UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

¨        REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2015

OR

¨        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨        SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35723

 

BRASILAGRO – COMPANHIA BRASILEIRA DE

PROPRIEDADES AGRÍCOLAS

(Exact name of Registrant as specified in its charter)

BrasilAgro - Brazilian Agricultural Real Estate Company

(Translation of issuer’s name into English)

The Federative Republic of Brazil

(Jurisdiction of incorporation or organization)

1309 Av. Brigadeiro Faria Lima, 5th floor, São Paulo, São Paulo 01452-002, Brazil

(Address of principal executive offices)

Julio Cesar de Toledo Piza Neto,

Chief Executive Officer and Investor Relations Officer,

Tel. +55 11 3035 5350, Fax +55 11 5908 4344, ri@brasil-agro.com

1309 Av. Brigadeiro Faria Lima, 5th floor

São Paulo, São Paulo 01452-002, Brazil

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class

 

Name of each exchange on which registered

 

American Depositary Shares, each representing one ordinary share, no par value

New York Stock Exchange

Ordinary Shares*

New York Stock Exchange*

 

 

*      Not for trading, but only in connection with the registration of American Depositary Shares.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.

Ordinary shares, no par value                    58,226,600

BrasilAgro – Brazilian Agricultural Real Estate Company is an emerging growth company as defined in Section 3(a) of the Securities Exchange Act of 1934.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ¨     No   x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     Yes   ¨     No   x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨ .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ¨     No   ¨ (Note: None required for registrant)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer   ¨                     Accelerated filer   x                  Non-accelerated filer   ¨    

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

 

 

 

U.S. GAAP   ¨

International Financial Reporting Standards as issued by the International Accounting Standards Board   x

Other   ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.     Item 17   ¨     Item 18   ¨

If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

 

 

 

TABLE OF CONTENTS
  Page  
 
PART I   1  
 
INTRODUCTION   1  
 
ITEM 1—IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS   3  
ITEM 2—OFFER STATISTICS AND EXPECTED TIMETABLE   3  
ITEM 3—KEY INFORMATION   3  
ITEM 4—INFORMATION ON THE COMPANY   22  
ITEM 4A—UNRESOLVED STAFF COMMENTS   37  
ITEM 5—OPERATING AND FINANCIAL REVIEW AND PROSPECTS   37  
ITEM 6—DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   55  
ITEM 7—MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   63  
ITEM 8—FINANCIAL INFORMATION   66  
ITEM 9—THE OFFER AND LISTING   73  
ITEM 10—ADDITIONAL INFORMATION   78  
ITEM 11—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   106  
ITEM 12 — DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   107  
 
PART II   10 9  
 
ITEM 13—DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES   10 9  
ITEM 14—MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   109  
ITEM 15—CONTROLS AND PROCEDURES   109  
ITEM 16A—AUDIT COMMITTEE FINANCIAL EXPERT   110  
ITEM 16B—CODE OF ETHICS   110  
ITEM 16C—PRINCIPAL ACCOUNTANT FEES AND SERVICES   11 1  
ITEM 16D—EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES   111  
ITEM 16E—PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS   11 2  
ITEM 16F—CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT   112  
ITEM 16G—CORPORATE GOVERNANCE   112  
ITEM 16H—MINE SAFETY DISCLOSURE   11 4  
 
PART III   114  
 
ITEM 17—FINANCIAL STATEMENTS   114  
ITEM 18—FINANCIAL STATEMENTS   114  
ITEM 19—EXHIBITS   114  

 

 

 

 

 

 

Table of Contents

PART I  

INTRODUCTION

Unless the context otherwise requires, the term “BrasilAgro” refers to BrasilAgro – Companhia Brasileira de Propriedades Agrícolas and its consolidated subsidiaries; and unless indicated otherwise, the terms “ we ,” the “ Company ,” “ our ” or “ us ” refer to BrasilAgro. The terms “ Brazil ” and the “ Brazilian government ” refer to the Federative Republic of Brazil.

Presentation of Financial Information

All references herein to “real,” “Reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “dollars” or “US$” are to U.S. dollars.

On June 30, 2015, the end of our fiscal year, the exchange rate for Reais into U.S. dollars was R$3.1026 to US$1.00, based on the selling rate as reported by the Central Bank of Brazil ( Banco Central do Brasil ), or the Central Bank. On June 30, 2014, the selling rate was R$2.2025 to US$1.00. The selling rate was R$2.2156 to US$1.00 on June 30, 2013, R$2.0213 to US$1.00 on June 30, 2012, and R$1.5611 to US$1.00 on June 30, 2011, in each case, as reported by the Central Bank. The Real /U.S. dollar exchange rate fluctuates widely, and the selling rate on June 30, 2015 may not be indicative of future exchange rates. On October 20, 2015, the selling rate was R$3.8656 to US$1.00, as reported by the Central Bank. See “Item 3—Key Information—Exchange Rates” for information regarding exchange rates for the Real since July 1, 2011.

Solely for the convenience of the reader, we have translated certain amounts included in “Item 3—Key Information—Selected Financial Information” in this Annual Report from Reais into U.S. dollars, unless otherwise indicated, using the selling rate as reported by the Central Bank on October 20, 2015 of R$3.8656 to US$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate.

Financial Statements

We maintain our books and records in Reais. Our fiscal year is from July 1 of each year to June 30 of the following year. Our consolidated financial statements as of June 30, 2015,  2014 and 2013 and for the years ended June 30, 2015, 2014 and 2013 have been audited, as stated in the report annexed hereto.

We prepare our annual consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB.

Crop Year, Harvest and Planting Season

Our agricultural production is based on the crop year, which varies according to each crop. The crop year for sugarcane is from January 1 to December 31 of the same year, and the crop year for grains is from July 1 to June 30 of the following year. We also make reference to the planting season and the harvest season, or harvest period. In Brazil, the planting season for grains is from September to December, and the planting season for sugarcane is from February to May. The harvesting period in Brazil for grains is from February to July, and such period for sugarcane is from April to December.

Market Information

The market information included herein concerning the Brazilian economy and the domestic and international agriculture industry was obtained from market research, publicly available information and industry publications from established public sources, such as the Brazilian Central Bank, the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or the IBGE, the Brazilian Food Supply Company ( Companhia Nacional de Abastecimento ), or Conab, a state-owned company, the Brazilian Ministry of Agriculture, Livestock and Food Supply ( Ministério da Agricultura, Pecuária e Abastecimento ), or MAPA, the U.S. Department of Agriculture, or USDA, the U.S. Food and Agriculture Organization, or FAO, the United Nations, and the Organization for Economic Cooperation and Development, or OECD, as well as from other public institutions and independent sources as indicated throughout this Annual Report. We believe that such information is true and accurate as of the date they were made, although we have not independently verified it.

 

 

1

 

 

Table of Contents

Rounding

Some percentages and amounts included herein have been rounded for ease of presentation. Accordingly, figures shown as totals in certain tables may not be arithmetic aggregations of the figures that precede them.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in Section 3(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, or any Public Company Accounting Oversight Board, or “PCAOB,” rules that, if adopted in the future, would require mandatory audit firm rotation and auditor discussion and analysis and any future audit rule promulgated by the PCAOB (unless the U.S. Securities and Exchange Commission, or the SEC, determines otherwise). We take advantage of the exemption to provide an auditor’s attestation report and may decide to rely on other exemptions in the future, such as compliance with certain PCAOB rules. We do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock and our stock price may be more volatile.

We could remain an “emerging growth company” until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed US$1 billion, (b) the last day of our fiscal year following the fifth anniversary of the date of our first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, (c) the date on which we have issued more than US$1 billion in non-convertible debt during the preceding three-year period, or (d) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter.

Forward-Looking Statements

This Annual Report on Form 20-F includes statements that constitute forward-looking statements. These statements are based on the beliefs and assumptions of our management and on information available to management at the time such statements were made. Forward-looking statements include, but are not limited to: (a) information concerning possible or assumed future results of our operations, earnings, industry conditions, demand and pricing for our services and other aspects of our business under “Item 4—Information on the Company,” “Item 5—Operating and Financial Review and Prospects” and “Item 11—Quantitative and Qualitative Disclosures About Market Risk”; and (b) statements that are preceded by, followed by or include the words “believes,” “expects,” “anticipates,” “intends,” “is confident,” “plans,” “estimates,” “may,” “might,” “could,” “will,” “would,” the negatives of such terms or similar expressions.

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Many of the factors that will determine these results are beyond our ability to control or predict.

Any of the following important factors, and those described elsewhere in this Annual Report on Form 20-F or in other of our filings with the SEC, among other things, could cause our results to differ from any results or conditions that might be projected, forecasted or estimated by us in any such forward-looking statements:

•        the economic, political and business situation in Brazil;

•        inflation, depreciation or appreciation of the Real against foreign currencies and interest rate fluctuations;

•        changes in prices in the Brazilian agricultural real estate sector;

•        developments in, or changes to, Brazilian legislation and regulation governing our business and products or failure to comply with them, including environmental and sanitary liabilities and accounting developments;

•        governmental intervention impacting the economy, taxes or tariffs;

•        loss of investment grade ratings for Brazil as issued by any of the international rating agencies;

•        conditions of transportation infrastructure and logistics in Brazil;

 

 

2

 

 

Table of Contents

•        our ability to execute our business strategy successfully, including our ability to finance our operations at reasonable terms and conditions, if necessary;

•        our level of debt and other obligations;

•        changes in the domestic and international agricultural commodity markets;

•        availability and changes in prices of raw materials, skilled labor, oil and oil products, fertilizers, lime, machinery and other agricultural inputs;

•        outbreaks of diseases affecting our farms and crops;

•        our ability to obtain and maintain environmental permits for our existing or new areas of operations;

•        supply and demand for our products;

•        weather conditions in our areas of operations;

•        the interests of our controlling shareholder, Cresud;

•        other factors that may affect our financial condition, liquidity and operating result, and

•        other risks discussed under “Item 3—Key Information-Risk Factors.”

We undertake no obligation to publicly update any forward-looking statement, whether because of new information, future events or otherwise. Investors are cautioned not to put undue reliance on any forward-looking statements.

ITEM 1—IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2—OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3—KEY INFORMATION

A. Selected Consolidated Financial Data

We prepare our annual consolidated financial statements in accordance with IFRS as issued by the IASB. We adopted IFRS beginning in the fiscal year ended June 30, 2011. IFRS differs in certain significant respects from the accounting principles generally accepted in the United States, or “U.S. GAAP.”

 

Due to the nature of our business and the harvesting periods in the locations where we operate, our fiscal year ends on June 30 of each year. References in this Annual Report on Form 20-F to a specific fiscal year relate to the fiscal year ended on June 30 of that calendar year, unless indicated otherwise.

The selected financial data has been derived from our audited consolidated financial statements as of June 30, 2015, 2014, 2013, 2012 and 2011 and for the five years ended June 30, 2015 and has been prepared in accordance with IFRS as issued by the IASB. The information set forth below is qualified by reference to, and should be read in conjunction with, our audited consolidated financial statements and the notes thereto and also “Item 5—Operating and Financial Review and Prospects” included in this Annual Report.

For convenience, we have also presented the information below as of and for the year ended June 30, 2015 in U.S. dollar using the exchange rate of R$3.8656 per US$1.00 as of October 20, 2015, which is the most recent practicable date.

 

 

3

 

 

Table of Contents

 

 

 

 

 

 

 

 

 

Year ended June 30,

 

 

2015

 

2015

 

2014

 

2013

 

2012

 

2011

 

 

(US$
thousand,
except share
and per share
information)

(R$ thousand, except share and per share information)

CONSOLIDATED STATEMENT OF OPERATIONS

 

 

 

 

 

 

Net revenue

45,103

174,351

131,314

185,647

146,218

79,544

Gain on sale of farms

50,048

193,464

21,845

54,815

12,987

—

Changes in fair value of biological assets and agricultural products

2,532

9,788

1,092

2,289

(417)

22,761

(Impairment) Reversal of impairment of net realizable value of agricultural products after harvest

(786)

(3,038)

(2,043)

1,659

(2,663)

(986)

Cost of sales

(44,104)

(170,489)

(138,535)

(170,643)

(136,447)

(61,500)

Gross profit

52,793

204,076

13,673

73,767

19,678

39,819

Selling expenses

(2,330)

(9,006)

(10,239)

(14,028)

(4,015)

(2,991)

General and administrative expenses

(7,595)

(29,360)

(30,378)

(29,233)

(28,892)

(26,330)

Other operating income (expense), net

(885)

(3,422)

285

(3,539)

10

73

Equity pick up

(1,127)

(4,355)

(704)

—

—

—

Operating income (loss)

40,856

157,933

(27,363)

26,967

(13,219)

10,571

Financial income

31,703

122,552

40,051

38,000

38,073

25,738

Financial expenses

(23,260)

(89,914)

(41,611)

(38,591)

(44,299)

(16,460)

Profit (loss) before income and social contribution taxes

49,299

190,571

(28,923)

26,376

(19,445)

19,849

Income and social contribution taxes

(2,525)

(9,761)

15,561

2,351

12,845

(5,186)

Profit (loss) for the year

46,774

180,810

(13,362)

28,727

(6,600)

14,663

Profit (loss) attributable to equity holders of the parent

46,774

180,810

(13,362)

28,727

(5,572)

14,743

Loss attributable to non-controlling interests

—

—

—

—

(1,028)

(80)

Issued shares at the year end

58,226,600

58,226,600

58,422,400

58,422,400

58,422,400

58,422,400

Basic earnings (loss) per share in R$/US$

0.8

3.10

(0.23)

0.49

(0.10)

0.25

Diluted earnings (loss) per share in R$/US$

0.8

3.10

(0.23)

0.49

(0.10)

0.25

CONSOLIDATED CASH FLOW

 

 

 

 

 

 

Net cash flows from (used in) operating activities

(2,891)

(11,175)

22,880

(46,472)

(10,691)

(32,633)

Net cash flows from (used in) investing activities

5,161

19,952

(9,850)

54,085

(24,375)

(33,998)

Net cash flows from (used in) financing activities

(5,148)

(19,902)

(1,979)

617

(33,085)

(3,954)

Increase (decrease) in cash and cash equivalents

(2,878)

(11,125)

11,051

8,230

(68,151)

(70,585)

 

 

 

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Table of Contents

 

 

 

 

 

 

 

 

 

As of June 30,

 

 

2015

 

2015

 

2014

 

2013

 

2012

 

2011

 

 

(US$
thousand)

(R$ thousand)

CONSOLIDATED BALANCE SHEET

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

19,562

75,620

86,745

75,694

67,464

135,615

Marketable securities

70,690

273,258

21,532

9,244

—

—

Trade accounts receivable

11,907

46,028

65,010

131,102

60,655

25,971

Inventories

8,336

32,225

40,210

28,805

72,558

77,479

Biological assets

420

1,624

1,421

1,201

4,111

1,335

Recoverable taxes

1,400

5,412

3,749

7,655

9,331

4,307

Derivative financial instruments

3,492

13,498

18,255

17,081

4,327

5,386

Transactions with related parties

221

856

723

347

—

—

Other current assets

82

316

442

430

710

921

Total current assets

116,111

448,837

238,087

271,559

219,156

251,014

Non-current assets

 

 

 

 

 

 

Biological assets

7,565

29,245

31,202

36,656

31,931

40,334

Restricted marketable securities

380

1,468

13,782

17,988

23,197

21,262

Receivables from related parties

10,105

39,060

26,068

—

—

7,118

Recoverable taxes

6,364

24,602

29,849

25,736

22,803

25,784

Deferred taxes

11,159

43,137

43,554

25,216

14,960

—

Derivative financial instruments

106

408

63

1,714

—

—

Trade accounts receivable

5,899

22,802

37,453

33,729

12,759

2,936

Investment properties

74,593

288,347

334,803

339,108

391,907

383,687

Other non – current assets

1,503

5,811

4,644

1,633

268

94

Investments in unquoted equity instruments

25,799

99,729

50,369

70

410

410

Property, plant and equipment

2,743

10,602

13,542

14,851

15,630

12,765

Intangible assets

981

3,792

4,966

2,570

2,741

2,747

Total non-current assets

147,197

569,003

590,295

499,271

516,606

497,137

Total assets

263,307

1,017,840

828,382

770,830

735,762

748,151

Liabilities and equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade accounts payable

1,434

5,545

8,158

7,777

4,151

2,435

Loans and financing

13,167

50,900

62,253

44,929

43,067

37,899

Labor obligations

2,901

11,215

8,730

8,752

7,436

4,801

Taxes payable

6,047

23,377

6,501

2,306

3,102

767

Dividends payable

10,440

40,358

25

1,963

2

2

Derivative financial instruments

1,463

5,655

204

2,860

8,307

2,918

Payable for purchase of farms

12,635

48,840

44,820

43,650

40,858

57,521

Transactions with related parties

124

480

33,237

183

—

—

Onerous contract

—

—

579

—

—

—

Advances from customers

2,108

8,147

15,038

2,124

4,490

5,909

Other liabilities

1,165

4,504

—

—

—

—

Total current liabilities

51,485

199,021

179,545

114,544

111,413

112,252

Non-current liabilities

 

 

 

 

 

 

Loans and financings

15,309

59,179

57,909

56,924

51,294

55,436

Taxes payable

390

1,508

2,482

5,812

2,695

1,594

Deferred taxes

—

—

—

—

—

1,594

Derivative financial instruments

432

1,670

—

1,140

10,209

—

Provision for legal claims

953

3,684

3,573

4,802

1,183

—

Other liabilities

174

672

967

623

—

492

Total non-current liabilities

17,258

66,713

64,931

69,301

65,381

59,116

Equity

 

 

 

 

 

 

Attributable to equity holders of the parent:

 

 

 

 

 

 

Capital

151,134

584,224

584,224

584,224

584,224

584,224

Capital reserves

608

2,349

4,201

3,385

2,134

996

Income reserves

23,064

89,156

—

6,296

—

—

Treasury shares

(58)

(224)

(1,934)

 —

 —

—

Additional dividends proposed

10,434

40,333

—

—

—

—

Other comprehensive income (loss)

9,382

36,268

8,403

(6,920)

(6,920)

—

Accumulated losses

—

—

(10,988)

—

(20,470)

(14,898)

 

194,564

752,106

583,906

586,985

558,968

570,322

Non-controlling interests

 — 

 — 

 —

—

—

6,601

 

194,564

752,106

583,906

586,985

558,968

576,923

Total liabilities and equity

263,307

1,017,840

828,382

770,830

735,762

748,291

 

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We have included information with respect to dividends and/or interest on shareholders’ equity paid to holders of our common shares and preferred shares since June 30, 2011 in Reais and in U.S. dollars translated from Reais at the commercial market selling rate in effect as of the payment date under the caption “Item 8—Financial Information—Dividends and Dividend Policy—Recent Dividend Payments.”

Exchange Rates

Our dividends, when paid in cash, are denominated in Reais. As a result, exchange rate fluctuations have affected and will affect the U.S. dollar amounts received by holders of ADSs on conversion of such dividends by The Bank of New York, as the ADS depositary. The Bank of New York converts dividends it receives in foreign currency into U.S. dollars upon receipt, by sale or such other manner as it has determined and distributes such U.S. dollars to holders of ADSs, net of The Bank of New York’s expenses of conversion, any applicable taxes and other governmental charges. Exchange rate fluctuations may also affect the U.S. dollar price of the ADSs.

The Brazilian government may impose temporary restrictions on the conversion of Reais into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Brazil. Brazilian law permits the government to impose these restrictions whenever it determines there is an imbalance in Brazil’s balance of payments or reason to expect that one will occur.

The following tables show, for the periods and dates indicated, certain information regarding the Real /U.S. dollar exchange rate. On June 30, 2015, the Real /U.S. dollar exchange rate was R$3.1026 per US$1.00. On October 20, 2015, the Real /U.S. dollar exchange rate was R$3.8656 per US$1.00. The information below is based on the noon buying rate in the City of New York for wire transfers in Brazilian Reais as certified for U.S. customs purposes by the Federal Reserve Bank of New York.

 

 

 

Fiscal year ended June 30,

 

Average Rate(1)

 

 

(R$ per US$1.00)

2011

1.677

2012

1.792

2013

2.038

2014

2.297

2015

2.678

 

(1)   The average rate is calculated as the average of the noon buying rates on the last day of each month during the period.

 

 

 

 

Period

 

High

 

Low

 

 

(R$ per US$1.00)

April 2015

3.165

2.894

May 2015

3.179

2.989

June 2015

3.179

3.047

July 2015

3.394

3.117

August 2015

3.647

3.443

September 2015

4.195

3.673

October 2015 (through October 20, 2015

3.916

3.848

 

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B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

 

D. Risk Factors

Risks Relating to our Business and Industry

Our ability to implement our business strategy successfully may be adversely affected by numerous factors beyond our control, which may materially and adversely affect our business, financial condition, and results of operations.

Our business strategy depends on our ability to acquire, develop, operate and sell our agricultural properties on a profitable basis. Our strategy is premised on our ability to acquire agricultural properties at attractive prices, develop them into efficient and profitable operations and sell them at a profit in the medium and long term. These factors are essential for our prospects of success, but are subject to significant uncertainties, contingencies and risks within our economic, competitive, regulatory and operational environment, many of which are beyond our control. Our ability to execute our business strategy successfully is uncertain and may be adversely affected by any one or more of the following:

•         failure to acquire and sell agricultural properties at attractive prices;

•         changes in market conditions or our failure to anticipate and adapt to new trends in Brazil’s rapidly evolving agricultural real estate sector;

•         inability to overcome certain limitations on the acquisition of land in Brazil by foreigners, as provided in an opinion of the Attorney General of the federal government;

•         failure to expand our operations within the originally proposed time frame;

•         failure to maintain the fiscal structure of our subsidiaries;

•         inability to develop infrastructure and attract personnel in a timely and effective manner;

•         inability to identify service providers for our agricultural properties and projects;

•         increased competition for suitable land from other agricultural real estate owners or developers which increases our costs and adversely affects our margins;

•         inability to develop and operate our agricultural properties profitably that may result from inaccurate estimates regarding the cost of infrastructure, other investments or operating costs;

•         failure, delays or difficulties in obtaining necessary environmental and regulatory permits;

•         the failure of purchasers of our properties to comply with their payment obligations to us;

•         increased operating costs, including the need for improvements to fixed assets, insurance premiums and property and utility taxes and fees that affect our profit margins;

•         global climate conditions, such as global warming, which may contribute to the frequency of unpredictable and previously rare meteorological phenomena such as hurricanes and typhoons, as well as unpredictable and unusual patterns of rainfall, among others;

•         unfavorable climate conditions in Brazil, particularly in the regions where we carry out our activities;

•         the economic, political and business environment in Brazil, and specifically in the geographical regions where we invest;

•         inflation, fluctuating interest rates and exchange rates;

•         disputes and litigation relating to our agricultural properties; and

•         labor, environmental, civil and pension liabilities.

 

 

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We may not be able to continue acquiring suitable agricultural properties on attractive terms.

In recent years, investments in Brazil’s agriculture sector have increased substantially. As a result, demand and valuations for the kind of properties we seek to acquire have escalated significantly. We believe that prices for such properties are likely to continue to increase in the medium and long-term, perhaps significantly as demand is expected to remain high. We compete with local and foreign investors, many of whom are larger and have greater financial resources than we do. Such investors may be able to incur operating losses for a sustained period, retain their real estate investments for a longer period than we can or accept lower returns on such investments. As a result, such investors may be willing to pay substantially higher prices for agricultural properties than we are able or willing to do, depriving us of opportunities to acquire the best agricultural properties and/or increasing our acquisition costs. As a result of the foregoing, we cannot assure you that we will be able to locate and acquire suitable investments on reasonable terms, and our inability to do so would have a material adverse effect on us.

The imposition of restrictions on acquisitions of agricultural properties by non-Brazilian nationals may materially restrict the development of our business.

In August 2010, the then-president of Brazil approved the opinion of the Attorney General of the federal government affirming the constitutionality of Brazilian Law No. 5,709/71, which imposes important limitations on the acquisition and lease of land in Brazil by foreigners and by Brazilian companies controlled by foreigners. Under this legislation, companies that are majority-owned by foreigners may not acquire agricultural properties in excess of 100 indefinite exploration modules, or MEI (which are measurement units adopted by the National Institute of Agrarian Development ( Instituto Nacional de Colonização e Reforma Agrária ) or INCRA, within different Brazilian regions, and which range from five to 100 hectares) absent the prior approval of the Brazilian Congress, while the acquisition of areas measuring less than 100 MEIs by such companies requires the prior approval of INCRA. In addition, agricultural areas that are owned by foreigners or companies controlled by foreigners may not exceed 25% of the surface area of the relevant municipality, of which area up to 40% may not belong to foreigners or companies controlled by foreigners of the same nationality, meaning that the sum of agricultural areas that belong to foreigners or companies controlled by foreigners of the same nationality may not exceed 10% of the surface area of the relevant municipality. In addition, INCRA will also verify if the agricultural, cattle-raising, industrial or colonization projects to be developed in such areas were previously approved by the relevant authorities. After that analysis INCRA will issue a certificate allowing the acquisition or lease of the property. The purchase and/or lease of agricultural properties that do not respect the requirements above need to be authorized by the Brazilian Congress. In both cases, it is not possible to determine an estimated time frame for the approval procedure, since at the date of this annual report, there are no known cases of certificates having been granted.

At September 30, 2015, approximately 77.76% of our common shares were held by foreigners and, accordingly, the implementation of Law No. 5,709/71 may impose on us additional procedures and approvals in connection with our future acquisitions of land, which may result in material delays and/or our inability to obtain needed approvals, except in the State of São Paulo, where the entities providing notary and registrary services are, at the date hereof, exempt from observing certain restrictions and requirements imposed by Law no 5.709/71 and Decree no 74.965/74. There is a judgement pending on the Supreme Court ( Supremo Tribunal Federal ) or STF) regarding this exemption. In addition, we may need to modify our business strategy and intended practices in order to be able to acquire agricultural properties. For example, we currently have control over the properties we own, and we would need to acquire properties in partnership with local companies in which we relinquish our right to exercise control over the entities acquiring such properties. This might have the effect of increasing the number of transactions we must complete, which would add transaction costs. It might also require the execution of joint ventures or shareholder agreements, which increases the complexity and risk associated with such transactions.

Any regulatory limitations and restrictions could materially limit our ability to acquire agricultural properties, increase the investments, transaction costs or complexity of such transactions, or complicate the regulatory procedures required, any of which could materially and adversely affect us and our ability to successfully implement our business strategy.

A substantial portion of our assets consist of agricultural properties which are illiquid.

Our business strategy is premised on the appreciation of the capital invested in our agricultural properties and the liquidity of those investments. We cannot assure you that the value of our agricultural properties will increase in the short-, medium- or long-term or that we will be able to monetize our agricultural investments successfully. Agricultural real estate assets are generally illiquid and have volatile values, and agricultural properties in Brazil are especially illiquid and volatile. As a result, it may be difficult for us to promptly adjust our portfolio of properties in response to changes in economic or business conditions, and we may be unable to find purchasers willing to acquire our agricultural properties at prices favorable

 

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to us. Lack of liquidity and volatility in local market conditions would adversely affect our ability to execute property dispositions on a timely and profitable basis which would have a material adverse effect on us.

 

We may not be profitable or our cash flow may not be positive for a number of years.

We expect to incur significant capital and operating expenses for several years on account of our continuing development activities. Due to the capital intensive and long-term nature of our real estate development activities, many of our properties will not generate immediate cash flows or provide a short-term return on investment. Therefore, we may not achieve positive cash flows or profitability for a number of years, and even if we do, we cannot assure you that such positive cash flows or profitability will be sustained in the future. Should we fail to achieve and sustain profitability, our business, financial condition, and results of operations and the market value of our common shares would be adversely affected.

Fluctuation in market prices for our agricultural products could adversely affect us.

We are not able to obtain hedging protection or minimum price guarantees for the entirety of our production and therefore we are exposed to significant risks associated with the level and volatility of crop prices. The prices we are able to obtain for our agricultural products from time to time will depend on many factors beyond our control, including:

•         global commodity prices, which historically have been subject to significant fluctuations over relatively short periods of time, depending on worldwide supply and demand as well as speculation;

•         weather conditions, or natural disasters in areas where agricultural products are cultivated;

•         worldwide inventory levels (i.e., supply or stock of commodities carried over from year to year);

•         the business strategies adopted by other major companies operating in the agricultural and agribusiness sectors;

•         changes in agriculture subsidies with regard to certain important producers (mainly in the United States and the European Economic Community), trade barriers with regard to certain important consumer markets and the adoption of other government policies affecting market conditions and prices;

•         available transportation methods and infrastructure development in the regions where we operate or in remote areas serving local markets and which affect the local prices of our crops;

•         cost of raw materials; and

•         supply of and demand for competing commodities and substitutes.

In addition, we believe there is a close relationship between the value of our agricultural properties and market prices of the commodities we produce which are affected by global economic and other conditions. A decline in the prices of grains, sugar or related by-products below their current levels for a sustained period would significantly reduce the value of our land holdings and materially and adversely affect our business, financial condition, and results of operations.

We are dependent on third-party service providers.

In addition to our own personnel, we are highly dependent on third-party contractors to develop and cultivate our agricultural properties, and to provide the machinery and equipment needed for such purpose. As a result, our future success depends on the skill, experience, knowledge and efforts of our third-party service providers. We cannot assure you that we will be able to hire the desired third-party service providers for our agricultural properties or that such providers will have the ability to ensure quality agricultural production in an efficient manner, and at competitive prices. Our failure to hire the desired service providers for our agricultural properties, or the failure of our providers to provide quality services, or the revocation or termination or our failure to renew our service contracts or negotiate new contracts with other service providers at comparable prices and terms, would adversely affect us.

Our dependence on third-party contractors also subjects us to the risk of labor lawsuits alleging that an employment relationship exists between us and our contractors’ personnel, and that as a result we have joint and several or secondary liability for our contractors’ labor and social security payment obligations, lease payments or other obligations. Such lawsuits could be brought independently by such third-party employees, or could arise as a result of inspections by governmental authorities. The Brazilian Supreme Labor Court ( Tribunal Superior do Trabalho ) has held that outsourcing is legally permissible with respect to specialized services not related to the company’s core business, such that an employment relationship is not formed between the outsourcer and the workers providing the non-core services. In addition, pursuant to the court’s decision, companies hiring third-party contractors in violation of such standard will be held secondarily liable for labor and social security contingent liabilities of the employees of such third-party contractors. If we are forced to recognize an employment relationship between us and the employees of our third-party service providers, we may be required to change

 

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our strategy with regard to the use of third-party service providers, which could have an adverse effect on our business, financial condition, and results of operations.

 

Moreover, pursuant to Brazilian environmental law, we are jointly and severally liable, together with our contractors, for all environmental damages caused by our third-party contractors, irrespective of our fault for such damages. Such obligations or our costs for defending against any such allegations are potentially significant and could have a material adverse effect on us if we were deemed responsible for their payment.

Changes in government policies may adversely affect our business, financial condition, and results of operations.

Government policies for encouraging biofuels as a response to environmental concerns have shown, and are likely to continue to show, an impact on grain prices. The nature and scope of future legislation and regulations affecting our markets are unpredictable, and we cannot assure you that current concessions, prices or market protections involving biofuels will be maintained in their current form for any finite period. Any reduction in the support for biofuels by the United States government or any other government may result in stagnation or decline in the market prices of certain agricultural commodities, and consequently on the price of our agricultural properties, which may adversely affect our business, financial condition, and results of operations.

We are subject to extensive environmental regulation.

Our business activities in Brazil are subject to extensive federal, state and municipal laws and regulations concerning environmental protection, which impose on us various environmental obligations, such as environmental licensing requirements, minimum standards for the release of effluents, use of agrochemicals, management of solid waste, protection of certain areas (legal reserve and permanent preservation areas), and the need for a special authorization to use water, among others. The failure to comply with such laws and regulations may subject the violator to administrative fines, mandatory interruption of activities and criminal sanctions, in addition to the obligation to cure and pay environmental and third-party damage compensation, without any caps. In addition, Brazilian environmental law adopts a joint and several and strict liability system for environmental damages, which makes the polluter liable even in cases where it is not negligent and would make us jointly and severally liable for the obligations of our contractors, producers or off-takers. If we become subject to environmental liabilities, any costs we may incur to rectify possible environmental damage would lead to a reduction in the financial resources which would otherwise remain at our disposal for current or future strategic investment, thus causing an adverse impact on us.

As environmental laws and their enforcement become increasingly stringent, our expenses for complying with environmental requirements are likely to increase in the future. Furthermore, the possible implementation of new regulations, changes in existing regulations or the adoption of other measures could cause the amount and frequency of our expenditures on environmental preservation to vary significantly compared to present estimates or historical costs. Any unplanned future expenses could force us to reduce or forego strategic investments and as a result could materially and adversely affect us.

If we fail to innovate and utilize modern agricultural technologies and techniques to enhance production and yields of our acquired agricultural properties, we may be adversely affected.

Our business model is focused on our acquiring underdeveloped or underutilized agricultural properties and improving them by applying evolving agricultural technologies and techniques. Therefore, our strategy depends to a large extent on our ability to obtain and apply modern agricultural techniques and technologies to enhance the value of the properties we acquire. If we are unable to apply in a timely manner the most advanced technologies and farming techniques required to add value to our agricultural properties and make our products competitive and attractive to local and international investors, we would be adversely affected.

We may experience difficulties implementing our investment projects, which may affect our growth.

Part of our strategy with regard to our agricultural properties consists of investing in support infrastructure in order to increase the value of such agricultural properties. In implementing our investment projects, we may face a number of challenges, including: (i) failures or delays in acquiring necessary equipment or services: (ii) higher costs than those originally estimated; (iii) difficulties securing the necessary environmental and government licenses; (iv) changes in market conditions, which could render the projects less profitable than originally estimated; (v) impossibility or delays in acquiring land at attractive prices, or an increase in the land prices on account of growing demand for land by our competitors; (vi) impossibility of, and delay in identifying and acquiring land that is in compliance with Brazilian real estate property laws; (vii) lack of capacity to develop infrastructure and attract qualified labor on a timely and efficient basis; (viii) disputes and litigation relating to the land we acquire; (ix) cultural challenges deriving from the integration of new management and

 

 

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employees in our organization; and (x) the need to update accounting systems, administrative data and human resources. Our inability to manage these risks would adversely affect us.

 

Property values in Brazil could decline significantly.

Property values in Brazil are influenced by a wide variety of factors beyond our control, and therefore we cannot assure you that property values will continue to increase or that property values will not decline. A significant decline in property values in Brazil would adversely affect us.

Our growth depends on our ability to attract and retain qualified personnel.

We are highly dependent on the services of our technical and administrative staff. If we lose any of our senior management, or require additional management personnel, we will have to attract similarly qualified administrative and technical personnel. There is significant demand for high-level, technical personnel with the skills and know-how required to operate our business, and we compete for this talent in the context of a global market. The availability of attractive opportunities in Brazil and other countries may adversely affect our ability to hire or retain highly-qualified personnel. If we fail to attract and retain the professionals we need to expand and manage our operations, we may not be able to manage our business effectively and we may be materially and adversely affected.

Unpredictable weather conditions may have an adverse impact on our agricultural properties and products.

The occurrence of severe weather conditions, including droughts, floods, heavy rainfall, hail, frost or extremely high temperatures is unpredictable and has had and could have in the future a potentially devastating impact on our agricultural properties or production. Adverse weather conditions may be exacerbated by the effects of climate change. In recent years, different regions in Brazil have been affected by extreme weather conditions, and the regions where our properties are located have also experienced high temperatures and severe drought in recent years. The effect of severe weather conditions may materially reduce the productivity of our farms, impairing our revenue and cash flow, and requiring higher levels of investment or significant increases in our operating costs, any of which could have a material and adverse impact on us.

Diseases may affect our crops, potentially destroying all or part of our production.

The occurrence and effect of diseases can be unpredictable and devastating on crops, potentially rendering useless all or a significant portion of the affected crops. The cost of preventing and treating crop disease tends to be high. For example, the spread of Asian soybean rust ( ferrugem asiática ) and corn earworm ( helicoverpa zea ) has resulted in lower crop yields and higher operating costs. Currently, Asian soybean rust and corn earworm can only be controlled, not eliminated. The origination and spread of diseases may occur for many reasons beyond our control, including the failure of other agricultural producers to comply with applicable health and environmental regulations. The appearance of new diseases or the mutation or proliferation of existing diseases could damage or completely destroy our crops which would materially and adversely affect us.

Fires and other accidents may affect our agricultural properties and adversely affect us.

Our operations are subject to various risks affecting our agricultural properties and agricultural installations, including destruction of farms and crops by fire and other natural disasters or events, and theft or other unexpected loss of grains or fertilizers and supplies. We could be materially and adversely affected if any of these risks were to occur.

Widespread uncertainties and fraud involving ownership of real estate in Brazil may adversely affect us.

Under Brazilian law, ownership of real estate is conveyed only through registration of deeds at the applicable land registry. Land registry recording errors, including duplicate or fraudulent entries, and legal challenges to deeds occur frequently. Real estate title litigation is prevalent in Brazil, and as a result there is a risk that such errors, fraud or challenges could adversely affect us, causing the loss of all or substantially all our agricultural properties.

We depend on international trade and economic and other conditions in our key export markets.

Brazil’s current agricultural production capacity is greater than the consumption requirement of its domestic agricultural market. Agriculture exports account for an increasingly significant portion of our revenue, especially as our rehabilitated farm properties gain crop production capabilities and increased yield. As a result, our results of operations will increasingly depend on political, economic and regulatory conditions in our principal export markets. The ability of our products to compete effectively in these export markets may be adversely affected by a number of factors beyond our control including the deterioration of macroeconomic conditions, the volatility of exchange rates, the imposition of tariffs or other

 

 

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trade barriers or other factors in those markets such as regulations relating to the chemical content of agricultural products and safety and health regulations.

 

 

 

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Due to the growing market share of Brazilian agricultural and beef products in the international markets, Brazilian exporters are increasingly being affected by tariffs and other barriers imposed by importing countries to, among other things, protect local producers, limiting access of Brazilian companies to their markets. For example, the European Union currently charges protective tariffs designed to mitigate the effects of Brazil’s lower production costs on local European producers. Developed countries also sometimes use direct and indirect subsidies to enhance the competitiveness of their producers in other markets. The adoption of measures by a given country or region, such as restrictions, import quotas or suspension of imports could substantially affect the export volume of agricultural products and, consequently, our volume of exports and results of operations. If the competitiveness of our products in one or more of our significant markets were to be affected by any one of these events, we may not be able to reallocate our products to other markets on comparable terms, and we could be adversely affected.

Fluctuations in the value of the Real in relation to the U.S. dollar could adversely affect us.

Foreign exchange fluctuations, particularly of the Brazilian Real against the U.S. dollar, may significantly affect our results of operations given that: (1) our products and the basic supplies used in our production are traded internationally; (2) soybean prices are defined based on prices prevalent on the Chicago Board of Trade, or CBOT; and (3) most markets are served by several suppliers from different countries and competitiveness of farm products abroad may increase in relation to ours in light of the appreciation of the Brazilian currency in relation to the U.S. dollar. Fluctuations in the value of the Real in relation to the U.S. dollar could impact our export revenue, our sales in U.S. dollars in the Brazilian market and our financial expenses and operating costs, which may adversely affect us.

We also hold derivative financial instruments to hedge risks relating to foreign currencies on our revenue from exports and operating costs. If we fail to manage these instruments properly, we may be adversely affected by our exposure to these risks, which may have a material adverse effect on us.

Our business is seasonal, and our revenue may fluctuate significantly depending on the growing cycle of our crops.

Agribusiness operations are predominantly seasonal in nature. In Brazil, the harvest of soybean, corn and rice generally occurs from February to June. The annual sugarcane harvesting period in Brazil normally begins in April and ends in November. As a result, our results of operations are likely to continue to fluctuate significantly between the planting and harvesting periods of each crop which cause fluctuations in our cash flows as a result of disparities between our revenue stream and our fixed expenses. In addition, seasonality creates limited windows of opportunity for our producers to complete required tasks at each stage of crop cultivation. Should events such as adverse weather conditions (including deluges of rain as has recently been the case throughout Brazil) or transportation interruptions occur during these seasonal windows, we may be faced with the possibility of reduced revenue without an opportunity to recover until the following crop’s planting. Finally, because of the effects of seasonality, our quarterly results may not be indicative of our annual result.

Our growth will require additional capital which may not be available or may not be available on terms and conditions acceptable to us.

Our operations require a significant amount of capital. We may need to seek additional capital by issuing shares or debt securities, or by incurring indebtedness. Our ability to raise capital will depend on our future profitability, which is currently uncertain, and on political and economic conditions in Brazil and the international agricultural and real estate markets. Depending on these and other factors, many of which are beyond our control, additional capital may not be available or, if available, may not be available on conditions that are favorable or acceptable to us. If we are required to finance our activities through indebtedness, it is likely that the terms of that debt will impose upon us obligations or covenants, financial or otherwise, that could restrict our operational flexibility. Should we fail to raise additional capital under conditions that are acceptable to us, we could be adversely affected.

We plan to continue to use financial derivative instruments which may cause substantial losses.

We plan to continue to use derivative financial instruments, principally commodity hedge derivatives, foreign exchange derivatives and exchange rate swaps. If we enter into such hedging agreements and future prices of the underlying commodities differ from our expectations, we may incur substantial losses which could have an adverse effect on us.

Furthermore, our hedging strategies may not properly take account of the effects of foreign exchange or commodity variations on our financial position. On entering into forward exchange and commodity agreements, we will be subject to the risk that our counterparties could fail to fulfill the conditions of the respective agreement. We may not be able to receive compensation for losses and damages from any defaulting counterparty through legal remedies, on account of laws protecting

 

 

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against bankruptcy or other similar protections for insolvent debtors, foreign laws restricting cross-border legal remedies, or for other reasons, which may adversely affect our business, financial condition, and results of operations.

 

We may not be successful in our future partnerships and strategic relationships.

We may enter into strategic partnerships and alliances in order to benefit from certain business opportunities. We cannot predict if and when such strategic partnerships and alliances will occur. Our ability to expand our business successfully through strategic partnerships and alliances depends on various factors, including our ability to negotiate favorable conditions for such partnerships and alliances, in addition to factors beyond our control, such as our partners’ compliance with obligations arising from the partnership. Furthermore, our expectations regarding the benefits of these partnerships may not materialize. If we are unable to develop successful strategic partnerships and alliances we could be adversely affected.

Cresud, our controlling shareholder, and certain members of our board of directors may have interests that differ from those of our other shareholders.

As of September 30, 2015, Cresud holds 39.76% of our common shares. Cresud has numerous other investments and may have other priorities that may conflict with those of our other shareholders, and as a result significant conflicts of interest may arise between Cresud and our other shareholders. In addition, five of our nine directors have been nominated by Cresud. In addition, certain members of our management, including our chief administrative officer and our agricultural technical officer, were previously employed by, and as of the date of this Annual Report are no longer employed by, Cresud. This situation may give rise to real or apparent conflicts of interest as such directors and officers may have fiduciary duties or other interests owed to both us and Cresud or any of its affiliates. It may also limit the ability of such directors and officers to participate in certain matters. It is impossible to predict whether the outcome of decisions by the members of the board will be favorable to us or to our other shareholders.

In addition, as a result of Cresud’s ownership interest in us, conflicts of interest could arise with respect to transactions involving our ongoing business activities, and the resolution of these conflicts may not be favorable to us. Specifically, business opportunities, including but not limited to potential targets for rural property acquisitions, may be attractive to both Cresud and us. We may not be able to resolve any potential conflicts and, even if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.

Substantially all of our revenue is derived from a small number of clients.

We currently sell a substantial portion of our total crop production to a small number of clients who have substantial bargaining power. For instance, during the year ended June 30, 2015, our three largest customers accounted for 73.2% of our total revenue. Furthermore, we have entered into a supply contract and a leasing contract with Brenco – Companhia Brasileira de Energia Renovável (“Brenco”), pursuant to which we currently supply them with100% of our sugarcane production from Alto Taquari and Araucaria and Partnership III farms. The term of this supply contract covers two full crop cycles, which consists of six crop years and five harvests, and therefore is scheduled to expire in crop year 2021/2022. The term of this leasing contract covers a total area of 4,263 hectares which we will explore and operate until March 31, 2026. As a result, the strong competition between a relatively fragmented sector of agricultural producers in the internal and external markets further increases the bargaining power of our highly concentrated client base. Thus, we may not be able to maintain or form new relationships with customers, which could have a material adverse effect on us.

Concentration among our client base also increases the consequences that would result should we lose any of our clients or if any of our clients default on their obligations to us, either in the form of non-payment or through a breach of any contractual provision or obligation, such as failure to ship a product purchased or delays in shipment. Noncompliance with the time of shipment of our products could directly affect the planning of our harvest, which could generate losses and result in additional costs.

Increases in the price of raw materials and oil may adversely affect us.

Our agricultural properties are located in Brazil’s savannah region where the soil is generally acidic and not very fertile, requiring the use of lime and fertilizers. Our operations require other raw materials such as pesticides and seeds which we acquire from local and international suppliers. We do not have long-term supply contracts for these raw materials and therefore are exposed to the risk of cost increases. A significant increase in the price of lime, fertilizers or other raw materials we use would likely reduce our profitability or otherwise adversely affect our business operations as these are not costs that can readily be passed on to our customers. In addition, certain of our production costs, including fertilizers and the cost of leasing agricultural machinery, are linked to the international price of oil and its derivatives. Therefore, if the price of oil increases significantly, we could be adversely affected.

 

 

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Delays or failures in the delivery of raw materials used by us and our suppliers could have an adverse effect on us.

We depend on suppliers to provide us with fertilizers, seeds, other raw materials and machinery services. Possible delays in the delivery of such items may delay our planting efforts until we are able to establish agreements with other suppliers, or may delay our harvest in the case of the delay in delivery of machinery. Accordingly, any delays, failures or defects in the delivery of raw materials or inputs or with regard to the provision of services to us by our suppliers could adversely affect our business and our results of operations.

Some of our agricultural products contain genetically modified organisms (GMOs), and risks associated with GMOs remain uncertain.

Approximately 95.1% of our products, including soybean and corn, contain genetically modified organisms, or GMOs, in varying proportions, depending on the crop year. Production and consumption of GMOs remain controversial, and adverse publicity and consumer resistance has led to adoption of certain governmental regulations limiting sales of GMO products in important markets including the European Union. If GMOs were determined to present risks to human health or to the environment, demand for our GMO products could collapse, and we could face potentially significant liability for harm caused by such products, all of which could materially and adversely affect our business, financial condition, and results of operations.

Lack of transportation, storage and processing infrastructure in Brazil represents an important challenge for the Brazilian agricultural and agricultural real estate sectors.

We depend on efficient access to transportation and port infrastructure for the growth of Brazilian agriculture in general, and our operations in particular. We may decide to acquire agricultural properties in areas where existing transportation infrastructure is inadequate and where improvements may be required to make our agricultural production more accessible to export centers at competitive prices. A substantial portion of Brazilian agricultural production is currently transported by trucks, which is significantly more expensive than transportation by rail cars. Given that our dependence on road transportation prevents us from being considered a low-cost producer, our ability to compete on the world market may be impaired, especially as the price of fuel increases. As a result, we may not be able to secure efficient transportation for our production to reach major markets in a cost-efficient manner or at all, which may adversely affect our business, financial condition, and results of operations.

Competition in the markets for our products may affect us.

We face significant domestic and international competition in each of our markets and in many of our production lines. The global market for agricultural products is highly competitive and sensitive to changes in industrial capacity, product inventories and cyclical changes in the world economy, any one or more of which may affect to a significant degree the selling price of our products and therefore our profitability. Since many of our products are agricultural commodities, such products compete in international markets almost exclusively based on price. Many other producers of such commodities are larger than us and possess greater financial and other resources. Furthermore, many other producers receive subsidies in their respective countries that generally are not available in Brazil. Such subsidies may afford producers lower production costs or enable them to operate in an environment with sharp price reductions, constrained margins and operating losses for longer periods. Any increased competitive pressure with respect to our products could materially and adversely affect our business, financial condition, and results of operations.

Social movements may affect the use of our agricultural properties or cause damage to them.

Social movements such as the Landless Rural Workers’ Movement ( Movimento dos Trabalhadores Rurais Sem Terra ) and the Pastoral Land Commission ( Comissão Pastoral da Terra ) are active in Brazil and advocate land reform and property redistribution by the Brazilian government. Invasion and occupation of agricultural land by large numbers of people is a common practice among the members of such movements and, in certain regions, including those where we currently invest, remedies such as police protection or eviction procedures are inadequate or non-existent. As a result, we cannot assure you that our agricultural properties will not be subject to invasion or occupation by any social movement. Any invasion or occupation may materially impair the use of our lands and adversely affect our business, financial condition, and results of operations.

 

 

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We made investments in farmland in Paraguay, and we may possibly make investments in other countries in and outside Latin America, in which case we would be subject to the associated economic, legal, political and regulatory risks.

Currently, we conduct our activities in Brazil and Paraguay. Nevertheless, we are in the process of considering our expansion into other countries in and outside Latin America, although we currently have no definitive commitments or specific plans with respect thereto. Accordingly, in the future we may expand our activities into other countries in Latin America or elsewhere if we decide that international expansion would be appropriate to achieve our objectives. The success in other countries of the business strategy and business model that we apply in Brazil would be subject to a high level of uncertainty and depend on numerous factors beyond our control; and therefore we cannot assure you that any such expansion would be profitable or enable us to obtain the expected returns on our investments, or even recuperate our investments. Any international expansion of our activities would be subject to political, economic and regulatory risks in the relevant country and to risks inherent to the management of a transnational company, including:

•         challenges caused by distance, language, local business practices and cultural differences (i.e. lack of financing; longer payment cycles in the relevant country; difficulties in forming partnerships or strategic alliances with local parties; conflicting or redundant practices in respect to tax, regulatory, legal and administrative aspects);

•         negative effects of currency fluctuations or the imposition of exchange controls or restrictions on repatriation of capital;

•         adverse changes in laws and local policies, particularly those relating to import tariffs, labor practices, environment, investment, acquisition of agricultural property by foreign companies or companies controlled by foreigners;

•         difficulty of enforcement of contracts and collection or enforcing of debts, or difficulties or restrictions imposed by local courts;

•         expropriation of private domain, imposition of legal or administrative limitations to the exercise of the property right as a result of changes in laws or applicable regulations;

•         difficulty in obtaining licenses, permits or other approvals from local government authorities;

•         political disputes, social unrest and deteriorating local economic conditions;

•         transnational conflicts or disputes involving Brazil and the relevant country;

•         terrorism or military conflicts; and

•         natural disasters, epidemics, riots and insurrections.

Our inability to recognize and respond to these differences, challenges and risks could adversely affect any operations we may undertake in markets outside of Brazil, which could have a material adverse effect on our business, financial condition, and results of operations.

Risks Relating to Brazil

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy, which, combined with Brazilian political and economic conditions, may adversely affect us.

We may be adversely affected by the following factors, as well as the Brazilian federal government’s response to these factors:

•         economic and social instability;

•         increase in interest rates;

•         exchange controls and restrictions on remittances abroad;

•         restrictions and taxes on agricultural exports;

•         exchange rate fluctuations;

•         inflation;

•         volatility and liquidity in domestic capital and credit markets;

•         expansion or contraction of the Brazilian economy, as measured by GDP growth rates;

 

 

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•         allegations of corruption against political parties, elected officials or other public officials, including allegations made in relation to the Lava Jato investigation;

•         government policies related to our sector;

•         fiscal or monetary policy and amendments to tax legislation; and

•         other political, diplomatic, social or economic developments in or affecting Brazil.

Historically, the Brazilian government has frequently intervened in the Brazilian economy and has occasionally made significant changes in economic policies and regulations, including, among others, the imposition of a tax on foreign capital entering Brazil (IOF tax), changes in monetary, fiscal and tax policies, currency devaluations, capital controls and limits on imports. The administration is currently facing domestic pressure to retreat from the current macroeconomic policies in an attempt to achieve higher rates of economic growth. In addition, the federal government is proposing the creation of a tax on financial transactions, including wire transfers, (the so-called “CPMF”) in order to improve the fiscal situation of the country. We cannot predict which policies will be adopted by the Brazilian government and whether these policies will negatively affect the economy or our business or financial performance.

The Brazilian economy has been experiencing a slowdown – GDP growth rates were 7.5%, 3.9%, 1.8%, 2.7%, and 0.1% in 2010, 2011, 2012, 2013 and 2014, respectively and GDP decreased 1.9% in the first six months of 2015. Inflation, unemployment and interest rates have increased more recently and the Brazilian Real has weakened significantly in comparison to the U.S. dollar. The market expectations for the years 2015 and 2016 is that the Brazilian economy will continue to slow down and GDP will decrease. Our results of operations and financial condition may be adversely affected by the economic conditions in Brazil.

In addition to the recent economic crisis, protests, strikes and corruption scandals, including the “Lava Jato” investigation, has led to a fall in confidence and a political crisis. There is strong popular pressure and several legal and administrative proceedings for the impeachment of the Brazilian President and/or revocation of the mandates or resignation of the Brazilian President and/or the Head of the House of Representatives, which have led to uncertainties. The political crisis could worsen the economic conditions in Brazil, which may adversely affect our results of operations and financial condition. Furthermore, investigations regarding corruption may involve companies with whom we do business, which may impact our business and results of operation.

The economic and political crisis have resulted in the downgrading of the country’s long-term credit rating from Standard & Poor's rating agency from BBB + to BBB-, placing Brazil back to speculative investment grade level ("junk"). Moody's downgraded Brazil from "Baa2" to "Baa3" and changed the negative perspective to stable, while Fitch Ratings downgraded Brazil from BBB to BBB- and changed the perspective from stable to negative. Both Moody’s and Fitch still consider Brazil investment grade. Further downgrading of Brazil’s ratings by any of these agencies may adversely affect us and the stock price of our securities.

Inflation, coupled with the Brazilian government’s measures to fight inflation, may hinder Brazilian economic growth and increase interest rates, which could have a material adverse effect on us.

Brazil has in the past experienced significantly high rates of inflation. As a result, the Brazilian government adopted monetary policies that resulted in Brazilian interest rates being among the highest in the world. The Brazilian Central Bank’s Monetary Policy Committee ( Comitê de Política Monetária do Banco Central ), or COPOM, establishes an official interest rate target for the Brazilian financial system based on the level of economic growth, inflation rate and other economic indicators in Brazil. Between 2004 and 2010, the official Brazilian interest rate varied from 19.75% to 8.75% per year. In response to an increase in inflation in 2010, the Brazilian government increased the official Brazilian interest rate, the SELIC rate, which was 10.75% per year on December 31, 2010. The SELIC rate has increased since then and, as of June 30, 2015, it was 13.75% per year. The inflation rates, as measured by the General Market Price Index ( Índice Geral de Preços-Mercado ), or IGP-M, and calculated by Fundação Getúlio Vargas , or FGV, were 7.8% in 2012, 5.5% in 2013, and 3.67% in 2014. Cumulative inflation in the first six months of 2015, calculated by the same index, was 4.33%.

Inflation and the government measures to fight inflation have had and may continue to have significant effects on the Brazilian economy and our business. In addition, the Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and slowing economic growth. On the other hand, an easing of monetary policies of the Brazilian government may trigger increases in inflation. In the event of an increase in inflation, we may not be able to adjust our daily rates to offset the effects of inflation on our cost structure, which may materially and adversely affect us.

 

 

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An increase in interest rates may have a significant adverse effect on us. In addition, as of June 30, 2015, certain of our loans were subject to interest rate fluctuations such as the Brazilian long-term interest rate ( Taxa de Juros de Longo Prazo ), or TJLP, and the interbank deposit rate ( Certificados de Depósitos Interbancários ), or CDI. In the event of an abrupt increase in interest rates, our ability to comply with our financial obligations may be materially and adversely affected.

 

A deterioration in general economic and market conditions or in perceptions of risk in other countries, principally in emerging countries or the United States, may have a negative impact on the Brazilian economy and us.

Economic and market conditions in other countries, including United States and Latin American and other emerging market countries, may affect the Brazilian economy and the market for securities issued by Brazilian companies. Although economic conditions in these countries may differ significantly from those in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises in other emerging market countries could dampen investor enthusiasm for securities of Brazilian issuers, including ours, which could adversely affect the market price of our common shares. In the past, the adverse development of economic conditions in emerging markets resulted in a significant flow of funds out of the country and a decrease in the quantity of foreign capital invested in Brazil. Changes in the prices of securities of public companies, lack of available credit, reductions in spending, general slowdown of the global economy, exchange rate instability and inflationary pressure may adversely affect, directly or indirectly, the Brazilian economy and securities market. The recent global economic downturn and related instability in the international financial system have had, and may continue to have, a negative effect on economic growth in Brazil. The ongoing global economic downturn has reduced the availability of liquidity and credit to fund the continuation and expansion of business operations worldwide. The recent substantial losses in worldwide equity markets, including in Brazil, could lead to an extended worldwide economic recession or depression.

In addition, the Brazilian economy is affected by international economic and market conditions generally, especially economic conditions in the United States. Share prices on BM&FBOVESPA, for example, have historically been sensitive to fluctuations in U.S. interest rates and the behavior of the major U.S. stock indexes. An increase in the interest rates in other countries, especially the United States, may reduce global liquidity and investors’ interest in the Brazilian capital markets, adversely affecting the price of our common shares.

Our dividend distribution may no longer benefit from certain tax exemptions.

On September 16, 2013, Brazilian tax authorities issued Normative Ruling 1,397/13, which, among other things, established rules regarding the withholding tax exemption on dividend distributions. According to Normative Ruling 1,397/13, the withholding tax exemption on dividend income would only be applicable to dividends distributed out of profits ascertained based on Brazilian accounting rules that were effective until December 31, 2007 (old Brazilian GAAP). In this sense, if (i) taxpayers make dividend distributions based on new Brazilian accounting rules already conforming to IFRS principles, and (ii) such distributions are made in excess of the dividends that could have been distributed had the profits been ascertained based on Brazilian accounting rules that were effective until December 31, 2007, the “excess distribution” would be deemed as taxable income in the hands of the beneficiary and subject to withholding income tax at the rate of 15% or 25%.

With the enactment of Law 12,973/2014, this taxation has been eliminated, since this law determined the exemption of Income Tax on the excess distribution of dividends provided that these have been assessed from 2008 to 2013. The risk for the dividends paid in excess remains from the profit accrued in 2014 for legal entities not opting for the advance of effects of Law 12,973/2014 for 2014, due to the provisions of RFB Regulatory Instruction 1,492/2014.

Risks Relating to our American Depository Shares and Ordinary Shares

A holder of American Depository Shares may face disadvantages compared to an ordinary shareholder when attempting to exercise voting rights.

Holders of our American Depository Shares, or ADSs, may instruct the depositary to vote the ordinary shares underlying the ADSs. For the depositary to follow the voting instructions, it must receive them on or before the date specified in our voting materials. The depositary must try, as far as practical, subject to Brazilian law and our articles of association, to vote the ordinary shares as instructed. In most cases, if the ADS holder does not give instructions to the depositary, it may vote the ordinary shares in favor of proposals supported by our board of directors, or, when practicable and permitted, give a discretionary proxy to a person designated by us. We cannot be certain that ADS holders will receive voting materials in time to ensure that they can instruct the depositary to vote the underlying ordinary shares. Also, the depositary is not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that ADS holders

 

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may not be able to exercise their right to vote and there may be nothing they can do if their ordinary shares or other deposited securities are not voted as requested.

 

Holders of our common shares or ADSs may not receive any dividends or interest on shareholders’ equity.

According to our by-laws, we must generally pay our shareholders at least 25% of our annual net income as dividends or interest on shareholders’ equity, as calculated and adjusted under Brazilian corporate law. This adjusted net income may be capitalized, used to absorb losses or otherwise retained as allowed under Brazilian corporate law and may not be available to be paid as dividends or interest on shareholders’ equity. Additionally, Brazilian corporate law allows a publicly-traded company like ours to suspend the mandatory distribution of dividends in any particular year if our board of directors informs our shareholders that such distributions would be inadvisable in view of our financial condition or cash availability. Holders of our common shares or our ADSs may not receive any dividends or interest on shareholders’ equity in any given year if our board of directors makes such a determination or if our operations fail to generate net income.

Holders of our common shares or ADSs in the United States may not be entitled to the same preemptive rights as Brazilian shareholders, pursuant to Brazilian legislation, in the subscription of shares resulting from capital increases made by us.

Under Brazilian law, if we issue new shares in exchange for cash or assets as part of a capital increase, subject to certain exceptions, we must grant our shareholders preemptive rights at the time of the subscription of shares, corresponding to their respective interest in our share capital, allowing them to maintain their existing shareholding percentage. We may not legally be permitted to allow holders of our common shares or ADSs in the United States to exercise any preemptive rights in any future capital increase unless (i) we file a registration statement for an offering of shares resulting from the capital increase with the SEC, or (ii) the offering of shares resulting from the capital increase qualifies for an exemption from the registration requirements of the Securities Act. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement for an offering of shares with the SEC and any other factors that we consider important in determining whether to file such a registration statement. We cannot assure the holders of our common shares or ADSs in the United States that we will file a registration statement with the SEC to allow them to participate in any of our capital increases. As a result, the equity interest of such holders in our company may be diluted.

If holders of our ADSs exchange them for common shares, they may risk temporarily losing, or being limited in, the ability to remit foreign currency abroad and certain Brazilian tax advantages.

The Brazilian custodian for the common shares underlying our ADSs must obtain an electronic registration number with the Central Bank to allow the depositary to remit U.S. dollars abroad. ADS holders benefit from the electronic certificate of foreign capital registration from the Central Bank obtained by the custodian for the depositary, which permits it to convert dividends and other distributions with respect to the common shares into U.S. dollars and remit the proceeds of such conversion abroad. If holders of our ADSs decide to exchange them for the underlying common shares, they will only be entitled to rely on the custodian’s certificate of registration with the Central Bank for five business days after the date of the exchange. Thereafter, they will be unable to remit U.S. dollars abroad unless they obtain a new electronic certificate of foreign capital registration in connection with the common shares, which may result in expenses and may cause delays in receiving distributions. See “Item 10—Additional Information—Exchange Controls.”

Also, if holders of our ADSs that exchange our ADSs for our common shares do not qualify under the foreign investment regulations, they will generally be subject to less favorable tax treatment of dividends and distribution on, and the proceeds from any sale of, our common shares. See “Item 10—Additional Information—Exchange Controls” and “Item 10—Additional Information—Taxation-Brazilian Tax Considerations.”

