) and thus was included in Market Pulp sales.

(b) Tissue paper is recently product released and its revenues represented 3.5% of the total net sales, due to immateriality was included in Printing and writing paper.

89

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

29. Expenses by Nature

		12/31/2018		12/31/2017		12/31/2016
Cost of sales
Personnel expenses		(649,741	)	(546,090	)	(507,311	)
Variable cost		(3,197,895	)	(2,994,349	)	(2,907,344	)
Logistics cost		(1,044,899	)	(963,379	)	(944,119	)
Depreciation, depletion and amortization		(1,523,935	)	(1,367,856	)	(1,373,355	)
Other costs		(505,861	)	(624,630	)	(830,951	)
		(6,922,331	)	(6,496,304	)	(6,563,080	)
Selling expenses
Personnel expenses		(145,844	)	(106,083	)	(111,022	)
Services		(78,227	)	(45,593	)	(39,854	)
Logistics cost		(297,129	)	(220,944	)	(198,973	)
Depreciation and amortization		(4,471	)	(3,547	)	(3,439	)
Other expenses (a)		(73,054	)	(47,158	)	(63,022	)
		(598,726	)	(423,325	)	(416,310	)
Administrative expenses
Personnel expenses		(469,661	)	(309,019	)	(235,153	)
Services		(235,544	)	(105,522	)	(85,911	)
Depreciation and amortization		(34,817	)	(31,375	)	(26,724	)
Other expenses (b)		(85,187	)	(83,058	)	(79,312	)
		(825,209	)	(528,974	)	(427,100	)
Other operating (expenses) income
Result from disposal of other products		8,785		4,765		13,952
Result from disposal of property, plant and equipment and biological assets		4,523		29,005		9,767
Provision for loss and write-off of property, plant and equipment and biological assets (c)		(18,103	)	(66,707	)	(124,108	)
Provision for land losses (impairment)		—		—		(192,538	)
Amortization of intangible assets		(9,947	)	(8,303	)	(15,136	)
Adjustment to fair value of biological assets		(129,187	)	192,504		(780,666	)
Partial write-off of intangible assets (Note 16.3)		—		(18,845	)	(78,799	)
Tax recovery		335		5,613		15,672
Receipt of royalties		—		2,603		—
Loss in fixed assets disposal		—		(24,305	)	—
Judicial agreements		—		20,231		—
Land conflict agreement		—		(11,779	)	—
Trade agreement credits		51,846		10,671
Other operating income (expenses), net		(5,127	)	5,057		1,295
		(96,875	)	140,510		(1,150,561	)
		(8,443,141	)	(7,308,093	)	(8,557,050	)

(a) Includes allowance for doubtful accounts, insurance, materials (use and consumption), expenses with travel, accommodation, participation in trade fairs and events.

(b) Includes corporate expenses, insurance, materials (use and consumption), social projects and donations, expenses with travel and accommodation.

90

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

(c) On December 31, 2018 the amount refers to R$ 10,903 of write-offs related to losses and damages with biological assets and R$ 5,507 with property, plant and equipment (On December 31, 2017 the amount refers to R$ 49,338 of write-offs related to losses and claims with biological assets, R$ 17,369 with property, plant and equipment, and R$ 2,846 in reversal of provision for write-off of biological assets.

30. Insurance

Suzano maintains insurance coverage in amounts considered sufficient to cover possible liability risks, material losses and loss of profits. The maximum indemnity limit for material assets is R$ 7,520,000, for civil liability of Directors and Officers (D&O), the insured amount is US$ 100,000 and, for general civil liability, the insured amount is US$ 5,500.

Eucalyptus forests are not covered by insurance policies due to the particularities of this asset. The Company conducts constant monitoring through strategically positioned watchtower network, using fire alarm systems and trained fire brigades to prevent and combat these risks in forest areas.

31. Supplementary cash flow information non-cash transactions

		12/31/2018		12/31/2017		12/31/2016
Additions to property, plant and equipment		(242,337	)	—		—
Additions to biological assets		(120,495	)	—		—
Accounts payable for asset acquisition		402,832		—		—
Acquisition of subsidiaries		(40,000	)

The amounts relate to the transaction with Duratex and Facepa (Note 1.1 (a) (vii) and (b) (ii))

32. Events subsequent to the reporting date

i) Business Combination — Fibria Celulose S.A.

The Company completed the corporate reorganization process that resulted in the full control of the capital stock of Fibria, a producer of eucalyptus pulp, under the terms of the Agreement presented in note 1.1 b. i).

