duratex s.a....duratex s.a. cnpj. 97.837.181/0001-47 a publicly listed company nire 35300154410...

Listed company

National Register of Corporate Taxpayers - (CNPJ)

No. 97.837.181/0001-47

NIRE -35300154410

Financial Statements at December 31, 2019

Duratex S.A.

DURATEX S.A. CNPJ. 97.837.181/0001-47 A Publicly Listed Company NIRE 35300154410

SUMMARIZED MINUTES OF THE MEETING OF THE EXECUTIVE BOARD HELD ON FEBRUARY 12, 2020

DATE, TIME AND PLACE: on February 12, 2020 at 9:00 am, at Avenida Paulista, 1938,

Terrace floor, in the city and state of São Paulo.

PRESIDING: Antonio Joaquim de Oliveira (Chairman); and Carlos Henrique Pinto Haddad

(Secretary).

QUORUM: the totality of the elected members.

RESOLUTIONS ADOPTED: following examination of the financial statements for the fiscal

year ending December 31, 2019 as well as the report from PricewaterhouseCoopers

Auditores Independentes, the Executive Board decided unanimously and pursuant to the

provisions in Sub-items V and VI, Article 25 of CVM Instruction 480/09, as amended, to

declare that:

a) it has reviewed, discussed and agreed with the opinions expressed in the report issued

by PricewaterhouseCoopers Auditores Independentes; and

b) it has reviewed, discussed and agreed with the financial statements for the fiscal year

ending December 31, 2019.

CONCLUSION: with the work of the meeting concluded, these minutes were drafted, read,

approved and signed by all. São Paulo (SP), February 12, 2020. (aa) Antonio Joaquim de

Oliveira – Chief Executive Officer; Marcelo José Teixeira Izzo – Vice President of the Deca

Business Unit; Henrique Guaragna Marcondes – Vice President of the Wood Business Unit;

Carlos Henrique Pinto Haddad, Cleonyr Xavier Filho, Daniel Lopes Franco, Glizia Maria do

Prado, José Ricardo Paraíso Ferraz and Marco Antonio Milleo – Officers.

CARLOS HENRIQUE PINTO HADDAD

Investor Relations Officer

DURATEX S.A. CNPJ. 97.837.181/0001-47 A Publicly Held Company NIRE 35300154410

AUDIT AND RISK MANAGEMENT COMMITTEE REPORT Introduction

Duratex S.A.’s Audit and Risk Management Committee was formed in November 2009. Its main responsibilities include: (i) oversight of the Corporate Governance Area, which is responsible for internal controls processes, compliance with laws, regulations and internal rules, and management of the risks inherent to the activities of the Company and its subsidiaries, as well as for the work conducted by Internal Audit; (ii) oversight of the work conducted by the Independent Auditors; and (iii) review of the quality and integrity of the financial statements. Responsibilities

Management is responsible for the proper preparation of the financial statements of Duratex S.A. and its subsidiaries and affiliates as well as for implementing and maintaining internal controls and risk management systems consistent with the size and structure of the Company. Management is also responsible for setting procedures to guarantee the quality of the processes that generate the financial information.

Internal Audit’s duties include assessing the risks involved in the Company's main processes and the controls used to mitigate these risks, as well as verifying compliance with the policies and procedures that Management may establish, including those intended for preparation of financial statements.

PricewaterhouseCoopers Auditores Independentes is responsible for auditing the financial statements and must ensure that they adequately represent, in all material aspects, the equity and financial situation of Duratex S.A. and its subsidiaries, and that they have been prepared in accordance with the accounting practices in force in Brazil, as prescribed by the Brazilian Securities and Exchange Commission (“Comissão de Valores Mobiliários” – CVM).

In the pursuit of its duties, the Committee’s analyses and reviews are based on information received from Management, from the Corporate Governance Area, from the Independent Auditors, and from the executives in charge of risk management and internal controls at the Organization’s various segments. Activities of the Committee

Over the course of fiscal year 2019, the Audit and Risk Management Committee convened eleven times for the following purposes:

» Review of the Policies for (i) Revenues Recognition, (ii) Indebtedness and Financial Investments and Bank Exposure, (iii) Risk Management, (iv) Internal Audit and (v) Biological Assets.

» Analyses of the financial, operational and environmental risks and the main internal risk-mitigating controls, at meetings with the Organization’s officers.

» Cognizance of the work conducted by the Risk Commission and verification of compliance with the Risk Management Policy.

» Cognizance and review of the work conducted by external auditors in connection with Information Security, and tracking the main action plans.

» Tracking the project for implementing the procedures and controls needed for compliance with the requirements under the General Data Protection Act.

» Review of aspects of the Reference Form, in particular those concerned with risks, before filing thereof with the Brazilian Securities and Exchange Commission – CVM.

» Cognizance and discussion of the information included in the Report on the Brazilian Corporate Governance Code before filing thereof with the CVM.

» Discussion and approval of the Independent Auditors’ work plan for fiscal year 2019. » Discussion and analysis of the main accounting practices used to prepare and draw the

quarterly financial statements and the annual balance sheet.

Audit and Risk Management Committee Report of Duratex S.A. held on February 12, 2020

Base Date: 12/31/2019 Fls. 2

» Cognizance of the main contingencies facing the Company. » Cognizance of the Internal Controls Report prepared by the Independent Auditors for the

as-of date Dec./31/2018. » Discussion of points for attention or improvement observed during the Independent

Auditors’ work in connection with internal controls and accounting aspects. » Approval of the Internal Auditors’ work plan for fiscal year 2020. » Approval of the Internal Controls and Risks area’s work plan for fiscal year 2020. » Analysis of the product of Internal Audit’s works. » Analysis of the product of Internal Controls and Risks’ works. » Tracking the action plans arising from Internal Audit’s recommendations, based on

meetings with the Company’s officers and the product of Internal Audit’s works. » Cognizance and tracking of Ombudsmanship’s activities. » Tracking the results of investigations conducted by an international consulting firm.

» Analysis and discussion of the main audit-related matters included in the Independent Auditors’ report.

» Review of the Committee’s Charter and self-assessment form. » Assessment of the independent and internal audits, and self-assessment of the

Committee.

At a meeting held on February 4 2020, the financial statements as of Dec/31/2019 were discussed and analyzed. Conclusion

The Audit and Risk Management Committee recognizes and supports the Company’s efforts to continuously review processes and improve the internal controls, risks, and compliance areas, as well as to create the Corporate Governance Area, which is responsible for the foregoing, as well as for the Internal Audit area. It further supports the Company’s efforts to strengthen its Information Technology environment, especially Information Security, and implement action plans intended to materially improve the maturity level of the Company and its executives and employees in connection with this area.

The Audit and Risk Management Committee, based on information received and the activities conducted within the period, taking into due consideration its responsibilities and the limitations arising from its purview, understands that the individual and consolidated financial statements as of Dec/31/2019 have been prepared in compliance with the accounting practices in force in Brazil and with the international financial reporting standards (IFRS) as issued by the International Accounting Standards Board (IASB), and recommends their approval by the Board of Directors. São Paulo, February 12, 2020. The Audit and Risk Management Committee: Raul Calfat –Chair; Teresa Cristina Grossi Togni – Expert Member; Juliana Rosenbaum Munemori, Ricardo Egydio Setubal and Rodolfo Villela Marino – Members.

RAUL CALFAT Chair

PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil, 05001-903, Caixa Postal 60054, T: +55 (11) 3674 2000, www.pwc.com.br

DURATEX19MEL-PAR.DOCX (DC1) Uso Interno na PwC - Confidencial

(A free translation of the original in Portuguese)

Independent auditor's report

To the Board of Directors and Stockholders Duratex S.A.

Opinion

We have audited the accompanying parent company financial statements of Duratex S.A. ("Company" or "Parent company"), which comprise the balance sheet as at December 31, 2019 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, as well as the accompanying consolidated financial statements of Duratex S.A. and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as at December 31, 2019 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Duratex S.A. and of Duratex S.A. and its subsidiaries as at December 31, 2019, and the financial performance and cash flows for the year then ended, as well as the consolidated financial performance and cash flows for the year then ended, in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Basis for opinion

We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the parent company and consolidated financial statements section of our report. We are independent in relation to the Company and its subsidiaries in accordance with the ethical requirements established in the Code of Professional Ethics and Professional Standards issued by the Brazilian Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the parent company and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Matters

Why it is a Key Audit

Matter

How the matter was addressed

Duratex S.A.

2 DURATEX19MEL-PAR.DOCX

(DC1) Uso Interno na PwC - Confidencial

Why it is a key audit matter How the matter was addressed in the audit

Measurement at fair value of biological assets (Notes 2.13, 3(a) and 15)

The Company records its forests, denominated biological assets, in its non-current assets, and they are measured at fair value, applying the discounted cash flow methodology. This methodology uses significant assumptions that involve judgment by management, including: growth rate of forests, productivity estimates, standing timber price and, mainly, timber price in different regions, including those where there is not a sufficiently active market or a source of verifiable prices, in addition to the interest rate for cash flow discount. At December 31, 2019, the fair value of these assets, recorded in the consolidated balance sheet of the Company and its subsidiaries, was R$ 1,544 million. We considered the matter aforementioned as an area of focus in our audit due to the risk associated to the circumstances described in paragraph two, which affect the inherent risk in the measurement and recognition of these assets, since the management's judgments and assumptions may have a significant impact on the determination of fair value and, consequently, on the Company's result for the year.

Our audit procedures, among others, included updating our understanding of the internal controls established by the management to measure these assets, as well as the fair value measurement method and the assumptions used in the corresponding calculation. We involved our specialists in the review of the valuation of biological assets, who supported us in the analysis of the model, calculations and assumptions used. We substantively tested the data input. We also evaluated the consistency of these calculations and assumptions with the prior year. Especially as concerns the timber prices in regions where there is no active market, we assessed the reasonableness of the estimates and criteria adopted by management, comparing them with the Company's formation costs. We evaluated whether the information disclosed in the explanatory notes were consistent with the requirements of the accounting standard and with the assumptions used in the calculations. The valuation model is reasonably consistent with the market practices and the assumptions used properly supported.

Business combination (Note 12 (d)) On July 31, 2019 the Company acquired the control of Cecrisa Revestimentos Cerâmicos S.A. ("CECRISA") for R$ 378 million, with a preliminary goodwill of R$ 163 million. Concomitantly with the purchase process, the Company engaged an independent specialized company to advise management in determining the fair value of the equity acquired. The determination of the date of acquisition of control and the preliminary measurement of the fair value of the equity acquired, represented by the

Among other procedures, we read the main documents related to the acquisition of CECRISA, analyzed the significant corporate documents and the main events that led management to conclude on the effective acquisition date. We also obtained an understanding of the processes established by management, including the completeness and integrity of the database and the calculation models to determine the purchase price allocation. We obtained the review report of the independent

Duratex S.A.




purchase price allocation to the assets and liabilities identified, and the subsequent computation of goodwill, involve significant judgments and estimates, as well as the evaluation of the technical competence of the specialists. The preliminary determination of the purchase price allocation was made and, therefore, is subject to adjustments up to the completion of the final evaluation. Therefore, changes may be made in the fair values originally attributed to the assets and liabilities acquired. The disclosure of information related to the business combination aforementioned, considering its complexity and significance, as well as its impact on the financial statements, led us to consider it as an area of focus in our audit.

auditor responsible for the review of the financial statements of CECRISA at July 31, 2019 and the result for the seven-month period then ended, which carrying amounts were considered in the purchase price allocation, including the register of the effects of the new accounting standards applicable as from January 1, 2019. We also reviewed the management evaluation of possible differences in accounting practices between the Company and CECRISA. With the support of our specialists, we assessed the reasonableness of the methodology and discussed the main assumptions adopted in the identification and measurement of the fair value of the assets acquired and liabilities assumed in the acquisition, comparing this information with the historical information available, with observable market and/or related industry data. We assessed the competence and objectivity of the external specialists engaged by management for the issuance of the report about the allocation of the purchase price in the business combination. In addition, we evaluated the main tax impacts arising from the measurement at fair value of the assets acquired and liabilities assumed in the business combination. Finally, we read the disclosures of management in the financial statements. Our audit procedures demonstrated that the management conclusion on the effective acquisition date is appropriate. They also showed that the judgment and assumptions that management used in the process of identifying and measuring the fair value of the assets acquired and liabilities assumed in the acquisition are reasonable and that the disclosures are consistent with the data and information obtained, even if preliminarily.

Duratex S.A.




Intangible assets with indefinite useful life - Recoverability (Notes 16 and 17)

The Company and its subsidiaries present significant balances in intangible assets with indefinite useful life, mainly comprised by goodwill, arising from acquisitions made by subsidiaries. As a result of the requirements included in the accounting standards (CPC 01), an annual minimum assessment of the recoverability of the indefinite useful live assets is necessary. At December 31, 2019, the intangible assets subject to automatic assessment of the recoverability totaled R$ 343 million, except for the assets of CECRISA, since the purchase price allocation of the subsidiary has not been completed yet. We considered the matter as an area of focus in our audit because it requires that management apply critical estimate and judgment due to both the assumptions used in the future cash flow projections and the determination of the interest rates used. Such determinations and measurements are based on the assumptions that may be changed due to future and unexpected conditions, either as a result of internal facts or due to market or macroeconomic conditions. Accordingly, possible changes in these assumptions could significantly affect the results projected by management.

We evaluated the assumptions used by the Company to determine the existence of losses in the intangible assets with indefinite useful life, and we evaluate the internal controls related to the identification and measurement of the recoverable value of the Company's cash-generating units. With the support of our specialists, we evaluated the key assumptions used in the future cash flow projections, including: (i) discount interest rate; (ii) expectations of growth in the Brazilian and international market in several industries, mainly in the civil construction; (iii) checking of the base year balances used to make a projection with historical accounting information; and (iv) other macroeconomic conditions. We evaluated the sensitivity of the results considering the reasonably possible changes in the key assumptions and we compared the prior-year's approved budgets with the actual amounts calculated to verify the Company's ability to project future results. Additionally, we compared the recoverable value calculated based on the cash generating units' discounted cash flows with the related carrying amounts and evaluated the appropriateness of the disclosures in the financial statements. In the context of our audit, we consider that the evaluation techniques and assumptions adopted by management are reasonable.

Deferred taxes expected realization (Notes 2.26, 3(f) and 10)

At December 31, 2019, the net deferred income tax and social contribution asset balances recorded in the Company's parent company and consolidated financial statements amount to R$ 275 million and R$ 332 million, respectively. The recognition of deferred income tax and social contribution requires the need of critical accounting

Our audit procedures included, among others, the review of the projections of future taxable results prepared by management, the consistency of these projections with the historical data of past estimates and, also, with their effective realizations. Additionally, we consulted specialized professionals to support us in the evaluation of the assumptions

Duratex S.A.




judgment in relation to its future realization, as from projections of future taxable results. This matter is being considered as a key audit matter, since the use of different assumptions in the related projections, including several subjective assumptions established by Management, could significantly modify the terms prescribed for the realization of tax credits and impact the statement that its recovery is probable, especially when the term for its recovery increases. Therefore, possible changes in these assumptions could significantly affect the results projected by management.

and methodology used by the Company and its subsidiaries upon preparation of these future profitability estimates. We also evaluated the adequacy of the disclosures made by the Company on the estimate of realization of the deferred taxes included in the notes to the financial statements. Our procedures corroborated the estimate of realization of deferred taxes based on the availability of future taxable results and we consider that the criteria and assumptions of realization of the deferred taxes adopted by management are appropriate, as well as the related disclosures in the notes to the financial statements.

Other matters

Audit of comparative figures The parent company and consolidated financial statements for the year ended December 31, 2018 were audited by another firm of auditors, whose report, dated February 13, 2019, expressed an unmodified opinion on these financial statements. Statements of value added The parent company and consolidated statements of value added for the year ended December 31, 2019, prepared under the responsibility of the Company's management and presented as supplementary information for IFRS purposes, were submitted to audit procedures performed in conjunction with the audit of the Company's financial statements. For the purposes of forming our opinion, we evaluated whether these statements are reconciled with the financial statements and accounting records, as applicable, and if their form and content are in accordance with the criteria defined in Technical Pronouncement CPC 09 - "Statement of Added Value". In our opinion, these statements of value added were properly prepared, in all material respects, in accordance with the criteria established in the Technical Pronouncement, and are consistent with the parent company and consolidated financial statements taken as a whole. Other information accompanying the parent company and consolidated financial statements and the auditor's report

The Company's management is responsible for the other information that comprises the Management Report. Our opinion on the parent company and consolidated financial statements does not cover the Management Report, and we do not express any form of audit conclusion thereon.

Duratex S.A.



In connection with the audit of the parent company and consolidated financial statements, our responsibility is to read the Management Report and, in doing so, consider whether this report is materially inconsistent with the financial statements or with our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement in the Management Report, we are required to communicate the matter to those charged with governance. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the parent company and consolidated financial statements

Management is responsible for the preparation and fair presentation of the parent company and consolidated financial statements in accordance with accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the parent company and consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the financial reporting process of the Company and its subsidiaries. Auditor's responsibilities for the audit of the parent company and consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the parent company and consolidated financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the parent company and consolidated

financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud could involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Company and its subsidiaries.

Duratex S.A.



• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and,

based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Company to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the parent company and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the parent company and consolidated

financial statements, including the disclosures, and whether these financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or

business activities within the Group to express an opinion on the parent company and consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. São Paulo, February 12, 2020 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Carlos Alberto de Sousa Contador CRC 1RJ056561/O-0 "T" SP

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Financial Statements Index for 2019 and 2018

Management Report ................................................................................................................................................................. 02 Balance Sheet .......................................................................................................................................................................... 10 Statement of Income ................................................................................................................................................................ 11 Statement of Comprehensive Income ...................................................................................................................................... 12 Statement of Cash Flows …………………………...................................................................................................................... 13 Statement of Value Added ...................................................................................................................................................... 14 Statement of Changes in Stockholders’ Equity 2018 ............................................................................................................... 15 Statement of Changes in Stockholders’ Equity 2019 ............................................................................................................... 16 Note 1 – Operations ................................................................................................................................................................ 17 Note 2 – Summary of significant accounting policies……………….…....................................................................................... 17 2.1 Basis of preparation........................................................................................................................................................... 17 2.2 Consolidation………………………………………………..................................................................................................... 18 2.3 Preparation of segmented information…………………………….…................................................................................... 21 2.4 Foreign currency translation……………………………………………………………………………………………………….. 21 2.5 Cash and cash equivalents……………............................................................................................................................. 21 2.6 Financial assets…………………………............................................................................................................................. 21 2.7 Derivative financial instruments and hedging activities..................................................................................................... 23 2.8 Trade accounts receivable…………….............................................................................................................................. 23 2.9 Inventory…………………………………............................................................................................................................. 24 2.10 Intangible assets………………………............................................................................................................................. 24 2.11 Property, plant and equipment………............................................................................................................................. 24 2.12 Impairment of non-financial assets….............................................................................................................................. 25 2.13 Biological assets……………………….............................................................................................................................. 25 2.14 Loans……………….……………………………………………………………………………………………………………….. 25 2.15 Accounts payable to suppliers and provisions………………………………………………………………………………….. 25 2.16 Current and deferred income tax and social contributions ……………………………………………………………………. 26 2.17 Employee benefits…………………………………………………………………………………………………………………. 26 2.18 Capital……………………………………………………………………………………………………………………………….. 27 2.19 Revenue recognition……………………………………………………………………………………………………………….. 27 2.20 Variation in the fair value of biological assets………………………………………………..………………………………….. 27 2.21 Leases……………………………………………………………………………………………………………………………….. 28 2.22 Distribution of dividends and interests on capital………………………………………………………………………………… 28 Note 3 – Critical Accounting Judgments and Estimates ............................................................................................................ 28 Note 4 – Financial Risk Management ....................................................................................................................................... 29 4.1 Financial Risk Factors ….................................................................................................................................................. 29 4.2 Capital Management ........................................................................................................................................................ 32 4.3 Fair Value Estimates ........................................................................................................................................................ 33 Note 5 – Cash and Cash Equivalents ….................................................................................................................................... 33 Note 6 – Trade Accounts Receivable ........................................................................................................................................ 34 Note 7 – Inventories.................................................................................................................................................................... 35 Note 8 – Other Receivables ...................................................................................................................................................... 35 Note 9 – Recoverable Taxes and Contributions ........................................................................................................................ 36 Note 10 – Deferred Income Tax and Social Contribution …...................................................................................................... 36 Note 11 – Related Parties ......................................................................................................................................................... 38 Note 12 – Investments in subsidiaries…………………................................................................................................................ 40 Note 13 – Property, Plant and Equipment ................................................................................................................................. 43 Note 14 – Leases….................................................................................................................................................................... 44 Note 15 – Biological Assets (Forest Reserves) ......................................................................................................................... 46 Note 16 – Intangible Assets ...................................................................................................................................................... 48 Note 17 – Impairment testing of goodwill................................................................................................................................... 49 Note 18 – Loans, financing and debentures.............................................................................................................................. 50 Note 19 – Suppliers…................................................................................................................................................................ 54 Note 20 – Accounts Payable ..................................................................................................................................................... 54 Note 21 – Taxes and contributions............................................................................................................................................. 54 Note 22 – Contingencies............................................................................................................................................................ 55 Note 23 – Stockholders’ Equity ................................................................................................................................................. 57 Note 24 – Insurance Coverage ................................................................................................................................................. 61 Note 25 – Net Sales Revenue ………........................................................................................................................................ 61 Note 26 – Expenses, by Nature ............................................................................................................................................... 61 Note 27 – Financial Income and Expenses ............................................................................................................................... 62 Note 28 – Other Operating Income (Expenses), Net ................................................................................................................ 62 Note 29 – Sales of farms……………………………... ................................................................................................................ 62 Note 30 – Income Tax and Social Contribution …..................................................................................................................... 63 Note 31 – Stock Option Plan ..................................................................................................................................................... 63 Note 32 – Private Pension Plan ................................................................................................................................................ 64 Note 33 – Medical Assistance Plan “Post-Employment”………………………………………………………………………………. 66 Note 34 – Net income per Share ............................................................................................................................................... 69 Note 35 – Business Segments ................................................................................................................................................... 70 Note 36 – Subsequent event... ................................................................................................................................................... 70

Management Report – 2019 Market & Business Scenario

Frustrating the initial forecasts, 2019 started more slowly than the end of 2018 due to political crises, global uncertainty arising from the trade war

and other events that undermined the confidence of both businesses and consumers. However, in the second half of the year, with approval of the

pension reform measures, the stimulus from the government with the liberation of the FGTS and the reduction in interest rates, we began to see a

bump in consumption and improvement in consumer confidence. In the civil construction sector, resulting from the stimulus, we saw an increase in

the number of projects, raising the estimated GDP growth for the civil construction sector to approximately 2% for the year. In the face of this

challenging scenario, Duratex ended the year with an improvement in operating results and share gains in its divisions.

The resumption of household consumption in the construction sector has led the Brazilian Association of Construction Materials (ABRAMAT) to

report deflated revenue growth of 2.0% year to date in the civil construction materials industry, concentrated mainly in retail materials, directly

impacting the Deca Division. For the full year 2020, the Association’s expectations are for revenue growth of 4.0%. The number of formal jobs in the

sector showed a fall of 0.3%.

According to the National Association of Ceramic Manufacturers (ANFACER), the market for ceramic tiles reported sales volume growth of 3.1% for

2019, with a volume 896.8 million m², of which 228.0 million m² was achieved in the fourth quarter of 2019. In the internal market, sales increased

3.5%, while exports grew 0.6% over the same period.

In 2019, the wood panels sector, according to data from the IBÁ (the Brazilian Panel Industry), reported a fall of 1.0% in local demand for wood panels

compared to the previous year, with volumes of MDP showing growth of 1.6% and volumes of MDF a fall of 1.8%. In the external market, there was a fall of 16.1%

compared to 2018, with exports of MDP and MDF shrinking 11.2% and 19.4% respectively. In relation to the fourth quarter of 2018, local demand for

panels showed a fall of 6.5% during the period, with MDP volumes stable, while MDF volumes fell 7.6%. In the external market, there was a fall of

18.2%, with export volumes of MDP and MDF falling 17.3% and 18.8% respectively in relation to 4Q18.

Given the signs of economic recovery evident at the end of 2019, the growth projection for GDP in 2020 coming from the focus groups run by the

Central Bank is 2.3% versus the 1.2% seen in 2019. The civil construction sector is forecasting an even stronger rise in the GDP for the sector at

3.0%, driven mainly by the increase in the number of projects and the start of construction of enterprises launched in 2019.

Strategic Management & Investment Consolidated investment totaled R$121.1m in the quarter, of which R$75.9m was invested in fixed and intangible assets and R$45.3m in the

development of biological assets. Within the investment in fixed assets was a disbursement of R$8.1m for the project to expand the ceramic

tilesunit, which began operations in October 2019. For the year, consolidated investment totaled R$455.7m, below the R$500m budgeted. Of this

total, R$179.2m was disbursed for the development of biological assets, while R$276.5m was invested in fixed and intangible assets, which

included R$85.9m for the new ceramic tile line

It’s also worth highlighting that in 2019 the Company disbursed R$289.8m for the acquisition of the company Cecrisa Ceramic Tiles S.A., one of the

biggest ceramic tiles companies in the country, which produces and sells products under the Cecrisa and Portinari brands, as well as carrying

assets to the value of R$438.5m. Also during the year, R$45.4m was paid out relating to tax and labor contingencies. This amount is included in the

additional price of up to R$275m foreseen in the event of certain suspensive conditions arising in the future.

In this quarter, the Company recognized extraordinary net income of R$187.6m, with a net impact of R$420.7m on cash flow relating to the sale of

forestry assets located in the central region of the state of São Paulo and the definitive shut down of the wood panels unit at Botucatu, whose

operations had been suspended since November 2018. It is worth reminding that R$395.3m was received during the year relating to the sale of

land and forest to Suzano, carried out in July 2018, which also had a direct impact on the Company’s cash flow.