Holders of our ADSs may face difficulties in protecting their interests because, as a Brazilian company, we are subject to different corporate rules and regulations and our shareholders may have fewer and less well-defined rights.

Holders of our ADSs are not direct shareholders of our company and are unable to enforce the rights of shareholders under our by-laws and Brazilian corporate law.

Our corporate affairs are governed by our by-laws and Brazilian corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the State of Delaware or New York, or elsewhere outside Brazil. Even if a holder of our ADSs surrenders its ADSs and becomes a direct shareholder, its rights as a holder of our common shares under Brazilian corporate law to protect its interests relative to actions by our board of directors may be fewer and less well-defined than under the laws of those other jurisdictions.

 

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Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our common shares and ADSs at a potential disadvantage. Corporate disclosures also may be less complete or informative than those of a public company in the United States or in certain other countries.

Our status as a foreign private issuer allows us to follow local corporate governance practices, which may limit the protections afforded to investors.

We are a foreign private issuer, as defined by the SEC for purposes of the U.S. Securities and Exchange Act of 1934, as amended, or the Exchange Act. As a result, for so long as we remain a foreign private issuer, we will be exempt from most of the corporate governance requirements of stock exchanges located in the United States; accordingly, you will not be provided with the benefits or have the same protections afforded to shareholders of U.S. public companies.

The standards applicable to us are considerably different from the standards applied to U.S. domestic issuers. Although Rule 10A-3 under the Exchange Act generally requires that a listed company have an audit committee of its board of directors composed solely of independent directors, as a foreign private issuer, we are relying on a general exemption from this requirement that is available to us as a result of the features of Brazilian law applicable to our fiscal council. In addition, we are not required to, among other things:

•         have a majority of the board be independent;

•         have a compensation committee  or a nominating/corporate governance committee of our board of directors;

•         have regularly scheduled executive sessions with only non-management directors; or

•         have at least one executive session of solely independent directors each year.

We are an emerging growth company within the meaning of the Exchange Act and, if we decide to take advantage of certain exemptions from various reporting requirements applicable to emerging growth companies, our common stock could be less attractive to investors.

We are an “emerging growth company” within the meaning of the rules under the Exchange Act. We are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with any PCAOB rules, that, if adopted in the future, would require mandatory audit firm rotation or auditor discussion and analysis, and any future audit rule promulgated by the PCAOB (unless the SEC determines otherwise). In addition, we are not subject to the additional level of review of our internal control over financial reporting as may occur when outside auditors attest as to our internal control over financial reporting. As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company for up to five years from the date of our initial public offering of securities under an effective registration statement under the Securities Act, though we may cease to be an emerging growth company earlier under certain circumstances. We take advantage of the exemption from the auditor attestation report requirement and may decide to rely on other exemptions in the future. We do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock, and our stock price may be more volatile.

Holders of our ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.

We are organized under the laws of Brazil, and all of the members of our board of directors, our executive officers and our independent registered public accountants reside or are based in Brazil. The vast majority of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of our ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. In addition, because substantially all of our assets and all of our directors and officers reside outside the United States, any judgment obtained in the United States against us or any of our directors or officers may not be collectible within the United States. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of actions by us or our board of directors or executive officers than would shareholders of a U.S. corporation.

 

 

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Brazilian tax laws may have an adverse impact on the taxes applicable to the disposition of our common shares and ADSs.

Under Law No. 10,833, enacted on December 29, 2003, the gain on the disposition or sale of assets located in Brazil by a non-Brazilian resident, whether to another non-Brazilian resident or to a Brazilian resident, may be subject to income tax withholding in Brazil. With respect to the disposition of our common shares, as they are assets located in Brazil, a non-Brazilian resident should be subject to income tax on the gains assessed, regardless of whether the transactions are conducted in Brazil or with a Brazilian resident. With respect to our ADSs, although the matter is not entirely clear, arguably the gains realized by a non-Brazilian resident upon the disposition of ADSs to another non-Brazilian resident will not be taxed in Brazil, on the basis that ADSs are not “assets located in Brazil” for the purposes of Law No. 10,833. We cannot assure you, however, that the Brazilian tax authorities or the Brazilian courts will agree with this interpretation. As a result, gains on a disposition of ADSs by a non-Brazilian resident to a Brazilian resident, or even to a non-Brazilian resident, in the event that courts determine that ADSs would constitute assets located in Brazil, may be subject to income tax in Brazil. See “Item 10—Additional Information—Taxation—Brazilian Tax Considerations.”

The relative volatility and illiquidity of the Brazilian securities markets may adversely affect holders of our common shares and ADSs.

The Brazilian securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. The BM&FBOVESPA, which is the principal Brazilian stock exchange, had a market capitalization of R$2.24 trillion (US$843.5 billion) at December 31, 2014 and an average daily trading volume of R$6.1 billion (US$2.6 billion) for 2014. In comparison, aggregate market capitalization of the companies (including U.S. and non-U.S. companies) listed on the NYSE was US$20.2 trillion at December 31, 2014 and the NYSE recorded an average daily trading volume of US$63.1 billion for 2014. There is also significantly greater concentration in the Brazilian securities markets. The ten largest companies in terms of market capitalization represented approximately 60% of the aggregate market capitalization of the BM&FBOVESPA at December 31, 2014. The ten most widely traded stocks in terms of trading volume accounted for approximately 49.5 % of all shares traded on the BM&FBOVESPA in 2014. These market characteristics may substantially limit the ability of holders of our ADSs to sell the common shares underlying our ADSs at a price and at a time when they wish to do so and, as a result, could negatively impact the market price of our ADSs themselves.

The imposition of IOF taxes may indirectly influence the price and volatility of our ADSs and our common shares.

Brazilian law imposes the Tax on Foreign Exchange Transactions, or the IOF/Exchange tax, on the conversion of reais into foreign currency and on the conversion of foreign currency into reais. Brazilian law also imposes the Tax on Transactions Involving Bonds and Securities, or the IOF/Securities tax, due on transactions involving bonds and securities, including those carried out on a Brazilian stock exchange.

The IOF/Exchange tax was raised from zero to 6% on October 20, 2009. As of December 1, 2011, certain investments were excluded from the 6% tax and subject instead to a 2% IOF/Exchange tax. In 2009, the IOF/Securities tax was increased from zero to 1.5% on shares issued by a Brazilian company and listed on a Brazilian stock exchange for the purpose of allowing depositary receipts traded outside Brazil to be issued. In 2011, the IOF/Securities tax was increased from zero to 1% on currency-related derivative transactions resulting in an increase of the short position exposure in foreign currency or in a decrease of the long position in foreign currency. Since June 30, 2013, the IOF/Exchange tax and the IOF/Securities tax rates have been zero.

The imposition of these taxes may discourage foreign investment in shares of Brazilian companies, including our company, due to higher transaction costs, and may negatively impact the price and volatility of our ADSs and common shares if they become listed on a stock exchange in the United States, as well as on the BM&FBOVESPA.

We may be classified as a passive foreign investment company, which could result in adverse U.S. tax consequences for U.S. investors.

We may be classified as a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes. Such characterization could result in adverse U.S. tax consequences to you if you are a U.S. Holder (as defined in “Item 10—Additional Information—Taxation—U.S. Federal Income Tax Considerations”) of our common shares or ADSs. For example, if we are a PFIC, U.S. Holders of our common shares may become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, for any taxable year we will be classified as a PFIC for U.S. tax purposes if either (i) 75% or more of our gross income in that taxable year is passive income or (ii) the average percentage of our assets by value in that taxable year which produce or are held for the production of passive income is at least 50%. For this purpose, income from commodities transactions is generally considered passive unless such income is derived in the active conduct of a commodities business.

 

 

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See “Item 10—Additional Information—Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company.”

ITEM 4—INFORMATION ON THE COMPANY

A. History and Development of the Company

Overview

Our legal and commercial name is BrasilAgro—Companhia Brasileira de Propriedades Agrícolas. We are a corporation ( sociedade por ações ) organized under the laws of Brazil, and were incorporated on September 23, 2005. Our principal offices are located at Avenida Brigadeiro Faria Lima, 1309, 5 th floor, São Paulo, São Paulo 0145-002, Brazil, and our telephone number is +55 11 3035 5350.

We are focused on the acquisition, development and exploitation of agricultural properties that we believe possess significant potential for cash flow generation and value appreciation. We seek to transform our acquired properties through investments in infrastructure and technologies which permit cultivation of high value-added crops and from time to time sell our developed properties in order to realize capital gains.

Since our initial public equity offering and listing in Brazil on the BM&FBOVESPA stock exchange in April 2006, or the IPO, and the subsequent commencement of our operations until the date hereof, we acquired 10 agricultural properties in seven Brazilian states, one of which is still in the process of registration of ownership, aggregating 177,404 hectares, of which 127,952 hectares were arable but less than 10% of which were cultivated when acquired and 49,452 hectares were protected by environmental regulation. We also acquired a 50% interest in Cresca S.A., a company owning 141,931 hectares of rural land in Paraguay, of which approximately 71,000 were arable but less than 12,000 hectares of which were cultivated when acquired and approximately 71,000 hectares were protected by environmental regulation. Since then, four of our agricultural properties were fully sold and two of our agricultural properties were partly sold, representing in the aggregate a total area of 77,711 hectares. As of the date hereof, we hold 253,342 hectares, including 11,718 hectares leased and 117,307 hectares through our joint venture in Cresca S.A. Of this total, however, we are not the legal owner of one property representing 21,148 hectares, as the registration of ownership process for this property has not been finalized. We invested R$587.0 million since the IPO to acquire, develop and transform agricultural properties, of which R$48.8 million (as of June 30, 2015) are committed to pay the remaining purchase price of the acquired properties;

From July 1, 2012 until the date hereof:

•         we entered into a partnership to explore an area of 4,263 hectares in the municipalities of Alto Taquari and Alto Araguaia, in the State of Mato Grosso (“Partnership III”). These areas are close to Alto Taquari farm and will be used for sugarcane by March 31, 2026;

•         we sold the remaining 27,745 hectares of the Cremaq farm and related assets in the State of  Piauí in June 2015 for a total of R$270.0 million. The value of the land and related assets sold in June 2015 in the Company’s books was R$63.6 million (acquisition plus investments, net of depreciation);

•         we made capital increase in Cresca S.A. in the year ended June 30, 2015 in the amount of R$ 25.9 million (R$ 14.5 million in the year ended June 30, 2014);

•         we sold 1,164 hectares of the Araucária farm in the State of Goiás for a total amount of R$41.3 million (the equivalent of 735 thousand bags of soybean) in June 2014 (payable in four installments over a period of four years), five years after acquiring them for R$10.7 million.

•         our joint venture, Cresca S.A., sold 24,624 hectares of rural land in Paraguay for a total of US$14.8 million in April 2014 (payable in three installments over a period of three years), four months after acquiring them for US$8.6 million, which was recognized on July 14, 2014, when ownership of the land was transferred;

•         we acquired in December 2013 (i) 50% interest in Cresca S.A, a company owning 81,231 hectares and an option to acquire an additional 60,700 hectares, totaling 141,931 hectares of rural land located in Paraguay; (ii) Cresud credit with Cresca; and (iii) an advisory service agreement, pursuant to which Cresud agrees to render services to Cresca in exchange for payment of fees. The total consideration of this transaction was US$19.8 million;

•          we sold 394 hectares of the Araucária farm in the State of Goias for a total of R$10.3 million (the equivalent of 248 thousand bags of soybean) in May 2013 (payable in eight installments over a period of three years), five years after acquiring it for R$3.8 million;

 

 

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•           we sold 4,895 hectares of the Cremaq farm in the State of Piaui for a total of R$37.4 million (the equivalent of 901.5 thousand bags of soybean) in April 2013 (payable in six installments over a period of three years), seven years after acquiring it for R$6.2 million. We invested R$4.7 million in preparing the land for agricultural production;

•           we sold the Horizontina farm in the State of Maranhão for a total of R$75.0 million in September 2012 (payable in three installments over a period of three months), two years after acquiring it for R$37.7 million. We invested R$12.5 million in preparing the land for agricultural production; and 

•            during 2014/2015 crop year, we developed 9,418 hectares of our 163,431 hectares of arable land through the cultivation of soybeans and other value-added crops.

 

 

 

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The map below indicates the locations of our agricultural properties, their arable areas, their current or intended production activities and the sold areas as of the date of June 30, 2015:

 

 

(1)   This represents the total property area. BrasilAgro has a 50% equity interest in Cresca S.A.,

(2)   BrasilAgro signed a partnership in “Partnership II Farm” for up to 11 crops and up to 10,000 hectares,

(3)   BrasilAgro signed a partnership in “Partnership III Farm,” which will expire on March 31, 2026.

We have a policy of performing annual appraisals of the fair market value of our agricultural properties. We estimate the market value of our agricultural properties based on each property’s level of development, soil quality and maturity and agricultural potential. For more information concerning our estimates of the fair market value of our agricultural properties, see Note 12 of our financial statements for the fiscal year ended June 30, 2015.

Our estimates of the market value of our agricultural properties are based on several premises, methodologies, estimates and subjective judgments, all of which are inherently subject to significant commercial, economic, competitive and operational uncertainties, most of which are beyond our control and unforeseeable and therefore no assurance can be given that they are correct. Furthermore, market values of real estate are subject to significant fluctuations and are also subject to significant commercial, economic and competitive uncertainties, most of which are beyond our control, and thus such estimates should not be considered as indicative of the values that we will or may be able to receive in exchange for such properties. For more information on the risks we are exposed to, see “Item 3—Key Information—Risk Factors.” The table below indicates the historical cost of acquisition of the land and of subsequent improvements, as well as the estimated fair market value, with respect to our agricultural properties, as of June 30, 2015.

 

 

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Property

 

Location

 

Acquisition
Date

 

Total
Area

 

Land &
Improvements
Cost on
June 30, 2015 (1)

 

Estimated
Fair Market
Value on
June 30,
2015

 

Appreciation (2)

 

 

 

 

(ha)

(R$ million)

   

Jatobá Farm.

Jaborandi/BA

Mar /07

31,606

62.6

298.8

377%

Alto Taquari Farm

Alto Taquari/MT

Aug /07

5,395

33.5

117.3

250%

Araucária Farm

Mineiros/GO

Apr /07

8,124

57.5

144.0

150%

Chaparral Farm

Correntina/BA

Nov /07

37,183

76.9

256.9

234%

Nova Buriti Farm

Januaria/MG

Dec/ 07

24,211

22.0

29.7

35%

Preferência Farm

Barreiras/BA

Sep /08

17,799

34.5

52.3

52%

Total

 

 

124,318

287.0

898.9

213%

 

 

(1)      Consists of land and capital expenditures, including building, infrastructure and other improvements to the property, net of depreciation expenses.

(2)      This appreciation does not exclude the impact of inflation in the period covered.

Corporate Structure

The diagram below illustrates our corporate structure as of the date hereof. All of our subsidiaries are incorporated in Brazil. Our investees Green Ethanol LLC and Cresca S.A. are incorporated in Delaware, United States and Asunción, Paraguay, respectively.

 

 

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(1)   Cape Town LLC is controlled by Mr. Elie Horn.

(2)   A portion of our common shares held by Cresud is deposited in Bank of New York Mellon in the form of ADRs (American Depositary Receipts).

(3)   Such shares were acquired and are held as a hedge for a swap transaction involving the same number of our common shares entered into between J.P. Morgan Chase Bank, N.A., an affiliate of J.P. Morgan Whitefrairs Inc., and Autonomy Master Fund Limited. Autonomy Master Fund Limited is controlled by Autonomy Capital (Jersey) LP, which is managed by Robert Gibbins, a former member of our board of directors. The swap transaction matures on January 26, 2016. Under the swap transaction, J.P. Morgan Whitefriars holds the sole power to vote and to dispose of the shares.

(4)   Agro Investment and Agro Managers are corporations controlled by the controlling shareholders of Cresud and certain of its employees, respectively.

(5)   Brenco - Companhia Brasileira de Energia Renovável.

 

Certain Developments since the Beginning of our Last Full Financial Year

On May 8, 2015, the Company entered into a lease agreement with respect to a property located in the municipalities of Alto Taquari and Alto Araguaia, in the state of Mato Grosso (“Partnership III”), where we have the right to operate an area of 4,263 hectares by March 31, 2026. The properties are close to Alto Taquari Farm, a region that has had excellent sugarcane production results. This transaction will allow us to make use of the operational structure and team already present in the region and ensure greater property management flexibility. As a result, it is also expected to generate cash quickly.

On June 10, 2015, we sold the remaining 27,745 hectares of our Cremaq farm, located in the municipality of Baixa Grande do Ribeiro, State of Piauí, 18,578 of which are arable and related assets, for a total purchase price of R$270.0 million. The rural property was acquired in 2006 for R$42.3 million and had a total area of 32,702 hectares. Of this initial area, 4,957 hectares were sold in May 2013. The book value of the area sold in June 2015 was R$63.6 million (acquisition plus investments, net of depreciation).

B. Business Overview

We are focused on the acquisition, development and exploitation of agricultural properties that we believe possess significant potential for cash flow generation and value appreciation. We seek to transform our acquired properties through

 

 

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investments in infrastructure and technologies which permit cultivation of high value-added crops and from time to time sell our developed properties in order to realize capital gains.

Agricultural Activities and Products

Independent Production

As of June 30, 2015, we were the operators with respect to our entire portfolio of agricultural properties, except for 4,438 hectares, which are leased to third parties. In the context of our independent operations, we maintain exclusive control over our production and exclusive responsibility for the acquisition of inputs, raw materials and equipment, hiring and oversight of employees, and infrastructure investment. We currently sell a substantial portion of our production to a small number of import/export companies. Our net revenue was R$131.4 million for the year ended June 30, 2014 and R$174.4 million for the year ended June 30, 2015. All of our sales are to clients located in Brazil.

We enter into short-term contractual arrangements with third-party contractors, at all stages of the production process, for the provision of services (including our workforce), equipment, and infrastructure needs. We believe that this allows us to be more agile in adapting to market conditions as they unfold.

Our agricultural properties are managed by local managers, either on a regional level or for specific properties, depending on the location and size of each property. On June 30, 2015, we had one manager at Partnership II farm, one regional manager for the Chaparral, Jatobá and Preferência farms and one regional manager for the Araucária, Taquari Alto and Partnership III farms.

 

Leases

As an alternative to independent production, we may lease our agricultural properties to third parties. As of the date hereof, we leased to third parties approximately 4,438 hectares of our property, representing 1.84% of our total land holdings. Generally, our leases are subject to different obligations depending on the stage of development of the subject property. With respect to leases of our properties on which the land is undeveloped, lessees are subject to several terms and conditions, including requirements to invest and to use the techniques and equipment that we believe are necessary and appropriate for the preparation and correction of the soil in order to facilitate agricultural production. In addition to leases of land, we may also lease individual farmhouses or warehouses to lessees, pursuant to which we receive a portion of the agricultural production, in kind, produced by the lessee. Our leases generally last between three to ten years. Under Brazilian law, lessees have a right of first refusal to purchase farms that were previously leased by them.

Grains

The planting season for grains runs from September to December, and harvest occurs between February and May. During the planting season for our 2014/2015 crop year, we planted 49,974 hectares of grains at our grain farms in Brazil. For the years ended June 30, 2015 and 2014, net revenue from sale of grains constituted 66.7% and 69.8% of our net revenue, respectively.

During the planting season for our 2014/2015 crop year, Cresca planted 11,402 hectares of grains at their farms located in Paraguay.

All distribution of production from the farms is through road transport. We enter into third-party service contracts with trucking companies to transport production from our farms to our storage facilities or to our clients.

Sugarcane

The sugarcane planting season runs from February to May, and harvest occurs between April and November. On June 30, 2015, we had 8,466 hectares planted with sugarcane at our Araucária and Taquari Alto farms. We entered into a supply contract with Brenco, pursuant to which we currently supply the entirety of our sugarcane production from our Alto Taquari and Araucária farms to them. The term of this supply contract covers two full crop cycles, which consists of six crop years and five harvests, and therefore is scheduled to expire in 2021/2022. For the years ended June 30, 2015 and 2014, net revenue from the sale of sugarcane accounted for 30.4% and 29.1% of our net revenue, respectively.

On May 8, 2015, we entered into a lease agreement with respect to a property located in the municipalities of Alto Taquari and Alto Araguaia, in the state of Mato Grosso (“Partnership III”), where we have the right to operate an area of 4,263 hectares by March 31, 2026. The properties are close to Alto Taquari Farm, a region that has had excellent sugarcane

 

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production results. This transaction will allow us to make use of the operational structure and team already present in the region and ensure greater property management flexibility. As a result, it is also expected to generate cash quickly.

Our farm output is distributed through road transportation. We enter into third-party service contracts with trucking companies to transport production from our farms to our clients’ sugar and ethanol refineries.

Livestock

On June 30, 2015, we had 6,554 hectares of pasture at our Preferência farm located in the State of Bahia and Cresca had 2,665 hectares of pasture at their farms located in Paraguay.

Reforestation

On June 30, 2015, we had 24,211 hectares of farmland at our Nova Buriti farm. We are currently in the process of obtaining the necessary permits in order to begin operations. Due to the difficulties we have been facing in regard to obtaining licenses for the farm, we are studying alternatives for the property. One such option is to sell the farm to offset the legal reserve, a mechanism contemplated in the new environmental code pursuant to which holders of a legal reserve deficit can acquire another area to solve certain issues.

Investment properties

On June 30, 2015, the net book value of our investment properties was R$288.4 million, of which R$202.5 million represented land acquisition costs and R$85.9 million (net of accumulated depreciation) represented improvements, including building and infrastructure improvements and costs of clearing and preparing the land.

 

 

Agricultural Properties

On June 30, 2015, we owned six agricultural properties, totaling 163,431 hectares of arable land (not including environmental preservation areas in accordance with Brazilian environmental law), including 11,718 hectares of leased area and 58,654 hectares through the joint venture Cresca S.A., located in the Brazilian States of Mato Grosso, Goiás, Minas Gerais, Bahia and Piauí and in Paraguay. During the planting season for our 2014/2015 crop year, we planted 47,953 hectares of soybean, 10,859 hectares of corn, 8,466 hectares of sugarcane, 2,564 hectares of other grains (sesame, sorghum and others) and 9,219 hectares of pasture. Except for part of the Nova Buriti farm and the joint venture with Cresca S.A., we acquired and hold our agricultural properties through subsidiaries, a structure we believe will simplify the future sale of such properties in accordance with Brazilian law. In addition, we entered into rural partnerships to operate agricultural properties, the Partnerships II and III.

Cremaq Farm: On October 2006, the Cremaq farm was acquired by our subsidiary Imobiliária Cremaq with a total area of 32,702 hectares for R$42.3 million. The deed was granted in April 2008 and registration was made on June 23, 2008. The property is located in the State of Piauí, in the Northeastern region of Brazil, next to the Itaqui Port.

At the time of our acquisition, 3,000 hectares were cultivated with grain production. Since the acquisition until the sale on June 10 ,2015, we had invested R$26.0 million (net of accumulated depreciation) in infrastructure to support the production process, including the construction of housing for our employees and service providers, the division of farmable areas into plots to facilitate capacity for cultivation, and the installation of farm equipment, including the construction of a silo at a total cost of R$8.4 million with capacity to store 72,000 tons of grains (such silos are capitalized under property, plant and equipment).

During the planting season for our 2014/2015 crop year, we planted 14,965 hectares of soybean and 3,750 hectares of corn at the Cremaq farm.

On May 10, 2013, we sold 4,895 hectares of our Cremaq farm, 3,201 of which are arable, for a total sale price of R$37.4 million, equivalent to 901,481 soybean bags.

On June 10, 2015, we sold the remaining 27,745 hectares of our Cremaq farm and related assets, 18,578 of which are arable, for a total purchase price of R$270.0 million.

 

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Jatobá Farm: The Jatobá Farm has an area of 31,606 hectares and was acquired by us, in partnership with Grupo Maeda, in 2007 for R$33.0 million. On May 12, 2012, we acquired Grupo Maeda’s partnership stake in and became 100% owners of the Jatobá farm, through our subsidiary Jaborandi Propriedades Agrícolas. The property is located in the Municipality of Jaborandi, State of Bahia, in the Northeastern region of Brazil, which we believe to be advantageous for export purposes due to the presence of the Port of Candeixas in the State of Bahia.

Prior to our acquisition, the Jatobá farm was used for pine reforestation. Since the acquisition until June 30, 2015, we had invested R$29.6 million (net of accumulated depreciation) in the development of support infrastructure, such as the construction of houses for our employees and service providers, an administrative office, roads and loading docks, the division of farmable areas into plots to facilitate capacity for cultivation, in addition to having invested in land development and preparation of the soil for agricultural production. We have also invested in the installation of farm equipment, mainly including tractors that operate by GPS and machines that monitor and collect data with respect to our crops and transmit such data to our headquarters. During the planting season for our 2014/2015 crop year, we planted 9,535 hectares of soybean and 1,196 hectares of corn at the Jatobá farm.

Alto Taquari Farm: The Alto Taquari farm has an area of 5,395 hectares and was acquired by our subsidiary Imobiliária Mogno in August 2007 for R$33.2 million. The deed was granted in September 2015 after we paid the outstanding balance of R$27.4 million.  Prior to our acquisition, the Alto Taquari farm was used for grain cultivation and livestock raising. As of June 30, 2015, we had 3,622 hectares planted with sugarcane. The 2009/2010 crop year marked the beginning of our obligations in compliance with our supply contract with Brenco, under which we will supply the entirety of our sugarcane production from the Alto Taquari farm to them for a term of two complete crop cycles (six crop years and five harvests), which is expected to end in 2020.

 

Araucária Farm: The Araucária farm was acquired by our subsidiary Imobiliária Araucária in April 2007 for R$80.0 million, in partnership with Brenco, in the proportion of 75% and 25%, respectively. The deed for Araucária farm was granted on November 20, 2008, and it was registered on November 24, 2008, upon which date our partnership with Brenco was terminated and from which point we were the sole owners of the 9,682 hectares, equivalentto R$70.7 million, of the Araucária farm. The property is located in the Municipality of Mineiros, State of Goiás, and is primarily used for the cultivation of sugarcane and grain.

Prior to our acquisition, the Araucária farm was used for grain cultivation. Since the acquisition until June 30, 2015, we had invested R$1.3 million (net of accumulated depreciation) in infrastructure improvements. We also invested in installation of farm equipment, mainly including tractors that operate by GPS and machines that monitor and collect data with respect to our crops and transmit such data to our headquarters.

On April 25, 2013, we sold 394 hectares of our Araucária farm, 310 of which are arable, for a total sale price of R$10.3 million, equivalent to 48,000 soybean bags, and, on June 27, 2014, we sold 1,164 hectares of our Araucária Fam, 913 of which are arable, for a total purchase price of R$41.3 million, equivalent to 735,000 soybean bags. After the sales, the area of Araucária farm held by us was 8,124 hectares, of which approximately 5,982 hectares are arable.

The 2009/2010 crop year marked the beginning of our obligations under our supply contract with Brenco to supply the entirety of our sugarcane production from the Araucária farm to them for a term of two complete crop cycles (six crop years and five harvests), which is expected to end in 2020.

Chaparral Farm: The Chaparral farm has an area of 37,183 hectares and was acquired by our subsidiary Imobiliária Cajueiro in November 2007 for R$47.9 million. The deed was granted on September 29, 2008 and was registered on December 12, 2008. Since the acquisition until June 30, 2015, we had invested R$29.0 million (net of accumulated depreciation) in infrastructure improvements. During the planting season for our 2014/2015 crop year, we planted 10,535 hectares of soybean and 2,538 hectares of corn. The property is located in the Municipality of Correntina, State of Bahia.

Nova Buriti Farm: The Nova Buriti farm has an area of 24,211 hectares and was acquired directly by us in December 2007 for R$21.6 million. The balance outstanding to be paid on the acquisition price is R$19.8 million, the amount payable is adjusted based on the IGP-M (General Market Price Index) inflation index, and the registration of the conveyance of 21,183 hectares is subject to certain conditions and obligations binding on the sellers: (i) the sellers must obtain, from the Judiciary and the Land Institute ( Instituto de Terras ) of the State of Minas Gerais official recognition of our ownership of the property and (ii) the sellers must obtain from and record with the Real Estate Registry a final deed of sale, after obtaining an official certificate from INCRA for the purchase of the property and the discharge of the owners of any obligations related to disputes (including in rem or pledge-related disputes) in connection with the property. Because this process depends upon the approvals of different federal government agencies in Brazil, and because the timing for such processes can be lengthy and unpredictable, we are unable to estimate the expected date for the completion of such processes. Our subsidiary Imobiliária

 

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Flamboyant holds a 13% interest in the property, and we hold the remaining 87%. The property is located in the municipality of Januária, State of Minas Gerais in the Southeastern region of Brazil, which is in close proximity to major iron producers who utilize large quantities of biofuel, especially from eucalyptus wood, to generate electricity.

We are currently in the process of obtaining the necessary permits in order to begin operations. Due to the difficulties we have been facing in regard to obtaining licenses for the farm, we are studying alternatives for the property. One such option is to sell the farm to offset the legal reserve, a mechanism contemplated in the new environmental code pursuant to which holders of a legal reserve deficit can acquire another area to solve certain issues.

Preferência Farm: The Preferência farm has an area of 17,799 hectares and was acquired in September 2008 by our subsidiary Imobiliária Cajueiro for R$9.6 million. The deed was granted on September 4, 2009, and registration was made on February 24, 2010. The property is located in the Municipality of Barreiras, State of Bahia. We use the property for livestock raising and grain cultivation. Since the acquisition until June 30, 2015, we had invested R$24.9 million (net of accumulated depreciation) in infrastructure improvements to the property and have 6,554 hectares of pasture.

Partnership II: On October 11, 2013, we entered into a partnership with respect to Partnership II farm for up to 11 harvests, which is expected to end in October 2024. The Partnership II farm is located in the municipality of Ribeiro Gonçalves, in the state of Piauí. We operate an area of 7,181 hectares, which is suitable for grain crops. The property is located in a region that has had excellent grain production results. During the planting season for our 2014/2015 crop year, we planted 7,455 hectares of soybean at the Partnership II farm.

Partnership III: On May 8, 2015, we entered into a lease agreement with respect to a property located in the municipalities of Alto Taquari and Alto Araguaia, in the state of Mato Grosso (“Partnership III”), where we have the right to operate an area of 4,263 hectares until March 31, 2026. The properties are close to Alto Taquari Farm, a region that has had excellent sugarcane production results. This transaction will allow us to make use of the operational structure and team already present in the region and ensure greater property management flexibility. As a result, it is also expected to generate cash quickly.

Cresca S.A.:  On December 12, 2013, we entered into an agreement with Cresud, our controlling shareholder, for: (i) the acquisition of its interest in Cresca S.A which represented 50% of the company, (ii) the assumption of Cresud credit with Cresca, and (iii) the acquisition of an advisory service agreement, pursuant to which Cresud agrees to render services to Cresca in exchange for the payment of fees. The total consideration of the transaction was US$19.8 million. On the purchase date, Cresca had approximately 71,000 hectares and a contract for the right to purchase approximately 70,000 additional hectares of agricultural land in the region of Mariscal Estigarribia in Paraguay. The purchase of 61,000 hectares shall occur according to the contractual terms upon the payment of the purchase price by Cresca, when the owner of the land (the other investor in Cresca) shall transfer the ownership of the land. On July 14, 2014, 46,900 hectares were purchased, and the remaining 24,700 hectares were purchased on January 20, 2015.

On April 4, 2014, Cresca sold 24,624 hectares in Paraguay, 12,312 of which are arable, for a total sale price of US$14.8 million (US$600 per hectare). The purchaser made an initial payment of US$1.9 million, and paid the first installment in the amount of US$4.3million upon the execution of the property transfer deed and the sold area possession transfer. The price balance are being paid in two annual installments.

After this transaction, Cresca owns 117,307 hectares, of which approximately 60,000 hectares are suitable for agricultural purposes. During the planting season for our 2014/2015 crop year, we planted 5,463 hectares of soybean, 3,375 hectares of corn, 2,564 hectares of other grains and 2,665 hectares of pasture at the Cresca farms.

 

Investment in Brenco – Companhia Brasileira de Energia Renovável

In March 2007, we acquired an indirect minority interest in Brenco, through our 40.65% investment in Green Ethanol LLC (previously known as Tarpon All Equities Fund LLC), which we acquired for a purchase price of US$2.5 million. Green Ethanol LLC held 2.47% of the capital stock of Brenco, including 7,600,000 warrants issued by Brenco. In March 2008, we signed contracts for the exclusive supply to Brenco of the entirety of our sugarcane production over two full crop cycles. See “Item 4—Information On the Company—Material Agreements.”

In September 2008, Green Ethanol LLC increased its shareholding in Brenco to 1.55% of Brenco’s capital stock, which percentage was subsequently increased to 3.8% in December 2008. In February 2010, ETH Bioenergia acquired substantially all of the capital stock of Brenco, thereby diluting our indirect ownership interest (held through Green Ethanol LLC) to

 

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0.046% of Brenco’s capital stock as of December 31, 2010. As a result of the losses incurred by Brenco and of the significant level of debt, we carried out an impairment analysis of our investment interest in Brenco. As a result of such assessment, we recorded an impairment loss on our investment of R$6.6 million as of July 1, 2009.

Commodity Futures Contracts

We enter into sales contracts for the future sale and physical delivery of our agricultural commodities to international import/export companies. Such contracts are primarily with respect to soybean, but also include sugarcane in connection with our exclusive supply agreement with Brenco. In the case of soybean, we may contract a fixed price for all or part of the volume to be delivered. The price is determined according to a contractual formula based on the soybean quotation at the Chicago Board of Trade (CBOT). The price established in U.S. dollars is paid at the end of the commitment period, in Reais , according to contractually defined exchange rates prevailing a few days before settlement. The terms of the agreements subject us to fines in the event that we fail to deliver the previously-committed volumes to the purchaser.

Material Agreements

Cremaq

On June 10, 2015, we sold the remaining 27,745 hectares of our Cremaq farm, located in the municipality of Baixa Grande do Ribeiro, State of Piauí, 18,578 of which are arable, and related assets for a total purchase price of R$270.0 million. The rural property was acquired in 2006 for R$42.3 million and had a total area of 32,702 hectares. Of this initial area, 4,957 hectares were sold in May 2013. The value of the area sold in June 2015 in the Company’s books was R$63.6 million (acquisition plus investments, net of depreciation).

Brenco – Companhia Brasileira de Energia Renovável

In March 2008, we signed two contracts for the exclusive supply to Brenco of the entirety of our sugarcane production over two full crop cycles (for sugarcane, one full crop cycle consists of six agricultural years and five harvests). They are expected to expire in 2020, but are renewable upon the agreement of the parties. One of the contracts refers to our cultivation from an area of approximately 5,718 hectares at our Araucária farm and the second to approximately 3,669 hectares at our Alto Taquari farm. The price per ton, for the purpose of these agreements, is determined based on Total Recoverable Sugar (ATR) price per ton of sugarcane effectively delivered, with ATR corresponding to the quantity of sugar available in the raw material, minus sugar content lost during the production process, multiplied by the market prices of sugar and ethanol sold by regional plants in the internal and external market, in each case, as determined by the São Paulo Counsel of Sugarcane, Sugar and Alcohol Producers ( Conselho de Produtores de Cana , Açúcar e Álcool de São Paulo ), or CONSECANA. For the year ended June 30, 2015, net revenues of our sugarcane production to Brenco were R$52.9 million, representing 30.4% of our total revenue. The purpose of contracts is not to secure a more favorable price than the market price, since we expect that the ATR price as determined by CONSECANA will be generally equivalent to the market price, but rather to secure the sale of our sugarcane production over the long term. We believe this gives us the predictability that makes it practicable for us to grow and commercialize sugarcane, given that sugarcane crops have a productive cycle lasting five years from the first harvest.

On May 8, 2015, we executed three agreements with Brenco:

The first agreement consists of a rural sub partnership to operate nine farms located in the municipalities of Alto Araguaia and Alto Taquari, in the state of Mato Grosso. The sub partnership starts at the date of its signature and is estimated to end on March 31, 2026. The areas shall be used for the plantation and cultivation of sugarcane, which cannot exceed the duration of the contract. This contractual partnership meets the definition of an operating leasing. The payment shall always be in kind (tons of sugarcane), to be delivered at the mill owned by Brenco, which is located in the vicinities of the farms, during the harvest period of the product. The quantity to be paid for the duration of the contract shall be established in tons per hectare and varies according to the area being explored. According to this contract, the quantity to be paid in the long term corresponds to 529,975 tons of sugarcane, of which 174,929 tons will be paid within one to five years and 355,046 tons will be paid after more than five years up to the expiration of the agreement.

The second agreement deals with the regulation of rights and obligations between agricultural partners, in which BrasilAgro acquired the crops of sugarcane planted by Brenco in the properties subject to the sub partnership agreement described above. This contract meets the definition of a financial leasing. The payment shall always be in kind (tons of sugarcane), to be delivered at the mill owned by Brenco during the harvest period of the product. According to this contract,

 

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the quantity to be paid in the long term corresponds to 127,699 tons of sugarcane, of which 41,470 tons will be paid within one year and 86,229 tons will be paid within one to five years.

The third agreement regulates the exclusive supply to Brenco of the total sugarcane production in the properties included in the sub partnership agreement for two crop cycles, one cycle shall be effective until the depletion of the already existing sugarcane crops and the other cycle consists of the sugarcane being planted by BrasilAgro.

Cresca

On December 12, 2013, BrasilAgro executed contracts with its controlling shareholder Cresud for: (i) the acquisition of its interest in Cresca S.A which was represented by 50%,, (ii) the assumption of Cresud credits from Cresca, and (iii) the acquisition of an advisory contract through which Cresud committed to render services in the forest agricultural exploration to Cresca in exchange for payments of fees.

Cresca is a company that invests in agricultural and cattle raising land in Paraguay. On the purchase date, it owned approximately 71,000 hectares and a contract for the right to purchase approximately 70,000 additional hectares of agricultural land in the region of Mariscal Estigarribia in Paraguay. The purchase of 61,000 hectares shall occur according to the contractual terms upon the payment of the purchase price by Cresca, when the owner of the land (the other investor in Cresca) shall transfer the ownership of the land. On July 14, 2014, 46,900 hectares were purchased, and the remaining 24,700 hectares were purchased on January 20, 2015.

On April 7, 2014, Cresca sold 24,624 of undeveloped hectares, which transaction was not recorded until July 2014 when ownership of the land was transferred. As of June 30, 2015, Cresca owns 117,307 hectares, of which approximately 60,000 hectares are suitable for agricultural purposes.

 

Raw Material Acquisition Risks

For the acquisition of farming inputs, our primary risks are foreign-exchange variations, the supply and demand of each input, farming commodity prices and freight prices. Our dependence on imported raw materials is also subject to supply and customs clearance delays. We are also subject to risks regarding the availability of the specific varieties of seeds we use, which are affected by weather conditions, among other factors.

In addition, the price of diesel fuel, which is the primary fuel used in farming machinery and trucks, is affected by the variation in oil prices as well as by the price-control policies adopted by the Brazilian government.

Competition

The agriculture industry is composed of widely traded commodities, where the prices are freely determined based on supply and demand. The supply side is characterized by a large number of producers, each contributing a small part of the total production and thus having minimal influence over commodity prices, which are generally determined by indexes or exchanges in international markets, as is the case with soybean, the price of which is largely determined by the CBOT. Agricultural commodity producers therefore compete largely based on their production costs, and their scale of production. At the domestic level, producers compete on similar conditions, whereas at the international level, competition is affected significantly by, among other factors, government policies such as subsidies to agricultural producers, which can be substantial in developed countries.

Land acquisition is subject to intense competition. In this case, we compete to acquire the most appropriate land for cultivating our agricultural products. We believe that this process has contributed to an increase in land prices over the years and that the strongest competition has been from the larger groups having in-depth knowledge of the sector, management excellence and continuous objectives to increase their agricultural area portfolio. We understand that these large groups are mainly SLC Participações, operating in four Brazilian states; and Vanguarda Agro. In addition, we may face significant competition from large international companies which have greater financial resources than we do.

Seasonality

Our principal products are subject to seasonality variations between the crop season and the off-season. The off-season occurs between the end of the harvest of a crop year and the beginning of the harvest of the following crop year. Such period occurs at different parts of the year depending on the agricultural product, as follows: (i) the off-season for grains in Brazil typically occurs between August and January; (ii) the off-season for sugarcane in Brazil typically occurs between December

 

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and March; and (iii) the off-season for cattle-raising in Brazil typically occurs between September and January. Because of the reduced supply of agricultural products during each product’s respective off-season, prices for such products are typically higher during that time.

Throughout the year, our working capital needs vary significantly depending on the harvest period of grains, sugarcane and other crops in Brazil. Changes in the harvest periods, resulting from unfavorable weather or financial restrictions on us, have a direct impact on our inventory levels, advances to producers, loans and sales volume during the year.

Insurance

We believe that our insurance coverage is adequate and consistent with the usual practices adopted by other companies operating in our sector in Brazil. However, we cannot guarantee that the coverage set forth in our insurance policies will be sufficient to protect us from all losses and damages that may occur.

As of August 2, 2015, we also have a D&O insurance policy with coverage indemnifying our managers and members of our board of directors against civil liability for R$30 million, expiring on August 2, 2016.

Intellectual Property

In Brazil, title to a patent or trademark is acquired through the registration with the National Institute of Industrial Property ( Instituto Nacional de Propriedade Industrial , or INPI). When such right is granted, the titleholder is guaranteed exclusive use throughout Brazil for a period of ten years, which may be renewed. During the registration process, the depositor has an expectation of right to use the deposited trademarks, which it may use in order to identify its products or services.

 

We filed three trademark registration applications with the INPI for the trademark name (which corresponds to our corporate name) “BrasilAgro – Companhia Brasileira de Propriedades Agrícolas,” two of which are postponed while other trademark registration applications are being evaluated, and one of which was approved on June 5, 2012 and expires on June 5, 2022.

We also have three trademark registration applications pending for the trademark name “BrasilAgro – Companhia Brasileira de Propriedades Agropecuárias.” One of such applications was rejected based on INPI’s considerations of previously filed trademark applications. We filed an appeal and await a final decision from the INPI regarding this application. Our business has not been affected by the refusal of this trademark registration application because such application relates to the trademark name “BrasilAgro – Companhia Brasileira de Propriedades Agropecuárias,” which is not our actual corporate name (our actual corporate name is “BrasilAgro – Companhia Brasileira de Propriedades Agrícolas”) and was filed at the time as a cautionary measure when we were in the process of deciding our legal name. In addition, the other two applications were approved on June 14, 2011, expiring on June 14, 2021 and on January 28, 2014, expiring on January 28, 2024.

In addition, we filed three trademark registration applications for the name “BrasilAgro,” one of which was approved on November 1, 2011 and expires on November 1, 2021; while the other two are postponed pending evaluation of other trademark registration applications by the INPI.

Risk Management

We analyze and monitor the various risks to which our business and operations are exposed. In addition to monitoring the specific factors that directly affect our agricultural production and business operations, we also monitor the risks derived from commodity price variations for our individual agricultural products, as well as foreign-exchange variations. Through our risk management policy coordinated among our Strategic Planning department, Risk Management Committee and board of directors, we hedge our exposure to commodity price risks for our transactions through over-the-counter instruments including options and futures contracts negotiated in the commodity market and maintain our exposures within pre-established limits.

FIM Guardian Investment Fund

To the extent we are unable or decide not to deploy our capital through agricultural property acquisitions or other investments, we maintain any uninvested cash and cash equivalents in our wholly-owned FIM Guardian investment fund, which holds investments in fixed income securities in short-term, liquid investments (such as bank certificates of deposit, government securities and other cash-equivalents).

 

 

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Regulation

In addition to the descriptions of regulatory matters set forth below, see the description of certain legal proceedings, including judicial and administrative proceedings relating to regulatory matters, set forth in “Item 8—Financial Information—Legal Proceedings.”

Environmental Regulation

The development of our agribusiness activities depends on a number of federal, state and municipal laws and regulations related to environmental protection. We may be subject to criminal and administrative penalties, besides being obligated to restore the environment and reimburse third parties for possible damages arising from non-compliance with such laws and regulations.

Administrative Liability

Administrative liability derives from an action or omission that results in violation of the standards of preservation, protection or restoration of the environment. Federal Decree No. 6,514 of July 22, 2008 establishes a set of sanctions that may be imposed as a result of breach of environmental regulation. Such sanctions includes warning, fine, destruction of the product, suspension of activities, termination of tax benefits and credit lines granted by public institutions. Fines are determined based on the relevance and economic impact of the breach and can reach R$50.0 million. See “Item 3—Key Information—Risk Factors.”

Civil Liability

Under civil law, the offender is strictly liable for any environmental damage and subject to an objective standard of care, which creates liability regardless of negligence by the offender. Consequently, we are jointly liable with any third parties providing services for us to the extent their activities cause environmental damage. Environmental regulation also permits the regulator to recover damages from the controlling entity through the chain of share ownership if the direct offender is unable to pay the related damage.

 

Criminal Liability

Our officers, directors, employees and agents who engage in environmental crimes are subject to criminal sanctions, including fines, prison sentences and the imposition of community service requirements.

Environmental Licenses

Environmental licensing is required for activities utilizing environmental resources that are considered potentially pollutant, or those that may in any way cause environmental degradation. Some Brazilian states and Paraguay require licenses for agricultural and animal-raising activities.

The environmental licensing procedure includes “prior,” “installation” and “operating” licenses. A “prior” license is granted during the preliminary phase of planning the enterprise or activity to authorize its location and concept and attesting to its environmental feasibility. An “installation” license authorizes the installation of an enterprise or activity in accordance with the specifications stated in approved plans, programs and projects. An “operating” license authorizes an activity or enterprise to operate after the conditions stated in the “prior” licenses are fulfilled and verified, with environmental protection measures and certain conditions for operations. This last license must be renewed at the end of its period of validity, which is determined by the competent environmental agency depending on the activity being developed.

We are in the process of obtaining licenses for Paraguay farms. We are currently developing environmental studies necessary for this process and are unable to estimate the amount of time that it will take to obtain such license.

For the Nova Buriti farm, we are studying and analyzing other environmental possibilities such as: environmental servitude, quota of environmental reserve and compensation of legal reserve.

The environmental licenses for the Jatobá and Preferência farms must be renewed by 2016 and 2021, respectively. We have obtained environmental licenses for our other three properties: the prior license for suppression of vegetation for the Araucária farms, the licenses for suppression of vegetation and operation for the Paraguay farm and the operating license for the Alto Taquari farm . The license for suppression of vegetation for the Chaparral farm is under analysis by the environmental agency.

 

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Legal Reserve

All rural properties in Brazil are required by law to maintain legal reserve areas. A legal reserve area is an area of each rural property where deforestation is not allowed and that is necessary for the sustainable use of natural resources, conservation and rehabilitation of ecological processes, conservation of biodiversity and shelter and protection for native fauna and flora. These areas are required in perpetuity and in some cases are recorded as such in the real estate registry.

It is mandatory to maintain as legal reserve at least 80% of an agricultural property located in Floresta biome within Amazonia Legal, 35% for an agricultural property in the savannah region within Amazonia Legal and 20% for an agricultural property located in other forms of native vegetation in other regions of Brazil. In Paraguay it is mandatory to maintain as legal reserve at least 25% of all agricultural property with more than 20 hectares in forests regions and also a corridor of native vegetation at least 100 meters every 100 hectares of agricultural or livestock.

All our properties have legal reserve areas, although a part thereof has legal reserves that are in the process of being recorded at the offices of the applicable government agency. At the date of this Annual Report, none of our current landholdings are located in Floresta biome within Amazonia Legal. Legal reserve vegetation may not be suppressed, and may be used only under a regime of sustainable forest stewardship in accordance with technical and scientific criteria set forth in the regulations. Agricultural properties that fail to record the legal reserve are subject to daily fines. A total of 61,071. 64 hectares, or approximately 23.3% of the total area of our properties, consist of legal reserves.

Permanent Preservation Areas

Permanent preservation areas are spaces, in both public domain and private domain, where the exercise of property rights has been limited. Permanent preservation areas include the margins of any water streams, the surroundings of headwaters and of natural water reservoirs, as well as lands inclined more than 45º. It will only be possible to modify these areas through previous authorization by the competent state environmental body. A total of 19.557 hectares, or 7.7% of the total area of our properties, consist of permanent preservation areas.

 

Suppression of Vegetation

We are in the process of obtaining authorization for suppression of vegetation with respect to 17.2% of our current land holdings upon which we have not yet commenced crop cultivation operations and that are not part of our legal reserve or permanent preservation areas, from the relevant environmental authorities in the locations where required. Accordingly, with respect to such areas where such authorization is required, we will not be able to commence crop cultivation operations such authorizations are obtained. Because such authorizations depend upon governmental agencies, we are not able to provide an estimate of the time frame for receiving such approvals.

 

Rural Environmental Register (CAR)

 

                In Brazil, all rural properties are required by law (Law No. 12.651/12 and Decrees Nos. 7.830/2012 and 8.235/2014) to register at the rural environmental register (CAR). This electronic registration integrates environmental information regarding the property, deforestation control, the monitoring and combating of forests and other forms of native vegetation, as well as environmental and economic planning of rural properties.  The CAR gathers environmental information for each property regarding the situation of  permanent preservation areas,  legal reserve areas, forests and remnants of native vegetation,  restricted use areas,  consolidated areas, etc.

This register requires the rural proprietary to regularize their environmental situation.  It is a requirement to have access to credit, however, sanctions are not imposed for those who are not registered with CAR.

 

All our properties have this register.

 

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Ownership of Agricultural Land in Brazil by Foreigners

On August 23, 2010, opinion No. LA-01, of August 19, 2010, issued by the Federal Attorney General (AGU) was approved by the President of Brazil. The opinion addresses the purchase and lease of agricultural properties by Brazilian companies controlled by foreign individuals or legal entities holding the control of the capital stock of a company that owns land in Brazil. The Attorney General’s opinion provides that Brazilian companies controlled by non-Brazilians require prior authorization to purchase agricultural properties and are subject to restrictions, including the following:

(i) the agricultural properties shall be used for agricultural, cattle raising or industrial activities, and shall be previously approved by the Ministry of Agrarian Development or by the Ministry of Development, Industry and Foreign Trade;

(ii) the total area of agricultural properties owned by foreigners shall not exceed the greater of (A) one fourth of the area of the municipality where the property is located; or (B) the sum of the areas held by foreigners of the same nationality shall not exceed 40% of the area of the municipality where the property is located; and

(iii) the acquisition shall not exceed one hundred (100) indefinite exploration modules, which are measurement units adopted within different Brazilian regions that range from five to 100 hectares, depending on the region.

New acquisitions or new lease agreements of agricultural properties by companies controlled by non-Brazilians within the above-mentioned limits must be previously approved by INCRA. The request for the approval must be filed before the Regional Branch of INCRA ( Superintendência Regional ) of the State where the property is located. After that, INCRA will analyze the compliance with the above-mentioned requirements and if the transaction is approved by INCRA, it will issue a certificate of approval. The purchase and lease of agricultural properties beyond the limits of areas and percentages mentioned above require prior authorization from the Brazilian Congress.

In both cases, it is not possible to determine an estimated time frame for the approval procedure, since up to the date of this Annual Report, there are no known cases of certificates having been granted. Additionally, there is no judgment so far by the Brazilian courts on the validity and constitutionality of the contents of the Attorney General’s Opinion.

As of June 30, 2015, approximately 78.6% of our common shares were held by foreigners.

On December 11, 2012, São Paulo’s General Comptroller of Justice ( Corregedoria Geral de Justiça do Estado de São Paulo ) issued the Opinion nº 461/2012-E, establishing that entities providing notary and registrar services located in the State of São Paulo are exempt from observing certain restrictions and requirements imposed by Law no 5.709/71 and Decree no 74.965/74, regarding Brazilian companies with the majority of the capital stock composed of foreigners residing outside of Brazil or legal entities incorporated abroad. In April 2013, the Regional Federal Court for the Third Region ( Tribunal Regional Federal da 3ª Região – TRF ) granted an injunction in the context of a claim brought by INCRA and the Federal Government against São Paulo’s General Comptroller of Justice Opinion nº 461/2012-E, suspending the effects of such Opinion. In August 2013, the Regional Federal Court for the Third Region recognized its lack of jurisdiction to judge such claim and sent it to São Paulo State Appeals Court ( Tribunal de Justiça do Estado de São Paulo ). As a consequence of such decision, the injunction granted by the Regional Federal Court for the Third Region was set aside, and INCRA and the Federal Government had declined on the claim. Since then, entities providing notary and registrary services located in the State of São Paulo are, over again, exempt from observing certain restrictions and requirements imposed by Law no 5.709/71 and Decree no 74.965/74.

On June 25, 2014, the AGU and INCRA filed a suit at the Higher Federal Court (STF) against the State of São Paulo due to the decision of São Paulo Justice Court which judged the Opinion 1 issued by AGU in 2010, unconstitutional. In this suit the stay of the preliminary order was required and, in the end, the definite annulment of Opinion 461-12-E of the Inspector General Office of São Paulo, issued on December 03, 2012. On August 07, 2014, the decision issued by Minister Marco Aurélio Mello, rapporteur of the process, was published, denying the injunction required by AGU and INCRA, on the basis that the period of more than 1 year and 7 months from the opinion of the Inspector General Office of São Paulo and the file of the suit in STF shows that there is no urgency in the appreciation of the injunction request.

As of the date hereof, we are not able to provide an estimate of the timeframe for a final judgment to be issued by the STF.

 

C. Organizational Structure

See “—History and Development of the Company—Corporate Structure.”

 

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D. Property, Plants and Equipment

See “—History and Development of the Company—Overview,” “—Business Overview—Agricultural Activities and Products,” “—Business Overview—Leases,” “—Business Overview—Investment Properties,” “—Business Overview—Agricultural Properties,” “—Business Overview—Environmental Regulation” and “—Business Overview—Environmental Licenses.”

ITEM 4A—UNRESOLVED STAFF COMMENTS

There are no unresolved staff comments as of the date of this Annual Report.

ITEM 5—OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this report. Our audited annual consolidated financial statements have been prepared in accordance with IFRS as issued by IASB.

Operating Results

Business Drivers and Measures

Brazilian Macroeconomic Environment

Our financial condition and results of operations are influenced by the Brazilian economic environment.

After a period of improvement, the Brazilian economic environment is undergoing a time of crisis, marked by the downgrading of the long-term credit rating from Standard & Poor's rating agency, from BBB + to BBB-, placing Brazil in back to speculative investment grade level ("junk"), Moody's, downgraded the Brazil of "Baa2" to "Baa3" and changed the negative perspective to stable, while Fitch Ratings downgraded Brazil from BBB to BBB- and changed the perspective from stable to negative. Both Moody’s and Fitch still consider Brazil investment grade but this could change anytime.

For the period from 2012 through 2014, Brazilian GDP increased 1.0% in 2012, 2.7% in 2013 and 0.1% in 2014. In the first six months of 2015, Brazilian GDP decrease 1.9%. For the years 2015 and 2016, the forecast is a decrease in the Brazilian GDP. Inflation, as measured by the Broad Consumer Price Index, or IPCA, published by the IBGE, was 5.8%, 5.9%, 6.4% per annum in 2012, 2013, 2014, respectively, and 7.6% in the first nine months of 2015. The dollar appreciated 9.0%, 14.6% and 13.4% against the Real in 2012, 2013 and 2014, respectively. From January 1 through September 30, 2015, the Real depreciated approximately 46.5% against the U.S. dollar. Unemployment increased from 6.0% in January 2011 to 8.6% in July 2015. International reserves decreased from US$378.9 million on September 30, 2014 to US$370.8 million on September 30, 2015.

The current scenario is that the external vulnerability of Brazil may grow in the coming years, which may result in a deficit in the current account, since the entry of direct foreign investments may not be sufficient to cover the foreign debt.

Other Factors Affecting our Business

Market price variations for commodities: our principal products are subject to changes in commodities prices, including those of indexes such as the Intercontinental Exchange and the CBOT, exchange rates, as well as other indexes linked to our debts. Commodity prices are generally influenced by international, domestic and local supply and demand, which are in turn influenced by climactic and weather conditions, technology, and economic, commercial and political conditions, as well as exchange rates and transportation costs. For more information, see “Item 3—Key Information—Risk Factors—Risks Relating to our Business and Industry—Fluctuation in market prices for our agricultural products could adversely affect us” and “—Qualitative Evaluation of Market Risks.”

Foreign exchange: a portion of our income (loss) is linked to the exchange rate between the Real and the U.S. dollar, and consequently our revenue is sensitive to foreign exchange fluctuations. Certain of our commodities, such as soybean may be priced in Reais or in U.S. dollars. In addition, certain of the raw materials necessary for farming activities, such as chemicals, pesticides and fertilizers, are priced in or based on the U.S. dollar.

 

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Inflation: inflation does not directly affect our revenue because our products are commodities whose prices are determined by reference to international commodity exchanges. Nevertheless, our labor and other operating costs are affected by inflation which directly affects our results of operations.

 

The table below sets forth certain market indices that affect our operating and financial results:

 

 

 

 

 

 

 

Year Ended June 30,

 

 

2015

 

2014

 

2013

 

Source

 

Price of Soybean (Paranaguá)(R$/bag)

 

 

Closing

70.15

70.46

69.15

Bloomberg

 

 

 

Exchange rate

(R$ per US$ 1.00)

 

Beginning

2.21

2.23

1.99

Bloomberg

Closing

3.10

2.21

2.23

Bloomberg

Average

2.68

2.29

2.04

Bloomberg

 

 

 

 

 

ATR (R$/Kg of ATR)(1)

0.48

0.47

0.44

http://www.udop.com.br/index.php?i

Closing IGP-M (%)(2)

5.58%

6.24%

6.31%

http://portalbrasil.net/igpm

IPCA(3)

8.89%

6.52%

6.70%

http://portalbrasil.net/ipca

CDI(4)

11.76%

9.63%

7.20%

www.cetip.com.br/astec/series_v05/pagir

NPK(5) (R$/Ton)

1.265.45

872.48

1.033.72

Bloomberg

 

(1)   ATR or Total Recoverable Sugar corresponds to the quantity of sugar available in the raw material subtracted from the losses in the industrial process.

(2)   IGP-M: General Index of Market prices is published monthly by Fundação Getúlio Vargas.

(3)   IPCA: National Index of Broad Consumer Prices published monthly by the Brazilian Statistics Institute (IBGE).

(4)   The CDI rate is the average of the rates of inter-bank deposits charged during the day in Brazil (accumulated in the period).

(5)   NPK is the chemical compound of farming fertilizers made up of nitrogen, phosphorus and potassium combined at a ratio of 2:20:20.

Principal Components of Our Statement of Operations

Revenue

Our operating revenue is derived mainly from (i) sale of grains (comprised of soybean, corn, rice, and sorghum); and (ii) sugarcane and other farming products.

Taxes on sales

Taxes on sales vary depending on the target market of our production, as follows.

The levy of taxes on revenue depends on the product and market located. These are the primary taxes:

 

 

 

 

 

Tax

 

Direct Export

 

Sale to Importer/Exporter

 

Domestic market

 

ICMS

Not levied

Not levied

Levied

PIS

Not levied

Not levied

Levied

COFINS

Not levied

Not levied

Levied

FUNRURAL

Not levied

Levied

Levied

ICMS (Value-Added Tax on Sales and Services) : ICMS is a state tax levied on the price of a product at an average rate of 17% for transactions within a state and 7% to 12% for transactions across states. ICMS payments are not applicable to exports of goods and services.

 

Federal Social Integration Program (Programa de Integração Social, or PIS) and Social Security Financing Contribution (Contribuição para o Financiamento da Seguridade Social, or COFINS ): PIS and COFINS tax payments, levied at (i) 0.65% and 3.0% of gross revenue, respectively (cumulative) or (ii) 1.65% and 7.6%, respectively, after certain deductions (non-cumulative), depending on the business conducted and the nature of revenue earned, among other factors. On June 30, 2015, we and Jaborandi Agrícola Ltda. were subject to noncumulative assessment for such payments, and our other subsidiaries were subjected to cumulative assessment. PIS and COFINS payments are not applicable to exports of goods and services, or sales to import/export companies located in Brazil. Since we sell the entirety of our soybean

 

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production to such companies, such activities are not subject to PIS or COFINS payments. Brazilian law also exempts PIS and COFINS payments upon the sale of sugarcane to an entity that produces ethanol or biofuel.

Rural Workers Assistance Fund (Fundo do Produtor Rural, or FUNRURAL) : Agricultural producers are subject to a tax of 2.3% to 2.85%, levied on total output sold. The FUNRURAL tax is not payable on exports of goods and services, but applies on sales to import/export companies located in Brazil.

Gain (loss) on sale of farms

Upon the sale of investment property, such as our farms, we recognize in the statement of operations a gain (loss) for the difference between the sale proceeds and the carrying amount of the property sold. We account for our investment properties at cost.

Change in fair value of biological assets

Our biological assets correspond, mainly, to our soybean, corn, and sugarcane crops and are measured at fair value less cost to sell. These crops are not only cultivated to obtain non-real estate revenue, but also as a means of increasing the real estate value of the respective agricultural properties.

The agricultural production derived from our soybean, corn and sorghum crops is harvested after a period of time ranging from 100 to 170 days after planting, depending on the crop, variety, geographic location and climate conditions.

The sugarcane crops have a productive cycle of five years from the first harvest, and accordingly, are classified as long term biological assets.

The fair value of biological assets is determined upon their initial recognition and at each subsequent reporting date until harvested. The gain or loss in the variation of fair value of biological assets is determined as the difference between the fair value of the biological assets compared to the cost incurred in planting and cultivating such biological assets. Fair value is measured based upon the selling price of the crops, determined based on the market prices of similar crops at their current growth stage, if such price can be determined, less cost to sell at the time of harvest. If the selling price of the crops cannot be determined, then fair value is determined based upon the present value of the future cash flows expected to be generated by the assets. The gain or loss is recognized in the statement of operations from the time of initial planting through the time of harvest.

(Impairment) reversal to net realizable value of agricultural products after harvest

A provision for impairment of inventories with respect to the market value of agricultural products is recognized when the fair value recorded in inventories is greater than the net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated cost of sales and selling expenses.