The corporate reorganization has as its main objective the creation of a new company, which will be a world leader in the production and sale of paper and pulp, the Company resulting from this union will have approximately 37 thousand employees (direct and third), with assets located in Brazil and in the world. In total there will be 11 industrial units, reaching 11 million tons of pulp, 1.4 million tons of paper and annual export volumes totaling R$ 18 billion.

The consideration by Fibria, defined in terms of the Agreement, is as follows:

91

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

i) Share exchange ratio

On January 2, 2019, pursuant to Notice to Shareholders, the exchange ratio of the common shares issued by the Holding held by Fibria shareholders for shares issued by Suzano was adjusted from 0.4611 to 0.4613, the exchange ratio of 0.4613 considered as final. The adjustment in the exchange ratio, compared to the originally announced, is due to (i) a change in the total number of shares issued by Fibria ex-treasury and disregarding the shares resulting from the vesting of option plans between those in the Protocol and Justification and present date of 553,080,611 shares for 553,733,881 shares and (ii) alteration of the number of shares issued by Suzano ex-treasury and disregarding the shares resulting from the vesting of option plans between that contained in the Protocol and Justification and the present date of 1,091,984,141 shares to 1,093,784,141 shares.

As a result of this adjustment, (i) Suzano issued, as a result of the merger of the Holding, 255,437,439 new common shares in the market value of R $ 36.95 (thirty-six reais and ninety-five cents), totaling amount of R$ 9,438,413; and (ii) the amount attributed to Suzano’s common share to calculate the capital gain, as disclosed in the Notice of Shareholders on November 29, 2018, increased from R$ 15.38 (fifteen reais and thirty-eight cents ) attributed to 0.4611 common share for R$ 15.39 (fifteen reais and thirty nine cents) attributed to 0.4613 common share of Suzano

ii) Cash installment

On January 10, 2019, by means of the Notice to Shareholders, the Company communicated the final value of the Adjusted Cash Portion, corresponding to the redemption value of each Holding’s redeemable preferred share, originally equivalent to R$ 52.50 (fifty two reais and fifty centavos), (i) reduced by the amount of dividends declared by Fibria on December 3, 2018 and paid in Brazil on December 12, 2018 in the amount of R$ 5.03 (five reais and three cents) (ii) plus R$ 2.73 (two reais and seventy-three cents), corresponding to the variation of the average daily rate of Brazilian interbank deposits expressed as an annual percentage, based on 252 (two hundred seventy- and fifty-two) business days, calculated and disclosed daily by B3 SA - Brasil, Bolsa e Balcão (“DI Rate”), between March 15, 2018 and the Expiration Date of the Transaction (including January 2019 (including) and January 14, 2019 (inclusive), the DI Rate was estimated at 6.40% (six point forty percent) per year, with a total and final amount of R$ 50.20 (fifty reais and twenty cents) per share, making up the final amount of the Adjusted Cash Amount of R$ 27,797,440.

The amounts mentioned above are gross, not considering any tax impacts on the payment to Fibria Resident or Non-Resident Shareholders, which are detailed in the Notice to Shareholders disclosed on November 29, 2018.

Suzano conducted a preliminary valuation analysis of the fair market value of the assets of Fibria acquired and liabilities assumed. Using the full consideration for the Merger, Suzano estimated the allocations for such assets and liabilities. The following table, in millions of

92

Suzano Papel e Celulose S.A. Notes to the Consolidated Financial Statements at December 31, 2018 In thousands of Brazilian reais (R$), unless otherwise indicated

Reais, summarizes the allocation of the preliminary purchase price on January 3, 2019 based on Fibria’s financial statements as of December 31, 2018.

		(amounts expressed in millions of Reais)
Cash consideration		27,797
Issuance of shares (Suzano)		9,439
Total consideration		37,236
Book value of Fibria’s shareholders’ equity		14,149
Elimination of the book value of existing goodwill, net of the deferred income taxes		(3,425	)
Book value of Fibria’s shareholders’ equity, net of goodwill		10,724
Adjustments to fair value
Inventories		2,179	(a)
Property, plant and equipment		9,290	(b)
Customer relationship		9,579	(c)
Port Assets		750	(d)
Possible contingent losses		(2,970	)(e)
Loans and Financing		(60	)(f)
Taxes recoverable		(236	)(g)
Other Net Assets and Liabilities		368	(h)
Deferred taxes, net		(501	)(i)
Total impact of fair value		18,399
Total preliminary goodwill		8,113

(a) Calculated considering the balance of finished products based on selling price, net of selling expenses and an accepted margin based on the results achieved in 2018.