Consolidated Financial Results

(1) Non-recurring event: 4Q19: COGS: wood restructuring (+) R$19.92m, review of inventory policy (+) R$59.57m, Deca restructuring (+) R$2.89m, ceramic tiles restructuring (+) R$6.7m; Net Revenue: disposal of forestry assets (-) 4.55m, 3Q19: COGS: closure of the unit at Santa Luzia (+) R$3.65m; 2Q19: COGS: closure of the unit at São Leopoldo (+) R$18.84m; 1Q19: Net Revenue: disposal of forestry assets (-) R$5.54m; 4Q18: COGS: (+)R$76.69m; depreciation, amortization and exhaustion: (+) R$700k, 3Q18: net revenue: (-) R$235.08m; COGS: (+) R$1.1m; depreciation, amortization and exhaustion: (+) R$162.91m. 2Q18: net revenue: (-)R$57.07m; depreciation, amortization and exhaustion: (+) R$42.52m (2) EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization): Measure of operational performance in accordance with CVM Instruction CVM 527/12. (3) Event of extraordinary nature: 4Q19: wood

restructuring (-) R$433,778; Deca restructuring (-)18.24m, restructuring of ceramic tiles (-) R$25.5m, review of inventory policy (-) R$59.57m, PDD adjustments (-) R$3.04m, social security provisions (-) R$12.76m, rouanet law (-) R$4.41m, reversal of ICMS base calculation of PIS/COFINS (social security contributions) (-) R$16.42m; 3Q19: closure of the unit at Santa Luzia (+) R$4.84m, sale of farms under the control of Duratex Florestal (-) R$646k; 2Q19: closure of the unit at São Leopoldo (+) R$30.4m, tax adjustment relating to the exclusion of ICMS (goods and services tax) from the base calculation of PIS/COFINS (social security contributions) (-) R$29.43m result net of the sale of land by Duratex Florestal (-) R$1.2m; 4Q18: wood division restructuring (+) R$195.73m; 3Q18: forestry disposal (-) R$645.87m;. 2Q18: disposal of land and forest (-) R$253.25m (4) EBITDA adjusted for non-cash events arising from variation in the fair value of biological assets and combination of businesses, in addition to extraordinary events. (5) Current liquidity: current assets divided by current liabilities. Indicates the amount available in R$ to cover each R$ of short-term obligations. (6) Net Corporate Debt: Total Financial Debt (–) Cash balance. (7) Financial leverage calculated on the rolling EBITDA over the last 12 months, adjusted for events of a purely accounting and non-cash nature. (8) ROE (Return on Equity): measure of performance obtained by taking the annualized Net Earnings over the period, annualized, and dividing by Average Net Equity. (9) Net earnings per share is calculated by dividing the earnings attributable to the company’s shareholders by the average weigh ted number of ordinary shares issued during the period, excluding the ordinary shares held by the Treasury.

In BRL '000 4Q19 4Q18 % 3Q19 % 2019 2018 %

Highlights

Volume shipped Deca (‘000 items) 7,011 6,039 16.1% 6,536 7.3% 25,730 26,052 -1.2%

Volume shipped Ceramic tiles (m2) 5,830,101 1,340,049 335.1% 4,939,215 18.0% 13,483,484 5,340,125 152.5%

Volume shipped Wood (m3) 653,733 765,545 -14.6% 642,728 1.7% 2,504,371 2,748,107 -8.9%

Consolidated Net Revenue 1,486,157 1,263,377 17.6% 1,308,357 13.6% 5,011,706 4,949,361 1.3%

Consolidated Net Revenue - Pro Forma (1)1,378,757 1,263,377 9.1% 1,308,357 5.4% 4,880,321 4,657,209 4.8%

Gross profit 315,501 286,966 9.9% 349,519 -9.7% 1,294,144 1,298,513 -0.3%

Gross profit - Pro Forma (1)400,039 364,314 9.8% 353,168 13.3% 1,407,090 1,290,239 9.1%

Gross margin 21.2% 22.7% 26.71% 25.8% 26.2%

Gross margin - Pro Forma (1)29.0% 28.8% 26.99% 28.8% 27.7%

EBITDA according to CVM No. 527/12 (2)596,810 (83,254) - 246,682 141.9% 1,359,188 1,545,978 -12.1%

EBITDA Mg CVM No. 527/12 40.2% -6.6% 18.85% 27.1% 31.2%

Adjustments for non-cash events (27,390) (19,100) 43.4% (12,947) 111.6% (137,713) (137,499) 0.2%

Non-recurring events (1)(3)(291,085) 339,190 - 4,178 -7067.1% (312,617) (559,930) -44.2%

Adjusted and Recurring EBITDA (4)278,335 236,836 17.5% 237,913 17.0% 908,858 848,549 7.1%

Adjusted and Recurring EBITDA margin (1)(3)18.7% 18.7% 18.2% 18.6% 18.2%

Net Income 284,736 (141,959) - 27,715 927.4% 405,727 431,796 -6.0%

Recurring Net Income (1) (3) 157,775 151,269 4.3% 30,472 417.8% 275,051 271,156 1.4%

Recurring net margin (1) (3) 11.4% 12.0% 2.3% 5.6% 5.8%

INDICATORS

Current ratio (5)1.63 1.76 -7.4% 1.52 7.3% 1.63 1.76 -7.4%

Net debt (6)1,705,318 1,700,363 0.3% 2,161,191 -21.1% 1,705,318 1,700,363 0.3%

Net debt / EBITDA LTM(7)1.88 2.00 -6.4% 2.49 -24.7% 1.88 2.00 -6.4%

Average Shareholder's equity 4,849,252 5,012,797 -3.3% 4,747,650 2.1% 4,746,646 4,902,067 -3.2%

ROE (8)23.5% -11.3% 2.34% 8.5% 8.8%

Recurring ROE 13.0% 12.1% 2.57% 5.8% 5.5%

SHARES

Earnings per share (BRL) (9)0.4128 (0.2061) - 0.0402 926.8% 0.5881 0.6260 -6.1%

Closing share price (BRL) 16.72 11.83 41.3% 12.65 32.2% 16.72 11.83 41.3%

Net equity per share (BRL) 7.15 6.72 6.4% 6.91 3.5% 7.15 6.72 6.4%

Treasury Shares 2,051,716 2,316,745 -11.4% 2,061,716 -0.5% 2,051,716 2,316,745 -11.4%

Market Cap (BRL1.000) 11,532,332 8,156,404 41.4% 8,724,993 32.2% 11,532,332 8,156,404 41.4%

Added Value

Added value for the year totaled R$2.0bn. Of this amount, R$542.6m, equivalent to 27.1% of the added value, was paid to the federal, state and

municipal governments in the form of tax and social security contributions.

Dividends

Shareholders are entitled to a statutory minimum mandatory dividend corresponding to 30% of the adjusted net income for the period. By resolution of the Board of Directors, interest on capital was credited in the amount of R $ 257.6 million or R $ 0.3734054776 per share, which will be paid until 02/28/2020 with a 15% withholding tax at source, resulting in net interest of R $ 0.31739465596 per share, corporate shareholders who are proven immune or exempt from this retention. This interest was based on the final shareholding position on 12/16/2019 and was individually credited to each shareholder in the Company's records on 12/30/2019.

Operations

Non-recurring event: 4Q19: COGS: wood restructuring (+) R$19.92m, review of inventory policy (+) R$34.53m; Net Revenue: disposal of forestry assets (-) R$ 107.4m; 2Q19: COGS: tax adjustment related to the exclusion of ICMS of PIS/COFINS calculation base (-) R$9.1m: 1Q19: Net Revenue: disposal of forestry assets (-) R$ 23.9m and sale of forestry to third parties (-) R$1.5m; 1Q19: Net Revenue: Disposal of forestry assets (-) R$ 23.9m and COGS: Depreciation, Amortization and depletion (+) R$ 18.4m, related to the sale of forests to Suzano Celulose e Papel and others; 4Q18: COGS: (+) R$ 32.8m; 3Q18; Net Revenue: (-) R$235.0m : COGS: (+) R$1.1m; 2Q18: Net Revenue : (-) R$ 57.0m; 4Q18: COGS: (+) R$ 76.6m ; depreciation, amortization and depletion: (+) R$ 700k; 3Q18: Net Revenue: (+) R$ 235.0m; COGS: (+) R$1.1m; depreciation, amortization and depletion: (+) R$ 162.9m ; 2Q18 Net Revenue : (-) R$ 57.0,; depreciation, amortization and deplention: (+) R$42.5m; (2) EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization): Measure of operational performance in accordance with CVM Instruction CVM 527/12; . (3) Event of extraordinary nature: 4Q19: wood restructuring (-) R$433,8m;, review of inventory policy (-) R$34.5m, PDD adjustments (-) R$3.04m, social security provisions (-) R$12.76m, rouanet law (-) R$4.41m, reversal of ICMS base calculation of PIS/COFINS (social security contributions) (-) R$16.42m; 3Q19: sale of farms under the control of Duratex Florestal (-) R$646k; 2Q19:, tax adjustment relating to the exclusion of ICMS (goods and services tax) from the base calculation of PIS/COFINS (social security contributions) (-) R$9.1m result net of the sale of land by Duratex Florestal (-) R$1.2m; 1Q19 Disposal of land and forests (-) R$23.9m and sale of forests to third parties: (-) R$1.4m; 4Q18: wood division restructuring (+) R$195.73m; 3Q18: forestry disposal (-) R$645.87m;. 2Q18: disposal of land and forest (-) R$253.25m

WOOD

HIGHTLIGHTS 4Q19 4Q18 % 3Q19 % 2019 2018 %

SHIPMENTS (in m³)

STANDARD 388,030 447,275 -13.2% 395,029 -1.8% 1,490,815 1,634,511 -8.8%

COATED 265,703 318,270 -16.5% 247,699 7.3% 1,013,556 1,113,596 -9.0%

TOTAL 653,733 765,545 -14.6% 642,728 1.7% 2,504,371 2,748,107 -8.9%

FINANCIAL HIGHLIGHTS (BRL`000)

NET REVENUE 829,814 846,983 -2.0% 724,028 14.6% 2,933,804 3,272,797 -10.4%

NET REVENUE - Pro Forma (1) 722,414 846,983 -14.7% 724,028 -0.2% 2,802,419 2,980,645 -6.0%

DOMESTIC MARKET 652,638 609,712 7.0% 546,645 19.4% 2,215,625 2,416,772 -8.3%

FOREIGN MARKET 177,176 237,271 -25.3% 177,383 -0.1% 718,179 856,025 -16.1%

Net revenue per unit (BRL/m3 shipped) 1269.35 1106.38 14.7% 1126.49 12.7% 1171.47 1190.93 -1.6%

Net revenue per unit - Pro Forma

(BRL/m3 shipped) (1) 1105.061106.38 -0.1% 1126.49 -1.9% 1119.01 1084.62 3.2%

Cash cost per unit (BRL/m3 shipped) (765.50) (721.24) 6.1% (718.31) 6.6% (722.91) (693.47) 4.2%

Cash cost per unit (BRL/m3 shipped) (1) (682.21) (678.33) 0.6% (718.31) -5.0% (701.16) (681.12) 2.9%

Gross profit 143,190 204,380 -29.9% 164,340 -12.9% 696,276 852,908 -18.4%

Gross profit - Pro Forma (1) 193,096 237,695 -18.8% 164,340 17.5% 759,097 800,601 -5.2%

Gross margin 17.3% 24.1% 22.7% 23.7% 28.6%

Gross margin - Pro Forma (1) 26.7% 28.1% 22.7% 27.1% 26.9%

Selling expenses (87,385) (121,296) -28.0% (95,519) -8.5% (380,769) (426,869) -10.8%

General and administrative expenses (30,261) (30,271) 0.0% (26,987) 12.1% (101,336) (98,023) 3.4%

Operating profit before f inancial results 361,213 (129,132) -379.7% 34,666 942.0% 538,473 748,717 -28.1%

Depreciation, amortization and depletion 138,574 84,969 63.1% 89,153 55.4% 414,304 432,397 -4.2%

Depletion tranche of biological assets 73,088 39,807 83.6% 29,058 151.5% 170,697 258,925 -34.1%

EBITDA according to CVM No. 527/12 (2) 572,875 (4,356) -13251.4% 152,877 274.7% 1,123,474 1,440,039 -22.0%

EBITDA margin according to CVM No. 527/12 69.0% -0.5% - 21.1% - 38.3% 48.3% -

Variation in fair value of biological assets (17,279) (27,202) -36.5% (12,129) 42.5% (126,045) (148,135) -14.9%

Employee benefits (4,614) 7,964 -157.9% (2,792) 65.3% (7,977) 9,394 -184.9%

Non-recurring events (3) (383,124) 195,727 -295.7% (646) 59207.1% (419,592) (703,393) -40.3%

Adjusted and Recurring EBITDA 167,858 172,133 -2.5% 137,310 22.2% 569,860 597,905 -4.7%

Adjusted and Recurring EBITDA margin 23.2% 20.3% - 19.0% - 20.3% 20.1%

.

In the face of a challenging competitive scenario and the shrinking of the Brazilian Market for wood panels by 1.0% in relation to the prior year

(+1.6%) in MDP and -1.8% in MDF), according to data provided by the IBÁ, the Wood Division directed its efforts to applying its sales policy

and prioritizing the sale of products with a higher added value, which enabled it to close the year with a fall in volumes greater than that in the

market as a whole but with a significant improvement in profitability.

The Division shipped 653.7 thousand m³ in 4Q19, a reduction of 14.6% in the volume shipped in relation to same period in 2018. For the

year, the volume shipped was 2.5 million m³, a fall of 8.9% in relation to 2018. It is important to note that the result in 2018 still included the

sale of 88.1 thousand m³ of hardboard, of which 11.7 thousand m³ was in 4Q19. The volume exported in the quarter was around 34.0% less

than for the same period in 2018, while for the year, the fall was 29.6%, due to the increase in international freight costs.

Pro-forma unit revenue for the year, which discounts the non-recurring sale of forestry assets, was 3.2% greater than that achieved in the

same period of the prior year. For the quarter, pro-forma net revenue remained stable in relation to 4Q18. However, stripping out net revenue

arising from the sale of hardboard from the figure for the fourth quarter of 2018, unit revenue for the quarter showed an increase of 2.3%, and

6.7% for the year, over the same period in 2018, which reflects the Company’s well implemented sales policy and better product mix.

Discipline in controlling costs and expenses, arising from the Duratex Management System (SGD) was the highlight for the quarter. Even with

the currency fluctuations in the period, the pro-forma unit cash cost remained stable in the fourth quarter, with an increase of just 2.9% for the

full year 2019 versus 2018. General and admin expenses, discounting the impact of non-recurring expenditure on the new DWP unit, showed

a fall in the quarter of 11.4% and a fall of 9.7% for the year, versus the same periods in 2018. Sales expenses, due to the lower volume

exported, remained at 14% of revenue, in line with the previous year.

It is worth noting that in 2019, the results from Wood Division were impacted by spending of R$20.3m on the new DWP unit, of which R$6.0m

was spent in the fourth quarter. Thus, the adjusted and recurring EBITDA for the Division was R$569.9m for the year and R$167.9m for the

quarter, 4.7% and 2.5% below the same periods in 2018 respectively. Excluding the effects from the sale of hardboard and from expenditure

on the soluble cellulose unit, annual adjusted and recurring EBITDA remained stable in relation to 2018. For the quarter, the Division also saw

improved profitability, with an EBITDA margin of 23.2%, 2.9 p.p higher than for the fourth quarter of 2018. If we discount the effects

mentioned above, the EBITDA margin was 24.1%. For the year, discounting the effects mentioned above, the EBITDA margin was 21.1%.

(1): 2Q19: COGS: closure of the unit at São Leopoldo (+) R$18.84m. (2) EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization): Measure of operational performance in accordance with CVM Instruction CVM 527/12.(3) Events of extraordinary nature to note: 4Q19: Deca Restructuring (-) 18.24m; review of inventory policy (-) R$ 20.97m; PDD adjustments (-)

R$1.76m, social security provisions (-) R$5.6m; reversal of ICMS base calculation of PIS/COFINS (social security contributions) (-) R$12.74m;3Q19: shutdown of the unit of Santa Luzia (+) R$ 4.8m 2Q19: shutdown of the unit at São Leopoldo (+) R$ 30.4k and tax adjustment relating to the exclusion of ICMS (goods and services tax) from the base calculation of PIS/COFINS (social

security contributions) (-) R$18.9m.

With economic recovery still in its infancy and signs of an uptick in demand appearing only in the fourth quarter, the Deca Division reported a

consistent improvement in the profitability of its products, arising from the restructuring process implemented through the pillar of Industrial and

Logistical Efficiency, as part of its Strategic Growth Agenda.

In the fourth quarter, Deca reported an increase of 16.1% in the level of shipping in relation to 4Q18, and closed out the year with a fall of 1.2% in

relation to 2018. Regarding unit revenue, the quarter ended with an increase of 2.4% as a result of 4Q19, while for the full year of 2019, growth

was 7.7%. This improvement stems from the premium positioning of the brand, which enables the implementation of premium prices even under a

scenario of shrinking volumes.

Regarding costs and expenses, the greater control arising from the Duratex Management System (SGD), led to the unit cash COGS for the

quarter growing 4.6% in relation to 4Q18, in line with inflation for the period, while for the year this increase was 5.2%. The increase in volumes

led to sales expenses for the quarter increasing 7.4% over the same period in 2018. For the full year, this growth was only 2.4%. It is important to

note that the proportion of sales expenses to pro-forma net revenue showed a fall of 1 p.p. versus the same quarter, and full year, in 2018.

With an increase of 1.8 p.p., the gross margin for 2019 reflects the results from the various restructuring programs carried out over the last few

months, especially in capturing synergies from the unification of the electric shower operations, which took place at the end of 2018, and from the

recent projects to increase operational efficiency in the production of ceramics and metal, including the closure of the unit at São Leopoldo (SC).

For the quarter, gross margin remained stable in relation to 4Q18.

Deca’s quarterly adjusted and recurring EBITDA improved 29.0% in relation to fourth quarter of 2018, with a margin of 15.3%, 1.2p.p. greater than

DECA

HIGHTLIGHTS 4Q19 4Q18 % 3Q19 % 2019 2018 %

SHIPMENTS (in ‘000 items)

BASIC GOODS 2,433 1,997 21.8% 2,188 11.2% 8,267 7,934 4.2%

FINISHING GOODS 4,578 4,042 13.3% 4,348 5.3% 17,463 18,118 -3.6%

TOTAL 7,011 6,039 16.1% 6,536 7.3% 25,730 26,052 -1.2%

FINANCIAL HIGHLIGHTS (BRL1,000)

NET REVENUE (sales in items) 437,776 368,368 18.8% 406,419 7.7% 1,578,093 1,483,105 6.4%

DOMESTIC MARKET 417,090 350,896 18.9% 387,711 7.6% 1,497,357 1,406,208 6.5%

EXPORTS 20,686 17,472 18.4% 18,708 10.6% 80,736 76,897 5.0%

Net revenue per unit (BRL per item

shipped) 62.44 61.00 2.4% 62.18 0.4% 61.33 56.93 7.7%

Cash cost per unit (BRL/m³ shipped) (44.19) (46.22) -4.4% (39.17) 12.8% (40.63) (38.98) 4.2%

Cash cost per unit (BRL/m³ shipped) -

Pro Forma (1) (40.78) (38.97) 4.6% (39.17) 4.1% (39.24) (37.30) 5.2%

Gross profit 104,253 64,528 61.6% 125,298 -16.8% 432,657 369,490 17.1%

Gross profit - Pro Forma (1)128,112 108,561 18.0% 125,298 2.2% 468,360 413,523 13.3%

Gross margin 23.8% 17.5% - 30.8% - 27.4% 24.9% -

Gross margin - Pro Forma (1)29.3% 29.5% - 30.8% - 29.7% 27.9% -

Selling expenses (64,650) (60,168) 7.4% (62,654) 3.2% (243,349) (237,590) 2.4%

General and administrative expenses (25,273) (20,468) 23.5% (20,659) 22.3% (90,243) (76,628) 17.8%

Operating profit before financial results (17,097) (120,429) -85.8% 36,940 - 57,277 (56,259) -

Depreciation and amortization 27,958 28,985 -3.5% 29,809 -6.2% 117,828 115,795 1.8%

EBITDA according to CVM No. 527/12 (2)10,861 (91,444) - 66,749 -83.7% 175,105 59,536 194.1%

EBITDA margin according to CVM No. 527/12 2.5% -24.8% 16.4% 11.1% 4.0%

Employee benefits (6,014) 138 - 1,974 - (4,208) 1,242 -

Non-recurring events (3)62,173 143,264 - - 73,701 143,264 -48.6%

Adjusted and Recurring EBITDA 67,020 51,958 29.0% 68,723 -2.5% 244,598 204,042 19.9%

Adjusted and Recurring EBITDA margin 15.3% 14.1% 16.9% 15.5% 13.8%

that reported for the 4Q18. For the year to date, the adjusted and recurring EBITDA was R$244.6m, an increase of 19.9% over 2018. The

adjusted and recurring EBITDA margin was 15.5%, growth in line with 2018. This increase reflects the focus of the Division on the Industrial and

Logistical Efficiency pillar as part of its Strategic Growth Strategy, which seeks, among other things, productivity gains and cost reduction.

(1) COGS 4Q19: indemnities payments (-) R$ 6.7m; review of inventory policies (-) R$ 4.07m; (2) SG&A: 4Q19: Indemnities payments (-) R$18.82m; (3) EBITDA (Earnings Before

Interest, Taxes, Depreciation and Amortization): Measure of operational performance in accordance with CVM Instruction CVM 527/12. (4)) Events of an extraordinary nature:

4Q19: ceramic tiles restructuring (-) R$25.5m; review of inventory policies (-) R$ 4.07m; legal provisions for civil and labor lawsuits (-) R$275k 3Q19: closure of the unit at Santa

Luzia (+) R$ 4.824m 2Q19: tax adjustment relating to the exclusion of ICMS (goods and services tax) from the base calculation of PIS/COFINS (social security contributions) (-)

R$1.42m.

The market for ceramic tiles reported an increase of 3.1% for the year 2019, with sales volumes of 896.8 million m², of which 228.0 million m² was

achieved in the fourth quarter of 2019, as reported by ANFACER. The Division, which is undergoing a process of restructuring its sales team,

reported growth in line with the market, with annual shipping of 13.5 million m², with 5.8 million m² shipped in the quarter. It is worth noting that the

quarter was the first to fully include results from Cecrisa.

Net revenue closed the year at R$499.8m, of which R$218.6 was achieved in 4Q19. Also of note is the fact that this quarterly net revenue

represents 15.9% of Duratex’s total revenue, which highlights the increasing importance of this Division to the Company’s results.

It’s important to mention that the Division has begun the restructuring envisaged as part of the process of capturing synergies. As part of this

process, its costs and expenses were impacted by events of a non-recurring nature, such as the payment of indemnities and the closure of

manufacturing units. Thus, exceptionally, for the purposes of comparison, the Company has felt it prudent to exclude these impacts in compiling

the pro-forma results for the Division. Thus, the pro-forma COGS showed an increase of 7.5% in the quarter and 8.3% for the year, mainly

impacted by the increase in the cost of gas. On the other hand, sales expenses as a proportion of net revenue showed an improvement of 1.0 p.p.

in relation to 4Q18. The increase in payroll added to the greater allocation of corporate expenses, impacted general and admin expenses, which

Ceramic Tiles

HIGHTLIGHTS 4Q19 4Q18 % 3Q19 % 2019 2018 %

SHIPMENTS (IN ‘000 ITEMS)

FINISHING GOODS 5,830,101 1,340,049 335.1% 4,939,215 18.0% 13,483,484 5,340,125 152%

TOTAL 5,830,101 1,340,049 335.1% 4,939,215 18.0% 13,483,484 5,340,125 152%

FINANCIAL HIGHLIGHTS (BRL1,000)

NET REVENUE 218,567 48,026 355.1% 177,910 22.9% 499,809 193,459 158%

DOMESTIC MARKET 200,947 44,762 348.9% 167,662 19.9% 465,337 178,300 161%

EXPORTS 17,620 3,264 439.8% 10,248 71.9% 34,472 15,159 127%

Net revenue per unit (BRL per m²

shipped) 37.49 35.84 4.6% 36.02 4.1% 37.07 36.23 2.3%

Cash cost per unit (BRL per m² shipped) (24.62) (21.19) 16.2% (22.80) 8.0% (23.63) (20.84) 13%

Cash cost per unit (BRL per m² shipped) - Pro

Forma (1) (22.78) (21.19) 7.5% (22.06) 3.3% (22.57) (20.84) 8.3%

Gross profit 68,058 18,058 276.9% 59,881 13.7% 165,211 76,115 117%

Gross profit - Pro Forma 78,830 18,058 336.5% 63,530 24.1% 179,632 76,115 136%

Gross margin 31.1% 37.6% - 33.7% - 33.1% 39.3% -

Gross margin - Pro Forma 36.1% 37.6% - 35.7% - 35.9% 39.3% -

Selling expenses (48,526) (9,342) 419.4% (26,324) 84.3% (91,863) (34,481) 166%

Selling expenses - Pro Forma (31,487) (9,342) 237.0% (26,324) 19.6% (74,824) (34,481) 117%

General and administrative expenses (10,317) (1,340) 669.9% (8,523) 21.0% (23,583) (6,085) 288%

General and administrative expenses - Pro

Forma (2) (8,538) (1,340) 537.1% (8,523) 0.2% (21,804) (6,085) 258%

Operating profit before f inancial results 5,470 10,923 -49.9% 21,487 -74.5% 43,691 40,197 9%

Depreciation and amortization 7,604 1,623 368.5% 5,569 36.5% 16,918 6,206 173%

EBITDA according to CVM No. 527/12 (3)13,074 12,546 4.2% 27,056 -51.7% 60,609 46,403 31%

EBITDA margin according to CVM No. 527/12 6.0% 26.1% - 15.2% - 12.1% 24.0% -

Employee benefits 517 - - - - 517 - -

Non-recurring events (4)29,866 199 - 4,824 - 33,274 199 16621%

Adjusted and Recurring EBITDA 43,457 12,745 241.0% 31,880 36.3% 94,400 46,602 103%

Adjusted and Recurring EBITDA margin 19.9% 26.5% - 17.9% - 18.9% 24.1% -

totaled R$8.5m in the quarter and R$21.8m for the full year.

With the first steps in capturing synergies already complete, the Division’s adjusted and recurring EBITDA for the quarter was R$43.5m, with an

EBITDA margin of 19.9%, the highest during the year 2019. For the year, the adjusted and recurring EBITDA totaled R$94.4m, with an EBITDA

margin of 18.9%.

Capital Markets

For the fourth quarter of 2019, the Company had a market valuation of R$11.53bn, with a closing share price of R$16.72.

During the quarter, there were 432,440 trades in the shares on the B3 market, representing a trading volume equivalent to approximately R$2.1bn

an average daily trading volume of R$30.1m.