Cost of sales

Cost of sales for sugarcane and grains includes: (i) the historical cost of the inventories including costs of raw materials such as seeds, fertilizers, pesticides, fuels and lubricants, as well as labor, maintenance of machines and agricultural equipment, depreciation and amortization and (ii) the difference between such historical cost and the fair value of the grains and sugarcane at the time of harvest.

Operating expenses

•         Selling expenses : selling expenses refer mainly to shipping, storage, commissions, classification of products and other related expenses.

•         General and administrative expenses : general and administrative expenses refer mainly to personnel, legal counsel, depreciation and amortization, lease payments and expenses related to our headquarters.

 

Financial income and expenses

 

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Financial income and expenses consist mainly of interest from financial investments, foreign exchange variations, monetary variations, interest on financial assets and liabilities and realized and unrealized gains (losses) with derivative financial instruments.

Income and social contribution-current and deferred taxes

Current and deferred income tax and social contribution refer to taxes on net profits. We and our subsidiary Jaborandi Agrícola Ltda. assess such taxes under the taxable income regime, with a maximum rate of 34%, consisting of: (i) income tax, at a rate of 15% of profits; (ii) income tax surcharge of 10% levied upon profits exceeding R$240,000 per year; (iii) social contribution on net profit, at a rate of 9%; and (iv) deferred income and social contribution taxes.

Our other subsidiaries assess such taxes under the presumed profit regime under which the tax base is computed as a percentage of revenue. This consists of income and social contribution taxes at a rate of 15% (plus a 10% surcharge for amounts exceeding R$240,000 per year) and 9%, respectively, levied on (i) 8% and 12%, respectively, of property sales; (ii) 32% of leases and services; and (iii) other revenue and capital gains.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with IFRS. We summarize our significant accounting policies, judgments and estimates in Note 2 to our audited consolidated financial statements.

The critical accounting policies described herein are important to the presentation of our financial condition and results of our operations, requiring the most difficult, subjective and complex judgments by our management, often as a result of the need to make estimates and assumptions about matters that are inherently uncertain. While preparing our financial statements, our management uses estimates and assumptions to record assets, liabilities and transactions. Our financial statements include different subjective and complex estimates regarding, among others, accounting for revenue recognition for grains and farm sales and related accounts receivable, determining the fair value of derivatives, biological assets and accounting for investments in investment properties, warrant, residual value and useful life of property, plant and equipment, deferred taxes, share base payment and legal claims. In order to provide a better understanding of how our management makes its judgments about future events, including the variables and assumptions underlying such estimates, we have identified the following critical accounting policies:

Fair value of biological assets

The fair value of biological assets is determined using valuation methods, such as discounted cash flow. The inputs for estimates are based on market information, whenever possible, and when such inputs are not available, a certain level of judgment is required to estimate the fair value. Judgment involves, for example, price, productivity, crop cost and production cost. Changes in the assumptions involving any of these factors may affect the fair value calculations of biological assets.

Residual value and useful life of property, plant and equipment and investment properties

The value and useful life of assets are assessed and adjusted when necessary at the end of each reporting period. The carrying amount of the asset is immediately reduced to its recoverable value if the carrying amount is estimated to exceed the recoverable value.

Legal claims

We are party to judicial and administrative lawsuits, as described in Item 8-Financial Information-Legal Proceedings. Provisions are recorded for contingencies related to judicial lawsuits that are estimated to represent probable losses (present obligations resulting from past events where an outflow of resources is probable and can be reliably estimated). The evaluation of the probability of loss includes the opinion of external legal advisors. Management believes that these contingencies are properly recorded and presented in the financial statements.

 

Revenue recognition

 

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We recognize our revenue when the amount of revenue can be reliably measured, is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of our activities. We perform our estimations based on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each sale.

Sale of goods

Our revenue from grain and sugarcane sales is recognized when the significant risks and benefits of ownership of the goods are transferred to the purchaser, usually when the products are delivered to the purchaser at a certain location, according to the agreed sales terms.

In the case of grains, we normally perform forward contracts where the price is set up by us for the total or partial volume of grains to be sold at the delivery date, based on the calculations agreed on the selling contracts. Certain selling contracts are established in U.S. dollars where the amount in Reais is also established based on the foreign exchange rate according to the sale terms. The price can also be adjusted by other factors, such as humidity and other technical characteristics of grains. Upon the grains delivery, the revenue is recognized based on the price established with each purchaser considering the foreign exchange rate on the delivery date. After the grains are delivered to the addressee, the quality and final weight are evaluated, thus determining the final price of the transaction, and adjusting the contractual amounts in accordance with such factors as well as by the foreign exchange rate variation up to the settlement date.

Sale of farms

Sales of farms are not recognized as revenue until (i) the sale is completed, (ii) we determine that it is probable the buyer will pay, (iii) the amount of revenue can be measured reliably, and (iv) we have transferred all risks and rewards to the buyer, and do not have a continuing involvement. The result from sales of farms is presented in the statement of operations as “Gain on sale of farm” at net value of the related cost.

Revenue from leasing of land

The revenues from operating lease of land are recognized on a straight line basis over the leasing period. When the lease price is defined in quantities of agricultural products or livestock, the lease amount is recognized considering the price of the agricultural product or livestock effective at the balance sheet date or at the date established in contract. The amounts received in advance as leasing, where applicable, are recognized in current liabilities. Leasing revenues in which a significant portion of the risks and benefits of ownership are retained by the lessor are classified as operating leases.

Investment properties

The land of rural properties purchased by us is measured at acquisition cost, which does not exceed its net realizable value and is presented in “Non-current assets”. The fair value of the investment properties are obtained through valuation reports of the farms prepared by internal experts. The valuation is carried out according to market practices. Certain factors such as location, type of soil, climate of the region, calculation of the improvements, presentation of the elements and calculation of the land value are all taken into account during the valuation process.

Deferred income and social contribution taxes

        Deferred income and social contribution taxes are calculated to take into account all tax timing differences as follows: (1) income or expenses which are not yet taxable or deductible, such as gain on fair value of biological assets and provisions for contingencies, respectively; and (2) tax loss carryforwards, which have no expiration, when realization or recovery in future periods is considered probable.

        Deferred tax assets are generated under the taxable income regime only, based on our business plan. The business plan includes consideration of a variety of factors including the 30% annual limitation for utilizing tax loss carryforwards and changes in the Brazilian economic conditions. We evaluate whether a valuation allowance is required for these assets and deferred tax assets are recognized only to the extent that is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized, otherwise a valuation allowance is recorded. We also include in our evaluation the limitation of utilizing up to only 30% of annual taxable income in connection with recognition of tax loss carryforwards.

 

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Fair value of financial instruments

When the fair value of the financial assets and liabilities presented in the balance sheet cannot be obtained in the active market, it is determined using valuation techniques, including the discounted cash flow method. The data for such methods is based on those practiced in the market, when possible; however, when it is not viable, a certain level of judgment is required to establish the fair value. The judgment includes considerations on the data used, such as liquidity risk, credit risk, and volatility. Changes in the assumptions about these factors may affect the presented fair value of financial instruments.

  Transactions with share-based payment

         We measure the cost of transactions to be settled with shares with employees based on the fair value of equity instruments on the grant date. The estimate of the fair value of share-based payments requires the determination of the most adequate pricing model to grant equity instruments, which depends on the grant terms and conditions. It also requires the determination of the most adequate data for the pricing model, including the expected option life, volatility and dividend yield, and the corresponding assumptions.

Jobs Act

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain requirements for qualifying public companies.

Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things, provide an auditor’s attestation report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act or to comply with PCAOB rules that, if adopted in the future, would require mandatory audit firm rotation and auditor discussion and analysis and any future audit rule promulgated by the PCAOB. These exemptions apply until we are no longer an “emerging growth company.” The JOBS Act also provides “emerging growth companies” an election to comply with new or revised accounting standards on a delayed basis for those standards that have a different effective date for public and private companies. However, such election is limited to companies that prepare their financial statements and report in accordance with accounting principles generally accepted in the United States of America. As our financial statements are prepared in accordance with IFRS, such accommodation is not available to us, and we will be required to apply new or revised accounting standards under IFRS as from the effective date established in the corresponding standard.

 

Results of Operations

The following discussion of our results of operations is based on our consolidated financial statements prepared in accordance with IFRS. The discussion of the results of our business segments is based upon financial information reported for each of the segments of our business, as presented in the table below.

The following tables set forth operating results of each of our segments and the reconciliation of these results of our segments to our consolidated statement of operations.

 

 

Year Ended June 30, 2015

 

 

Total

 

Grains

 

Sugarcane

 

Real
Estate

 

Other

 

Not
allocated

 

 

(R$ thousand)

Net revenue

174,351

116,289

52,925

—

5,137

—

Gain on sale of farms

193,464

—

—

193,464

—

—

Changes in fair value of biological assets and agricultural products

9,788

6,031

4,053

—

(296)

—

(Impairment) reversal of impairment of net realizable value of agricultural products after harvest

(3,038)

(3,036)

—

—

(2)

—

Cost of sales

(170,489)

(112,714)

(52,799)

—

(4,976)

—

 

 

 

 

 

 

 

Gross profit (loss)

204,076

6,570

4,179

193,464

(137)

—

 

 

 

 

 

 

 

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Year Ended June 30, 2015

 

 

Total

 

Grains

 

Sugarcane

 

Real
Estate

 

Other

 

Not
allocated

 

 

(R$ thousand)

 

 

 

 

 

 

 

Operating income (expenses)

 

 

 

 

 

 

Selling expenses

(9,006)

(5,762)

—

(3,168)

(76)

—

General and administrative expenses

(29,360)

—

—

—

—

(29,360)

Other operating income (expenses), net

(3,422)

—

—

—

—

(3,422)

Equity pick up

(4,355)

—

—

—

—

(4,355)

Financial income

122,552

15,693

—

5,099

—

101,760

Financial expenses

(89,914)

(17,598)

—

(6,338)

—

(65,978)

 

 

 

 

 

 

 

Profit (loss) before income and social contribution taxes

190,571

(1,097)

4,179

189,057

(213)

(1,355)

Income and social contribution taxes

(9,761)

373

(1,421)

(7,347)

72

(1,438)

 

 

 

 

 

 

 

Profit (loss) for the year

180,810

(724)

2,758

181,710

(141)

(2,793)

 

 

 

 

 

 

 

 

 

Year Ended June 30, 2014

 

 

Total

 

Grains

 

Sugarcane

 

Real
Estate

 

Other

 

Not
allocated

 

 

(R$ thousand)

Net revenue

131,314

91,645

38,235

—

1,434

—

Gain on sale of farms

21,845

—

—

21,845

—

—

Changes in fair value of biological assets and agricultural products

1,092

2,059

(719)

—

(248)

—

(Impairment) reversal of impairment of net realizable value of agricultural products after harvest

(2,043)

(2,040)

—

—

(3)

—

Cost of sales

(138,535)

(98,529)

(34,790)

—

(5,216)

—

 

 

 

 

 

 

 

Gross profit (loss)

13,673

(6,865)

2,726

21,845

(4,033)

—

 

 

 

 

 

 

 

Operating income (expenses)

 

 

 

 

 

 

Selling expenses

(10,239)

(7,283)

—

(2,430)

(526)

—

General and administrative expenses

(30,378)

—

—

—

—

(30,378)

Other operating income (expenses), net

285

—

—

—

—

285

Equity pick up

(704)

—

—

—

—

(704)

Financial income

40,051

8,556

—

714

—

30,781

Financial expenses

(41,611)

(5,009)

—

(3,439)

—

(33,163)

 

 

 

 

 

 

 

Profit (loss) before income and social contribution taxes

(28,923)

(10,601)

2,726

16,690

(4,559)

(33,179)

Income and social contribution taxes

15,561

3,604

(927)

(1,039)

1,550

12,373

 

 

 

 

 

 

 

Profit (loss) for the year

(13,362)

(6,997)

1,799

15,651

(3,009)

(20,806)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended June 30, 2013

 

 

Total

 

Grains

 

Sugarcane

 

Real
Estate

 

Other

 

Not
allocated

 

 

(R$ thousand)

Net revenue

185,647

123,237

61,022

—

1,388

—

Gain on sale of farms

54,815

—

—

54,815

—

—

Changes in fair value of biological assets and agricultural products

2,289

(22,681)

25,060

—

(90)

—

(Impairment) reversal of impairment of net realizable value of agricultural products after harvest

1,659

1,659

—

—

—

—

Cost of sales

(170,643)

(105,401)

(61,157)

—

(4,085)

—

 

 

 

 

 

 

 

Gross profit (loss)

73,767

(3,186)

24,925

54,815

(2,787)

—

 

 

 

 

 

 

 

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Year Ended June 30, 2013

 

 

Total

 

Grains

 

Sugarcane

 

Real
Estate

 

Other

 

Not
allocated

 

 

(R$ thousand)

Operating income (expenses)

 

 

 

 

 

 

Selling expenses

(14,028)

(9,790)

(68)

(4,294)

124

—

General and administrative expenses, net

(29,233)

—

—

—

—

(29,233)

Other operating income (expense)

(3,539)

—

—

—

—

(3,539)

Financial income

38,000

14,656

—

148

—

23,196

Financial expenses

(38,591)

(19,856)

—

(17)

—

(18,718)

 

 

 

 

 

 

 

Profit (loss) before income and social contribution taxes

26,376

(18,176)

24,857

50,652

(2,663)

(28,294)

Income and social contribution taxes

2,351

6,180

(8,451)

(17,222)

905

20,939

 

 

 

 

 

 

 

Profit (loss) for the year

28,727

(11,996)

16,406

33,430

(1,758)

(7,355)

 

 

 

 

 

 

 

 

The table below shows a summary of our statement of operations for the years indicated. For convenience, we have also presented the information below for the year ended June 30, 2015 in U.S. dollar using the exchange rate of R$3.8656 per US$1.00 as of October 20, 2015, which is the most recent practicable date.

 

 

 

 

 

 

 

Year ended June 30,

 

 

2015

 

2015

 

2014

 

2013

 

 

(US$
thousand, except share and per share information)

(R$ thousand)

Net revenue

45,103

174,351

131,314

185,647

Gain on sale of farms

50,048

193,464

21,845

54,815

Changes in fair value of biological assets and agricultural products

2,532

9,788

1,092

2,289

(Impairment) Reversal of impairment of net realizable value of agricultural products after harvest

(786)

(3,038)

(2,043)

1,659

Cost of sales

(44,104)

(170,489)

(138,535)

(170,643)

Gross profit

52,793

204,076

13,673

73,767

Selling expenses

(2,330)

(9,006)

(10,239)

(14,028)

General and administrative expenses

(7,595)

(29,360)

(30,378)

(29,233)

Other operating income (expenses), net

(885)

(3,422)

285

(3,539)

Equity pick up

(1,127)

(4,355)

(704)

—  

Operating income (loss)

40,856

157,933

(27,363)

26,967

Financial income

31,703

122,552

40,051

38,000

Financial expenses

(23,260)

(89,914)

(41,611)

(38,591)

Profit (loss) before income and social contribution taxes

49,299

190,571

(28,923)

26,376

Income and social contribution taxes

(2,525)

(9,761)

15,561

2,351

Profit (loss) for the year

46,774

180,810

(13,362)

28,727

Profit (loss) attributable to:

 

 

 

 

Equity holders of the parent

46,774

180,810

(13,362)

28,727

Non-controlling interests

—  

—  

—  

—  

Issued shares at the year end

58,226,600

58,226,600

58,422,400

58,422,400

Basic earnings (loss) per share in R$/US$

0.8

3.10

(0.23)

0.49

Diluted earnings (loss) per share in R$/US$

0.8

3.10

(0.23)

0.49

 

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Year Ended June 30, 2015 Compared to Year Ended June 30, 2014

Net revenue

Net revenue increased R$43.0 million from R$131.3 million for the year ended June 30, 2014 to R$174.4 million for the year ended June 30, 2015. This increase was mainly due to:

i.         Revenue from grain sales : revenue from grain sales increased R$24.6 million from R$91.6 million for the year ended June 30, 2014 (reflecting sales of 122,415 tons at an average price of R$748.64 per ton) to R$116.3 million for the year ended June 30, 2015 (reflecting sales of 160,386 tons at an average price of R$725.05 per ton).

           Revenue from soybean sales: revenue from soybean sales increased R$19.6 million from R$82.0 million (sale of 95,700 tons at R$857.65 per ton) for the year ended June 30, 2014 to R$101.7 million (sale of 113,200 tons at R$898.28 per ton) for the year ended June 30, 2015. This represents an increase of 24% over the previous year, being 5% from the increase in soybean prices and 18.3% from higher sales in the period.

           Revenue from corn sales: revenue from corn sales increased R$ 5.0 million from R$9.6 million (sale of 26,700 tons at R$359.32 per ton) for the year ended June 30, 2014 to R$14.6 million (sale of 47,200 tons at R$309.82 per ton) for the year ended June 30, 2015. This represents an increase of 52% over the previous year, resulting from a 76.7% increase in sales, which was partially offset by a 13.8% decrease in prices.

ii.        Revenue from sugarcane sales : revenue from sugarcane sales increased R$14.7 million from R$38.2 million (reflecting sales of 570,820 tons at an average price of R$66.98 per ton) for the year ended June 30, 2014 to R$52.9 million (reflecting sales of 830,204 tons at an average price of R$63.75 per ton) for the year ended June 30, 2015. The growth in the amount of tons of sugarcane was mainly due to the increase in the period harvest area from 7,583 hectares to 8,196 hectares. The decrease in the price of sugarcane per ton was due to a 4% decrease in average TRS (total recoverable sugar) kilo per ton harvested, from 140.31 kg/ton for the year ended June 30, 2014 to 134.40 kg/ton for the year ended June 30, 2015.

 

 

 

 

 

 

 

 

 

Planted Area
(hectare)

 

Productivity
(tons)

 

Revenue
(R$ thousand)

 

 

2015

 

2014

 

2015

 

2014

 

2015

 

2014

 

Grain

61,376

59,271

160,386

122,415

116,289

91,645

Sugarcane

8,196

7,583

830,204

570,820

52,925

38,235

Gain on sale of farms

Gain on sale of farms increased R$171.6 million from R$21.9 million for the year ended June 30, 2014 to R$193.5 million for the year ended June 30, 2015. On June 10, 2015, we sold 27,745 hectares of the Cremaq farm in the State of Piauí for R$270.0 million, of which R$242.0 million related to the sale of the land and R$28.0 million to the sale of assets invested in the property. We have received a payment of R$5.0 million paid upfront, and an additional payment of R$62.5 million, paid when the possession of the land and the assets were transferred to the purchaser. The remaining amount of R$202.5 million was deposited in an escrow account (restricted cash) and will be released when the following conditions are fulfilled: (i) drafting of the deed of 18 registrations; (ii) registration of the deed of 6,020 hectares; and (iii) petition protocol for termination of the legal action for maintenance of ownership and obtaining of environmental licenses for an additional unexplored area of 150 hectares. On June 30, 2015, final  purchase and sale deeds were drafted for the total area sold except for the real estate registration with respect to 6,020 hectares which is in the process of georeferenced dismembering. Below is the breakdown of gains from sales of farm and property, plant and equipment:

 

Gain on sale of farms
(R$ thousand)

 

Gain on sale of property, plant and equipment
(R$ thousand)

 

Cremaq sale
(R$ thousand)

Sale of farms

238,000

 

-

 

238,000

Sale of assets and properties

-

 

28,000

 

28,000

Balance related to environmental license

-

 

-

 

4,000

 

238,000

 

28,000

 

270,000

           

Cost from sale of farms

(35,790)

 

-

   

Cost from opening of area

(500)

 

-

 

 

Cost from sale of assets and properties

-

 

(27,843)

   

Taxes

(8,687)

 

-

   
 

193,023

 

157

   

* Cremaq remaining balance

441

 

-

   
 

193,464

 

157

   


* The remaining balance of R$441 thousands resulting from the gain on sale of farms in the statement of operations refers to a supplementary sale which occurred on February 20, 2015 in Imobiliária Cremaq.

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For the year ended June 30, 2014, we sold 1,164 hectares of the Araucária farm, for which we recognized a gain of R$21.8 million, representing the difference between the carrying amount of the farm and the proceeds from the sale of R$33.7 million.

Changes in fair value of biological assets and agricultural products

Changes in fair value of biological assets and agricultural products increased from a profit of R$1.1 million for the year ended June 30, 2014 to a profit of R$9.8 million for the year ended June 30, 2015. This increase resulted mainly from the increase in the fair value of biological assets and agricultural products of grains from a profit of R$2.1 million for the year ended June 30, 2014 to a profit of R$6.0 million for the year ended June 30, 2015. Such variation was mainly due to a severe drought in 2014 that hit the farms in Bahia and had a direct impact in the soybean yield from the farms in Bahia as well as the first corn crop, whose production is concentrated in Bahia. In addition, the fair value of biological assets and agricultural products of sugarcane change from a loss of R$719 thousand for the year ended June 30, 2014 to a profit of R$4.1 million for the year ended June 30, 2015. Such variation was a result mainly from an increase in sugarcane areas (from 20,927 hectares to 27,909 hectares), adjustments in price (from R$73.27 to R$71.03) and assumptions of the cutting, carrying and transportation costs of sugarcane (from R$50.63 to R$55.67).

  (Impairment) reversal of impairment of net realizable value of agricultural products after harvest

Impairment of net realizable value of agricultural products after harvest increased from R$2.0 million for the year ended June 30, 2014 to R$3.0 million for the year ended June 30, 2015. Such variations resulted from the reduction in the corn price from the harvest time to the end of the respective fiscal year.

Cost of sales

Cost of sales increased R$32.0 million from R$138.5 million for the year ended June 30, 2014 to R$170.5 million for the year ended June 30, 2015, resulting mainly from the fair value adjustments of agricultural products. Changes in costs year-over-year are directly linked to the market prices of commodities at the time of harvest.

i.         Cost of soybean sold: our average cost per ton of soybean sold decreased 5.7% from R$930.36 per ton (corresponding to 95,700 tons at a total cost of R$89.0 million) for the year ended June 30, 2014 to R$876.88 per ton (corresponding to 113,100 tons at a total cost of R$99.2 million) for the year ended June 30, 2015.

ii.        Cost of corn sold: our average cost per ton of corn sold decreased 18.7% from R$351.03 per ton (corresponding to 26,700 tons at a total cost of R$9.4 million) for the year ended June 30, 2014 to R$285.42 per ton (corresponding to 47,200 tons at a total cost of R$13.5  million) for the year ended June 30, 2015.

iii.       Cost of sugarcane sold : our average cost per ton of sugarcane sold increased from R$60.95 per ton (corresponding to 570,820 tons at a total cost of R$34.8 million) for the year ended June 30, 2014 to R$63.6 per ton (corresponding to 830,204 tons at a total cost of R$52.8 million) for the year ended June 30, 2015.

 

Gross profit

For the reasons mentioned above, our gross profit for the year ended June 30, 2015 was R$204.1 million, representing an increase of R$190.4 million as compared to R$13.7 million for the year ended June 30, 2014.

Selling expenses

Selling expenses decreased R$1.2 million from R$10.2 million for the year ended June 30, 2014 to R$9.0 million for the year ended June 30, 2015, primarily as a result of the reversal of provisions for doubtful debt totaling R$525 thousand in fiscal 2015 (compared to the constitution of such provision in the amount of R$2.7 million in fiscal 2014), the reversal of provisions for onerous contracts totaling R$579 thousand in fiscal 2015 and  the decrease in commissions on farm sales from

 

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R$1.4 million for the year ended June 30, 2014 to R$168.0 thousand for the year ended June 30, 2015. No commission was due in connection with the sale of the Cremaq farm because no broker was hired for this sale.

General and administrative expenses

General and administrative expenses decreased R$1.0 million from R$30.4 million for the year ended June 30, 2014 to R$29.4 million for the year ended June 30, 2015.

 

        The 3.4% decrease in general and administrative expenses was primarily a result of the renegotiation of service contracts and the organizational restructuring. The organizational restructuring generated approximately 5.0% decrease in personnel expenses for the year ended June 30, 2015, which was partially offset by the adjustment to the provision for employee bonus payments and severance pay expenses. 

Other operating income (expenses), net

For the year ended June 30, 2015, we recognized other operating  income, net of other operating expenses, of R$3.4 million, which mainly refer to: (i) the partial write-off of intangible assets from the sale of 24,000 hectares related to the Cresca land and exploration rights contract of R$612 thousand; and (ii) a payment related to a hereditary rights lawsuit. For the year ended June 30, 2014, we recorded other operating income, net of other operating expenses, of R$285 thousand of which R$1.2 million were reversal of provisions for legal claims and R$1.5 million were losses on sale of  fixed assets.

Equity pick up

For the year ended June 30, 2015, we recorded a loss of R$4.4 million comprised of R$3.1 million related to the difference between the fair value of Cresca’s land sold and its higher book value and a loss of R$1.2 million from Cresca’s results (a loss of R$705 thousand for the year ended June 30, 2014).

 

Financial income (expenses), net

Financial income increased R$82.5 million from R$40.1 million for the year ended June 30, 2014 to R$122.6 million for the year ended June 30, 2015 and the financial expenses increased R$48.3 million from R$41.6 million for the year ended June 30, 2014 to R$89.9 million for the year ended June 30, 2015. The change in financial income (expenses), net is attributable mainly to:

i.     The increase in gain on remeasurement of receivables from sale of farms and machinery from R$19.1 million for the year ended June 30, 2014 to R$41.5 million for the year ended June 30, 2015 and the increase in the loss on remeasurement of receivables from sale of farms and machinery from R$13.6 million for the year ended June 30, 2014 to R$23.2 million for the year ended June 30, 2015, which  related mainly to the adjustment to the present value of such receivables. The net gain on remeasurement of receivables from sale of farms and machinery of R$12.8 million was mainly due to the impact of the appreciation of the dollar on the soybean price on the adjustment to the fair value of receivables from sales of farms.

ii.      The increase in foreign exchange income from R$6.0 million for the year ended June 30, 2014 to R$14.7 million for the year ended June 30, 2015 and the increase in foreign exchange expenses from R$5.7 million for the year ended June 30, 2014 to R$8.1 million for the year ended June 30, 2015, which resulted in a net gain of R$6.3 million in the period. This increase in foreign exchange income (expenses), net refers mainly to the impact of the appreciation of the dollar on accounts receivable from Cresca.

iii.     The increase of R$49.5 million of realized and unrealized derivatives transactions income from R$2.8 million for the year ended June 30, 2014 to R$52.3 million for the year ended June 30, 2015,and the increase of R$31.5 million of realized and unrealized derivatives transactions (expenses) from R$8.4 million for the year ended June 30, 2014 to R$39.9 million for the year ended June 30, 2015, which resulted in a net gain of R$18.0 million. This increase refers mainly to the gain of the hedge in U.S. dollars of soybean futures market and OTC transactions.

iv.    The increase in interest on liabilities from R$10.7 million for the year ended June 30, 2014 to R$13.9 million for the year ended June 30, 2015 in connection with the increase of the interests rates in the long-term loans and financing to develop the farms.

 

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Income tax and social contribution

We recognized income and social contribution tax expenses of R$9.8 million for the year ended June 30, 2015, as compared to a credit of R$15.6 million for the same period in 2014. This variation is mainly due to the fact that we recognized deferred income taxes net of R$18.3 million on June 30, 2014, while we had profits for the year ended June 30, 2015 resulting in income and social contribution tax expenses.

Profit (loss) for the year

 

For the reasons discussed above, we recorded a profit of R$180.8 million for the year ended June 30, 2015, as compared to a loss of R$13.4 million for the same period in 2014.

 

Year Ended June 30, 2014 Compared to Year Ended June 30, 2013

Net revenue

Net revenue decreased R$54.3 million from R$185.6 million for the year ended June 30, 2013 to R$131.3 million for the year ended June 30, 2014. This decrease was mainly due to:

i.         Revenue from grain sales : revenue from grain sales decreased R$31.6 million from R$123.2 million for the year ended June 30, 2013 (reflecting sales of 165,000 tons at an average price of R$746.89 per ton) to R$91.6 million for the year ended June 30, 2014 (reflecting sales of 122,415 tons at an average price of R$748.64 per ton). The decrease in revenue from grain sales is mainly due to the decrease in the amount produced from 165,000 tons during the year ended June 30, 2013 to 122,415 tons for the year ended June 30, 2014, as a result of reduction in soybean and corn yields, due to the severe drought that hit the farms in Bahia, which had a direct impact on the upturn in grain revenue; and

ii.        Revenue from sugarcane sales : revenue from sugarcane sales decreased R$22.8 million from R$61.0 million (reflecting sales of 1,048,000 tons at an average price of R$58.23 per ton) for the year ended June 30, 2013 to R$38.2 million (reflecting sales of 570,820 tons at an average price of R$66.98 per ton) for the year ended June 30, 2014. This decrease was mainly due to the difference in the harvest period, which in fiscal 2013 was concentrated between June and October 2012 and in fiscal 2014 was concentrated between April and September 2013.

 

 

 

 

 

 

 

 

 

Planted Area
(hectare)

 

Productivity
(tons)

 

Revenue
(R$ thousand)

 

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

Grain

59,271

60,063

122,415

165,000

91,645

123,237

Sugarcane

7,583

9,198

570,820

1,048,000

38,235

61,022

Gain on sale of farms

Gain on sale of farms decreased R$33.0 million from R$54.8 million for the year ended June 30, 2013 to R$21.8 million for the year ended June 30, 2014. The decrease was due to the sale of 19,648 hectares of land in the year ended June 30, 2013, corresponding to: (i) total area of 14,359 hectares of the Horizontina farm; and (ii) areas of the Araucária (394 hectares) and Cremaq (4,895 hectares) farms, for which we recognized a gain of R$54.8 million representing the difference between the proceeds from the sale of R$122.7 million and the carrying amount of the farms, while, during the year ended June 30, 2014, we sold 1,164 hectares of the Araucária farm, for which we recognized a gain of R$21.8 million, representing the difference between the carrying amount of the farm and the proceeds from the sale of R$33.7 million.

Changes in fair value of biological assets and agricultural products

Changes in fair value of biological assets and agricultural products decreased from a profit of R$2.3 million for the year ended June 30, 2013 to a profit of R$1.1 million for the year ended June 30, 2014, resulting mainly from a decrease in sugarcane areas and adjustments in price assumptions of the cutting, carrying and transportation costs of sugarcane. Change in the variation of the fair value of biological assets are determined by the difference between their fair value and their carrying amount. Carrying amount includes investments and costs effectively incurred until the moment of appraisal.

 

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(Impairment) reversal of impairment of net realizable value of agricultural products after harvest

Reversal of impairment to net realizable value of agricultural products after harvest decreased from a gain of R$1.7 million for the year ended June 30, 2013 to a loss of R$2.0 million for the year ended June 30, 2014. Such variations result from the difference in the price of grain inventories from the time of harvest to the closing of the respective accounting period.

Cost of sales

Cost of sales decreased by R$32.1 million to R$138.5 million for the year ended June 30, 2014 from R$170.6 million for the year ended June 30, 2013, resulting mainly from:

i.         Cost of grains sold: our average cost per ton of grains sold increased by R$166.09 per ton, from R$638.79 per ton (corresponding to 165,000 tons at a total cost of R$105.4 million) for the year ended June 30, 2013 to R$804.88 per ton (corresponding to 122,415 tons at a total cost of R$98.5 million) for the year ended June 30, 2014.

ii.        Cost of sugarcane sold : our average cost per ton of sugarcane sold was R$58.4 per ton (corresponding to 1,048,000 tons at a total cost of R$61.2 million) for the year ended June 30, 2013 and R$60.9 per ton (corresponding to 570,820 tons at a total cost of R$34.8 million) for the year ended June 30, 2014.

 

Gross profit

For the reasons mentioned above, our gross profit for the year ended June 30, 2014 was R$13.7 million, representing a decrease of R$60.1 million as compared to R$73.8 million for the year ended June 30, 2013. The change in gross profit is attributable mainly to:

i.         the decrease in the gain on sale of farms from R$54.8 million, for the year ended June 30, 2013 (sale of the Horizontina farm and areas of the Araucária and Cremaq farms) to R$21.8 million for the year ended June 30, 2014 (sale areas of the Araucária farms);

ii.        the 37% decrease in the supply of sugarcane to Brenco, which generated revenue of R$38.2 million (570,820 tons); and

iii.       the 26% decrease in revenue from grain sales, which generated revenue of R$91.6 million for the year ended June 30, 2014 (122,415 tons).

Selling expenses

Selling expenses decreased R$3.8 million from R$14.0 million for the year ended June 30, 2013 to R$10.2 million for the year ended June 30, 2014, primarily as a result of (i) the decrease in commissions on farm sales from R$4.3 million for the year ended June 30, 2013 to R$1.4 million for the year ended June 30, 2014; and (ii) the decrease in the expenses with storage from R$6.1 million for the year ended June 30, 2013 to R$2.8 million for the year ended June 30, 2014, as a result of the reduction of grains storage during the period.

General and administrative expenses

General and administrative expenses increased by R$1.2 million from R$29.2 million for the year ended June 30, 2013 to R$30.4 million for the year ended June 30, 2014.

 

        The 3.9% increase in general and administrative expenses was primarily a result of the increase in personnel expenses due to the higher payroll following the 7.5% annual pay rise.

Other operating income (expenses), net

For the year ended June 30, 2014, we recorded other operating income, net of other operating expenses, of R$285 thousand of which R$2.4 million are reversal in provisions for probable losses in legal proceedings, which were partially offset by R$1.2 million of provisions for contingencies for probable losses in legal proceedings and R$1.5 million of losses on sale of property, plant and equipment. We recorded a loss of R$3.5 million for the year ended June 30, 2013, as a result of provisions for contingencies for probable losses in legal proceedings.

 

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Equity pick up

For the year ended June 30, 2014, we recorded a loss of R$704 thousand as equity pickup in connection with R$17 thousand of the result of Green Ethanol participation and R$687 thousand of Cresca’s result. The investment in Cresca was booked on the purchase date in December 2013. The Company began booking equity pick up from Cresca’s result beginning January 2014.

 

Financial income

Financial income increased R$2.1 million from R$38.0 million for the year ended June 30, 2013 to R$40.1 million for the year ended June 30, 2014, primarily due to (i) interest on receivables in the amount of R$2.6 million for the year ended June 30, 2014, compared to R$11.0 million in the previous year, related mainly to the adjustment in the present value on sale of farms; (ii) gain on revaluation of receivables from sale of farms and machinery of R$19.1 million for the year ended June 30, 2014, compared to R$214 thousand in the previous year, related mainly to the revaluation of the receivables from sale of farms; (iii) foreign exchange variations of R$6.0 million for the year ended June 30, 2014, compared to R$5.1 million in the previous year, as a result of margin deposits as collateral for derivative transactions, and (iv) increase by R$3.9 million of interest income on financial investments from R$5.6 million in fiscal 2013 to R$9.5 million in the fiscal 2014, which was consistent with the increase in the amount invested in the FIM Guardian investment fund. This movement was partially offset by the decrease of R$13.2 million in unrealized profit with derivatives transactions of R$2.8 million for the year ended June 30, 2014 compared to R$16.0 million in the previous year.

Financial expenses

Financial expenses increased R$3.0 million from R$38.6 million for the year ended June 30, 2013 to R$41.6 million for the year ended June 30, 2014, mainly as a result of (i) an increase in monetary variation from R$1.5 million in 2013 to R$2.3 million for the year ended June 30, 2014; (ii) an increase of R$10.2 million in the present value of receivables from sale of farm from R$3.4 million for the year ended June 30, 2013 to R$13.6 million for the year ended June 30, 2014; (iii) foreign exchange variations of R$5.7 million for the year ended June 30, 2014, compared to R$3.1 million in the previous year, as a result of margin deposits as collateral for derivative transactions, and (iv) interest on liabilities from R$8.5 million in 2013 to R$10.7 million for the year ended June 30, 2014 in connection with long term loans and financing to develop the farms. This movement was partially offset by the decrease of the net impact on realized and unrealized losses from derivatives by R$12.6 million as a result of lower volume of commodities and foreign exchange fluctuations in 2014 compared to the previous year.

Income tax and social contribution

We recognized a credit for income and social contribution taxes of R$15.6 million for the year ended June 30, 2014, as compared to a credit of R$2.3 million for the same period in 2013. This increase is mainly due to (i) a decrease in income taxes and social contribution from R$7.9 million for the year ended June 30, 2013 to R$2.8 million for the year ended June 30, 2014, as a result of the receivables from farm sales during the year and (ii) an increase in the deferred income taxes and social contribution taxes, mainly related to recognition of credit on tax loss carry forwards from R$10.3 million for the year ended June 30, 2013 to R$18.3 million for the year ended June 30, 2014.

Profit (loss) for the year

For the reasons discussed above, we recorded a loss of R$13.4 million for the year ended June 30, 2014, as compared to a profit of R$28.7 million for the same period in 2013. 

B. Liquidity and Capital Resources

As of June 30, 2015, we hold R$348.9 million in cash and cash equivalents and markable securities. We usually hold cash and cash equivalents in Certificate of Deposits and Repurchase Agreements issued by banks rated at least AA by Moody’s and Brazilian and American government bonds.

Throughout the year, our working capital needs vary significantly depending on the harvest period of grains, sugarcane and other crops in Brazil. See “Item 4. Information on the Company – B. Business Overview – Seasonality.”

 

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We believe that our current liquidity and capital resources, together with our ability to obtain loans and credit facilities and, when appropriate, to raise equity in the capital markets, are sufficient to meet our cash flow needs.

Sources and Uses of Funds

We finance our investments both by using our own resources as well as through loans and credit facilities with development banks and governmental development agencies, under which interest rates are lower than market rates, due to the fact that such credit facilities have long-term characteristics. Our principal sources of financing are discussed below under the heading “Indebtedness and cash and cash equivalents” and our main uses of funds include acquisition of land, cultivation of sugarcane, improvements and acquisition of machinery and vehicles.

The investments made in the fiscal year ended June 30, 2015 totaled R$30.6 million, all of which were used for the development of land for cultivation of grains.

Cash Flows

Our cash flow generation from operating activities may vary from period to period depending on fluctuations in our sales and service revenue, costs of goods sold, operating income (expenses), and may also vary within such periods as a result of seasonality. Operating activities primarily refer to revenue generated from the sale of grains and sugarcane.

Investing activities primarily refer to the acquisition of agricultural properties, developing of such properties for cultivation, purchasing machines, and remodeling, construction and improvements to agricultural properties and sale of farms.

Financing activities primarily refer to loans and credit facilities, principally from development banks, for the development of new projects and the purchase of machines and equipment.

The following table summarizes our cash flows for the periods indicated. For convenience, we have also presented the information below for the year ended June 30, 2015 in U.S. dollar using the exchange rate of R$3.8656 per US$1.00 as of October 20, 2015, which is the most recent practicable date.

 

 

 

 

 

 

 

Year ended June 30,

 

 

2015

 

2015

 

2014

 

2013

 

 

(US$ thousand)

(R$ thousand)

CONSOLIDATED CASH FLOW

 

 

 

 

Net cash flows from (used in) operating activities

(2,891)

(11,175)

22,880

(46,472)

Net cash flows from (used in) investment activities

5,161

19,952

(9,850)

54,085

Net cash flows from (used in) financing activities

(5,148)

(19,902)

(1,979)

617

 

 

 

 

 

Net change in cash and cash equivalents

2,878

(11,125)

11,051

8,230

 

 

 

 

 

Years ended June 30, 2015 and 2014

Operating activities: Net cash used in operating activities was R$11.2 million for the year ended June 30, 2015 compared to net cash generated from operating activities of R$22.9 million for the year ended June 30, 2014. The change was primarily due to the payment of the remaining installment of Cresca’s acquisition to Cresud in the amount of R$33.0 million.

Investing activities: Net cash generated from investing activities was R$20.0 million for the year ended June 30, 2015 compared to net cash of R$9.9 million used in the same period in 2014. This change was mainly due to the increase in the cash collected in farm sale from R$35.2 million for the year ended June 30, 2014 to R$105.8 million for the year ended June 30, 2015, partially offset by (i) the increase in the capitalization of Cresca from R$14.5 million in fiscal 2014 to R$25.9 million for the year ended June 30, 2015 and (ii) the increase in marketable securities in the amount of R$27.5 million for the year ended June 30, 2015 compared to withdrawals in the amount of R$1.2 million for the year ended June 30, 2014.

Financing activities: Net cash used in financing activities was R$19.9 million for the year ended June 30, 2015 compared  to R$2.0 million in the same period in 2014. Such change was primarily due to: (i) a R$97.4 million (R$56.7 million in fiscal year 2014) proceeds from loans and financing during the year ended June 30, 2015, partially offset by R$101.4 million (R$44.1 million in fiscal year 2014) of payments of loans and financing; (ii) a R$15.7 million (R$2.2 milllion

 

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in fiscal year 2014) of interest paid on loans and financing and (iii) a R$5.8 million of dividends paid in fiscal year 2014, which did not occur in fiscal year 2015.

Years ended June 30, 2014 and 2013

Operating activities: Net cash generated from operating activities was R$22.8 million for the year ended June 30, 2014 compared to net cash used in operating activities of R$46.5 million for the year ended June 30, 2013. The change was primarily due to the collection of the receivables from 2013/2014 crop and the increase of advance from customers of R$12.9 million for the year ended June 30, 2014.

Investing activities: Net cash in investment activities changed from R$54.1 million generated in the year ended June 30, 2013 to R$9.8 million used in the same period in 2014. This change was mainly due to the decrease in the cash received from sales of farm from R$86.5 million in 2013 to R$35.2 million for the year ended June 30, 2014 and the investment to acquire Cresca S.A. in the amount of R$23.0 million.

Financing activities: Net cash in financing activities changed from R$617 thousand generated in the year ended June 30, 2013 to R$1.9 million used in the same period in 2014. Such change was primarily due to a R$9.8 million net proceeds from loans and financing disbursed during the year, partially offset by R$5.8 million of dividends paid and R$1.9 million of treasury shares purchased under the share buyback program.

 

Indebtedness and Cash and Cash Equivalents

Our total consolidated indebtedness (loans and financing) was R$110.1 million as of June 30, 2015, as compared to R$120.2 million as of June 30, 2014. Our short-term indebtedness as of June 30, 2015 amounted to R$50.9 million, as compared to R$62.3 million as of June 30, 2014. Of the total indebtedness outstanding as of June 30, 2015, 53.8% consisted of medium and long-term debt, as compared to 48.2% as of June 30, 2014.

Current indebtedness

On June 30, 2015, our short-term indebtedness was R$50.9 million, as compared to R$62.3 million on June 30, 2014.

Non-current indebtedness

On June 30, 2015, our long-term indebtedness was R$59.2 million, as compared to R$57.9 million on June 30, 2014.

Our indebtedness is primarily composed of loans and credit facilities with development banks and government agencies, by means of direct or indirect disbursements, and acquisitions payable with regard to our agricultural properties. Interest rates are generally lower than prevailing rates in Brazil, due to the fact that these credit facilities have long-term characteristics and other terms specific to the development agencies.

 

Financing Agreements

 All loans and financing agreements listed below are in Reais and have specific terms and conditions defined in the respective contracts with governmental economic and development agencies (including the Brazilian Development Bank – BNDES and the Northeastern Development Bank - BNB) that directly or indirectly grant those loans. There is also a financing in U.S. dollars which gathers conditions defined in contracts with local commercial banks. As of June 30, 2015 and 2014, our financing agreements had no financial covenants, but rather only operating clauses, and we are in compliance with all such operating clauses in all material respects.

The table below summarizes our material outstanding loans and financing agreements as of June 30, 2015.

 

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Type of credit transaction

 

Creditor/
Transfer agent

 

Amount
disbursed

 

Outstanding
balance

 

Interest rate

 

Final maturity

 

Current

 

Noncurrent

 

 

 

(R$ thousand)

(R$ thousand)

 

 

(R$ thousand)

(R$ thousand)

 

 

 

 

 

 

 

 

Financing for Agricultural Costs

Banco do Nordeste Brasil S.A. –BNB

44,712

25,595

7.51% to 15.12%/year
TJLP + 3.45 and 4.45 Selic
+ 3.45

Nov - 15

25,595

-

 

 

 

 

 

 

 

 

Working capital

Banco Santander

-

5,066

83.48% CDI/year

Sep - 15

5,066

-

 

 

 

 

 

 

 

 

Working capital (USD)

Banco Santander

-

4,832

1,6905%/year

Sep - 15

4,832

-

 

 

 

 

 

 

 

 

Financing of Sugarcane

Banco Itaú BBA S.A./Santander

4,595

3,336

TJLP +

3.00% to 4.40%/ year

Feb - 20

1,620

1,716

 

 

 

 

 

 

 

 

Financing of Machinery and Equipment

Banco Itaú Unibanco S.A.

2,870

1,056

TJLP + 5.50% to
8.70%/year

Nov - 16

943

113

 

 

 

 

 

 

 

 

Sugarcane Financing Leasing

Brenco

-

7,576

6.92%/year

Nov - 18

3,375

4,201

 

 

 

 

 

 

 

 

Financing Bahia Project

Banco HSBC/ Banco Itaú Unibanco S.A.

27,143

9,994

PRE 4.00 to 8.50

Oct - 20 

382

9,612

 

 

 

 

 

 

 

 

Financing Bahia Project

Banco do Nordeste do Brasil S.A. – BNB / Banco Itaú Unibanco S.A.

40,842

52,624

PRE 4.00 to 8.50

Oct - 20

9,087

43,537

Total

 

120,162

110,079

-

-

50,900

59,179

 

 

Capital Expenditures

We are focused on the acquisition, development and exploitation of agricultural properties and the acquisition and development of properties that we believe have significant potential for cash flow generation and value appreciation. Our total capital expenditures related yo these assets for the year ended June 30, 2015 were R$30.6 million, of which R$4.9 million refer to the opening and preparation of areas for cultivation and R$25.3 million refer to construction in progress, mostly with respect to the construction of the silo in Bahia in the amount of R$9.5 million, and the cleaning and preparation of areas for cultivation, construction works and roads in the amount of R$15.8 million.

Equity

Our total equity excluding non-controlling interest amounted to R$752.1 million as of June 30, 2015 and R$583.9 million as of June 30, 2014.

 

 

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C. Research and Development, Patents and Licenses, etc.

We do not currently have research and development policies and have not incurred in research and development expenditures in prior years.

D. Trend Information

We will continue to operate in a highly competitive and regulated environment that will pose continued risks and threats to our existing businesses, placing the profitability of our assets under pressure. We expect our business to continue to be subject to the risks and uncertainties discussed in “Item 3—Key Information—Risk Factors.”

According to a report released in October 2015 by the United States Department of Agriculture (“USDA”), the soybean global production is forecast at a record 320.5 million tons for 2015 as Brazilian production estimate is raised to a record of 100.0 million tons on a larger area as lower prices are offset by the weaker exchange rate of the Real.  Also, the Real depreciation continues to provide farmers with an incentive for continued expansion of planted area in South America despite higher financing costs.

In addition to the information set forth in this section, additional information about the trends affecting our business can be found in “Item 5. Operating and Financial Review and Prospects — Operating Results—Business Drivers and Measures.”

We are not aware of any other trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to not necessarily be indicative of future operating results or financial condition.

E. Off-Balance Sheet Arrangements

Future delivery and supply of soybean and sugarcane: amounts related to sales contracts for the future delivery and supply of soybean and sugarcane, as described under “Business-Commodity Futures Contracts,” are recognized as revenue on the date of delivery. Costs of goods sold under such contracts are also recorded on the date such products are transferred, upon the documentation of delivery and the loading of the applicable products. The terms of such contracts subject us to fines in the event that we fail to deliver the previously-committed volumes to the purchasers.

F. Tabular Disclosure of Contractual Obligations

The following table summarizes our significant contractual obligations and commitments as of June 30, 2015:

 

 

 

 

 

 

 

 

Maturities per period

 

 

Less than
One Year

 

One to Two
Years

 

Three to
Five Years

 

More than
Five Years

 

Total

 

 

(R$ thousand)

Trade payables

5,545

—  

—  

—  

5,545

Derivative financial instruments

5,655

1,670 

—  

—  

7,325

Loans and financing(1)

50,900

15,973

14,659

28,547

110,079

Payables for purchase of farms

48,840

— 

—  

—  

48,840

Transactions with related parties(2)

480

—

—  

—  

480

 

(1)   Interest on variable interest rate loans and financing has been computed considering the interest rate as of June 30, 2015. See “Indebtedness and Cash and Cash Equivalents.”

(2)   See “Item 7.B. Related Party Transactions.”

Payables for Purchase of Farms

The following table summarizes our outstanding balance of payables for purchase of farms as of June 30, 2015.

 

 

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Obligation

 

Outstanding balance

 

 

(R$ thousand)

Alto Taquari Farm

29,023

Nova Buriti Farm

19,817

Total

48,840

Sugarcane agricultural partnership agreement

On May 8, 2015, we executed three agreements with Brenco:

The first agreement consists of a rural sub partnership to operate nine farms located in the municipalities of Alto Araguaia and Alto Taquari, in the state of Mato Grosso. The sub partnership starts at the date of its signature and is estimated to end on March 31, 2026. The areas shall be used for the plantation and cultivation of sugarcane, which cannot exceed the duration of the contract. This contractual partnership meets the definition of an operating leasing. The payment shall always be in kind (tons of sugarcane), to be delivered at the mill owned by Brenco, which is located in the vicinities of the farms, during the harvest period of the product. The quantity to be paid for the duration of the contract shall be established in tons per hectare and varies according to the area being explored. According to this contract, the quantity to be paid in the long term corresponds to 529,975 tons of sugarcane, of which 174,929 tons will be paid within one to five years and 355,046 tons will be paid after more than five years up to the expiration of the agreement.

The second agreement deals with the regulation of rights and obligations between agricultural partners, in which BrasilAgro acquired the crops of sugarcane planted by Brenco in the properties subject to the sub partnership agreement described above. This contract meets the definition of a financial leasing. The payment shall always be in kind (tons of sugarcane), to be delivered at the mill owned by Brenco during the harvest period of the product. According to this contract, the quantity to be paid in the long term corresponds to 127,699 tons of sugarcane, of which 41,470 tons will be paid within one year and 86,229 tons will be paid within one to five years.

The third agreement regulates the exclusive supply to Brenco of the total sugarcane production in the properties included in the sub partnership agreement for two crop cycles, one cycle shall be effective until the depletion of the already existing sugarcane crops and the other cycle consists of the sugarcane being planted by BrasilAgro.

G. Safe harbor

See “Forward-Looking Statements.”

ITEM 6—DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

Board of Directors

Our board of directors is responsible for establishing our overall business plan, guidelines and policies, including our long-term strategy, and for overseeing our performance. Our board of directors is also responsible for the supervision of our executive officers.

 

Pursuant to our bylaws, our board of directors consists of a minimum of five and a maximum of nine members. Election of our directors is made at annual shareholders’ meetings. At the date of this Annual Report, five of our directors, namely Eduardo Elsztain, Saul Zang, Alejandro G. Elsztain, Gabriel Pablo Blasi and David Alberto Perednik were nominated by our controlling shareholder Cresud. The members of our board are elected by the shareholders’ meeting for a term of approximately two years, with reelection permitted. A director must remain in office until replaced by a successor. However, any director may be removed by the shareholders before the end of such director’s term. Under Novo Mercado regulations and our bylaws, a minimum of 20% of the members of our board of directors must be independent. However, three directors must be independent if nine members are elected to our board. Prior to taking office, our board members are required to sign an agreement to comply with the regulation of the Novo Mercado .

Our board of directors holds mandatory meetings six times a year, and may hold other meetings, as necessary. Meetings of our board of directors are convened only if a majority of the directors are present and all board decisions are

 

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taken by a 2/3 or 3/4 majority, or by simple majority, depending on the nature of the specific matters brought to discussion in our board meetings.

Brazilian corporate law and CVM Regulation No. 282 of June 26, 1998 allow the adoption of a cumulative vote process by the request of a number of our shareholders representing a minimum of 5% of our capital stock. Brazilian corporate law allows minority shareholders that, individually or as a group, hold at least 15% of our common shares to appoint one director, by means of a separate vote. Brazilian corporate law does not allow for the election of a member to our board of directors, unless waived by our shareholders, if that person is an employee or senior manager of one of our competitors or has an interest conflicting with ours.

Our board of directors is currently comprised of nine members, all of whom were elected at the general shareholders’ meeting held on October 28, 2015, and whose terms expire at our annual shareholders’ meeting in 2017. The table below sets forth the name, title and date of election of each current member of our board of directors:

 

 

 

 

 

Directors

 

Title

 

Date of election

 

Age

 

Eduardo S. Elsztain

Chairman

October 28, 2015

55

Alejandro G. Elsztain

Director

October 28, 2015

49

Saul Zang

Director

October 28, 2015

69

Isaac Selim Sutton

Independent Director

October 28, 2015

54

Gabriel Pablo Blasi

Director

October 28, 2015

54

David Alberto Perednik

Director

October 28, 2015

57

João de Almeida Sampaio Filho

Independent Director

October 28, 2015

50

Fábio Schuler Medeiros

Independent Director

October 28, 2015

38

Ricardo de Santos Freitas

Independent Director

October 28, 2015

48

Below is a brief biographical description of each member of our board of directors:

 

Eduardo S. Elsztain-  has been engaged in the real estate business for more than twenty years. He founded Consultores Asset Management (formerly called Dolphin Fund Management). Currently, he is Chairman of the Board of Cresud, IRSA- Inversiones y Representaciones Sociedad Anónima and Irsa Popriedades Comerciales S.A., among other things. IRSA Inversiones y Representaciones Sociedad Anónima and Irsa Popriedades Comerciales S.A. are considered two of the largest real estate companies in Argentina, being highlighted by their commercial, residential, shopping malls and hotels ventures. He is also the Chairman of Banco Hipotecário S.A. and IDB Development Corporation Ltd.. He studied Economic Sciences at Universidad de Buenos Aires. He is Alejandro Gustavo Elsztain’s brother.

 

Alejandro G. Elsztain-  is the chairman of the Board of Fibesa S.A and Agology S.A; vice-president of the Board of Directors of Nuevas Fronteras S.A.; Inversora Bolivar S.A and IRSA  Inversiones y Representaciones Sociedad Anónima; and vice-president of Irsa Popriedades Comerciales S.A., Currently, he is the main officer of Cresud. Mr. Alejandro Elsztain has a degree in Agricultural and Livestock Engineering from the University of Buenos Aires. He is the brother of Mr. Eduardo S. Elsztain.

 

Saul Zang-  is the founder of the law firm Zang, Bergel e Viñes. Currently he is the first vice-chairman of  IRSA- Inversiones y Representaciones Sociedad Anónima and Irsa Popriedades Comerciales S.A. Board of Directors, chairman of Puerto Retiro Board of Directors; vice-chairman of Fibesa S.A. Board of Directors; director of Banco Hipotecario S.A., Nuevas Fronteras S.A., and IDB Development Corporation Ltd., among others.  Mr. Zang has a degree in law from Universidad de Buenos Aires.

 

Isaac Selim Sutton-   holds a degree in economics from the Universidade de São Paulo (USP). He was an executive officer at the Safra Group’s holding company from 1994 to 2009. He is currently a member of the Fiscal Council of Bardella S.A. Indústrias Mecânicas. He has also served on the Boards of Bardella S/A, DPVAT S/A, Telenorte Celular, TIM Participações S/A, Veracel Celulose S/A, BR Properties S/A, Gevisa S/A and Celma S/A, and on the Fiscal Councils of TIM Sul, Têxtil Renaux and TIM Nordeste.

 

Gabriel Pablo Blasi - holds a degree in business administration from the University of CEMA (Centro de Estudios Macroeconómicos Argentino) and a graduate degree in finance from the Austral University in Argentina. He started his career in 1989 at Citibank, where he was as a Senior Trader for seven years. He then worked as treasurer at Buenos Aires Branch plc and at Lloyds Bank plc in Buenos Aires. Mr. Blasi has over 20 years of experience in investment banking and

 

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capital markets, having worked at Banco Río (BSCH). He was the manager of Rio Valores Sociedad de Bolsa, CFO of the Carrefour Group in Argentina and of Goyaique SACIFIA and former CFO of Cresud, IRSA and IRSA Propriedades Comerciales S.A.

 

David Alberto Perednik - holds a degree in accounting from the University of Buenos Aires (Universidad de Buenos Aires). He has worked for several companies such as Marifran Internacional S.A., a subsidiary of Louis Dreyfus Amateurs where he worked as Financial Manager from 1986 to 1997. He also worked as a Senior Consultant in the administration and systems department of Deloitte & Touche from 1983 to 1986. He is also Chief Administrative Officer of Cresud, IRSA and IRSA Propriedades Comerciales S.A.

 

João de Almeida Sampaio Filho- graduated in Economics from the Fundação Armando Álvares Penteado (FAAP) and is an agricultural producer in the states of Paraná, São Paulo and Mato Grosso. He was President of the National Natural Rubber Commission of the Brazilian Confederation of Agriculture and Livestock (CNA) and President of the National Natural Rubber Sector Chamber. He was a member of the National Council of Agricultural Policy and the National Agricultural Academy. Mr. Sampaio was President of the Brazilian Farmers’  Association (SRB) between 2002 and 2007, President of FARM – Mercosul’s Federation of Rural Associations and São Paulo State Secretary for Agriculture and Supply between 2007 and 2011. He is currently a Member of Advisory and Managing Boards of companies in Brazil and the USA, Minerva S.A.’s Chief Officer of Institutional Relations and Chairman of FIESP Agribusiness Higher Council.

 

Fabio Schuler de Medeiros - holds a degree in Veterinary Medicine from the Universidade Federal de Santa Maria, MSc and Ph. D. in Animal Production – Nutrition and Meat Quality from the Universidade Federal do Rio Grande do Sul. Mr. Medeiros also works in the coordination of the Brazilian Angus Association’s Certified Angus Beef Program, which has international accreditation of AUSQUAL, and as a consultant in Animal Production-Beef Cattle in farms.

 

Ricardo de Santos Freitas - Mr. Freitas holds a Law degree and PhD in Commercial Law from the University of São Paulo, is a founding partner at Freitas & Leite Law Firm, specialized in financing and capital markets, as well as tax matters. Worked as a lawyer at Hedging-Griffo Corretora de Valores S.A. and as a statutory executive responsible for the management of customer's assets at Banco Intercap S.A.. Currently he is the CEO and Chairman of Semp Toshiba Amazonas, where he also acted as administrative and financial vice president.

Board Committees

Pursuant to our bylaws, our board of directors shall elect among its members three directors to compose the Compensation Committee and a minimum of three and a maximum of four directors to compose the Executive Committee. In addition to these two statutory committees, our board of directors may establish other technical or advisory committees for a specific purpose and with specific duties, which members may or may not include our directors or executive officers. Our board of directors shall establish the rules applicable to these committees, including rules on their composition, term of office, compensation and operation. Such committees are advisory and non-deliberative in nature. The following advisory committees are currently established and active:

Compensation Committee

The Compensation Committee was established on March 1, 2012, and is composed of the following members of our board of directors, all elected on October 28, 2015 and whose terms expire at our annual shareholders meeting to be held in 2017: (i) Alejandro G. Elsztain, (ii) Saul Zang and (iii) Isaac Selim Sutton. In accordance with our bylaws, the Compensation Committee performs consultative assistance to the Board of Directors, including with respect to the determination of the compensation and benefits to be received by our directors and executive officers. Its activities include (i) submitting proposals to the Board of Directors with respect to director and executive officer compensation, (ii) advising the Board of Directors with respect to the granting of stock options or subscription warrants to our officers and employees, and (iii) advising the Board of Directors with respect to profit sharing plans involving our executive officers and employees.

 

Executive Committee

The Executive Committee was established on December 13, 2011, and is composed of the following members of our board of directors, all elected on October 28, 2015 and whose terms expire at our annual shareholders meeting to be held in 2017: (i) Eduardo S. Elsztain, (ii) Alejandro G. Elsztain and (iii) Saul Zang. In accordance with our bylaws, the Executive Committee performs consultative assistance to the Board of Directors with respect to its role as a supervisory body, advising the Board of Directors on, or periodically reviewing, certain strategic or financial aspects of our business. Its activities include (A) advising the Board of Directors with respect to (i) our business plan, (ii) alterations to our authorized capital,

 

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(iii) strategic initiatives, our growth plan and investment initiatives and (iv) any investments or dispositions over R$700 thousand; (B) reviewing annually (i) our financing initiatives, including with respect to our securities, (ii) the financial implications of our financing strategy and (iii) our dividend policy; and (C) reviewing and supervising periodically (i) the necessary financing for investments or activities in excess of R$700 thousand and (ii) our accessing of the capital markets.

Executive Officers

Pursuant to our bylaws, we must have two to six executive officers who may or may not be shareholders and must all be residents of Brazil. Our executive officers are elected by our board of directors. Currently, we have three executive officers, who hold the following titles: chief executive officer and investor relations officer, chief administrative officer and chief operating officer. Our executive officers are elected for a one-year term with the possibility of reelection, and they are required to remain in office until the election of their successors. Under Novo Mercado regulation, our executive officers are also required to sign an agreement to comply with the rules of the Novo Mercado prior to taking office.

Our executive officers are our legal representatives and are responsible for our day-to-day management, implementation of the policies and directives set by our board of directors and other duties assigned to them under the law and our bylaws. Our executive officers are authorized to take all actions required for the operation of our business, unless the law or our bylaws specifically delegate such authority to the shareholders’ meeting or our board of directors.

The table below indicates the name, title, date of election and term of office of each of our current executive officers:

 

 

 

 

 

 

Executive officers

 

Title

 

Date of election

 

End of term of
office

 

Age

 

Julio César de Toledo Piza Neto

Chief executive officer and investor relations officer

October 29, 2014

October 2015*

45

Gustavo Javier Lopez

Chief administrative officer

October 29, 2014

October 2015*

48

André Guillaumon

Chief operating officer

October 29, 2014

October 2015*

41

 

*      The officers shall remain in office until the Directors’ Meeting to be held within five days from October 28, 2015, which was the date of the General Shareholders’ Meeting at which the 2015 financial results were submitted for approval.

Below is a brief biographical description of our executive officers: Julio César de Toledo Piza Neto: Mr.  Toledo Piza Neto graduated in Agronomy Engineering from the Escola Superior de Agricultura Luiz de Queiroz (ESALQ) of the Universidade de São Paulo in Piracicaba, Brazil and has an MBA in Administration and Finance from Columbia Business School in New York. In addition to eight years of field experience as an agronomy engineer, he spent years at McKinsey and Company in São Paulo, where he held several senior positions prior to joining BrasilAgro in June 2008.

