Message from the CEO

(102-12, 102-14 and 102-15)

Sustainability is the essence of our business. Planted forests supply our production processes and, in addition to the environmental management practices, were fundamental for us to remove 565,385 tons of CO2 from the atmosphere in 2018, 4% higher than in 2017, legitimating our Carbon Neutral Company title.

Our processes are integrated and we had as a priority, in 2018, continuous improvement in production, management systems and governance.

We are moving forward in Irani’s digital transformation process with the Projeto Simplifique (Simplify Project), which aims to implement SAP S/4HANA as the company’s ERPThe go live of the first wave occurred successfully at the turn of the year. We continue to implement the other modules that make up the second wave during 2019. With the implementation of SAP and Kiwiplan – corrugated containerboard packaging plant management system – Irani is prepared for the digital transformation and Industry 4.0 challenges. 

With external consulting support, we have deployed our strategic goals for all company levels. We implemented four groups of strategic indicators, organized in trees, from the president to the operational teams. The four defined trees were financial (EBITDA and NCG – working capital requirement  variation), customer satisfaction, health and safety, and organizational climate. We have also improved our business management processes for Corrugated Containerboard Packaging Business. With this project we have advanced a lot to understand the business profitability challenges, which today represents around 65% of the company’s total revenue. 

We implemented the Integrity Program and revised our Code of Ethical Conduct to reflect the policies defined by the Program. We disseminate to all our employees and suppliers. This was an important step in improving our governance practices, since it encompasses – within a single program – all relationship policies and expected positions. 

The sustainability and innovation committees, two cross-cutting themes with strategic importance for the company, began to operate in a systematic manner, organizing our efforts and enhancing our actions. In the sustainability area, the committee was dedicated to the evaluation and eventual revision of the practices already adopted by the companyhighlighting actions to be prioritized, such as voluntary actions in all our units, adding up to 600 hours of volunteer work. We have also evaluated our management practices against international methodologies and parameters such as the Global Reporting Initiative (GRI), the B3’s Corporate Sustainability Index (ISE) and the Global Compact commitments, to which we have been a signatory since 2007We have updated the socio-environmental impact assessments around the forest areas and industrial units in Santa Catarina and Rio Grande do Sul and are working on action plans to respond to the main demands identified. This work is being extended to the surroundings of our units in São Paulo and Minas Gerais, with completion expected to 2019. In the coming years, we will further align with our practices to the strategic goals of the company and the United Nations Sustainable Development Goals. 

Similarly, in the innovation area, efforts have been organized and technology platforms revitalized, delivering greater coherence and momentum to actions. We have also defined priority research lines in the Forest and Resin, Pulp and Paper, Corrugated Cardboard, Environmental and Energy segments, which cover, among other issues, the genetic improvement of Pinus, new process technologies, product innovations and new energy sources. 

We continued to advance our indicators and increased the OCC purchase index under long-term contracts from 83.12% to 85.06%, an essential raw material to produce recycled paper. Our initiatives focusing on circular economy foster not only a new value chain from industrial waste, but also entrepreneurship and employment and income generation for the local community. Besides, they provided, in 2018, savings of R$ 9.7 million in the disposal of waste to landfill, where they would emit more than 6 thousand tons of greenhouse gases (GHG). 

These practices and our management with a focus on sustainability were recognized by 14º Prêmio Brasil Ambiental da Amcham Rio (Brasil Ambiental Award) and by Prêmio ECO® 2018 (ECO Award)from Amcham Brasil. We also received the Troféu Prata do Programa Gaúcho de Qualidade e Produtividade – PGQP – (Silver Trophy of the Gaucho Quality and Productivity Program)organization that also conferred on us the Sustainability Recognition, Highlight in the Industrial Sector and the Innovation Award 2018That same year, we received the Prêmio Empresa Cidadã (Citizen Company Award)from the Associação dos Dirigentes de Vendas e Marketing de Santa Catarina – ADVB/SC (Association of Sales and Marketing Directors of Santa Catarina) and the Troféu e o Certificado de Responsabilidade Social (Social Responsibility Trophy and Certificate) from the Legislative House of Santa Catarina (Alesc). 

The year 2018 was featured by the recovery of economic-financial results for Irani. After very hard years for the Brazilian companies due to the strong economic recession, the year 2018 begins to present a reaction, although with a timid GDP growth. Irani, in particular, presented a much higher economic-financial performance than in 2017, as a result of the more favorable economic environment and also of the adjustment programs we have made in recent years. Our EBITDA of R$ 178 million was 15.4% higher than in the previous year, noting that, in 2017, EBITDA considered standing forest sales. Disregarding this effect, our EBITDA increased by 31.7%. 

2018 was also the first year of the 2018-2027 strategic planning cycle. Our short-term strategic objectives, fully consistent with the medium- and long-term ones, were conducted as planned. We maintained our focus on the gradual process of financial deleveraging, substantially improved the free cash flow, controlled investments and advanced the indicators that evaluate Irani’s economic and financial performance – ROE, ROIC and EBITDA margin. 

Finally, we took advantage of the year 2018 to improve our practices, processes and management systems. Irani is increasingly prepared to embark on a new prosperity cycle ahead. We are very optimistic and hopeful that the new government, by setting standards of excellence for the management of the Brazilian state, will contribute decisively to the development of the private sector and its companies. The reforms, the competitiveness and productivity agenda, the further opening up of the Brazilian economy, will bring important challenges for Brazilian companies. By anticipating the professionalization in our management while seeking excellence in our processes, Irani reinforces its purpose, aware that it is only possible to open arms for the future by investing in the present. 

SÉRGIO LUIZ COTRIM RIBAS
CEO