The Company`s shares are listed on the Novo Mercado, under the B3 segment, which brings together companies with the highest level of

corporate governance. The Company also has a differentiated dividend policy, with the distribution of the equivalent of 30% of adjusted net

earnings, while also adhering to the Abrasca Code for Self-Regulation and Good Practices for Publicly Listed Companies.

Socio-Environmental Performance The Company ended the fourth quarter of 2019 with 11,714 employees. This figure is 4.4% greater than that reported for 4Q18.

The main factor responsible for this increase was the restructuring arising mainly from the Ceramic tiles Division.

The year end of 2019 saw consolidated reductions in all of the Company’s corporate environmental indicators. The main highlight

was water consumption (37.6%) in Panels and the consequent effect on the generation of effluent (60.7%). As previously

reported, this reduction occurred mainly in the Panels division, due to the transfer of the Duratree line to Eucatex (a high water

consuming line), as well as the suspension of activities at the Botucatu unit (SP), events that were finalized in the second half of

2018.

The reduction in energy consumption (18.9%) also arose from the outcome in Botucatu (SP), and was less impactful in relation to

the water and effluent figures due to the intensification of activities in the main production lines at the Itapetininga unit (SP). Thus,

although the Itapetininga unit contributed to the increase in the consumption of resources, such as water and energy, the water-

intensive Duratree line has had a greater impact on the water and effluent indicators.

The reduction in landfill waste was also significant (14.0%). This result rose from a significant reduction in Panels (9.8%) and

Deca Sanitary Wares (15.8%). The São Paulo Metal Fittings unit also contributed to this result, being the first unit in the group to

have zero landfill.

The direct emission of greenhouse gases fell 5.2% in relation to the same period of the prior year, a result arising mainly from the

closure of the São Leopoldo basins unit (RS) in July 2019, and the re-use of biomass residues in partial substitution of BPF oil at

the Itapetininga unit (SP).

(BRL ‘000) 4Q19 4Q18 % 3Q19 % 2019 2018 %

Employees (quantity) 11,714 11,223 4.4% 11,688 0.2% 11,714 11,223 4.4%

Remuneration 118,718 112,297 5.7% 118,013 0.6% 454,482 448,477 1.3%

Obligatory legal charges 67,697 58,360 16.0% 62,113 9.0% 241,820 232,085 4.2%

Differentiated benefis 30,102 29,145 3.3% 30,435 -1.1% 116,871 114,021 2.5%

Independent Auditors – CVM Instruction nº 381 Procedures adopted by the Company and its subsidiaries.

The Company's and its subsidiaries' policy of engaging in non-external audit services with our independent auditors is based on

internationally accepted principles that preserve the independence of these auditors and consist of: (a) the auditor should not

audit his or her auditor. (b) the auditor shall not perform managerial duties on his client and (c) the auditor shall not promote the

interests of his client.

From January to December 2019, the independent auditors PricewaterhouseCoopers Auditores Independentes provided the

following non-audit services:

• Review of the accounting and tax bookkeeping files - ECF, date of hiring on July 24, 2019, in the amount of R$ 129 thousand.

The amount of the engagement represents 5.2% of total global audit fees for the 2019 financial statements.

Independent Auditors Justification - PricewaterhouseCoopers Independent Auditors

The provision of other professional services not related to external audit, described above, does not affect the independence or

objectivity in conducting external audit examinations provided to the Company and its subsidiaries. The policy of acting with the

Company and its subsidiaries to provide services not related to external audit is substantiated by the principles that preserve the

Independent Auditor's independence and all were observed in the provision of such services.

.

Acknowledgements

We are grateful for all the support received from our shareholders, the dedication and commitment of our employees, the partnerships we

have with our suppliers and the confidence placed in us by our clients and consumers.

The Management

ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY

12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018

CURRENT ASSETS Note 2,071,827 2,063,317 3,514,047 3,651,832 CURRENT LIABILITIES Note 1,560,116 1,818,797 2,149,913 2,072,546

Cash and cash equivalents 5 459,310 269,488 1,243,223 1,162,241 Loans and financing 18 713,286 656,587 806,132 704,413

Trade accounts receivable 6 797,478 890,840 1,102,800 1,175,458 Debentures 18 6,739 - 65,733 -

Related parties accounts receivable 6 82,335 88,831 32,409 38,697 Suppliers 19 439,794 340,309 625,279 441,289

Inventories 7 591,832 647,957 853,293 797,299 Related parties suppliers 11 27,804 35,574 - -

Other receivables 8 18,092 30,250 32,060 302,155 Liabilities of Lease 14 5,624 - 20,043 -

Related parties other receivables 11 4,710 33,879 - - Related parties liabilities of leases 14 - - 967 -

Recoverable taxes and contributions 9 101,162 88,085 186,222 148,901 Personnel 97,865 96,920 147,572 121,429

Other credits 10,800 7,879 16,327 11,938 Accounts payable 20 116,377 119,224 227,845 204,167

Non current assets held available for sale 6,108 6,108 47,713 15,143 Related parties accounts payable 11 3,050 3,050 2,640 2,640

Taxes and contributions 21 32,960 20,510 136,902 51,766

Dividends and interest on capital 116,617 546,623 116,800 546,842

NON-CURRENT ASSETS 5,941,028 5,905,232 7,200,641 5,830,026 NON-CURRENT LIABILITIES 1,521,876 1,516,049 3,632,607 2,774,445

Restricted deposits 57,140 49,655 62,123 54,528 Loans and financing 18 82,887 1,325,854 878,668 2,158,191

Other receivables 8 76,677 120,802 167,193 154,163 Debentures 18 1,198,007 - 1,198,007 -

Pension plan credits 100,416 91,551 110,364 100,995 Liabilities of Lease 14 2,150 - 262,849 -

Recoverable taxes and contributions 9 11,159 11,256 16,542 13,560 Related parties liabilities of leases 14 - - 288,465 -

Deferred income tax and social contribution 10 274,749 190,946 331,570 230,528 Contingencies 22 151,741 116,910 313,713 141,094

Investments in subsidiaries and associates 12 3,148,944 2,957,771 122,234 48,274 Deferred income tax and social contribution 10 - - 212,914 258,446

Other investments 3,933 2,049 4,776 2,694 Accounts payable 20 85,041 69,186 348,057 211,434

Property, plant and equipment 13 2,034,110 2,236,435 3,566,330 3,238,781 Related parties 11 2,050 4,099 2,640 5,280

Right-of-use assets 14 7,511 - 555,721 - Taxes and contributions 21 - - 127,294 -

Biological assets 15 - - 1,543,949 1,564,591

Intangible assets 16 226,389 244,767 719,839 421,912 STOCKHOLDERS' EQUITY 23 4,930,863 4,633,703 4,932,168 4,634,867

Capital 1,970,189 1,970,189 1,970,189 1,970,189

Shares issuance expenses (7,823) (7,823) (7,823) (7,823)

Capital reserves 352,083 347,637 352,083 347,637

Capital transactions with partners (18,731) (18,731) (18,731) (18,731)

Revaluation reserves 38,543 45,239 38,543 45,239

Revenue reserves 2,166,721 1,869,532 2,166,721 1,869,532

Treasury shares (23,051) (26,031) (23,051) (26,031)

Carrying value adjustments 452,932 453,691 452,932 453,691

Equity attributable to equity holders - - - -

of the parent company 4,930,863 4,633,703 4,930,863 4,633,703

Noncontrolling interests - - 1,305 1,164

TOTAL ASSETS 8,012,855 7,968,549 10,714,688 9,481,858 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 8,012,855 7,968,549 10,714,688 9,481,858


Duratex S.A. - Listed companyNational Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47

BALANCE SHEET

PARENT COMPANY CONSOLIDATED PARENT COMPANY CONSOLIDATED

(In thousands of Reais)

10

Note 12/31/2019 12/31/2018 12/31/2019 12/31/2018

NET SALES REVENUE 25 3,733,739 3,731,422 5,011,706 4,949,361

Changes in the fair value of biological assets 15 - - 126,045 148,134

Cost of products sold (2,944,155) (2,965,606) (3,843,607) (3,798,982)

GROSS PROFIT 789,584 765,816 1,294,144 1,298,513

Selling expenses (538,005) (557,812) (715,981) (698,940)

General and administrative expenses (147,492) (119,395) (215,162) (180,736)

Management fees (15,572) (15,349) (16,879) (16,504)

Other operating income (expenses), net 28 28,671 (297,585) 293,319 330,322

Equity in the results of investees 324,285 638,161 - -

OPERATING PROFIT BEFOREFINANCIAL RESULT AND TAXES 441,471 413,836 639,441 732,655

Financial income 27 48,969 61,466 103,091 122,520

Financial expenses 27 (149,180) (185,960) (263,521) (272,816)

PROFIT BEFORE INCOME TAX ANDSOCIAL CONTRIBUTION 341,260 289,342 479,011 582,359

Income tax and social contribution - current 30 (3,716) - (159,612) (322,660)

Income tax and social contribution - deferred 30 68,020 142,231 86,328 172,097

NET INCOME FOR THE YEAR 405,564 431,573 405,727 431,796

Net income attributable to:

Owners of the company 405,564 431,573 405,564 431,573

Noncontrolling interests - - 163 223

Net income per share (R$):

Basic: 34 0.5881 0.6260 0.5881 0.6260

Diluted: 34 0.5826 0.6206 0.5826 0.6206


STATEMENT OF INCOME

PARENT COMPANY


CONSOLIDATED


11


Periods ended December 31


12/31/2019 12/31/2018 12/31/2019 12/31/2018

NET INCOME FOR THE YEAR 405,564 431,573 405,727 431,796

Other components of comprehensive income

Items that will not be reclassified for net income

Equity of investees on comprehensive of subsidiaries 1,754 (2,217) 1,754 (2,217)

Adjustments from CPC 47 and 48 transition - (4,833) - (4,833)

Items that will be reclassified for net income

Actuarial gains and (losses) (13,015) (901) (13,015) (901)

Tax effects on actuarial gains (losses) 4,425 306 4,425 306

Equity of investees on comprehensive of subsidiaries on actuarial gains

(losses) (10,519) - (10,519) -

Accumulated conversion adjustments 18,350 37,431 18,412 37,561

COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX 406,559 461,359 406,784 461,712

Attributable to:

Owners of the company 406,559 461,359 406,559 461,359

Noncontrolling interests - - 225 353


STATEMENT OF COMPREHENSIVE INCOME

PARENT COMPANY CONSOLIDATED

12


12/31/2019 12/31/2018 12/31/2019 12/31/2018

OPERATING ACTIVITIES:

341,260 289,342 479,011 582,359

ADJUSTMENTS:

Depreciation, amortization and depletion 307,104 311,208 719,744 813,320

Changes in the fair value of biological assets - - (126,045) (148,134)

Interest, foreign exchange and indexation accruals, net 126,636 143,944 209,004 202,282

Interest leases 765 - 2,323 -

Equity in the results of investees (324,285) (638,161) - -

Impairment in the accounts receivable 9,245 6,217 11,359 10,382

Decrease for impairment of intangible assets 8,837 224,365 8,837 224,365

Provisions, disposal of assets 234,915 174,897 239,377 144,517

Result from sales of farms - - (266,650) (621,126)

(Increase)/Decrease in Assets

Trade accounts receivable 97,375 (173,978) 206,404 (259,738)

Inventories 370 (45,667) 43,110 (43,566)

Other assets (69,221) (33,092) (13,964) 15,653

Increase (Decrease) in Liabilities

Suppliers 91,715 136,885 143,623 139,356

Personnel liabilities 945 1,382 (6,855) 2,182

Accounts payable 5,347 (2,780) (68,079) 5,644

Taxes and contributions 93,137 (1,499) 83,441 (73,526)

Other liabilities (38,556) (21,779) (104,026) (28,969)

Cash provided by operations 885,589 371,284 1,560,614 965,001

Income tax and social contribution paid (53,802) (5,600) (174,523) (329,803)

Interests paid (205,861) (191,812) (277,599) (252,326)

CASH PROVIDED BY OPERATING ACTIVITIES 625,926 173,872 1,108,492 382,872

INVESTMENT ACTIVITIES:

Other financial assets - 57,925 - -

Investments in fixed assets (111,238) (139,370) (250,079) (227,688)

Investments in intangible assets (26,078) (26,557) (26,441) (26,687)

Investments in biological assets - - (179,169) (187,700)

Proceeds from sale of property, plant and equipment - - 538,766 508,264

Dividends received from subsidiaries 828,697 264,999 - -

Advance for future capital increase in subsidiary (600,685) (155,762) - -

Capital contribution/ capital increase (72,586) (42,164) (72,586) (42,164)

Others investments 376 - 376 -

Acquisition of subsidiary, net cash acquired - - (273,842) -

CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES 18,486 (40,929) (262,975) 24,025 - - - -

FINANCING ACTIVITIES:

Financing - 385,000 10,446 391,009

Debentures 1,197,508 - 1,197,508 -

Amortization of financing (1,102,838) (592,200) (1,348,341) (655,080)

Amortization of debentures - - (10,000) -

Amortization of lease liabilities (6,449) - (72,763) -

Interest on capital and dividends (545,791) (60,773) (545,791) (60,773)

Treasury shares 2,980 1,820 2,980 1,820

NET CASH FLOW USED IN FINANCING ACTIVITIES (454,590) (266,153) (765,961) (323,024)

Effects of exchange rate changes on cash and cash equivalents - - 1,426 4,004

DECREASE IN CASH FOR THE YEAR 189,822 (133,210) 80,982 87,877

OPENING BALANCE 269,488 402,698 1,162,241 1,074,364

FINAL BALANCE 459,310 269,488 1,243,223 1,162,241

Duratex S.A. - Listed company

National Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47

STATEMENT OF CASH FLOWS


PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION

13


12/31/2019 12/31/2018 12/31/2019 12/31/2018

REVENUE 4,797,898 4,743,462 6,575,024 6,793,479

Gross sales revenue 4,698,206 4,725,216 6,210,938 6,135,829

Other revenue 108,937 24,463 375,445 668,032

Impairment in the accounts receivable (9,245) (6,217) (11,359) (10,382)

Inputs acquired from third parties (3,514,823) (3,747,588) (3,956,624) (4,001,269)

Cost of sales (2,986,006) (2,947,557) (3,267,000) (3,051,381)

Materials, energy, outsourced services and others (519,980) (575,666) (680,787) (725,523)

Impairment of intangible assets (8,837) (224,365) (8,837) (224,365)

Gross value added 1,283,075 995,874 2,618,400 2,792,210

Depreciation, amortization and depletion (307,104) (311,208) (719,744) (813,320)

Net value added 975,971 684,666 1,898,656 1,978,890

Value added received through transfer 373,255 699,627 103,091 122,520

Financial income 48,970 61,466 103,091 122,520

Equity in the results of investees 324,285 638,161 - -

Value added to be distributed 1,349,226 1,384,293 2,001,747 2,101,410

Personnel compensation 557,670 586,095 790,557 776,924

Direct compensation 442,306 469,108 630,210 622,087

Benefits 84,334 84,329 116,871 114,021

Severance indemnity fund (FGTS) 29,860 31,415 39,728 39,339

Other 1,170 1,243 3,748 1,477

Government taxes 236,923 180,772 542,558 620,527

Federal 221,331 162,322 479,674 582,837

State 9,208 11,327 52,098 28,995

Municipal 6,384 7,123 10,786 8,695

Financing remuneration (interest) 149,069 185,853 262,905 272,163

Stockholders' remuneration 405,564 431,573 405,727 431,796

Interest on capital 257,550 286,377 257,550 286,377

Retained earnings 148,014 145,196 148,014 145,196

Noncontrolling interests - - 163 223 - - - -

Total value added distributed 1,349,226 1,384,293 2,001,747 2,101,410

14

DISTRIBUTION OF VALUE ADDED

Duratex S.A. - Listed company

National Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47

STATEMENT OF VALUE ADDED

(Required by accounting practices adopted in Brazil and supplementary information under IFRS)



(In thousands of Reais) (A free translation of the original in Portuguese)

BALANCES AS AT DECEMBER 31, 2017 1,970,189 (7,823) 345,300 (18,731) 57,344 1,980,082 416,855 (27,851) - 4,715,365 954 4,716,319

COMPREHENSIVE INCOME FOR THE YEAR

Net Income for the year - - - - - - - - 431,573 431,573 223 431,796

Accumulated conversion adjustments - - - - - - 37,431 - - 37,431 130 37,561

Equity of investees reflex - - - - - - - - (2,217) (2,217) - (2,217)

Transition adjustments CPC 47 and 48 - - - - - - - - (4,833) (4,833) - (4,833)

Actuarial net gain (loss) - - - - - - (595) - - (595) - (595)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR - - - - - - 36,836 - 424,523 461,359 353 461,712

Noncontrolling interest acquisition - - - - - - - - - - (143) (143)

Share options granted - - 2,337 - - - - - - 2,337 - 2,337

Realization of revaluation reserve - - - - (12,105) - - - 12,105 - - -

Sale of treasury shares - - - - - - - 1,820 (796) 1,024 - 1,024

Dividends - - - - - (260,005) - - - (260,005) - (260,005)

APPROPRIATION OF NET INCOME FOR THE YEAR

Allocated to the legal reserve - - - - - 21,579 - - (21,579) - - -

Appropriation of tax incentives article 195-A Law 6.404/76 - - - - - 3,818 - - (3,818) - - -

Interests on capital - - - - - - - - (286,377) (286,377) - (286,377)

Appropriation to reserves - - - - - 124,058 - - (124,058) - - -

BALANCES AS AT DECEMBER 31, 2018 1,970,189 (7,823) 347,637 (18,731) 45,239 1,869,532 453,691 (26,031) - 4,633,703 1,164 4,634,867

15

Total

Stockholders'

equity

Duratex S.A - Listed company

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYNational Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47

Note Capital

Shares

issuance

expenses

Capital reservesRevaluation

reserves

Capital

transactions

with partners

Revenue

reserves

Carrying value

adjustments

Treasury

shares

Retained

earningsTotal

Noncontrolling

interests

(In thousands of Reais) (A free translation of the original in Portuguese)


COMPREHENSIVE INCOME FOR THE YEAR

Net Income for the year - - - - - - - - 405,564 405,564 163 405,727

Accumulated conversion adjustments - - - - - - 18,350 - - 18,350 62 18,412

Equity of investees reflex - - - - - - - - 1,754 1,754 - 1,754

Actuarial net gain (loss) - - - - - - (8,590) - - (8,590) - (8,590)

Equity of investees reflex - actuarial gains (losses) - - - - - - (10,519) - - (10,519) - (10,519)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR - - - - - - (759) - 407,318 406,559 225 406,784

Noncontrolling interest acquisition - - - - - - - - - - (84) (84)

Share options granted - - 4,446 - - - - - - 4,446 - 4,446

Realization of revaluation reserve - - - - (6,696) - - - 6,696 - - -

Sale of treasury shares - - - - - - - 2,980 (872) 2,108 - 2,108

APPROPRIATION OF NET INCOME FOR THE YEAR

Allocated to the legal reserve - - - - - 20,278 - - (20,278) - - -

Appropriation of tax incentives article 195-A Law 6.404/76 - - - - - 5,474 - - (5,474) - - -

Interests on capital - - - - - - - - (115,953) (115,953) - (115,953)

Additional dividends proposed - - - - - 141,597 - - (141,597) - - -

Appropriation to reserves - - - - - 129,840 - - (129,840) - - -


16

Total

Stockholders'

equity

Duratex S.A - Listed company

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYNational Register of Corporate Taxpayers - (CNPJ) No. 97.837.181/0001-47

Note Capital

Shares

issuance

expenses

Capital reservesRevaluation

reserves

Capital

transactions

with partners

Revenue

reserves

Carrying value

adjustments

Treasury

shares

Retained

earningsTotal

Noncontrolling

interests

Duratex S.A. – Financial Statements from 2019

17

NOTES TO THE FINANCIAL INFORMATION AS AT DECEMBER 31, 2019

(All amounts in thousands of Brazilian Reais, unless otherwise indicated)

Note 1 – Operations a) General information Duratex S.A. (“the Company”) is a publicly-traded corporation, with shares in the New Market, negotiated under the code DTEX3 in B3 S.A. – Brasil. It started its activities in 1951 with its headquarters in the city of São Paulo – SP - its controlling stockholders are Itaúsa - Investimentos Itaú S.A., which has significant operations in the financial and industrial sectors, and Companhia Ligna de Investimentos, which operates principally in the retail market and distribution of civil construction and woodworking materials, and in property construction and rental. The main activities of Duratex and its subsidiaries (collectively “the Group”) comprise the manufacture of wood panels (Wood Division), ceramics, sanitary metals and showers (Deca Division) and the products produced by the Ceramic Tile Division. Duratex presently has sixteen industrial plants in Brazil and three industrial plants in Colombia, through its subsidiary Duratex S.A. (formerly, Tablemac S.A.), with branches in the major Brazilian cities and commercial subsidiaries in the United States, Belgium, Peru and Uruguay. The Wood Division operates four industrial plants in Brazil and three in Colombia, responsible for the production of hardboard, medium density particle (MDP) panels, medium and high-density fiberboard (MDF and HDF) panels, laminate flooring using the Durafloor trademark, and semi-finished components for furniture. The Deca Division operates with eight industrial plants in Brazil, manufacturing sanitary ceramic and metal products, and showers under the trademarks Deca, Hydra, Belize, Elizabeth and Hydra Corona. The Ceramic Tile Division operates four industrial plants in Brazil, producing ceramic tiles, under the Ceusa, Cecrisa and Portinari brands. b) Approval of financial statements The financial statements of Duratex S.A. and its subsidiaries (Parent company and Consolidated) were approved by the Board of Directors on February 12, 2020. Note 2 – Summary of significant accounting policies The main accounting policies applied in the preparation of these financial statements are as set out below. These policies were consistently applied to the exercises presented. 2.1 – Basis of preparation

The financial statements were prepared considering historical costs as base of value, with financial assets held for trading and financial liabilities (including derivative instruments) measured at fair value. The preparation of financial statements requires the use of certain critical accounting estimates and also the use of judgment by the Company's management in the process of applying the Group's accounting policies. Those areas that requiring the highest level of judgment and having the greatest complexity, as well as the areas where assumptions and estimates are significant for the financial statements, are disclosed in Note nº 3.


18

The non-financial data included in these financial statements, such as planted area and number of units, and others, have not been object of audit, or review by the independent auditors. Going concern

Management evaluated the Company and its subsidiaries’ capacity to continue as a going concern and believe that it has the resources to maintain operations. Additionally, Management has no knowledge of any material uncertainty that could generate significant doubts about its capacity to continue operating. These financial statements were prepared based on the assumption of continuity. Separate and consolidated financial statements The separate (parent company) and consolidated financial statements were prepared and are being presented according to the accounting practices adopted in Brazil, which comprise the rules of CVM and pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC’s), which are comply with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The presentation of individual and consolidated Statements of Value Added is required by the Brazilian corporate legislation and Brazilian accounting practices for listed companies. As a result, the IFRS does not require the disclosure of those statements. It is considered supplementary information, without prejudice to the financial statements. They were prepared following CPC 09 - Statement of Added Value. Its purpose is to evidence the wealth created by the Company during the year, as well as to demonstrate its distribution among the various stakeholders. 2.2 – Consolidation 2.2.1 – Consolidated financial statements The following accounting policies were applied to the preparation of the financial statements: (a) Subsidiaries The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at December, 31 2019. Control is obtained when the Company is exposed or entitled to variable returns based on its involvement with the investee and has the capacity to affect those returns through the power exercised in relation to the investee. Specifically, the Company controls an investee if, and only if, it has: i) power related to the investee (that is, existing rights that guarantee the current capacity to direct the relevant activities of the investee); ii) exposure or right to variable returns based on their involvement with the investee; and (iii) the capacity to use its power related to the investee to affect results. Generally, there is a presumption that a majority of voting rights results in control. In order to support this presumption and when the Company has less than the majority of the voting rights or similar of an investee, the Company considers all the facts and circumstances pertinent when assessing whether it has power related to an investee, including: i) the agreement contractual relationship with other investees; ii) rights arising from contractual agreements; and iii) the voting rights and potential voting rights of the Company. The consolidated financial statements includes the following companies: Duratex S.A. and its direct subsidiaries: Duratex Florestal Ltda., Hydra Corona Sistemas de Aquecimento de Água Ltda., Cerâmica Urussanga S.A. (Ceusa), Estrela do Sul Participações Ltda., Duratex Empreendimentos


19

Ltda., Bale Comércio de Produtos para Construção S.A., Trento Administração e Participações S.A., Duratex Europe N.V., Duratex Andina S.A.C., Duratex North America Inc., Duratex S.A. (formerly, Tablemac S.A.) and its indirect subsidiaries: Cecrisa Revestimentos Cerâmicos S.A, Cerâmica Portinari S.A., Cecrisa Uruguay S.A., Tablemac MDF S.A.S and Forestal Rio Grande S.A.S.. (b) Business combination The Group uses the acquisition method for booking the business combination. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, liabilities incurred and equity instruments issued by the Group. The consideration transferred includes the fair value of assets and liabilities resulting from a contingent consideration agreement, if applicable. Acquisition-related costs are recognized in the net income of the year as incurred. The identifiable assets acquired and contingent liabilities assumed in a business combination are initially measured at their fair value on the acquisition date. The group recognizes non-controlling interests it acquires either at their fair value or at the non-controlling interest's proportionate share of the acquired fair value of net assets. The measurement of the non-controlling interest is determined for each acquisition realized. The Group records as goodwill the excess of the consideration transferred and the acquisition date fair value of any previous equity interest in the acquired subsidiary over the fair value of the group’s share of the identifiable net assets acquired. If the acquisition cost is less than the fair value of the net assets of the acquired subsidiary, the difference is recognized directly in the statement of income as gain. Transactions between consolidated companies, as well as the balances and unrealized gains and losses in relation to those transactions, were eliminated. When required, the subsidiaries' accounting policies were adjusted to ensure consistency with the accounting policies of the Company. (c) Transactions with and participation in non-controlling entities These are registered in an identical manner to operations with stockholders of the Group. For acquisitions of non-controlling ownership interests, the difference between any consideration paid and the acquired portion of the controlling stockholder's net assets is recorded in stockholders’ equity (on capital transactions with partners), with the gains or losses on sales to non-controlling stockholders. (d) Investment in jointly controlled entity (joint operation) Duratex Florestal Ltda. subsidiary of Duratex S.A., which holds 99,99% of its capital and Usina Caeté S.A. have partnership agreement to jointly control the Caetex Florestal S.A., a joint operation created for the formation of eucalyptus forests in northeastern of Brazil. This association will mature in 39 years and each partner has a 50% share of the total capital of Caetex Florestal S.A.. 2.2.2 – New or revised pronouncements applied for the first time in 2019 For the first time, the Group applied certain changes to the standards in use for annual periods from January 1st, 2019 or after this date. The Group decided not to anticipatorily adopt any other standard, interpretation or change that has been issued but is not yet current.