Gustavo Javier Lopez: Mr. Lopez joined Cresud in 1999 as budget manager. Since 2004, he has served as budget manager of IRSA. Prior to joining IRSA, Mr. Lopez also worked for the Argentine company Estancias Unidas del Sud as its budget analyst and as accountant for Loma Negra. He received an accounting degree from the Universidad de Buenos Aires .

André Guillaumon: Mr. Guillaumon holds a bachelor’s degree in Agricultural Engineering from the Escola Superior de Agricultura Luiz de Queiroz (ESALQ) of the Universidade de São Paulo in Piracicaba, Brazil. In 1996, he began his career at Fertibrás S.A., where he worked directly in preparing and implementing fertilizer production and sales strategies. Mr. Guillaumon also represented Fertibrás S.A. in technical forums, such as the 25th International Fertilizer Management Seminar (Chicago, USA) and at the Fertilizer Quality Commission (ANDA).  In August 2007, Mr. Guillaumon joined the Company.  

Agreements with our Directors and Executive Officers

We are not party to any agreement or obligations involving the members of our board of directors and our executive officers.

Family Relationship among our Directors and Officers

Eduardo S. Elsztain, chairman of our board of directors, is the brother of director Alejandro G. Elsztain, a member of our board of directors.

 

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B. Compensation

Pursuant to our bylaws, the total amount of compensation paid to the members of our board of directors, fiscal council and executive officers, in the aggregate, is set annually at the general shareholders’ meeting. Our directors, pursuant to the recommendation of the compensation committee, allocates the aggregate compensation among our executive officers and directors. Although our executive officers and board of directors are entitled to fixed compensation and a bonus depending on individual and company performance, the compensation of the fiscal council members is fixed. The bonus is paid to our executive officers and directors based on the achievement of certain individual and company targets.

The aggregate compensation paid for the 2015 fiscal year to our executive officers and members of our board of directors (including for service as members of the compensation committee and executive committee) and members of our fiscal council was R$10.3 million, comprised of a fixed amount of R$3.9 million and a bonus of R$6.4 million paid to our executive officers and members of our board of directors. The bonus to the board was paid based on a recommendation of our compensation committee. The fixed amount for the members of our board of directors and fiscal council was R$983 thousand and for our executive officers was R$2.9 million.

Neither we nor our subsidiaries have set aside any amount to provide pension, retirement or similar benefits.

Stock Option Plan

Our stock option plan was approved on October 29, 2008 for the benefit of the members of our board of directors, executive officers and selected employees and our directly and indirectly controlled entities, and is limited to 2.0% of our capital stock, including all outstanding stock options (vested and unvested). Our board of directors manages our stock option plan and grants stock options subject to the limits and restrictions of applicable regulation, our by-laws and the guidelines set forth in the shareholders’ meeting that approved it. Our board of directors approved our first grant of stock options under the plan on August 11, 2010, with options with an exercise price of R$8.97 per share, which vested on August 11, 2012 and may be exercised within three years thereafter. Our board of directors approved our second grant of stock options under the plan on July 3, 2012, with options with an exercise price of R$8.25 per share, which vested on July 3, 2012 and may be exercised within five years thereafter. Our board of directors approved our third grant of stock options under the plan on September 4, 2012, with options with an exercise price of R$8.52 per share, which vested on September 4, 2014, and may be exercised within three years thereafter. No stock options have been granted since September 5, 2012. As of June 30, 2015, no stock options have been exercised under either the first, second or third grants. In August 2015, our executive officers exercised stock options representing 233,689 shares of our capital stock, which were delivered to them in October 2015.

C. Board Practices

For information about the date of expiration of the current term of office and the period during which each director has served in such office, see “Item 6—Directors, Senior Management and Employees—A. Directors and Senior Management.”

Neither we nor any of our subsidiaries have entered into a service contract with any of our directors that provide for benefits upon termination of employment.

 

Fiscal Council

Under Brazilian corporate law, the Conselho Fiscal , or fiscal council, is a corporate body independent of our management and our independent auditors. Its primary responsibilities are monitoring management activities, reviewing our financial statements, and reporting its findings to our shareholders.

Under an exemption pursuant to Rule 10A-3 under the Exchange Act regarding the audit committees of listed companies, a fiscal council may exercise the required duties and responsibilities of a U.S. audit committee to the extent permissible under the Brazilian corporate law.

To comply with Rule 10A-3, the fiscal council must meet certain standards, including the following: (i) it must be separate from the full board of directors; (ii) no executive officer may be a member; and (iii) Brazilian law must set forth standards for the independence of the members. The fiscal council must also, to the extent permitted by Brazilian law, among other things: (A) be responsible for establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls or auditing; (B) have the authority to engage independent counsel and other advisors as it deems necessary to carry out its duties; and (C) receive appropriate funding from the company for payment of compensation to the external auditors and advisors as well as ordinary administrative expenses.

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We have modified our fiscal council to comply with the exemption requirements. Accordingly, the fiscal council operates pursuant to its charter ( regimento interno ), which contemplates the activities described above to the extent permitted by Brazilian law and is compliant with the requirements of the Sarbanes-Oxley Act and the applicable regulations and requirements of the SEC. Because Brazilian corporate law does not permit the board of directors to delegate responsibility for the appointment and removal of the external auditors and does not provide the fiscal council with the authority to resolve disagreements between management and the external auditors regarding financial reporting, the fiscal council cannot perform these functions. However, the fiscal council’s charter ( regimento interno ) provides the fiscal council with the authority to submit recommendations to the board of directors for the appointment or removal of the external auditors and their compensation.

Pursuant to our bylaws, our fiscal council is permanent. The fiscal council’s members are elected at the annual shareholders’ meeting with a term of office that extends through the following annual shareholders’ meeting. Our fiscal council shall be composed of three to five effective members and their alternates, who may or may not be shareholders. All members of our fiscal council are also required to sign an agreement to comply with the Novo Mercado rules prior to assuming their roles.

In addition, minority shareholders representing a minimum of 10% of our voting shares are entitled to elect one fiscal council member and his or her alternate by a separate vote. Our fiscal council must not have members of our board of directors, our executive officers, or our employees or of any subsidiary or a company under common control with us, or spouses or close family members of our directors and officers. Brazilian corporate law requires fiscal council members to receive a remuneration of at least 10% of the average annual amount paid to our officers, which excludes benefits and other allowances, or profit sharing, if any.

Our fiscal council is currently composed of three members and alternates.

The table below indicates the name, title, date of election and term of office of each current member of our fiscal council:

 

 

 

 

 

Fiscal Council Members

 

Position

 

Date of Election

 

End of office term

 

 

 

 

 

Fabiano Nunes Ferrari

Fiscal Council member

October 28, 2015

October 2016

 

 

 

 

Daniela Gadben

Fiscal Council alternate member

October 28, 2015

October 2016

 

 

 

 

 

 

 

 

Ivan Luvisotto Alexandre

Fiscal Council member

October 28, 2015

October 2016

 

 

 

 

Débora de Souza Morsch

Fiscal Council member

October 28, 2015

October 2016

 

 

 

 

Marcos Paulo Passoni

Fiscal Council alternate member

October 28, 2015

October 2016

Luciana Terezinha Simão Villela

Fiscal Council alternate member

October 28, 2015

October 2016

 

Below is a brief biography of each member and alternate member of our fiscal council:

 

Fabiano Nunes Ferrari - holds a Law degree from the Catholic University of São Paulo (PUC-SP) and is a partner at Suchodolski Law Firm, specialized in the fields of Corporate Law, International Law, Foreign Investments, Mergers and Acquisitions and Contracts and Agreements. In the corporate law area, he has worked in several takeovers of companies and/or assets, due diligences, shareholders’ agreements, joint ventures and corporate restructuring. Formerly a lawyer at the Bryan Cave LLP law firm in New York. Also a member of the International Bar Association.

 

 

Ivan Luvisotto Alexandre- holds a Law degree from the University of São Paulo (USP) and a specialist degree in Accountability applied to Law from the Getúlio Vargas Foundation in São Paulo (FGV-SP), as well as a specialist degree in Information Technology Law from the Fundação Getúlio Vargas in São Paulo (FGV-SP). A partner at Suchodolski Law Firm, with extensive experience in corporate planning and consultancy, M&As, international agreements and transactions, having assisted Brazilian and foreign companies in structuring their investments in Brazil or abroad. He has also been the Legal Director of the Brazil-Israel Chamber of Commerce and Industry since 2010.

 

 

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Daniela Gadben- holds a Law degree from the University of São Paulo (USP) and an LLM degree from the London School of Economics and Political Science. She is an attorney at Suchodolski Law Firm, acting in the fields of Corporate Law and International Law.

 

Débora de Souza Morsch - graduated in Civil Engineering and Administration from Universidade Federal do Rio Grande do Sul (UFRGS). Ms. Morsch has a specialist degree in Capital Markets from Associação dos Analistas e Profissionais de Investimento do Mercado de Capitais (Apimec-UFRGS) and in Construction Management from UFRGS. Ms. Morsch is a partner and diretor at Zenith Asset Management and has been a member of the board of Electro Aço Altona S/A and a member of the fiscal council of E Santanense S/A.

 

Marcos Paulo Passoni- holds a Law degree from the Catholic University of São Paulo and a Master degree in Diffuse Rights from Unimes. He is a partner at Suchodolski Law Firm and specializes in the fields of Civil Law and Litigation. He was a member of the board of OAB-SP (the Bar Association of the State of São Paulo). He is also a professor of Civil Litigation Procedure in the Superior School of Advocacy.

 

Luciana Terezinha Simão Villela- holds a Law degree from the Catholic University of São Paulo and a Master degree in Tax. She is an associate attorney at Suchodolski Law Firm, and specializes in the fields of Taxes and Administrative Law.

For information about the compensation committee, see “Item 6—Directors, Senior Management and Employees—Directors and Senior Management.”

D. Employees

The table below shows the evolution in our year-end total number of employees from 2013 to 2015:

 

 

 

 

 

 

 

 

 

As of June 30,

Location

 

            2013            

 

            2014            

 

            2015            

 

Head Offices/São Paulo

51

47

53

Cremaq Farm (and Partnership II Farm)

38

34

32

Araucária Farm

12

12

12

Alto Taquari Farm (and Partnership III Farm)

4

4

7

Chaparral Farm

66

81

22

Nova Buriti Farm

3

3

3

Jatobá Farm

19

43

15

Preferência Farm

14

11

4

Horizontina Farm

12

—

—

Partnership I

10

5

—

Avarandado

—

8

5

5

 

 

 

 

Total

229

248

153

 

                The table below shows the evolution in the year-end total number of employees in our farms from 2013 to 2015 

 

 

 

 

 

 

 

 

 

As of June 30,

Location

 

                2013                 

 

                2014                 

 

                2015               

 

Goiás

12

12

12

Mato Grosso

4

4

7

Bahia

109

140

41

Piauí

38

42

37

Maranhão

12

0

0

Minas Gerais

3

3

3

 

 

 

 

Total

178

201

100

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The decrease in the total number of employees for the year ended June 30, 2015 was mainly due to the fact that the Chaparral and Preferência farms no longer needed several temporary employees that had been employed in the year before to prepare the land for cultivation.

All of our employees are located in Brazil, and we do not employ a material number of temporary employees.

  Compensation and benefits

Our compensation policy for our employees is based on legal and market rates of compensation, as well as merit-based increases in individual employees’ compensation, based on individual goals set for such employees and administered and monitored by our human resources department. We are also party to agreements, entered into with unions representing our employees, providing for employee profit-sharing arrangements ( programa de participação nos resultados ), pursuant to which all of our employees receive annual bonuses based on our financial and operating results, as well as personal goals set for individual employees. Finally, we also seek to retain quality personnel through offering benefits such as health and dental care, life insurance, meal vouchers, transportation and lodging, as well as job and technical training and subsidies for post-graduate, business administration and language courses. We also employ security officers at each of our agricultural properties, in an effort to maintain safe working conditions for employees contracted through our third-party service providers, including through regular workplace safety training programs.

Relationship with unions

We believe that we have good relationships with our employees and the unions that represent them. We maintain relations with several regional and local chapters of unions in the regions in which we operate, including the Union of the Workers for Real Estate Companies in São Paulo ( Sindicato dos Empregados em Empresas de Compra Venda, Locação, Administração de Imóveis Residenciais e Comerciais de São Paulo , or SEECOVI), the Rural Workers’ Union ( Sindicato dos Trabalhadores Rurais ) in various states including Bahia, Piauí, Minas Gerais, Mato Grosso and Maranhão and the Federation of Agricultural Workers ( Federação dos Trabalhadores na Agricultura ) in Piauí and Bahia. As of the date of this Annual Report, 100% of our employees were represented by unions. The table below summarizes the agreements entered into between us and the unions representing our employees as of June 30, 2015.

 

 

 

 

 

Branch Office

 

Union

 

Agreement(s)

 

Agreement
Expiration Date

 

Head Office

SEECOVI (1)

Profit Sharing Program

Overtime compensation (3)

09/30/2015 (4)

07/31/2015 (4)

Cremaq

Sindicato dos Trabalhadores Rurais de Baixa Grande do Ribeiro

Profit Sharing Program

Overtime compensation (3)

04/12/2016

08/22/2015 (4)

Chaparral

FETAG-BA (2)

Profit Sharing Program

Overtime compensation (3)

09/30/2015 (4)
08/22/2015 (4)

Jatobá

FETAG-BA

Profit Sharing Program

Overtime compensation (3)

09/30/2015 (4)
08/22/2015 (4)

Preferência

FETAG-BA

Profit Sharing Program

Overtime compensation (3)

09/30/2015 (4)
08/22/2015 (4)

Partnership II

Sindicato dos Trabalhadores Rurais de Ribeiro Gonçalves

Profit Sharing Program

Overtime compensation (3)

04/12/2016
08/22/2015 (4)

Araucária

Sindicato dos Trabalhadores Rurais de Mineiros

Profit Sharing Program

Overtime compensation (3)

03/20/2016
03/20/2016

Alto Taquari

Sindicato dos Trabalhadores Rurais de Alto Araguaia

Profit Sharing Program

Overtime compensation (3)

05/12/2016
05/12/2016

 

 

(1)   Union of the Workers for Real Estate Companies, São Paulo (Sindicato dos Empregados em Empresas de Compra Venda Locação Administração de Imóveis Residenciais e Comerciais de São Paulo, or SEECOVI).

(2)   State of Bahia Federation of Agricultural Workers (Federação dos Trabalhadores Agricultura do Estado da Bahia, or FETAG-BA).

(3)   Refers to offsetting overtime with down time instead of paying overtime compensation (“banco de horas”) in accordance with Brazilian law.

(4)     Under negotiation with the respective union.

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E. Share Ownership

The following table indicates the number of our common shares and stock options directly held by each of our directors and executive officers as of October 28, 2015.

 

 

 

 

Name

 

Number of
Common Shares

 

Stock Options awarded
and not exercised

 

Julio Cesar de Toledo Piza Neto

101,471

194,742 (1)

Gustavo Javier Lopez

68,159

109,054 (2)

André Guillaumon

68,159

109,054 (2)

Eduardo S. Elsztain (3)

23,291,629

0

Alejandro G. Elsztain

189,400

0

Saul Zang

100

0

Isaac Selim Sutton

100

0

Gabriel Pablo Blasi

100

0

João de Almeida Sampaio Filho

100

0

 

(1) 97,371 of the options have an exercise price of R$8.25 per share and expire on July 3, 2017. 97,371 of the options have an exercise price of R$8.52 per share and expire on September 4, 2017.

(2) 54,527 of the options have an exercise price of R$8.25 per share and expire on July 3, 2017. 54,527 of the options have an exercise price of R$8.52 per share and expire on September 4, 2017.

(3)   Includes shares held of record by Cresud and Agro Investment. See “Item 7—Major Shareholders and Related Party Transactions.”

 

For information about our Stock Option Plan, see “Item 6—Directors, Senior Management and Employees—Compensation-Stock Option Plan.

ITEM 7—MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

The table below sets forth information relating to the ownership of our common shares as of October 28, 2015.

 

 

 

 

 

 

Shareholder

 

Number of
Common
Shares

 

Percentage
(%)

 

Number of
Common Shares
(including
warrants)(5)

 

Percentage
(%) (including
warrants)(5)

 

Cresud(1)

23,150,050

39.76

33,214,836

45.64

Agro Investment and Agro Managers(2)

141,471

0.24

389,616

0.54

J. P. Morgan Whitefriars(3)

4,330,000

7.44

4,330,000

5.95

CSHG Commodities Fundo de Investimento Multimercado - Crédito Privado

3,960,200

6.80

3,960,200

5.44

Elie Horn/Cape Town(4)

3,274,600

5.62

6,913,763

9.50

Cape Town LLC

2,640,300

4.53

6,279,463

8.63

Elie Horn

634,300

1.09

634,300

0.87

Directors and Officers (other than Mr. Eduardo Elsztain)

427,589

0.73

427,589

0.59

Treasury

513,711

0.88

513,711

0.71

Others

22,428,979

38.52

23,033,535

31.65

Total

58,226,600

100.0

72,783,250

100.0

 

(1)   As of September 30, 2015, Mr. Eduardo S. Elsztain holds (through companies controlled by him and proxies) a majority voting power in IFIS Limited, which owns 100% of the capital stock of IFISA, which holds 36.76% of the capital stock of Cresud on a fully diluted basis. Because of his ownership interest in IFIS Limited and IFISA, Mr. Eduardo Elsztain may appoint the majority of our board of directors and the board of directors of Cresud, as well as determine the substantive outcome of all decisions requiring shareholder approval with respect to Cresud. Accordingly, Mr. Elsztain may be deemed to beneficially own the shares held by Cresud and hold the sole voting and dispositive power with respect to these shares.

(2)   Includes 21 shares held by Agro Investment, a company controlled by Cresud’s controlling shareholder (Mr. Eduardo Elsztain), and 141,450 shares held by Agro Managers, a company jointly owned by Cresud (46.84%), and a number of Cresud’s employees. Mr. Eduardo Elsztain may be deemed to hold the sole voting and dispositive power with respect to the shares held of record by Agro Investment, and Cresud may be deemed to hold the sole voting and dispositive power with respect to the shares held of record by Agro Manager.

(3)     Such shares were acquired and are held as a hedge for a total return swap transaction involving the same number of our common shares entered into between J.P. Morgan Chase Bank, N.A., an affiliate of J.P. Morgan Whitefriars Inc., and Autonomy Master Fund Limited. Autonomy Master Fund Limited is controlled by Autonomy Capital (Jersey) LP, which is managed by Robert Gibbins, a former member of our board of directors. The swap transaction matures on January 26, 2016. Under the swap transaction, J.P. Morgan Whitefriars controls the sole power to vote and to dispose of the shares. J.P. Morgan Whitefriars is controlled by J.P. Morgan Chase & Co., a publicly held company.

(4)   Includes shares jointly held by Elie Horn and Cape Town LLC. Elie Horn is the principal shareholder of Cape Town LLC.

(5)   Gives effect to the potential issuance of 14,556,650 common shares in connection with the 256,000 first issuance warrants that may be exercised until April 27, 2021. All warrants are held by Cresud, Agro Investment, Agro Managers and Cape Town LLC. See “Item 10—Additional Information—Description of Outstanding Warrants.”

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For information about stock options held by our directors and executive officers, see “Item 6.E. Directors, Senior Management and Employees – Share Ownership.”

 

Our controlling and major shareholders do not have different voting rights.

Controlling Shareholder

Cresud

Cresud was organized in December 1936 under the laws of Argentina. Cresud’s principal operating activities consist of the acquisition, development and sale of agricultural properties in Argentina, and the production of agricultural products. Its shares are listed on the Buenos Aires Stock Exchange ( Bolsa de Comércio de Buenos Aires ) and on the Nasdaq (under the symbol CRESY).

As of September 30, 2015, Mr. Eduardo S. Elsztain holds (through companies controlled by him and proxies) a majority voting power in IFIS Limited, which owns 100% of the capital stock of IFISA, which holds 36.76% of the capital stock of Cresud on a fully diluted basis. Because of his ownership interest in IFIS Limited and IFISA, Mr. Eduardo Elsztain may appoint the majority of our board of directors and the board of directors of Cresud, as well as determine the substantive outcome of all decisions requiring shareholder approval with respect to Cresud.

As a result of Cresud’s ownership interest in us, conflicts of interest could arise with respect to transactions involving our ongoing business activities, and the resolution of these conflicts may not be favorable to us. Specifically, business opportunities, including but not limited to potential targets for rural property acquisitions may be attractive to both Cresud and us. In addition, five of our nine directors have been nominated by Cresud. This situation may give rise to conflicts of interest. We may not be able to resolve any potential conflicts and, even if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.

Other Major Shareholders

Elie Horn and Cape Town LLC

Elie Horn is the sole shareholder of E.H. Capital Management Ltd., which is the principal shareholder of Cape Town LLC, a company organized under the laws of the State of Delaware. Elie Horn is the president and controlling shareholder of Cyrela Brazil Realty S.A., and has more than 40 years of experience in construction and management of commercial buildings in São Paulo and Rio de Janeiro, Brazil, as well as in selling and leasing luxury and high-technology business offices, and finally, to a lesser extent, in the leasing and management of shopping malls. In recent years, Mr. Horn has also been involved in the development of residential condominiums. Mr. Horn previously served as a member of our board of directors, elected at the general shareholders’ meeting held on October 27, 2011, and retired from the board on July 3, 2012.

Agro Investment and Agro Managers

Agro Investment and Agro Managers are companies organized under the laws of Argentina, controlled by Cresud’s controlling shareholder (Mr. Eduardo Elsztain) and certain of Cresud’s employees. Agro Investment and Agro Managers hold 0.28% of our shares and 4.62% of our warrants.

JP Morgan Whitefriars Inc.

JP Morgan Whitefriars Inc. is a company with its principal place of business in England, United Kingdom and is controlled by J.P. Morgan Chase & Co.

 

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J.P. Morgan Chase Bank, N.A. entered into a total return and swap, involving 4,330,000 of our common shares (representing 7.44% of our capital stock), with Autonomy Master Fund Limited. J.P. Morgan Whitefriars Inc., acting on behalf of J.P. Morgan Chase Bank, N.A., acquired 4,330,000 of our common shares as a hedge for such transaction. Autonomy Master Fund Limited is controlled by Autonomy Capital (Jersey) LP, which is managed by Robert Gibbins, a former member of our board of directors. The swap transaction matures on January 26, 2016. Under the swap transaction, J.P. Morgan Whitefriars controls the sole power to vote and to dispose of the shares. J.P. Morgan Whitefriars is controlled by J.P. Morgan Chase & Co., a publicly-held company.

CSHG Commodities Fundo de Investimento Multimercado - Crédito Privado

       CSHG Commodities Fundo de Investimento Multimercado - Crédito Privado is a hedge fund based in Sao Paulo, Brazil.  HG Commodities FIM is managed by Hedge Alternative investments, a registered asset management company based in Sao Paulo Brasil with focus on commodities, equities and fixed income. The fund is managed by Mr. Marcelo Petto and has been a relevant shareholder of our capital stock since 2011.

 

Changes in Share Ownership

Sales of our Common Shares by Tradewinds Global Investors, LLC

On July 9, 2012, Tradewinds sold 2,966,100 of our common shares through the BM&FBOVESPA. Prior to the sale, Tradewinds held 6,369,700, or 10.9%, of our outstanding common shares. Immediately after the sale, it held 3,403,600, or 5.82%, of our outstanding common shares.

On August 22, 2012, Tradewinds sold 584,200 of our common shares through the BM&FBOVESPA. Prior to the sale, Tradewinds held 3,403,600, or 5.82%, of our outstanding common shares. Immediately after the sale, it held 2,819,400, or 4.83%, of our outstanding common shares.

Purchase and Sale of our Common Shares by Banco Fator

On April 15, 2013, Banco Fator bought 1,090,800 of our common shares through the BM&FBOVESPA. Prior to the acquisition, Fator held 1,995,700, or 3.42%, of our outstanding common shares. Immediately after the acquisition, it held 3,086,500, or 5.28%, of our outstanding common shares.

On February 14, 2014, Banco Fator S.A. sold 670,000 of our common shares through the BM&FBOVESPA. Prior to the sale, Banco Fator S.A. held 3,257,800, or 5.58%, of our outstanding common shares. Immediately after the sale, it held 2,587,800, or 4.43%, of our outstanding common shares.

Purchase of our Common Shares by CSHG Commodities Fundo de Investimento Multimercado - Crédito Privado

On October 23, 2014, CSHG Commodities Fundo de Investimento Multimercado - Crédito Privado bought 2,126,900 of our common shares through the BM&FBOVESPA. Prior to the acquisition, it held 870,500, or 1.49 % of our outstanding common shares. Immediately after the acquisition, it held 2,997,400, or 5.13%, of our outstanding common shares.

ADRs

On September 30, 2015, we had 9,545,364 shares representing ADRs, which were held in the United States by one holder of record.

B. Related Party Transactions

We adhere to the corporate governance practices recommended and required under applicable law, including under the rules and regulations of the Novo Mercado and the BM&FBOVESPA and Brazilian corporate law.

Decisions made regarding our operations are supervised by our board of directors and fiscal council in accordance with our bylaws and applicable law. Our bylaws provide that provision of services and consulting contracts entered into among us or our affiliates, on the one hand, and shareholders that, individually or in the aggregate, own at least 10% of our capital stock shall be submitted by our board of directors for the approval of our general shareholders’ meeting.

 

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Contracts entered into with related parties are negotiated individually and are analyzed in comparison with the market conditions of the applicable region. Along these lines, all transactions entered into with related parties should be documented, including their principal terms such as price, term limit, interest rates, and the respective rights and obligations of the parties, and such terms should be consistent with those prevailing in the market.

We, our shareholders, our directors and officers, and the members of our fiscal council, when active, should submit to arbitration for any dispute relating to the application, legality, effectiveness, interpretation, violation and effects of violation of the provisions in the agreement for participation in the Novo Mercado listing segment, and to the Novo Mercado listing rules, the arbitration regulation instituted by the BM&FBOVESPA, the provisions of Brazilian corporate law, our bylaws, the rules of the National Monetary Council, or Conselho Monetário Nacional (“CMN”) and the Central Bank, the regulations of the Securities Commission, or Comissão de Valores Mobiliários (“CVM”), and the BM&FBOVESPA and other rules generally applicable to the Brazilian capital markets. Any such dispute should be settled by arbitration carried out before BM&FBOVESPA Arbitration Chamber.

According to Chapter 12 of these rules, the parties may consent to agree to use another arbitration chamber or forum to resolve their disputes.

Cresca Acquisition

Purchase of interest in joint venture, debts and advisory contract with Cresca S.A.

On December 12, 2013, BrasilAgro executed contracts with Cresud for: (i) the acquisition of 50% interest in Cresca S.A, (ii) the assumption of Cresud credits from Cresca, and (iii) the acquisition of an advisory contract through which Cresud committed to render services in the forest agricultural exploration to Cresca in exchange for payments of fees.

Cresca is a company that invests in agricultural and cattle raising land in Paraguay. At the purchase date it owned approximately 70,000 hectares and a contract for the right to purchase approximately 71,000 additional hectares of agricultural land in the region of Mariscal Estigarribia in Paraguay. The purchase of 61,000 hectares shall occur according to the contractual terms upon the payment of the purchase price by Cresca, when the owner of the land (the other investor in Cresca) shall transfer the ownership of the land. On July 9, 2014, 46,900 hectares were purchased, and the remaining 24,700 hectares were purchased on January 20, 2015.

On April 7, 2014, Cresca sold 24,624 of undeveloped hectares. After this transaction, Cresca owns 117,307 hectares, of which approximately 60,000 hectares are suitable for agricultural purposes.

For more information, see Note 32 to the financial statements included in this Annual Report on Form 20-F.

C. Interests of experts and counsel

Not applicable.

ITEM 8—FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

See “Item 18—Financial Statements” below.

Legal Proceedings

We and our subsidiaries are subject to legal and administrative proceedings involving environmental, labor, civil, tax and criminal matters. As of June 30, 2015, we were plaintiffs or defendants in 84 pending legal and administrative proceedings, of which 6 are environmental proceedings, 49 are labor proceedings, 8 are tax proceedings and 21 are civil proceedings.

As of June 30, 2015, we maintain total provisions of R$3.7 million corresponding to probable losses. We believe that our provisions for contingencies are sufficient to cover probable losses that may result from the proceedings to which our Company and our subsidiaries are parties, based on the opinion of our counsels. Our provisions are currently allocated to our tax and labor proceedings and include

 

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a provision for labor claims in the amount of R$511 thousand, supported by the opinion external legal advisors to cover those claims filed by former employees and third party contractors. In most cases, the Company and its subsidiaries are vicariously liable for such claims, since the discussion involves possible rights between outsourcing companies and their former employees.

At June 30, 2015, the Company recorded provision for tax suits in the amount of R$3.2 million. The amount of R$3.0 million refers especially to the alleged levy of social security taxes on payments to the Company’s foreign members of the Board, and the balance of R$0.2 million refers to tax administrative proceedings under discussion, particularly involving the levy of ICMS on operations at Araucária Farm, State of Goiás. In March 2015, the Company considered that three of the five proceedings challenged by the Goiás State Finance Office had grounds, thus opting to pay the related tax amount. The contingency set up for these cases was reversed at June 30, 2015. 

We do not expect probable losses to result from our civil, tax and criminal proceedings currently in progress.

 

Among our legal and administrative proceedings as of June 30, 2015, we have identified the following material contingencies in view of the adverse effects that could eventually affect our activities and/or the amount involved in the claims (we considered material for this purpose all legal and administrative proceedings involving amounts exceeding R$500 thousand).

Civil Proceedings

We are defendants in a civil claim filed on June 10, 2009 by Mr. José Pereira de Souza and others in the Judicial District Court of Correntina, State of Bahia, for the annulment of the deed of sale and purchase of agricultural property executed by and among our Company and others. We have filed our defense and await the decision. The total amount involved in the claim is R$2.7 million and our chance of loss is estimated as possible. If we are unsuccessful we could be required to relinquish the equivalent of 2,561,681 hectares of land corresponding to 6.9% of the total area of Chaparral farm. We have not made any provision in connection with this proceeding.

We are co-defendants in an action for damages brought on March 14, 2013 by Liliana Marchio Silva, widow of Hailton Paz da Silva, who died in a car accident on August 29, 2011 involving a truck used by one of our service providers for the cutting, loading and transportation of sugar-cane produced in our Araucaria farm. We filed our defense on March 19, 2013 and we are awaiting for a decision so that evidence can be presented by the parties. The total amount involved in the suit, as claimed by the plaintiff, is R$938.4 thousand and our chances of loss have been classified as possible. We have not made any provision in connection with this proceeding.

Our subsidiary Imobiliária Ceibo Ltda is a defendant in a real estate claim brought in November 2012 before the judicial district of Tasso Fragoso, State of Maranhão, by Alarico Pereira de Castro and his wife. The plaintiffs claim ownership of 313 hectares of land, allegedly held under the record No. 296 of the Real Estate Registry Office of Tasso Fragoso, claimed to be located within the perimeter of Fazenda Horizontina Leste I and II. Our defense was filed on February 15, 2013, affirming that (i) the record No. 296 held by the plaintiffs is null and (ii) Imobiliária Ceibo Ltda and its predecessors have exercised possession and domain for decades in the area claimed by the plaintiffs (which also supports a subsidiary defense thesis of adverse possession by Imobiliária Ceibo Ltda). We have entered into a settlement with the plaintiffs and the lawsuit was terminated in September 2014. We have not made any provision in connection with this proceeding.

In addition, our subsidiary Imobiliária Ceibo Ltda was a defendant in a lawsuit that seeked annulment of a legal act filed in February 2013 before the judicial district of Tasso Fragoso, State of Maranhão, by Romulo Chaves Molina and his wife. The plaintiffs claimed they owned 948 hectares of land, which would be superimposed on the Fazenda Horizontina Leste III. They also claimed that Fazenda Horizontina Leste I, II and III had their area increased after the georeferencing process in approximately 3,303 hectares without administrative approval. The trial court suspended title to the deeds of Fazenda Horizontina Leste I, II and III. In March 2013, the plaintiffs filed lawsuit seeking the (i) annulment of a certification by INCRA and (ii) the cancelation of the recorded deeds to Fazenda Horizontina Leste I, II and III. We have entered into a settlement with the plaintiffs and the lawsuit was terminated in December 2014.

In April 2014, BrasilAgro was summoned in suits for damages filed by Lindeval Ribeiro do Bonfim. The plaintiff claims repair for alleged material and moral damages, loss of profits, life alimony support and esthetical damages arising from labor accident occurred at Cremaq Farm. We presented a plea for the case files to be remitted to the Labor Judge. The chances of loss were classified as possible. The amount of the suit is R$3.7 million. We have not made any provision in connection with this proceeding.

 

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Taxation Proceedings

On June 30, 2015, the Company, supported by the opinion of external legal advisors, recorded provision for tax contingencies in the amount of R$3.2 million. The amount of R$3.0 million refers particularly to the alleged incidence of social contributions on the payments made to foreign counselors of the Company, and the balance of R$0.2 million refers to tax administrative procedures challenging particularly matters related to the incidence of ICMS in operations at Araucária Farm, State of Goiás. These proceedings were assessed as probable losses and their amounts provisioned.

 

On June 30, 2015, the Company has judicial and administrative tax claims in the amount of R$9.3 million mainly related to proceedings whose merit is related to: (i) demonstration of noncompliance aiming to reform the decision order which has partially approved the credit of negative balance of income tax related to the 4 th quarter of 2007 and, as a consequence, has not approved offsets carried out by the Company relating to such credits; (ii) Annulment action filed aiming to the annulment of tax credit related to monthly estimates of IRPJ and CSLL for the period of January 2012; (iii) Notice of infraction drafted aiming to the collection of tax credit related to ICMS levying on products exported by the Company; (iv) Notice of Infraction drafted aiming to the collection of tax credit; (v) Notice of Infraction drafted aiming to the collection of tax credit related to ICMS, in the total amount of R$198 thousand, to the understanding that the Company would not have reversed ICMS credit arising from the bookkeeping allegedly undue of credits related to the acquisition of assets for the Company’s fixed assets, since it would not have provided the preparation of CIAP book model “C”, related to the period from January 1 to December 31, 2012; (vi) Notice of Infraction drafted aiming to the collection of tax credit of ICMS, to the understanding that the Company would have remitted primary products to exporter companies with the specific purpose of export, alleging that such products would not have been remitted abroad in the period of 180 days from the shipment of goods. These proceedings were assessed as possible losses and their amounts have not been provisioned.

Labor Proceedings

We are subject to an investigation by the public prosecutor of the Ministry of Labor of the State of Piaui for executing employment contracts with outsourced service providers. The investigation pertains to the validity of such contracts, which may be alleged to be invalid on the grounds that the activities performed constituted aspects of our core business, which under Brazilian law may not be outsourced to third-party service providers. The investigation began on April 26, 2011, since which date we have had two hearings with the public prosecutor. Upon conclusion of the investigation, the public prosecutor filed a public civil action against us. On June 9, 2015, we entered into a settlement with the public prosecutor under which we agreed to buy certain equipment to donate to a public hospital and we are prohibited from outsourcing the activities of manual roots removal, material windrowing, windrow burning and manual deforestation. We have already bought the equipment and are waiting for it to be delivered to the hospital.  We have not made any provision in connection with this investigation, since there is no specific monetary claim in connection thereto.

We are subject to an investigation by the public prosecutor of the Ministry of Labor of the State of São Paulo for executing employment contracts with outsourced service providers. The investigation pertains to the validity of such contracts, which may be alleged to be invalid on the grounds that the activities performed constituted aspects of our core business, which under Brazilian law may not be outsourced to third-party service providers. We have had two hearings with the public prosecutor. We await the conclusion of the investigation, upon which the public prosecutor may dismiss the case, propose the execution of a Conduct Adjustment Agreement or file a public civil action against us. We have not made any provision in connection with this investigation, since there is no specific monetary claim in connection thereto.

 

Environmental Proceedings

 

 

 

 

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We are defendants in an environmental administrative claim filed on November 25, 2009 by the Environmental Protection Board for the Brazilian Institute for the Environment and Natural Renewable Resources (IBAMA) involving the total historical amount of R$3.2 million under the argument that we have deforested a permanent preservation area. The IBAMA notified us on October 8, 2012 that it had rejected our defense. In October 2012, we filed an appeal to this decision, which was also rejected. On September 13, 2013, we filed a lawsuit before the federal courts of Goiás, for annulment of the infraction notice and cancellation of the fine. On October 15, 2013, we placed a court deposit on the amount equivalent to the fine imposed, in order to obtain the granting of injunction relief to suspend the payment of the fine until the end of the lawsuit. Due to the placement of the court deposit, the payment of the fine is suspended until final judgment in the case. In June, 2015, is was enacted a favorable decision in first instance, decreasing the annulment of the infraction notice and cancellation of the fine. Considering there has been a favorable decision on a legal proceeding, our chances of loss have been reserved to remote.

Administrative Proceedings involving our Directors or Officers

In July 2010, the Superintendencia de Instituciones Financieras de Argentina , the “Argentine Central Bank,” initiated an administrative investigation against Banco Hipotecario S.A. Pursuant to Argentine regulations, all directors may be named in such a proceeding, and therefore such proceeding included Banco Hipotecario S.A.’s entire board of directors (including, among others, Eduardo Elsztain and Saul Zang, members of our board of directors). In such investigation, the Argentine Central Bank alleged that Banco Hipotecario S.A. may have violated foreign exchange regulations as a result of its repurchase between February 2004 and June 2005 of certain of its bonds that remained outstanding after Banco Hipotecario S.A.’s 2004 debt restructuring. Violations of such foreign exchange regulations are potentially punishable with penalties and fines that can be significant. Once the Argentine Central Bank investigation is completed, if warranted, the matter could be referred to a special Argentine court for economic matters which could conduct a full trial and has the power to impose the aforementioned penalties and fines. In October 2010, Banco Hipotecario and the members of its board of directors filed with the Argentine Central Bank a response to the allegations, asking for dismissal of the proceedings. Since August 2013, the trial period has been opened. Banco Hipotecario has submitted an appeal for the reversal of a resolution of the Argentine Central Bank pursuant to which certain evidences were not admitted. In December 2014, the judicial court decided to absolve Banco Hipotecario S.A. and the members of the board of directors of any liability. This decision was confirmed by the Court of Appeals on Economic Criminal Matters in July 2015.

In May 2011, the Argentine Central Bank initiated an administrative investigation against Banco Hipotecario S.A. and its board of directors. Pursuant to Argentine regulations, all directors may be named in such a proceeding, and therefore such proceeding included Banco Hipotecario S.A.’s entire board of directors (including, among others, Eduardo Elsztain and Saul Zang, members of our board of directors). In such proceeding, the Argentine Central Bank alleged that Banco Hipotecario S.A. had extended loans to the nonfinancial public sector without the previous authorization of the Argentine Central Bank, through an inadequate credit policy exceeding the limits of the apportionment of credit risk with respect to the nonfinancial public sector and, with respect to transactions with counterparties, excessive demands of assets in guarantee, insufficient minimum capital requirements, and objections with respect to accounting practices. In May 2011, Banco Hipotecario and the members of its board of directors filed with the Argentine Central Bank a response to the allegations, asking for dismissal of the proceedings. In October 2014, the Argentine Central Bank fined Banco Hipotecario S.A. in the amount of AR$ 4 million and the members of the board of directors in the total amount of AR$ 51.5 million (including, among others, Eduardo Elsztain and Saul Zang, members of our board of directors) . In November 2014, Banco Hipotecario S.A. submitted an appeal for the reversal of the decision. Since December 2014, the proceeding has been transferred to the judicial courts. 

In April 2012, the Argentine Central Bank initiated an administrative investigation against Banco Hipotecario, S.A. and its members of the board of directors. Pursuant to Argentine regulations, all directors may be named in such a proceeding, and therefore such proceeding included Banco Hipotecario S.A.’s entire board of directors (including, among others, Eduardo Elsztain and Saul Zang, members of our board of directors). In such proceeding, the Argentine Central Bank alleged that Banco Hipotecario S.A. has acquired silver bars with funds from its Exchange General Position violating certain Argentine Central Bank regulations. In September 2012, Banco Hipotecario and the members of its board of directors filed with the Argentine Central Bank a response to the allegations, asking for dismissal of the proceedings. Since August 2014 the proceeding has been transferred to the judicial courts. Although the outcome of the proceeding remains unresolved at this time, Banco Hipotecario and its directors have stated that they consider the allegations of the Argentine Central Bank to be entirely without merit.

In November 2012, the Argentine Central Bank initiated an administrative investigation against Banco Hipotecario S.A. and the members of the board of directors (including, among others, Eduardo Elsztain and Saul Zang, members of our

 

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board of directors) alleging that Banco Hipotecario S.A. has not accomplished certain minimum rules of intern control established in Argentine Central Bank regulations. In February 2013, Banco Hipotecario S.A. filed with the Argentine Central Bank a response to the allegations, asking for dismissal of the proceedings. In October 2014, the Argentine Central Bank fined Banco Hipotecario S.A. in the amount of AR$112,000 and also fine the board members. Banco Hipotecario has submitted an appeal for the reversal of the decision. Since December 2014, the proceeding has been transferred to the judicial courts. 

In February 2014, the Unit of Financial Information ( Unidad de Información Financiera ) of Argentina initiated a summary proceeding against Banco Hipotecario S.A. and the members of its board of directors (including, among others, Eduardo Elsztain and Saul Zang, members of our board of directors) alleging the violation of the provisions of Section 21 of Law No 25,246, as amended, and Resolution No. 228/2007 of the Unit of Financial Information, due to certain defaults detected by the Argentine Central Bank in the inspection of the organization and in internal controls implemented for the prevention of money-laundering derived from illegal activities. In March 2014, the relevant defenses and arguments were filed in support of the bank and the individuals subject to the summary proceeding. Although the outcome of the proceeding remains unresolved at this time, Banco Hipotecario and its directors have stated that based on similar cases resolved recently by the Summary Proceeding Division of the Unit of Financial Information, the outcome of this proceeding will probably be an administrative fine.

In August 2014, the Argentine Central Bank initiated an administrative investigation against Banco Hipotecario S.A. and its members of the board of directors (including, among others, Eduardo Elsztain and Saul Zang, members of our board of directors). In such proceeding, the Argentine Central Bank alleged that Banco Hipotecario S.A. has transferred currency abroad between August and October 2008 as guarantee of a swap transaction “CER Swap Linked to PG08 and External Debt” without the authorization of the Argentine Central Bank. Defenses and arguments have been filed in support of the bank and the individuals subject to the summary proceeding. In March 2015, the Argentine Central Bank set a deadline for the parties to produce evidence. Although the outcome of the proceeding remains unresolved at this time, Banco Hipotecario S.A. and its directors have stated that they consider the allegations of the Argentine Central Bank to be entirely without merit.

On August 11, 2015, Banco Hipotecario S.A. was notified of the Resolution No.76/15 adopted by the Unit of Financial Information (Unidad de Información Financiera) of Argentina which initiated a summary proceeding against Banco Hipotecario S.A. and the members of its Board of Directors (including, among others, Eduardo Elsztain and Saul Zang, members of our board of directors), and their compliance officer for an alleged infringement to section 21 a) of Law No.25,246 and to Resolution No.121/11 that establish the procedures to comply with know your client standards. As of the date of this annual report, the summary proceeding is still ongoing and no charge or indictment has been reached against any of the persons involved 

Distributions to Shareholders

Amounts Available for Distribution

At each annual shareholders’ meeting, our board of directors is required to submit to shareholder approval its proposal on the allocation of our net income for the preceding year. Pursuant to Brazilian corporate law, the proposal of the board of directors has to be evaluated by the fiscal council ( conselho fiscal ), if in operation. Brazilian corporate law defines “net income” for any fiscal year as the results in a given year after the deduction of accrued losses from prior years, the provisions for income and social contribution taxes for that year, and any amounts allocated to profit-sharing payments to the employees and management (provided, however, that such payments will only be disbursed after payment of the mandatory dividend to the company’s shareholders). All calculations in connection with net income and its allocation to reserves are based on the audited financial statements for the preceding fiscal year.

 

Our bylaws provide that an amount equal to at least 25.0% of our adjusted net income for any given year should be available for distribution as a mandatory dividend or interest on shareholders’ equity. Adjusted net income is calculated by adjusting net income as follows: (i) deducting amounts allocated to legal reserve, statutory reserve, contingency reserve, retained earnings and unrealized profit reserve, as applicable; (ii) adding amounts reversed from the contingency reserve; and (iii) adding unrealized profit reserve amounts, upon their realization and if not offset by subsequent losses, if any. Such amount represents the minimum mandatory dividend, or mandatory dividend. The allocation of amounts to the mentioned reserves cannot be made to the detriment of the payment of the mandatory dividend. Moreover, the minimum mandatory dividend may be limited to the ‘realized’ portion of net income. Our calculation of net income and allocations to reserves for any year, as well as the amounts available for distribution, are determined on the basis of our financial statements prepared in accordance with Brazilian corporate law. For more information, see “Item 8—Financial Information—Payment of Dividends and Interest on Shareholders’ Equity” below.

 

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As of June 30, 2015, we had R$40.3 million available for the payment of dividends (without taking into consideration any reserves that may be used for this purpose).

Reserve Accounts

Corporations subject to Brazilian corporate law usually have two main categories of reserve accounts, which may be used for purposes of dividend payments: income reserve accounts and capital reserve account.

Income Reserve Accounts

Pursuant to Brazilian corporate law, our income reserve accounts are comprised of the legal reserve, unrealized profit reserve, contingency reserve, discretionary reserves and profit retention reserve.

The balance of the profit reserves, except the balances of contingency, fiscal subsidies and unrealized profit reserves may not exceed the amount of our capital stock. In case of excess, our shareholders shall decide at a shareholders’ meeting whether the excess amount will be used to pay or increase our capital stock or pay dividends.

Legal reserve: Under Brazilian corporate law, we are required to maintain a legal reserve to which we must allocate 5% of our net income for each fiscal year until the aggregate amount of the reserve equals 20% of our capital stock. However, we are not required to make any allocations to our legal reserve in a year in which the legal reserve, when added to our other established capital reserves, exceeds 30% of our capital stock. The amounts allocated to such reserve must be approved by our shareholders in a shareholders’ meeting, and may only be used to increase our capital stock or to offset net losses. As of June 30, 2015, we had R$8.5 million allocated to legal reserve.

Contingency reserve: Pursuant to Brazilian corporate law, a percentage of our net income may be allocated to a contingency reserve for anticipated losses that are deemed probable in future years, if their amount may be estimated. This allocation has to be proposed by the company’s management and approved at shareholders’ meeting. The management’s proposal must indicate the cause of the anticipated loss and justify the need for such allocation. Any amount so allocated must be reversed in the fiscal year in which a loss that had been anticipated fails to occur as projected or charged off in the event that the anticipated loss occurs. As of June 30, 2015, we had no contingency reserve.

Fiscal subsidies reserve: The part of net income corresponding to amounts granted by the government to our company for investment purposes may be allocated to the fiscal subsidies reserve. Pursuant to Brazilian corporate law, this allocation is only permitted if proposed by our management and approved at the shareholders’ meeting. Such amounts will not be taken into account for purposes of the calculation of the mandatory dividend. As of June 30, 2015, we had no fiscal subsidies reserve.

Investment and expansion reserve: Pursuant to Brazilian corporate law, the amount by which the mandatory dividend exceeds the realized net income in any given year may be allocated to other earnings reserve or investment and expansion reserve, and the mandatory dividends may be limited to the realized portion of the net income. Brazilian corporate law defines realized net income as the amount by which our net income exceeds the sum of our net positive results, if any, from the equity method of accounting; and the income, gains or profits resulting from transactions that occurred in the relevant fiscal year but that will be received by us after the end of the next year. Profits recorded as earnings reserve must be added to the next mandatory dividend distributed after the realization of such profits, if not absorbed by losses in subsequent years. As of June 30, 2015, we had R$80.7 million allocated to investment and expansion reserve.

 

Retained earnings reserve: Pursuant to Brazilian corporate law, we are permitted to provide for the allocation of part of our net income to discretionary reserve accounts that may be established in accordance with our bylaws, which must also indicate the purpose, allotment criteria and maximum amount of the reserve. The allocation of net income to retained earnings reserve accounts may not be made if it affects the payment of the minimum mandatory dividend. As of June 30, 2015, we had no funds allocated to discretionary reserves.

Capital Reserve Account

Pursuant to Brazilian corporate law, we may maintain capital reserves in which we may record goodwill paid in connection with the subscription of our shares, mergers, sale of warrants, subscription bonds, participation certificates (which are not applicable to us), debentures, donations, stock option granted and governmental granting for investments. These reserves may only be used for the following purposes: (i) to offset losses that exceed the retained earnings and profit reserves, (ii) to redeem, repay or purchase shares of our capital stock, and (iii) to increase our capital stock. The amounts allocated to

 

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our capital reserve account are not considered for purposes of the calculation of mandatory dividends. As of June 30, 2015, we had R$2.3 million allocated to a capital reserve.

Payment of Dividends and Interest on Shareholders’ Equity

Brazilian corporate law requires that the bylaws of a Brazilian company specify a minimum percentage of the available income for the annual distribution of dividends, known as mandatory dividend, which must be paid to shareholders as either dividends or interest on shareholders’ equity. The basis of the mandatory dividend is a percentage of the net income, as adjusted pursuant to Brazilian corporate law. Under our bylaws, a minimum of 25.0% of our adjusted net income should be intended for the distribution and payment to our shareholders as mandatory dividend. However, the payment of mandatory dividends to our shareholders may be limited to the amount of realized net income in a given year, provided the difference should be recorded as unrealized income reserve. Our calculation of net income and allocations to reserves for any year, as well as the amounts available for distribution, are determined on the basis of our non-consolidated financial statements prepared in accordance with Brazilian corporate law. The mandatory dividend may also be paid as interest on shareholders’ equity, in which event it is deemed a deductible expense for purposes of income and social contribution taxes on revenue.

In addition, our board of directors may advise our shareholders that additional dividends may be distributed from other income or reserves legally available for distribution. Brazilian corporate law allows, however, a company to suspend such dividend distribution if its board of directors reports at our annual shareholders’ meeting that the distribution would be inadvisable given the company’s financial condition. The fiscal council, if in place at the time, should review any suspension of the mandatory dividend. In addition, our management should submit a report to the CVM setting forth the reasons for the suspension. Net income not distributed by virtue of a suspension is allocated to a separate reserve and, if not absorbed by subsequent losses, is required to be distributed as dividends as soon as the financial condition of the company should permit such payment.

Our board of directors may distribute interim dividends on the basis of monthly, by-monthly, quarterly or semi-annual financial statements. Our dividend policy has to observe at all times the mandatory dividend required under Brazilian corporate law.

Shareholders have a three-year period from the date of the payment to claim the dividends or interest on shareholders’ equity with respect to their common shares, as applicable, after which the aggregate amount of any unclaimed amounts legally reverts to us.

Dividends

The distribution of dividends in any given fiscal year is proposed by our executive officers ( Diretoria ) to the board of directors, which then submits a detailed proposal to the shareholders’ meeting. In preparing this proposal, the board of directors will take into account our business strategy, investment plans, financial condition and the recommendations of the fiscal council. The proposal for distribution of dividends is then submitted to our annual shareholders’ meeting, in which a majority of the voting shareholders is necessary to approve it. We may distribute additional dividends if so deemed adequate by our board of directors in view of our capital structure. Our board of directors may revise or modify our dividend policy at any time.

 

We are required by Brazilian corporate law and our bylaws to hold an annual shareholders’ meeting no later than four months after the end of each fiscal year, at which time the allocation of the results of operations in any year and the distribution of an annual dividend are reviewed. The distribution of annual dividends is based on our audited financial statements prepared for the immediately preceding fiscal year.

Any holder of record of common shares at the time a dividend is declared is entitled to receive dividends. Under Brazilian corporate law, dividends are generally required to be paid within 60 days following the date on which the dividend is declared, unless the shareholders’ resolution established another payment date, which, in any event, must occur before the end of the year in which the dividend is declared. Our bylaws do not require that dividend payments be adjusted for inflation.

Interest on Shareholders’ Equity

Since January 1, 1996, Brazilian companies have been authorized to pay interest on shareholders’ equity to shareholders, and to treat those payments as deductible expenses for purposes of calculating corporate income tax and, since 1997, the social contribution tax, as well. The amount of the tax deduction in each year is limited to the greater of (i) 50.0% of our net income (after the deduction of social contribution on net profit, but before taking into account the provision for

 

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corporate income tax and the amounts attributable to shareholders as interest on shareholders’ equity) for the period in respect of which the payment is made; and (ii) 50.0% of our accumulated profits and income reserves at the beginning of the relevant period. The rate applied in calculating interest on shareholders’ equity cannot exceed the pro rata daily variation of the TJLP.

Payments of interest on shareholders’ equity to our shareholders, whether or not residing in Brazil, are subject to Brazilian withholding tax at the rate of 15.0%. A tax rate of 25.0% applies if the shareholder receiving such interest on shareholders’ equity resides at a Tax Haven Jurisdiction, which is defined under Brazilian tax laws as a country where income tax is not levied, or levied at a maximum rate lower than 17.0%, or where the local legislation does not allow access to information related to shareholding composition of legal entities or to their ownership or to the identity of the effective beneficiary of the income attributed to non-residents. See “Item 10—Additional Information—Taxation—Brazilian Tax Considerations—Interest on Shareholders’ Equity.”

Amounts paid as interest on shareholders’ equity, net of withheld income tax, can be taken into consideration for purposes of distribution of the mandatory dividend. If a distribution of interest on shareholders’ equity in any given fiscal year is not recorded as part of the mandatory dividend distribution, we will not withhold the applicable income tax, which will have to be paid by our shareholders.

Pursuant to Law No. 9,249, dated December 26, 1995, as amended, interest on shareholders’ equity paid or payable to our shareholders should be computed in our results for the year under financial expenses. For purposes of the presentation of financial statements, however, these amounts revert to the statement of income charged to accumulated earnings as profit distribution.

We have never paid interest on shareholders’ equity since the beginning of our operations.

Recent Dividend Payments

 The distribution of dividends for the year ended June 30, 2015 was approved at our shareholders’ meeting held on October 28, 2015, in the amount of R$80.7 million, or R$1.3977 (or US$0.3603) per share, excluding treasury shares. For the years ended June 30, 2014, 2012 and 2011, there was no distribution of dividends to our shareholders as our net income for the years ended June 30, 2011 and 2012 was used to absorb accumulated losses and we recorded a loss for the year ended June 30, 2014. The distribution of dividends for the year ended June 30, 2013 was approved at our shareholders’ meeting held on October 29, 2013, in the amount of R$5.9 million, or R$0.10 (or US$0.05) per share.

B. Significant Changes

The Company is not aware of any changes bearing upon its financial condition since the date of the financial statements included in this Annual Report.

ITEM 9—THE OFFER AND LISTING

A. Offer and listing details

Price History of our Common Shares and ADRs

Our common shares began trading on the Novo Mercado market segment of the BM&FBOVESPA on May 15, 2006 under the symbol AGRO3. The ISIN for our common shares is BRAGROACNOR7.

The following table shows the low and high trading prices of our common shares for the five most recent full financial years:

 

 

 

 

 

BM&FBOVESPA

 

For the fiscal year ended June 30,

 

High

 

Low

 

 

(in R$ per common share)

2011

11.50

8.25

2012

10.45

6.72

2013

11.63

9.45

2014

10.44

6.86

2015

11.19

6.91

 

Source :     Bloomberg

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The following table shows the low and high trading prices of our common shares for each calendar quarter since July 1, 2013:

 

 

 

 

 

BM&FBOVESPA

 

Three-month calendar period ended

 

High

 

Low

 

 

(in R$ per common share)

 

 

 

September 30, 2013

11.35

9.07

December 31, 2013

10.23

9.30

March 31, 2014

9.50

7.75

June 30, 2014

10.39

8.40

September 30, 2014

10.00

9.06

December 31, 2014

9.29

6.86

March 31, 2015

9.07

8.20

June 30, 2015

11.80

8.60

September 30, 2015

11.49

10.26

 

Source :    Bloomberg

The following table shows the low and high trading prices of our common shares for each month indicated below:

 

 

 

 

 

BM&FBOVESPA

 

One-month calendar period

 

High

 

Low

 

 

(in R$ per common share)

April 2015

9.38

8.60

May 2015

10.10

9.20

June 2015

11.80

10.06

July 2015

11.40

10.73

August 2015

11.30

10.26

September 2015

11.49

10.36

October 2015 (through October 20, 2015)

13.15

12.78

 

Source :     Bloomberg

 

In September 2010, we established a Level 1 American Depositary Receipt (ADR) program in the United States, which, as of September 20, 2010, has allowed our ADRs to be traded on the over-the-counter (OTC) market in the United States under the symbol “BRCPY.”

In November 2012, we established a Level 2 American Depositary Receipt (ADR) program in the United States, which, as of November 8, 2012, has allowed our ADRs to be traded on New York Stock Exchange (NYSE) under the symbol “LND”.

The following table shows the low and high trading prices of our ADRs for each financial year since our ADRs were listed on the NYSE:

 

 

 

 

 

NYSE

 

For the fiscal year ended June 30,

 

High

 

Low

 

 

(in US$ per ADR)

2013 (since November 8, 2012)

4.90

4.40

2014

5.47

3.84

2015

4.40

2.60

 

Source :    Bloomberg

The following table shows the low and high trading prices of our ADRs since July 1, 2013:

 

 

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NYSE

 

Three-month calendar period ended

 

High

 

Low

 

 

(in US$ per ADR)

September 30, 2013

5.01

3.84

December 31, 2013

4.95

3.96

March 31, 2014

4.09

3.24

June 30, 2014

4.67

3.75

September 30, 2014

4.38

3.75

December 31, 2014

4.02

2.65

March 31, 2015

3.69

2.60

June 30, 2015

3.75

2.67

September 30, 2015

3.93

2.70

 

Source :    Bloomberg

The following table shows the low and high trading prices of our ADRs for each month indicated below:

 

 

 

 

 

NYSE

 

One-month period

 

High

 

Low

 

 

(in US$ per ADR)

April 2015

3.28

2.67

May 2015

3.38

2.83

June 2015

3.75

3.00

July 2015

3.56

3.13

August 2015

3.93

2.94

September 2015

3.13

2.70

October 2015 (through October 20, 2015)

3.34

3.28

 

Source :    Bloomberg

 

As of June 30, 2015, we had 9,535,464 ADRs outstanding, with no par value. There are no restrictions on ownership of our ADRs by individuals or legal entities domiciled outside Brazil.

Investments in our Common Shares by Non-residents of Brazil

Investors residing outside Brazil are authorized to purchase equity instruments, including our common shares, on the BM&FBOVESPA, provided that they comply with the registration requirements set forth in Resolution No. 4,373 and CVM Instruction 325.

With certain limited exceptions, Resolution No. 4,373 investors are permitted to carry out any type of transaction in the Brazilian financial capital market involving a security traded on a Brazilian stock, futures or organized OTC market. Investments and remittances outside Brazil of gains, dividends, profits or other payments derived from our common shares are made through the foreign exchange market.

In order to become a Resolution No. 4,373 investor, an investor residing outside Brazil must:

•         appoint a representative in Brazil with powers to take actions relating to the investment;

•         obtain a taxpayer identification number from the Brazilian tax authorities;

•         appoint an authorized custodian in Brazil for the investments, which must be a financial institution duly authorized by the Central Bank and CVM; and

•         through its representative, register itself as a foreign investor with the CVM and the investment with the Central Bank.

Securities and other financial assets held by foreign investors pursuant to Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading by foreign investors are generally restricted to transactions involving securities listed on the Brazilian stock exchanges or traded in organized OTC markets licensed by the CVM.

 

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Foreign direct investors under Law No. 4,131, dated September 3, 1962, as amended, or Law No. 4,131, may sell their shares in both private and open market transactions, but these investors are currently subject to less favorable tax treatment on gains. See “Item 10—Additional Information—Taxation—Brazilian Tax Considerations—Taxation of Gains.”

A foreign direct investor under Law No. 4,131 must:

•         register as a foreign direct investor with the Central Bank;

•         obtain a taxpayer identification number from the Brazilian tax authorities;

•         appoint a tax representative in Brazil; and

•         appoint a representative in Brazil for service of process in respect of suits based on the Brazilian corporate law.

IOF/Exchange Tax

Brazilian law imposes the IOF/Exchange Tax on the conversion of Reais into foreign currency and on the conversion of foreign currency into Reais . Effective as of October 20, 2009, IOF/Exchange Tax for any investment made by Non-Resident Holders (as defined in “Item 10—Additional Information—Taxation—Brazilian Tax Considerations”) in the Brazilian financial and capital markets and transactions related to the constitution of initial or additional guarantee margins before BM&FBOVESPA was increased from zero to 6.0%, except for, among others, certain variable income transactions carried out within BM&FBOVESPA and those related to equity investments in initial public offerings of shares in a transaction carried out within BM&FBOVESPA.

The outflow of resources from Brazil related to investments carried out by Non-Resident Holders in the Brazilian financial and capital markets remains subject to IOF/Exchange at a zero percent rate. In any case, the Brazilian executive branch may increase such rates at any time, up to 25.0%, with no retroactive effect.

 

B. Plan of Distribution

Not applicable.

C. Markets

Our shares are listed on the BM&FBOVESPA, and our ADRs are listed on the NYSE.

Trading on the BM&FBOVESPA

BM&FBOVESPA concentrates all trading activities of shares and commodities in Brazil. Trading on the exchange is conducted by authorized members. Trading sessions take place every business day, from 10:00 a.m. to 5:00 p.m. on an electronic trading system called Megabolsa. Trading is also conducted between 5:45 p.m. and 7:00 p.m., or between 6:45 p.m. and 7:30 p.m. during daylight savings time in Brazil, in an after-market system connected to both traditional broker dealers and brokerage firms operating on the Internet. This after-market trading is subject to regulatory limits on price volatility of securities traded by investors operating on the Internet.

In order to maintain control over the fluctuation of the BM&FBOVESPA index, the BM&FBOVESPA has adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the BM&FBOVESPA index falls below 10% or 15%, respectively, in relation to the closing index levels of the previous trading session. In addition, in case the BM&FBOVESPA index falls below the 20% mark, the BM&FBOVESPA may suspend trading sessions for a period of time to be established at its discretion at the time said lower mark is reached.