(b) Determined based on the analysis of market data on comparable transactions and cost quantification, based on the estimate of replacement or replacement value of the assets.

(c) In order to determine the fair value adjustment in the customer portfolio, the income approach and the MPEEM (Multi Period Excess Earnings Method) method were used to measure the present value of the income that will be generated during the remaining useful life of the asset. Considering the 5-year history of Fibria’s sales data and the churn rate that measures customer satisfaction and customer permanence in the portfolio, the adjustment was calculated using estimated discounted cash flows.

(d) Fibria has concession contracts and port assets to assist in port operations in Brazil. The fair value calculation of these assets was considered the income approach, the MPEEM (Multi Period Excess Earnings Method) method that measures the present value of the income that will be generated during the remaining useful life of the asset and method of direct cost differential.

(e) At the moment, in the business combination, for the calculation of the fair value of the contingencies, whose chances of loss were considered possible and remote by Fibria’s Management, the amounts indicated were

93

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

considered by the Management of Suzano and its external and independent advisors based on the analyzes of Fibria’s external lawyers.

(f) Adjustment to fair value of loans and financing was calculated based on the fair value of the Bonds, based on the quotation of the security in the secondary market, and the adjustment to present value considering the market rate at the base date.

(g) For the measurement of the fair value of the taxes to be recovered, the amount to be recovered, brought to present value considering the expected Selic rate for the same period, was considered.

(h) In other net assets and liabilities, including supply contracts, accounts receivable and advances to suppliers, the income evaluation methodology, the present value and the direct cost differential were used.

(i) Deferred income tax on fair value adjustments of assets in Veracel and Portocel

The goodwill above is attributable to Fibria’s strong market position and expected future profitability in negotiations in the eucalyptus pulp market.

The direct costs related to the operation, recorded directly in the income for the year, totaled approximately R$ 63,690, substantially consisting of expenses with legal fees, auditing and other consulting services.

94

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		(expressed in millions of Reais)
		Fair value
Assets
Current
Cash and cash equivalents		1,794
Financial instruments		4,316
Derivative financial instruments		211
Trade accounts receivable		1,303
Inventories		6,187
Recoverable taxes		261
Other assets		211
Total Current Assets		14,283
Non-current
Financial Investments		173
Derivative Financial Instruments		455
Recoverable taxes		988
Advances to Suppliers		604
Judicial deposits		210
Deferred taxes		1,637
Other assets		227
		4,295
Investments		200
Biological assets		4,580
Fixed Assets		24,889
Right of Use		2,762
Intangible assets		11,018
Other intangible assets		309
Customer Portfolio		9,579
Software		21
Cultivars		143
Supplier contracts		172
Grant		750
Added value of contracts-leases		44
Unallocated parcel-Goodwill		8,113
		51,562
Total Non-current assets		55,857
Total Asset		70,140

95

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

		(expressed in millions of Reais)
		Fair value
Liabilities
Current
Loans and financing		3,136
Derivative Financial Instruments		276
Lease Liabilities		349
Trade accounts payable		3,427
Payroll and charges		402
Taxes payable		129
Dividends payable		731
Other accounts payable		151
Total Current Liabilities		8,601
Non-current
Loans and financing		17,591
Lease Liabilities		2,412
Derivative Financial Instruments		126
Provision for contingencies, liquid		3,181
Deferrad taxes		512
Other accounts payable		369
Total Non-Current Liabilities		24,191
Total Liabilities		32,792
Equity
Shareholders ‘ equity		37,236
Non-controlling interest		112
Total equity		37,348
Total liabilities and shareholders ‘ equity		70,140

96

Suzano Papel e Celulose S.A.
Notes to the Consolidated Financial Statements
at December 31, 2018
In thousands of Brazilian reais (R$), unless otherwise indicated

ii) Debenture - 7th issue.

On January 7, 2019, the Company issued R$ 4,000,000 in 7th issue, single series, non-convertible debentures with maturing in January, 2020 with interest rate from 103% to 112% of CDI.

iii) Senior Notes (“Notes 2029”)

On January 29, 2019, the Company reopened Senior Notes 2029 with the additional issuance of debt securities in the amount of US$ 750,000 (equivalent to R$ 2.8 billion). The notes mature in January 2029 and were issued with interest of 5.465% per annum, which will be paid semi-annually.

97