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Nature and impact of each new standards and changes are described as follow: a) CPC 06 (R2)/ IFRS 16 - Leases CPC 06 (R2)/ IFRS 16 introduced a single accounting model for lessees in the balance sheet. A lessee must recognize right-of-use assets that represent the right-of-use leased asset and a corresponding liability. Exemptions are available for short-term leases and items of low value. Lessor accounting is unchanged; in other words, the lessors classify leases between in-finance leases and operational leases. The new standard has replaced the existing lease standard, including CPC 06/ IAS 17 Leases and ICPC 03/ IFRIC 4, SIC 15 and SIC 27 Complementary for lease operations. The main impact on the Group on January 1, 2019 is related to the lease operations of rural land worth R$ 488.2 million. The other leases are for administrative properties, distribution center and vehicles in the estimated amount of R$ 13.4 million. These amounts were recorded in the non-current assets, in the right-of-use assets account and liabilities of leases. The Group implemented CPC 06 (R2)/ IFRS 16, using the modified retrospective approach. In the transition, the lease liabilities were measured at the present value of the remaining payments, discounted at the incremental loans rate. The right-of-use assets were measured at the same amount as the lease liability; adjusted future expected payments for the lease were recognized in the balance sheet immediately before adoption. The Group applied the following practical arrangements and exemptions: a) Definition of lease contract in the transition: The Group applied CPC 06 (R2)/ IFRS 16 and all contracts signed before January 1, 2019 that were identified as leases in accordance to CPC 06 (R1)/ IAS 17 and ICPC 03/ IFRIC 4; b) Short-term contracts or with remaining terms on January 1, 2019 equal to or less than 12 months: the Group recognized the lease payments associated with these leases as expenses on a linear basis over the term of these leases; c) Low-value contracts: the Group recognized the payments from leases associated with these leases as expenses on a straight-line basis over the term of the lease, and; d) A single discount rate applied to lease portfolios with reasonably similar characteristics (such as leases with a remaining lease term similar to that of a similar class of underlying asset). There are no other standards or interpretations that have been issued but not yet adopted that can have, in the Management’s opinion, significant impact in the result or stockholder’s equity disclosed by the Company. b) IFRIC 23/ ICPC 22 – Uncertainty about income tax treatment This interpretation clarifies how to measure and recognize assets and liabilities of current and deferred taxes on profit (IR/ CS), to the IAS 12/ CPC 32, in cases when there is uncertainty on treatments applied in the respective tax calculations. Management has evaluated the main tax treatments adopted by the Group in the open periods subject to question by the tax authorities and has concluded that they do not have a significant impact to be recorded in the financial statements.


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2.3 – Presentation of segmented information Segmented information is presented consistently with the main operating decision maker. The main operating decision maker, responsible for allocating funds and evaluating the performance of operating segments is the Company's Board of Directors, which is in charge of the Group's strategic decision making, with the support of the Board of Directors. 2.4 – Foreign currency translation (a) Functional currency and presentation currency The items included in the financial statements of each of the companies are measured using the main currency of the economic environment in which the respective company operates (“the functional currency”). The individual and consolidated financial statements are presented in Brazilian Reais, which is the Company’s functional and also presentation currency for its financial statements.

(b) Transactions and balances Transactions in foreign currencies are converted into the functional currency using the exchange rates prevailing on the transaction or evaluation dates in the event that the items are re measured. Exchange gains and losses arising from the settlement of those transactions and from the conversion at period-end exchange rates of monetary assets and liabilities in foreign currencies are recognized in the statement of income as financial income or expenses, except, when they are recorded directly in stockholders' equity and considered to be a hedge of net investments. (c) Companies of the Group with different functional currencies The net income and financial position of the subsidiaries located abroad (none of which operate in hyperinflationary economy), whose functional currency is different from the presentation currency (Brazilian Reais), are converted into the presentation currency as follows:

assets and liabilities are translated at the exchange rate on the balance sheet date;

income and expenses are translated at the average exchange rate for the month in which they are recorded;

all resulting exchange related differences are recognized in stockholders' equity as accumulated conversion adjustments and are recognized in the net income when the investments are realized;

goodwill and fair-value adjustments resulting from the acquisition of a foreign entity are recognized as assets and liabilities of the foreign entity and translated at the closing exchange rate. 2.5 – Cash and cash equivalents Cash and cash equivalents include cash, bank deposits and other short-term highly liquid investments with original maturities of three months or less, and subject to an insignificant risk of changes in value. 2.6 – Financial assets 2.6.1 – Classification The Company classifies its financial instruments with base in the purpose, finality and characteristics that were acquired measuring initially by the fair value amount.


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Subsequently, the financial assets are classified at amortized cost, fair value through other comprehensive income or fair value through results. 2.6.2 – Recognition and measurement The recognition of a financial asset occurs on the date that the Company becomes part of the contractual provisions of the instrument. The investments are, initially, recognized at fair value, except for accounts receivable that are recognized by transaction price, plus transaction costs that being are directly attributable to the acquisition or issue of the asset or financial liability. The financial assets are written off when the rights to receive cash flows from investments have been realized or transferred, in this last case, since that the Company has transferred, significantly, all risks and benefits from the property. The financial assets measured at fair value through results are, subsequently, recorded at fair value. The financial assets measured at amortized cost are subsequently measured using the effective interest rate method and are subject to reduction to the recoverable amount. The fair value of assets and liabilities with public quotation are based on the negotiation price at the closing date. If a financial asset does not have an active market, the Company establishes the fair value through evaluation techniques. These techniques include the use of recent operations contracted with third parties, regarding other instruments that are substantially similar, discounted cash flows analysis and pricing models that make the most possible use of information generated by the market and the minimum possible information generated by the Company’s Management. 2.6.3 – Offsetting of financial instruments Financial assets and liabilities can be reported at their net amounts in the balance sheet only when there is a legal right to offset the amounts recognized and there is intent to settle them on a net basis, or to realize the asset and settle the liability simultaneously. 2.6.4 – Impairment of financial assets The provision for impairment with financial assets is based on assumptions on the risk of default and estimated losses. The Company applies its judgment to establish the assumptions and to select data for impairment calculation based on the historic performance of the Company, in existent market conditions and in the future estimate to the final of each exercise. The criteria used by the Company and its subsidiaries to determine whether there is objective evidence of loss by impairment include:

relevant financial difficulties for the issuer or debtor;

a breach of contract, such as a default or delay in the payment of interest or principal;

the disappearance of an active market for that financial asset due to financial difficulties, or

observable data indicating a measurable reduction in the estimated future cash flows from a financial asset portfolio since the initial recognition of those assets, even if the decrease cannot yet be allocated to the individual financial assets in the portfolio, including:

a) adverse changes in the payment situation of the portfolio's borrowers; b) national or local economic conditions correlating with adverse changes in the payment

situation of the portfolio's borrowers; c) national or local economic conditions correlating with defaults on the portfolio's assets. The Company and its subsidiaries first evaluate whether there is objective evidence of impairment.


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The loss amount by impairment is measured as the difference between the book value of the assets and the present value of estimated future cash flows (excluding future credit losses not yet incurred) discounted to the original interest rates of the financial assets. The book value of the assets is reduced and the amount of the loss is recognized in the statement of income. If a loan or investment maintained until maturity date has a variable interest rate, the discount rate utilized to measure the impairment loss is the current effective interest rate determined in accordance with the contract. For practical purposes, the Company and its subsidiaries can measure the impairment based on the fair value of the instrument utilizing an observable market price. If, in a subsequent period, the value of the impairment loss decreases and the decrease can be objectively related to an event that has occurred after the impairment has been recognized, (such as an improvement in the debtor's credit classification), the reversal of the previously recognized impairment loss is recognized in the statement of income. 2.7 – Derivative financial instruments and hedging activities Derivatives are initially recognized at fair value on the date when the derivative agreement is entered into, and are subsequently, remeasured at fair value through the results. Derivatives are contracted as a form of financial risk management, and the Company’s policy is not to enter into leveraged derivative transactions. Although the Company does not have a hedge accounting policy, it has designated certain debts at fair value through results, because of the existence of derivative financial assets directly related to loans, as a means of avoiding the recognition of gains and losses in different periods. 2.8 – Trade accounts receivable This correspond to the values to be received in the normal course of the Group’s activities and these are registered, initially, at the fair value of the consideration to be received and increased of exchange variation, when applicable. Afterwards these, are measured by the amortized cost and deduced by the estimated impairment of the accounts receivable. It refers in its totality of short term operations and then do not adjusted to present value due to not represents relevant adjustments in the financial statements. It estimate that the fair value from this accounts receivable be substantially similar to its accounting value. The impairment of accounts receivable is constituted with base in individual analysis from values to receive considering, mainly: (i) relevant financial difficulties for the issuer or debtor, and (ii) a breach of contract, as a default or default in the payment of the interest or principal. Once that the receivables don’t have significate financing component with base in an simple approach, the impairment of accounts receivable is registered on all life from the receivable realizing the application of percent calculated from the historic study of default segregated by parameters of: (i) segment; (ii), revenue date; and (iii) maturity date. The risk matrix will be revised on an annual basis however; the study can be reevaluated in the case of impairment of accounts receivable which demonstrate different behavior to the expected result. The impairment of accounts receivable constituted with base in the risk analysis of realization from credits in amount considered sufficient by Management for cover eventual losses in the realization of these assets. The subsequent recovery of values previously written off is credited in the account “other revenues and expenses” in the income statement.


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2.9 – Inventory Inventory is stated at the average purchase or production cost, not exceeding the replacement cost or realizable amount, choosing the lower of the two. Imports in transit are stated at the cost of each import. The cost of finished goods and work in progress comprises the cost of raw materials, direct labor, other direct costs and related direct production costs (based on normal capacity). The net realizable value is the estimated selling price in the normal course of business, less the estimated costs of conclusion and the estimated costs necessary to make the sale. 2.10 – Intangible assets The intangible assets are grouped as follows: Goodwill Goodwill is represented by the positive difference between the amount paid and or payable for the acquisition of a business and the net fair value of the assets and liabilities of the acquired subsidiary in a business combination. Goodwill is not amortized in the accounting and is written off by sale or by impairment, through an annual test to identify whether there is any need to record the losses. This goodwill is realized (amortized) for tax purposes, having base the current law, being that the corresponding deferred income tax and social contribution is constituted. Goodwill is allocated to Cash Generating Units (“UGC”) for impairment purposes. The allocation is made for the UGC or for the group of UGCs that should benefit from the business combination on which the goodwill arose. Trademarks and patents Separately acquired trademarks and licenses are, initially, stated at historical cost. Trademarks and licenses acquired during a business combination are recognized at their fair value on the acquisition date. Contractual relationships with customers – customer portfolio Customer relationships acquired in a business combination are recognized at fair value on the acquisition date. Customer relationships have finite useful lives and therefore are amortized. Amortization is calculated using the straight line method over the expected useful life of the customer relationship. Software Acquired software licenses are recorded as capital expenditure at the amount of the costs incurred to acquire the software and prepare it for use. The cost is amortized over the estimated useful life of the software. 2.11 – Property, plant and equipment Items of property, plant and equipment are stated at their cost of acquisition, formation or construction, including financing costs related to the acquisition of assets that require some time to get done, net of accumulated depreciation calculated by straight line method, and taking into consideration the estimated economically useful lives of the respective assets and, which are reviewed at the end of each year.


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Subsequent costs are included in a book value of asset or are recognized as a separate asset, as applicable, only when it is likely that the future economic benefits associated to the item and that the cost can be measured with security. The book values of replaced items and parts are written off. All other repair and maintenance costs are recorded against results for the year in the period of occurrence. The value of property, plant and equipment is reduced to its recoverable amount if the book value exceeds the estimated recoverable amount. Gains and losses on disposals are determined by comparing the results with the book value and are recognized in "other operating income (losses), net". 2.12 – Impairment of non-financial assets Assets which have an indeterminate useful life, such as goodwill, are not subject to amortization and are tested annually for impairment. The assets subject to depreciation or amortization are tested whenever there is objective evidence (events or changes of circumstances) that the book value may not be recoverable. For this purpose, the companies take into consideration the effects arising from obsolescence, demand, competition and other economic factors. For impairment testing purposes, assets are grouped at the lowest level for which there is separately identifiable cash flow (UGCs). 2.13 – Biological assets Forest reserves are recognized at their fair value, less the estimated selling costs at harvest time, as described in Note 15. For immature plantations (up to one year old), the cost is considered to approximate the fair value. Gains or losses arise from the recognition of biological assets at their fair value, less selling costs, are recognized in the statement of income. The depletion appropriated to the results is made using the formation costs and the fair value adjustments portion. The effect of the variation in the fair value of a biological asset is presented in a separate account in the statement of income. 2.14 – Loans Borrowing is initially recognized at its fair value when funds are received, net of transaction costs, and subsequently stated at amortized cost, in other words, with the addition of charges and interest proportional interests to the incurred period (calculated on a pro rata basis), using the effective interest rate method, except for those which have derivative instruments of protection, which will be valuated at fair value. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, i.e. an asset that requires a substantial period of time before its use or sale, are capitalized as part of the cost of the asset when it is probable that it will result in future economic benefits to the entity which can be reliably measured. Other borrowing costs are recognized as expenses in the year in which they are incurred. 2.15 – Accounts payable to suppliers and provisions Suppliers Accounts payable to suppliers are obligations to pay for goods or services that were purchased in the ordinary course of business, and are classified as current liabilities if payment is due in the period as at one year. Otherwise, the accounts payable are presented as non-current liabilities. Accounts payable are initially recognized at their nominal value, which is equivalent to the fair


26

value, and, subsequently, measured at amortized cost using the effective interest rate method. Provisions Provisions are recognized when there is a present legal case or no formal result from past events, and which being probable the necessity of disbursement of funds will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognized to the future operating losses. Provisions are measured at the present value of the expenses that should be necessary to settle the obligation, and reflecting the risks specific to the obligation. 2.16 – Current and deferred income tax and social contributions Income tax and social contributions are calculated based on the net income for the year before the constitution of the income tax and social contribution, adjusted by inclusions and exclusions in accordance with current tax legislation. Deferred income tax and social contributions are recognized on temporary differences between the tax bases of assets and liabilities and their book values in the financial statements. In practice, on accounting profit inclusions of expenses and exclusion of revenue, both are temporary no taxable, generate records of credit or debit of deferred tax. These taxes are recognized in the statement of income, except for the proportion related to items directly recognized in stockholders’ equity. In this case, the tax is also recorded in stockholders’ equity. Current income tax and social contributions are presented in liabilities on a net basis when there are amounts payable or in assets when the amount paid in advance exceeds the total owed at the reporting date. Deferred taxes on assets and liabilities are presented net, if there exists the legal or contractual right to offset the fiscal asset against fiscal liability, and the deferred tax is related to the same taxable entity and subject to the same taxable authority. Deferred taxes and contributions are recognized only if their offsetting against future taxable income is probable. 2.17 – Employee benefits (a) Pension and health plans The Company and some of its subsidiaries offer to all of their employees a defined contribution plan managed by Fundação Itaúsa Industrial. The regulations of the plan establish that the sponsoring companies will make a contribution ranging from 50% to 100% of the amount contributed by the employees. The Company previously offered a defined benefit plan to its employees, but this plan is being phased out, with enrollment not permitted for new participants. In relation to the defined contribution plan, the Company and its subsidiaries have no further additional payment obligations after the contributions are made. The contributions are recognized as employee benefit expenses when they are due. Contributions made in advance are recognized as an asset to the extent that these contributions lead to an effective reduction in future payments. The Company offers contributory plans, currently with co-participation to its employees and their respective dependents, still as contributory plans in the Aracaju - SE unit and distribution centre of Tubarão – SC. On December 31, 2019 and 2018, 9 and 13 health care providers, totaling 21,973 and 25,059 lives, respectively, (active, dismissed, retired and dependents) characterizing the obligation of extension to coverage for dismissed and retired persons according to Law 9,656/98.


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(b) Share-based compensation The Company offers to its executives a compensation plan based on shares (stock options), according to which it receives their services from executives as a consideration for the stock options granted. The fair value of stock options granted is recognized as an expense, with a corresponding entry to stockholders’ equity during the year in which the executives render the services and acquire the right to exercise the stock options. The fair value of the options granted is calculated at the grant date of the options, and at each balance sheet, the Company revises its estimates of the quantity of shares it expects to issue, based on the vesting conditions. (c) Profit sharing The Company and its subsidiaries compensate their employees through profit-sharing if established performance targets are met in the year. This remuneration is recognized as a liability and an expense in the operating results when the employee fulfils the established performance conditions. 2.18 – Capital The common shares are classified in stockholders’ equity. Incremental costs directly attributable to the issue of new shares or options are presented in stockholders’ equity as a deduction from the funds obtained, net of taxes. The amount paid for the acquisition of treasury shares, including any directly attributable additional costs, is deducted from the equity attributable to the stockholders until the shares are cancelled, sold or utilized in the stock option plan. 2.19 – Revenue recognition Revenue represents the fair value of the consideration received or receivable for the sale of products in the normal course of the activities of the Company and its subsidiaries. Revenue is stated net of taxes, returns, discounts or rebates granted, as well as the elimination of intercompany sales between the companies from the group being recognized when its amount can be reliably measured, and when it is probable that future economic benefits will be obtained by the Company and specific criteria, for each of the relevant activities have been met, as detailed below. (a) Sales of goods Sales revenue is recognized on the delivery of the products, as well as by the transfer of the risks and benefits to the buyer. (b) Financial income Financial income is recognized in accordance with the elapsed period, using the effective interest rate method. When a loss (impairment) is identified on a financial instrument, the Company and its subsidiaries reduce the book value to its recoverable value, which corresponds to the estimated future cash flow, discounted at the original effective contractual interest rate of the instrument. 2.20 - Variation in the fair value of biological assets They are recognized by the modification of values from expected volumes at harvest point, by the current market prices based on the volume estimates.


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2.21 – Leases As at December 2018, the Company had lease contracts of land utilized for forestry activities. In these contracts, the risks and rights of ownership are retained by the lessor, and the leases are therefore classified as operating leases. The costs incurred in operating lease agreements are recorded as part of the formation cost of biological assets, using the straight line method, over the contractual period. 2.22 – Distribution of dividends and interests on capital The distribution of dividends or interests on the capital of the Company to stockholders is recognized as a liability in the financial statements at the end of each year, or on interim dates, as determined by the Board of Directors, and the balance is calculated based on the minimum dividend established in the Company's bylaws, net of the amounts approved and paid during the year. Any amount above from the minimum obligatory is just recognized as liability when it is approved by the stockholders in the meeting of Board of Directors. Note 3 – Critical accounting judgments and estimates During the preparation of the financial statements, accounting judgments, estimates and assumptions are utilized to record the amounts of certain assets and liabilities and other transactions. The definition of estimates and accounting judgments adopted by Management were based on the information available on the date, involving experience of past events and forecasts of future events. The financial statements includes several estimates: the useful lives of property, plant and equipment, realization of deferred tax credits, impairment in the trade accounts receivable, inventory losses, evaluation of the fair value of biological assets and provision for contingencies, impairment testing of goodwill, pension plan and health benefits, and others. The main estimates and assumptions that entail a substantial risk with probability to causes adjustments in the book values of assets and liabilities are presented below: a) Risk of variations in the fair value of biological assets The Group used several estimates to evaluate its forestry reserves in accordance with the methodology established by CPC 29/IAS 41 – “Biological asset and agriculture product”. These estimates were based on market references, and are subject to scenarios changes which could impact the financial statements. Specifically, a 5% reduction in standing wood market prices would result in a reduction in the fair value of biological assets in order to R$ 49.7 million, net of tax effects. If the discount rate used were increased by 0.5%, this would result in a reduction in the fair value of biological assets of about R$ 5.9 million, net of tax effects. b) Estimated impairment of goodwill The Company and its subsidiaries test the goodwill on an annual basis or if there is an indication of a possible impairment of goodwill in accordance with accounting policy presented in the notes 2.10 and 2.12. The balance can be impacted by changes in the economic and market scenario. c) Pension plan and health benefits The current value of assets and liabilities related to pension plans and health depends on a number of factors that are determined using actuarial calculations. These calculations involve a


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series of assumptions, including the discount rate and current market conditions. Any changes in these assumptions will affect the corresponding book values. d) Provision for contingencies The Group constitutes a provision for tax, labor, civil and social security contingencies, based on valuation of the probability of loss which is made by its legal advisors. The amounts recorded are updated and the Management by the Group believes that the constituted provisions as at closing date are sufficient to cover eventual losses with lawsuits and administration in progress. e) Fair value of financial instruments When the fair value from financial assets and liabilities presented in the balance sheet cannot be obtained for market assets, it is determined utilizing valuation techniques, including the discounted cash flow method. The data for these methods are produced with close reference to the market, when possible; however, when this is not viable, a level of judgement is required to establish the fair value. The judgment includes considerations on data used, for example, risk of liquidity, risk of credit and volatility. Changes in the assumptions on these factors could affect the fair value of the financial instruments that is presented. f) Deferred income tax and social contribution The Group registers assets for deferred income tax and social contribution on tax losses and the negative base of social contribution and temporary differences. The recognition of these assets considers the expectation that future tax gains will be generated. The estimates of future results that will allow the offset of these assets are based in Management’s projections, which are reviewed and approved by Board of Directors, considering economic scenarios, discount rates, and other variables that cannot be realized. Note 4 – Financial risk management 4.1 Financial risk factors The Group is exposed to market risk in relation to interest, exchange rates and credit term fluctuations. This risk is managed following the policies approved by the Board of Directors, including monitoring by the Audit and Management of Risk Committee. The Company and its subsidiaries have procedures to manage these situations and can use hedging instruments to reduce the impact of the risks. These procedures include monitoring the level of exposure to each market risk, in addition to establishing limits for the respective decision-making. All hedge transactions entered into by the Group are designed to cover risks for debts and investments. The Group does not utilize any leveraged financial derivatives. Market risk (I) Exchange-rate risk: Exchange-rate risk corresponds to a reduction in the value of the Group's assets or an increase in its liabilities due to changes in exchange rates. The Company and its subsidiaries have an indebtedness policy that establishes the maximum amount in foreign currency to which it is exposed. In line with the risk-management procedures, the objective is to minimize the foreign exchange exposure of the Company and its subsidiaries, through hedging mechanisms, in order to mitigate exchange exposure.


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(II) Derivatives: In terms of derivative instruments, there are no monthly settlements or margin calls. Contracts are settled upon maturity and recorded at fair value, considering the market conditions for terms and interest rates. The outstanding contracts as at December 31, 2019 were as follow: a) US$ vs. Interbank deposit certificate (CDI) swap agreements The subsidiary Cecrisa has one agreement with a notional amount of US$ 757,000,000 with maturity on April 27, 2020 with an asset (purchase) position in US Dollars and a liability (sale) position in CDI. The Company made these agreements in order to change its debts denominated in US Dollars into debts indexed to the CDI. b) Fixed rate vs. CDI swap agreements The Company has two agreements with an aggregate amount of R$ 385,000, the last of which has maturity on June 17, 2020 with asset positions at a fixed rate and liability positions at a percentage variation of the CDI. The Company contracted these operations with the purpose of changing loans with fixed interest rates to variable rates indexed to the CDI. c) Swap IPCA + fixed x CDI agreement The Company has two agreements with aggregated amounts of R$ 39,608 maturing on December 15, 2028 with an asset position in IPCA + fixed rate and liability position in CDI. The subsidiary Duratex Florestal has two contracts with aggregated amounts of R$ 54,774 maturing on December 15, 2028 with an asset position in IPCA + fixed rate and liability position in CDI. The Company and its subsidiary Duratex Florestal contracted these operations to swap debts with IPCA rates + fixed interest rates to debts indexed to the CDI. d) Non Deliverable Forward (NDF) agreement

The Company has one agreement of US$ 26,253,000 with a maturity date on January 31, 2020 and a position sold in US Dollars.

The Company contracted this agreement in order to reset the foreign exchange exposure on the contracted date (December 27, 2019). In this transaction the contracts are settled at their respective maturity, considering the difference between the future exchange rate (NDF) and exchange rate at period end (Ptax). e) Calculation of the fair value of positions The fair value of the financial instruments was calculated utilizing the estimated present value of both liability and asset positions, where the difference between the two represents the market value of the swap.


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Amount Amount

12/31/2019 12/31/2018 12/31/2019 12/31/2018 receivable/ payable/

received paid

I. Swap contracts

Asset position

Foreign currency (USD) 3,000 354,985 3,323 392,891 10 -

Fixed rate 385,000 385,000 395,208 394,890 5,991 -

IPCA + 94,382 44,009 103,336 44,194 8,785 -

Liability position

CDI (482,382) (783,994) (487,081) (794,936) - -

II. Futures contracts (NDF)

Agreement of Sale

NDF 106,550 136,829 106,210 136,155 996 -

Reference Value

(notional)Fair Value

Accumulated Effect on

12/31/2019

Gains or losses on the transactions listed in the table were offset in interest rates and foreign currency positions, assets and liabilities, whose effects are already registered in the results of the Company. f) Sensitivity analysis The table sets out a sensitivity analysis of financial instruments, including derivatives, that describes the risk scenarios which could generate material losses for the Company and its subsidiaries with a probable scenario (base scenario) plus two scenarios, pursuant to CVM 475/08, of 25% and 50% possible and remote, respectively, deteriorating the risk variables. For the variables rates: risk used in the probable scenario, B3 quotations in the maturity dates of the financial instruments exposed to foreign exchange and interest rates an average dollar exchange rate of R$ 4.0235 and an average CDI rate of 4.62% p.a. was used.