When investors trade shares on the BM&FBOVESPA, the trade is settled in three business days after the trade date, without adjustments to the purchase price. The seller is ordinarily required to deliver the shares to the exchange on the third business day following the trade date. Delivery of and payment for shares are made through the facilities of an independent clearing house, the Central Depository BM&FBOVESPA, which handles the multilateral central counterparty settlement of both financial obligations and transactions involving securities. According to the regulations of the BM&FBOVESPA, financial settlement is carried out through the system of transfer of funds of the Central Bank and the transactions involving the sale and purchase of shares are settled through the BM&FBOVESPA custody system. All deliveries against final payment are irrevocable.

 

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The Novo Mercado segment

The Novo Mercado is a stock market segment of the BM&FBOVESPA intended for companies meeting certain requirements and agreeing to adhere to heightened corporate governance rules. The principal Novo Mercado rules and requirements are summarized as follows:

•         capital stock should be exclusively composed of common shares and the issuance or maintenance of so called founder’s shares is prohibited;

•         public float of shares should represent at least 25.0% of the capital stock;

•         in the event of a transfer of control, even if through a series of successive sales, the transfer should be subject to the minority shareholders being granted the same conditions offered to any controlling shareholders, including the same price, through a tender offer for the acquisition of shares (tag-along rights);

•         the board of directors should be composed of at least five members, of which at least 20.0% should be independent directors elected during the shareholders’ meeting for a term of up to two years, with reelection permitted;

•         new members of the board of directors and the executive officers are required to sign an agreement, the Management’s Consent Statement ( Termo de Anuência dos Administradores ), that makes their taking of office subject to the execution of this agreement, through which the new directors and executive officers of the company take personal responsibility to act in accordance with the listing agreement with the Novo Mercado , the rules of the Market Arbitration Chamber ( Câmara de Arbitragem do Mercado ) and the Novo Mercado regulation;

•         a statement of cash flow (both the company’s and consolidated) must be included in the quarterly financial reports and annual financial statements;

•         the schedule of corporate events should be disclosed annually to the shareholders, by the end of the month of January;

•         delisting from the Novo Mercado , as well as the decision to cancel the registration as a public company, should be subject to any controlling shareholders’ making a public tender offer for the acquisition of all outstanding shares of the company, at a minimum price of their economic value determined in a valuation report prepared by a specialized institution or company with recognized experience and independent from persons with the power to make decisions within a company, such as directors or any controlling shareholders, in addition to meeting the requirements set forth in Article 4 of the Brazilian corporate law; and

•         the issuer, any controlling shareholders, management and members of the fiscal council should submit to the Market Arbitration Chamber under the terms of its regulation, any dispute or controversies that may arise among themselves, relating to and resulting from, specifically, the application, validity, effectiveness, interpretation, violation and effects of the arrangements contained in the Brazilian corporate law, our bylaws, the rules and regulations of the CMN, the Central Bank, and the CVM, as well as additional rules and regulations applicable to the capital markets, Novo Mercado regulation, the rules of the Market Arbitration Chamber and the listing agreement with the Novo Mercado .

The Brazilian securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. The BM&FBOVESPA, which is the principal Brazilian stock exchange, had a market capitalization of R$2.2 trillion (US$843.3 billion) at December 31, 2014 and an average daily trading volume of R$79.6 billion (US$29.9 billion) for 2014. In comparison, aggregate market capitalization of the companies (including U.S. and non-U.S. companies) listed on the NYSE was US$20.2 trillion at December 31, 2014 and the NYSE recorded an average daily trading volume of US$40.5 billion for 2014. There is also significantly greater concentration in the Brazilian securities markets. The ten largest companies in terms of market capitalization represented approximately 60% of the aggregate market capitalization of the BM&FBOVESPA at December 31, 2014. The ten most widely traded stocks in terms of trading volume accounted for approximately 49.5 % of all shares traded on the BM&FBOVESPA in 2014. These market characteristics may substantially limit the ability of holders of our ADSs to sell the common shares underlying our ADSs at a price and at a time when they wish to do so and, as a result, could negatively impact the market price of our ADSs themselves.

Regulation of Brazilian securities markets

The Brazilian securities market is regulated by the CVM , as provided for by Law No. 6,385, dated December 7, 1976, as amended, or the Brazilian Securities Exchange Law, and Brazilian corporate law. The CMN is responsible for granting

 

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licenses to brokerage firms to govern their incorporation and operation, and regulating foreign investment and exchange transactions, as provided for by the Brazilian Securities Exchange Law and Law No. 4,595, dated December 31, 1964, as amended. These laws and regulations provide for, among other things, disclosure requirements, criminal sanctions for insider trading and price manipulation, protection of minority shareholders, the procedures for licensing and supervising brokerage firms and the governance of Brazilian stock exchanges.

Under the Brazilian corporate law, a company is required to be publicly held, or companhia aberta , before listing its shares. All publicly held companies are registered with the CVM and are subject to reporting requirements to periodically disclose information and material facts. A company registered with the CVM may trade its securities either on the Brazilian exchange markets, including the BM&FBOVESPA, or in the Brazilian OTC market. Shares of companies listed on BM&FBOVESPA may not simultaneously trade on the Brazilian OTC market. The OTC market consists of direct trades between persons in which a financial institution registered with the CVM serves as an intermediary.

 

No special application, other than registration with the CVM (or, in case of organized OTC markets, registration with the applicable one), is necessary for securities of a public company to be traded in this market. To be listed on the BM&FBOVESPA, a company must apply for registration with the BM&FBOVESPA and the CVM.

The trading of securities on the BM&FBOVESPA may be suspended at the request of a company in anticipation of a material announcement. Trading may also be suspended on the initiative of the BM&FBOVESPA or the CVM based on or due to a belief that a company has provided inadequate information regarding a significant event or has provided inadequate responses to inquiries by the CVM or the BM&FBOVESPA, among other reasons.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

ITEM 10—ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Organization, Register and Entry Number

We are a publicly-listed corporation, or sociedade por ações de capital aberto, organized in accordance with Brazilian law. Our registered office is located at Avenida Faria Lima, 1309, 5th floor, in the city of São Paulo, State of São Paulo, Brazil. We are registered with the Commercial Registry of the state of São Paulo ( Junta Comercial do Estado de São Paulo ) under NIRE No. 35.300.326.237, and with the CVM under No. 20036.

On April 10, 2006, we and our principal shareholders entered into the Novo Mercado Participation Agreement ( Contrato de Participação no Novo Mercado ) with BM&FBOVESPA. Also, as required under the Novo Mercado listing regulations, all our directors, officers and members of our fiscal council have undertaken to abide by the rules set forth in the Novo Mercado Participation Agreement and by the Novo Mercado listing segment rules and regulations applicable to each of them.

Our common shares are traded on the Novo Mercado listing segment of BM&FBOVESPA under the symbol “AGRO3.” In September 2010, we established a Level 1 American Depositary Receipt (ADR) program in the United States, which, as of September 20, 2010, has allowed our ADRs to be traded on the over-the-counter (OTC) market in the United

 

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States under the symbol “BRCPY.” In November 2012, we established a Level 2 American Depositary Receipt (ADR) program in the United States, which, as of November 8, 2012, has allowed our ADRs to be traded on New York Stock Exchange (NYSE) under the symbol “LND”.

Capital Stock

As of the date hereof, we have 58,226,600 common shares issued and outstanding, representing a book value of R$584.2 million. Our board of directors is authorized under our bylaws to issue a number of shares representing a book value of up to R$3.0 billion without shareholder approval.

In April 2006, we completed our initial public offering which comprised the issuance of 583,200 new common shares at a price of R$1,000.00 per common share. As a result of our initial public offering, our capital stock was increased by R$583 million.

 

On October 31, 2007, our shareholders approved a stock split transaction whereby each of our shares was divided into 100 shares. This transaction was intended to increase the liquidity of our shares and foster trading thereof in BM&FBOVESPA.

On October 20 and December 23, 2010, Cresud executed with Tarpon an addendum to the Share Purchase Agreement dated April 28, 2010, under which Cresud acquired, directly and indirectly, 9,581,750 shares of common stock of BrasilAgro, representing 16.40% of its outstanding common stock and 64,000 First Issue Warrants and 64,000 Second Issue Warrants. Consequently, Cresud paid R$25.2 million on October 20, 2010, R$50.8 million on December 23, 2010 and R$52.5 million on April 27, 2011. Consequently, immediately after this transaction, Cresud held 20,883,916 shares, or 35.75% of BrasilAgro’s capital stock, and Cresud owned, directly and indirectly, 168,902 First Issue Warrants and 168,902 Second Issue Warrants, and therefore Tarpon no longer held any securities of ours.

 On February 4, 2011, our shareholders approved an increase in authorized capital of R$1.5 billion, from R$1.5 billion to R$3.0 billion, in order to fund future growth.

On January 27, 2015, we canceled 195,800 common shares held in treasury. The shares were acquired through the Company’s common share buyback program, as approved by the Board of Directors meeting held on September 2, 2013.

On June 25, 2015, we approved the buyback program of common shares up to the limit of 698,310 common shares, not exceeding the balance of profits reserve available, included in our balance sheet on March 30, 2015.

On September 3, 2015, we approved changes in the buyback program as of June 25, 2015, increasing the limit from 698,310 to 3,491,550 common shares, not exceeding the balance of profits reserve available, included in our balance sheet on June 30, 2015. 

During the fiscal year ended June 30, 2015, we acquired 20,000 common shares under the share buyback program, which account for 0.03% of our outstanding shares (excluding the shares held by the controlling shareholder).

As of June 30, 2015, our fully paid capital stock was R$584. 2 million, divided into 58,226,600 registered book-entry common shares, without par value. Our bylaws authorize our board of directors to increase our capital stock up to R$3.0 billion without shareholder approval. Any capital increase in excess of such amount must be approved at a shareholders’ meeting. We do not hold treasury stock. The Novo Mercado Participation Agreement precludes us from issuing preferred stock or participation certificates ( partes beneficiárias ) in any future capital increases. As of the date of this Annual Report, our controlling shareholder Cresud holds 39.76% of our capital stock. See “Item 7—Major Shareholders and Related Party Transactions”.

Corporate Purpose

Article 3 of our bylaws define our corporate purposes as including: (i) the development of agricultural and forestry activities and the rendering of services directly or indirectly related thereto; (ii) the purchase, sale and/or lease of real estate properties in agricultural and/or urban areas; (iii) the importation and exportation of agricultural products, supplies and inputs; (iv) the brokering of real estate transactions of any kind; (v) the holding equity investments in other companies and business ventures of any kind related to our corporate purpose, either in Brazil or abroad; and (vi) the management of our own or third-party assets.

 

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Share Register

Banco Bradesco S.A. holds the book-entry register of our common shares. Share transfers are made upon written instructions of the transferor or court order, by charging the transferor’s share account and crediting the transferee’s account by the appropriate amount.

Rights of Common Shares

Our capital stock consists exclusively of common shares. Each of our common shares entitles its holder to one vote at our shareholders’ meetings, and to receive pro rata dividends or other distributions. See “Item 8—Financial Information—Dividends and Dividend Policy” for a description of distribution rights in connection with our common shares. Holders of our common shares also have the right, subject to certain exceptions provided for in Brazilian corporate law, but not the obligation, to subscribe to our future capital increases. Our shareholders are also entitled to share ratably our remaining assets in case we are liquidated, after payment of all our liabilities.

 

Brazilian corporate law awards our shareholders the following rights, which cannot be circumvented by bylaws amendments or majority resolutions at shareholders’ meetings: (i) the right to participate in the distribution of profits; (ii) the right to participate equally and ratably in any remaining residual assets in the event of liquidation of the company; (iii) preemptive rights in the event of issuance of shares, convertible debentures or subscription warrants, except in certain specific circumstances, as set forth in Brazilian corporate law (see “Item 10—Additional Information—Preemptive rights”); (iv) the right to hold our management accountable, in accordance with the provisions of Brazilian corporate law; and (v) the right to withdraw in the cases specified in Brazilian corporate law, including in the events of merger or consolidation, such as those described in “Item 10—Additional Information—Withdrawal and Redemption Rights—Withdrawal Rights.”

Furthermore, pursuant to our bylaws and in accordance with CVM and Novo Mercado rules and regulations, the direct or indirect transfer of our control, either through one or a series of related transactions, is contingent upon the acquirer making a tender offer to acquire all of our shares.

As long as we are listed on the Novo Mercado , we may not issue preferred shares or participation certificates, and should we decide to delist from the Novo Mercado , we must carry out a tender offer to acquire all shares traded on stock markets. For further information, see “Item 10—Additional Information—Delisting from the Novo Mercado ” below.

Warrants

On March 15, 2006, our board of directors approved the issuance of warrants to our founding shareholders proportionally to their subscription of shares during our capital increases. See “Item 10—Additional Information—Description of Outstanding Warrants.”

Shareholders’ Meetings

Pursuant to Brazilian corporate law, our shareholders have the power to take any action and approve any resolutions related to our activities at shareholders’ meetings, provided that such meetings have been convened pursuant to the terms and procedures described in Brazilian corporate law and in our bylaws. It is the exclusive prerogative of the annual shareholders’ meeting ( assembleia geral ordinária ) to review management’s account of corporate activities; approve our financial statements; and determine the allocation of our net income and the payment of dividends with respect to the previous fiscal year. Members of our board of directors and fiscal council are also typically appointed at the annual shareholders’ meeting, although such appointments may also take place at special shareholders’ meetings.

Our shareholders may also convene for special shareholders’ meetings, which may be held concurrently with the annual shareholders’ meeting or at any time of the year.

The following actions, among others, may be taken exclusively at shareholders’ meetings: (i) approve bylaws amendments; (ii) approve management accounts and financial statements; (iii) appoint and dismiss members of our board of directors and fiscal council; (iv) determine the aggregate compensation of the board of directors, executive officers and fiscal council; (v) approve the company’s dissolution, petition for bankruptcy or judicial or out-of-court reorganization proceedings, liquidation, merger, spin-off, or consolidation with any other company, and any share mergers; (vi) approve pro rata share distributions to current shareholders, stock splits and reserve stock splits; (vii) approve stock option plans and similar arrangements for our management and employees, and for the managers and employees of our direct or indirect subsidiaries; (viii) approve management’s proposals regarding allocation of net income and distribution of dividends;

 

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(ix) approve capital increase above the limit authorized in our bylaws; (x) appoint liquidators and members of the fiscal council during liquidation proceedings; (xi) approve the cancellation of our registration as a public company with the CVM; (xii) approve our delisting from the Novo Mercado listing segment; (xiii) approve the engagement of an appraiser to evaluate the value of our shares in case of cancellation of our registration as a public company with the CVM or our delisting from the Novo Mercado listing segment; and (xiv) pass resolutions on any matter submitted to the shareholders’ meeting by our board of directors.

Shareholders’ meetings are not allowed to circumvent certain specific shareholder rights enumerated in Brazilian corporate law. See “Item 10—Additional Information—Rights of Common Shares,” above.

 

Quorum

Brazilian corporate law generally provides that shareholders representing at least 25% of our voting capital stock are necessary to convene a shareholders’ meeting on first call, except if the meeting is called to amend our bylaws, in which case two thirds of our voting capital stock are required on first call. In either case, if the applicable quorum is not reached on first call, any percentage will suffice to convene the meeting on second call.

Approval of resolutions at shareholders’ meetings generally requires the affirmative vote of shareholders representing at least the majority of common shares attending the meeting, either in person or represented by a proxy. Non-voting shares are disregarded for purposes of calculating the majority.

The Novo Mercado listing rules require, for the approval of certain issues, such as to retain a specialized firm to prepare a valuation report with respect to the value of our common shares in the event of delisting from the Mercado Novo listing segment or cancelling our registration as a publicly-held company, the affirmative vote of shareholders representing at least the majority of our issued and outstanding common shares (the “Outstanding Shares”) present at a shareholders’ meeting. In such hypothesis, the shareholders’ meeting must count on the presence of shareholders representing at least 20% of our Outstanding Shares on first call, or on the presence of any percentage of our Outstanding Shares on second call, with blank votes not taken into account and with one vote entitled to each share. For these purposes, Outstanding Shares within the meaning set forth in the Novo Mercado Participation Agreement and Novo Mercado listing segment regulations means all our issued and outstanding shares, but excluding, however, (i) the shares held by any controlling shareholders or by affiliates of such controlling shareholders, (ii) the shares held by our managers, and (iii) treasury shares. See “Item 10—Additional Information—Delisting from the Novo Mercado ” for additional information on this matter.

Notice of Shareholders’ Meetings

Brazilian corporate law requires that previous notice of any shareholders’ meeting be published on three different dates on the federal or state official gazette and another newspaper of high circulation in the state of the corporate offices. Our company publishes meetings notices on the Official Gazette of the state of São Paulo ( Diário Oficial do Estado de São Paulo ) and the newspaper Valor Econômico . The first notice must be published no later than 15 days before the date of the meeting on first call, and no later than eight days before the date of the shareholders’ meeting on second call. In certain circumstances, the CVM may require that the first notice for the shareholders’ meeting be published no later than 30 days prior to the shareholders’ meeting. The CVM may also require, upon shareholder request, up to 15 additional days between such prior notice and any special shareholders’ meeting, in order to allow such shareholder to analyze the matters to be discussed at the meeting. In addition, our bylaws require that a shareholders’ meeting to be convened to decide on the cancellation of our registration as a public company with the CVM or our delisting from the Novo Mercado listing segment must be called at least 30 days prior to the shareholders’ meeting. The notice of the shareholders’ meeting must contain the agenda, date and venue of the meeting, and (if applicable) the nature of the proposed bylaws amendments.

Venue

Our shareholders’ meetings take place at our head office in the city of São Paulo, in the state of São Paulo. Brazilian corporate law allows our shareholders to hold meetings in another location in the event of force majeure, provided that the meetings are held in the city of São Paulo and the relevant notice includes a clear indication of the place where the meeting will occur.

Who May Call our Shareholders’ Meetings

Shareholders’ meetings are typically called by our board of directors, although they may also be called by the following: (i) any shareholder, if our directors fail to call a shareholders’ meeting within 60 days after the date they were

 

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required to do so under applicable laws and our bylaws; (ii) holders of at least 5% of our capital stock, if our directors fail to call a meeting within eight days following receipt of a justified request to call the meeting by those shareholders, indicating the proposed agenda; (iii) holders of at least 5% of our capital stock if our directors fail to call a meeting within eight days after receipt of a request to call the meeting to establish the fiscal council; and (iv) our fiscal council (if already established), if our board of directors fails to call an annual shareholders’ meeting within one calendar month after the date it was required to do so under applicable laws. The fiscal council (if already established) may also call a special shareholders’ meeting if it believes that there are important or urgent matters to be addressed.

 

Conditions of Admission to a Shareholders’ Meeting

In order to attend and vote at shareholders’ meetings, shareholders must identify themselves and, 72 hours before the meeting, provide evidence of the ownership of the voting shares, issued by the financial institution responsible for the bookkeeping of our shares, no earlier than five days before expiration off the 72-hour deadline mentioned herein. A shareholder may be represented at a shareholders’ meeting by a proxy, provided that such proxy has been appointed less than one year before the meeting. Only attorneys, financial institutions, other shareholders, and our executive officers and directors can act as proxies for our shareholders. An investment fund must be represented by its officers.

Management and Fiscal Council

Pursuant to our bylaws, and in accordance with Brazilian corporate law and the Novo Mercado listing rules, we are governed by our board of directors ( conselho de administração ) and executive officers ( diretoria ).

Our bylaws require that our board of directors be composed of five to nine directors. Currently, our board of directors is composed of nine members, of which four are independent directors under the Novo Mercado listing rules, unrelated to our principal shareholders or to us. Our board members are elected by our shareholders at the annual shareholders’ meeting, for a period of two consecutive years, with the possibility of reelection.

Brazilian corporate law permits cumulative voting upon the request of holders of at least 10% of our voting capital. Each share is granted as many votes as the number of board seats, and each shareholder has the option to cast his or her votes for one or more candidates. However, pursuant to CVM Instruction 282 dated June 26, 1998, the threshold to trigger cumulative voting rights in publicly held corporations may be reduced in proportion to the amount of capital stock, ranging from 5% to 10%. Shareholders representing 5% of our voting capital may request the adoption of cumulative voting rights.

Under applicable law, if there is no request for cumulative voting, the shareholders’ meeting will vote based on a previously registered list, assuring shareholders that individually or collectively hold at least 15% of our common shares, in a separate vote, the right to elect one director and his or her alternate.

If cumulative voting is requested, each shareholder may vote for one or more board members. Each common share will entitle its holder to one vote in the relevant shareholders’ meeting and each shareholder may cast votes for members as they wish.

Our bylaws require that we have two to six executive officers. At the date of this Annual Report, we had three executive officers. They are elected by our directors for a period of one year, with the possibility of reelection. Pursuant to Brazilian corporate law, executive officers must be residents of Brazil, but do not need to be shareholders.

Pursuant to our bylaws, our fiscal council is permanent. The fiscal council’s members are elected at the annual shareholders’ meeting with a term of office that extends through the following annual shareholders’ meeting. Our fiscal council shall be composed of three to five effective members and their alternates, who may or may not be shareholders. All members of our fiscal council are also required to sign an agreement to comply with the Novo Mercado rules prior to assuming their roles. The current members of our fiscal council will exercise their duties until the annual shareholders’ meeting to be convened to approve the management accounts and financial statements for the fiscal year ending on June 30, 2016.

Transactions in Which Directors Have a Conflict of Interest

Pursuant to Brazilian corporate law, our directors and executive officers may not:

•         give any gifts at our expense, except for such reasonable gifts as are for the benefit of our employees or of the community in which we participate, upon approval by our board of directors;

 

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•         receive, by virtue of his or her position, any direct or indirect personal benefit from third parties without authorization in our bylaws or by our shareholders at a shareholders’ meeting;

•         borrow money or property from us or use our property, services or credit for his or her own benefit or for the benefit of a company or third party in which he or she has an interest, without the prior approval of our shareholders at a shareholders’ meeting or of our board of directors;

•         take part in a corporate transaction in which he or she has an interest that conflicts with our interests or in the deliberations undertaken by our directors on the matter;

 

•         take advantage of any commercial opportunity for his or her own benefit or for the benefit of a third party at the expense of the company when he or she learned of such opportunity through his or her position as a director;

•         fail to disclose a business opportunity in our interests with a view to exploiting the opportunity for personal gain, or for the benefit of a third party; and

•         acquire, in order to resell for profit, a good or right that is essential to our business operations, or that we intend to acquire for ourselves.

The compensation of our directors is determined by our shareholders at the annual shareholders’ meeting that approves the previous fiscal year’s financial statements.

Allocation of Net Income and Dividend Distributions

Before each annual shareholders’ meeting, our directors and executive officers are required to recommend how to allocate our net income, if any, from the preceding financial year. This allocation is subject to the approval of our shareholders. Brazilian corporate law defines “net income” for any particular financial year as net income after income tax and social contribution for that financial year, net of any accumulated losses from prior financial years and any amounts allocated to employees’ and management’s participation in our net income in such financial year.

According to our bylaws and Brazilian corporate law, net income for any given financial year will be allocated as follows: (i) 5% for the formation of a legal reserve according to Brazilian corporate law, which is subject to a upper maximum limit of 20% of our capital stock (in addition, if for any given financial year, the total amount of the legal reserve plus any amounts of capital reserves exceed 30% of our capital stock, additional contributions to the legal reserve will not be mandatory); (ii) payment of mandatory dividends, which cannot be less than 25% of our adjusted net income. After payment of mandatory dividends, shareholders may decide to allocate outstanding net income to form a statutory expansion and investment reserve in accordance with the additional requirements provided for in our bylaws; and (iii) the remaining portion of the adjusted net income may be allocated for investment, based on the budget approved by our general shareholders’ meeting. However, the remaining balance of the revenue reserves, excluding reserves for unrealized profits and contingencies, must not exceed the value of our capital stock. If this limit is reached, a general shareholders’ meeting will be held to determine whether such excess amount shall be allocated as a capital increase or a distribution of dividends.

The general shareholders’ meeting may grant to our directors and executive officers a participation in the distribution of our profits, after deducting accumulated losses and provisions for income tax and social contribution, in accordance with applicable law.

Withdrawal Rights

According to Brazilian corporate law, shareholders are entitled to withdrawal rights if they dissent from the approval of the following actions at any shareholders’ meeting: (i) our spin-off (pursuant to the conditions described below); (ii) reduction in our mandatory dividends; (iii) change of our corporate form or purpose; (iv) our merger into, or consolidation with, another company (as described below); and (v) our participation in a corporate group, as defined in Brazilian corporate law, except in the event our shares are widely held and liquid, as described below; or (vi) our acquisition of the control of any company, if the acquisition price exceeds the limits established by Brazilian corporate law, except in the event our shares are widely held and liquid, as described below.

Our spin-off will only trigger withdrawal rights if it results in one of the following: (i) a change in our corporate purpose, unless the spun-off assets and liabilities are transferred to an entity whose principal business purpose is consistent with our corporate purpose; (ii) a reduction of the minimum mandatory dividend to be paid to shareholders; or (iii) our participation in a corporate group (as defined in Brazilian corporate law).

 

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In cases where we: (i) merge into, or consolidate with, another company; (ii) become part of a corporate group (as defined in Brazilian corporate law); (iii) acquire all shares of a company in order to make such company our wholly-owned subsidiary, or our shareholders sell all of our shares to another company in order to make us a wholly-owned subsidiary of such company, pursuant to Article 252 of Brazilian corporate law; or (iv) acquire control of any company at an acquisition price that exceeds the limits established under Article 256, paragraph 2 of Brazilian corporate law, our shareholders will not be entitled to withdrawal rights, if our common shares are (a) part of the Bovespa Index or another stock exchange index, as defined by the CVM; and (b) widely held, such that any controlling shareholders and their affiliates jointly hold less than 50% of the type or series of shares being withdrawn.

The right to withdraw expires 30 days after the publication of the minutes of the relevant shareholders’ meeting. We are entitled to reconsider any action giving rise to withdrawal rights for 10 days after the expiration of the above period if we determine that the redemption of the shares of dissenting shareholders would jeopardize our financial situation.

 

Article 45 of Brazilian corporate law describes the amounts to be paid to shareholders who exercise their withdrawal rights. As a general rule, the withdrawing shareholder will receive the value of the shares, based on the most recent audited balance sheet approved by our shareholders, or, if lower, the economic value of the shares, based on an evaluation report prepared in accordance with Brazilian corporate law. If the resolution giving rise to withdrawal rights is passed more than 60 days after the date of our most recent balance sheet, dissenting shareholders may request that the shares be valued in accordance with a new balance sheet dated no more than 60 days prior to the date of the resolution. In such case, we are obligated to pay 80% of the share value according to the most recent balance sheet approved by our shareholders, and the balance within 120 days following the date of the resolution of the shareholders’ meeting that gave rise to the withdrawal rights.

Liquidation

We may be liquidated in accordance with the provisions of Brazilian law. In the event of our extrajudicial liquidation, a shareholders’ meeting will determine the manner of our liquidation, appoint our liquidator and our fiscal council that will function during the liquidation period.

In the event of our liquidation, the assets available for distribution to our shareholders would be distributed to our shareholders in an amount equal to their pro rata share of our legal capital. If the assets to be so distributed are insufficient to fully compensate our all of our shareholders for their legal capital, each of our shareholders would receive a pro rata amount (based on their pro rata share of our legal capital) of any assets available for distribution.

Redemption

According to Brazilian corporate law, we may redeem our shares pursuant to a resolution adopted at an extraordinary shareholders’ meeting by shareholders representing at least 50% of our capital stock. The redemption may be paid with our retained earnings, revenue reserves or capital reserves.

Preemptive Rights

Except as described below, our shareholders have a general preemptive right to participate in any issue of new shares, in proportion to its holding at such time. However, the conversion of debentures into shares, the granting of options to purchase or subscribe for shares and the issue of shares as a result of the exercise of such options, are not subject to preemptive rights. Our shareholders are also entitled to preemptive rights in any issue of convertible debentures or offerings of shares or warranties issued by us. Shareholders have a period of at least 30 days after the publication of notice of the issue of shares, convertible debentures and warrants to exercise their preemptive rights. In addition, such preemptive rights may be transferred or disposed of for value. Under the terms of Article 172 of Brazilian corporate law and our bylaws, our board of directors may exclude preemptive rights or reduce the exercise period with respect to the issue of new shares, debentures convertible into shares and warrants up to the limit of our authorized share capital, if the distribution of those securities is conducted in a stock exchange, or through a public offering, an exchange offer for shares or tender offer the purpose of which is to acquire control of another company. See “Item 3—Key Information—Risk Factors—Risks Relating to the Offering and Our Common Shares—A holder of our common shares not residing in Brazil might be unable to exercise preemptive rights with respect to the common shares” for additional information on this matter.

 

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Insider Trading Regulations

We comply with the restrictions on insider trading set forth in CVM Instruction No. 358, dated January 3, 2002. The following paragraphs contain a brief summary of some of such restrictions.

In issuer, any controlling shareholders, directors, officers and other members of management are prohibited from trading in any securities issued by our company or derivatives related to such securities, if (i) they are in possession of material information regarding our business, and such information has not been publicly disclosed; (ii) a transaction is pending for the acquisition or sale of shares of our capital stock, by our company, subsidiaries or affiliates, or an option or mandate has been granted in connection with any of such transactions; or (iii) our company intends to participate in a merger, consolidation or corporate reorganization, or to spin-off assets or change into a different form of legal entity; and (iv) such trading activity would take place in the 15-day period prior to the filing of our quarterly financial statements (ITR) or annual financial statements (DFP) with the CVM.

Individuals who held management positions at the company and gained access to material information originating from developments occurred before their departure from the company are also prohibited from engaging in such trading activities, from the date of their departure from the company until (i) six months after their departure; or (ii) public disclosure of the material information; provided that trading will remain prohibited as long as it may interfere with our business or adversely affect our financial condition or that of our shareholders.

 

Acquisition of Treasury Stock

An issuer cannot acquire shares of its own capital stock, to hold as treasury stock or for cancellation purposes, if this acquisition would: (i) reduce the issuer’s capital stock; (ii) require the use of funds in excess of the issuer’s profits or available reserves, as described in its most recent balance sheet; (iii) manipulate the stock price, or use of any unfair trading practice; or (iv) acquire shares that had not been fully paid by the respective holder, or that were owned by any controlling shareholders. Furthermore, an issuer may not acquire shares of its own capital stock if a tender offer for its shares is pending.

The amount of shares of our capital stock held by our company, or maintained by our affiliates and subsidiaries in treasury cannot exceed 10% of the total outstanding shares of our capital stock.

We may only purchase shares of our own capital stock at a stock exchange. Private purchases are only permitted if previously approved by the CVM, or if we have cancelled our registration as a public company with the CVM. We can purchase and sell put and call options on our shares without restrictions at any time.

Restrictions on Activities Inconsistent with our Corporate Purpose

Any transactions in which we participate that are inconsistent with our corporate purpose are not enforceable against our company, pursuant to Brazilian corporate law, including any forms of collateral or guarantees unrelated to our corporate purpose or in violation of our bylaws.

Disclosure of Trading of our Shares by an Issuer, any Controlling Shareholders, Directors, Officers or Members of the Fiscal Council

An issuer’s directors and officers and members of its fiscal council, when active, as well as members of any other technical or advisory committee, are required to disclose to its investor relations officer, who will disclose to the CVM and BM&FBOVESPA, the number and type of securities issued by the issuer, its publicly-held subsidiaries or controlled companies, including derivatives (in case of any controlling shareholders) held by them or by persons related to them, as well as any alteration in their respective interests within 10 days as from the end of the month in which trading takes place.

In addition, the Novo Mercado listing rules require any controlling shareholders to provide the same information in relation to securities issued by the issuer, including derivatives, and to disclose their plans for future trading. Information on trading of an issuer’s securities should include:

•         name and identification of the acquirer;

•         number, price, kind and/or class, in the event of traded shares, or characteristic, in the event of other securities; and

•         form of acquisition (private transaction, trading on stock exchange, etc).

 

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Pursuant to CVM Instruction No. 358, if an issuer’s controlling shareholders and/or any person or company, whether individually or together with a group of persons or entities sharing similar interests, should directly or indirectly increase their interest in an issuer’s capital stock by at least 5% percent, such persons or entities must disclose to us the following information:

•         the name and identification of the person providing the information;

•         the number, price, kind and/or class, in the event of acquired shares, or characteristics, in the event of other securities;

•         form of acquisition (private transaction, trading on stock exchange, etc.);

•         the reasons and purpose of the transaction; and

•         information regarding any agreement regulating the exercise of voting rights or the purchase and sale of our securities.

 

Disclosure of Information

We are subject to the reporting requirements established by Brazilian corporate law and the regulations of the CVM. In addition, as a result of our listing on the Novo Mercado , we must comply with the disclosure requirements under Novo Mercado regulations.

Information Required by the CVM

Brazilian corporate law, securities regulations of the CVM and the rules for listing on the Novo Mercado require that publicly held corporations file the following periodic information with the CVM and the BM&FBOVESPA:

•         financial statements prepared in accordance with accounting principles generally accepted in Brazil (“Brazilian GAAP”) and related management and auditors’ reports, within three months from the end of the fiscal year or on the date on which they are published or made available to our shareholders, whichever occurs first, together with the Demonstrações Financeiras Padronizadas (a report on a standard form containing relevant financial information derived from our financial statements required to be filled out by us and filed with the CVM);

•         notices, filed on the same date as their publication, of our annual shareholders’ meeting;

•         a summary of the decisions made at annual shareholders’ meetings, filed on the day following the meeting;

•         a copy of the minutes of the annual shareholders’ meeting, filed within ten days from the date the meeting is held;

•         ITR, a quarterly report on a standard form containing our relevant quarterly corporate, business and financial information, together with a special review report issued by our independent auditor, filed within 45 days from the end of each quarter (except for the last quarter of each year) or upon disclosure of such information to shareholders or third parties, whichever occurs first;

•         Formulário de Referência, filed within five months from the end of each corporate year and in the event a request to conduct public offering is filed with CVM;

•         Formulário Cadastral, which must be updated within seven business days if any of the information contained therein is modified;

•         management report within one month before a shareholders’ meeting is scheduled to occur, giving notice that certain management documents, as required by Brazilian corporate law, are available to shareholders; and

•         any documents deemed necessary for shareholders to exercise their voting rights.

In addition to the foregoing, we must also file the following information with the CVM and the BM&FBOVESPA:

•         notices, filed on the same date of their publication, of our extraordinary or special shareholders’ meetings;

•         a summary of the decisions made at extraordinary or special shareholders’ meetings, filed on the day following the meeting;

•         minutes of our extraordinary or special shareholders’ meetings, filed within ten days from the date they are held;

•         a copy of any shareholders’ agreement, filed on the date on which it is registered with us;

 
 

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•         any press release giving notice of material facts, filed on the date the release is published in the press;

•         information on any filing for corporate reorganization, the reason for such filing, special financial statements prepared for obtaining a legal benefit, and, if applicable, any plan for payment of holders of debentures, as well as copies of any judicial decision granting such request, filed concurrently with the corporate reorganization and on the date we take notice of it;

•         information on any bankruptcy filing, on the same day we become aware of it, or the filing of a judicial claim, as applicable;

•         a copy of any judicial decision granting a bankruptcy request and appointing a bankruptcy trustee, filed on the date we take notice of it; and

•         other information as requested by the CVM.

Information Required by the BM&FBOVESPA from Companies Listed on the Novo Mercado

In addition to the disclosure obligations imposed by Brazilian corporate law and the CVM, we also must comply with the following additional disclosure requirements under Novo Mercado regulations:

•         no later than six months following our listing on the Novo Mercado , we must disclose financial statements and consolidated financial statements at the end of each quarter (except the last quarter of each year) and at the end of each fiscal year, including a cash-flow statement which must indicate, at a minimum, the changes in our cash and cash equivalents, divided into operating, finance and investment cash flows;

•         from the date on which we release our financial statements relating to the second fiscal year following our listing on the Novo Mercado we must, no later than four months after the end of the fiscal year: (i) prepare our annual financial statements and consolidated financial statements, if applicable, in accordance with U.S. GAAP, or IFRS, in Reais or U.S. dollars, in the English language, together with (a) management reports, (b) notes to the financial statements, including information on net income and shareholders’ equity calculated at the end of such fiscal year in accordance with Brazilian GAAP, as well as management proposals for allocation of net profits, and (c) our independent auditors’ report; or (ii) disclose, in the English language, complete financial statements, management reports and notes to the financial statements, prepared in accordance with Brazilian corporate law, accompanied by (a) an additional explanatory note regarding the reconciliation of year-end net income and shareholders’ equity calculated in accordance with Brazilian GAAP and U.S. GAAP or IFRS, as the case may be, which must include the main differences between the accounting principles used, and (b) the independent auditors’ report; and

•         from the date on which we release our first financial statements prepared as provided above, no later than 15 days following the term established by law for the publication of quarterly financial information, we must disclose, in its entirety, our quarterly financial information translated into the English language or disclose our financial statements and consolidated financial statements in accordance with Brazilian GAAP, U.S. GAAP or IFRS as provided above, accompanied by the independent auditors’ report.

In addition, we must disclose the following information together with our ITR:

•         our consolidated balance sheet, consolidated statement of operations, and a discussion and analysis of our consolidated performance, if we are obliged to disclose consolidated financial statements at year-end;

•         any direct or indirect ownership interest exceeding 5% of our capital stock, considering any ultimate individual beneficial owner;

•         the number and characteristics, on a consolidated basis, of our shares held directly or indirectly by our principal shareholders, members of our board of directors, board of executive officers and fiscal council;

•         changes in the numbers of our shares held by the principal shareholders, members of our board of directors, board of executive officers and fiscal council in the immediately preceding 12 months;

•         in an explanatory note, our cash-flow statement and consolidated cash-flow statement, which should indicate the cash flow changes in cash balance and cash equivalent, separated into operating, finance and investment cash flows;

•         the number of free-float shares, and their percentage in relation to the total number of issued shares; and

 

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•         the existence of arbitration provision for disputes arising between us and principal shareholders, directors, executive officers and members of the fiscal council before the Market Arbitration Chamber of BM&FBOVESPA.

The following information must also be included in the company’s Formulário de Referência :

•         information relating to the ownership interest exceeding 5% of our capital stock, number and characteristics, on a consolidated basis, of the company’s shares directly or indirectly held by the principal shareholders and members of the board of directors, executive officers and fiscal council;

•         changes in the number of securities held by such persons within the immediately preceding 12 months;

•         the number of free-float shares and their respective percentage in relation to the total amount of shares issued; and

•         submission to arbitration.

Disclosure of Material Information

According to Law No. 6,385, of December 7, 1976, as amended, and the rules published by the CVM, we must disclose any material information ( fato relevante ) related to our business to the CVM and the BM&FBOVESPA and publish a notice of such material information. Material information consists of any decision by the principal shareholders, any resolution taken by our board of directors, by the executive officers or by the shareholders in a shareholders meeting, or any other act or fact of political, technical, managerial, economic or financial nature occurring or related to us that could materially influence the price of our securities, the decision of investors to buy, sell or hold our securities, or the investors’ decision to exercise any rights deriving from our securities.

Under special circumstances, we may request confidential treatment by the CVM of certain material developments affecting us.

Going Private Process

A public company may become a private company if it or any controlling shareholders conduct a public tender offer for the acquisition of all of the issuer’s outstanding common shares in accordance with the rules and regulations of Brazilian corporate law, the CVM and the Novo Mercado listing segment which, among other things, require that the offering price be the fair value of our common shares, as defined pursuant to a valuation report, and that holders of common shares representing more than two thirds of the outstanding common shares should have agreed to the delisting or accepted the offer; provided, however, that for such purposes outstanding common shares shall mean common shares the holders of which shall have enrolled to participate in the offer.

The minimum offering price shall correspond to the fair value of our common shares, as determined in a valuation report prepared by specialized and independent firm of recognized experience.

Pursuant to Brazilian corporate law, fair value is defined as the valuation of our Company, determined based on individually or in the aggregate, shareholders’ equity, shareholders’ equity valued at market price, discounted cash flow, comparison by multiples, the market price of shares issued by us, or any other valuation method accepted by the CVM. Shareholders holding at least 10.0% of our outstanding common shares may require our management to call a special shareholders’ meeting to determine whether to perform another valuation using the same or a different valuation method. This request must be made within 15 days following the disclosure of the price to be paid for the common shares in the public offering. The shareholders that make such request, as well as those voting in its favor, must reimburse us for any costs involved in preparing the new valuation, if the new valuation price is not higher than the original valuation price. If the new valuation price is higher than the original valuation price, the public offering must either be cancelled or carried out at the higher price, and this decision must also be disclosed to the market.

 

Pursuant to our bylaws and the Novo Mercado listing rules, the minimum price per share in the public offer to be conducted to purchase our outstanding common shares for purposes of going private, must correspond to the fair value of our common shares as determined in a valuation report prepared by a specialized and independent firm of recognized experience, chosen at a shareholders’ meeting from a list of three institutions presented by our board of directors, pursuant to a decision of our Company, our directors and officers and/or shareholders.

 

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Delisting from the Novo Mercado

We may at any time delist our common shares from the Novo Mercado , provided that shareholders representing the majority of our common shares approve the action and that we give at least 30 days written notice to the BM&FBOVESPA. Our delisting from the Novo Mercado would not result in the loss of our registration as a public company with the BM&FBOVESPA.

If the shareholders’ meeting decides to delist in order for an issuer’s common shares to be tradable outside the Novo Mercado , or as a result of a corporate reorganization in which the surviving company is not listed on the Novo Mercado , the issuer’s controlling shareholders or group of controlling shareholders should conduct a tender offer to purchase the issuer’s outstanding common shares. In any such event, the offering price per common share should be no less than the fair value of our common shares, as determined in a valuation report prepared by a specialized and independent firm of recognized experience, chosen at a shareholders’ meeting from a list of three institutions presented by our board of directors, pursuant to a decision of shareholders representing at least the majority of the issuer’s outstanding shares present at such a shareholders’ meeting, with blank votes not taken into account and with one vote entitled to each share. All the expenses and costs incurred in connection with the preparation of the valuation report must be paid by any controlling shareholders and/or the issuer, as offerors.

In the event of delisting from the Novo Mercado , any controlling shareholders must conduct a tender offer to acquire common shares from the other shareholders at fair value, pursuant to the Novo Mercado listing rules and according to applicable legislation and regulation. Such tender offer must be disclosed to the BM&FBOVESPA and the market immediately after the company receives notice regarding the termination of the agreement for participation in the Novo Mercado listing segment.

According to the Novo Mercado listing rules, in the event of a transfer of our control within 12 months following our delisting from the Novo Mercado , the acquirer of control and the seller of control must offer to purchase the common shares of all other holders of our common shares for the same price, terms and conditions offered to the seller of control, adjusted for inflation. Furthermore, in the event the price received by any controlling shareholders for their common shares is higher than the value of the public offering conducted, the selling controlling shareholders and the acquirer will be required to jointly pay the difference to the acceptors of the respective public offering.

If our common shares are delisted from the Novo Mercado , we will not be permitted to have common shares listed on the Novo Mercado for a two-year period following the delisting date, unless there is a change in our control following this delisting from the Novo Mercado .

Public Tender Offers

Our by-laws provide that if any of the above-mentioned cases occur simultaneously, a single public tender offer will be conducted provided that the procedures of all types of public tender offers are compatible, the target shareholders are not adversely affected and the CVM authorizes it.

In addition, our by-laws permit that we or the shareholders responsible for the public tender offer assure its execution through any shareholder, third party and, if applicable, ourselves. Nevertheless, we or the responsible shareholder, as the case may be, are still responsible for the public tender offer until its completion.

Arbitration

We, our shareholders, our directors and officers, and the members of our fiscal council, when active, should submit to arbitration for any dispute relating to the application, legality, effectiveness, interpretation, violation and effects of violation of the provisions in the agreement for participation in the Novo Mercado listing segment, and to the Novo Mercado listing rules, the arbitration regulation instituted by the BM&FBOVESPA, the provisions of Brazilian corporate law, our bylaws, the rules of the CMN and the Central Bank, the regulations of the CVM and the BM&FBOVESPA and other rules generally applying to the Brazilian capital markets. Any such dispute should be settled by arbitration carried out before BM&FBOVESPA Arbitration Chamber.

 

Change of Control

According to the Novo Mercado listing rules, the sale of control over an issuer, in one transaction or in a series of successive transactions should contemplate an obligation by the acquirer of control to conduct a tender offer for the

 

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acquisition of all other outstanding common shares on the same terms and conditions offered for disposition of control so as to assure equal treatment among all of our shareholders. For such purposes, any selling controlling shareholders and the acquirer shall inform the CVM and the BM&FBOVESPA of the price and other conditions of such sale.

A tender offer is also required:

•         when there is a significant assignment of share subscription rights or rights in other securities convertible into an issuer’s common shares, which results in the transfer of its control;

•         in case of an indirect transfer of an issuer’s control, through a transfer of control over any controlling shareholders; and

•         in case a shareholder acquires the issuer’s control pursuant to a private transaction for purchase of its common shares. In this event, the acquiring shareholder must conduct a tender offer for the acquisition of all the issuer’s outstanding common shares on the same terms and conditions offered disposition of control and must also reimburse the counterparties from whom it has acquired its common shares on the stock exchange in the six-month period preceding the transaction that resulted in a change in control. The reimbursement amount corresponds to the positive difference between the price paid to the seller of control and the adjusted price paid in transactions carried out on the stock exchange during this six-month period.

The buyer, if applicable, should take all necessary measures to reconstitute the minimum 25.0% free float within six months of the acquisition.

The controlling shareholders may not transfer the common shares to the purchaser of our control, and the issuer may not register the transfer of such common shares, if the buyer fails to execute the controlling shareholders’ consent agreement ( Termo de Anuência dos Controladores ). Moreover, the issuer will not register any shareholders’ agreement that regulates the exercise of control rights until the signatories thereto execute the controlling shareholders’ consent agreement.

Diffused Control

Control of us is deemed diffused if exercised by (i) a shareholder holding less than 50% of our capital stock; (ii) shareholders jointly holding more than 50% of our capital stock, provided that each shareholder holds less than 50% of our capital stock, and (a) their respective ownership of our common shares is not subject to voting rights agreement, (b) they are not under common control and (c) do not represent a common interest; and (iii) shareholders holding less than 50% of our capital stock who have executed a shareholders’ agreement in respect of their ownership of our common shares.

Duties and Responsibilities of Controlling and Others Shareholders

If one shareholder or group of shareholders exercises in a permanent manner control over us, such shareholder or group of shareholders will be subject to the duties and responsibilities of the Brazilian corporate law. On the other hand, if there is no such shareholder or group of shareholders, we will be subject to diffused control. The diffused control is always transitory and shareholders can exercise their control over us by using their voting rights, if there are shareholders in a sufficient number who can influence the decisions taken at a general shareholders meeting. If our control is diffused according to the Brazilian corporate law, there are no specific liability rules for each group of shareholders even if one shareholder or group of shareholder effectively exercises the diffused control, since this diffused control is exercised with the approval of the other shareholders. Nevertheless, the rules concerning shareholders’ liability, such as in abuse of voting rights and conflict of interests, apply to any company, including those with diffused control.

In addition, the rules of the Novo Mercado acknowledge that diffused control can involve a specific controlling shareholder, which is the one who actually exercises it. The rules of the Novo Mercado also acknowledge the specific liability of a certain shareholder or group of shareholders for misconduct.

 

According to the definition of diffused control, certain obligations and responsibilities apply to certain groups of shareholders who are not necessarily identified as controlling shareholders, such as the obligation to conduct a tender offer if such group of shareholders votes for delisting from the Novo Mercado or if delisting occurs due to non-compliance with the obligations of the Novo Mercado listing segment regulations. Therefore, if our control becomes diffused, all shareholders will be subject to the liability rules set forth in the Brazilian corporate law. However, some specific rules and liabilities set forth in the Novo Mercado listing segment regulations only apply for those shareholders who have the power to control our business, even though not formally identified as controlling shareholders.

 

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Protection against Shareholder Concentration

Our by-laws contain a provision intended to avoid concentration of our shares in the hands of a small group of investors. This provision requires that any shareholder who becomes an owner of our common shares, or certain other rights, in an amount greater than or equal to 20% of our total capital stock (excluding any involuntary ownership interest additions arising from the cancellation of treasury shares or capital decrease resulting from the cancellation of shares), within 60 days from the date of acquisition, is required to publicly tender for all of our capital stock. Cresud, including the entities controlled by it or under its common control and their legal successors (but excluding any acquirer of shares from Cresud and its successors) are not covered under this obligation, which applies only to investors who acquired our shares after our listing in the Novo Mercado segment of BM&FBOVESPA as of April 2006.

The percentage of 20% is not applicable to a person who becomes the holder of our shares in a number greater than 20% of the total shares as a result of (i) legal succession, provided that the shareholder sells the exceeding shares no later than 60 days as from the material event; (ii) merger of another company into our company; (iii) merger of shares of another company into our company; or (iv) subscription of shares, conducted in a primary offering, approved at the shareholders meeting, called by our board of directors, which proposal for capital increase has determined the share price based on the economical value calculated according to an economical and financial appraisal report conducted by a specialized company with renowned experience in publicly held companies.

Shareholders that acquire 20% of our common shares are obligated under this provision to: (i) make a tender offer to acquire the entirety our outstanding issued shares; (ii) ensure that the tender offer is conducted in an auction held at BM&FBOVESPA, (iii) offer to pay a price per share as described below, and (iv) offer to pay cash in exchange for the shares, in Brazilian Reais.

The tender offer price per share issued, provided that CVM regulations do not require the adoption of calculation criteria that would lead to a greater acquisition price, in which case, such CVM criteria would prevail, shall not be less than the higher amount among: (i) the market value of our share established in an expert valuation report prepared and approved by shareholders in accordance with our bylaws; (ii) 150% of the share price established in the most recent capital increase made through public offering within the 24-month period preceding the date on which the tender offer becomes mandatory, adjusted by the IPC-A index pro rata until actual payment; or (iii) 150% of the average listing price of our shares during the 90-day period preceding the tender offer on the stock exchange where they are mostly traded.

Launch of such a tender offer does not preclude other shareholders, or even us, from launching a competing tender offer in accordance with the applicable regulations.

In the event the acquiring shareholder fails to perform the obligations set forth in our bylaws, our board of directors shall call a special shareholders’ meeting to approve the suspension of the shareholder rights of such defaulting shareholder, without prejudice to losses and damages that may be claimed from it.

Any proposed amendment to limit our shareholders’ right to conduct a tender offer or to exclude it will impose on the shareholder(s) voting in favor of said amendment or exclusion at such shareholders’ meeting, the obligation of conducting such tender offer. Each shareholder shall have the right to one vote in any special shareholders’ meeting called to decide on amendments or elimination of such provisions of our bylaws.

Suspension of Rights of Acquiring Shareholders for Violation of Our Bylaws

In the event an acquiring shareholder violates the provisions of our by-laws regarding the need to conduct a public tender offer in the event of a change of our control or the acquisition of shares representing 15% or more of our common shares, the rights of such acquiring shareholder will be suspended pursuant to a resolution passed at our shareholders’ meeting, which must be convened in the event of such noncompliance. The acquiring shareholder will not be entitled to vote at such meeting.

 

Public Meeting with Analysts

Pursuant to Novo Mercado regulations, at least once a year we must hold a public meeting with analysts and any other interested parties to disclose information regarding our projects and forecasts, as well as our economic and financial situation.

 

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Annual Calendar

Pursuant to the Novo Mercado regulations, we must, by the end of January of each year, publicly disclose and send to the BM&FBOVESPA an annual calendar with a schedule of our corporate events. Any subsequent modification to such schedule must be immediately and publicly disclosed and sent to the BM&FBOVESPA.

Duty to Disclose Related Party Transactions

Pursuant to the Novo Mercado regulations, we must publicly disclose and send to the BM&FBOVESPA information about any contract between us and our related parties or managers of our related parties, whenever the amount of such contract in any one-year period reaches the greater of R$0.2 million or 1.0% of our shareholders’ equity.

The disclosure must specify the contract’s object, term, amount, termination conditions and impact, if any, on our business and management.

Additionally, pursuant to CVM rules, in the event a related party has interest in the approval of any matter by our shareholders at a shareholders’ meeting, we must inform our shareholders of at least: the name and qualifications of the related party; the relationship between us and the related party; the amount of our common shares and other securities, directly or indirectly, held by the related party; all credits and amounts outstanding between us and the related party; a description of the transaction submitted to shareholders’ meeting approval; management’s recommendation in relation to the proposed related party transaction, indicating our advantages and disadvantages; and, in the event of an intercompany transaction, an affirmation by our management that the transaction was conducted at an arms-length basis or that the compensation is appropriate, and analysis of the related party transaction’s terms and conditions in relation to the terms and conditions of similar transactions entered into by third parties. See “Item 7—Major Shareholders and Related Party Transactions.”

Description of Outstanding Warrants

On March 15, 2006, our board of directors approved the issue to our founding shareholders of two series of warrants to acquire our common shares. The first series of such warrants, or “First Series Warrants,” consists of 256,000 warrants, and the second series, or the “Second Series Warrants,” consists of an additional 256,000 warrants. Such warrants were delivered to our founding shareholders in proportion to their respective interests in our capital stock on the date such warrants were issued. The First Series Warrants grant their holders the right to acquire such number of our common shares as will represent 20% of our total capital stock on the date such warrants are exercised, and the Second Series Warrants grant their holders the right to acquire such number of our common shares as will represent an additional 20% of our total capital stock on the date such warrants are exercised. We believe that these warrants are an incentive and contribute to ensure our founding shareholders’ commitment towards the development of our activities and the implementation of the business plan prepared by them.

First Series Warrants

The First Series Warrants will grant their holders the right to acquire our common shares at an exercise price of R$1,000 per share which was the issue price per share in our 2006 initial public offering, subject to the price adjustment described below.

We believe that the First Series Warrants represent an efficient mechanism of compensating our founding shareholders as those securities will only represent an economic gain in a scenario of a rising share price for our shares. The remuneration provided by the First Series Warrants will not interfere with our results or financial condition as a gain to our founding shareholders will be generated by market conditions. The principal terms of the First Series Warrants are as follows:

Series and Right to Acquire Common Shares

The First Series Warrants were issued in three sub-series, which differ in relation to the date on which their respective rights to acquire shares becomes effective. All three sub-series of the First Series Warrants are currently exercisable and tradable. The First Series Warrants expire on the date 15 years after the publication in Brazil of the notice of completion of our initial public offering ( Anúncio de Encerramento ), which notice was published on May 15, 2006.

 

Warrant Shares

 

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Each lot of 1,000 warrants of the First Series Warrants originally entitled its respective holder to acquire one of our common shares, subject to the adjustments described in “Item 10—Additional Information—Adjustment of the Number of Common Shares for Subscription” below.

Adjustment of the Number of Common Shares for Subscription

If we issue shares that do not result from the exercise of the rights conferred under the warrants, the number of shares to which the warrants grant rights will be adjusted. Such increase in the number of shares that may be acquired by the holders of the warrants shall be proportional to such number of shares newly issued by us in relation to the number of shares existing before such issuance. Accordingly, holders of warrants whose rights had not yet been exercised shall be entitled to maintain the right to subscribe the same percentage interest in our capital stock as they were entitled to prior to such new issuance. The number of shares granted upon the exercise of the warrants will also be adjusted in order to reflect capital reductions, stock splits, reverse stock splits and share bonuses transactions, if any. Such adjustments will also apply to the issue of new warrants, debentures or other securities convertible into our common shares.

Exercise Price

The exercise price of the First Series Warrants was originally equivalent to the issue price per share in our 2006 initial public offering, i.e., R$1,000.00 per share. However, such exercise price is subject to certain adjustments and restatements as set forth at our board of directors meeting held on March 15, 2006.

If new shares that do not result from the exercise of our warrants are issued, the exercise price of the warrants shall be adjusted to reflect the price per share of such subsequent offerings. Such calculation will be made based on: (i) the total amount in Reais of our capital stock after our 2006 initial public offering, excluding amounts relating to retained profits converted into equity, plus (ii) the total proceeds in Reais received by us from any subsequent issuance of shares after our 2006 initial public offering that do not result from any exercise of our warrants, divided by (iii) the total number of shares outstanding after our 2006 initial public offering in addition to the shares issued thereafter, not including any shares issued as a result of any exercise of our warrants. The exercise price resulting from the application of such rules is also subject to the adjustment procedures set forth in the following paragraph.

Exercise Price Adjustment

For purposes of adjustment of the exercise price of the First Series Warrants, the amounts set forth in items (1) and (2) in the paragraph above shall be adjusted, respectively, from (a) the date of the announcement of commencement of our 2006 initial public offering and (b) the date of each new issuance of shares made by us that does not result from any exercise of our warrants, based on the Compounded Consumer Price Index (IPC-A), during the period, if such periods are equal to or longer than 12 months. On June 30, 2015, the exercise price of the First Series Warrants was R$16.72 per share.

Exercise of Rights

The First Series Warrants may be exercised by their holders upon at least five business day advance notice to us.

Characteristics of the Common Shares for Subscription

The shares to be acquired pursuant to the First Series Warrants will be entitled to the same rights granted to other shares.

Holders of First Series Warrants

As of September 30, 2015, the holders of our First Series Warrants are:

 

 

 

 

Holder

 

Number

 

%

 

Agro Managers

4,364

1.70

Cape Town LLC

64,000

25.00

Cresud

177,004

69.14

Others

10,632

4.15

 

 

 

Total

256,000

100

 

 

 

 

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Second Series Warrants

The Second Series Warrants grant their holders the right to acquire our common shares only in the event of (I) a transfer of control in accordance with our bylaws, the Novo Mercado listing regulations and CVM rules, (II) the acquisition of a significant interest in our capital stock in accordance with our bylaws, or (III) a mandatory tender offer in accordance with CVM regulations. In any of these events, a tender offer for the acquisition of all of our shares must be made. The exercise price for the shares underlying the Second Series Warrants will be equal to the price established in such tender offer.

The purpose of creating the Second Series Warrants was to provide our founding shareholders with a mechanism that would allow them under certain circumstances to maintain their interest in our capital stock. The principal terms of the Second Series Warrants are described below.

Series and Right to Acquire Common Shares

The Second Series Warrants were issued on March 15, 2006. The Second Series Warrants expire on the date 15 years after the publication in Brazil of the notice of completion of our initial public offering ( Anúncio de Encerramento ), which notice was published on May 15, 2006. The Second Series Warrants may be exercised by their holders only under the following circumstances:

Transfer of control: In the event of a transfer of control of our company, as prescribed by articles 41, 42 and 43 of our by-laws, the Novo Mercado listing regulations and CVM rules, provided that the resulting business or business group has no direct participation of our founding shareholders or persons related to them. The Second Series Warrants in this case must be exercised within ten business days of the publication of the tender offer made in connection with such transfer of control.

Acquisition of significant interest: In the event of an acquisition by any shareholder, individually or jointly with other shareholders, of an interest in our company representing an amount equal to or greater than 20% of our capital stock, as prescribed by article 44 of our by-laws, provided that the resulting business or business group has no direct participation of our founding shareholders or persons related to them. The Second Series Warrants in this case must be exercised within ten business days of the publication of the tender offer made in connection with such acquisition of a significant interest.

Mandatory tender offer in accordance with CVM rules: In the event a mandatory tender offer is made for our shares under CVM regulations, provided that the resulting business or business group has no direct participation of our founding shareholders or persons related to them. The Second Series Warrants in this case must be exercised within ten business days of the publication of such mandatory tender offer.

Transferability

The Second Series Warrants may be transferred only among our founding shareholders, their controlling shareholder or their affiliates.

Warrant Shares

Each lot of 1,000 warrants of the Second Series Warrants originally entitled its respective holder to acquire one of our common shares, subject to the adjustments described in “Item 10—Additional Information—Adjustment of the Number of Common Shares for Subscription” below.

Adjustment of the Number of Common Shares for Subscription

If we issue shares that do not result from the exercise of the rights conferred under the warrants, the number of shares to be issued upon exercise of the warrants will be adjusted. Such increase in the number of shares that may be subscribed by the holders of the warrants shall be proportional to such number of shares newly issued by us in relation to the number of shares existing before such issuance. Accordingly, holders of warrants whose preemptive rights had not yet been exercised shall be entitled to maintain the right to subscribe the same percentage interest in our capital stock as they were entitled to prior to such new issuance. The number of shares granted upon the exercise of the warrants will also be adjusted in order to reflect capital reductions, stock splits, reverse stock splits and share bonuses transactions, if any. Such adjustments will also apply to the issue of new warrants, debentures or other securities convertible into our common shares.

 

Exercise Price

 

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The exercise price of the Second Series Warrants will be equal to the tender offer prices described above under “—Second Series Warrants.”

Exercise of Rights

The right conferred by the Second Series Warrants may be exercised by their holders by sending notice to us within ten business days from the date of the public announcement of the applicable tender offer. The Second Series Warrants may be exercised only if our founding shareholders continue to own in the aggregate at least 80% of the number of shares held by them immediately after consummation of our 2006 initial public offering. On the date hereof, our founding shareholders own 100% of the number of shares they held immediately after the consummation of our 2006 initial public offering.

Characteristics of the Common Shares for Subscription

The shares to be acquired under the Second Series Warrants will be entitled to the same rights granted to our other shares.

Holders of Second Series Warrants

As of the date of this Annual Report, the holders of our Second Series Warrants are:

 

 

 

 

Holder

 

Number

 

%

 

Agro Managers

4,364

1.70

Cape Town LLC

64,000

25.00

Cresud

177,004

69.14

Others

10,632

4.15

 

 

 

Total

256,000

100

 

 

 

Adjustment in the Event of a Corporate Restructuring

In the event of any corporate restructuring or similar action, apart from such events mentioned above and which may have an impact on or represent a reduction of the rights of the holders of the First Series Warrants or the Second Series Warrants, it is stipulated in the meeting of our board of directors held on March 15, 2006 that we shall use our best efforts to negotiate with the holders of the First Series Warrants and Second Series Warrants, as appropriate, to set forth new exercise conditions, seeking to preserve the rights originally granted to the holders of such warrants, their economic and corporate value, the amount of underlying shares and their exercise price. For the purpose of such negotiation, decisions by the holders of the warrants shall be determined through a majority vote, and the holders of the First Series Warrants and the Second Series Warrants shall negotiate and vote separately. Any disputes will be submitted to the Arbitration Chamber of the BM&FBOVESPA ( Câmara de Arbitragem do Mercado ) pursuant to our bylaws.

C. Material Contracts

See “Item 4—Information on the Company—Business Overview—Material Agreements.”

D. Exchange Controls

There are no restrictions on ownership or voting of our capital stock by individuals or legal entities domiciled outside Brazil. However, the right to convert dividend payments, interest on shareholders’ equity payments and proceeds from the sale of our capital stock into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation and foreign exchange regulations, which generally require, among other things, the registration of the relevant investment with the Central Bank and the CVM.

 

Investments in our common shares by (I) a holder not deemed to be domiciled in Brazil for Brazilian tax purposes, (II) a non-Brazilian holder who is registered with the CVM under Resolution No. 4,373, or (III) the depositary, are eligible for registration with the Central Bank. This registration (the amount so registered is referred to as registered capital) allows the remittance outside Brazil of foreign currency, converted at the commercial market rate, acquired with the proceeds of distributions on, and amounts realized through, dispositions of our common shares. The registered capital per common share purchased in the form of an American Depositary Security, or ADS, or purchased in Brazil and deposited with the depositary

 

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in exchange for an ADS, will be equal to its purchase price (stated in U.S. dollars). The registered capital per common share withdrawn upon cancellation of a Common ADS will be the U.S. dollar equivalent of (1) the average price of a common share on the BM&FBOVESPA on the day of withdrawal, or (2) if no common shares were traded on that day, the average price on the BM&FBOVESPA in the 15 trading sessions immediately preceding such withdrawal. The U.S. dollar equivalent will be determined on the basis of the average commercial market rates quoted by the Central Bank on the relevant dates.

Annex V Regulations

Resolution No. 1,927 of the National Monetary Council, as amended, provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. It restates and amends Annex V to Resolution No. 1,289 of the National Monetary Council, known as the Annex V Regulations. The ADS program was approved under the Annex V Regulations by the Central Bank and the CVM prior to the issuance of the ADSs. Accordingly, the proceeds from the sale of ADSs by ADR holders outside Brazil are not subject to Brazilian foreign investment controls, and holders of the ADSs who are not resident in a Tax Haven Jurisdiction are entitled to favorable tax treatment. See “Item 10—Additional Information—Taxation—Brazilian Tax Considerations.”

We pay dividends and other cash distributions with respect to our common shares in Reais . We have obtained an electronic certificate of foreign capital registration from the Central Bank in the name of the depositary with respect to our ADSs to be maintained by the custodian on behalf of the depositary. Pursuant to this registration, the custodian is able to convert dividends and other distributions with respect to our common shares represented by ADSs into foreign currency and remit the proceeds outside Brazil to the depositary so that the depositary may distribute these proceeds to the holders of record of the ADSs.

Investors residing outside Brazil may register their investments in our shares as foreign portfolio investments under Resolution No. 4,373 (described below) or as foreign direct investments under Law No. 4,131 (described below). Registration under Resolution No. 4,373 or Law No. 4,131 generally enables non-Brazilian investors to convert dividends, other distributions and sales proceeds received in connection with registered investments into foreign currency and to remit such amounts outside Brazil. Registration under Resolution No. 4,373 affords favorable tax treatment to non-Brazilian portfolio investors who are not resident in a Tax Haven Jurisdiction. See “Item 10—Additional Information—Taxation—Brazilian Tax Considerations.”

In the event that a holder of ADSs exchanges those ADSs for the underlying common shares or preferred shares, the holder must:

•         sell those shares on the BM&FBOVESPA and rely on the depositary’s electronic registration for five business days from the date of exchange to obtain and remit U.S. dollars outside Brazil upon the holder’s sale of our preferred shares;

•         convert its investment in those shares into a foreign portfolio investment under Resolution No. 4,373; or

•         convert its investment in those shares into a direct foreign investment under Law No. 4,131.

The custodian is authorized to update the depositary’s electronic registration to reflect conversions of ADSs into foreign portfolio investments under Resolution No. 4,373.

If a holder of ADSs elects to convert its ADSs into a foreign direct investment under Law No. 4,131, the conversion will be effected by the Central Bank after receipt of an electronic request from the custodian with details of the transaction. If a foreign direct investor under Law No. 4,131 elects to deposit its common shares or preferred shares into the relevant ADR program in exchange for ADSs, such holder will be required to present to the custodian evidence of payment of capital gains taxes. The conversion will be effected by the Central Bank after receipt of an electronic request from the custodian with details of the transaction. See “Item 10—Additional Information—Taxation—Brazilian Tax Considerations” for details of the tax consequences to an investor residing outside Brazil of investing in our common shares or preferred shares in Brazil.

If a holder of ADSs wishes to convert its investment in our shares into either a foreign portfolio investment under Resolution No. 4,373 or a foreign direct investment under Law No. 4,131, it should begin the process of obtaining its own foreign investor registration with the Central Bank or with the CVM, as the case may be, in advance of exchanging the ADSs for the underlying common shares or preferred shares. A non-Brazilian holder of common shares may experience delays in obtaining a foreign investor registration, which may delay remittances outside Brazil, which may in turn adversely affect the amount, in U.S. dollars, received by the non-Brazilian holder.

 

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Unless the holder has registered its investment with the Central Bank, the holder may not be able to convert the proceeds from the disposition of, or distributions with respect to, such common shares or preferred shares into foreign currency or remit those proceeds outside Brazil. In addition, if the non-Brazilian investor resides in a Tax Haven Jurisdiction or is not an investor registered under Resolution No. 4,373, the investor will be subject to less favorable tax treatment than a holder of ADSs. See “Item 10—Additional Information—Taxation—Brazilian Tax Considerations.”

Resolution 4,373

On September 29, 2014, the CMN issued Resolution No. 4,373, which provides for the new mechanism for non-resident investments in the Brazilian financial and capital markets. Resolution No. 4,373 became effective on March 30, 2015. Resolution No. 4,373 was the prior mechanism for that and its provisions were significantly the same as the ones described below

All investments made by a non-Brazilian investor under Resolution No. 4,373 are subject to an electronic registration with the Central Bank. This registration permits non-Brazilian investors to convert dividend payments, interest on shareholders’ equity payments and proceeds from the sale of our share capital into foreign currency and to remit such amounts outside Brazil.

Under Resolution No. 4,373, non-Brazilian investors registered with the CVM may invest in almost all financial assets and engage in almost all transactions available to Brazilian investors in the Brazilian financial and capital markets without obtaining a separate Central Bank registration for each transaction, provided that certain requirements are fulfilled. Under Resolution No. 4,373, the definition of a non-Brazilian investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered outside Brazil.

Pursuant to Resolution No. 4,373, non-Brazilian investors must:

•         appoint at least one representative in Brazil with powers to take action relating to its investments;

•         appoint an authorized custodian in Brazil for its investments, which must be a financial institution duly authorized by the Central Bank and CVM;

•         complete the appropriate foreign investor registration forms;

•         register as a non-Brazilian investor with the CVM;

•         register its investments with the Central Bank; and

•         obtain a taxpayer identification number from the Brazilian federal tax authorities.

The securities and other financial assets held by a non-Brazilian investor pursuant to Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM or be registered in registration, clearing and custody systems authorized by the Central Bank or by the CVM. In addition, the trading of securities held under Resolution No. 4,373 is restricted to transactions carried out on stock exchanges or through organized over-the-counter markets licensed by the CVM.

The offshore transfer or assignment of the securities or other financial assets held by non-Brazilian investors pursuant to Resolution No. 4,373 are prohibited, except for transfers resulting from a corporate reorganization effected abroad by a non-Brazilian investor, or occurring upon the death of an investor by operation of law or will.

Law 4,131

To obtain a certificate of foreign capital registration from the Central Bank under Law No. 4,131, a foreign direct investor must:

•         register as a foreign direct investor with the Central Bank;

•         obtain a taxpayer identification number from the Brazilian tax authorities;

•         appoint a tax representative in Brazil; and

•         appoint a representative in Brazil for service of process in respect of suits based on the Brazilian corporate law.

 

 

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Foreign direct investors under Law No. 4,131 may sell their shares in either private or open market transactions, but these investors will generally be subject to less favorable tax treatment on gains with respect to our common or preferred shares. See “Item 10—Additional Information—Taxation—Brazilian Tax Considerations.”

E. Taxation

The following discussion contains a description of the material Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition of our common shares or ADSs. The following discussion does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase, hold or dispose of our common shares or ADSs. This discussion is based upon the tax laws of Brazil and the United States and regulations under these tax laws as currently in effect, which are subject to change.

Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of our common shares or ADSs.

Prospective purchasers of our common shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of our common shares or ADSs in their particular circumstances.

Brazilian Tax Considerations

The following discussion contains a description of the material Brazilian tax consequences, subject to the limitations set forth herein, of the acquisition, ownership and disposition of our common shares or ADSs by a holder not deemed to be domiciled in Brazil for purposes of Brazilian taxation, or a Non-Resident Holder. This discussion is based on the tax laws of Brazil and regulations thereunder in effect on the date hereof, which are subject to change (possibly with retroactive effect). This discussion does not specifically address all of the Brazilian tax considerations that may be applicable to any particular Non-Resident Holder. Therefore, each Non-Resident Holder should consult its own tax advisor about the Brazilian tax consequences of an investment in our common shares or ADSs.

Individuals domiciled in Brazil and Brazilian companies are taxed in Brazil on the basis of their worldwide income which includes earnings of Brazilian companies’ foreign subsidiaries, branches and affiliates. The earnings of branches of foreign companies and non-Brazilian residents, or nonresidents, in general are taxed in Brazil only on income derived from Brazilian sources.

Dividends

Dividends paid by a Brazilian corporation, such as us, including stock dividends and other dividends paid to a Non-Resident Holder of our common shares or ADSs, are currently not subject to income tax withholding in Brazil to the extent that such amounts are related to profits generated after January 1, 1996. Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian income tax withholding at varying rates, according to the tax legislation applicable to each corresponding year.

Interest on Shareholders’ Equity

Law No. 9,249, dated December 26, 1995, as amended, allows a Brazilian corporation, such as us, to make distributions to shareholders of interest on shareholders’ equity, and treat those payments as a deductible expense for purposes of calculating Brazilian corporate income tax, and, since 1997, social contribution on net profit as well, as long as the limits described below are observed. These distributions may be paid in cash. For tax purposes, the deductible amount of this interest is limited to the daily pro rata variation of the TJLP, as determined by the Brazilian Central Bank from time to time, and the amount of the deduction may not exceed the greater of:

•         50% of net income (after the deduction of social contribution on net profit but before taking into account the provision for corporate income tax and the amounts attributable to shareholders as interest on shareholders’ equity) for the period in respect of which the payment is made; and

•         50% of the sum of retained profits and income reserves as of the date of the beginning of the period in respect of which the payment is made.

 

Payment of interest on shareholders’ equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25% if the Non-Resident Holder is domiciled in (i) a country or location that does not impose income tax, or

 

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(ii) where the maximum income tax rate is lower than 20.0%, or (iii) a Tax Haven Jurisdiction. See “Interpretation of the Discussion of the Definition of “Tax Haven Jurisdictions”” below.

These payments of interest on shareholders’ equity to a Non-Resident Holder may be included, at their net value, as part of any mandatory dividend. To the extent payment of interest on shareholders’ equity is so included, we are required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable income tax withholding, plus the amount of declared dividends, is at least equal to the mandatory dividend.

Payments of interest on shareholders’ equity are decided by our shareholders, at our annual shareholders meeting, on the basis of recommendations of our board of directors. No assurance can be given that our board of directors will not recommend that future distributions of profits should be made by means of interest on shareholders’ equity instead of by means of dividends.

Taxation of Gains

Under Law No. 10,833, enacted on December 29, 2003, the gain on the disposition or sale of assets located in Brazil by a Non-Resident Holder, whether to another non-Brazilian resident or to a Brazilian resident, may be subject to income tax withholding in Brazil.

With respect to the disposition of our common shares, as they are assets located in Brazil, the Non-Resident Holder should be subject to income tax on the gains assessed, following the rules described below, regardless of whether the transactions are conducted in Brazil or with a Brazilian resident.

With respect to our ADSs, although the matter is not entirely clear, arguably the gains realized by a Non-Resident Holder upon the disposition of ADSs to another non-Brazilian resident will not be taxed in Brazil, on the basis that ADSs are not “assets located in Brazil” for the purposes of Law No. 10,833. We cannot assure you, however, that the Brazilian tax authorities or the Brazilian courts will agree with this interpretation. As a result, gains on a disposition of ADSs by a Non-Resident Holder to a Brazilian resident, or even to a non-Brazilian resident, in the event that courts determine that ADSs would constitute assets located in Brazil, may be subject to income tax in Brazil according to the rules applicable to our common shares, described below.

As a general rule, gains realized as a result of a disposition of our common shares or ADSs are the positive difference between the amount realized on the transaction and the acquisition cost of our common shares or ADSs.

Under Brazilian law, however, income tax rules on such gains can vary depending on the domicile of the Non-Resident Holder, the type of registration of the investment by the Non-Resident Holder with the Central Bank and how the disposition is carried out, as described below.

Gains realized on a disposition of shares carried out on a Brazilian stock exchange (which includes the organized over-the-counter market) are:

•         exempt from income tax when realized by a Non-Resident Holder that (1) has registered its investment in Brazil with the Central Bank under the rules of Resolution 4,373 (a “4,373 Holder”), and (2) is not a resident in a country or location which is defined as a Tax Haven Jurisdiction for those purposes; or

•         subject to income tax at a rate of 15% in the case of gains realized by (A) a Non-Resident Holder that (1) is not a 4,373 Holder and (2) is not a Tax Haven Jurisdiction resident; or by (B) a Non-Resident Holder that (1) is a 4,373 Holder, and (2) is a Tax Haven Jurisdiction resident. In this case, a withholding income tax of 0.005% shall be applicable and withheld by the intermediary institution (i.e. a broker) that receives the order directly from the Non-Resident Holder, which can be later offset against any income tax due on the capital gain earned by the Non-Resident Holder; and

•         subject to income tax at a rate of up to 25% in any other case, including a case of gains assessed by a Non-Resident Holder that is not a 4,373 Holder, and is a Tax Haven Jurisdiction resident for this purpose (as described below). In these cases, a withholding income tax of 0.005% of the sale value will be applicable and can be later offset with the eventual income tax due on the capital gain.

 

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treated, for tax purposes, as capital gain derived from sale or exchange of shares not carried out on a Brazilian stock exchange market, and is therefore subject to income tax at the rate of 15% or 25%, as the case may be.

The deposit of our common shares in exchange for ADSs will be subject to Brazilian income tax if the acquisition cost of the shares is lower than (1) the average price per share on a Brazilian stock exchange on which the greatest number of such shares were sold on the day of deposit, or (2) if no shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of shares were sold in the 15 trading sessions immediately preceding such deposit. In such case, the difference between the acquisition cost and the average price of the shares calculated as above will be considered to be a capital gain subject to income tax withholding at the rate of 15% or 25%, as the case may be. In some circumstances, there may be arguments to claim that this taxation is not applicable in the case of a Non-Resident Holder that is a 4,373 Holder and is not a resident in a Tax Haven Jurisdiction for this purpose. The availability of these arguments to any specific holder of our common shares will depend on the circumstances of such holder. Prospective holders of our common shares should consult their own tax advisors as to the tax consequences of the deposit of our common shares in exchange for ADSs.

Any exercise of preemptive rights relating to our common shares or ADSs will not be subject to Brazilian taxation. Any gain on the sale or assignment of preemptive rights relating to our common shares, including the sale or assignment carried out by the depositary, on behalf of Non-Resident Holders of ADSs, will be subject to Brazilian income taxation according to the same rules applicable to the sale or disposition of our common shares.

Interpretation of the Discussion on the Definition of “Tax Haven Jurisdictions”

On November 28, 2014 Brazilian tax authorities enacted Normative Instruction No. 488 listing (i) the countries and jurisdictions considered Tax Haven Jurisdictions (countries and jurisdictions that do not tax income or tax it at a rate below 17% or where the local legislation does not allow access to information related to the shareholding composition of legal entities or to their ownership or to the identity of the effective beneficiary of the income attributed to non-residents), and (ii) the privileged tax regimes, which definition is provided by Law No. 11,727, of June 23, 2008. Although we believe that the best interpretation of the current tax legislation could lead to the conclusion that the above mentioned “privileged tax regime” concept should apply solely for purposes of Brazilian transfer pricing and thin capitalization rules, we cannot assure you whether subsequent legislation or interpretations by the Brazilian tax authorities regarding the definition of a “privileged tax regime” provided by Law No. 11,727 will also apply to a Non-Resident Holder on payments potentially made by a Brazilian source.

We recommend prospective investors to consult their own tax advisors from time to time to verify any possible tax consequences arising of Normative Instruction No. 1,037 and Law No. 11,727. If the Brazilian tax authorities determine that the concept of “privileged tax regime” provided by Law No. 11,727 will also apply to a Non-Resident Holder on payments potentially made by a Brazilian source the withholding income tax applicable to such payments could be assessed at a rate up to 25%.

Tax on Foreign Exchange Transactions (IOF/Exchange Tax)

Brazilian law imposes the IOF/Exchange Tax on the conversion of Reais into foreign currency and on the conversion of foreign currency into Reais . Foreign exchange agreements entered into as from October 7, 2014 in connection with inflows of funds related to investments carried out by Non-Resident Holders in the Brazilian financial and capital markets are subject to the IOF/Exchange Tax at a zero percent rate. Foreign exchange transactions related to outflows of funds in connection with investments made in the Brazilian financial and capital markets are subject to IOF/Exchange at a zero percent rate. This zero percent rate applies to payments of dividends and interest on shareholders’ equity to Non-Resident Holders with respect to investments in the Brazilian financial and capital markets. Other than these transactions, the rate applicable to most foreign exchange transactions is 0.38%. Other rates may apply to particular transactions and the Brazilian government may increase the rate at any time up to 25.0% on the foreign exchange transaction amount. However, any increase in rates is only authorized to apply to future transactions.

 

Tax on Transactions Involving Bonds and Securities (IOF/Securities Tax)

Brazilian law also imposes the IOF/Securities Tax due on transactions involving bonds and securities, including those carried out on a Brazilian stock exchange. The rate of the IOF/Securities Tax applicable to transactions involving our common shares is currently zero. However, the rate of the IOF/Securities Tax applicable to the transfer of our common shares with the specific purpose of enabling the issuance of ADSs is currently zero. This rate is applied on the product of (1) the number of shares which are transferred, multiplied by (2) the closing price for those shares on the date prior to the transfer or,

 

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if such closing price is not available on that date, the last available closing price for those shares. The Brazilian government may increase the rate of the IOF/Securities Tax at any time up to 1.5% per day of the transaction amount, but only in respect of transactions carried out after the increase in rate enters into force.

Other Brazilian Taxes

There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of our common shares or ADSs by a Non-Resident Holder except for gift and inheritance taxes levied by some states in Brazil. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by Non-Resident Holders of our common shares or ADSs.

U.S. Federal Income Tax Considerations

The following summary describes the material U.S. federal income tax consequences of the purchase, ownership, and disposition of our common shares and ADSs as of the date hereof. Except where noted, this discussion deals only with U.S. Holders (as defined below) that hold our common shares or ADSs as capital assets for U.S. federal income tax purposes (generally, property held for investment). This summary does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

•         a dealer in securities or currencies;

•         a financial institution;

•         a regulated investment company;

•         a real estate investment trust;

•         an insurance company;

•         a tax-exempt organization;

•         a person that received our common shares or ADSs as compensation for the performance of services;

•         a person holding our common shares or ADSs as part of a hedging, integrated or conversion transaction or a straddle;

•         a person deemed to sell common shares or ADSs under the constructive sale provisions of the Internal Revenue Code of 1986, as amended (the “Code”);

•         a trader in securities that has elected the mark-to-market method of accounting for your securities;

•         a person liable for alternative minimum tax;

•         a person who owns or is deemed to own 10% or more of our voting stock;

•         a partnership or other pass-through entity for U.S. federal income tax purposes; or

•         a person whose “functional currency” is not the U.S. dollar.

As used herein, “U.S. Holder” means a holder of our common shares or ADSs that is for U.S. federal income tax purposes:

•         an individual citizen or resident of the United States;

•         a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

•         an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

•         a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

 

The discussion below is based upon the provisions of the Code, and regulations, rulings and judicial decisions thereunder at the date hereof, and such authorities may be repealed, revoked or modified (possibly on a retroactive basis) so as to result in U.S. federal income tax consequences different from those discussed below. In addition, this summary is based,

 

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in part, upon representations made by the depositary to us and assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds our common shares or ADSs, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common shares or ADSs, you should consult your tax advisors.

This summary does not contain a detailed description of all the U.S. federal income tax consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-U.S. tax laws.

If you are considering the purchase, ownership or disposition of our common shares or ADSs, you should consult your own tax advisors concerning the U.S. federal income tax consequences to you in light of your particular situation as well as any consequences arising under the laws of any other tax jurisdiction.

ADSs

If you hold ADSs, for U.S. federal income tax purposes, you generally will be treated as the owner of the underlying common shares that are represented by such ADSs. Accordingly, deposits or withdrawals of our common shares for ADSs will not be subject to U.S. federal income tax.

Taxation of Distributions

Subject to the discussion under “—Passive Foreign Investment Company” below, distributions on our common shares or ADSs (including amounts withheld to reflect Brazilian withholding taxes and distributions of interest on shareholders’ equity, as described above under “—Brazilian Tax Considerations”) will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such dividends (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of our common shares, or by the depositary, in the case of our ADSs. Such dividends, however, will not be eligible for the dividends received deduction allowed to corporations.

Under current law, dividends received by non-corporate U.S. shareholders of qualified foreign corporations will be subject to U.S. federal income tax at lower rates than other types of ordinary income if certain conditions are met. A foreign corporation generally is treated as a qualified foreign corporation with respect to dividends received from that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. U.S. Treasury Department guidance indicates that our ADSs (which are listed on the NYSE), but not our common shares, are readily tradable on an established securities market in the United States. Thus, we do not believe that dividends that we pay on our common shares that are not represented by ADSs currently meet the conditions required for these reduced tax rates. There can be no assurance that our ADSs will be considered readily tradable on an established securities market in later years. Non-corporate holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult your tax advisors regarding the application of this legislation to your particular circumstances.

Notwithstanding the foregoing, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a passive foreign investment company (a “PFIC”) in the taxable year in which such dividends are paid or in the preceding taxable year (as discussed under “—Passive Foreign Investment Company” below).

 

The amount of any dividend paid in Reais will equal the U.S. dollar value of the Reais received, calculated by reference to the exchange rate in effect at the date the dividend is actually or constructively received by you, in the case of our common shares, or by the depositary, in the case of our ADSs, regardless of whether the Reais are converted into U.S. dollars at that time. If the Reais received as a dividend are not converted into U.S. dollars at the date of receipt, you will have a tax basis in the Reais equal to their U.S. dollar value at the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the Reais will be treated as U.S. source ordinary income or loss.

 

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Subject to certain conditions and limitations, Brazilian withholding taxes on dividends may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on our common shares or ADSs will be treated as income from sources outside the United States and will generally constitute passive category income. Further, in certain circumstances, if you have held our common shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on our common shares or ADSs. If you do not elect to claim a U.S. foreign tax credit, you may instead claim a deduction for Brazilian income tax withheld, but only for a taxable year in which you elect to do so with respect to all foreign income taxes paid or accrued in such taxable year. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.

To the extent that the amount of any distribution (including amounts withheld to reflect Brazilian withholding taxes and distributions of interest on shareholders’ equity, as described above under “—Brazilian Tax Considerations”) exceeds our current and accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of our common shares or ADSs, and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange (as discussed below under “—Taxation of Capital Gains”). However, we do not expect to keep earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above).

Distributions of common shares or ADSs that are received as part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.

Passive Foreign Investment Company

In general, we will be a PFIC for any taxable year in which:

•    at least 75% of our gross income is passive income, or

•    at least 50% of the value (determined based on a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income.

For purposes of determining whether we are a PFIC, cash is a passive asset and passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). In addition, income from commodities transactions is generally considered passive unless such income is derived in the active conduct of a commodities business. If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income.

Based on the composition of our income and assets, including goodwill, we do not believe that we were classified as a PFIC for U.S. federal income tax purposes for our most recent taxable year. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that our status as a PFIC may change in any future taxable year due to changes in our asset or income composition. Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold our common shares or ADSs, you will be subject to special tax rules discussed below for that year and for each subsequent year in which you hold the common shares or ADSs (even if we do not qualify as a PFIC in such subsequent years). However, if we cease to be a PFIC, you can avoid the continuing impact of the PFIC rules by making a special election (a “Purging Election”) to recognize gain in the manner described below as if your common shares or ADSs had been sold on the last day of the last taxable year during which we were a PFIC. In addition, a new holding period would be deemed to begin for your common shares or ADSs for purposes of the PFIC rules. After the Purging Election, your common shares or ADSs with respect to which the Purging Election was made will not be treated as shares in a PFIC unless we subsequently become a PFIC. You are urged to consult your own tax advisor about the availability of this election, and whether making the election would be advisable in your particular circumstances.

 

If we are a PFIC for any taxable year during which you hold our common shares or ADSs, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge, of common shares or ADSs. Distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the common shares or ADSs will be treated as excess distributions. Under these special tax rules:

•         the excess distribution or gain will be allocated ratably over your holding period for the common shares or ADSs,

 

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•         the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and

•         the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

You will also generally be required to file Internal Revenue Service (“IRS”) Form 8621 if you hold our common shares or ADSs in any year in which we are classified as a PFIC.

If we are a PFIC for any taxable year during which you hold our common shares or ADSs and any of our non-U.S. subsidiaries is also a PFIC, you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.

In certain circumstances, in lieu of being subject to the excess distribution rules discussed above, you may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market method, provided that such stock is regularly traded on a qualified exchange. Under current law, the mark-to-market election may be available to holders of ADSs because the ADSs are listed on the NYSE, which constitutes a qualified exchange, although there can be no assurance that the ADSs will be “regularly traded” for purposes of the mark-to-market election. It should also be noted that only our ADSs and not our common shares are listed on a qualified stock exchange in the United States. Our common shares are listed on the BM&FBOVESPA, which must meet certain trading, listing, financial disclosure and other requirements to be treated as a qualified exchange under applicable U.S. Treasury regulations for purposes of the mark-to-market election, and no assurance can be given that our common shares will be “regularly traded” for purposes of the mark-to-market election.

If you make an effective mark-to-market election, you will include in each year that we are a PFIC as ordinary income the excess of the fair market value of your common shares or ADSs at the end of the year over your adjusted tax basis in the common shares or ADSs. You will be entitled to deduct as an ordinary loss in each such year the excess of your adjusted tax basis in the common shares or ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If you make an effective mark-to-market election, in each year that we are a PFIC any gain you recognize upon the sale or other disposition of your common shares or ADSs will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount of previously included income as a result of the mark-to-market election.

Your adjusted tax basis in the common shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If you make a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the common shares or ADSs are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. You are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances.

Alternatively, you can sometimes avoid the rules described above by electing to treat a PFIC as a “qualified electing fund” under Section 1295 of the Code. However, this option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.

You are urged to consult your tax advisors concerning the United States federal income tax consequences of holding common shares or ADSs if we are considered a PFIC in any taxable year.

 

Taxation of Capital Gains

You generally will recognize taxable gain or loss upon the sale, exchange or other taxable disposition of our common shares or ADSs equal to the difference between the amount realized on the sale, exchange or other taxable disposition of such common shares or ADSs and your adjusted tax basis in such common shares or ADSs. Subject to the discussion under “—Passive Foreign Investment Company” above, such gain or loss will generally be capital gain or loss.  Capital gains or losses will be long-term capital gain or loss if our common shares or ADSs have been held for more than one year. Certain non-corporate U.S. Holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deductibility of capital losses is subject to limitations under the Code.

 

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If a Brazilian income tax is withheld on the sale or other disposition of our common shares or ADSs, your amount realized will include the gross amount of the proceeds of that sale or other disposition before deduction of the Brazilian income tax. Capital gain or loss, if any, realized by you on the sale, exchange or other taxable disposition of our common shares or ADSs generally will be treated as U.S. source gain or loss for U.S. foreign tax credit purposes. Consequently, in the case of gain from the disposition of common shares or ADSs that is subject to Brazilian income tax, you may not be able to benefit from the foreign tax credit for that Brazilian income tax (i.e., because the gain from the disposition would be U.S. source), unless you can apply the credit (subject to applicable limitations) against U.S. federal income tax payable on other income from foreign sources. Alternatively, you may take a deduction for the Brazilian income tax if you do not take a credit for any foreign taxes paid or accrued during the taxable year.

Other Brazilian Taxes

You should note that any Brazilian IOF/Exchange Tax or IOF/Securities Tax (as discussed above under “—Brazilian Tax Considerations”) generally will not be treated as a creditable foreign tax for U.S. federal income tax purposes, although you may be entitled to deduct such taxes, subject to applicable limitations under the Code. You should consult your tax advisors regarding the U.S. federal income tax consequences of these taxes.

Information Reporting and Backup Withholding

In general, information reporting will apply to dividends (including distributions of interest on shareholders’ equity) in respect of our common shares or ADSs and the proceeds from the sale, exchange or redemption of our common shares or ADSs that are paid to you within the United States (and in certain cases, outside the United States), unless you establish that you are an exempt recipient, such as a corporation. A backup withholding tax may apply to such payments if you fail to provide your correct taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is timely furnished to the IRS.

The above description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership or disposition of our common shares or ADSs. Each holder should consult such holder’s own tax advisor concerning the overall tax consequences to it, including the consequences under laws other than U.S. federal income tax laws, of an investment in our common shares or ADSs.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

 

H. Documents on Display

We are subject to the reporting requirements of the Exchange Act, which requires that we file periodic reports and other information with the SEC. As a foreign private issuer, we file annual reports on Form 20-F as opposed to Form 10-K. We do not file quarterly reports on Form 10-Q but furnish reports on Form 6-K.

Our reports and other information filed by us with the SEC may be inspected and copied by the public at the public reference facilities maintained by the SEC at Station Place, 100 F Street, N.E., Room 1580, Washington, D.C. 20549 and are also available on the website of the SEC at http://www.sec.gov .

We furnish The Bank of New York, as the depositary of our ADSs, with annual reports in English, which include a review of operations and our audited consolidated financial statements prepared in accordance with IFRS, and our Annual Report on Form 20-F. Upon our request, the depositary will promptly mail such reports to all record holders of ADSs. We also furnish to the depositary, in English, all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. Upon our request, the depositary will make such notices, reports and

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communications available to holders of ADSs and will mail to all record holders of ADSs a notice containing a summary of the information contained in any notice of a shareholders’ meeting it receives.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements. As a foreign private issuer, we are also exempt from the rules under the Exchange Act relating to short-swing profit disclosure and liability.

I. Subsidiary Information

Not applicable.

ITEM 11—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks arising in the normal course of our business. Market risks are beyond our control and consist of the possibility that changes in interest rates, exchange rates, the market prices of our products and credit risks may adversely affect the value of our financial assets and liabilities or our future cash flows or earnings.

Raw Material Acquisition Risks

For the acquisition of farming inputs, our primary risks are foreign-exchange variations, the supply and demand of each input, farming commodity prices and freight prices. Our dependence on imported raw materials is also subject to supply and customs clearance delays. We are also subject to risks regarding the availability of the specific varieties of seeds we use, which are affected by weather conditions, among other factors.

In addition, the price of diesel fuel, which is the primary fuel used in farming machinery and trucks, is affected by the variation in oil prices as well as by the price-control policies adopted by the Brazilian government.

Foreign Exchange Risks

Certain of our income is linked to the exchange rate between the real and the U.S. dollar, and consequently our revenue are impacted by foreign exchange fluctuations. Certain of our commodities, such as soybean, may be priced in reais or in U.S. dollars. In addition, certain of the inputs necessary for farming production, such as chemicals, pesticides and fertilizers, may be priced in or based on the U.S. dollar. In order to reduce the impact on revenue, we seek to limit our foreign exchange exposure to 5% of our total expected revenue from commodities typically priced in U.S. dollars.

On June 30, 2015, we had a long position in U.S. dollars in the amount of US$13.9 million. The result of a hypothetical devaluation of 10% of the real in relation to the dollar would generate a profit before taxes of R$4.5 million.

 

Interest Rate Risks

Exposure to interest rates subjects us and our subsidiaries to risks arising from the effect of interest rate fluctuations on our financial assets and liabilities. A portion of our indebtedness is subject to fixed rates of interest, while only our financings with BNDES are subject to variable rates indexed to the TJLP rate. We do not engage in hedging transactions with respect to such financings because we believe the interest rates charged thereon are lower than typical rates in the Brazilian market.

If our volume of funds invested in financial instruments indexed to the CDI rate remains the same with June 30, 2015 as a base date, a hypothetical decrease in the CDI rate of 10% would reduce our income by R$4.6 thousand monthly.

Farming Commodity Risks

A reduction in commodity prices would affect our margins and operating results. Commodity price variations are associated with global supply and demand, as well as climatic, technological, commercial and economic conditions and government policies. To reduce these risks to us from commodity price variations, we use financial instruments such as derivatives and over-the-counter instruments including options and futures contracts negotiated in the commodities market throughout the ordinary course of our crop cycles, from the purchase of inputs to crop planting up until harvest. We believe that the maintenance of our current hedging policy is necessary to minimize the risks related to commodity price variations.

 

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On June 30, 2015, we had a short position in soybean derivatives (CBOT-futures, options and OTC contracts) in the total volume of 988.8 thousand bags.

Considering sales volumes hedged by derivatives and the soybean price as of June 30, 2015, we believe that a hypothetical decrease of 10% in the price of soybean not hedged by derivatives would decrease our expected revenues from grain sales for the next 12 months by R$8.1 million.

Risk Management and Hedging Policies

We are exposed to risks derived from commodity price variations for such products as soybean, corn, sugarcane, rice and sorghum, as well as foreign-exchange variations. We hedge our exposure to commodity price risks for our transactions through over-the-counter instruments and maintain our exposures within pre-established limits. Such financial instruments include (i) commodity price and exchange rate swap contracts; (ii) currency contracts that provide a fixed exchange rate in Reais for our dollar-denominated receivables and chargeables; (iii) commodity futures contracts for soybean, corn and ethanol that allow us to buy or sell commodities at predetermined prices; and (v) options contracts that allow us to acquire the right to buy or sell an asset at a preset price by a certain date. Since these transactions are normally made in U.S. dollars, we hedge our exposure to foreign-exchange risks by entering into contracts with fixed exchange rates. We have set our limit of foreign-exchange exposure to 5% of the total revenue expected from the sale of each commodity produced by us.

Our risk management policy seeks to protect our cash flows and expenditures, and thus we monitor the volatility and historical patterns of the primary market trends that affect our revenue and production costs, including (i) commodity prices, commonly determined in U.S. dollars; (ii) differences between domestic and international market prices of our commodities; (iii) exchange rates; and (iv) prices impacting our principal production costs, including, fertilizers, pesticides and chemicals.

In addition to monitoring these trends, our strategic planning department analyzes them in light of our exposures and positions in the market and prepares reports on a regular basis analyzing such risks in the light of simulations under various hypothetical situations indicating the effects on our results of different variations in market prices and conditions. Such analysis and reports include the monitoring and assessment of: (i) the status of the commercialization and delivery of our products; (ii) updates regarding our estimated planted area and production volumes; (iii) the distribution of sales by product and type (such as futures contracts, options, fixed term contracts); (iv) market analysis and historical comparisons of the prices, rates and other indices that affect our gross revenue; (v) risk analysis models and simulations such as the Monte Carlo simulation, that analyze the volatility and sensitivity of our assets and the correlations that exist among such assets; and (vi) stress test analyses under different scenarios. Such reports are then delivered to our risk management committee, which develops the goals and limits of our hedging strategy and our hedging policy, which is defined and approved by our board of directors. Our risk management committee then supervises our strategic planning department in the implementation and the execution of our hedging strategy.

ITEM 12 — DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

The following table sets for the fees and expenses that a holder of ADRs may have to pay pursuant to our Amended and Restated Deposit Agreement, dated as of November 6, 2012 (the “Deposit Agreement”), with The Bank of New York Mellon, as depositary, in connection with our ADS program:

 

 

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Fee and Reimbursement Provisions

 

 

Fee or Charge

 

Relating to

 

 

1. Taxes and other governmental charges

 

 

2. Registration fees as may be in effect for the registration of transfers of common shares underlying the ADRs on the share register of our company or any Brazilian registrar

The transfer of common shares underlying ADRs to or from the name of the depositary or its nominee or Banco Itaú, S.A., as custodian for the depositary, or its nominee on the making of deposits or withdrawals under the Deposit Agreement

 

3. Cable, telex and facsimile transmission expenses expressly provided under the Deposit Agreement

 

 

4. Expenses incurred by the depositary in the conversion of foreign currency

Amounts in Reais received by way of dividends or other distributions or the net proceeds from the sale of securities, property or other rights in respect of ADRs

 

5. U.S.$5.00 or less per 100 ADRs (or portion thereof)

The delivery of ADRs and the surrender of ADRs, or the distribution of securities or other property to holders of ADRs

 

6. U.S.$0.02 or less per ADR (or portion thereof)

Any cash distribution made pursuant to the Deposit Agreement, except for distributions of cash dividends

 

7. U.S.$0.02 or less per ADR (or portion thereof) per year, subject to prior consent by the Company

 

Depositary services

 

8. Payment of any other charges payable by the depositary, any of the depositary’s agents, including the depositary’s custodian, or the agents of the depositary’s agents in connection with the servicing of shares underlying the American Depositary Shares or other deposited securities

 

The fee and reimbursement provisions described in rows seven and eight of the table above may, at the depositary’s discretion, be billed to the holders of ADSs or deducted from one or more cash dividends or other cash distributions. For the year ended June 30, 2015, the annual fee for depositary services was charged to holders of ADSs.

For the year ended June 30, 2015, pursuant to a letter agreement between our company and the depositary, U$21.5 thousand was reimbursed by the depositary to us in connection with investor relations expenses and listing fees.

 

A form of the Deposit Agreement is filed as Exhibit 2.01 to this Annual Report on Form 20-F. We encourage you to review this document carefully if you are a holder of ADSs.

Payment of Taxes

You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your American Depositary Shares to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes.

PART II  

ITEM 13—DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

 

 

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ITEM 14—MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15—CONTROLS AND PROCEDURES

A. Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 20-F, management, with the participation of the Company’s Chief Executive Officer and Chief Administrative Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Administrative Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. Based on this evaluation, our Chief Executive Officer and Chief Administrative Officer, concluded that, as of June 30, 2015, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.

B. Management’s Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.

The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and financial officers and effected by the Company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS, as issued by IASB.

The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Therefore even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management performed an assessment of the effectiveness of our internal control over financial reporting on June 30, 2015, utilizing the criteria described in the “Internal Control—Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control over financial reporting was effective on June 30, 2015. Based on this assessment, management has concluded that, as of June 30, 2015, the Company’s internal control over financial reporting was effective at the reasonable assurance level.

C. Attestation Report of the Registered Public Accounting Firm

Pursuant to applicable SEC rules, this annual report does not include an attestation report of the Company’s registered public accounting firm. We will only be required to include this report once we become a large accelerated filer or otherwise cease to be an emerging growth company.

 

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D. Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A—AUDIT COMMITTEE FINANCIAL EXPERT

For the purposes of the Sarbanes-Oxley Act, our board of directors established a fiscal council (“Fiscal Council”), which convenes at least quarterly, and as often as it determines is appropriate to carry out its responsibilities. This committee has responsibility for planning and reviewing our annual and quarterly reports and accounts with the involvement of our auditors during such process, focusing particularly on compliance with legal requirements and accounting standards. The ultimate responsibility for reviewing and approving our annual and quarterly reports and accounts remains with our board of directors.

Our board of directors has determined that Débora de Souza Morsch, a member of the Company’s Fiscal Council, is a “financial expert,” as such term is defined in the SEC rules. Mrs. Morsch is independent, as such term is defined in the Novo Mercado listing rules. Our board of directors has determined that Mrs. Morsch is independent under the standards of the NYSE listing rules and Rule 10A-3 under the Exchange Act that would apply if the Company were not relying on the exemption provided in paragraph (c)(3) of Rule 10A-3, as described in “Item 16D—Exemptions from the Listing Standards for Audit Committees.” See “Item 6—Directors, Senior Management and Employees—Board Practices” for information regarding the experience of [Mrs. Morsch].

ITEM 16B—CODE OF ETHICS

Under Section 303A.10 of the NYSE Listed Company Manual, each U.S. company listed on the NYSE must adopt and disclose a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or executive officers. We are subject to a similar requirement under Brazilian law, and we have adopted a code of ethics that applies to our officers and employees.

Our code of ethics, as well as further information concerning our corporate governance practices and applicable Brazilian law, is available on our website www.brasil-agro.com. Information on our website is not incorporated by reference in this annual report.

If we make any substantive amendment to the code of ethics or grant any waivers, including any implicit waiver, from a provision of the code of ethics, we will disclose the nature of such amendment or waiver on our website. During the year ended June 30, 2015, no such amendment was made or waiver granted.

ITEM 16C—PRINCIPAL ACCOUNTANT FEES AND SERVICES

The relationship with our independent auditors in respect to the contracting of services unrelated to the external audit is based on principles that preserve the independence of the auditor. Our board of directors approves our financial statements, the hiring of our independent auditors to provide audit and permissible non-audit services, and associated fees. The Board’s approval also takes into account restrictions on certain services under the Sarbanes-Oxley Act.

The following table describes the total amount of fees billed to us by our independent auditors for services performed in the fiscal years ended June 30, 2015 and 2014.

 

 

 

 

 

Year Ended June 30,

 

 

2015

 

2014

 

 

(in thousand of Reais)

Audit fees(1)

817.1

1,099.7

Audit-related fees(2)

237.0

189.4

Tax fees

— 

—  

All other fees(3)

177.4

47.6

 

 

 

Total fees

1,231.5

1,336.7

 

 

 

 

(1) Audit fees in fiscal years 2015 and 2014 are the aggregated fees billed by Ernst & Young Auditores Independentes S.S. for the audit of our consolidated and annual financial statements including reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
           (2) Audit-related fees in fiscal years 2015 and 2014 were the fees billed by Ernst & Young Auditores Independentes S.S. for the interoffice reports issued regarding: (1) the audit of the consolidated reporting package and internal controls of Brasilagro for Cresud consolidation purposes, and (2) foreign exchange conversion review work related to the Brasilagro’s consolidation process within Cresud consolidated financial statements.
          (3) All other fees billed by Ernst & Young Auditores Independentes S.S. in 2015 and 2014 are in regards of (1) the review of the Company's ICFR matrices and (2) the agreed upon procedures for the filing process of Brasilagro’s financial statements in the Argentinean stock market.

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  Audit Committee Pre-Approval Policies and Procedures

Our board of directors has established pre-approval policies and procedures for the engagement of registered public accounting firm for audit and non-audit services. Under such pre-approval policies and procedures, our board of directors reviews the scope of the services to be provided by each registered public accounting firm to be engaged in order to ensure that there are no independence issues and the services are not prohibited services as defined by Sarbanes-Oxley Act of 2002.

ITEM 16D—EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

In establishing a permanent Fiscal Council, the Company has availed itself of paragraph (c)(3) of Rule 10A-3 of the Exchange Act, which provides a general exemption from the audit committee requirements for a foreign private issuer (such as the Company) with a Fiscal Council, subject to certain requirements.

NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. However, as a foreign private issuer, the Company may rely on an exemption from the requirement to have an audit committee. The Brazilian corporate law requires companies to have a non-permanent Fiscal Council composed of three to five members who are elected at the general shareholders’ meeting. The Fiscal Council operates independently from management and from a company’s external auditors. Its main function is to monitor the activities of management, examine the financial statements of each fiscal year and provide a formal report to our shareholders.

The Company has a permanent Fiscal Council that consists of three members and three alternates and which has ordinary meetings every month. The members of the Company’s Fiscal Council are all financially literate, and one member has accounting expertise that qualifies him as a financial expert. The Company believes that its Fiscal Council meets the requirements for the exemption available to foreign private issuers under the SEC rules regarding audit committees of listed companies. The Fiscal Council is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority. Nonetheless, with the attributions that have been provided to the Fiscal Council to the extent permitted by Brazilian law, the Company believes that its current corporate governance system, taken as a whole, including the ability of the Fiscal Council to consult internal and external experts, is similar to a system having an audit committee functioning as a committee of its Board of Directors, the main difference being that the Fiscal Council does not have authority to appoint our independent auditors. This authority lies with the Company’s board of directors. Accordingly, the Company does not believe that its reliance on the exemption in paragraph (c)(3) of Rule 10A-3 materially adversely affects the ability of the Fiscal Council to act independently and to satisfy the other requirements of Rule 10A-3 to the extent permitted by the Brazilian corporate law. For a further discussion of our Fiscal Council, see “Item 6—Directors, Senior Management and Employees—Board Practices—Fiscal Council.”

ITEM 16E—PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

On September 2, 2013, we approved a buyback program of common shares up to the limit of 3,511,130 common shares, not exceeding the balance of profits reserve available, included in our balance sheet on June 30, 2013. This program was terminated in September 2014.

 

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During the year ended June 30, 2014, we acquired 195,800 common shares under our share buyback program, which account for 0.34% of our outstanding shares (excluding the shares held by the controlling shareholder). On January 27, 2015, we canceled such 195,800 common shares held in treasury.

On June 25, 2015, we approved a new buyback program of common shares up to the limit of 698,310 common shares, not exceeding the balance of profits reserve available, included in our balance sheet on March 30, 2015.

During the year ended June 30, 2015, we acquired 20,000 common shares under our share buyback program, which account for 0.03% of our shares outstanding (excluding the shares held by the controlling shareholder).

The table below shows information about the shares purchased and the shares that may yet be purchased under our share buyback programs in June 2015 when our new buyback program was approved. There was no share repurchase between July 1, 2014 and May 31, 2015.

Issuer Purchases of Equity Securities


Period


(a) Total Number of Shares Purchased


(b) Average Price Paid per Share


( c ) Total Number of Shares Purchased as Part of the Publicly Announced Programs


(d) Maximum Number of Shares that May Yet be Purchased Under the Programs

June 2015

20,000

R$ 11.16

20,000

678,310

Total

20,000

R$ 11.16

20,000

678,310

 

                On September 3, 2015, we approved changes in our buyback program in order to increase the limit from 698,310 to 3,491,550 common shares, not exceeding the balance of profits reserve available, included in our balance sheet on June 30, 2015.  As of September 30, 2015, we had purchased additional 546,700 shares of our capital stock under the buyback program.

ITEM 16F—CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

ITEM 16G—CORPORATE GOVERNANCE

Under Section 303A.11 of the NYSE Listed Company Manual and Item 16G of the Form 20-F, we are required to disclose any significant differences in our corporate governance practices from those required to be followed by U.S. companies under the NYSE listing standards. We have summarized these significant differences below.

We are permitted to follow practices in Brazil in lieu of the provisions of the NYSE corporate governance standards, except that we are required to have a qualifying audit committee under Section 303A.06 of the NYSE Listed Company Manual or avail ourselves of an appropriate exemption. As a foreign private issuer, we have modified our fiscal council in order to avail ourselves of an exemption from the listing standards for audit committees. See “Item 6—Directors, Senior Management and Employees—Board Practices—Fiscal Council.” In addition, our chief executive officer is obligated, under Section 303A.12(b) of the NYSE Listed Company Manual, to promptly notify the NYSE in writing after any of our executive officers becomes aware of any material non-compliance with any applicable provisions of the NYSE corporate governance standards. We are also required under Section 303A.12(c) of the NYSE Listed Company Manual to submit an annual written affirmation of compliance with applicable provisions of the rules and, under certain circumstances, an interim written affirmation of compliance.

Majority of Independent Directors

Under Section 303A.01 of the NYSE Listed Company Manual, each U.S. company listed on the NYSE must have a majority of directors that meet the independence requirements of the NYSE. Under the Novo Mercado rules, at least 20% of our directors must be independent for purposes of those rules, and a majority of our directors currently meet that standard.

 

 

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Separate Meetings of Non-Management Directors

Under Section 303A.03 of the NYSE Listed Company Manual, the non-management directors of each U.S. company listed on the NYSE must meet at regularly scheduled executive sessions without management. We do not have a similar requirement under Brazilian rules, but in any event, all members of our board are non-executive directors. Our independent directors do not meet separately from directors who are not independent.

Nominating/Corporate Governance Committee

Under Section 303A.04 of the NYSE Listed Company Manual, each U.S. company listed on the NYSE must have a nominating/corporate governance committee composed entirely of directors that meet the independence requirements of the NYSE. We are not required to have such a committee under Brazilian law, and accordingly, do not have one.

Compensation Committee

Under Section 303A.05 of the NYSE Listed Company Manual, each U.S. company listed on the NYSE must have a compensation committee composed entirely of directors that meet the independence requirements of the NYSE (including additional requirements applicable to compensation committee members). We are not required to have such a committee under Brazilian law. However, the Company established a Compensation Committee on March 1, 2012. See “Item 6—Directors, Senior Management and Employees”.

The NYSE also requires (1) listed companies to grant the compensation committee, in its sole discretion, the authority to retain or obtain a compensation adviser, to be directly responsible for the compensation and oversight of any compensation adviser so retained with appropriate funding from the listed company and (3)  the compensation committee to assess the independence of any compensation adviser, other than the listed company’s in-house legal counsel. The NYSE’s listing standards permit foreign private issuers to follow home country practice and disclose the differences between their home country practices and those required of U.S. listed companies. We avail ourselves of this exemption and continue our current compensation practices in accordance with the Brazilian corporate law and Brazilian practice.

Audit Committee

Under Section 303A.06 of the NYSE Listed Company Manual and the requirements of Rule 10A-3 of the SEC, each U.S. company listed on the NYSE is required to have an audit committee consisting of members that comply with the requirements of Rule 10A-3 and that meet the independent requirements of the NYSE. In addition, the audit committee must have a written charter compliant with the requirements of Section 303.A.07(b) of the NYSE Listed Company Manual, and the listed company must fulfill all other requirements of the NYSE and Rule 10A-3. The SEC has recognized that, for foreign private issuers, local legislation may delegate some of the functions of the audit committee to other bodies. We have availed ourselves of an exemption from certain of the standards for audit committees. See “Item 16D—Exemptions from the Listing Standards for Audit Committees,” which explains how our Fiscal Council differs from an audit committee for a U.S. listed company and is incorporated herein by reference.

Internal Audit Function

Under Section 303A.07(c) of the NYSE Listed Company Manual, each listed company must have an internal audit function. We do not have a similar requirement under Brazilian rules and, therefore, do not have internal auditors.

Corporate Governance Guidelines

Under Section 303A.09 of the NYSE Listed Company Manual, each U.S. listed company must adopt and disclose their corporate governance guidelines. We do not have a similar requirement under Brazilian law. However, we have listed our common shares on the Novo Mercado of the São Paulo Stock Exchange, which requires adherence to the corporate governance standards described under “Item 9. The Offer and Listing-C. Markets-São Paulo Stock Exchange Corporate Governance Standards.”

 

Further information concerning our corporate governance practices and applicable Brazilian law is available on our website (www.brasil-agro.com). Information on our website is not incorporated by reference in this annual report.

ITEM 16H—MINE SAFETY DISCLOSURE

Not applicable.

 

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PART III  

ITEM 17—FINANCIAL STATEMENTS

See “Item 18—Financial Statements.”

ITEM 18—FINANCIAL STATEMENTS

See our Consolidated Financial Statements beginning at page F-1.

 

ITEM 19—EXHIBITS

 

 

 

Exhibit
Number

 

Description

 

 

 

1.1

Bylaws of BrasilAgro – Companhia Brasileira de Propriedades Agrícolas (English translation) (incorporated by reference to Report on Form 6-K, submitted on December 13, 2012, SEC File No. 001-35723)

 

 

2.1

Form of Amended and Restated Deposit Agreement Among BrasilAgro – Companhia Brasileira de Propriedades Agrícolas, the Bank of New York Mellon and Owners and Holders of American Depositary Shares (incorporated by reference to Exhibit 2.01 to the Registration Statement on Form 20-F, filed October 31, 2012, SEC File No. 001-35723)

 

 

4.1

Stock Option Plan of BrasilAgro – Companhia Brasileira de Propriedades Agrícolas, approved by the Annual Extraordinary Shareholders’ Meeting held on October 29, 2008 (English translation) (incorporated by reference to Exhibit 4.01 to the Registration Statement on Form 20-F, filed on October 31, 2012, SEC File No. 001-35723)

 

 

4.2

Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Araucária (incorporated by reference to Exhibit 4.02 to the Registration Statement on Form 20-F, filed on October 31, 2012, SEC File No. 001-35723)

 

 

4.3

First Amendment to Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Araucária (incorporated by reference to Exhibit 4.03 to the Registration Statement on Form 20-F, filed on October 31, 2012, SEC File No. 001-35723)

 

 

4.4

Second Amendment to Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Araucária (incorporated by reference to Exhibit 4.04 to the Registration Statement on Form 20-F, filed on October 31, 2012, SEC File No. 001-35723)

 

 

4.5

Third Amendment to Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Araucária (incorporated by reference to Exhibit 4.05 to the Registration Statement on Form 20-F, filed on October 31, 2012, SEC File No. 001-35723)

 

 

4.6

Fourth Amendment to Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Araucária (incorporated by reference to Exhibit 4.06 to the Annual Report on Form 20-F, filed on October 31, 2013, SEC File No. 001-35723)

 

 

4.7

Fifth Amendment to Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Araucária (incorporated by reference to Exhibit 4.07 to the Annual Report on Form 20-F, filed on October 31, 2013, SEC File No. 001-35723)

 

 

4.8

Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Alto Taquari (incorporated by reference to Exhibit 4.06 to the Registration Statement on Form 20-F, filed on October 31, 2012, SEC File No. 001-35723)

 

 

114

 

 

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Exhibit
Number

 

Description

 

 

 

4.9

First Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Alto Taquari (incorporated by reference to Exhibit 4.07 to the Registration Statement on Form 20-F, filed on October 31, 2012, SEC File No. 001-35723)

 

 

4.10

Second Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Alto Taquari (incorporated by reference to Exhibit 4.08 to the Registration Statement on Form 20-F, filed on October 31, 2012, SEC File No. 001-35723)

 

 

4.11

Third Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Alto Taquari (incorporated by reference to Exhibit 4.09 to the Registration Statement on Form 20-F, filed on October 31, 2012, SEC File No. 001-35723)

 

 

4.12

Fourth Amendment to Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Alto Taquari (incorporated by reference to Exhibit 4.12 to the Annual Report on Form 20-F, filed on October 31, 2013, SEC File No. 001-35723)

 

 

4.13

Fifth Amendment to Agreement to Supply Sugarcane, entered into by BrasilAgro and ETH Bioenergia, in connection with Fazenda Alto Taquari (incorporated by reference to Exhibit 4.13 to the Annual Report on Form 20-F, filed on October 31, 2013, SEC File No. 001-35723)

 

 

4.14

Stock Purchase Agreement made as of December 12th, 2013, by and between Agrotech S.A. and BrasilAgro Companhia Brasileira de Propriedades Agrícolas (incorporated by reference to Exhibit 4.14 to the Annual Report on Form 20-F, filed on October 31, 2014, SEC File No. 001-35723)

 

 

4.15

Assignment of Loan Agreements made as of the 12th day of December 2013 by Helmir S.A. to BrasilAgro Companhia Brasileira de Propriedades Agrícolas (incorporated by reference to Exhibit 4.15 to the Annual Report on Form 20-F, filed on October 31, 2014, SEC File No. 001-35723)

 

 

4.16

Assignment of Advisory Agreement made as of the 12th day of December 2013 by Cresud S.A.C.Y.F. y A. to BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (incorporated by reference to Exhibit 4.16 to the Annual Report on Form 20-F, filed on October 31, 2014, SEC File No. 001-35723)

 

 

4.17

Private Instrument of Real Properties and Rural Assets Purchase and Sale Commitment and Other Covenants, dated as of May 19, 2015, by and between Imobiliária Cremaq Ltda., BrasilAgro – Companhia Brasileira de Propriedades Agrícolas, Zmacq 3 Agropecuária Ltda. And Cremaq Agropecuária Ltda. (unofficial English translation)

 

 

4.18

Summary translation of private instrument for regulation of rights and obligations between Brenco – Companhia Brasileira de Energia Renovável and Brasilagro – Companhia Brasileira de Propriedades Agrícolas

 

 

4.19

Summary translation of agricultural subpartnership agreement between Brenco – Companhia Brasileira de Energia Renovável and Brasilagro – Companhia Brasileira de Propriedades Agrícolas

 

 

4.20

Summary translation of sugarcane purchase and sale agreement between Brenco – Companhia Brasileira de Energia Renovável and Brasilagro – Companhia Brasileira de Propriedades Agrícolas

 

 

8.01

List of subsidiaries

 

 

12.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

 

 

12.2

Certification of the Chief Administrative Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

 

 

13.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.

 

 

13.2

Certification of the Chief Administrative Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.

115

 

 

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There are omitted from the exhibits filed with or incorporated by reference into this Annual Report certain promissory notes and other instruments and agreements with respect to our long-term debt, none of which authorizes securities in a total amount that exceeds 10% of our total assets. In addition, certain exhibits to agreements filed with this Annual Report have been omitted. We hereby agree to furnish to the Commission copies of any such omitted promissory notes, other instruments or agreements and exhibits as the Commission requests.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure, other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

 

116

 

 

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SIGNATURES

The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on Form 20-F on its behalf.

 

 

BRASILAGRO – COMPANHIA BRASILEIRA DE PROPRIEDADES AGRÍCOLAS

 

Date: October 30, 2015

 

 

/s/ JULIO CESAR DE TOLEDO PIZA NETO

Name: Julio Cesar de Toledo Piza Neto

Title: Chief Executive Officer and Investor Relations Officer

 

 

 

 

/s/ GUSTAVO JAVIER LOPEZ

Name: Gustavo Javier Lopez

Title: Chief Administrative Officer

 
 

Table of Contents

 

Financial Statements

BrasilAgro - Companhia Brasileira

de Propriedades Agrícolas

June 30, 2015

 

 

 

 
 

 

Table of Contents

 

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Consolidated Financial Statements

June 30, 2015

Contents

 

 

 

Report of Independent Registered Public Accounting Firm

F-2

 

 

Consolidated Financial statements

 

 

 

Consolidated Balance sheets

F-3

Consolidated Statement of operations

F-5

Consolidated Statement of comprehensive income

F-6

Consolidated Statement of changes in equity

F-7

Consolidated Statement of cash flows

F-8

Consolidated Notes to the financial statements

F-9

 

F-1

 

 

Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
BrasilAgro – Companhia Brasileira de Propriedades Agrícolas

We have audited the accompanying consolidated balance sheets of BrasilAgro – Companhia Brasileira de Propriedades Agrícolas (the “Company”) and subsidiaries as of June 30, 2015 and 2014, and the consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended June 30, 2015. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of BrasilAgro – Companhia Brasileira de Propriedades Agrícolas and subsidiaries at June 30, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2015, in conformity with International Financial Reporting Standards (IFRS) as issued by International Accounting Standards Board - IASB.

São Paulo, Brazil, October 30, 2015

 

ERNST & YOUNG
Auditores Independentes S.S.

 

Marcos Alexandre S. Pupo
Partner

 

F-2

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Consolidated balance sheets

June 30, 2015 and 2014

(In thousands of reais, except if stated otherwise)

 

 

 

 

 

 

 

 

 

Notes

 

2015

 

2014

 

Assets

 

 

 

Current

 

 

 

Cash and cash equivalents

5.1

75,620

86,745

Marketable securities

5.2

273,258

21,532

Trade accounts receivable

7

46,028

65,010

Inventories

9

32,225

40,210

Biological assets

10

1,624

1,421

Recoverable taxes

8

5,412

3,749

Derivative financial instruments

6

13,498

18,255

Transactions with related parties

32

856

723

Other assets

 

316

442

 

 

448,837

238,087

Noncurrent assets

 

 

 

Biological assets

10

29,245

31,202

Restricted marketable securities

11

1,468

13,782

Recoverable taxes

8

24,602

29,849

Deferred taxes

20

43,137

43,554

Derivative financial instruments

6

408

63

Trade accounts receivable

7

22,802

37,453

Investment properties

12

288,347

334,803

Receivables from related parties

32

39,060

26,068

Judicial deposits

30

5,811

4,644

Investments in unquoted equity instruments

13

99,729

50,369

Property, plant and equipment

15

10,602

13,542

Intangible assets

14

3,792

4,966

 

 

569,003

590,295

Total assets

 

1,017,840

828,382

 

 

See accompanying notes.

 

F-3

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Consolidated balance sheets

June 30, 2015 and 2014

(In thousands of reais, except if stated otherwise)

 

 

 

 

 

 

 

 

 

Notes

 

2015

 

2014

 

Liabilities and equity

 

 

 

Current liabilities

 

 

 

Trade accounts payable

17

5,545

8,158

Loans and financing

18

50,900

62,253

Labor obligations

 

11,215

8,730

Taxes payable

19

23,377

6,501

Dividends payable

32.b

40,358

25

Derivative financial instruments

6

5,655

204

Payables for purchase of farms

16

48,840

44,820

Transactions with related parties

32

480

33,237

Onerous contracts

 

—

579

Advances from customers

 

8,147

15,038

Other liabilities

1.1

4,504

—

 

 

199,021

179,545

Noncurrent liabilities

 

 

 

Loans and financing

18

59,179

57,909

Taxes payable

19

1,508

2,482

Derivative financial instruments

6

1,670

—

Provision for legal claims

30

3,684

3,573

Other liabilities

 

672

967

 

 

66,713

64,931

Total liabilities

 

265,734

244,476

Equity

 

 

 

Capital

21

584,224

584,224

Capital reserve

21

2,349

4,201

Treasury shares

21

(224)

(1,934)

Income reserves

21

89,156

—

Other comprehensive income

21

36,268

8,403

Additional dividends proposed

21

40,333

—

Accumulated losses

21

—

(10,988)

Total equity

 

752,106

583,906

Total liabilities and equity

 

1,017,840

828,382

See accompanying notes.