Sensitivity analysis table

Risk Instrument/Operation Description Probable Possible Remote

of risk Scenario Scenario Scenario

Interest rate SWAP - FIXED / CDI Increase CDI 3,955 2,893 1,715

Subject of hedge: fixed rate loans. (3,955) (2,893) (1,715)

Net effect - - -

Interest rate SWAP - IPCA+ / CDI Increase CDI 17,441 (9,322) (42,062)

Object of "hedge": loan in IPCA+ rates (17,441) 9,322 42,062

Net effect - - -

Foreign exchange SWAP - US$ / CDI Decrease US$ (13) (869) (1,724)

Subject of hedge: foreign currency debt ( US$ ) (increase US$) 13 869 1,724

Net effect - - -

Foreign exchange NDF (US$) Decrease US$ (6) 26,339 52,805

Subject of hedge: foreign currency debt ( US$ ) (increase US$) 6 (26,339) (52,805)

Net effect - - -

Total - - -

Amounts in thousands of R$

(III) Cash flow or fair value risk associated with interest rates Interest rate risk is the risk the Company suffers financial losses due to adverse changes in interest rates. This risk is continually monitored in order to evaluate any need to contract derivative transactions to hedge against interest rate volatility.


32

(a) Credit risk The Company’s sales policy is directly associated with the level of credit risk that it is willing to accept in the course of its business. The diversification of its portfolio of receivables, selection of its customers, as well as monitoring of sales financing terms and individual limits, are procedures adopted in order to minimize defaults or losses on the realization of accounts receivable. In relation to temporary cash investments and all other investments, the Group follows the policy of working only with highly-rated institutions and not concentrating investments with any one economic group. (b) Liquidity risk The Company and its subsidiaries have an indebtedness policy which defines the limits and parameters of indebtedness, and the minimum funds which should be maintained, the latter being the higher of the following values: an amount equivalent to 60 days of consolidated net revenue of the last quarter or the amount of the debt servicing expenses plus dividends and/or interest on capital forecast for the following six months. Monitoring of liquidity position occurs daily through cash-flow analyses. The table below shows the maturities of certain financial liabilities and obligation with suppliers contracted by the Company and its subsidiaries in the interim financial information:

12/31/2019

Loans/ Debentures 803,257 169,624 1,374,186 987,981 989,741 1,435,390 4,273

Suppliers 439,794 - - 625,279 - - -

Related parties suppliers 27,804 - - - - - -

Total 1,270,855 169,624 1,374,186 1,613,260 989,741 1,435,390 4,273

Consolidated

Less than

one year

2021 and

2022

From 2023 to

2029

Less than

one year

2021 and

2022

From 2023 to

2029

2030

Onwards

Parent company

The budget and cash-flow projection approved by the Board of Directors for the next fiscal year, shows sufficient capacity and generation of cash to meet the Company’s obligations. 4.2 Capital management The Company and its subsidiaries manage their capital to ensure the continuity of their operations, as well as providing returns to its stockholders, including the optimization of the cost of capital and controlling the level of indebtedness by monitoring of the financial leverage index. This index corresponds to net debt divided by stockholders’ equity.

12/31/2019 12/31/2018 12/31/2019 12/31/2018

A -Loans, financing and debentures 2,000,919 1,982,441 2,948,540 2,862,604

Short - term 720,025 656,587 871,865 704,413

Long - term 1,280,894 1,325,854 2,076,675 2,158,191

B-(-) Cash and cash equivalents 459,310 269,488 1,243,223 1,162,241

C=(A-B) Net debt 1,541,609 1,712,953 1,705,317 1,700,363

D- Stockholders' equity 4,930,863 4,633,703 4,932,168 4,634,867

C/D=Financial leverage index 31% 37% 35% 37%

Parent company Consolidated


33

4.3 Fair value estimates It is assumed that the book balances of trade account receivable and accounts payable to suppliers, less the loss (impairment), approximate their fair values. The fair value of the financial liabilities for disclosure purposes is estimated by discounting future contractual cash flows by the current market interest rate available to the Company and its subsidiaries for similar financial instruments. The Company and its subsidiaries apply CPC 40-R1/ IFRS 7 “Financial instruments: disclosures” for financial instruments measured on the balance sheet at fair value, which requires the disclosure of the measurement criteria. As the Company has only Level 2 derivatives, it uses the following valuation techniques: • The fair value of the interest rate swap is calculated on the present value of the estimated future cash flow based on the yield curves adopted by the market; • The fair values foreign currency forward contracts are determined based on future exchange rates at the balance sheet dates, with the resulting amounts discounted to their present values. The consolidated financial instruments (by category/level) are presented below:

12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018

ASSETS

Cash equivalents 1,032,803 990,261 - - - - 1,032,803 990,261

Trade accounts receivable 1,102,800 1,175,458 - - - - 1,102,800 1,175,458

Related parties accounts receivable 32,409 38,697 - - - - 32,409 38,697

Restricted deposits 62,123 54,528 - - - - 62,123 54,528

Total 2,230,135 2,258,944 - - - - 2,230,135 2,258,944

LIABILITIES

Loans/ debentures - - 2,461,459 2,067,668 487,081 794,936 2,948,540 2,862,604

Dividends/ interests on capital - - 116,800 546,842 - - 116,800 546,842

Total - - 2,578,259 2,614,510 487,081 794,936 3,065,340 3,409,446

Amortized cost Financial liabilities

Financial liabilities

designated at fair value Total

Note 5 – Cash and cash equivalents

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Cash and banks 30,521 19,369 99,914 92,960

Banks remunerated accounts of foreign

subsidiaries - - 110,506 79,020

Fixed income securities 843 703 74,992 41,883

Bank deposit certificates 427,946 249,416 957,811 948,378

Total 459,310 269,488 1,243,223 1,162,241


Bank deposit certificates in Brazil earn interest with reference to the CDI rate, and deposits abroad in US Dollars earn a fixed interest rate. The bank deposit certificates (CDB) are remunerated at rates approximates to the CDI rates and although they have long-term maturities, bank deposit certificates can be redeemed at any time without penalty.


34

Note 6 - Trade accounts receivable

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Domestic customers 771,820 787,735 1,004,183 1,067,853

Foreign customers 80,797 165,996 169,721 182,236

Impairment in accounts receivable (55,139) (62,891) (71,104) (74,631)

Total customers - third parties 797,478 890,840 1,102,800 1,175,458

Total customers - related parties 82,335 88,831 32,409 38,697

Total accounts receivable 879,813 979,671 1,135,209 1,214,155


The balances of accounts receivable by maturity are as follow:

Not yet due Up to 30

days

From 31 up to

60 days

From 61

up to 90

days

From 91 up to

180 days

More than

180 diays

(-) Impairment in

accounts

receivable Total

Not yet due Up to 30

days

From 31 up to

60 days

From 61 up

to 90 days

From 91 up to

180 days

More than

180 diays

(-) Impairment in

accounts

receivable Total

Domestic customers 690,544 22,241 3,994 2,601 8,673 43,767 (54,304) 717,516 903,431 26,702 4,224 3,492 11,104 55,230 (68,657) 935,526

Foreign customers 43,572 16,747 5,576 5,711 4,647 4,544 (835) 79,962 114,948 24,866 9,484 6,840 5,940 7,643 (2,447) 167,274

Related parties 56,297 7,792 6,697 3,281 5,580 2,688 - 82,335 31,960 15 11 99 50 274 - 32,409

Total 790,413 46,780 16,267 11,593 18,900 50,999 (55,139) 879,813 1,050,339 51,583 13,719 10,431 17,094 63,147 (71,104) 1,135,209

Not yet due

Up to 30

days

From 31 up to

60 days

From 61

up to 90

days

From 91 up to

180 days

More than

180 diays

(-) Impairment in

accounts

receivable Total Not yet due

Up to 30

days

From 31 up to

60 days

From 61 up

to 90 days

From 91 up to

180 days

More than

180 diays

(-) Impairment in

accounts

receivable Total

Domestic customers 722,298 943 3,383 2,846 7,306 50,959 (62,645) 725,090 926,599 39,888 14,251 6,170 10,848 70,097 (74,178) 993,675

Foreign customers 86,737 36,637 27,389 6,956 5,248 3,029 (246) 165,750 126,369 25,741 17,032 6,550 4,123 2,421 (453) 181,783

Related parties 53,014 22,819 1,000 1 191 11,806 - 88,831 38,601 - 18 11 26 41 - 38,697

Total 862,049 60,399 31,772 9,803 12,745 65,794 (62,891) 979,671 1,091,569 65,629 31,301 12,731 14,997 72,559 (74,631) 1,214,155

Past due Past due

12/31/2018 12/31/2018

Past due Past due


12/31/2019 12/31/2019

The Company and its subsidiaries have a credit policy whose objective is to establish the procedures for granting credit in commercial operations, sales of products and services, both domestically and in the overseas market. The credit limit is determined based on a credit analysis, considering the history of the customer, its capacity as a borrower, and market information. The credit limit is defined with reference to a percentage of net revenue, stockholders’ equity, or a combination of these, still considering the average volume of monthly purchases, but always supported by an evaluation of the economic and financial situation, an examination of the relevant documents and the customer's reputation. Customers are classified as A, B, C or D based on the length of the Company’s relationship with the customer and their payment history.

Length of Payment historyrelationship

12/31/2019 12/31/2018

Over five years Current 19% 41%

Over three years Up to one day late, on average 0% 3%

Below three years Over one day late, on average 78% 52%

Overdue 3% 4%

% of the balance from

customer portfolio

A

B

C

D

Classification

The maximum credit risk exposure at the date of this report is the book value of each class of trade accounts receivable listed above. The changes in the allowance against accounts receivable (provision for losses from expected credits) in accordance with the IFRS 9 guidelines, for the period of twelve months ended December 31, 2019 were as follows:


35

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Opening balance (62,891) (70,489) (74,631) (78,732)

Transition adjustment CPC 48 - (3,963) - (5,001)

Acquisition of subsidiaries - Cecrisa - - (10,710) -

(Constitution) reversion (9,245) (6,217) (11,359) (10,382)

Write-offs 16,997 17,778 25,596 19,484

Closing Balance (55,139) (62,891) (71,104) (74,631)


Note 7 - Inventories

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Finished goods 234,842 232,132 427,137 324,382

Raw materials 189,179 205,182 267,202 259,766

Work in progress 108,828 100,821 139,494 123,586

General warehouse 111,961 106,288 124,566 115,825

Advances to suppliers (*) 20,624 22,377 1,725 660

Estimated loss on inventory realization (-) (73,602) (18,843) (106,831) (26,920)

Total 591,832 647,957 853,293 797,299


(*) Consolidated: advances from parent company to subsidiary Duratex Florestal Ltda. have been eliminated.

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Opening balance (18,843) (17,826) (26,920) (26,243)

Acquisition of subsidiary - Cecrisa - - (36,684) -

Constitutions (87,158) (18,834) (99,127) (29,592)

Reversions - - 22,954 897

Write-offs 32,399 17,817 33,120 28,175

Exchange variation - - (174) (157)

Closing Balance (73,602) (18,843) (106,831) (26,920)


Note 8 – Other receivables

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Fundação Itaúsa Industrial (pension plan) (1) 2,806 1,707 2,806 1,707

Sale of farms/ properties and other assets (2) 1,500 13,257 12,500 284,214

Retention values from business acquisitions 2,381 2,931 2,381 2,931

Claims to receive 432 2,496 446 2,496

Electricity sales 7,362 1,361 7,583 1,361

Differential rate 200 2,243 200 2,243

Rebate credit 415 1,036 415 1,036

Others 2,996 5,219 5,729 6,167

Total Current 18,092 30,250 32,060 302,155

Fundação Itaúsa Industrial (pension plan) (1) 5,613 - 5,613 -

Sale of subsidiary 18,200 60,000 18,200 60,000

Sale of farms/ properties (2) 1,926 2,174 72,953 16,387

Forest incentives (3) - - 10,430 9,734

Amounts receivable from participating partners of SCPs - - 5,206 5,206

Indemnifiable assets (4) 17,365 26,219 17,365 26,219

Retention values from business acquisitions 30,925 29,778 30,925 29,778

Others 2,648 2,631 6,501 6,839

Total Non-Current 76,677 120,802 167,193 154,163


(1) Credits from the review of defined benefit plan of Fundação Itaúsa Industrial; (2) Balances of sales of property, plant and equipment, mainly farms;


36

(3) Forest planting models in which the Company provides incentives, raw materials and technical assistance and maintenance as established in the contract; (4) Indemnity amounts from acquisition of subsidiaries Ceusa and Massima related receivables from previous owners in the event Duratex is required to make disbursements.

Note 9 – Recoverable taxes and contributions The Company and its subsidiaries had recoverable federal and state tax credits, the composition of which was as follows:

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Income tax and social contribution to be offset 63,315 47,120 96,874 80,162

ICMS, PIS and COFINS on the acquisition of property,

plant and equipment (*) 7,494 8,913 10,703 11,234

PIS and COFINS to be offset 17,813 20,398 33,991 21,002

ICMS and IPI recoverable 7,359 8,226 33,514 29,105

Others 5,181 3,428 11,140 7,398

Total current 101,162 88,085 186,222 148,901

ICMS, PIS and COFINS on the acquisition of property,

plant and equipment (*) 11,159 11,256 16,542 13,560

Total non current 11,159 11,256 16,542 13,560


(*) State Value-Added Tax (ICMS), Social Integration Program (PIS) and Social Contribution on Revenue (COFINS) to be offset were mainly generated from the acquisitions of property, plant and equipment items for the industrial plants. Under current legislation, the PIS/COFINS credits will be utilized within 12 and 24 months, and the ICMS credits within 48 months.

Note 10 – Deferred income tax and social contribution

Deferred income tax and social contributions are calculated on income tax losses and the negative base of social contribution, temporary differences between tax calculation bases on assets and liabilities and under CPC’s/IFRS. The tax rates for deferred taxes are 25% for income tax and 9% for social contribution. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available to offset temporary differences, considering the projections of future income. These projections are prepared on the basis of internal assumptions and using future economic scenarios, and therefore, subject to change. On December 31, 2019 the Group had unrecorded tax credits on tax losses and negative base of social contribution of R$ 53,504 from its subsidiary Hydra Corona Sistemas de Aquecimento de Água Ltda.. The table below shows deferred income tax and social contribution amounts, assets and liabilities, recorded at December 31, 2019.


37

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Deferred tax assets to be recovered within 12 months 66,400 77,451 98,714 88,643

Tax losses and negative base of Social Contribution 12,793 14,016 25,023 17,042

Temporarily non-deductible provisions:

Provision for sundry labor charges 9,221 8,644 11,013 10,204

Provisions for losses on inventory 25,024 6,406 33,000 6,578

Impairment of property, plant and equipment - 28,584 - 29,308

Provision for commission payable 1,784 1,521 4,067 1,837

Sundry provisions 17,578 18,280 25,611 23,674

Deferred tax asset to be recovered after 12 months 335,841 242,256 438,758 282,114

Tax losses and negative base of Social Contribution 134,047 133,544 163,614 160,892

Temporarily non-deductible provisions:

Provision for sundry labor charges 28,856 22,257 41,955 28,404

Tax provisions 29,729 20,826 32,445 22,020

Civil provisions - - 22,449 -

Impairment of property, plant and equipment 54,249 - 70,585 -

Provision for impairment of trade accounts receivable 7,416 7,335 9,495 8,949

Provision for losses on investments 492 492 492 492

Provision on post-employment benefits 15,480 10,105 24,389 10,105

Provision for fair value financing 2,108 1,333 3,801 1,408

Income tax on foreign profits 49,060 37,702 49,060 37,702

Sundry provisions 14,404 8,662 20,473 12,142

Total deferred tax assets 402,241 319,707 537,472 370,757

Non-current liabilities

Revaluation reserve (18,639) (20,236) (66,533) (41,373)

Present value adjustment of financing (2,467) (1,173) (4,160) (1,173)

Swap result (cash vs. accruals basis) (1,095) (11,620) (1,142) (11,620)

Income tax - accelerated depreciation - - (27,779) (16,137)

Sale of real estate - (868) (1,392) (5,869)

Biological assets - - (189,847) (185,934)

Customer portfolio Satipel (36,665) (42,258) (36,665) (42,258)

Fair value complementary pension (30,439) (31,127) (33,674) (34,338)

Customer portfolio Tablemac - - (3,795) (4,087)

Appreciation of assets - - (18,773) (18,345)

Others (38,187) (21,479) (35,056) (37,541)

Total deferred tax liabilities (127,492) (128,761) (418,816) (398,675)

Total net deferred tax assets 274,749 190,946 331,570 230,528

Total net deferred tax liabilities - - (212,914) (258,446)


Estimated realization of deferred tax assets:

YearParent

companyConsolidated

2020 66,400 98,714

2021 28,816 50,444

2022 49,070 73,273

2023 61,645 87,829

2024 76,389 96,928

2025 95,404 95,404

2026 24,517 34,880

Total 402,241 537,472 The estimated realization of deferred tax assets is based on studies prepared by Management’s Group to show the capacity of each entity for the respective tax credits to generate future taxable income.


38

Changes in the deferred income tax and social contribution


Balance as at December 31, 2018 - net of deferred income tax and social

contribution assets and liabilities 190,946 (27,918)

(Expenses) and revenues of deferred tax 68,020 86,328

Acquisition of subsidiary - Cecrisa - 39,878

IRPJ transfer abroad 11,358 11,358

Exchange variation on translation of balance sheet from foreign companies(*) - (964)

Income tax and social contribution on post-employment benefits(*) 4,425 9,974

Balance as at December 31, 2019 - net of deferred income tax and social

contribution assets and liabilities 274,749 118,656 (*) Registered as comprehensive income in the stockholders’ equity.

Deferred income tax and social contribution:

In the non current assets 274,749 331,570

In the non current liabilities - (212,914) Note 11 – Related parties a) Balances and transactions with subsidiaries

DescriptionDuratex

Europe

12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019

Assets

Clients (1) 81 3 13 165 1,108 3,418 - - 8,949 2,786 39,731 43,762 -

Other receivables (2) 151 60 157 119 - - 48 - - - - - 4,354

Interests on capital - 33,700 - - - - - - - - - - -

Subsidiaries (3) 12 5 20 11 - - - - - - - - -

Liabilities - -

Suppliers (4) 20,999 27,020 6,277 8,554 208 - - - 167 - 153 - -

Accounts payable 1,000 1,000 - - - - - - - - - - -

Results - -

Sales (5) 6 6 2,015 175 1,256 9,541 111 6 46,123 54,956 58,083 87,885 -

Purchases (6) (155,677) (295,144) (94,829) (30,961) - - (21) - - - - - -

Financial (26) 26 4 371 188 756 6 633 1,527 588 1,464 6,338 -

Cerâmica Urussanga Duratex ColombiaDuratex Florestal Hydra Corona Duratex Andina

Direct subsidiaries

Duratex North America

(1) Trade accounts receivable from sales in item (5); (2) R$ 4,354 regarding sales of shares from Duratex Belgium to Duratex Europe; (3) Intercompany operations to centralize cash management; (4) Accounts payable for acquisition of raw material in item (6); (5) Supplies of products in the domestic market in Peru, United States, Canada and Colombia; (6) Regular acquisition of harvested eucalyptus wood for production of wood panels (Duratex Florestal) and acquisition of products Hydra line for resale.

DescriptionCecrisa

RevestimentosLD Florestal (*)

12/31/2019 12/31/2019

Assets

Trade accounts receivable (1) 44 -

Liabilities

Related-party liabilities of leases - 260,266

Results

Sales (2) 44 -

Lease costs (3) - (23,698)

Indirect subsidiaries

(1) Trade accounts receivables from sales in item (2); (2) Supply of products in domestic market; (3) Refers to the costs of rural sub leasing agreement for reforestation land entered into by the subsidiary Duratex Florestal Ltda. with LD Florestal S.A.. related to lands that will be utilized as reforestation. The monthly lease charges amount to R$ 2,190 readjusted annually, as established in the contract. The agreement expires in July 2038, but may be renewed automatically for a further 15 years and will be readjusted annually based on the National Consumer Price Index (INPC), calculated by the Brazilian Institute of Geography and Statistics (IBGE); * No consolidated company, with shared control.


39

b) Balances and transactions with the parent company

Assets 12/31/2019 12/31/2018

Trade accounts receivable (1) 11 -

Results

Sales (2) 33 219

Rent expenses (3) (4,470) (4,489)Other operating income (expenses), net (4) (361) -

Itausa Investimentos Itaú

S.A.Description

(1) Trade accounts receivable from sales in domestic market; (2) Sales in domestic market; (3) Rental for offices at Company's headquarters; (4) Contracted services of analysis and economic planning.

c) Transactions with other related parties

Description

12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018

Assets

Trade accounts receivable (1) 32,398 38,697 - - - -

Liabilities

Related-party liabilities of leases - - 29,166 - - -

Results

Sales (2) 125,013 154,684 - - - 35,218

Lease costs (3) - - (2,788) (24,507) - -

Leo Madeiras Máquinas &

Ferramentas Ltda.Ligna Florestal Ltda. Fibria Celulose

(1) Trade accounts receivables from sales in domestic market; (2) Domestic market sales; (3) Rural leasing agreement between Ligna Florestal Ltda. (controlled by Ligna de Investimentos) and Duratex Florestal Ltda. in connection with land used for reforestation. The monthly charges for this lease amount to R$ 258, readjusted annually, as established in the contract. The agreement will expire in July 2038, but may be renewed automatically for a further 15 year and will be readjusted annually based on the INPC/ IBGE.

12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019

Assets

Financial investments (1) - - 42,740 19,328 -

Liabilities

Others liabilities (2) - - 5,280 7,920 -

(-) Cost of debenture issuance - - - - (2,391)

Results

Remuneration on financial investments (3) - - 2,337 1,196 -

Financial expenses (4) - - (56) (1,633) -

Other operating income (expenses), net (5) (230) (507) - - -

Itáu BBA S.A.Itaú UnibancoItaúsa Empreendimentos

S.A.Description

(1) Financial investments with Itaú Unibanco, under conditions agreed between the parties and within the limits established by Company’s Management; (2) Provision of services and payment; (3) Gains from financial investments in item (1); (4) Expenses for payment claims; (5) Services contracted of analysis, economic and corporate planning.

The transactions with related parties are realized in the course of the Company's business, under agreement between the parties. The transactions between related parties are assessed by the Audit Committee composed of independent members. As at December 31, 2019 no allowance for losses from expected credits was required for transactions with related parties.


40

d) Remuneration of Management executives The remuneration paid or payable to the Management of the Company and its subsidiaries relative to the year ended on December 31, 2019 was R$ 16,879 as fees (R$ 16,504 on December 31, 2018), R$ 17,247 as profit sharing (R$ 11,366 on December 31, 2018) and long-term remuneration based on stock options was R$ 4,446 (R$ 2,337 on December 31, 2018), approved in the General Meeting on April 26, 2019. Note 12 – Investments in subsidiaries a) Change in investments

Associate Shared Control

Number of shares/quotas held (Thousand) 301 12 374 - - 1 47 - 3,112 500 29,599 259,650 1,637 - 2,723,449 536 42,657 -

Interest % 99.99 99.99 99.99 90.00 - 100.00 100.00 - 56.90 100.00 87.40 100.00 100.00 - 99.98 35.07 50.00 -

Capital 901,542 12 374 10 - 1 392,358 - 426 886 54,332 259,650 1,771 - 326,216 687 177,452 -

Stockholders' Equity 1,218,697 364 1,637 10 - 1 138,834 - (1,333) 15,414 531,889 144,605 2,167 - 779,191 4,187 197,635 -

Net income (loss) for the year 231,877 1 28 - - - 139,425 5,035 1 (804) 67,265 14,750 (163) - 11,539 (5,061) 2,398 -

Changes in investments

As at December 31, 2017 1,504,876 288 1,607 9 1 1 470,740 2,876 - - - 247,764 1,623 76,962 84,303 6,260 - 2,397,310

Equity in results of investees 580,283 75 14 - - - 77,958 463 476 - - (56,999) 379 3,691 37,552 (1,420) 44 642,516

Change in unrealized result - - - - - - - - - - - (4,355) - - - - - (4,355)

Advance for future capital increase - - - - - - - - - - - - - 14,601 141,162 - - 155,763

Increase / Capital Contribution - - - - - - - - - - - - - - - 2,229 39,164 41,393

Goodwill - expectation of future profitability - - - - - - - - - - - - - - - 1,906 - 1,906

Massima Incorporation by the subsidiary Ceusa - - - - - - - - - - - - - (63,873) 63,873 - - -

Transfer by incorporation - - - - - - - - - - - - - (30,878) 30,878 - - -

Impairment Goodwill and trademark Corona - - - - - - - - - - - (5,009) - - - - - (5,009)

Capital Increase with Assets - - - - 47,417 - - - - - - - - - - - - 47,417

Sale of subsidiary - - - - (47,418) - - - - - - - - - - - - (47,418)

Exchange variations on equity - - 2 - - - 37,000 223 - - - - 206 - - - - 37,431

Equity of investees reflex - - - - - - - - - - - (2,048) - - (260) 91 - (2,217)

Provision for unsecured liability - - - - - - - - (476) - - - - - - - - (476)

Amortization of appreciation of assets, net of taxes - - - - - - - - - - - (3,333) - (651) (3,737) - - (7,721)

Dividends / Interests on Capital (298,699) - - - - - - - - - - - - - - - - (298,699)

Amortization of appreciation of inventories, net of taxes - - - - - - - - - - - - - 148 (218) - - (70)

As at December 31, 2018 1,786,460 363 1,623 9 - 1 585,698 3,562 - - - 176,020 2,208 - 353,553 9,066 39,208 2,957,771

Equity in results of investees 231,877 1 28 - - - 139,425 131 38 (21,860) (52,985) 14,750 (163) - 11,538 (1,848) 1,199 322,131

Change in unrealized result - - - - - - - - - - - 2,154 - - - - - 2,154

Advance for future capital increase - - - - - - - - - - - - - - 600,685 - - 600,685

Increase / Capital Contribution - - - - - - - - - - - - - - - 74 67,257 67,331

Exchange variations on equity - - (14) - - - 17,140 (19) - - - - 122 - 72 - - 17,301

Equity of investees reflex (7,254) - - - - - - - - - - (3,265) - - (269) 2,022 1 (8,765)

Provision for unsecured liability - - - - - - - - (38) - - - - - - - - (38)

Amortization of appreciation of assets, net of taxes - - - - - - - - - - - (3,170) - - (4,783) - - (7,953)

Dividends (794,998) - - - - - - - - - - - - - - - - (794,998)

Sale of interests in Duratex Belgium - - - - - - - (3,674) - - - - - - - - - (3,674)

Goodwill - expectation of future profitability - - - - - - - - - - - - - - - 5,255 - 5,255

Write-off trademark DuchaCorona - - - - - - - - - - - (8,837) - - - - - (8,837)

Capital decrease of Duratex Europe - - - - - - (603,432) - - - - - - - - - - (603,432)

Shares received - - - - - - - - - 37,274 517,276 - - - - - - 554,550

Transfer of appreciation of assets - - - - - - - - - - 49,463 - - - - - - 49,463

As at December 31, 2019 1,216,085 364 1,637 9 - 1 138,831 - - 15,414 513,754 177,652 2,167 - 960,796 14,569 107,665 3,148,944

DescriptionDirect subsidiaries

Duratex

FlorestalEstrela do Sul

Duratex

Empreend.

Bale Com.

Prod.

North

America

Duratex

ColômbiaTotal

Pescara

Adm. Part.

Trento Adm.

Part.

Duratex

Europe

Duratex

Belgium

Griferia

Sur

Hydra

Corona

Duratex

Andina

Massima

Revest.

Cerâmica

UrussangaViva Decora LD Florestal S.A.

Number of shares/quotas held (Thousand) 500 33,622 - 2,822

Interest % 100.00 11.88 - 100.00

Capital 886 54,332 - 249,981

Stockholders' equity 15,414 531,889 - 236,343

Net income (loss) for the year (804) 67,265 5,035 1,248

Changes in investments

As at December 31, 2017 13,823 371,945 54,062 -

Equity in results of investees (533) 81,779 8,699 -

Exchange variations on equity 2,344 24,846 4,206 -

Dividends - (29,707) - -

As at December 31, 2018 15,634 448,863 66,967 -

Duratex Belgium extinction with liquid assets absorbed by

Duratex Europe - - (76,635) -

Acquisition of subsidiary Cecrisa - book value - - - (3,331)

Goodwill - expectation of future profitability - - - 163,000

Advance for future capital increase - - - 238,605

Equity in results of investees (804) 67,105 4,904 1,248

Equity of investees reflex - - - (252)

Exchange variations on equity 584 1,793 4,764 73

Transfer of shares to Duratex S.A. (15,414) (451,417) - -

Appreciation of assets Cecrisa - - - 376,264

Appreciation of inventories Cecrisa - - - 9,911

As at December 31, 2019 - 66,344 - 785,518

DescriptionNorth

America

Duratex

Colombia

Duratex

Belgium

Cecrisa

Revestimentos

Indirect subsidiaries


41

b) Advance for future capital increase In the period from April 03, 2019 to December 31, 2019, Duratex S.A. granted to its subsidiary Cerâmica Urussanga S.A. advances for future capital increase totalling R$ 600,685. c) Capital contribution in associate On July 01, 2019 and October 17, 2019, Duratex S.A. increased the capital of LD Florestal S.A., in the amount of R$ 30,405 and R$ 36,852, respectively. d) Acquisition of “Cecrisa” by the subsidiary Cerâmica Urussanga S.A. On July 31, 2019, the subsidiary Cerâmica Urussanga S.A. (“Ceusa”) acquired 100% of shares of capital from Cecrisa Revestimentos Cerâmicos S.A. and its subsidiaries Cerâmica Portinari S.A. and Cecrisa Uruguay S.A. (together “Cecrisa”), specialized companies in ceramic tiles production. The amount of the consideration paid was R$ 378,308. The acquisition of shares from Cecrisa is aligned with the growth strategy of the Company in sinergy with the segments of the current business. Since the acquisition date, Cecrisa has contributed to the Company with a net revenue of R$ 305,310 and result of R$ (1,248). In compliance to CPC-15-R1, the Company will conclude the evaluation of the fair value of net assets acquired on July 31, 2019 as at 12 months from the business combination date. The preliminary fair value amount of identified assets and liabilities from Cecrisa, on the acquisition date are presented as follows:


42

Fair value

acquisition

Cash and cash equivalents 15,923

Trade accounts receivable 138,784

Inventories 128,300

Deferred income tax and social contribution 39,878

Other accounts receivable and others credits 30,669

Eletrobras credits 46,132

Restricted deposit 22,972

Non-current assets held available for sale 1,555

Property, plant and equipment 546,489

Right-of-use assets 8,763

Intangible assets 163,233

Loans, financing and debentures (304,820)

Suppliers (99,851)

Liability of lease (9,458)

Accounts payable and personnel (70,237)

Taxes and contributions (3,703)

Post employment benefits (9,365)

Installment of taxes (173,181)

Contingencies and others liabilities (256,775)

Total net assets 215,308

Consideration paid and payable in the acquisition 100.00% 378,308

Goodwill (goodwill for expectation of future profitability) (163,000)

Cash flow at the time of acquisition

Net cash acquired with the subsidiary 15,923

Paid cash (289,765)

Cash outflow, net (273,842)

The costs related to the acquisition of R$ 3,453 were recognized in the statement of income as administrative expenses. The Company expects to have future tax benefits by the amortization of goodwill and appreciation of assets recognized in this business combination. The goodwill of R$ 163,000 comprises the amount of future benefits due to the acquisition. The gross nominal amount from receivables acquired was R$ 138,784 in the short term and was not calculated as having significant differences between the nominal amounts and fair values. The Company does not have losses by reduction of the recoverable amount from any accounts receivable, and expects that the contractual amounts can be totally received.


43

Note 13 – Property, plant and equipment a) Change

Balance as at 12/31/2017

Cost 136,981 889,134 3,865,950 121,530 43,746 23,390 172,096 5,252,827

Accumulated depreciation - (391,188) (2,253,886) - (30,283) (22,476) (119,465) (2,817,298)

Net book value 136,981 497,946 1,612,064 121,530 13,463 914 52,631 2,435,529

As at 12/31/2018

Opening balance 136,981 497,946 1,612,064 121,530 13,463 914 52,631 2,435,529

Acquisitions - 863 39,827 90,919 835 262 7,621 140,327

Write-offs - (1,259) (28,599) (267) (39) - (929) (31,093)

Depreciation - (29,047) (224,637) - (2,469) (427) (13,153) (269,733)

Transfers - 9,416 124,149 (139,227) 310 354 4,998 -

Transfer to current asset (*) (244) (2,336) (34,982) - (230) - (803) (38,595)

Net book value 136,737 475,583 1,487,822 72,955 11,870 1,103 50,365 2,236,435


Cost 136,737 895,818 3,966,345 72,955 44,622 24,006 182,983 5,323,466


Net book value 136,737 475,583 1,487,822 72,955 11,870 1,103 50,365 2,236,435

As at 12/31/2019

Opening balance 136,737 475,583 1,487,822 72,955 11,870 1,103 50,365 2,236,435

Acquisitions 42,654 974 28,863 75,836 1,114 24 3,894 153,359

Write-offs - (15,440) (68,787) (7,386) (431) - (1,018) (93,062)

Depreciation - (29,110) (216,951) - (2,443) (512) (12,749) (261,765)

Transfers (5,811) 11,587 65,483 (77,976) 635 363 5,719 -

Transfer to property for investiments - (857) - - - - - (857)

Net book value 173,580 442,737 1,296,430 63,429 10,745 978 46,211 2,034,110


Cost 173,580 892,082 3,991,904 63,429 45,940 24,393 191,578 5,382,906


Net book value 173,580 442,737 1,296,430 63,429 10,745 978 46,211 2,034,110

Furniture and

fixturesVehicles Other assets TotalParent company Land

Structures and

improvements

Machinery,

equipment and

facilities

Assets in

progress

(*) Refers to assets transferred to non-current asset available for sale during the year of 2018.


Cost 730,600 1,040,435 4,237,418 125,424 55,551 59,975 215,372 6,464,775


Net book value 730,600 624,693 1,902,552 125,424 16,389 9,323 81,160 3,490,141

As at 12/31/2018

Opening balance 730,600 624,693 1,902,552 125,424 16,389 9,323 81,160 3,490,141

Acquisitions 9,239 1,231 56,946 155,175 1,847 1,415 11,941 237,794

Write-offs (57,111) (1,472) (33,565) (344) (57) (92) (3,358) (95,999)

Depreciation - (32,390) (262,665) - (2,943) (2,335) (18,418) (318,751)

Transfers - 10,198 151,597 (173,423) 478 4,080 7,070 -

Amortization - Appreciation of assets - (2,772) (4,859) - (21) (7) (62) (7,721)

Exchange variations 9,673 5,232 12,499 89 30 38 617 28,178

Transfer to current asset (*) (56,233) (2,336) (34,982) - (230) - (1,080) (94,861)

Net book value 636,168 602,384 1,787,523 106,921 15,493 12,422 77,870 3,238,781


Cost 636,168 1,050,516 4,385,054 106,921 57,598 65,409 230,500 6,532,166


Net book value 636,168 602,384 1,787,523 106,921 15,493 12,422 77,870 3,238,781

As at 12/31/2019

Opening balance 636,168 602,384 1,787,523 106,921 15,493 12,422 77,870 3,238,781

Acquisitions 42,763 1,229 40,719 195,021 1,895 2,533 8,970 293,130

Write-offs (44,134) (16,566) (74,754) (7,542) (477) (144) (2,308) (145,925)

Depreciation - (33,187) (268,701) - (3,283) (2,991) (18,938) (327,100)

Transfers (5,811) 14,816 90,773 (113,969) 3,322 1,802 9,067 -

Acquisition of subsidiary Cecrisa - cost 8,611 148,224 438,575 11,047 3,677 2,590 36,585 649,309

Acquisition of subsidiary Cecrisa - accumulated depreciation - (46,533) (238,763) - (3,101) (2,431) (34,278) (325,106)

Amortization - Appreciation of assets - (1,475) (5,548) - (19) (4) (907) (7,953)

Appreciation of assets - Cecrisa and Portinari 49,969 129,532 40,584 - 727 - 1,474 222,286

Transfer to property for investiments - (857) - - - - - (857)

Transfer to current asset (*) (3,777) (36,094) (48) (131) - - - (40,050)

Exchange variations 2,476 2,043 4,894 45 80 3 274 9,815

Net book value 686,265 763,516 1,815,254 191,392 18,314 13,780 77,809 3,566,330


Cost 686,265 1,291,368 4,920,249 191,392 66,803 72,189 283,655 7,511,921


Net book value 686,265 763,516 1,815,254 191,392 18,314 13,780 77,809 3,566,330

Furniture

and fixturesVehicles

Other

assetsTotalConsolidated Land

Structures and

improvements

Machinery,

equipment and

facilities

Assets in

progress

(*) Refers to assets transferred to non-current asset available for sale during the year.


44

b) Assets in progress

Assets in progress refer to investments : (i) Wood Division industrial plants in Agudos - SP, Itapetininga - SP, Uberaba - MG and Taquari - RS for producing wood panels (ii) Deca Division industrial plants in Paraíba - PB, Recife- PE, Queimados - RJ and Jundiaí - SP for producing sanitary ceramic and in plants São Paulo - SP, Jundiaí - SP and Jacareí - SP for producing metals, and Aracaju - SE for shower products, (iii) in Tiles, the industrial plants in Urussanga – SC and Criciúma - SC for ceramic tiles and (iv) in the forest mills in Agudos – SP, Itapetininga – SP, Lençóis Paulista – SP, Monte Carmelo – MG, Taquari - RS and Uberaba – MG. As at December 31, 2019, formal contracts for the expansion of industrial plants totaled approximately R$ 44.4 million. In the year of 2019, no expenses were capitalized in property, plant and equipment, due to the absence of qualifying assets. c) Review of the useful life of the assets As provided in the Pronouncement CPC 27 – Property, Plant and Equipment, the Company and its subsidiaries have revised the estimated useful lives of the assets for the calculation of depreciation. The following methodology was adopted in the review of depreciation rates: - internal antecedents: Investments in replacement of goods, information about survival of the assets, technical specifications; - external antecedents: Economic environment in which the Group operates new technologies, benchmarking, recommendations and manufacturer's literature; - conservation status and operations of the goods: Maintenance, failures and efficiency of goods and other information used for analysis and determination of residual useful life; - residual value of assets, maintenance history and use until destination for scrap; - alignment to the general planning of business of the Company. Annual depreciation rates 12/31/2019 12/31/2018

Structures and improvements 4.0% 4.0%

Machinery, equipment and facilities 6.5% 6.8%

Furniture and fixtures 10.0% 10.0%

Vehicles 20% to 25% 20% to 25%

Other assets 10% to 20% 10% to 20% d) Assets offered as guarantees On December 31, 2019, the Company had lands, machinery and vehicles offered as guarantees in lawsuits totaling R$ 1,938. Note 14 – Leases The Group first adopted CPC 06 R2 – IFRS 16 on January 1, 2019. In note 2.2.2 (a) we show the criteria used in the transition. The following table shows the transition impacts and changes in the year.


45

a) Right-of-use assets

Buildings Vehicles Others Total Lands Buildings Vehicles Others Total

Initial adoption on 01.01.2019 10,141 345 108 10,594 488,176 10,141 2,857 428 501,602

New contracts 907 - 1,198 2,105 7,578 907 - 4,609 13,094

Updates (367) - - (367) 26,428 (367) - 142 26,203

Acquisition of subsidiary Cecrisa - - - - - 3,508 - 5,255 8,763

Depreciation in the year (result) (4,611) (217) (1,119) (5,947) (2,155) (4,886) (1,762) (2,485) (11,288)

Depreciation in the year (*) - - - - (24,000) - - - (24,000)

Exchange variation - - - - 29 - - (5) 24

Remeasurement adjustment 993 - 133 1,126 40,197 993 - 133 41,323

Balance as at 12/31/2019 7,063 128 320 7,511 536,253 10,296 1,095 8,077 555,721

ConsolidatedParent company

(*) Value booked in the formation cost from forest reserves in the biological asset account.

b) Liabilities of leases

Buildings Vehicles Others Total Lands Buildings Vehicles Others Total

Initial adoption on 01.01.2019 10,141 345 108 10,594 488,176 10,141 2,857 428 501,602

New contracts 907 - 1,198 2,105 7,578 907 - 4,609 13,094

Updates (367) - - (367) 26,428 (367) - 142 26,203

Acquisition of subsidiary Cecrisa - - - - - 3,663 - 5,795 9,458

Interests appropriated in the year (result) 723 21 21 765 811 872 175 465 2,323

Interests appropriated in the year (*) - - - - 51,049 - - - 51,049

Decrease by payment (4,891) (231) (1,327) (6,449) (62,599) (5,260) (1,891) (3,013) (72,763)

Exchange variation - - - - 29 - - 6 35

Remeasurement adjustment 993 - 133 1,126 40,197 993 - 133 41,323

Balance as at 12/31/2019 7,506 135 133 7,774 551,669 10,949 1,141 8,565 572,324


(*) The Company calculated expense of R$ 9, regarding to the leases with agreement term with less than 12 months.

Agreements by term and discount rate

Agreement terms Rate % p.a.

Up to 5 years 8.71%

6 to 10 years 10.40%

Over 10 years 10.93% Maturity schedule of liabilities of leases

Consolidated

12/31/2019 12/31/2019

2020 5,624 21,010

Total current 5,624 21,010

2021 908 14,422

2022 712 12,970

2023 530 12,359

2024 - 10,911

2025 - 9,589

2026 - 2030 - 49,964

2031 - 2035 - 42,407

2036 - 2045 - 140,749

Over 2046 - 257,943

Total non current 2,150 551,314

Parent

company


46

c) Inflation effects

Parent

companyConsolidated

Parent

companyConsolidated

Real Flow 12/31/2019 12/31/2019 Real Flow 12/31/2019 12/31/2019

Right of use 13,458 591,015 Liabilities of lease 8,489 1,830,289

Depreciation (5,947) (35,294) Built-in interest (715) (1,257,965)

7,511 555,721 7,774 572,324

Parent

companyConsolidated

Parent

companyConsolidated

Inflated Flow 12/31/2019 12/31/2019 Inflated Flow 12/31/2019 12/31/2019

Right of use 14,483 810,491 Liabilities of lease 8,794 3,436,168

Depreciation (6,942) (45,185) Built-in interest (741) (2,624,658)

7,541 765,306 8,053 811,510

Right of use assets Liabilities of lease

Note 15 – Biological assets (forest reserves) Through its subsidiaries Duratex Florestal Ltda. and Duratex S.A. in Colombia (formerly, Tablemac S.A.), as well as its jointly controlled company Caetex Florestal S.A., the Group has eucalyptus and pine forests, used primarily as raw materials for producing wood panels and floors and for selling to third parties. The forestry reserves assure a supply to the mills, and also protect the Company against the risk of future wood price increases. These forestry reserves operate in a coordinated and sustainable fashion with the manufacturing facilities, which, together with the supply network, provide the Company with a high degree of self-sufficiency in terms of wood supplies. As at December 31, 2019 the Group had approximately 139,200 hectares of planted areas (December 31, 2018: 157,300 hectares) cultivated in the States of São Paulo, Minas Gerais, Rio Grande do Sul, Alagoas and in Colombia. a) Fair value estimate The fair value is calculated based on an estimate of the volume of wood ready for harvesting, at the current prices for standing wood, except for: the eucalyptus forests up to one year old, and pine up to four years old, which are stated at cost, because this approximates to fair value. Biological assets are measured at fair value, less costs to sell at the time of harvesting. Fair value is determined by valuing the estimated ready-to-harvest volumes at current market prices, based on volume estimates. The assumptions utilized were: i. Discounted cash flow – the estimated volume of ready-to-harvest wood, considering current market prices, net of future costs and cost of land (at present value) discounted at 5.3 % p.a., on December 31, 2019. The discount rate used in the cash flows corresponds to the weighted average cost to the Company, which is revised annually by Management. ii. Prices – prices in R$/ cubic meter obtained through market price surveys published by specialized firms in regions and similar products to the Group, in addition to prices obtained from third party transactions in active markets.


47

iii. Differentiation - the volumes harvested were categorized and valued according to: (a) species (pine and eucalyptus) (b) region, (c) destination (sawmill and processing). iv. Volume – the estimated volumes to be harvested (in the sixth year for eucalyptus and in the twelfth year for pine) based on the projected average productivity for each region and specie. Average productivity may vary based on age, rotation, climatic conditions, quality of seedlings, fires, and other natural risks. For mature forests, the current volumes of wood are utilized. The estimates of volume are verified via rotating physical inventories realized by technical specialists from the second year of a forest's life, and the effects incorporated into the interim financial information. v. Regularity - expectations regarding future wood prices and volumes are reviewed at least every quarter, or when a rotational physical inventory is concluded. b) Composition of balance The biological asset balance is made up of the cost of forest formation and adjusted to fair value, as shown below:

12/31/2019 12/31/2018

Formation cost of biological assets 1,044,987 1,030,012

Difference between cost and fair value 498,962 543,614

Transfer to current asset (*) - (9,035)

Fair value of the biological assets 1,543,949 1,564,591 (*) Refers to assets transferred to non-current asset available for sale during the year of 2018.

The forests are unencumbered by third-party liens or pledges, including to financial institutions. No forests have restrictions on their legal title. c) Changes in balance The changes of accounting balances from the beginning to the final of the period were as follows:

12/31/2019 12/31/2018

Opening balance 1,564,591 1,698,855

Variation in fair value

Volume/price 126,045 148,134

Depletion (170,697) (258,925)

Variation in book value

Formation 193,533 178,214

Depletion (169,523) (192,652)

Subtotal balance 1,543,949 1,573,626

Transfer to current assets (*) - (9,035)

Total balance 1,543,949 1,564,591 (*)Refers to transfers to non-current asset available for sale during 2018.


48

Effect on fair value result of biological asset

12/31/2019 12/31/2018

Variation in fair value 126,045 148,134

Depletion at fair value (170,697) (258,925) The amount of depletion for the period is presented in the statement of income under "cost of products sold”. d) Sensitivity analysis Among the variables that affect the calculation of the fair value of biological assets, we highlight the variation in the price of wood and the discount rate used in the cash flow. The average price on December 31, 2019 was R$ 45.03/ m³ (on December 31, 2018 was R$ 43.37/ m³). Price increases lead to an increase in the fair value of forests. At each 5% of variation in price, the impact on the fair value of forests would be in order of R$ 72,020. The discount rate used was 5.3% p.a. on December 31, 2019. Increases in the rate lead to a drop in the fair value of the forest. For each 0.5% p.a. variation in the rate, the fair value would have been altered by approximately R$ 8,286. Note 16 – Intangible assets

Opening balance at 01/01/2018 35,132 254,798 184,311 474,241

Additions 26,557 - - 26,557

Write-off (2,991) - - (2,991)

Amortization (7,217) - (26,467) (33,684)

Impairment of intangible assets - (206,893) (12,463) (219,356)

Net book value on 12/31/2018 51,481 47,905 145,381 244,767

Opening balance at 01/01/2019 51,481 47,905 145,381 244,767

Additions 26,078 - - 26,078

Write-off (12,032) - - (12,032)

Amortization (7,717) - (24,707) (32,424)

Net book value 57,810 47,905 120,674 226,389


Cost 129,311 47,905 383,698 560,914

Accumulated amortization (71,501) - (263,024) (334,525)

Net book value 57,810 47,905 120,674 226,389

TotalParent Company Software Goodwill Customer

portfolio


49

Opening balance at 01/01/2018 36,114 63,738 358,861 196,572 655,285

Additions 26,693 - 8,767 - 35,460

Write - offs (2,993) (7,299) - - (10,292)

Amortization (7,522) - - (27,686) (35,208)

Impairment of intangible assets - - (211,902) (12,463) (224,365)

Foreign exchange variances 56 - - 976 1,032

Net book value on 12/31/2018 52,348 56,439 155,726 157,399 421,912

Opening balance at 01/01/2019 52,348 56,439 155,726 157,399 421,912

Additions 26,441 - - - 26,441

Write-off (12,057) - - - (12,057)

Amortization (8,287) - - (25,893) (34,180)

Impairment of intangible assets - (8,837) - - (8,837)

Acquisition of subsidiary Cecrisa - cost 12,429 7,423 - - 19,852

Acquisition of subsidiary Cecrisa - amortization (10,597) - - - (10,597)

Expectation of future profitability Cecrisa - - 163,000 - 163,000

Appreciation of assets - Cecrisa and Portinari - 153,978 - - 153,978

Foreign exchange variances 15 - - 312 327

Net book value 60,292 209,003 318,726 131,818 719,839


Cost 145,279 209,003 318,726 401,140 1,074,148

Accumulated amortization (84,987) - - (269,322) (354,309)

Net book value 60,292 209,003 318,726 131,818 719,839

TotalConsolidated SoftwareTrademarks and

patentsGoodwill

Customer

portfolio

Note 17 – Impairment testing of goodwill Goodwill paid for future profitability and intangible assets with undefined useful life The goodwill acquired through the business combination is allocated to the UGCs that produce the panels, ceramics, metals, showers and ceramic tiles, namely the Wood (Panels), Deca (Ceramics, Metals and Showers) and Ceramic Tile business units.

12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018 12/31/2019 12/31/2018

Book value of goodwill 45,502 187,573 2,402 2,402 - 39,246 - 30,586 99,054 99,054

Book value of other assets 2,203,149 2,351,200 50,915 56,166 170,117 181,461 177,640 189,162 302,277 197,373

Book value of UGCs 2,248,651 2,538,773 53,317 58,568 170,117 220,707 177,640 219,748 401,331 296,427

Value of UGCs by cash flow 6,730,447 2,396,702 59,826 81,333 210,755 168,998 266,759 189,162 920,157 442,396

Impairment of goodwill - (142,071) - - - (39,246) - (30,586) - -

Impairment of other intangibles - - - - - (12,463) - - - -

Ceramic TilesWood Deca

Panels Metals Ceramics Showers

The Company realized the impairment test in the year ended on December 31, 2019 and 2018 and considers the relation between the amount in use and the accounting amounts from UGC’s, when making the revision to identity losses indicator by reduction to the recoverable amount. On December 31, 2019 the amount of cash flows were higher than accounting amounts in all business units, so there was no need to record the impairment. On December 31, 2018, the accounting amounts were lower in the Panels, Ceramic and Showers units and superior to the accounting amounts in the Metals and Ceramic Tiles units. The impairment amounts calculated in 2018 were recorded in the statement of income in “other operating income (expenses), net”.


50

Cash generating unit The recoverable amounts were calculated with the amounts of use and the projections was calculated with the strategic planning of the Company approved by the Board of Directors which consider macroeconomics projections of growth and inflation, as well as the operational conditions of the Company. Main variables used in the calculation of value in use Description 12/31/2019 12/31/2018

Term for Cash Flow5 years for all business units

Showers: 10 years (*)

Others: 5 years

Discount rate (Weighted Average Cost of

Capital calculated by the method CAPM -

Capital Asset Pricing Model)

All business units: 8.85% p.a. (*)Showers: 12,38% p.a.

Others: 10,65% p.a.

Growth Rate (Gross Margin)

Panels: 2.5% p.a.

Ceramics: 1.5% p.a.

Metals: 0.9% p.a.

Showers: 1.5% p.a.

Ceramic tiles: 2.5% p.a.

Painels: 1.7% p.a.

Ceramics: 1.2% p.a.

Metals: 0,4% p.a.

Showers: 1,2% p.a.

Ceramic tiles: 0.2% p.a.

Growth Rate (Perpetuity) 3,50% p.a. 3,75% p.a.

(*) Rate before income tax of 13.42% Note 18 – Loans, financing and debentures

TYPE CHARGES AMORTIZATION GUARANTEESCURRENT

NON

CURRENTCURRENT

NON

CURRENTParent Company - Local currency

BNDES with Swap 103.89% of CDI MonthlySurety - 70% Itaúsa Investimentos Itaú S.A. and 30% natural person

4,348 34,231 4,378 38,510


101 793 102 892

FINAME TJLP + 2.3% p.a./Fixed 6% p.a. MonthlyChattel mortgage

12,314 17,118 14,926 29,312

FINAME 6% p.a. Monthly Chattel mortgage 843 2,957 847 3,795

EXPORT CREDIT 104.8 % of CDI Up to January 2021 - 279,209 27,500 106,977 303,333

EXPORT CREDIT 107.5 % of CDI Up to October 2019 - - - 139,266 -

Commercial papers 104.5% of CDI Up to October 2020 - - - - 540,151

FUNDIEST 30 % IGP-M per month Monthly Guarantee - Companhia Ligna de Investimentos 27,719 288 25,563 25,325

FGPP - BANCO DO BRASIL with Swap Fixed 6,6% up to 7,90% p.a Up to June 2020 - 388,752 - 3,829 384,536

Total Parent Company - Local currency 713,286 82,887 295,888 1,325,854

Parent company - Foreign currency

RESOLUTION 4131 with Swap US$ + Libor + 1.5% p.a. August 2019 Promissory Note - - 178,217 -

RESOLUTION 4131 with Swap US$ + 3.66% p.a. August 2019 Promissory Note - - 182,482 -

Total Parent company - Foreign currency - - 360,699 -

TOTAL PARENT COMPANY 713,286 82,887 656,587 1,325,854

Subsidiaries - Local currency

EXPORT CREDIT NOTE 104.9% of CDI Up to January 2021 Surety - Duratex S.A. 36,957 35,358 38,075 70,715


5,787 45,558 5,826 51,252


383 3,013 386 3,389

CRA 98% of CDI Semiannually Guarantee - Duratex S.A. 352 695,509 507 693,969

FINAME Fixed 5.6 % p.a. Monthly Chattel mortgage and surety Duratex S.A. 166 639 269 881

FINAME Fixed 9 % p.a. Semiannually Chattel mortgage and surety Duratex S.A. 573 261 608 822

FINAME

TJLP + 3.7 % p.a. up to + 4 %

p.a. MonthlyChattel mortgage and surety Duratex S.A.