 

F-4

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Consolidated statements of operations

Year ended June 30, 2015, 2014 and 2013

(In thousands of reais, except if stated otherwise)

 

 

 

 

 

 

 

 

 

Notes

 

2015

 

2014

 

2013

 

Net revenue

23

174,351

131,314

185,647

Gain on sale of farms

7.f

193,464

21,845

54,815

Changes in fair value of biological assets and agricultural products

9.1

9,788

1,092

2,289

(Impairment) reversal of impairment of net realizable value of agricultural products after harvest, net

10

(3,038)

(2,043 )

1,659

Cost of sales

24

(170,489 )

(138,535 )

(170,643 )

 

 

 

 

 

Gross profit

 

204,076

13,673

73,767

Selling expenses

24

(9,006)

(10,239 )

(14,028 )

General and administrative expenses

24

(29,360)

(30,378 )

(29,233 )

Other operating income (expenses), net

26

(3,422)

285

(3,539 )

Equity pick up

13

(4,355)

(704 )

—

 

 

 

 

 

Operating income (loss)

 

157,933

(27,363 )

26,967

Financial income (expenses), net

 

 

 

 

Financial income

27

122,552

40,051

38,000

Financial expenses

27

(89,914)

(41,611 )

(38,591 )

 

 

 

 

 

Profit (loss) before income and social contribution taxes

 

190,571

(28,923 )

26,376

Income and social contribution taxes

28

(9,761)

15,561

2,351

 

 

 

 

 

Profit (loss) for the year

 

180,810

(13,362 )

28,727

 

 

 

 

 

Basic earnings (loss) per share-in reais

29

3.10

(0.23 )

0.49

 

 

 

 

 

Diluted earnings (loss) per share-in reais

29

3.10

(0.23 )

0.49

 

 

 

 

 

 

See accompanying notes.

 

F-5

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Consolidated statements of other comprehensive income (loss)

Year ended June 30, 2015, 2014 and 2013

(In thousands of reais, except if stated otherwise)

 

 

 

 

 

 

 

 

 

2015

 

2014

 

2013

 

Profit (loss) for the year

180,810

(13,362 )

28,727

Other comprehensive income (loss) to be reclassified to statement of operation for the year in subsequent periods:

 

 

 

Currency translation adjustment from investment in joint venture (Note 13.a)

27,865

(3,335 )

—

 

 

 

 

Total comprehensive income (loss) for the year

208,675

(16,697 )

28,727

 

 

 

 

 

 

 

See accompanying notes.

 

F-6

 

 

Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Consolidated statements of changes in equity

Year ended June 30, 2015, 2014 and 2013

(In thousands of reais, except if stated otherwise)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to equity holders of the parent

 

 

 

 

 

 

Income Reserves

 

 

 

 

 

 

Note

 

Capital

 

Capital
reserve

 

Treasury
shares

 

Legal
reserve

 

Reserve
for
Investment
and
expansion

 

Additional

dividends proposed

 

Other
reserve

 

Accumulated
losses

 

Total
Equity

 

At June 30, 2012

 

584,224

2,134

—

—

—

—

(6,920 )

(20,470 )

558,968

Profit for the year

 

21.e

—

—

—

—

—

—

—

28,727

28,727

Share-based payment

25

—

1,251

—

—

—

—

—

—

1,251

Set-up of legal reserve

21.e

—

—

—

413

—

—

—

(413 )

—

Mandatory dividends

21.e

—

—

—

—

—

—

—

(1,961 )

(1,961 )

Proposed dividends

21.e

—

—

—

—

—

3,922

—

(3,922 )

—

Set-up of reserve for reinvestment and expansion

21.e

—

—

—

—

1,961

—

—

(1,961 )

—

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2013

 

584,224

3,385

—

413

1,961

3,922

(6,920 )

—

586,985

Loss for the year

21.e

—

—

—

—

—

—

—

(13,362 )

(13,362 )

Absorption of loss

21.e

—

—

—

(413 )

(1,961 )

—

—

2,374

—

Share-based payment

25

—

816

—

—

—

—

—

—

816

Treasury stock acquired

21.g

—

—

(1,934 )

—

—

—

—

—

(1,934 )

Dividends paid

21.e

—

—

—

—

—

(3,922 )

—

—

(3,922 )

Currency translation adjustment from investment in joint venture

21.f

—

—

—

—

—

—

(3,335 )

—

(3,335 )

Gain from bargain purchase – Cresca

21.f

—

—

—

—

—

—

18,658

—

18,658

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2014

 

584,224

4,201

(1,934 )

—

—

—

8,403

(10,988 )

583,906

Profit for the year

21.e

—

—

—

—

—

—

—

180,810

180,810

Share-based payment

25

—

82

—

—

—

—

—

—

82

Treasury stock acquired

21.g

—

—

(224)

—

—

—

—

—

(224)

Cancellation of treasury stock

21.e

—

(1,934)

1,934

—

—

—

—

—

—

Constitution of legal reserve

21.e

—

—

—

8,491

—

—

—

(8,491)

—

Minimum mandatory dividends

21.e

—

—

—

—

—

—

—

(40,333)

(40,333)

Additional dividends proposed

21.e

—

—

—

—

—

40,333

—

(40,333)

—

Constitution of reserve for investment and expansion

21.e

—

—

—

—

80,665

—

—

(80,665)

—

Currency translation adjustment from investment in joint venture

21.f

—

—

—

—

—

—

27,865

—

27,865

 

 

 

 

 

 

 

 

 

 

 

At June 30, 2015

 

584,224

2,349

(224 )

8,491

80,665

40,333

36,268

—

752,106

 

 

 

 

 

 

 

 

 

 

 

                                             

 

See accompanying notes.

 

F-7

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Consolidated Statements of cash flows

Year ended June 30, 2015, 2014 and 2013

(In thousands of  reais, except if stated otherwise)

 

 

 

 

Notes

 

2015

 

2014

 

2013

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Profit (loss) for the year

 

180,810

(13,362 )

28,727

 

 

 

 

 

Adjustments to reconcile profit (loss) for the year

 

 

 

 

Depreciation and amortization

24

22,222

21,431

27,997

Gain on sale of farm

22

(193,464)

(21,845 )

(54,815)

Share based compensation plan

25

82

816

1,251

Residual value of property, plant and equipment and intangible assets disposed

14 and 15

2,409

830

2,061

Write-off of capitalized cost in investment properties

12 and 1.1

(1,405)

2,098

—

Equity pick-up

13.a

4,355

704

—

Unrealized (gain) loss on derivatives, net

27

5,335

(1,116 )

(11,659)

Unrealized foreign exchange, monetary variation and financial charges, net

27

(3,615)

180

4,383

(Gain) on remeasurement of receivables from sale of farms, net

27

(18,296)

(4,965 )

(6,981)

Deferred income and social contribution taxes

28

417

(18,338 )

(10,258)

(Gains) losses arising from changes in fair value of biological assets and agricultural products

10

(9,788)

(1,092 )

(2,289)

Impairment (reversal of impairment) of net realizable value of agricultural products, net

9.1

3,038

2,043

(1,659)

Allowance for doubtful accounts

24

(2,731)

525

490

Onerous contracts

24

(579)

579

—

Provision for legal claims

26

111

(1,229 )

3,619

Loss from investments

13.a

53

—

—

 

 

 

 

 

 

 

(11,046)

(32,741 )

(19,133)

 

 

 

 

 

Change in working capital

 

 

 

 

Trade accounts receivable

 

12,296

65,235

(48,751)

Inventories

 

6,756

(14,072 )

43,417

Biological assets

 

5,627

1,337

(10,334)

Recoverable taxes

 

4,570

882

(516)

Derivative financial instruments

 

5,893

(1,971 )

(15,520)

Other receivables

 

(482)

(2,866 )

(1,246)

Trade accounts payable

 

(4,516 )

(237 )

3,718

Related parties

 

(36,767)

(5,557 )

—

Taxes payable

 

(11,317)

—

2,321

Income taxes and social contribution payable

 

18,512

(366 )

—

Labor obligations

 

2,485

(22 )

1,316

Advance from customers

 

(2,891)

12,914

(2,366)

Other liabilities

 

(295)

344

622

 

 

 

 

 

Net cash flows from (used in) operating activities

 

(11,175)

22,880

(46,472)

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Additions to property, plant and equipment and intangible assets

14 and 15

(1,800)

(2,413 )

(3,383)

Cash paid on subsequent expenditures on investment properties

12

(30,629 )

(20,859 )

(24,957)

Redemption of (investment in) marketable securities

 

(27,482)

1,222

(4,035)

Capital increase in joint venture

 

(25,903)

(14,463 )

—

Acquisition of joint venture Cresca

 

—

(8,592 )

—

Cash received from sales of farms and assets

 

105,766

35,255

86,460

 

 

 

 

 

Net cash flows from (used in) investing activities

 

19,952

(9,850 )

54,085

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Payments of installments of financed acquisition of farm

 

—

(2,239 )

 

Proceeds from loans and financing

18

97,407

56,723

40,407

Interest paid on loans and financing

18

(15,682)

(2,224 )

(3,097)

Payment of loans and financing

18

(101,403)

(44,100 )

(36,693)

Treasury stock acquired

21.g

(224)

(1,934 )

—

Dividends paid

 

—

(5,883 )

—

Acquisition of rights receivables from loans

 

—

(2,322 )

—

 

 

 

 

 

Net cash flows from (used in) financing activities

 

(19,902)

(1,979 )

617

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

(11,125)

11,051

8,230

 

 

 

 

 

Cash and cash equivalents at beginning of year

5.1

86,745

75,694

67,464

Cash and cash equivalents at end of year

5.1

75,620

86,745

75,694

 

 

 

 

 

 

 

(11,125)

11,051

8,230

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

F-8

 

 

Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

1.        General information

 

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (the "Company" or "BrasilAgro") was incorporated on September 23, 2005 and is headquartered at  Avenida Brigadeiro Faria Lima, 1309, in São Paulo with branches in the States of Bahia, Goiás,  Mato Grosso, Minas Gerais and Piauí, and in Paraguay, in the State of Boquerón.

 

Pursuant to its articles of incorporation, the Company’s activities include: (a) agriculture, cattle raising and forestry activities of any type and nature and rendering directly or indirectly related services, (b) the import and export of agricultural products and inputs and those related to cattle raising activity, (c) the purchase, sale and/or rental of properties, land, buildings and real estate in rural and/or urban areas, (d) real estate brokerage involving any type of operations, (e) holding interest, as a member, in other companies  and commercial ventures of any nature, in Brazil and/or abroad, directly or indirectly related to the purposes described herein, and (f) management of its own and third-party assets.

 

The Company and its subsidiaries have 9 (nine) farms in 5 (five) Brazilian states and one jointly-controlled farm in Paraguay, with total area of 255,888 hectares, including 14,263 leased hectares and 117,307 hectares in joint venture. The Company aims to consolidate its position as one of the main companies in the agribusiness segment in Brazil and/or abroad by acquiring farms and selling them  once the intended potential valuation is achieved, by means of a strategy intended to expand production, leverage production process, and diversify geographies and production.

 

The activities of  wholly-owned subsidiaries Cremaq Ltda. ("Cremaq"), Engenho de Maracajú Ltda. ("Engenho"), Imobiliária Jaborandi Ltda. ("Jaborandi"), Araucária Ltda. ("Araucária"), Mogno Ltda. ("Mogno"), Cajueiro Ltda. ("Cajueiro"), Ceibo Ltda. (“Ceibo”) and Flamboyant Ltda. (“Flamboyant”) comprise the purchase and sale of properties, land, buildings and real estate in rural and/or urban areas. The table below presents the farms:

 

             

Real Estate

 

Farms

 

Location

 

Total (Hectares)

Jaborandi S.A.

 

Jatobá

 

Barreiras/BA

 

31,606

Araucária Ltda.

 

Araucária

 

Alto Taquari/MT

 

8,124

Mogno Ltda.

 

Alto Taquari

 

Mineiros/GO

 

5,395

Cajueiro Ltda.

 

Chaparral

 

Correntina/BA

 

37,183

Flamboyant Ltda.

 

Nova Buriti

 

Januária/MG

 

24,211

Cajueiro Ltda.

 

Preferência

 

Barreiras/BA

 

17,799

* Cresca S.A.

 

Cresca S.A.

 

Boquerón/Paraguay

 

117,307

**

 

Partnership II (Avarandado)

 

Ribeiro Gonçalves/PI

 

10,000

**

 

Partnership III (Brenco Cia. Bras. de

Energia Renovável)

 

Alto Araguaia /

Alto Taquari / GO

 

4,263

           

255,888

 

* Joint Venture Cresca S.A.

** Farms leased from third parties

 

As permitted in their respective bylaws and articles of incorporation, until the real estate assets belonging to these companies are not sold, the assets may be leased to third parties, but only as a strategy for real estate appreciation. The activities of wholly-owned subsidiary Jaborandi Agricola Ltda. comprise the lease of land, the sublease of land to third parties, rendering of advisory services in the agricultural area, agriculture, cattle raising and forestry activities of any type and nature, and rendering of direct or indirect related services. All subsidiaries, as well as FIM Guardian Fund, exclusive investment fund of the Company, are headquartered and operate in Brazil.

 

 

 

 

 

F-9

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

The activities of  the joint venture Cresca S.A. (“Cresca”), located in Paraguay, include agriculture, cattle raising and forestry activities of any type and nature, and rendering of direct or indirect related services, the import and export of agricultural products and inputs and those related to cattle raising activity, the purchase, sale and/or rental of properties, land, buildings and real estate in rural and/or urban areas and financial transactions, purchase and sale of securities, shares and commodities.

 

As of June 30, 2015 the Company held (i) 14,263 hectares leased from third parties, and (ii) 26,334 hectares of which it is the promising buyer, being 21,148 hectares to Nova Buriti Farm and 5,186 hectares to Alto Taquari Farm, as the purchase and sale indenture has not been granted yet, with only a purchase and sale promise agreement existing and pending compliance with precedents by sellers (Note 16).

 

On August 23, 2010 Opinion No. LA-01, of August 19, 2010, issued by the Office of the Federal Advocate General (AGU) was approved by the President of Brazil. The opinion addresses the purchase and lease of agricultural properties by Brazilian companies controlled by foreign individuals or legal entities holding the control of the capital of a company that owns land in Brazil. The Attorney General’s opinion provides that Brazilian companies controlled by non-Brazilians require previous authorization to purchase agricultural properties and are subject to the following restrictions:

 

(i) the agricultural properties shall be used for agricultural, cattle raising or industrial activities, and shall be previously approved by the Ministry of Agrarian Development or by the Ministry of Development, Industry and Foreign Trade;

 

(ii) ) the total area of agricultural properties owned by foreigners shall not exceed the greater of (A) one fourth of the area of the municipality where the property is located; or (B) the sum of the areas held by foreigners of the same nationality shall not exceed 40% of the area of the municipality where the property is located; and

 

(iii) the acquisition shall not exceed one hundred (100) indefinite exploration modules, which are measurement units adopted within different Brazilian regions that range from five to 100 hectares, depending on the region.

 

New acquisitions or new lease agreements of agricultural properties by companies controlled by non-Brazilians within the abovementioned limits must be previously approved by National Institute of Colonization and Agrarian Reform - INCRA.

 

To the date the financial statements were approved, there is no judgment by the Brazilian courts on the validity and constitutionality of the contents of the Attorney General’s Opinion.

 

As of June 30, 2015, 78.64% of Company common shares were held by foreigners.

 

1.1 Sale of Cremaq Farm

 

On May 19, 2015, the subsidiary Imobiliária Cremaq Ltda. entered into a purchase and sales agreement of Cremaq Farm, located in the Municipality of  Baixa Grande do Ribeiro – PI. The transaction consolidates the Company’s business strategy, which aims, in addition to gains with agricultural production, at capital gains from sale of properties. The transaction amounted to R$270,000, of which R$242,000 related to the sale of the land and R$28,000 to the sale of the assets invested in the property. The Company received an upfront payment of R$5,000 for the sale of these assets.

 

Since there were conditions precedent to be fulfilled before the agreement was conclued, the parties agreed not to announce this transaction until these conditions were fulfilled, which occurred on June 10, 2015, date when the possession of the land and the assets was transferred to the purchaser, and the upfront payment was supplemented by: (i) receipt of R$62,500, of which R$23,000 for the Company and R$39,500 for its subsidiary, Imobiliária Cremaq, owner of the land and; (ii) deposit in an escrow account (restricted cash) on behalf of Imobiliária Cremaq the amount of R$202,500, to be released until certain conditions precedent are fulfilled, as follows:

(i) Draft of the indenture of 18 registrations;

(ii) Registration of the indenture of 6,020 hectares;

 

F-10

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

(iii) Petition protocol for termination of the legal action for maintenance of ownership and obtaining of environmental licenses for an additional unexplored area of 150 hectares.

 

On June 30, 2015, final purchase and sale indentures were drafted for the total area sold except for the real estate registration for the sale of 6,020 hectares which is in the process of georeferenced dismembering.

 

Due to the noncompliance of condition, (iii) Imobiliária Cremaq did not record revenue from the sale of R$4,000, considering that the condition to obtain a license to deforest an additional area does not represent the obtaining of routine documentation, being therefore a significant condition. After obtaining this license, Imobiliária Cremaq shall pay to the purchaser R$500, restated by CDI, to defray expenses with opening and transformation of the additional area, with the effective revenue recognition. The amount of R$4,504 is informed under the caption “Other liabilities”.

Below is the breakdown of gain on sales of farm and property, plant and equipment:

 

 

Gain on sale of farms

 

Gain on sale of property, plant and equipment

 

Cremaq sale

Sale of farm

238,000

 

-

 

238,000

Sale of assets and properties

-

 

28,000

 

28,000

Balance related to environmental license (iii)

-

 

-

 

4,000

 

238,000

 

28,000

 

270,000

           

Cost from sale of farm (Note 12.i)

(35,790)

 

-

   

Cost from opening of area

(500)

 

-

 

 

Cost from sale of assets and properties (Notes 12.i and 15.i)

-

 

(27,843)

   

Taxes

(8,687)

 

-

   
 

193,023

 

157

   

* Cremaq remaining balance (Note 7.e.ii)

441

 

-

   
 

193,464

 

157

   


* The remaining balance of R$441 from gain on sale of farms in the statement of operations refers to a supplementary sale which occurred on February 20, 2015 in Imobiliária Cremaq.

 

2.       Basis of preparation and presentation

 

The significant accounting policies applied when preparing these financial statements are described below. These policies are being consistently applied in all years presented, unless otherwise stated.

 

2.1    Basis of preparation

 

                      On October 30, 2015 the Company’s Executive Board, Board of Directors  and Fiscal Council approved the Company’s individual and consolidated financial statements and authorized their issuance.

The consolidated financial statements have been prepared and are presented in accordance with International Financial Reporting Standards (IFRS), issued by the  International Accounting Standards Board  (IASB). All the references to IFRS in these financial statements correspond to the IFRS issued by the IASB.

The consolidated financial statements have been prepared on the historical cost basis, except where otherwise stated, as described in the summary of significant accounting policies.

The financial statements have been prepared in the ordinary course of business. During the preparation of the financial statements Management assesses the Company’s ability to continue operating as going concern. The Company is not in default regarding its debts at the date of issuance of these financial statements and Management did not identify any significant uncertainty on the Company’s ability to continue as a going concern in the next 12 months.

 

 

F-11

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires that Management use judgment in the process of application of the Company’s accounting policies. Those areas requiring a higher level of judgment and with more complexity, as well as the areas in which assumptions and estimates are significant for the financial statements, are disclosed in Note 3.

 

Non-financial data included in these financial statements, such as sales volume, planted and leased area, number of farms, insurance and environment were not examined by the independent auditors.

 

a)   Basis of consolidation

 

The consolidated financial statements comprise the financial statements of the parent Company and its subsidiaries at June 30, 2015, 2014 and 2013, as presented below:

 

 

 

 

 

 

Interest in total capital – %

 

 

2015

 

2014

 

2013

 

Araucária

99.99

99.99

99.99

Cremaq

99.99

99.99

99.99

Engenho de Maracaju

99.99

99.99

99.99

Imobiliária Jaborandi

99.99

99.99

99.99

Jaborandi Agrícola Ltda

99.99

99.99

99.99

Cajueiro

99.99

99.99

99.99

Mogno

99.99

99.99

99.99

Ceibo

99.99

99.99

99.99

Flamboyant

99.99

99.99

99.99

FIM Guardian Exclusive Fund

100.00

100.00

100.00

 

 

The subsidiaries are fully consolidated from the date of acquisition, being consolidated up to the date in which the control no longer exists. The financial statements of the subsidiaries are prepared for the same reporting period of the parent company, using consistent accounting policies. All intergroup balances, revenues and expenses are fully eliminated in the consolidated financial statements.

 

 

2.2.   Foreign currency translation

 

a)       Functional and presentation currency

Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”), for which the functional and reporting currency is Brazilian Reais (R$). On January 01, 2014, the company Cresca S.A. ( joint venture) , located in Paraguay, revaluated the most influencing currency on its transactions and concluded that the US dollar is the one which best reflects the economic environment in which it operates. As from this date its functional currency is the US dollar.

b)       Transactions and balances in foreign currencies

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuations when items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations.

 

 

 

F-12

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

c)        Group companies abroad

In the preparation of the Company consolidated financial statements, the financial statements of the joint venture, whose functional currency is the US dollar, are translated into reais as follows: a) balance sheet at the foreign exchange rate at year end and b) statement of operations, at the monthly average foreign exchange rate.

Fair value adjustments to the carrying amount of the investment acquired in Cresca are expressed in Cresca’s functional currency and translated at period-end foreign exchange rates.

The effects from variations in the foreign exchange rate resulting from these translations are presented under “Other comprehensive income (loss)” in the Statement of comprehensive income (loss) and “Other comprehensive income (loss)” in the Statement of changes in equity.

 

2.3       Purchase of joint venture interest in transactions between entities under joint control

 

As detailed in Note 13(b) the Company acquired interest in company Cresca S.A., a joint venture of its controlling shareholder. Purchases of joint ventures interest (as well as of subsidiaries and affiliates) in transactions between entities under common control, may be recorded using the acquisition method. The consideration transferred for the acquisition of a joint venture is the fair value of the assets acquired, liabilities assumed and equity instruments issued by the Company. The consideration transferred includes the fair value of assets and liabilities resulting from a contingent consideration contract, when applicable.

Costs related to the acquisition are recorded in statements of operations for the year as incurred. The Company’s interest in the joint venture is measured at the fair value of identifiable assets acquired and liabilities assumed and contingent liabilities at the acquisition date, proportional to the Company’s interest in the joint venture .

When the total consideration transferred does not exceed the fair value of the joint venture acquired net assets, the difference is directly recognized in equity as a contribution by the controlling shareholder, this is a transaction between shareholders.

The measurement and recording of the joint venture interest at its fair value is based on the economic substance of the interest acquisition, in line with the strategy for expansion and development of land in border and international regions.

If the initial accounting from a business combination is incomplete at the year-end in which such combination occurred, the Company records temporary amounts from the items whose recording is incomplete. These temporary amounts are adjusted during the measurement period or the additional assets and liabilities are recognized to reflect the new information obtained in relation to the existing facts and circumstances at the acquisition date, which, if known, would have affected the amounts recognized at that date.

 

2.4.   Intangible assets – Service agreement

               

The service agreement with Cresca S.A. was acquired from the controlling shareholder, separately from the purchase of interest in the joint venture, and recognized at the acquisition cost. The agreement has finite useful life and is recorded at cost less accumulated amortization. The amortization is calculated during the estimated period in which the agreement shall generate benefits for the Company based on the apportionment of hectares opened by Cresca in each period in relation to total hectares yet to be opened, existing at the date of the agreement acquisition.

 

2.5.   Investments in joint venture

Investment in joint venture is recorded under the equity method.

Joint venture is an agreement whereby the parties sharing joint control are entitled to the net assets of the joint ventures. Joint control is the contractual sharing of a control, existing only when decisions on the related activities require the unanimous consent of the parties.

 

 

F-13

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

2.6.   Cash and cash equivalents and marketable securities

 

Cash and cash equivalents includes cash, bank deposits maturing within 90 days from the transaction date and short-term highly liquid repurchase agreements for which there are no fines or other restrictions for their immediate redemption from the issuer of the instrument. Cash equivalents are recorded at cost plus earnings accrued up to the balance sheet dates, not exceeding market or realization value.

 

Marketable securities include bank deposit certificates, Federal Government bonds, exclusive investment funds which are fully consolidated and pledges. In addition, there are marketable securities provided as guarantee for loans and financing recorded in current and noncurrent assets based on the maturities of the referred loans and financing. In addition, there are restricted repurchase agreements related to the fulfillment of certain contractual provisions precedent, in the ordinary course of business, in connection with the sale of Cremaq Farm.

 

Marketable securities are classified as fair value through profit or loss.

 

Considering the nature of investments held by the Company, there are no significant differences between their book value and the market value. Book balances are recorded at the original value plus earnings accrued up to the balance sheet date on a pro-rata temporis basis.

Maturities of investments (bank deposit certificates and repurchase agreements) may exceed 90 days from the date they are taken out, and may have repurchase guarantee contractually provided by the financial institution issuer of the security, allowing the redemption of securities at the amount originally invested plus interest, with no penalty. They are classified as cash equivalents.

 

Certain debt agreements require the Company to keep marketable securities as guarantee for the outstanding balances. Such investments are restricted while held in guarantee. The Company discloses the purchases and sales of such investments as investment activities in the statement of cash flows.

Fixed-income investments are intended to maintain the value of amounts held by the Company and not yet allocated to rural activities, and are governed by a policy approved by the Board of Directors.

The statements of cash flows in relation to financing and investment activities, include only transactions that actually have impact on cash and cash equivalents.

2.7. Financial assets

 

2.7.1.  Classification

 

        For the years presented, the Company holds exclusively financial assets classified as loans and receivables, assets available for sale and assets measured at fair value through profit or loss.

 

(a)      Financial assets measured at fair value through profit or loss

 

              Financial assets at fair value through profit or loss comprise financial assets designated by the Company as at fair value through profit or loss at the initial recognition. A financial asset is classified as held for trading if acquired principally: ( i) for the purpose of selling in the short-term (ii) if a derivative (unless  designated as hedges for accounting purposes) or, (iii) if the measurement at fair value reduces or eliminates some measurement inconsistence in accordance with the Company’s financial management.

 

F-14

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

The Company designates certain financial assets in the initial recognition at fair value through profit or loss. This designation cannot be changed later. These assets are limited to restricted marketable securities, derivatives andreceivables from the sale of farms, which consist of debt instruments recognized in the consolidated balance sheet in "Trade accounts receivable".

 

Changes in fair value related to receivable from the sale of farms designated at fair value through profit or loss are recognized in "Gain (loss) on remeasurement of receivables from the sale of  farms in "financial income".

 

(b)        Loans and receivables

 

The category includes loans granted and receivables which are non-derivative financial assets with fixed or determinable payments, not quoted in an active market. They are included in current assets, except for maturities exceeding 12 months after the balance sheet date, which are classified as non-current assets. The Company's loans and receivables comprise trade receivables, other receivables, and marketable securities given in guarantee to loans and financing. Loans and receivables are recorded at amortized cost, using the effective interest rate method. The amortization using the effective interest rate is included in the caption financial income in the statement of operations.

 

(c)      Available f or sale financial assets

 

Available for sale financial assets are those non-derivative assets which are not classified as (a) loans and receivables, (b) investments held to maturity (c) financial assets at fair value through profit or loss. These financial assets include equity instruments and debt securities. Debt securities in this category are those intended to be held for an indefinite period and which may be sold to meet the liquidity needs or as response to the changes in market conditions.

 

After initial measurement, available-for-sale financial assets are measured at fair value, with unrealized gains and losses directly recognized in the available-for-sale reserve in other comprehensive income until the investment is derecognized, except for impairment loss, the interest calculated using the effective interest method, and the gains or losses on foreign exchange on monetary assets recognized in profit and loss for the year.

 

When the investment is derecognized or when there is an impairment loss, the cumulative gains or losses previously recognized in other comprehensive income (loss) shall be recognized in profit and loss.

 

2.7.2. Recognition and measurement

 

Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables or available for sale, as the case may be. The Company determines the classification of its financial assets upon their initial recognition, when they become a party to the contractual provisions of the instrument.

 

Regular purchases and sales of financial assets are recognized on the trade date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are initially recognized at fair value, plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets include cash and cash equivalents, marketable securities, trade accounts receivable, receivable from the sale of farm, derivative transactions and related party transactions.

 

 

 

 

 

 

F-15

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

2.7.3   Impairment of financial assets

 

 

a)       Assets carried at amortized cost

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”), that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets it can be reliably estimated.

The criteria that the Group uses to determine if there is objective evidence of an impairment loss include:

(i) significant financial difficulty of the issuer or debtor;

(ii) a breach of contract, such as a default or delinquency in interest or principal payments;

(iii) the Company, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower a concession that the lender would not otherwise consider;

(iv) it becomes probable that the borrower will go bankrupt or undergo any other financial reorganization;

(v) the disappearance of an active market for that financial asset because of financial difficulties; or

(vi) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot be yet identified with the individual financial assets in the portfolio, including:

•   adverse changes in the payment status of borrowers in the portfolio; and

•   national or local economic conditions that correlate to defaults on the assets in the portfolio.

 

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the statement of operations. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Company may measure impairment based on an instrument’s fair value using an observable market price.

 

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of the previously recognized impairment loss is recognized in the statement of operations.

 

2.8.   Derivative financial instruments

 

     The Company uses derivative financial instruments, as forward currency contracts, forward commodities contracts against the risk of variation in the commodities prices and risk of variation in the foreign exchange rates, respectively.

 

           Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument. Although the Company uses derivatives financial instruments for economic hedge purpose, it has not applied hedge accounting in the reported years.

 

Any gains or losses arising from changes in the fair value of derivatives during the year are recognized immediately in the statement of operations (Note 27). The fair value of derivative financial instruments is disclosed in Note 6.

 

 

 

F-16

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

2.9.   Trade receivables

 

Trade receivables are amounts due from customers for merchandise and farms sold in the ordinary course of the Company's business. If collection is expected in one year or less, trade receivables are classified as current assets. Otherwise, they are presented as non-current assets.

 

Trade receivables not related to the sale of farms are initially recognized at fair value, and subsequently, measured at amortized cost under the effective interest rate method less allowance for doubtful accounts, if necessary.

 

Trade receivables related to the sale of farms for which the amount of cash receivable is contractually determined in reais, equivalent to a quantity of soybean bags, are designated at fair value through profit or loss upon the initial recognition. In these cases, the amount of the receivable is subsequently remeasured at each balance sheet date by applying to the quantity of sacks of soybean the quotation of soybean for future delivery  at the maturity date of each installment (or based on estimates and quotations of brokers when there is no quotation of soybean for future delivery on a specific maturity date) and by multiplying the resulting amount in U.S. dollars at the exchange rate of US$ to R$for future delivery also on the same maturity date (considering that future soybean quotations are denominated in US$) with the then resulting amount in Reais discounted to present value. The gain (loss) on remeasurement of the receivable is recognized in Financial income under "Gain (loss) on remeasurement of receivables from sale of farms and machinery” (Note 27).

 

2.10.   Inventories

 

The inventories of agricultural products from biological assets are measured at fair value when they are ready to be harvested, less selling expenses, when they are transferred from the group of biological assets to the group of inventories.

 

The inventories of seeds, manures, fertilizers, pesticides, fuel, lubricants, warehouse and sundry materials were assessed at the average acquisition cost.

 

According to practices adopted by Management, upon identification of loss of quality of products which affect their sales (either due to storage, load, transportation and other events related to the operation), these products are counted and physically segregated. At this moment, an internal process of registration, approval, disposal of inventories and allocation of these products is started by means of approval of the responsible officers duly formalized in the Company’s management system.

 

A provision for adjustment of inventories to net realizable value of  agricultural products is set up  when the fair value recorded in inventories is higher than the net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs to sell them. Impairment of net realizable value is recognized in the statement of operations for the year it refers to under “Impairment of net realizable value of agricultural products after harvest”.

 

2.11. Biological assets

 

The Company’s and its subsidiaries' biological assets consist mainly of the cultivation of soybean, corn, sorghum, cotton and sugarcane and are measured at fair value less cost to sell. These crops are cultivated not only to obtain operating result other than from real estate, but also as an appreciation vector of the rural properties real estate value.

 

The soybean, corn and sorghum are temporary cultures, in which the agricultural product is harvested after a period of time spanning from 110 to 180 days after the planting date, depending on the culture, variety, geographic location and climate conditions.

 

The sugarcane crops productive cycle is five years on average, whereupon they are classified as a non-current biological asset.

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

The fair value of biological assets is determined upon their initial recognition and at each subsequent balance sheet date. Gains and losses arising from the variation of fair value of biological assets is determined by the difference between fair value and costs incurred with plantation and treatment of crops of biological assets until evaluation, recorded in the statement of operations for the year under “Changes in fair value of biological assets and agricultural products”.

 

             In certain circumstances, the estimated fair value less cost to sell approximate cost value of formation until that moment, especially when only a little biological transformation has taken place since the initial moment or when  no material impact is expected of such biological transformation on price. Biological assets continue to be recorded at their fair value.

 

Methodology used

 

Sugarcane crops - The calculation methodology used to estimate the value of the biological asset "sugarcane" was the discounted cash flow at a rate compatible to the risk and term of operations. For such, we projected the future cash flows in accordance with the projected productivity cycle for each harvest, taking into consideration the estimated useful life of each area, the prices of total sugar recoverable, estimated productivity and the related estimated costs of production, including the cost of land, harvest, loading and transportation for each planted hectare.

 

Crops of soybean, corn, sorghum and pearl millet  - The calculation methodology used to estimate the value of the biological assets of grains was the discounted cash flow at a rate compatible with the risk and time of operations. For such, we projected the future cash flows taking into consideration the estimated productivity, costs to be incurred based on the company budget or on new internal estimates and market prices. These prices for commodities available in futures markets, were obtained from quotes on the following boards of trade: CBOT ("Chicago Board of Trade"), BM&F (Bolsa de Mercadorias e Futuros), and NYBOT ("New York Board of Trade"). For the agricultural products not quoted in this type of market, we used the prices obtained through direct market surveys or disclosed by specialized companies. As for the market prices, we used the related logistic and  tax discounts in order to arrive at  the prices of each of these products in each production unit of the Company.

 

As mentioned above, the fair value of the biological assets presented in the balance sheet was determined using valuation techniques - discounted cash flow method. The data of these methods is based on the information available in the market, whenever possible, and when it is not feasible, a certain level of judgment is required to establish the fair value. The judgment includes considerations on the data used, e.g. price, productivity and production cost. Changes in the assumptions on these factors might affect the fair value presented in  biological assets.

 

2.12. Investment properties

 

 The Company's business strategy aims mainly at the acquisition, development, exploration and sale of rural properties where agricultural activities can be developed. The Company acquires rural properties believed to have significant potential to generate value by means of maintenance of assets and development of profitable agricultural activities. By acquiring rural properties, the Company seeks to implement higher value added crops and transform these rural properties with investments in infrastructure and technology, in addition to entering into lease contracts with third parties. Based on this strategy, whenever the Company considers that its rural properties  became profitable, it  sells these rural properties to realize capital gains.

 

  The land of rural properties purchased by the Company is measured at acquisition cost, which does not exceed its net realizable value, and is presented in "Non-current assets". The fair value of each property is disclosed in Note 12.

 

   Buildings, improvements and opening of areas in investment properties are measured at  historical cost, less accumulated depreciation, following the same criteria described for property, plant and equipment in Note 2.13.

 

2.13. Property, plant and equipment

 

   Property, plant and equipment are measured at historical cost less accumulated depreciation. Historical cost includes expenditures directly attributable to the acquisition of the items. Historical cost also includes borrowing costs related to the acquisition of qualifying assets.

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

   Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be reliably measured. All other repair and maintenance costs are recognized in profit and loss for the year, as incurred.

 

Depreciation is calculated using the straight-line method to allocate their cost to their net carrying amount over their estimated useful lives, whose annual depreciation rates are described below:

 

Annual depreciation rates %

     

2015

2014

Buildings and improvements

 

4-20

4-20

Equipment and facilities

 

10

10

Vehicles and agricultural machinery

13-20

13-20

Furniture and fixtures

 

10

10

Opening of areas

 

10-20

10-20

 

The assets net carrying amounts and useful lives are revised and adjusted, if appropriate, at the end of each year.

 

An asset carrying amount is written down immediately to its recoverable amount if the asset's carrying amount exceeds its estimated recoverable amount .

 

Gains and losses on disposals are determined by comparing the  sale price with the carrying amount and are recognized as "Other operating income (expenses), net" in the statement of operations.

 

  2.14. Intangible assets

 

Intangible assets comprise software license and acquired contractual rights, and are amortized over their estimated useful life of 5 years and in accordance with the rendering of services for opening of area, respectively.

 

Costs associated with software maintenance are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Company are recognized as intangible assets.

 

2.15. Trade accounts payables

 

Trade account payables are obligations to pay for goods or services acquired from suppliers in the ordinary course of business. Trade accounts payables are classified as current liabilities if payment is due within one year or less, otherwise they are classified as non-current liabilities.

 

2.16. Loans and financing

Loans and financing are recognized initially at fair value, net of transaction costs incurred, and subsequently carried at amortized cost. Any difference between funds raised (net of transaction costs) and the settlement value is recognized in the statement of operations over the loans and financing agreement period using the effective interest rate method.

Fees paid in raising credit facilities are recognized as transaction costs to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a prepayment for liquidity services and amortized over the period of the facility to which it relates.

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

 

 

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

2.17.  Provisions

 

Provisions are recognized when the Company has a present, legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.

 

The contingent liabilities arising from labor, social security, tax, environmental, contractual, operating obligations and administrative and judicial claims are recorded  at their estimated amount when the likelihood of loss in considered probable (Note 3.b).

 

2.18.  Current and deferred income tax and social contribution

 

(a)        Current income tax and social contribution

 

Current tax is the tax payable or receivable/ recoverable on taxable income or loss for the year. Up to December 31, 2014 the Company adopted the Transitional Tax Regime (RTT). As the RTT ceased to exist, as from the fiscal year started January 1, 2015, income and social contribution taxes calculation no longer eliminates the effects arising from the changes in the tax bases of these taxes introduced by Laws No. 11638/2007 and No. 11941/2009.

 

Current and deferred income and social contribution taxes are calculated based on the rates of 15%, plus surtax of 10% on taxable profit exceeding R$240 per annum for income tax, and 9% on taxable profit for social contribution tax on net profit, and considers the offset of income and social contribution tax losses limited to 30% of annual taxable profit, except for the rural activity which may reach 100% of annual taxable profit. There is no prescription period for the income and social contribution tax loss balance. As permitted by tax legislation, certain subsidiaries opted for the regime in which profit is computed as a percentage of their revenues. For these companies, the estimated income and social contribution tax bases are calculated at the rate of 8% and 12% on gross revenue, respectively, on which the statutory rates of the related tax and contribution are applied.

 

(b)     Deferred income tax and social contribution

 

Deferred income tax is recognized by the estimated future effect of temporary differences and income and social contribution tax losses. A deferred income tax liability is recognized for all the temporary tax differences, whereas the deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets and liabilities are classified as non-current. The income tax related to items directly recognized in equity for the current or previous year are directly recognized in the same account.

 

Deferred income and social contribution taxes are calculated on income and social contribution tax losses and the related temporary differences between the calculation basis of income and social contribution tax assets and liabilities and the carrying amount of the financial statements. The rates of these taxes, currently defined for the determination of these deferred tax credits are 25% for income tax and 9% for social contribution tax (Notes 20 and 28).

 

2.19. Employee benefits

 

a)        Share-based payments

The Company operates a number of equity-settled, share-based payment plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Company. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted, excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and the remaining of an entity employee over a specified time period). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be met.

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

At the balance sheet date, the entity reviews its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognizes the impact of original estimates reviewed, if any, in the statement of operations, with a corresponding adjustment to equity. Amounts received net of any directly attributable transaction costs are credited to capital (nominal value) and share premium, if applicable, when options are exercised.

b)        Profit sharing

The Company provides employees with a profit-sharing program, under which all of the employees have the right to receive annual bonuses based on the Company’s consolidated financial and operational results, and also on personal goals set for individual employees. Profit sharing is usually recognized at year end, when the amount can be reliably measured by the Company.

 

2.20. Capital

 

Common shares are classified in equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction of the amount raised, net of taxes.

 

2.21. Revenue recognition

 

Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the Company's activities, or also leases. Revenue is presented net of taxes, returns and discounts, as well as eliminations of sales among the Company subsidiaries.

 

The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Company's activities, as described below. The Company’s estimates are based on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each sale.

 

a)          Sale of goods

 

Revenue from grain and sugarcane sales is recognized when the significant risks and benefits of ownership of the goods are transferred to the purchaser, usually when the products are delivered to the purchaser at the determined location, according to the agreed sales terms.

 

In the case of grains, the Group normally performs forward contracts where the price is set up by the Group for the total or partial volume of grains sold at the delivery date, based on the calculations agreed on the selling contracts. In certain circumstances, selling contracts are established in US dollars where the amount in reais is also established based on the foreign exchange rate according to the sale terms. The price can also be adjusted by other factors, such as humidity and other technical characteristics of grains. Upon the grains delivery, the revenue is recognized based on the price established with each purchaser considering the foreign exchange rate on the delivery date. After the grains are delivered to the addressee, the quality and final weight are evaluated, thus determining the final price of the transaction, and adjusting the contractual amounts in accordance with such factors as well as by the foreign exchange rate variation up to the settlement date.

 

(b)     Sale of farms

 

Sales of farms are not recognized as revenue until (i) the sale is completed, (ii) the Group has determined that it is probable the buyer will pay, (iii) the amount of revenue can be measured reliably, and (iv) the Group has transferred all risks and rewards to the buyer, and does not have a continuing involvement. The result from sales of farms is presented in the statement of operations as “Gain on sale of farms” net of the related cost.

 

 

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

a)        Revenue from operating lease of land

 

The revenues from operating lease of land are recognized on a straight line basis over the leasing period. When the lease price is defined in quantities of agricultural products or livestock, the lease amount is recognized considering the price of the agricultural product or livestock effective at the balance sheet date or at the date established in contract, as the case may be. The amounts received in advance as leasing, where applicable, are recognized in current liabilities under the caption "Other liabilities".  

    

Leasing revenues in which a significant portion of the risks and benefits of ownership of the land are retained by the lessor are classified as operating leases.

 

2.22.  Financial income and expenses

 

Comprise interest and monetary and exchange variations arising from loan and financing contracts, marketable securities, trade accounts receivable, Gain (loss) on remeasurement of receivables from sale of farms and machinery, monetary and exchange rate variation, gains and losses on measurement at fair value of derivative financial instruments, as well as discounts obtained from suppliers for the prepayment of trade payable invoices.

 

2.23. Leases

 

        The Group classifies lease of farms as operating leases to the extent that a significant portion of the risks and benefits of the ownership is held by the lessor. The lease expenses are initially recorded as part of biological assets and recorded as cost of sales of agricultural products upon the sale. The lease payments are measured based on a future quotation of soybean and as such, do not have a fixed value.

 

2.24.  Distribution of dividends and interest on equity

Distributions of dividends and interest on capital to the Group’s stockholders are recognized as a liability in the Group’s financial statements at year-end based on the Group’s articles of associations. Any amount that exceeds the minimum legally required is only approved at the shareholders’ general meeting according to the proposal submitted by the Board of Directors. The tax benefit of interest on equity is recognized in the statement of operations.

2.25.  Adjustment to present value – of assets and liabilities

Assets and liabilities arising from long term or short term operations with material effect, are adjusted to present value.

Accordingly, certain elements of assets and liabilities are adjusted to present value, based on discount rates, which aim to reflect the best estimates, as regards to the value of money in time.

The discount rate used varies depending on the features of the assets and liabilities and subject to the risk, term, and the specific item under review. Its basis and assumption is the average rate of loans and financing obtained by the Group, net of inflationary effect.

 

2.26. Basic and diluted earnings (loss) per share

 

The basic earnings (loss) per share is calculated by dividing the available profit (loss)  (allocated) to common shareholders by the average weighted number of outstanding common shares during the year.

 

The diluted earnings per share is similarly computed, except that outstanding shares are added to include the number of additional shares that would be outstanding if the shares with potential dilution attributable to stock options and warrants had been issued during the related years, using the weighted average price of shares.

 

 

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

2.27.  Statement of comprehensive income (loss)

The Company presents a statement of comprehensive income (loss) in its consolidated financial statements which includes profit (loss) for the year and the effect of the currency translation adjustment of its foreign joint venture.

 

2.28.  Statements of cash flows

The statements of cash flows are prepared and presented in accordance with IAS 7.

Certain debt agreements require that the Group Company holds marketable securities as guarantee for the outstanding balances. Such investments are linked while held in guarantee. The Group records the purchases and sales of such investments as investment activities in the statement of cash flows.

 

The interest paid and the dividends are classified as cash flows from financing and cash flows from investments, respectively, since they are costs for obtaining financial resources and return on the investments.

 

2.29.  Segment reporting

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, responsible for allocating resources and assessing performance of the operating segments, is the Executive Board , also responsible for making the Group´s strategic decision.

 

2.30. New standards, alterations and interpretations of standards

 

At the date of preparation of the consolidated financial statements, the following revisions in IFRS had been published, the application of which is not mandatory though:

 

IFRS 9 Financial Instruments (Financial Instruments), issue of final version:

This standard reflects all the phases of financial instruments Project and replaces IAS 39 – Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements on the classification and measurement, impairment loss and hedge accounting. This standard is applicable as from the year starting January 1, 2018, no early application allowed. The retrospective application is required, however the presentation of comparative information is not mandatory. The early  application of previous versions of IFRS 9 (2009, 2010 and 2013) is allowed if the date of initial application is before February 1, 2015. The adoption of IFRS 9 shall impact the classification and evaluation of the Company’s financial assets, but shall not impact the classification and evaluation of its financial liabilities.

 

IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture :

This standard determines the accounting treatment for transactions with assets between an investor and associates or joint ventures. This standard is applicable as from the year starting January 1, 2016. The Company does not expect significant impacts on its financial position.

 

IFRS 11 Accounting for Acquisitions of Interests in Joint Operations

The revisions of this standard require that a joint investor recording the acquisition of  interest holding in a joint operation in which the joint operation activity constitutes a business, applies the principles of IFRS 3 to record business combination.

 

The revisions also clarify that a previous corporate interest held in joint operation is not remeasured on the acquisition of additional interest in the same joint operation while the joint control is held. In addition, an exclusion from scope was added to IFRS 11 to specify that the revisions are not applicable when the parties sharing joint control, including the reporting entity, are under common control of the main controlling party. The revisions are applicable both to the acquisition of the final interest in a joint operation and to the acquisition of any additional interest in the same joint operation and are prospectively effective for years starting January 1, 2016. The Company does not expect significant impacts on its financial position.

 

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

IFRS 15 – Revenue from Contracts with Customers

IFRS 15, issued in May 2014, establishes a five-step new model to be applied to revenues arising from contracts with customers. According to IFRS 15, revenues are recognized at an amount reflecting the consideration to which an entity expects to be entitled in exchange for the transfer of goods or services to a customer. The principles in IFRS 15 contemplate a more structured approach to measure and recognize revenue.

 

The standard of the new revenue is applicable to all entities and shall replace all current requirements of revenue recognition, as set forth in IFRS. A total or modified retrospective application is required for annual periods starting at or after January 1, 2017, early adoption permitted, under analysis in Brazil. The Company and its subsidiaries are currently assessing the impact from IFRS 15 and plan to adopt this standard on the date it goes into effect.

 

IAS 1 Disclosure Initiative (Disclosure Initiatives):

This standard approaches revisions in the whole of a company’s financial statements information. This standard is applicable as from the years starting January 1, 2016. The Company implemented some improvements in these financial statements and intends to definitely adopt them in the coming year.

 

IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization , review:

The revisions clarify on the depreciation and amortization methods, bearing in mind the alignment with the concept of future economic benefits expected for the use of the asset during its economic useful life. This standard is applicable as from the years starting January 1, 2016. The Company does not expect significant impacts on its financial position. The Company does not early adopt any pronouncement, interpretation or revision issued, provided that it is not of mandatory application.

 

IAS 41 – Agriculture – The production biological assets (bearer plants) should be recorded as property, plant and equipment (IAS 16), that is, at cost less depreciation or losses for impairment , if applicable. The depreciation and amortization method should be based on the economic benefits consumed while using the asset. Management is assessing the impacts of its adoption. This revision becomes effective as from January 1, 2016.

 

 

3.        Significant Accounting Estimates and Judgments

 

          Accounting estimates and judgments are continuously assessed and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the current circumstances.

 

          Based on the assumptions, the Company makes estimates concerning its future. The resulting accounting estimates will, by definition, seldom equal the related actual amounts. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are addressed below:

 

a)             Net carrying amount and useful life of property, plant and equipment

The residual value and useful life of assets are assessed by specialists and adjusted at year end when necessary at the end of each reporting period.

The carrying amount of the asset is immediately reduced to its recoverable amount if the carrying amount exceeds the estimated recoverable amount.

 

b)        Contingencies

 

The Company is party to different legal and administrative proceedings, as described in Note 30. Provisions are set up for all the contingencies related to legal claims that are estimated to represent probable losses (present obligations resulting from past events in which an outflow of resources is probable, and amounts can be reliably estimated). The evaluation of the likelihood of loss includes the opinion of outside legal advisors. Management believes that these contingencies are properly recorded and presented in the financial statements. (Note 30).

 

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

c)     Subscription warrants

As described in Note 21(b), the Company issued subscription warrants to its founder shareholders in March 2006, before the initial public offering. In the prospect of the initial public offering, the Company disclosed that the issue of subscription warrants to its founder shareholders was a recognition of their work for the Company’s foundation, for the entrepreneur spirit, for having prepared the Company for the initial public offering, and for having prepared the business plan, assuring their commitment to the Company’s development. The subscription warrants were attributed to the founder shareholders on a free basis.

The Company concluded that the subscription warrants should be recorded in the scope of IFRS 2, as instrument of shareholding interest issued in exchange for services rendered by parties other than the employees. Considering that, before the transition date to IFRS (July 1, 2009), all subscription warrants of first issue could already be exercised and the Company had not disclosed the fair value at the evaluation date, the requirements for the transition to IFRS resulted in the fact that IFRS recognition and evaluation standards were not applied to the subscription warrants, and the accounting by the former GAAP was maintained. Pursuant to the former GAAP, the subscription warrants are not recorded, resulting in their non-recording the subscription warrants in these financial statements.

 

c)        Biological assets

 

The fair value of biological assets recorded in the balance sheet (Note 10) was determined using valuation techniques, including the discounted cash flow method. The inputs for these estimates are based on those observable in the market, whenever possible, and when such inputs are not available, a certain level of judgment is required to estimate the fair value. Judgment includes considerations on data e.g. price, productivity, crop cost and production cost. Changes in the assumptions on these factors might affect the fair value recognized for biological assets.

 

A 1% increase or decrease in the expected productivity of sugarcane and grains would result in an increase or decrease in biological asset by R$1,261 and an increase or decrease by 1% in the price of sugarcane and grains would result in an increase or decrease in biological asset by R$1,408.

 

 

d)        Investment properties

 

The fair value of investment properties disclosed in the notes to the consolidated financial statements was obtained through an appraisal prepared by the Company.

 

The appraisal was carried out by means of standards adopted in the market considering the characterization, location, type of soil, climate of the region, calculation of improvements, presentation of the elements and calculation of the land value, which may change in relation to these variables.

 

 

 

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

Methodology used

 

At June 30, 2015, investment properties were valued by applying the comparative analysis methodology adjusted by its related features:

i)           The valuation relied, among other, on the following information: (i) location of farms, (ii) total area and its related percentages of opening and use;

ii)               The market value presented for the farm corresponds to the portion of bare land, for payment in cash, not including machinery, equipment, agricultural inputs, cultivation. The soil adjustment factor (preparation of land for planting) was  considered in the assessment of prices;

iii)              The value of land for agriculture, in the surveyed region, is referenced to the price of soybean bag. The unit amounts of the farms f or sale (market researches) were obtained in soybean bags per hectare. Accordingly, the amount in reais (R$) of the property varies directly due to the variation in the soybean price; and

iv)             The soybean price considered at the base date of the work, May 15, 2015, was R$52.50 for the regions of Barreiras, State of Bahia, and  R$54.00 for the regions of Alto Taquari and Mineiros, States of Goiás and Mato Grosso, respectively. This amount represents an average in amounts arbitrated by the real estate market of the region due to the great instability in the amount of soybean bag.

 

e)        Deferred income tax

 

The Company recognizes deferred income tax assets and liabilities, as described in Note 20, based on the differences between the carrying amount presented in the consolidated financial statements and the tax basis of assets and liabilities using the effective rates. The Company regularly revises the deferred income tax assets for the possibility of recovery, considering the generated historical taxable profit and the projected future taxable profit, in accordance with a study of technical feasibility.

 

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

4        Financial risk management

4.1     Financial risk factors

The Company operates with various financial instruments, including cash and cash equivalents, marketable securities, trade accounts receivables, accounts receivable from the sale of farms, trade accounts payable, accounts payable for the purchase of farms, loans and financing and derivative instruments.

Certain Company’s operations expose it to market risks, mainly in relation to exchange rates, interest rates and changes in the prices of agricultural commodities. As a result, the Company also enters into derivative financial instruments, used to hedge it against exposures with respect to crops or with respect to assets and liabilities recognized in the balance sheet, depending on the nature of the specific operation.

Considering the nature of the instruments, excluding derivative financial instruments, fair value is basically determined by the application of the discounted cash flow method. The amounts recorded under current assets and liabilities are either highly liquid or mature within twelve months. Considering its terms and characteristics, the book value approximates its fair value.

 

4.2.    Policies approved by the Board of Directors for the use of financial instruments, including derivatives

The Company’s policies with respect to transactions with financial instruments, which have been approved by the Board of Directors, are as follows: (i) Investment Policy which provides guidelines with respect to Company’s investment of cash, considering the counterparty risk, the nature of instruments and liquidity, among others; (ii) Derivative financial instrument policy which provides guidelines to manage the Company’s exposures to currency risk, interest rate and index risks, and agricultural commodities price risk, always relating the derivative financial instrument to the asset or liability that generates the exposure; and (iii) Risk Policy, which addresses items not covered by the Investment Policy or the Derivative financial instrument Policy including hedge against future cash flows with respect to future production of commodities.

a)       Cash and cash equivalents, marketable securities, trade accounts receivable, receivable from sale of farms, loans with related parties and accounts payable. The amounts recorded approximate their estimated fair value.

b)       Loans and financing. The book value of loans and financing denominated in reais have its interest rates either fixed or based on the variation of TJLP (Long Term Interest Rate), SELIC (Special System of Clearance and Custody Rate) and exchange rate and approximates fair value. The Executive Officers report the operations entered into at the Board of Directors' meetings.

 

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

4.3.    Analysis of risk exposure of financial assets and liabilities

a)       Currency risk

This risk arises from the possibility of the Company incurring in losses due to fluctuations in exchange rates, which reduce the nominal amount of assets or increase the amount of liabilities. This risk also arises with respect to commitments to sell products existing in inventories or agricultural products not yet harvested when sales are made at prices to be fixed at a future date, prices which vary depending on the exchange rate.

 

       

Outstanding balance

Accounting caption

 

Index to whitch it is exposed

 

2015

 

2014

Cash and cash equivalents

 

USD

 

8,974

 

13,861

Accounts receivable Cresca (Note 32)

 

USD

 

39,060

 

26,068

Cresud (Note 32)

 

USD

 

(480)

 

(218)

Operations with derivatives (Note 6)

 

USD

 

(2,766)

 

3,833

Accounts payable Cresca (Note 32)

 

USD

 

—

 

(33,019)

Loans and financing

 

USD

 

(4,832)

 

—

Total

     

39,956

 

10,525

 

 

b)        Interest rate and index risk

 

This risk arises from the possibility of the Company incurring losses due to fluctuations in the interest rates or indices which increase financial expenses related to certain contracts for the acquisition of farms, indexed by the IGP-M ("FGV"), an inflation index. 

 

     

 

Carrying amount

Accounting caption

Notes

Index to whitch it is exposed

 

2015

 

2014

Cash and equivalents

5.1

CDI

 

63,060

 

71,498

Marketable securities

5.2

CDI

 

273,258

 

21,532

Payables for purchase of farms

16

CDI

 

(29,023)

 

(26,060)

Total CDI

     

307,295

 

66,970

             

Payables for purchase of farms

16

IGP-M

 

(19,817)

 

(18,760)

             

Loans and financing

 

TJLP/SELIC/CDI

 

(49,101)

 

(19,435)

             

Loans and financing

 

Fixed rates

 

(60,978)

 

(100,727)

 

References:

CDI - Interbank Deposit Certificate

IGP-M - General Market Price Index

TJLP – Long Term Interest Rate

SELIC - Special System of Clearance and Custody Rate

 

 

F-28

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

c)        Agricultural commodities price risk

This risk arises from the possibility of the Company incurring in losses due to fluctuations in the market prices of agricultural products.

       

Carrying amount 

 

Notional (Notes 6 and 7 ) – Volume (Bags)

Accounting caption

 

Index to whitch it is exposed

 

2015

 

2014

 

2015

 

2014

Account receivables from sales of farms,

net (Note 7.e)

 

Soybean

 

40,620

 

64,752

 

758,317

 

1,459,977

Derivatives financial instruments,

net (Note 6)

 

Soybean

 

(3,030)

 

786

 

(988,786)

 

(181,428)

Derivatives financial instruments,

net (Note 6).

 

Corn

 

(317)

 

(182)

 

—

 

25

Total

     

37,273

 

65,356

 

(230,469)

 

1,278,573

4.4.    Objectives and strategies of risk management and of use of derivative instruments

Managing the financial risks is the responsibility of the Executive Board, which evaluates the exposure to the foreign currency risk, interest rate and index risk and agricultural commodities price risk with respect to assets, liabilities and transactions of the Company. Considering the exposure to such risks, Company management evaluates the convenience, cost and availability in the market of derivative financial instruments which allow minimization of the existing exposure to such risks. After such assessment, the Executive Board decides whether to enter into derivative financial instruments within the parameters previously approved in the Policies referred to above, and reports it to the Board of Directors in its meetings. 

 

4.5.    Risks related to operating strategy

The use of derivative instruments as an economic hedge reduces the risks of changes in cash flows arising from risks such as foreign currency, interest rate and price index and agricultural commodities prices, currently soybean and corn.

However the change in the fair value of the derivative financial instrument may differ from the change in the cash flows or fair value of the assets, liabilities or forecasted transactions which are being hedged, as a result of different factors, such as, among others, differences between the contract dates, the maturity and settlement dates, or differences in "spreads" on the financial assets and liabilities being hedged and the corresponding spreads in the related legs of the swaps. In the case of the derivative financial instruments strategy to hedge recognized assets and liabilities, Management believes that the derivative financial instruments present a high degree of protection with respect to the changes in the assets and liabilities being hedged.

In the case of the strategy to hedge forecasted sales of soybean or to hedge accounts payable/receivable that have its amount subject to changes based on commodities, there may be differences arising from additional factors, such as differences between the estimated and actual soybean volume to be harvested, or differences between the quoted price of soybean in the international markets where the derivative financial instruments are quoted and the price of soybean in the markets in which soybean is physically delivered/received by the Company. Should the soybean volume effectively harvested be lower than the amount for which derivative financial instruments were contracted, the Company will be exposed to variations in the price of the commodities by the volume hedged in excess and vice-versa should the soybean volume effectively harvested be higher than the hedged volume.

To the extent that the Company does not set the selling price of soybean through derivative financial instruments, but rather it establishes a range of selling prices through options, the quantity of US dollars to be received from the sale of soybean to customers and from the settlement of the options is a range of amounts. Should the notional amount of futures to sell US dollars entered into be lower than the actual amount of US dollars received, the Company will be exposed to changes in the exchange rate between the U.S. dollar and the Brazilian real for the amount hedged in excess and vice-versa should the notional amount of futures to sell US dollars entered into be higher than the actual amount of U.S. dollars received.

 

 

F-29

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

Additionally, the Company is subject to credit risk with respect to the counterparty of the derivative financial instrument. The Company has contracted derivative financial instruments either traded in on stock exchanges or from prime first-tier financial institutions or “trading” companies. The Company understands that, at the balance sheet date, there are no indications of collectability risk with respect to the amounts recognized as assets with respect to derivative financial instruments.

 

4.6.    Controls over the use of derivative financial instruments

The main controls established on the use of derivative financial instruments are as follows:

•   establishment of policies defined by the Board of Directors;

•   prohibition to enter into derivative financial instruments that have not been approved by the Executive Officers;

•   maintenance by the Executive Officers of a centralized inventory of outstanding derivative financial instruments contracts;

•   daily risk report with the consolidated position provided to a group comprising the Executive Officers and designated members of the Board of Directors;

•   monthly monitoring by the Executive Officers of the fair values as reported by the counterparties as compared to the amounts estimated by management; and

•   the fair value of the derivative financial instruments is estimated based on the market in which they were contracted and also in which the instruments are inserted.

4.7.    Impact of derivative instruments on the statement of operation

The gains and losses for changes in the fair value of derivative financial instruments are recognized in the statement of operations separately between realized statement of operation (corresponding to derivative financial instruments that have already been settled) and unrealized profit and loss (corresponding to derivative financial instruments not yet settled).

4.8.    Estimate of fair value of derivative financial instruments

The fair value of derivative financial instruments traded on stock exchanges (BM&FBOVESPA and Chicago Board of Trade) is determined based on the quotes ruling  at the balance sheet date. To estimate the fair value of derivative financial instruments not traded on stock exchanges the Company uses quotes for similar instruments or information available in the market and uses valuation methodologies widely used and that are also used by the counterparties. The estimates do not necessarily guarantee that such operations may be settled at the estimated amounts. The use of different market information and/or valuation methodologies may have a relevant effect on the amount of the estimated fair value.

Derivative financial instruments entered into by our wholly-owned subsidiary FIM Guardian (foreign currency and indices derivatives) are marked to market by the own investment fund in accordance with the specific rules applicable for investment funds using market curves observed in the Futures and Commodities Exchange (BM&F) or in Cetip S.A, among others, and are examined by independent auditors.

 

F-30

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

Specific methodologies used for derivative financial instruments entered into by the Company:

  ● Derivative financial instruments of agricultural commodities - The fair value is obtained by using various market sources including quotes provided by international brokers, international banks and available on the Chicago Board of Trade (CBOT).