2,167 2,212 1,864 4,445

FINAME SELIC + 4.28% p.a. Quarterly Chattel mortgage and surety Duratex S.A. 231 311 149 521

FNE Fixed 7.53% p.a. Annually Guarantee - Duratex Florestal Ltda. - 6,673 - 6,265

FINEP TJLP + 0.5% p.a Monthly 20% Duplicate + Safra bank guarantee 12,208 - - -

FINAME - B.BRASIL Fixed 5.88% p.a Monthly Fiduciary Disposal Machinery Equipment 1,583 6,189 - -

VENDOR Fixed 12% p.a Up to January 2020 Duplicates 296 - - -

Total Subsidiaries - Local currency 60,703 795,723 47,684 832,259

Subsidiaries - Foreign currency

LEASING DTF + 2 % Monthly Promissory Note 94 58 142 78

ACC - B.BRASIL US$ + 5.00% p.a Up to February 2020 40% Duplicates 2,397 - - -

ACC - BOCOM BBM with Swap US$ + 10.19% p.a Up to April 2020 Promissory Note 3,250 - - -

ACC - SANTANDER US$ + 6.38% p.a Up to May 2020 Promissory Note - Surety Portinari 9,184 - - -

ACC - B.SAFRA US$ + 5.46% p.a Up to May 2020 15,70% Duplicates 7,940 - - -

ACC - BRADESCO US$ + 5.80% p.a Up to June 2020 Clean 6,119 - - -

ACE - B.BRASIL US$ + 4.27% p.a Up to March 2020 40% Duplicates 3,159 - - -

Total Subsidiaries - Foreign currency 32,143 58 142 78

TOTAL SUBSIDIARIES 92,846 795,781 47,826 832,337

TOTAL CONSOLIDATED 806,132 878,668 704,413 2,158,191

12/31/2019 12/31/2018

Loans and financing designated at fair value The Company's Management has elected to designate, at inception, certain loans and financing (some of which are in the table as swaps) as liabilities at fair value through results. Adjustments of debt to fair value avoid an accounting mismatch between debt instruments and protect instrument contracted by the Company, and are classified to fair value through results.


51

a) Sureties and letters of guarantee Sureties and letters of guarantee securing of the borrowing of Duratex S.A. were granted to Itaúsa S.A., totaling R$ 27,631 (R$ 30,717 as at December 31, 2018), by Companhia Ligna de Investimentos, amounting to R$ 28,007 (R$ 50,888 as at December 31, 2018). In the case of loans and financing obtained by subsidiaries, sureties were granted to Itaúsa S.A., in the amount of R$ 38,319 (R$ 42,597 as at December 31, 2018) and by Duratex S.A., in the amount of R$ 774,736 (R$ 812,825 as at December 31, 2018) and by Cerâmica Portinari in the amount of R$ 9,184. b) Loans and financing by maturity

Local Foreign Local Foreign

currency currency currency currency

2020 713,286 - 713,286 773,989 32,143 806,132

Total current 713,286 - 713,286 773,989 32,143 806,132

2021 43,559 - 43,559 89,347 5 89,352

2022 9,415 - 9,415 713,746 53 713,799

2023 6,612 - 6,612 14,901 - 14,901

2024 5,758 - 5,758 13,947 - 13,947

2025 4,409 - 4,409 11,268 - 11,268

2026 4,378 - 4,378 11,171 - 11,171

2027 4,378 - 4,378 11,218 - 11,218

2028 4,378 - 4,378 11,258 - 11,258

2029 - - - 795 - 795

Other - - - 959 - 959

Total non current 82,887 - 82,887 878,610 58 878,668

12/31/2019

Parent company

Total TotalYear

Consolidated

Local Foreign Local Foreign

currency currency currency currency

2019 295,888 360,699 656,587 343,572 360,841 704,413

Total current 295,888 360,699 656,587 343,572 360,841 704,413

2020 1,243,274 - 1,243,274 1,287,898 16 1,287,914

2021 43,253 - 43,253 87,463 49 87,512

2022 9,415 - 9,415 710,623 13 710,636

2023 6,612 - 6,612 13,338 - 13,338

2024 5,757 - 5,757 12,516 - 12,516

2025 4,409 - 4,409 11,123 - 11,123

2026 4,378 - 4,378 11,127 - 11,127

2027 4,378 - 4,378 11,171 - 11,171

2028 4,378 - 4,378 11,209 - 11,209

Other - - - 1,645 - 1,645

Total non current 1,325,854 - 1,325,854 2,158,113 78 2,158,191

Year TotalTotal


12/31/2018


52

d) Changes of loans and financing

Parent Company Consolidated

Balance as at December 31,2017 2,237,920 3,174,824

Borrowings/ fundraising 385,000 391,009

Indexation adjustment and interests 146,155 206,799

Amortizations (592,200) (655,080)

Interest payments (191,812) (252,326)

Transfer from ACC to withdrawals in liquidation (2,622) (2,622)

Balance as at December 31,2018 1,982,441 2,862,604

Borrowings/ fundraising - 10,446

Acquisition of subsidiary Cecrisa - 235,304


Amortizations (1,102,838) (1,348,341)


Balance as at December 31,2019 796,173 1,684,800 d) Simple debentures no convertible in shares On December 2016, the subsidiary Cecrisa issued debentures (sixth issue) in the amount of R$ 100,000,000.00. This issue provides a grace period of 12 months with amortization of quarterly interest and from the 12th month, amortizations of principal + interest in 17 quarterly installments with final maturity date on December 12, 2021.

Composition Issue date Type of debenture Maturity date Qty debenturesNominal

value

Price as of issue

dateSemester finance charge CURRENT

NON

CURRENTTotal

6º issue 12/12/2016simple no

convertible in shares12/12/2021 100,000,000 1 100,000,000

CDI + 4,50% a.a. base 252 working days, paid paid

quarterly and from the 12th month amortization of principal

+ interest in 17 quarterly installments

58,994 - 58,994

Balance as at December 31, 2019

On May 17, 2019 the Company made a second issue of simple debentures not convertible in shares, of unsecured species, in single series, in the total amount of R$ 1,200,000,000.00. 120,000 debentures were issued, with unit nominal value of R$ 10,000.00 with remuneratory interests of 108% of the CDI, semiannual remuneration and maturity in two equal installments corresponding to 50% of the unit nominal value on the dates: May 17, 2024 and May 17, 2026.

Composition Issue date Type of debenture Maturity date Qty debenturesNominal

value

Price as of issue

dateSemester finance charge CURRENT

NON

CURRENTTotal

2º issue 5/17/2019simple no

convertible in shares5/17/2026 120,000 10,000 1,200,000,000

108% of CDI base 252 working days, paid semiannually in

the day 17 from the months of May and November 6,739 1,198,007 1,204,746

Balance as at December 31, 2019

e) Debentures by maturity

2020 6,739 65,733

Total current 6,739 65,733

2024 599,003 599,003

2026 599,004 599,004

Total non current 1,198,007 1,198,007

Year

12/31/2019



53

f) Changes of debentures


Balance as at December 31,2018 - -

Borrowings/ fundraising 1,197,508 1,197,508

Acquisition of subsidiary Cecrisa - 69,516


Amortizations - (10,000)


Balance as at December 31,2019 1,204,746 1,263,740 g) Covenants g.1) Loans and financing The consolidated agreement with the National Bank for Economic and Social Development (BNDES) is subject to restrictive covenants in accordance with usual market practice, which establishes in addition to certain obligations, the following financial obligations: (i) EBITDA (*)/ net financial expenses: equal to or above 3.00; (ii) EBITDA (*)/ net operating revenue equal to or above 0.20; (iii) Stockholders’ equity/ total assets: equal to or above 0.45. g.2) Simple debentures Duratex S.A. (i) Net debit/ EBITDA (*) less or equal to 4.0; g.3) Simple debentures (6th issue Cecrisa Revestimentos Cerâmicos S.A.) (i) Financial net debit/ EBITDA (*): less than or equal to 2,50; (ii) (Financial net debit + installment tax)/ EBITDA (*): less than or equal to 3,00; (iii) EBITDA/ Financial expenses: above or equal to 1,5. The maintenance of covenants g.1 and g.2 is based on the Duratex S.A. balance sheet, while the maintenance of covenants g.3 is based on the Cecrisa Revestimentos Cerâmicos S.A. balance sheet, should the Company and its subsidiary, respectively, maintain the limits of cover of the debits through the relations above. If these contractual obligations are not met, the Company and its subsidiary should provide additional guarantees or request a waiver from the creditors. On December 31, 2019, the contractual obligations above g.1 and g.2 were fulfilled. Regarding g.3, EBITDA was affected by adjustments in the net income from the subsidiary Cecrisa, related to restructuring after acquisition. This, however, does not characterize as at the moment decree of default, no fulfilled or anticipated maturity of contractual obligations from any nature. Furthermore, the Management has already taken the necessary steps with the bank to obtain the “waiver” for this contractual item (the involved amount if R$ 59.0 million), being classified, in the case g.3, in the current liability the value of R$ 37.9 million. (*) EBITDA.


54

Note 19 - Suppliers

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Domestic suppliers 329,091 306,719 451,749 374,729

Foreigners suppliers 29,062 33,590 86,353 66,560

Related parties suppliers 27,804 35,574 - -

Domestic suppliers risk payer (*) 81,641 - 87,177 -

Total 467,598 375,883 625,279 441,289


(*) The Company and its subsidiary Cecrisa have contracts with the bank Santander to structure with suppliers the operation of the risk payer. In this operation, the suppliers transfer the right to receive the titles for the bank that will be the creditor from the operation. The Management revised the portfolio composition of this operation and concluded that they do not have a significant change of term, prices and conditions previously established, and the Company and its subsidiary also are not impacted by financial charges practiced by financial institutions, and therefore, the Company shows this operation in the suppliers account.

Note 20 – Accounts payable

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Advances from customers 1,220 1,434 27,507 21,022

Statutory share 17,247 11,366 17,247 11,366

Freight and insurance payable 19,599 10,563 27,642 16,784

Acquisition of business 28,160 33,586 28,160 33,586

Distributed earnings (from SCP's) to shareholders (1) - - 12,341 10,901

Commission payable 8,555 7,320 20,350 9,088

Bonuses, product warranty, technical support and maintenance 17,495 18,406 25,356 21,197

Acquisition of land used for reforestation - - 2,934 5,526

Accounts payable (from SCPs) to shareholders - - 31,168 27,043

Consigned loans 1,428 1,367 1,839 1,711

Sales for future delivery 13,982 7,979 16,374 7,979

Provision for restructuring 3,586 22,149 3,912 22,531

Others 5,105 5,054 13,015 15,433

Total Current 116,377 119,224 227,845 204,167

Acquisition of business 32,004 32,542 125,466 32,542

Advances from customers - - 6,046 5,554

Partnerships in which some partners are passive (2) - - 89,413 93,538

Product warranty and technical support 5,103 4,313 5,103 4,313

Commercial leasing - - - 8,868

Liabilities provisioned with joint operation partner - - 42,617 34,774

Post-employment benefits(3) 45,531 29,722 71,733 29,722

Other 2,403 2,609 7,679 2,123

Total Non-Current 85,041 69,186 348,057 211,434


(1) SCP’s: Partnerships in which some partners are passive (2) Refers to the value of the participation of third parties in reforestation projects at the Group, to which the subsidiary Duratex Florestal has contributed with forest assets, basically forest reserves and equity holders contributed in kind. (3) Refers to post-employment benefits related to medical assistance.

Note 21 – Taxes and contributions The Company and its subsidiaries have the following provisions for federal and state taxes payable, in accordance to the composition presented in the following table:


55

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Income tax and social contribution payable 168 371 56,694 17,732

PIS and COFINS payable / provision 4,503 683 10,736 1,818

ICMS and IPI payable 27,265 18,689 40,426 30,624

INSS payable 728 506 1,693 1,278

Tax Installment (*) - - 26,880 -

Other taxes payable 296 261 473 314

Total current 32,960 20,510 136,902 51,766

Tax Installment (*) - - 127,294 -

Total non current - - 127,294 -


(*) Installment of taxes from subsidiary Cecrisa.

Note 22 - Contingencies a) Contingent liabilities The Company and its subsidiaries are parties to judicial and administrative processes relating to labor, civil, tax matters and social security which arise in the normal course of their business. The respective provisions take into consideration the estimate of the probability of loss based on advice of the Company's legal counsel. Based on the position of its legal advisors, the Company's Management believes that the recorded provision for contingencies is sufficient to cover any probable losses with lawsuits and administrative claims.

Parent companyTax Labor Civil Total

ConsolidatedTax Labor Civil Environmental Total

Balance as at December 31, 2017 43,947 60,160 3,676 107,783 Balance as at December 31, 2017 47,079 80,393 11,255 5,000 143,727

Monetary variance and interest 1,802 6,046 257 8,105 Monetary variance and interest 1,928 7,989 759 - 10,676

Constitution 31,392 28,612 3,175 63,179 Constitution 34,457 33,063 3,693 - 71,213

Reversal (440) (20,797) (1,948) (23,185) Reversal (468) (27,654) (6,047) - (34,169)

Payments (3,909) (12,629) (4) (16,542) Payments (5,568) (15,163) (2,295) - (23,026)

Exchange variation abroad subsidiaries 87 - - - 87

Closing balance as at December 31, 201872,792 61,392 5,156 139,340

Closing balance as at December 31, 201877,515 78,628 7,365 5,000 168,508

Judicial deposits (8,940) (13,490) - (22,430) Judicial deposits (8,940) (17,909) (565) - (27,414)

Balance as at December 31, 2018 after offsetting

of judicial deposits 63,852 47,902 5,156 116,910 Balance as at December 31, 2018 after offsetting

of judicial deposits 68,575 60,719 6,800 5,000 141,094

Parent company Tax Labor Civil Total Consolidated Tax Labor Civil Environmental Total

Balance as at December 31, 2018 72,792 61,392 5,156 139,340 Balance as at December 31, 2018 77,515 78,628 7,365 5,000 168,508

Monetary variance and interest 4,626 17,893 248 22,767 Monetary variance and interest 4,919 21,227 810 - 26,956

Constitution 136,512 30,400 1,342 168,254 Constitution 149,663 43,308 13,836 - 206,807

Reversal (111,908) (13,363) (1,932) (127,203) Reversal (120,722) (16,339) (17,100) - (154,161)

Payments (11,900) (15,179) - (27,079) Payments (12,022) (20,805) (7,052) (35) (39,914)

Acquisition of subsidiary - Cecrisa 3,740 11,833 73,666 - 89,239

Business combination - acquisition Cecrisa 60,579 5,512 33,257 - 99,348 Exchange variation abroad subsidiary 37 - - - 37

Closing balance as at December 31, 2019 90,122 81,143 4,814 176,079 Closing balance as at December 31, 2019 163,709 123,364 104,782 4,965 396,820

Judicial deposits (6,386) (17,952) - (24,338) Judicial deposits (6,386) (25,619) (51,102) - (83,107)

Balance as at December 31, 2019 after offsetting

of judicial deposits 83,736 63,191 4,814 151,741 Balance as at December 31, 2019 after offsetting

of judicial deposits 157,323 97,745 53,680 4,965 313,713

Tax and civil contingencies mainly relate to: 1- ) PIS – six-monthly – Offset with credits, recognized by lawsuit, regarding payments of PIS in the terms of the Complementary Law nº 7/70 (six months after revenue recognition). After administrative decision that has recognized the credit update by SELIC , from January 1996, RFB update the offsets, remaining a balance, that was settled by the Company of R$ 3.186 and the provision reverted in 2019 (R$ 10,996 on December 31, 2018); 2- ) IR and CS – Lawsuits and administrative claims to cancel the tax credits on IR/ CS on profits of foreign subsidiaries from 1996 to 2002 and 2003 periods with the right to offset IR paid abroad by


56

subsidiaries. On December 31, 2019 the provision was R$ 5,140 (R$ 5,045 as at December 31, 2018). 3- ) Penalty for delay in settling demand (Delta IPC) - Legal action to annul the charge for an administrative process claimed by Union, with suspension of eligibility, but with incidence of fine from debit collected after the preliminary injunction was canceled and with a full amnesty discount. In December 2019 the provision was R$ 3,211 (R$ 3,083 as at December 31, 2018). 4- ) Fine and interest due to alleged noncompliance with regulations in the Operating Fund of the State of Rio Grande do Sul - FUNDOPEM, in the months of May /June /July 2016. During the second quarter of 2019, the provision was reverted and the balance settled (R$ 3,739 as at December 31, 2018). 5-) In 2018 the amount of R$ 63,941 was provisioned (R$ 42,202 net of tax effects), due to the Tribunal de Justiça de Santa Catarina decision that had affected the subsidiaries Cecrisa Revestimentos Cerâmicos S.A. (Cecrisa) and Cerâmica Portinari S.A. (Portinari), in the face of succumb feed debit from the company Balneário Conventos S.A., belonging to booty from Manoel Dilor de Freitas, founder of Cecrisa and ex-parent, unlinked of the business since early the year 2000. It is emphasized that, in 2012 the heirs of Manoel Dilor de Freitas sold the stock control of the companies to Fundo Vinci Partners. Consequently, the companies had their revenues pawn in the amount of 2.77% on monthly net revenue and the deposit have been occurring since it . The subsidiaries have been attempting to demonstrate that they are not responsible for this debit, since the principal process has been kept for 30 years without Cecrisa and Portinari having been part of the passive side of the action, and having, inclusive, the original defendant realize the judicial agreement of the principal debi with the creditors, paying the debt in installments. Process status: (i) the Company joined with special resource to annul the pawn of the revenue, by disobedience to the legal gradation provided in the CPC – Código Processual Civil; and (ii) the Company are awaiting trial of the Declaratory Embargoes on Judgment, that has denied the Resource of Appeal Interpose, that has judged unfounded the third party embargo from Cecrisa. The lawyers conducting the process classify this as probable loss. On December 31, 2019 the provisioned amount was R$ 47,268. b) Possible losses The Company and its subsidiaries are involved in other tax, social security, civil and labor lawsuits with a risk of loss classified as possible based on the advice of legal counsel in the amount of R$ 590,926. The main amounts are: 1) R$ 297,722 related to taxation (IR/ CS), on supposed capital gain (revaluation reserve), on the corporate operations of split-off, with incorporation of assets (lands and forests), measured at book value, realized in the 2006 (land) and 2009 (forests) periods of subsidiary Estrela do Sul Participações Ltda.. Both cases are with the Judiciary; 2) Legal and administrative discussions involving disallowance of credit, collection and fine related to ICMS, totaling R$ 52,512; and 3) Assessment of IR and CS by supposed omission of revenue in the payment of debits included on REFIS with tax losses, in the total of R$ 51,120 (Cecrisa). 4) Assessment of IPI regarding zero aliquot, NT and IPI credit totaling R$ 9,141 (Cecrisa). 5) Regarding billing actions made by suppliers, totaling R$ 28,740. 6) Labor claims totaling R$ 64,060. Other processes totaling R$ 87,631 for civil and tax processes the possible losses of which do not exceed individually R$ 5 million. c) Contingent assets The Company and its subsidiaries have filed legal and administrative actions for the refund of certain taxes, indicated in the table below, with probable possibility of success, in accordance with the evaluation of legal advisors. As these are contingent assets, they have not been recognized in the financial statements:


57

12/31/2019 12/31/2018

IPI credit premium from 1980 to 1983 and 1985 125,990 120,973

Monetary Restatement of Federal Power Company (Eletrobás)

credits 11,423 9,934

Profit Abroad (deposit withdrawal) 11,303 -

INSS (Social Security) 49,529 46,304

CPMF - differential of percentage 3,640 3,551

PIS - (unconstitutionality of DLs nº 2.445 and 2.449) - 44

PIS and COFINS - Manaus Free-Trade Zone 1,753 1,653

Other 12,570 7,062

Total 216,208 189,521 ICMS as calculation base of PIS and COFINS The Supremo Tribunal Federal – STF in March 2017 declared unconstitutional the inclusion of ICMS in the calculation base of contribution from PIS and COFINS and a claim was judged in favor of the taxpayer. The Company and its subsidiaries initiated or had been served with a judicial claim for reimbursement offset of amounts overpaid and the suspension of current payments. The Company had not collected PIS/ COFINS on ICMS since June 2018 for Cecrisa, and from August 2019 fpr Hydra and Ceusa, and no current collect from October 2017 (Hydra) and June 2019 (Ceusa) were recognized in the accounting the past period from the Company by court and Duratex Florestal, the suspension of collect from June 2019 was recognized in the accounting by superior collect of the values from last 5 years, by favorable judicial decision given in 2011. All recognitions have the ICMS collected as base, in the limits of Solution COSIT nº 13/2018. Note 23 – Stockholders’ equity a) Capital The Company's authorized capital is 920,000,000 of shares, and fully subscribed and paid-up capital is R$ 1,970,189, represented by 691,784,501 registered common shares with no par value.

b) Treasury shares

Nº of shares Amount in thousand R$

Balance as at December 31, 2018 2,316,745 26,031

Sales of shares in the year (265,029) (2,980) (*)

Balance as at December 31, 2019 2,051,716 23,051

Minimum MaximumWeighted

AverageLatest Quotation

2.86 15.67 11.24 16.72

Share price

(*) These reductions refer to delivery of shares for grant of stock options by executives from the Company.

Based on the last market quotation as at December 30, 2019, the value of the Company's treasury shares was R$ 34,305 (R$ 27,407 as at December 28, 2018).


58

c) Net equity reserves

12/31/2019 12/31/2018

Capital reserves 352,083 347,637

Premium on the subscription of shares 218,731 218,731

Tax incentives 13,705 13,705

Prior to Law 6404 18,426 18,426

Options granted 42,531 41,471

Granted options overdue 69,496 60,598

Options granted to be appropriated (Note 31) (10,806) (5,294)

Capital transactions with partners (18,731) (18,731)

Other comprehensive income 491,475 498,930

Revaluation reserves 38,543 45,239

Carrying value adjustments 452,932 453,691

Revenue reserves 2,166,721 1,869,532

Legal 225,987 205,709

Statutory 1,712,097 1,582,257

Additional dividend proposed 141,597 -

Tax incentives (Article 195 - Law no. 6.404/76) 87,040 81,566

Treasury shares (23,051) (26,031)

Parent company and

Consolidated

Tax incentives

article 195-A Law

6.404/76

Dividends

equalization

Reinforcement of

working capital

Capital increase in

subsidiaries

Balance on December 31, 2017 184,130 77,748 704,190 441,369 572,645 - 1,980,082

Constitution 21,579 3,818 78,959 40,999 4,100 - 149,455

Dividends - - (260,005) - - - (260,005)

Balance on December 31, 2018 205,709 81,566 523,144 482,368 576,745 - 1,869,532

Constitution 20,278 5,474 48,930 77,057 3,853 - 155,592

Dividends and interests on capital - - - - - 141,597 141,597

Balance on December 31, 2019 225,987 87,040 572,074 559,425 580,598 141,597 2,166,721

TotalLegal reserves

Statutory reserves

Adittional dividends

proposed

12/31/2019 12/31/2018Post-employment benefit 15,703 7,113

Equity of investees reflex post-employment benefit10,519 -

Conversion adjustment (57,963) (39,613)

Others (421,191) (421,191)

Total (452,932) (453,691)

Parent company and

Consolidated

The amount presented in the capital reserves balance as a premium on the subscription of shares refers to the additional amount paid by stockholders in relation to the nominal value at the time of the subscription of shares. The options granted in the capital reserves represent the recognition of stock options on the grant date. As provided in the bylaws, the balance appropriated to the statutory reserve will be utilized for the: (i) reserve for dividend equalization, (ii) reserve for increasing working capital, and (iii) reserve for capital increases in investees:


59

Reserve for dividend equalization: This will be limited to 40% of the capital and used to pay dividends, including interest on capital (Article 29.2) or distribution advances, to maintain the flow of payments to stockholders from available resources: (a) equivalent to up to 50% of net income, adjusted in accordance with Article 202 of Brazilian Corporation Law; (b) equivalent to up to 100% of the portion of the revaluation reserves, recorded as retained earnings; (c) equivalent to up to 100% of prior year adjustments, recorded as retained earnings; and (d) resulting from prepaid dividends (Article 29.1 of the bylaws) The reserve for increasing working capital: limited to 30% of capital and to guarantee funding for the company's operations, comprising up to 20% from net income, adjusted in accordance with Article 202 of Brazilian Corporation Law. The reserve for capital increases in investees: limited to 30% of registered capital to exercise the preemptive subscription right in capital increases from resources up to 50% of the net income, adjusted in accordance with Article 202 of Brazilian Corporation Law. Reservations tax incentives: A general meeting may, by proposal of the management bodies, allocate to the tax incentive reserve the portion of net income resulting from donations or government subsidies for investments , which can be excluded from the mandatory dividend calculation base (Item I of the caput of Article 202 Law 6.404/76). (Included by Law Nº 11,638, from 2007). Tax incentives refer to: R$ 44,408 (R$ 40,184 in 2018) of PRODEPE - Pernambuco State Development Program, R$ 13,772 (R$ 12,522 in 2018) of the FAIN - Paraíba Industrial Development Support Fund and R$ 5,907 (R$ 5,907 in 2018) of SUDENE - The Superintendency for the Development of the Northeast and R$ 22,953 (R$ 22,953 in 2018) of FUNDOPEM – Operation Company Funds from State of Rio Grande do Sul. d) Destination of net income The Board of Directors at a meeting on February 12, 2020 approved the financial statements and consequently, the destination of net income of the year 2019 that will be submitted for approval on the Extraordinary General Meeting.


60

Destination of net income 12/31/2019 12/31/2018

Net income of the year 405,564 431,573

(-) Legal reserve (20,278) (21,579)

(-) Tax incentives reserve (5,474) (3,818)

(+) Realization of revaluation reserve 6,696 12,105

(-) Dividends (115,953) (286,377)

Statutory reserves 270,555 131,904

IFRS 15 and 9 transition adjustment - (6,881)

Sale of shares in treasury (stock options) (872) (796)

Equity of investees reflex 1,754 (169)

Allocation for profit reserves:

Equalization of dividends (48,930) (78,957)

Working capital (77,057) (41,000)

Capital increase in subsidiaries (3,853) (4,101)

Additional dividend proposed (141,597) -

= Statutory reserves after allocation - - e) Dividends (interests on capital) To the stockholders a minimum dividend is guaranteed, in statutory, correspondent to 30% of adjusted net income. Presented below is the dividend calculation, the amount paid/ credited and the balance to pay: The dividends as at December 31, 2019 and 2018 were calculated as follows:

12/31/2019 12/31/2018

Net income for the year 405,564 431,573

(-) Legal reserve (20,278) (21,579)

(-) Tax incentives (5,474) (3,818)

(-) Realization of revaluation reserve 6,696 12,105

Adjusted net income 386,508 418,281

Minimum mandatory dividend (30%) 115,953 125,484

Interests on capital of net income for the year 136,415 286,377

IRRF on interests on capital ( 15%) (20,462) (42,957) Interests on capital declared, net of Income Tax Withheld at

source (IRRF) 115,953 243,420

Excess amount to minimum mandatory dividend 115,953 -

The Board of Directors at a meeting held on 12/11/2019 "ad

referendum" of the General Meeting resolved to credit interest on

capital equity on 12/30/2019, the amount of R$ 0,3734054776 per

share totaling R$ 257,550

257,550 286,377

The Board of Directors in meeting realized on December 11, 2019 “ad referendum” from General Meeting resolved to credit dividends on December 30, 2019, the amount of R$ 0.3734054776 per share totaling R$ 257,550.


61

Note 24 – Insurance coverage As at December 31, 2019, the Company and its subsidiaries had insurance coverage against fire and various risks relating to property, plant and equipment, forests and inventory. Under the terms of the insurance policies, the value of the coverage was R$ 4,733 million. Note 25 – Net sales revenue The reconciliation of gross sales revenue for net sales revenue are presented as follows:

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Gross sales revenues 4,698,207 4,725,216 6,210,937 6,135,829

Domestic market 4,318,715 4,220,796 5,298,218 5,102,209

Foreign market 379,492 504,420 912,719 1,033,620

Taxes and contributions on sales (964,468) (993,794) (1,199,231) (1,186,468)

Net sales revenue 3,733,739 3,731,422 5,011,706 4,949,361


Note 26 – Expenses, by nature

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Changes in the fair value of biological assets - - 126,045 148,134

Variations in the inventories of finished products

and work in process 296,317 402,063 113,667 216,797

Raw materials and consumption materials (2,148,916) (2,341,042) (2,224,518) (2,330,579)

Remuneration, charges and benefits to employees (664,965) (687,530) (928,565) (900,512)

Depreciation charges, amortization and depletion (271,484) (273,133) (683,787) (775,020)

Transport expenses (284,250) (311,328) (339,866) (370,533)

Advertising expenses (68,971) (64,082) (96,570) (83,221)

Other expenses (487,383) (367,761) (615,111) (435,590)

Total expenses, by nature (3,629,652) (3,642,813) (4,648,705) (4,530,524)


The expenses by nature are in the following captions in the statement of income.

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Variation in the fair value of the biological assets - - 126,045 148,134

Cost of products sold (2,944,155) (2,965,606) (3,843,607) (3,798,982)

Selling expenses (538,005) (557,812) (715,981) (698,940)

General and administrative expenses (147,492) (119,395) (215,162) (180,736)

Total (3,629,652) (3,642,813) (4,648,705) (4,530,524)



62

Note 27 – Financial income and expenses

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Financial income

Remuneration on financial investments 25,806 20,358 44,465 54,044

Foreign exchange variances 8,161 21,476 18,485 22,219

Indexation adjustment 5,261 8,227 20,307 27,881

Interest and discounts obtained 9,741 10,966 18,913 17,495

Other - 439 921 881

Total 48,969 61,466 103,091 122,520

Financial expenses

Charges on financing - local currency (118,057) (115,608) (189,060) (175,646)

Charges on financing - foreign currency (11,411) (109,209) (20,426) (109,319)

Foreign exchange variances (2,441) (7,188) (8,883) (11,669)

Indexation adjustment (4,853) (2,461) (8,872) (3,496)

Derivatives (6,885) 64,561 (4,135) 68,301

Bank charges (2,749) (4,213) (6,124) (7,055)

Tax on financial operations (111) (107) (616) (653)

Interest on lease liabilities (765) - (2,323) -

Other (1,908) (11,735) (23,082) (33,279)

Total (149,180) (185,960) (263,521) (272,816)

Total financial result (100,211) (124,494) (160,430) (150,296)


Note 28 – Other operating income (expenses), net

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Amortization of customer portfolio (24,707) (26,467) (25,893) (27,686)

Amortization of appreciation of assets (7,953) (7,791) (7,953) (7,791)

Profit sharing and stock-option (21,692) (13,703) (21,692) (13,703)

Updates of pension plan credits 13,770 (10,434) 14,275 (10,636)

Prodep-Reintegra credits 3,817 14,406 3,857 14,466

Result net, with sales of farms from Duratex Florestal - - 266,650 621,126

ICMS based on PIS and COFINS 7,352 - 13,020 -

Restructuring ceramics - São Leopoldo (13,284) - (13,284) -


Gain (loss) on disposal and other operating income and expenses 80,205 (29,231) 73,176 (21,089)

Total other operating income, (expenses) net 28,671 (297,585) 293,319 330,322


Note 29 – Sales of farms In 2019 and 2018, the subsidiary Duratex Florestal Ltda., sold farms (just lands), located in the regions of Agudos – SP and Botucatu – SP, totaling the amount of R$ 266,650 in 2019 and R$ 621,126 in 2018 net of write-off costs, of which R$ 250,436 were received as at December 31, 2019 and R$ 489,119 as at December 31, 2018. These farms are distant from industrial plants and had high value for other economic activities, giving continuity to the medium- and long-term plan of the Company and its subsidiaries for demobilization of non-essential assets, which began in 2016. Below are the amounts involved in the negotiation:

12/31/2019 12/31/2018

Value of sales of farms 310,784 733,966

(-) Cost of write-offs (44,134) (112,840)

Results of sales 266,650 621,126


63

Note 30 – Income tax and social contribution a) Reconciliation of income tax and social contribution expenses Reconciliation of income and social contribution tax expenses, between nominal and effective rates:

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Profit before Income tax and social contribution 341,260 289,342 479,011 582,359

Income Tax and Social Contribution at the rates of 25%

and 9%, respectively (116,028) (98,376) (162,864) (198,002)

Income tax and social contribution on additions and deductions from the result 180,332 240,607 89,580 47,439

Interests on Capital 87,567 63,808 87,567 97,366

Equity in results of investees 110,257 216,975 - -

Subsidiary tax difference (14,165) - (2,644) 17,337


Write-off of IRPJ / CSLL on tax losses and negative basis - - - (27,487)

Other additions and exclusions (322) (303) 7,662 96

Income tax and social contribution on the result of the year 64,304 142,231 (73,284) (150,563)

In the results:

Current income tax and social contribution (3,716) - (159,612) (322,660)

Deferred income tax and social contribution 68,020 142,231 86,328 172,097

Effective rate % 19% 49% -15% -26%


Note 31 – Stock-option plan As provided for in the bylaws, the Company has a stock-option plan to align executives with the Company’s medium and long-term strategy, enabling them to benefit from the results of their work as reflected in Duratex's share price. These options grant their owners the right, pursuant to the plan's conditions, to subscribe to common shares of Duratex's authorized capital. The rules and operating procedures of the plan are proposed by a People, Governance and Appointing Committee designated by the Company's Board of Directors. Periodically, this Committee submits proposals to the Board of Directors on the implementation of the plan. Options will only be granted for fiscal years during which sufficient profits are earned to permit the mandatory minimum dividend distribution to stockholders. The total number of options to be granted during each fiscal year should not exceed 0.5% of the total number of shares from Duratex owned by the controlling and non-controlling stockholders at the end balance of the same fiscal year. The exercise price payable to Duratex will be defined by the People, Governance and Appointing Committee when granting the option. In order to define the exercise price, the Committee will consider the average price of Duratex's common shares in B3 trading sessions for a period of five to 90 days prior to the option issue date. This will be at the discretion of the Committee, which may make an upward or downward adjustment of up to 30%. The prices established will be readjusted, up to the prior month of exercise of the options, based on the IGP-M index, or, in its absence, by an index designated by the Committee.


64

2012 2013 2014 2016 2018 2019

Total stock options granted 1,290,994 1,561,061 1,966,869 1,002,550 1,046,595 1,976,673

Exercise price on the grant date 10.21 14.45 11.44 5.74 9.02 9.80

Fair value on the grant date 5.69 6.54 4.48 4.00 5.19 5.17

Deadline to exercise 8.8 years 8.9 years 8.10 years 8,9 years 8,8 years 8,8 years

Vesting period 3.8 years 3.9 years 3.10 years 3,9 years 3,8 years 3,7 years

The following economic assumptions were utilized to determine these amounts:

2012 2013 2014 2016 2018 2019

Volatility of share price 37.91% 34.13% 28.41% 39.82% 38.09% 38.49%

Dividend yield 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%

Risk-free rate of return (1) 4.38% 3.58% 6.39% 6.95% 4.67% 4.05%

Actual exercise rate 96.63% 96.63% 96.63% 94.90% 94.90% 94.90%

The Company settles this benefit plan by transferring shares, which are kept in treasury until the actual exercise of the options by the executives.

In 2015 and 2017 there were no stock option grant of the Company.

(1) General Market Price Index (IGP-M)

Value and appropriation of the options granted:

Grant Qty Vesting Term for Grant Option Total Other

Date Granted Date Maturity price12/31/2018 12/31/2019

Price ValueOverdue

From 2012

to 20152016 2017 2018 2019

Periods

Maturities of previous years - - - - - - - 71,918 - - - - -

04/09/2012 1,290,994 12/31/2015 12/31/2020 10.21 581,774 581,774 5.69 6,390 - 6,390 - - - -

04/17/2013 1,561,061 12/31/2016 12/31/2021 14.45 897,255 897,255 6.54 8,443 - 6,689 1,754 - - -

02/11/2014 1,966,869 12/31/2017 12/31/2022 11.44 1,648,223 1,648,223 4.48 8,214 - 4,302 2,232 1,680 - -

03/09/2016 1,002,550 12/31/2019 12/31/2024 5.74 784,800 637,100 4.00 5,492 - - 1,251 1,515 1,458 1,268 -

04/26/2018 1,046,595 12/31/2021 12/31/2026 9.02 1,032,356 792,653 5.19 5,381 - - - - 999 1,620 2,762

05/13/2019 1,976,673 12/31/2022 12/31/2027 9.80 - 1,976,673 5.17 10,412 - - - - - 1,787 8,625

Total 8,844,742 4,944,408 6,533,678 44,332 71,918 17,381 5,237 3,195 2,457 4,675 11,387

Effective exercise rate 94.90% 96.63% 96.63% 96.63% 96.63% 94.90% 94.90% 94.90%

Value established 42,531 69,496 16,793 (1) 5,061 (2) 3,088 (3) 2,337 (4) 4,446 (5) 10,806 (6)

(1) Amount recorded against income from 2012 to 2015

(2) Amount recorded against income for 2016




(6) Amount to be recorded against income in other periods

Balance to be Exercised Competence

As at December 31, 2019, the Company had 2,051,716 treasury shares that could be utilized for the future exercise of options. Note 32 – Private pension plan The Company and its subsidiaries are part of a group of sponsors of Fundação Itaúsa Industrial, a non-profit organization which manages private plans providing pensions or supplementary income benefits, similar to those of the National Social Security. The Fundação manages a defined contribution plan (“DC Plan”) and a defined benefit plan (“DB Plan”). DC Plan This plan is offered to every employee eligible to the plan and as at December 31, 2019 had 5,714 participants (6,008 participants as at December 31, 2018). In the DC Plan - PAI (Individual Retirement Plan) there is no actuarial risk, and the investment risk is borne by the participants. The current regulation stipulates sponsor contributions of 50% to 100% of the amounts paid in by participants. Pension Program Fund The contributions by sponsors that remain in the plan as a result of participants who opted to be paid out or who took early retirement formed the Pension Program Fund, which, according to the plan's regulations, are being utilized to compensate contributions by sponsors. The present value of normal future contributions, calculated by actuaries, according to the average percentage of normal contribution of sponsors, totaled on December 31, 2019 the amount of R$


65

110,364 (R$ 100,995 as at December 31, 2018). The increase of R$ 9,369 was recognized in the statement of income under “other net operating income (expenses)”. Presented below is the reconciliation with a recognized amounts in the financial statements:

12/31/2019 12/31/2018

Present value of the actuarial obligations (982,909) (921,437)

Fair value of assets 1,540,999 1,362,574

Asset calculated 558,090 441,137

Restriction of asset due to limit (447,726) (340,142)

110,364 100,995Asset to be recognized in the financial statements

Assets and liabilities to be recognized in the balance sheet

DB Plan The DB Plan grants benefits in the form of a lifetime monthly income to complement National Social Security payments, according to the plan’s regulations. This plan is being discontinued, and enrollment by new participants is not permitted. The plan includes the following benefits: a retirement supplement, based on the period of contribution, special conditions by age, disability, lifetime monthly income, retirement premium, and a death benefit. On July 4, 2016, PREVIC approved the destination of a special reserve of the DB Plan with reversion of values to the sponsors in amount of R$ 7,752, (R$ 5,116 net of tax effects). In according to Resolution CGPC nº 26, this amount was recognized in 36 installments, settled in 2019 (R$ 1,707 on December 31, 2018), according to note nº 8. In December 2019, according to note nº 8, PREVIC approved the destination of a special reserve from the DB Plan, with reversion of the amounts to the sponsors in the amount of R$ 8.419 (R$ 5,556 net of tax effects). This amount will be received in according to Resolution CGPC nº 30 from October 2018. Presented below, the position on December 31, 2019:

12/31/2019 12/31/2018

Present value of the actuarial obligations (79,495) (72,895)

Fair value of assets 118,038 115,541

(Liabilities) / Assets calculated based of CPC 33 R1/IAS 19 38,543 42,646

Irrecoverable surplus at the end of the year (23,813) (27,131)

Net assets from defined benefit (Liability) 14,730 15,515

Assets and liabilities to be recognized in the balance sheet


66

Actuarial Assumptions

12/31/2019 12/31/2018

Discount rate 6.99% 9.13%

Inflation rate 3.80% 4.00%

Salary increase rate 3.80% 6.36%

Growth of benefits 3.80% 4.00%

Capacity factor

Salaries 100% 100%

Benefits 100% 100%

12/31/2019 12/31/2018

Mortality Table AT - 2000 - reduced by 10% AT - 2000 - reduced by 10%

Mortality table for disabled RRB 1983 RRB 1983

Entry into disability table

RRB 1944 - reduced by

70%

RRB 1944 - reduced by

70%

Turnover table Expert Actuary Expert Actuary

Retirement age

% of participation of married active participants on 95% 95%

retirement date

Age difference between participant and spouse

Actuarial method Projected Unit Credit Projected Unit Credit

Economic assumptions

Economic assumptions

First age entitled to one of

the benefits

First age entitled to one of

the benefits

Wives are 4 years younger

than husbands

Wives are 4 years younger

than husbands

Note 33 – Medical assistance Plan - Post-employment a) Medical assistance plan - Post-employment The Company offers both contributory plans, currently with co-participation, as contributory plans to its employees and their dependents, in the units of Aracaju – SE and Distribution Centre of Tubarão – SC. On December 31, 2019 and 2018, there were 09 and 13 health care providers, totaling 21,973 and 25,059 lives, respectively (active, terminated, retired and dependents) assuring the obligation to extend cover for terminated and retired persons according to Law 9,656/98. The Company hired consulting specialized for realization of actuarial evaluation from liabilities positioned on December 31, 2019 and 2018 and preparation of report of record CPC 33 (R1) – CVM 695. The assumptions and actuarial method used in this evaluation are in accordance to principles and actuarial practices usually accept, with local law and with CPC 33 (R1). The actuarial evaluation used the projected unit credit method to determine the liability and normal cost. The discount rate is based on available titles on Brazilian market. Considering the duration of liability from evaluated plan, the discount rate calculated was 3.45% p.a. for 2019 and 5.00% p.a. for 2018, both net of inflation. When added to inflation rated expected in long term, of 3.80% p.a. for 2019 and 4.00 % p.a. for 2018, we have a nominal discount rate of 7.38% p.a. and 9.20% p.a., respectively.


67

Financial assumptions

12/31/2019 12/31/2018

Discount rate 7.38% p.a. (3.45% real p.a.) 9.20% p.a. (5.00% real p.a.)

Return of investments rate 7.38% p.a. (3.45% real p.a.) 9.20% p.a. (5.00% real p.a.)

Growth of salary 5.47% p.a. (1.83% real p.a.) 5.47% p.a. (1.83% real p.a.)

Medical inflation

Medical inflation decreasing 0.5% p.a.

from 11% to 5% p.a. (Real medical

inflation decreasing 0.5% p.a. from 7%

p.a. to 1% p.a.)

7.12% p.a. (3.00% real p.a.)

Aging Factor 3.00% p.a. 3.00% p.a.

Long term inflation estimated rate 3.80% p.a. 4.00% p.a.

Biometric Assumptions on December 31, 2019 and December 31, 2018

General mortality table AT 2000 softened in 10% segregated by sex

Entry into disability table RRB-1944 desagravatted in 70% segregated by sex

Mortality table for disabled table RRB - 1983

Based on salary and time of service (TS):

From 0 – 10 minimum salary: 0.60 / (TS+1);

From 10 – 20 minimum salary: 0.45 / (TS+1);

Above 20 minimum salary: 0.30 / (TS+1);

Minimum salary

Probability of retirement 100% to the 55 years old

Retirement rate 51% 2019 and 62% 2018

Family composition future retired 95% of married, wives are 4 years younger

Family composition retired and pensioners Family group informed

Turnover

Liability (asset) reconciliation recognized in the balance sheet:

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Net actuarial liability at the beginning of the year 11,984 11,495 11,984 11,495

Acquisition of subsidiary - Cecrisa - - 8,391 -

Expense recognized on the net income of the year 1,265 1,278 1,762 1,278

Amount recognized on other comprehensive income 20,534 (789) 29,941 (789)

Net actuarial liability at the end of the year 33,783 11,984 52,078 11,984


Amounts recognized on the net income of the year

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Cost of current service 163 139 399 139

Interests on the obligations 1,102 1,139 1,363 1,139

Total expenses recognized on the results 1,265 1,278 1,762 1,278


68

Assumption’s sensitivity analysis


12/31/2019 12/31/2019

Medical inflation

+ 1,0% (14,382) (17,976)

- 1,0% 6,416 9,244

Discount rate

+ 0,25% 2,443 3,047

- 0,25% (2,678) (3,252) b) Medical assistance plan for employees on leave of absence The Company offers medical assistance benefit for employees on leave of absence. In this context the Company has contracted actuarial specialists for revaluation of actuarial valuation of liabilities positioned on December 31, 2019 in accordance with CPC 33 (R1) – CVM 695. The assumptions and actuarial method utilized in this evaluation conform with generally accepted principles and actuarial practices, local law and CPC 33 (R1). The actuarial evaluation has utilized the projected unit credit method to determine the liability and normal cost. The discount rate utilized is based in available titles in the Brazilian market. Considering the duration of liability from evaluated plan, the discount rate calculated was 3.45% p.a. for 2019 and 4.80% for 2018, net of inflation. When added to the expected long term inflation rate of 3.80% p.a. for 2019 and 4.00% for 2018, we have a nominal discount rate of 7.38% p.a. for 2019 and 8.99% p.a. for 2018. Financial assumptions

12/31/2019 12/31/2018

Discount rate 7.38% p.a. (3.45% real p.a.) 8.99% p.a. (4.80% real p.a.)

Return of investments rate 7.38% p.a. (3.45% real p.a.) 8.99% p.a. (4.80% real p.a.)

Long term inflation rate 3.80% p.a. 4.00% p.a.

Medical inflation

Medical inflation decreasing

0.5% p.a. from 11% to 5% p.a.

(Real medical inflation

decreasing 0.5% p.a. from 7%

p.a. to 1% p.a.)

7.12% p.a. (3.00% real p.a.)

Aging Factor 3.00% p.a. 3.00% p.a.


69

Biometric Assumptions on December 31, 2019 and December 31, 2018

General mortality table AT 2000 softened in 10% segregated by sex

Entry into disability table RRB-1944 desagravatted in 70% segregated by sex

Mortality table for disabled table RRB - 1983

Up to 1 year: 85%

Between 1 and 2 years: 9%



Over 4 years: 0%

Age under 60 years:

100% at age 60

Age greater than or equal to 60 years:

(Age + 2) years of remoteness

Family composition retired and pensioners Family group informed

Probability of return of remoteness (years of

remoteness)

Probability of retirement

Liability (asset) reconciliation recognized in the balance sheet:

12/31/2019 12/31/2018 12/31/2019 12/31/2018

Net actuarial liability at beginning of year 17,738 - 17,738 -

Expense recognized on the net income of the year 1,529 16,048 1,559 16,048

Acquisition Cecrisa - - 975 -

Amount recognized on other comprehensive income (7,519) 1,690 (617) 1,690

Net actuarial liability at the end of the year 11,748 17,738 19,655 17,738


Amounts recognized on the net income of the yearParent

companyConsolidated

12/31/2019 12/31/2019

Cost of current service - -

Interests on the obligations 1,529 1,559

Total expenses recognized on the results 1,529 1,559 Assumption’s sensitivity analysis


12/31/2019 12/31/2019

Medical inflation

+ 1,0% (1,584) (1,658)

- 1,0% 1,316 1,377

Discount rate

+ 0,25% 464 486

- 0,25% (484) (507) Note 34 – Net income per share (a) Basic The basic earnings per share are calculated by dividing the net income attributable to the Company’s stockholders by the weighted average number of common shares outstanding during the period, excluding common shares held as treasury shares.


70

12/31/2019 12/31/2018

Earnings attributable to the Company's stockholders 405,564 431,573

Weighted average number of common shares issued (in thousands) 691,785 691,784

Weighted average of treasury shares (in thousands) (2,153) (2,414)

Weighted average number of common shares outstanding (in thousands) 689,632 689,370

Basic earnings per share 0.5881 0.6260 (b) Diluted Diluted earnings per share are calculated by dividing the net income attributable to the Company’s stockholders after adjustments of the weighted average common shares outstanding, assuming the conversion of all potential diluted common shares adjusted by the stock-option program.

12/31/2019 12/31/2018

Earnings attributable to the Company's stockholders 405,564 431,573

Weighted average number of common shares issued (in thousands) 691,785 691,784

Call options for shares 6,534 6,024

Weighted average of treasury shares (in thousands) (2,153) (2,414)

Weighted average number of diluted common shares outstanding

and call options for shares (in thousands) 696,166 695,394

Diluted earnings per share 0.5826 0.6206 Note 35 – Business segments The operating segments are based on reports used by the chief operating decision-maker for strategic decisions, as revised by Management. The Board analyzes the business based on three main segments: the Wood Division, Deca Division and Ceramic Tiles Division. The segments presented in the interim financial information are strategic business units that provide different goods and services. There are no sales between the segments.

Net sales revenue 2,933,804 1,578,093 499,809 5,011,706 3,272,797 1,483,105 193,459 4,949,361

Domestic market 2,215,625 1,497,357 465,337 4,178,319 2,416,772 1,406,208 178,300 4,001,280

Foreign market 718,179 80,736 34,472 833,387 856,025 76,897 15,159 948,081

Changes in the fair value of biological assets 126,045 - - 126,045 148,134 - - 148,134

Cost of products sold (1,810,428) (1,045,375) (318,677) (3,174,480) (1,905,727) (1,015,436) (111,308) (3,032,471)

Depreciation, amortization and depletion (382,448) (100,061) (15,921) (498,430) (403,371) (98,179) (6,036) (507,586)

Depletion of adjustment in the biological assets (170,697) - - (170,697) (258,925) - - (258,925)

Gross profit 696,276 432,657 165,211 1,294,144 852,908 369,490 76,115 1,298,513

Selling expenses (380,769) (243,349) (91,863) (715,981) (426,869) (237,590) (34,481) (698,940)

General and administrative expenses (101,336) (90,243) (23,583) (215,162) (98,023) (76,628) (6,085) (180,736)

Management fees (9,598) (6,026) (1,255) (16,879) (9,620) (5,949) (935) (16,504)

Other operating income (expenses), net 333,900 (35,762) (4,819) 293,319 430,321 (105,582) 5,583 330,322

Operating profit before financial result and taxes 538,473 57,277 43,691 639,441 748,717 (56,259) 40,197 732,655

WoodConsolidated ConsolidatedDecaWood Deca Ceramic Tiles Ceramic Tiles

12/31/2019 12/31/2018

These operating segments have been defined based on the reports used for decision making by the Supervisory Board. The accounting policies of each segment are the same as described in Note 2. Customer sales portfolios do not present a concentration of risk. Note 36 – Subsequent events a) Partial spin-off of subsidiary In Extraordinary General Meeting on January 31, 2020 the partial spin-off of subsidiary Duratex Florestal Ltda. and the incorporation by the Company of installment spin-off of R$ 459,658 were approved, without an increase of capital.


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b) Capital contribution Giving continuity with the partnership with Lenzing, Austrian group (world leader in the production of soluble cellulose), the Company on January 15, 2020 joined as a stockholder of LD Celulose S.A.. On this date, the Company subscribed R$ 1,018,295; of this amount R$ 459,658 was paid in on January 31, 2020. Goods conference and the remaining value will be paid on December 31, 2022.

duratex s.a....duratex s.a. cnpj. 97.837.181/0001-47 a publicly listed company nire 35300154410...

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