●  Derivative financial instruments of foreign currencies - The fair value is determined based on information obtained from various market sources including, as appropriate, BM&F Bovespa, Cetip, local banks, in addition to information sent by the operation counterparty.

 

(a)      Sensitivity analysis

Management identified for each type of derivative financial instrument the situation of variation in foreign exchange rates, interest rates or commodities prices which may generate loss on assets and/or liabilities which is being hedged or, in the case of derivative financial instruments related to transactions not recorded in the balance sheet, in the fair value of the contracted derivatives.

The sensitivity analysis aims at measuring the impact from the changes in the market variables on the aforementioned financial instruments of the Company, considering all other market indicators comprised. Upon their settlement, such amounts may differ from those stated below, due to the estimates used in their preparation.

This analysis contemplates 5 distinct scenarios that differ among them due to the intensity of variation in relation to the current market. At June 30, 2015, as reference for scenarios probable for next 12 months, I, II, III and IV a variation in relation to the current market of 0%, -50%, -25%, +25%, +50%, respectively, was considered.

The preparation of the probable scenario took into consideration the market prices of each one of the reference assets of derivative instruments held by the Company at the closing of this year. Since all these assets are inserted in competitive and open markets, the current market price is a satisfactory reference for the expected price of these assets. Accordingly, since the current market price was the reference for the calculation of both book value of derivatives and the Probable Scenario, the result of the latter one is equal to zero.

The assumptions and scenarios are as follows:

 

2015

 

 

Devaluation in US dollar

Appreciation in US dollar

 

 

Probable
scenario

 

Scenario I
– 50%

 

Scenario II
– 25%

 

Scenario III
+ 25%

 

Scenario IV
+ 50%

 

Foreign Exchange rate–R$/US$

3.49

1.74

2.62

4.36

5.23

Soybean – US$ / bushel – July 2015 (CBOT)

10.56

5.28

7.92

13.20

15.84

Soybean – US$ / bushel – July 2016 (CBOT)

10.14

5.07

7.61

12.68

15.21

Corn – US$ / bushel – December 2015 (CBOT)

4.32

2.16

3.24

5.39

6.47

 

 

2014

 

 

Devaluation in US dollar

Appreciation in US dollar

 

Probable
scenario

 

Scenario I
– 50%

 

Scenario II
– 25%

 

Scenario III
+ 25%

 

Scenario IV
+ 50%

 

Foreign Exchange rate–R$/US$

2.20

1.10

1.65

2.75

3.30

Soybean – US$ / bushel – May 2015 (CBOT)

11.76

5.88

8.82

14.70

17.64

Soybean – US$ / bushel – July 2015 (CBOT).

11.81

5.90

8.86

14.76

17.71

Corn – US$ / bag – September 2014 (BM&F)

10.73

5.36

8.05

13.41

16.09

Corn – US$ / bushel – September 2014 (CBOT)

4.19

2.09

3.14

5.23

6.28

           
 

F-31

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

 

 

 

 

 

The table below presents, for each situation, the effect on the change in the estimated fair value at June 30, 2015 of the derivative financial instrument, as well as the effect on income from the increase or decrease in the recorded amount of the related asset or liability. The effect has been determined on an individual basis for each derivative financial instrument, asset or liability for each situation and for each scenario without considering combined or compensatory effects of the change in more than one variable or in the same variable in other derivative financial instruments, i.e., maintain all the other variables constant. Accordingly, each line of the table shall be individually considered without considering the effects presented in the other lines.

 

This sensitivity analysis aims to measure the impact of variable market changes on the aforementioned financial instruments of the Company, considering all other market indicators included. Upon their settlement, such amounts may differ from the ones stated below, due to the estimates used in their preparation.

 

               

June 30, 2015

Risk

 

Sensitivity analysis (R$)

Position short (long)

Maturity

 

(a)

Low

High

   
 

Probable scenario

Scenario (I) - 50%

Scenario (II) - 25%

Scenario (III) + 25%

Scenario (IV) + 50%

Amount

Measurement unit

SOYBEAN

-

34,466

15,865

(15,533)

(31,290)

(988,786)

Thousands bags of soybean

jul/15 a jul/16

USD

-

(21,943)

(11,379)

10,522

21,086

13,387

US$000

jul/15 a set/15

 

               

June 30, 2014

Risk

 

Sensitivity analysis (R$)

Position short (long)

Maturity

 

(a)

Low

High

   
 

Probable scenario

Scenario (I) - 50%

Scenario (II) - 25%

Scenario (III) + 25%

Scenario (IV) + 50%

Amount

Measurement unit

SOYBEAN

-

5,190

2,595

(2,595)

(5,190)

(181,428)

Thousands bags of soybean

abr/15 a jun/15

CORN

-

133

69

(59)

(123)

25

Thousands bags of corn

set/14

USD

-

(17,444)

(8,839)

10,904

16,413

9,303

US$000

jul/14 a jul/15

 

 

(a) As of June 30, 2015, the reference for the preparation of the Probable Scenario was the Market prices of each one of the reference assets of derivative instruments held by the Company at the reporting period. Since all these assets are inserted in competitive and open markets, the current Market price is a satisfactory reference for the estimated price of these assets. Accordingly, since the current market price was the reference for the calculation both of the book value of derivatives and the Probable scenario, the result of the impact is equal  to zero.

 

F-32

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

In addition, the Company presents a summary of possible scenarios for the following 12 months of the Company’s loans and receivables. Reliable sources of index disclosure were used for the rates used in the “probable scenario”.

 

       
     

Current

Scenario - Probable

Scenario I – Possible

Scenario II - Remote

Scenario I - Possible

Scenario II – Remote

   

(*) Annual average rates

At June 30, 2015

   

Decrease

25%

Decrease

50%

Increase

25%

Increase

50%

Risk

Classification

Details

Notional

Rate

Balance (R$)

Rate

Balance (R$)

Rate

Balance (R$)

Rate

Balance (R$)

Rate

Balance (R$)

Rate

CDI

CASH

Investment - CDI

135,946

13.64%

421

13.95%

(4,741)

10.46%

(9,482)

6.98%

4,741

17.44%

9,482

20.93%

CDI

CASH

Marketable securities - CDI

203,958

13.64%

632

13.95%

(7,113)

10.46%

(14,226)

6.98%

7,113

17.44%

14,226

20.93%

USD

CASH

Investment - USD

8,974

3.10

1,121

3.49

(2,243)

2.62

(4,487)

1.74

2,243

4.36

4,487

5.23

Subtotal

348,878

 

2,174

 

(14,097)

 

(28,195)

 

14,097

 

28,195

 

TJLP

Financing

Financing in TJLP - BNDES

(26,992)

6.00%

(135)

6.50%

439

4.88%

877

3.25%

(439)

8.13%

(877)

9.75%

CDI

Financing

Financing - CDI

(5,066)

13.64%

(16)

13.95%

177

10.46%

353

6.98%

(177)

17.44%

(353)

20.93%

NA

Financing

Rural credit

(382)

5.88%

-

N/A

-

N/A

-

N/A

-

N/A

-

N/A

NA

Financing

Constitutional funds

(48,188)

9.75%

-

N/A

-

N/A

-

N/A

-

N/A

-

N/A

NA

Financing

BNDES

(10,667)

4.23%

-

N/A

-

N/A

-

N/A

-

N/A

-

N/A

SELIC

Financing

FINEM - BNDES

(6,376)

13.64%

(20)

13.95%

222

10.46%

445

6.98%

(222)

17.44%

(445)

20.93%

USD

Financing

Fixed USD

(4,832)

3.10

(604)

3.49

1,208

2.62

2,416

1.74

(1,208)

4.36

(2,416)

5.23

NA

Financing

Financial lease sugarcane crop- Partnership III

(7,576)

6.92%

-

N/A

-

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Subtotal

(110,079)

 

(775)

 

2,046

 

4,091

 

(2,046)

 

(4,091)

 

IGPM

Debt

Payable for purchase of farms

(29,023)

5.58%

(354)

6.80%

493

5.10%

987

3.40%

(493)

8.50%

(987)

10.20%

CDI

Debt

Payable for purchase of farms

(19,817)

13.64%

(61)

13.95%

691

10.46%

1,382

6.98%

(691)

17.44%

(1,382)

20.93%

Subtotal

(48,840)

 

(415)

 

1,184

 

2,369

 

(1,184)

 

(2,369)

 

Bags of soybean

Receivable

Receivables from sales of Farms

465,000

65.63

-

65.63

(7,629)

49.22

(15,259)

32.81

7,629

82.04

15,259

98.44

Bags of soybean

Receivable

Receivables from sales of Farms

92,500

60.00

-

60.00

(1,388)

45.00

(2,775)

30.00

1,388

75.00

2,775

90.00

Bags of soybean

Receivable

Receivables from sales of Farms

80,325

60.64

-

60.64

(1,218)

45.48

(2,435)

30.32

1,218

75.80

2,435

90.96

Bags of soybean

Receivable

Receivables from sales of Farms

120,492

61.33

-

61.33

(1,847)

46.00

(3,695)

30.67

1,847

76.66

3,695

92.00

Subtotal

758,317

 

-

 

(12,082)

 

(24,164)

 

12,082

 

24,164

 

 

b)    Credit risk

Credit risk refers to the risk of the noncompliance by a counterparty of its contractual obligations, leading the Company to incur financial losses. The risk to which the Company is exposed arises from the possibility of not recovering the amounts receivable from the sale of sugarcane, grains, and from the leasing of land.

To reduce credit risk in the commercial transactions, the Company adopts the practice of defining credit limits in which it analyzes factors such as: time of opening of the Company, history of business with the Company, commercial references and Credit Protection Institution (Serasa). The Company also constantly monitors the outstanding balances.

Currently, management does not expect losses due to the default of its counterparties and has no significant exposure to any individual counterparty.

c)        Liquidity risk

The prudent management of liquidity risk implies the maintenance of sufficient cash and marketable securities to comply with its financial commitments, due to the mismatch of term or volume between the estimated receivables and payables.

The exceeding cash is mainly invested in our wholly-owned FIM Guardian investment fund, classified as a multi-market investment fund, managed by BTG Pactual S.A. Bank. The fund has a clear investment policy, with limits to risk concentration in the corresponding investments.

The table below shows the Company's financial liabilities by group of maturity based on the remaining period at the balance sheet date up to the contract maturity date. The amounts disclosed in the table are the discounted contractual cash flows, in addition to the net derivative financial instruments, whose fair value is disclosed. With respect to payables for the purchase of farms all amounts due at June 30, 2015, 2014 and 2013 are payable upon the fulfillment of certain conditions precedent by the sellers and as a result its payment date cannot be determined and have been considered as payable on demand in the table below and no interest or other financial charges have been considered.             

 

 

 

 

 

F-33

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

 

Less than one
year

 

From one to two
years

 

From three to five
years

 

Above five
years

 

Total

 

Financial liabilities

 

 

 

 

 

At June 30, 2015

 

 

 

 

 

Trade payables

5,545

—

—

—

5,545

Financial Instruments derivatives

5,655

1,670

—

—

7,325

Loans and financing

50,900

15,973

14,659

28,547

110,079

Payables for purchase of farms

48,840

—

—

—

48,840

Transactions with related parties

480

—

—

—

480

At June 30, 2014

 

 

 

 

 

Trade payables

8,158

—

—

—

8,158

Financial Instruments derivatives

204

—

—

—

204

Loans and financing

62,253

13,859

29,539

14,511

120,162

Payables for purchase of farms

44,820

—

—

—

44,820

Transactions with related parties

33,237

—

—

—

33,237

 

  4.9.   Capital management

The Company’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for stockholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend paid to stockholders, return capital to stockholders or, also, issue new shares or sell assets to reduce, for example, debt.

Consistent with others in the industry, the Company monitors capital based on the leverage ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total loans and financing (including “current and noncurrent loans and financing” as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated balance sheet, plus net debt.

According to the following table, the Company presents net debt of loans, acquisitions payable and trade accounts payables.

 

 

 

 

 

2015

 

2014

 

Total loans and financing (Note 18)

110,079

120,162

Total payables for purchase of farms (Note 16)

48,840

44,820

Total trade accounts payables (Note 17)

5,545

8,158

 

 

 

 

164,464

173,140

Less: cash and cash equivalents (Note 5.1)

(75,620)

(86,745 )

Less: marketable securities (Note 5.2 e 11)

(274,726 )

(35,314 )

 

 

 

 

(350,346)

(122,059 )

Net debt

(185,882 )

51,081

 

 

 

Total equity

752,106

583,906

 

 

 

Financial leverage

—

9%

 On June 30, 2015, the Company has no financial leverage.

 

F-34

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

4.10.  Hierarchy of fair value and financial instruments by category

The carrying amounts (less impairment) of trade accounts receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities, for disclosure purposes, is estimated by discounting the future contractual cash flows at the current market interest rate that is available for similar financial instruments.

The Group adopted IFRS 7 for financial instruments that are measured in the balance sheet at fair value; this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

•   Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

•   Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

•   Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

 

 

F-35

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

The following table presents the Group’s main assets and liabilities that are measured at fair value referred to Level 2:

 

                 

 

 

 

 

 

     

June 30, 2015

 

June 30, 2014

Consolidated

 

Note

Loans and financing

Available for sale

Designated at fair value through profit or loss

Total

Fair value Level 2

 

Loans and financing

Available for sale

Designated at fair value through profit or loss

Total

Fair value Level 2

Assets

               

 

 

 

 

 

Current

               

 

 

 

 

 

Cash and cash equivalents

 

5.1

63,060

-

-

63,060

63,060

 

71,498

-

-

71,498

71,498

Marketable securities

 

5.2

-

69,300

203,958

273,258

273,258

 

-

21,532

-

21,532

21,532

Trade accounts receivable, net

 

7

27,816

-

-

27,816

27,816

 

34,145

-

-

34,145

34,145

Receivable from sale of farm, net

 

7

-

-

18,212

18,212

18,212

 

-

-

30,865

30,865

30,865

Derivatives financial instruments

 

6

-

-

13,498

13,498

13,498

 

-

-

18,255

18,255

18,255

                 

 

 

 

 

 

Non-current

               

 

 

 

 

 

Marketable securities

 

11

1,468

-

-

1,468

1,468

 

13,782

-

-

13,782

13,782

Trade accounts receivable, net

 

7

394

-

-

394

394

 

566

-

-

566

566

Receivable from sale of farm

 

7

-

-

22,408

22,408

22,408

 

-

-

36,887

36,887

36,887

Derivatives financial instruments

 

6

-

-

408

408

408

 

63

-

-

63

63

Transactions with related parties

 

32

39,060

-

-

39,060

39,060

 

26,068

-

-

26,068

26,068

Total

   

131,798

69,300

258,484

459,582

459,582

 

146,122

21,532

86,007

253,661

253,661

 

 

F-36

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

 

 

June 30, 2014

Consolidated

 

Note

Designated at fair value through profit or loss

Financial liabilities at amortized cost

Total

Fair value

Level 2

 

Designated at fair value through profit or loss

Financial liabilities at amortized cost

Total

Fair value Level 2

Liabilities

                     

Current

                     

Trade accounts payables

 

17

-

5,545

5,545

5,545

 

-

8,158

8,158

8,158

Loans and financing (i)

 

18

-

47,525

47,525

47,525

 

-

62,253

62,253

62,253

Financial lease

sugarcane crop - Partnership III (ii)

 

18

3,375

-

3,375

-

 

-

-

-

-

Derivatives financial instruments

 

6

5,655

-

5,655

5,655

 

204

-

204

204

Payables for purchase of farms

 

16

-

48,840

48,840

48,840

 

-

44,820

44,820

44,820

                       

Noncurrent

                     

Loans and financing (i)

 

18

-

54,978

54,978

54,978

 

-

57,909

57,909

57,909

Financial lease

sugarcane crop - Partnership III (ii)

 

18

4,201

-

4,201

-

 

-

-

-

-

Derivatives financial instruments

 

6

1,670

-

1,670

1,670

 

-

-

-

-

Transactions with related parties

 

32

-

-

-

-

 

-

33,019

33,019

33,019

Total

   

14,901

156,888

171,789

164,213

 

204

206,159

206,363

206,363

i) The carrying amount of loans and financing in the financial statements, approximates the fair value since the rates of these instruments are substantially subsidized and there is no intention of early settlement;

ii) The finance lease is measured at fair value in Level 3.

 

F-37

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

5.        Cash and cash equivalents and marketable securities

5.1.    Cash and cash equivalents

 

 

 

 

 

2015

 

2014

 

Cash and banks

12,560

15,247

Repurchase agreements

26,302

66,267

Interbank Deposit Certificates

36,758

5,231

 

 

 

 

75,620

86,745

 

 

 

 

The Company has R$8,974 (R$13,861 at June 30, 2014), of bank balances denominated in U.S. dollars which does not bear any interest.

 

Interbank deposit certificates and repurchase agreements, held at June 30, 2015 and 2014, contractually determine the counterparties of the redemption of the amounts  originally invested plus accrued interest through the date of redemption without any penalty (except for bank deposit certificates, on which IOF (Tax on financial operation) is levied if the redemption in less than 30 days from the date of the investment, with applicable rates in accordance with the decreasing rate table disclosed by the Brazil IRS), at any moment and without any prior notice. This provision effectively results in on-demand deposits, despite having a final maturity date.

 

These amounts bear interest based on a percentage of CDI (Interbank Deposit Certificate) rate, daily announced by CETIP, an independent entity providing depositary and custody services, ranged between 90% and 102.54% as of June 30, 2015 and between 91% and 101.50% as of June 30, 2014.

5.2.    Marketable securities

 

 

 

 

 

2015

 

2014

 

Non-exclusive investment fund shares (Notes 4.3b and 4.10)

69,300

21,532

Restricted financial investments (i) (Notes 4.3b and 4.10)

203,958

—

 

 

 

 

273,258

21,532

 

 

 

 

(i) Refers to short term investment in connection with the sale of Cremaq Farm, whose release is linked to the     fulfillment of certain precedent contractual provisions, of routine nature for the Company’s business, as described in Note 1.1.

 

The exclusive investment fund FIM Guardian, managed by BTG Pactual bank has the following breakdown as of June 30, 2015 and June 30, 2014:

 

   

2015

 

2014

Public securities (a)

 

12,694

 

13,677

Fixed income investment funds (ii)

 

69,300

 

21,532

Repurchase agreements

 

1,718

 

1,368

Bank deposit certificates

 

27,547

 

-

Derivatives financial instruments

 

(3,152)

 

2,989

Other

 

(12)

 

5

 

 

108,095

 

39,571

 

(a)  Investments in LFT related to margin deposits provided as collateral for derivative transactions contracted by the Fund . In the consolidated financial statements the related amount is presented in caption “Derivative financial instruments” in current assets according to Note 6.

 

F-38

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

6.        Derivatives financial instruments

 

 

                   

June 30, 2015

Risk

Maturity

Outstanding derivative instruments

Counter party

Receivable

Payable

 

Total net balance

 

Notional ('000)

Position short (long)

Unit

Currency US$

August-15

BM&F

BM&F

-

(424)

 

(424)

 

19.000

-

US$

Currency US$

July-15

NDF

Banks

-

(1,466)

 

(1,466)

 

(2,280)

-

US$

Currency US$

August-15

NDF

Banks

-

(228)

 

(228)

 

(700)

-

US$

Currency US$

September-15

NDF

Banks

-

(283)

 

(283)

 

1,567

-

US$

Currency US$

July-16

Options

Banks

-

(1,034)

 

(1,034)

 

(4,200)

-

US$

                   

-

 
   

Current

 

-

(2,401)

 

(2,401)

 

17,587

-

US$

   

Non-current

 

-

(1,034)

 

(1,034)

 

(4,200)

-

US$

   

Total Risk with currency US$

-

(3,435)

 

(3,435)

 

13,387

-

US$

                       
                       
                       

 

Soybean CBOT

July-15

Derivatives Soybean

Trading Companies/Banks/CBOT

-

(1,126)

 

(1,126)

 

-

(308.429)

bags

Soybean CBOT

June-16

Derivatives Soybean

Trading Companies/Banks/CBOT

-

(1,676)

 

(1,676)

 

-

(544.286)

bags

Corn CBOT

November-15

Derivatives Corn (i)

Trading Companies/Banks/CBOT

135

(452)

 

(317)

 

-

-

bags

Soybean CBOT

July-16

Options

Trading Companies/Banks/CBOT

408

(636)

 

(228)

 

-

(136.071)

bags

                 

-

   
   

Current

 

135

(3,254)

 

(3,119)

 

-

(852.714)

bags

 

Non-current

 

408

(636)

 

(228)

 

-

(136.071)

bags

   

Total Risk with commodities

543

(3,890)

 

(3,347)

 

-

(988.786)

bags

             

 

       
   

Total Risk

 

543

(7,325)

 

(6,782)

 

13,387

(988.786)

 
             

 

   

 

 
                       
   

Margin value

13,363

-

 

13,363

       
                       
                       
     

 

Current

13,498

(5,655)

           
     

Non-current

408

(1,670)

           
     

Net Result from Derivatives (Note 27)

52,340

(39,939)

           

 

i) On 30 June 2015, the operation (position) of corn was settled and financial compensation will occur two days after the settlement.

 

                 

June 30, 2014

Risk

Maturity

Outstanding derivative instruments

Counter party

Receivable

Payable

 

Total net Balance

 

Notional ('000)

Position short (long)

Unit

Currency US$

July-14

BM&F

Banks

495

-

 

495

 

41,750

-

US$

Currency US$

July-14

NDF

Banks

1,933

-

 

1,933

 

(16,319)

-

US$

Currency US$

August-14

NDF

Banks

63

-

 

63

 

5,000

-

US$

Currency US$

March-15

NDF

Banks

435

-

 

435

 

(2,644)

-

US$

Currency US$

July-15

NDF

Banks

63

-

 

63

 

(2,280)

-

US$

Currency US$

July-14

Options

Banks

1,101

-

 

1,101

 

(16,204)

-

US$

                       
   

Current

 

4,027

-

 

4,027

 

11,583

-

US$

   

Non-current

 

63

-

 

63

 

(2,280)

-

US$

   

Total Risk with currency US$

4,090

-

 

4,090

 

9,303

-

US$

                       
                       
                       

 

Soybean CBOT

April-15

Derivatives Soybean

Trading Companies/Banks/CBOT

340

-

 

340

 

-

(90.714)

bags

Soybean CBOT

 

June-15

Derivatives Soybean

Trading Companies/Banks/CBOT

446

-

 

446

 

-

(90.714)

bags

Corn CBOT

September-14

Derivatives Corn

Trading Companies/Banks/CBOT

-

(204)

 

(204)

 

-

166.684

bags

Corn BM&F

September-14

Derivatives Corn BM&F

BM&F

22

-

 

22

 

-

(166.659)

bags

                       
   

Current

 

808

(204)

 

604

 

-

(181.403)

bags

   

Non-current

 

-

-

 

-

 

-

-

bags

   

Total Risk with commodities

808

(204)

 

604

 

-

(181.403)

bags

                       
   

Total Risk

 

4,898

(204)

 

4,694

 

9,303

(181.403)

 
                       
                       
   

Margin value

13,420

-

 

13,420

       
                       
                       
     

Current

18,255

(204)

           
     

Non-current

63

-

           
     

Net Result from Derivatives (Note 27)

2,835

(8,418)

           

 

 

F-39

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

The Company uses derivative financial instruments such as forward currency contracts and forward commodities contracts to hedge against currency risk and commodities prices, respectively. The Company does not hold any cash flow derivative financial instrument contracts as at June 30, 2015 and 2014.

The margin deposits in operations with derivatives refer to the called margins by counterparties in operations with derivative instruments.

The total fair value of a derivative is classified as noncurrent assets or liabilities if the remaining maturity of the derivative is over 12 months, and as current assets or liabilities if the remaining maturity of the derivative is  less than 12 months.

 

7.        Trade accounts receivable

 

 

 

 

 

2015

 

2014

 

Sale of sugarcane (c)

9,868

7,423

Sale of grains (d)

17,468

25,891

Lease of land

535

599

Sale of machinery

811

1,285

Sale of farms (e)

21,212

30,865

 

 

 

 

49,894

66,063

 

 

 

Allowance for doubtful accounts (a)

(3,866)

(1,053 )

 

 

 

Total current

46,028

65,010

 

 

 

Sale of machinery

394

566

Sale of farms (e)

22,408

36,887

 

 

 

Total non-current

22,802

37,453

 

 

 

(a)          Changes in the allowance for doubtful accounts

 

 

 

At June 30, 2013

1,798

Accrual of provision

1,549

Write-off or reversal

(2,294)

 

 

At June 30, 2014

1,053

 

 

Accrual of provision

4,250

Write-off or reversal

(1,437)

At June 30, 2015

3,866

 

 

 

The estimated losses in allowance for doubtful accounts were recorded as selling expenses in the statement of operations. The allowance for doubtful accounts is set up by means of default analysis, individually by client, and the amounts included in the allowance are written-off when these amounts are no longer expected to be recovered.

 

F-40

 

 

Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

(b)      Breakdown of receivables by maturity

 

 

 

 

 

2015

 

2014

 

Falling due:

 

 

Up to 30 days

9,195

43,248

31 to 90 days

21,235

9,090

91 to 180 days

954

534

181 to 360 days

14,160

11,275

Over 361 days

22,802

37,453

Past due:

 

 

Up to 30 days

484

853

31 to 90 days

—

10

91 to 180 days

7

—

181 to 360 days

8

140

Over 361 days

3,851

913

 

 

 

 

72,696

103,516

 

 

 

 

(c)     Sale of sugarcane

 

The Company has a sugarcane supply agreement with the company Brenco - Companhia Brasileira de Energia Renovável, and credit risks are assessed in accordance with the internal policy as presented in Note 4.8b.

 

(d)     Sale of grains

 

For the year ended June 30, 2015, the receivables refer mainly to the sale of corn and soybean to ADM do Brasil, Amaggi and Bunge. For the year ended June 30, 2014, the main customers were: Amaggi, Bunge and Multigrain.

 

 

 

F-41

 

 

Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

  (e)  Receivables from sale of farms

 

Total amounts sold, colected and receivables from sale of farm are as follows:

                       

 

Farm

 

Total sold

   

Collected

   

Balance

   

Date (dd/mm/yy)

Bags of soybean

R$

 

Date (dd/mm/yy)

Bags of soybean

R$

 

Maturity (dd/mm/yy)

Bags of soybean

R$

(Note 4.3c)

Discount rate

São Pedro

 

28/09/2011

580,000

28,974

 

28/09/2011

50,000

2,250

 

30/03/2016

92,500

5,020

14.30%

   

-

-

-

 

31/03/2012

160,000

7,519

 

-

-

-

-

   

-

-

-

 

31/03/2013

92,500

4,162

 

-

-

-

-

   

-

-

-

 

31/03/2014

92,500

5,456

 

-

-

-

-

   

-

-

-

 

30/03/2015

92,500

5,513

 

-

-

-

-

   

-

580,000

28,974

 

-

487,500

24,900

 

-

92.500

5.020

-

                           
                           

Farm

 

Total sold

   

Collected

   

Balance

   

Date (dd/mm/yy)

Bags of soybean

R$

 

Date (dd/mm/yy)

Bags of soybean

R$

 

Maturity (dd/mm/yy)

Bags of soybean

R$

Discount rate

Horizontina (i)

 

11/10/2012

-

75,000

 

11/10/2012

-

27,000

 

-

-

3,000

-

   

-

-

-

 

31/01/2013

-

45,000

 

-

-

-

-

   

-

-

75,000

 

-

-

72,000

 

-

-

3,000

-

                           

Farm

 

Total sold

   

Collected

   

Balance

   

Date (dd/mm/yy)

Bags of soybean

R$

 

Date (dd/mm/yy)

Bags of soybean

R$

 

Maturity (dd/mm/yy)

Bags of soybean

R$

Discount rate

Araucária I

 

25/04/2013

248,325

11,682

 

25/04/2013

36,000

1,728

 

30/08/2015

30,000

1,768

14.03%

   

-

-

-

 

31/08/2013

36,000

2,053

 

30/03/2016

25,000

1,389

14.30%

   

-

-

-

 

31/03/2014

33,000

1,964

 

30/08/2016

25,325

1,341

14.16%

   

-

-

-

 

31/08/2014

33,000

1,898

 

-

-

-

-

   

-

-

-

 

30/03/2015

30,000

1,845

 

-

-

-

-

   

-

248,325

11,682

 

-

168,000

9,488

 

-

80,325

4,498

-

                           
                           

Farm

 

Total sold

   

Collected

   

Balance

   

Date (dd/mm/yy)

Bags of soybean

R$

 

Date (dd/mm/yy)

Bags of soybean

R$

 

Maturity (dd/mm/yy)

Bags of soybean

R$

Discount rate

Araucária II

 

27/06/2014

735,000

41,341

 

07/07/2014

75,000

4,500

 

30/08/2015

60,000

3,570

14.03%

   

-

-

-

 

10/11/2014

75,000

4,500

 

30/08/2016

180,000

9,634

14.16%

   

-

-

-

 

05/06/2015

120,000

6,900

 

30/08/2017

150,000

7,711

13.45%

   

-

-

-

 

-

-

-

 

30/08/2018

75,000

3,722

12.99%

   

-

735,000

41,341

 

-

270,000

15,900

 

-

465,000

24,637

-

                           
                           

Farm

 

Total sold

   

Collected

   

Balance

   

Date (dd/mm/yy)

Bags of soybean

R$

 

Date (dd/mm/yy)

Bags of soybean

R$

 

Maturity (dd/mm/yy)

Bags of soybean

R$

Discount rate

Cremaq (ii)

 

10/05/2013

901,481

42,104

 

10/05/2013

90,148

4,561

 

30/06/2016

120,492

6,465

14.30%

   

30/03/2015

11,166

550

 

15/08/2013

67,611

4,294

 

-

-

-

-

   

10/06/2015

-

238,000

 

30/10/2013

67,611

4,023

 

-

-

-

-

   

-

-

-

 

30/06/2014

279,459

17,466

 

-

-

-

-

   

-

-

-

 

10/06/2015

-

238,000

 

-

-

-

-

   

-

-

-

 

30/06/2015

287,326

17,110

 

-

-

-

-

Farm

 

-

912,647

280,654

 

-

792,155

285,454

 

-

120,492

6,465

-

                           

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Horizontina

 

(-) Allowance for doubtful accounts

 

-

-

(3,000)

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net

   

2,475,972

437,651

 

-

1,717,655

407,742

 

-

758,317

40,620

-

 

 

 

 

 

 

F-42

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

i)      Horizontina Farm

    

The remaining balance from Horizontina farm for R$3,000 shall be received upon fulfillment of certain precedent conditions. At June 30, 2015, the Company set up an allowance for doubtful accounts in accordance with its internal policy in the amount of R$3,000. The estimated loss was recorded in the caption “Selling expenses” (Note 7.a).

 

ii)       Cremaq Farm

 

On February 20, 2015, upon a topographical survey of the acquired area, a difference of 62 hectares was found between the measured area and the figure shown in the sales contract executed on May 10, 2013, resulting in an addition of 11,166 soybean bags to the sales price. The aforesaid operation generated a gain on sale of farms of R$441, of which R$550 in sales revenue (Note 7.f) and (R$109) related to write-off of the land cost.

 

On June 10, 2015, the Company, through its subsidiary Imobiliária Cremaq, recognized the amount of R$238,000 as total sale of Cremaq farm and R$28,000 for the sale of property, plant and equipment. The payment and transfer of ownership fully occurred up to the date of the financial statements at June 30, 2015. The sales transaction is fully described in Note 1.1.

f)       The breakdown of sales of farm is as follows:

 

 

 

 

 

 

2015

 

2014

 

2013

 

Revenue from sale of farms (i)

266,550

33,737

122,713

Net carrying amount of the farms

(73,086)

(11,892 )

(67,898 )

Gain from sale of farms

193,464

21,845

54,815

 

(i) The amount of R$266,550 is composed of R$266,000 on the sale of farm Cremaq and R$550 for the remaining sale (Note7.e.ii).

g)      Changes in accounts receivable are as follows:

 

 

 

 

 

At June 30, 2013

64,117

 

 

 

 

Sale

33,737

 

Colletion (i)

(35,255)

 

Update value

2,940

 

Unwind of present value adjustment

2,213

 

 

 

 

At June 30, 2014

67,752

 

 

 

 

Sale

266,550

 

Colletion (i)

(308,266)

 

Update value

13,321

 

Unwind of present value adjustment

4,263

 

(-) Allowance for doubtful accounts

(3,000)

 

 

 

 

At June 30, 2015

40,620

 

 

     

 

(i) Of the total amount received, R$202,500 is restricted until their release, as described in Note 5.2 (i), with update balance as of June 30, 2015 of R$203,958.

 

 

 

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

8.        Recoverable taxes

 

 

 

 

 

2015

 

2014

 

Withholding income tax on marketable securities - IRRF

5,011

3,142

Other recoverable taxes and contributions

401

607

 

 

 

Total current

5,412

3,749

 

 

 

State VAT recoverable-ICMS

7,892

7,914

State VAT recoverable on property, plant and equipment – ICMS

468

239

Non-cumulative taxes on sale PIS and COFINS

12,265

10,437

Withholding income tax on marketable securities – IRRF

3,977

11,259

 

 

 

Total noncurrent

24,602

29,849

 

 

 

 

The Company has accumulated credits on Contribution Tax on Gross Revenue for Social Integration Program (PIS) and Contribution Tax on Gross Revenue for Social Security Financing (COFINS) related to financial income and export for the period from 2008 to 2011, which were the subject matter of a reimbursement request to the RFB (Brazilian IRS) in November 2014, in the total amount of R$2,902.

The Company filed with the Piauí State Finance Office (Sefaz) a request for approval of the outstanding balance of ICMS for R$3,091 to other taxpayers in the same State, in order to pay suppliers for the purchase of goods and assets. Sefaz has partially accepted the Company’s request, approved R$581, linking these credits to “sale for export purposes” in which it may be transferred to third parties.

The Brazilian  Internal Revenue Service approved and reimbursed, in February 2015, part of the amount requested in November 2014, in the amounts of R$258 related to  the negative balance of CSLL for 2009 and R$3,781 related to IRPJ negative balance for 2010. Presently under analysis by the Brazilian Internal Revenue Service is the amount of R$1,812 related to IRPJ  negative balance for 2009, as included in the request filed in November 2014.

The Company filed a request for reimbursement of IRRF on financial investments with the Brazilian Internal Revenue Service, being R$1,365 related to credits for 2013 and R$191 for 2012, both owned by the Company. The subsidiary Jaborandi Ltda. filed a request for reimbursement  of IRRF on financial investments for 2013 in the amount of R$141.

9.      Inventories

 

 

 

 

 

2015

 

2014

 

Soybean

15,744

19,927

Corn

6,182

9,551

Other harvests

38

40

 

 

 

Agricultural products

21,964

29,518

Raw materials

5,442

9,804

Advance to suppliers

4,819

888

 

 

 

 

32,225

40,210

 

 

 

The amounts of inventories of agricultural products are disclosed net of  the provision, which evolution is presented bellow:

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

9.1  Adjustment to recoverable value of inventories of agricultural products

 

     

At June 30, 2013

 

(24)

Provision for recoverable value of agricultural products, net

 

(2,043)

Realization as cost of sales

 

423

At June 30, 2014

 

(1,644)

Provision for recoverable value of agricultural products, net

 

(3,038)

Realization as cost of sales

 

3,764

     

At June 30, 2015

 

(918)

 

10.     Biological assets

 

 

Current

 

Non-current

 

Grains

 

Sugarcane

At June 30, 2013

1,201

 

36,656

       

Expenditures with plantation

112,282

 

4,318

Expenditures with tilling

-

 

30,430

Fair value variation

1,811

 

(719)

Harvest of agricultural produce

(113,873)

 

(39,483)

       

At June 30, 2014

1,421

 

31,202

       

Expenditures with plantation

102,671

 

3,837

Expenditures with tilling

-

 

41,361

Lease contract Brenco

-

 

7,707

Fair value variation

5,734

 

4,054

Harvest of agricultural produce

(108,202)

 

(58,916)

       

At June 30, 2015

1,624

 

29,245

 

The amounts of expenditures with plantation and tilling of crops are substantially represented by expenditures with the formation of harvests such as: seeds, fertilizers, pesticides, depreciation and manpower used in the crops.

 

The area (hectares) to be harvested corresponding to biological assets is as follows:

 

 

2015

 

2014

Grains

1,787

 

2,466

Sugarcane (i)

27,909

 

20,927

 

29,696

 

23,393

 

(i) The sugarcane area considered above refers to the total to be collected in all future harvests, considered in the cash flow to calculate the fair value of biological assets. This area includes a total of 4,263 hectares leased from Brenco, according to the agreement signed on May 8, 2015.

 

 

F-45

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

The period from plantation to harvest of biological assets is as follows:

 

   

Period from plantation to harvest

       

Unit

Location

Sugarcane

Soybean

Corn (dd/mm)

Second crop corn

Rice

Cotton

Sorghum

Sesame

Chia seed

Pasture

. Cremaq Farm Note 1.1

Piauí

N/A

N/A

N/A

01/02 to 30/08

Not Planted

N/A

N/A

N/A

N/A

N/A

Jatobá Farm

Bahia

N/A

25/10 to 30/05

25/10 to 30/06

N/A

Not Planted

N/A

N/A

N/A

N/A

N/A

Alto Taquari Farm

Mato Grosso

01/02 to 30/11

01/10 to 28/02

01/10 to 30/10

N/A

Not Planted

N/A

N/A

N/A

N/A

N/A

Araucária Farm

Goiás

01/02 to 30/11

01/10 to 28/02

01/10 to 30/10

N/A

Not Planted

N/A

N/A

N/A

N/A

N/A

Chaparral Farm

Bahia

N/A

01/11 to 30/05

25/10 to 05 /12

N/A

Not Planted

N/A

N/A

N/A

N/A

N/A

Nova Buriti Farm

Minas Gerais

N/A

Not Planted / Harvested

N/A

N/A

Not Planted

N/A

N/A

N/A

N/A

N/A

Preferência Farm

Bahia

N/A

Not Planted / Harvested

N/A

N/A

Not Planted

N/A

N/A

N/A

N/A

Entire year

Partnership II

Piauí

N/A

25/10 to 30/05

25/11 to 30/06

01/02 to 30/08

15/12 to 15/05

N/A

N/A

N/A

N/A

N/A

Partnership III

Mato Grosso

01/02 to 30/11

Not Planted / Harvested

N/A

N/A

Not Planted

N/A

N/A

N/A

N/A

N/A

Cresca

Paraguay

N/A

01/12 to 25/05

01/12 to 30/06

N/A

N/A

N/A

01/12 to 15/06

01/02 to 20/05

01/02 to 20/05

Entire year

 

 

11. Restricted marketable securities

 

 

 

 

 

 

Restatement
index

 

2015

 

2014

 

Non-current

 

 

 

Banco do Nordeste (BNB)

CDI

1,468

13,782

 

 

 

 

 

 

1,468

13,782

 

Securities in BNB refer to time deposits in Brazilian banks pledged as guarantee to financing from Banco BNB, and should be held while the agreements remain effective. These mature in July 2019.

 

Amounts invested bear interest based on a percentage of CDI, which varied from 90% to 102.54% as of June 30, 2015.

 

F-46

 

 

Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

  12.         Investment properties – noncurrent

 

 

 

 

 

 

 

 

 

Land –
Farms

 

Buildings and
improvements

 

Opening
of area

 

Total in
operation

 

Construction
in progress

 

Total
investment
properties

 

At June 30, 2014

 

 

 

 

Opening balance

248,124

21,388

68,314

337,826

1,282

339,108

Acquisitions

536

275

14,163

14,974

5,885

20,859

Disposals

(10,661 )

—

(2,094 )

(12,755 )

(4 )

(12,759 )

Transfers

—

2,020

627

2,647

(2,647 )

—

(-) Depreciation/amortization

—

(45 )

(12,360 )

(12,405 )

—

(12,405 )

 

 

 

 

 

 

 

Net book balance

237,999

23,638

68,650

330,287

4,516

334,803

 

 

 

 

 

 

 

At June 30, 2014

 

 

 

 

Total cost

237,999

26,772

119,377

384,148

4,516

388,664

Accumulated depreciation

—

(3,134 )

(50,727 )

(53,861 )

—

(53,861 )

 

 

 

 

 

 

 

Net book balance

237,999

23,638

68,650

330,287

4,516

334,803

 

 

 

 

 

 

 

At June 30, 2015

 

 

 

 

Opening balance

237,999

23,638

68,650

330,287

4,516

334,803

Acquisitions

327

82

4,866

5,275

25,354

30,629

Disposals (i)

(35,879)

(9,798)

(15,263)

(60,940)

(1,534)

(62,474)

Transfers

—

1,178

16,087

17,265

(17,265)

—

(-) Depreciation/amortization

—

(2,016)

(12,595)

(14,611)

—

(14,611)

 

 

 

 

 

 

 

Net book balance

202,447

13,084

61,745

277,276

11,071

288,347

 

 

 

 

 

 

 

At June 30, 2015

 

 

 

 

Total cost

202,447

18,234

125,067

345,748

11,071

356,819

Accumulated depreciation

—

(5,150)

(63,322)

(68,472)

—

(68,472)

 

 

 

 

 

 

)

Net book balance

202,447

13,084

61,745

277,276

11,071

288,347

 

 

 

 

 

 

 

 

(i) The disposals occurred in the year ended June 30, 2015 refers mainly to the sale of Cremaq Farm, of which R$35,790 relates to the land and R$26,392 relates to building improvements and opening of areas.

Four farms owned by the Company are held as guarantee for loans and financing according to Note 18.

The fair value and related book value of the investment properties are as follows.

 

 

Hectares

   

Fair Value

 

Book Value

Farm

State

2015

2014

Real State

Acquisition

 

2015

2014

 

2015

2014

                       

Jatobá

Bahia

31,606

31,606

Jaborandi Ltda

mar-07

 

298,815

314,436

 

62,621

65,192

Cremaq

Piauí

-

27,618

Cremaq Ltda

out-06

 

-

251,354

 

-

64,757

Alto Taquari

Mato Grosso

5,395

5,395

Mogno Ltda

ago-07

 

117,245

101,764

 

33,447

33,344

Araucária

Goiás

8,124

9,682

Araucária Ltda

abr-07

 

144,019

192,223

 

57,505

57,504

Chaparral

Bahia

37,183

37,183

Cajueiro Ltda

nov-07

 

256,919

275,382

 

76,872

61,739

Nova Buriti

Minas Gerais

24,211

24,211

Flamboyant Ltda

dez-07

 

29,654

22,271

 

22,014

22,020

Preferência

Bahia

17,799

17,799

Cajueiro Ltda

set-08

 

52,255

50,585

 

34,504

29,782

   

124,318

153,494

     

898,907

1,208,015

 

286,963

334,338

The book value in 2015 of R$286,963 is not comparable to the amount in the investment property evolution note, because that note includes the improvements in the leased Farm Avarandado, which is not part of our owed Farms portfolio.

 

 

 

F-47

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

13.        Investments

 

a)     Changes in investments

 

 

 

 

 

Green
Ethanol

 

Cresca

 

Total

 

Changes in balance at June 30, 2013

70

—

70

Acquisition of investment

—

39,875

39,875

Capital increase

—

14,463

14,463

Equity pick-up

(17 )

(687 )

(704 )

Effect from currency translation adjustment

—

(3,335 )

(3,335 )

 

Changes in balance at June 30, 2014

53

50,316

50,369

Capital increase

—

25,903

25,903

Equity pick-up

—

(4,355)

(4,355)

Effect from currency translation adjustment

—

27,865

27,865

Impairment of investments

(53)

—

(53)

Balance at June 30, 2015

—

99,729

99,729

 

  b)     Interest in Joint Venture

 

The Company holds 50% interest in Cresca S.A. (“Cresca”), an entity jointly controlled with Carlos Casado S.A., involved in the exploration of agricultural activities, cattle raising and investment in farming land. The results from the joint venture Cresca are recorded in the consolidated financial statements using the equity method.

 

During the year ended June 30, 2015, the Company increased capital in its joint venture Cresca by R$25,903 due to the exercise of purchase option of 60,531 hectares of land.

 

Cresca’s summarized financial information, based on the financial statements prepared in accordance with IFRS as of June 30, 2015 and the reconciliation with the book value of the investment in the consolidated financial statements considering the fair value adjustments on the acquisition date are presented below :

 

 

2015

Assets

287,857

Current

24,090

Cash and cash equivalents

471

Accounts receivable, inventories and other receivables

23,407

Bargain contract of purchase of land

212

   

Noncurrent

263,767

Accounts receivable

14,008

Investment properties

248,523

Other noncurrent

1,236

   

Liabilities

88,399

Current

T rade payables, taxes and loans

18,448

Noncurrent

Taxes and loans

69,951

Total net assets

199,458

Company’s interest in Cresca

50%

Company’s interest in net assets at estimated fair value

99,729

   

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

 

June 30, 2015

Net revenue

47,725

Cost of products sold

(36,081)

Selling expenses

(2,560)

Administrative expenses

(3,102)

Other expenses

(7)

Financial expenses

(7,384)

Loss before taxes on profit

(1,409)

Income and social contribution taxes

(1,081)

Loss for the year

(2,490)

Company’s interest – 50%

(1,245)

Write-off of appreciation on sale of farm

(3,426)

Amortization of fair value adjustment at the acquisition date (shareholders’ loans)

316

Equity pickup

(4,355)

 

 

14.     Intangible assets

 

 

 

 

 

 

 

 

Software

 

 

 

 

 

 

 

 

In operation

 

In progress

 

Contracts

 

Total

 

At June 30, 2014

 

 

 

 

Opening balance

2,521

49

—

2,570

Acquisitions

44

578

2,916

3,538

Disposals

(10 )

—

—

(10 )

Transfers

627

(627 )

—

—

Amortization for the year

(969 )

—

(163 )

(1,132 )

At June 30, 2014

2,213

—

2,753

4,966

At June 30, 2014

 

 

 

 

Total cost

5,543

—

2,916

8,459

Accumulated depreciation

(3,330 )

—

(163 )

(3,493 )

Net book balance

2,213

—

2,753

4,966

At June 30, 2015

 

 

 

 

Opening balance

2,213

—

2,753

4,966

Acquisitions

232

560

—

792

Disposals (a)

—

—

(612)

(612)

Transfers

169

(169)

—

—

Amortization for the year

(1,043)

—

(311)

(1,354)

At June 30, 2012

1,571

391

1,830

3,792

At June 30, 2015

 

 

 

 

Total cost

5,944

391

2,304

8,639

Accumulated depreciation

(4,373)

—

(474)

(4,847)

Net book balance

1,571

391

1,830

3,792

           

 

 

(a)    At December 12, 2013, the Company acquired from its controlling shareholder, Cresud, a contract that entitles BrasilAgro to provide agricultural-forestry advisory services to Cresca in the amount of R$2,916. The contract provides advise on exploration and development of 58,652 hectares. On September 30, 2014, the amount of R$612 was written-off corresponding to 12,312 hectares of land that is part of the 24,624 hectares sold by its joint venture Cresca (Note 26).

 

F-49

 

 

Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

15. Property, plant and equipment

 

 

 

 

 

 

 

 

 

 

Buildings and
improvements

 

Equipment
and
facilities

 

Vehicles
and
agricultural
machinery

 

Furniture
and
fixture

 

Total
in
operation

 

Construction
in progress

 

Total
PP&E

 

At June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Opening balance

37

2,523

11,521

770

14,851

—

14,851

Acquisitions

—

723

831

199

1,753

38

1,791

Disposals

—

(42 )

(746 )

(32 )

(820 )

—

(820 )

Transfers

38

—

—

—

38

(38 )

—

Depreciation

(39 )

(487 )

(1,636 )

(118 )

(2,280 )

—

(2,280 )

Net book balance

36

2,717

9,970

819

13,542

—

13,542

At June 30, 2014

 

 

 

 

 

 

 

Total cost

752

4,792

18,775

1,249

25,568

—

25,568

Accumulated depreciation

(716 )

(2,075 )

(8,805 )

(430 )

(12,026 )

—

(12,026 )

Net book balance

36

2,717

9,970

819

13,542

—

13,542

At June 30, 2015

 

 

 

 

 

 

 

Opening balance

36

2,717

9,970

819

13,542

—

13,542

Acquisitions

—

508

222

122

852

156

1,008

Disposals (i)

—

(723)

(833)

(241)

(1,797)

—

(1,797)

Transfers

—

156

—

—

156

(156)

—

Depreciation

(4)

(456)

(1,569)

(122)

(2,151)

—

(2,151)

Net book balance

32

2,202

7,790

578

10,602

—

10,602

At June 30, 2015

 

 

 

 

 

 

 

Total cost

752

4,733

18,164

1,130

24,779

—

24,779

Accumulated depreciation

(720)

(2,531)

(10,374)

(552)

(14,177)

—

(14,177)

Net book balance

32

2,202

7,790

578

10,602

—

10,602

Annual depreciation rates (weighted average) – %

18

10

18

10

—

—

 

(i) Disposals occurred in 2015 were mainly due to the sale of Cremaq farm in the amount of R$1,451.

Management reviewed the residual value and the estimated useful lives of vehicles and agricultural machinery, according to market value evaluation conducted through surveys carried out by the Group, also taking into consideration the conditions of use of this equipment, and concluded that there is no indication of impairment loss for the year ended June 30, 2015.

 

F-50

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

16.     Payables for purchase of farms

 

 

Index

 

2015

 

2014

Fazenda Alto Taquari Farm

*100% do CDI

 

29,023

 

26,060

Fazenda Nova Buriti Farm

**IGP-M

 

19,817

 

18,760

 

 

 

48,840

 

44,820

References:

 

*CDI – Interbank Deposit Certificate Rate

**IGP-M – Market General Price Index

 

The payments related to the purchase of farms are linked to the fulfillment of certain conditions precedent by the sellers for the obtaining of licenses.

17.     Trade accounts payables

 

At June 30, 2015, the Company’s balance of trade accounts payable is as follows:

 

 

 

2015

 

2014

Raw materials and services

 

5,238

 

6,908

Lease transactions with third parties

 

307

 

1,250

 

 

5,545

 

8,158

18.     Loans and financing

 

Bank

Maturity

 

Annual interest rates
and charges – %

 

2015

 

2014

 

Current

 

 

 

 

 

Financing for agricultural costs

BNB (i)

Nov-15

7.51 to 15.12

TJLP + 3.45 and 4.45 SELIC

+ 3,45

25,595

44,712

Bahia Project Financing

BNB(ii) Itaú(iv) e HSBC(v)

Dec-15

Pre 4.00 to 8.50

9,469

12,742

Working capital financing

Santander

Sept-15

83.48%CDI

5,066

—

Working capital financing (USD) (a)

Santander

Sept-15

1.6905

4,832

—

Financing of Machinery and Equipment – FINAME

Itaú (iii)

Dec-15

TJLP + 5.50 to 8.70

943

1,814

Financing of sugarcane

Itaú e Santander (vi)

Jul-15

TJLP + 3.00 to 4.40

1,620

2,985

Financial lease sugarcane crop – Partnership III

Brenco

Nov-18

6.92%

3,375

—

 

 

 

 

 

 

 

 

 

 

50,900

62,253

 

 

 

 

 

 

Non-current

 

 

 

 

 

Financing of sugarcane

Itaú e Santander (vi)

Feb-20

TJLP + 3.00 to 4.40

1,716

1,610

Financing of Machinery and Equipment – FINAME

Itaú (iii)

Nov-16

TJLP + 5.50 to 8.70

113

1,056

Bahia Project Financing

BNB(ii) Itaú(iv) e HSBC(v)

Oct-20

TJLP + 3.45 and 4.45 SELIC

+ 3.45
Pre 4.00 to 8.50

53,149

55,243

Financial lease sugarcane crop – Partnership III

Brenco

Nov-18

6.92%

4.201

—

 

 

 

 

 

 

 

 

 

 

59,179

57,909

 

 

 

 

 

 

 

 

 

 

110,079

120,162

 

 

 

 

 

 

References:

 

TJLP – Long Term Interest Rate

FINAME – Financing of Machinery and Equipment (BNDES)

BNB – Banco do Nordeste

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

(a)    Financing in U.S. dollars and stated in reais

 

Guarantees

 

(i)            The financing of cost of current harvest is guaranteed by mortgage of registrations of Chaparral farm. The financing for the opening of area and for the Jatobá farm from BNB are guaranteed by the registrations of the related farms.

 

(ii)           BNB financing require the maintenance of deposits in liquidity funds in accounts remunerated by CDI. The balances at June 30, 2015 and 2014 are disclosed in Note 11.

 

(iii)         For FINAME contracts, the financed machinery and equipment were provided as collateral. These are all held as chattel mortgage until the final settlement of contracts.

 

(iv)         FINEM-BNDES financing for opening of Jatobá farm is guaranteed by the mortgage of Preferência farm.

 

(v)           HSBC-BNDES financing for  Chaparral farm silo is guaranteed by the mortgage of Chaparral Farm.

 

(vi)         The financing Santander-Pró Renova for sugarcane cost is guaranteed by the mortgage of Araucária Farm.

 

At June 30, 2015 amounts due by maturity are as follows:

 

 

 

1 year

50,900

2 years

15,973

3 years

14,659

4 years

13,854

5 years

12,690

Above 5 years

2,003

 

 

 

110,079

 

 

Covenants

 

All loans and financing contracts above are in Reais and have specific terms and conditions defined in the respective contracts with governmental economic and development agencies that directly or indirectly grant those loans. There is also a financing in U.S. dollars which gathers conditions defined in contracts with local commercial banks. At June 30, 2015 and 2014 the Company’s financing had no financial covenants, but rather only operating clauses, on which the Company is not in default.

 

Changes in loans and financing during the year ended June 30, 2015 are as follows:

 

                     

At June 30, 2014

 

Previous balance

 

Proceeds

Payment of principal

Payment of interest

Interest

accrued

Foreign exchange variation

 

Final balance

Finance for agricultural costs

 

44,712

 

54,257

(72,747)

(4,084)

3,457

-

 

25,595

Bahia Project Financing (a)

 

67,985

 

23,929

(24,104)

(11,066)

5,874

-

 

62,618

Working Capital Financing

 

-

 

4,944

-

-

122

-

 

5,066

Working Capital Financing (USD)

 

-

 

5,004

-

-

53

(225)

 

4,832

Financing of Machinery and Equipment – FINAME

 

2,870

 

-

(1,759)

(181)

126

-

 

1,056

Financing of Sugarcane

 

4,595

 

1,697

(2,793)

(351)

188

-

 

3,336

Financial Lease - Sugarcane Crop - Partnership III

 

-

 

7,576

-

-

-

-

 

7,576

At June 30, 2015

 

120,162

 

97,407

(101,403)

(15,682)

9,820

(225)

 

110,079

 

a)    Financing to raise funds for opening of areas and improvements in Jatobá and Chaparral farms.

 

 

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Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

19. Taxes payable

 

 

 

 

 

2015

 

2014

 

Tax on services – ISS payable

346

91

PIS/COFINS / Withheld social contributions (INSS)

159

83

State VAT – ICMS payable

308

—

Funrural payable

626

127

Taxes on sales – Pis and Cofins payable

10,780

664

Income and social contribution taxes

11,086

5,527

Other taxes payable

72

9

Total current

23,377

6,501

Income and social contribution taxes

1,508

2,482

Total non-current

1,508

2,482

 

 

20. Deferred taxes

 

Deferred income and social contribution tax assets and liabilities are offset when there is a legal right to offset tax credits against tax liabilities, and provided that they refer to the same tax authority and the same legal entity.

 

The fiscal year for income tax and social contribution calculation purposes is different from that adopted by the Company, which ends June 30 of each year.

The changes in deferred income tax and social contribution tax assets and liabilities for the periods ended June 30, 2015 and without taking into consideration offsetting of balances in the same tax jurisdiction, are as follows:

 

 

 

 

 

2015

 

2014

 

Assets

 

 

Non-Current

 

 

Tax loss carryforwards

46,950

54,445

Contingency, provision for bad debts and bonuses

6,794

10,324

Hedge

1,234

—

Provision for onerous contracts, loss on sale of PPE – useful life

448

197

Difference in the cost of farms

170

170

 

55,596

65,136

Liabilities

 

 

Non-Current

 

 

Biological assets

1,039

2,889

Hedge

—

580

Provision of residual value and useful life of PPE assets

1,607

1,782

Accelerated depreciation of assets for rural activity

9,813

16,331

 

12,459

21,582

Net balance

43,137

43,554

 

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Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

The net changes in deferred income and social contribution taxes are as follows:

 

 

 

At June 30, 2013

25,216

Tax loss carryforwards

17,790

Biological assets and agricultural products

787

Hedge, contingency, provision for bad debts and fair value

(1,272)

Provision for onerous contract

197

Accelerated depreciation

836

 

 

At June 30, 2014

43,554

Tax loss carryforwards

(7,495)

Biological assets and agricultural products

1,850

Contingency, provision for bad debts and fair value

(3,530)

Hedge

1,814

Provision for onerous contract

251

Accelerated depreciation

6,693

 

 

At June 30, 2015

43,137

 

 

The estimated years of realization of deferred tax assets are as follow:

 

 

 

2015

 

2016

4,462

2017

1,840

2018

2,407

2019

3,120

2020

4,701

2021 to 2025

39,066

 

 

 

55,596

 

 

 

The Company and its subsidiaries opted for  the Transitional Tax Regime (RTT) in the fiscal years 2014 and 2013. The RTT allows the legal entity to eliminate the accounting effects from Law No. 11638/07 and Law No. 11941/09 (basis for the adoption of IFRS), through records in the Taxable Profit Control Register  (LALUR) and auxiliary controls.

 

On May 13, 2014, Law No. 12973 (conversion of Provisional Measure No. 627), among other matters, provided for  the extinction of RTT and introduced a new regime in which the determination of Taxable Profit and CSLL calculation basis shall be directly made as from the corporate profit (Accounting SPED - ECD), and the neutralization of the effects of new accounting methods and criteria, in the cases established in Law, through additions/exclusions in Tax Accounting Bookkeeping (SPED - ECF), together with the other adjustments previously established in Income Tax legislation.

 

The law went into effect on January 1, 2015, so that we carried out our analyses for June 2015 based on the new instructions introduced by Law No. 12973/2014.

 

The Company completed the analysis of the impacts arising from the provisions of the aforementioned Law, both on its financial statements and on its internal control structure. Considering that the result from this analysis did not present material tax effects, the Company decided not to early adopt the rules and provisions established in the new legislation for fiscal year 2014.

 

 

 

F-54

 

 

Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

21.     Equity

a)     Capital (number of shares)

 

 

 

 

Shareholder

 

2015

 

2014

 

Cresud S.A.C.I.F.Y.A

23,150,050

23,150,050

 

23,150,050

23,150,050

Board of Directors

6,562,500

6,840,300

Executive Board

4,100

500

Officers

6,566,600

6,840,800

Treasury

20,000

195,800

Free floating

28,489,950

28,235,750

Total shares of paid up capital

58,226,600

58,422,400

Total outstanding shares

28,489,950

28,235,750

Outstanding shares as percentage of total shares(%)

49

48

At June 30, 2015, 2014 and 2013, the Company’s authorized and paid up capital amounted to R$584,224. The Company is authorized to increase its capital, regardless of the statutory reform, up to the limit of R$3,000,000, upon Board of Directors resolution.

b)       Subscription warrants

On March 15, 2006, the Board of Directors approved the issue of 512,000 shares subscription warrants, 256,000 of which for first issue, and 256,000 of which for second issue, which were delivered to the founder shareholders, in proportion to their interest in the Company’s capital at the date of issue of the subscription warrant. Each issue of subscription warrant grants their holders the right to subscribe shares issued by the Company, in an amount equivalent to 20% of its capital after the increase arising from the full exercise of the subscription warrant of each issue.

 

Subscription warrants of the first issue grant their holders, as from the dates on which they become exercisable, the right to subscribe the shares issued by the Company through the payment of the price per share used in the initial public offering, subject to certain restatement and adjustment rules. The subscription warrants of the first. issue were issued in three series, which differ solely as to the date on which the right to subscribe the shares granted by them start.

 

The subscription warrants of the first issue/first series may be exercised as from the closing of the twelfth month as from the issue date and have as object a total of 85,336 subscription warrants. The subscription warrants of the first issue/second series may be exercised as from the closing of the 24th month as from the issue and have as object a total of 85,332 subscription warrants. The subscription warrants of the first issue/ third series may be exercised as from the closing of the thirty-sixth month as from the issue and have as object a total of 85,332 subscription warrants.

 

Exceptionally, the subscription warrants of the first issue may be exercised by their holders in the event of transfer of the Company’s control or acquisition of material participation, as defined in the terms of the corporate documents that decided on the issue of the subscription warrants. Each set of 1,000 subscription warrants of first issue grants the right to subscription of 1 (one) share issued by the Company upon its attribution (100 shares after the split approved in October 2007).

 

 

 

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

The subscription warrants of the second issue grant the holders the right to subscribe shares issued by the Company for up to 15 years, from the date of publication of the announcement of closing of the initial public offering of shares and solely in the events of transfer or acquisition of material shareholding control in the Company, as defined in the terms of the corporate document that decided on the issue of the subscription warrants. In such events, public offerings for acquisition of all the outstanding shares of the Company shall be presented. For the subscription of shares object of the subscription warrants of second issue, their holders shall be required to pay the same price per share used in the abovementioned public offerings of acquisition of the Company’s shares. Each set of 1,000 subscription warrants of second issue grants the right to the subscription of 1 (one) share issued by the Company upon its attribution (100 shares after the split approved in October 2007).

 

The number of shares to be subscribed according to the subscription warrants shall be adjusted in case of split or reverse split of shares. The detailed information of the second issue market value of these subscription warrants is shown in the table below:

 

 

 

 

 

 

First tranche

 

BrasilAgro

 

2015

 

2014

 

Price of share

11.15

9.60

Issue date (day/month/year)

28/04/2006

28/4/2006

Maturity date (day/month/year)

27/04/2021

27/4/2021

Exercise price at year end—R$/share

16.72

15.36

Number of outstanding shares (“000 shares)

58,227

58,422

Percentage limit of capital shares to be issued upon exercise (percentage of new capital)—%

20

20

Number of shares to be issued upon exercise (‘000 shares)

26,366

14,606

Number of outstanding warrants (‘000 bonus)

256,000

256,000

 

The outstanding subscription warrants of second issue are 256,000, and there were no changes in the number of outstanding subscription warrants for the years ended June 30, 2015 and 2014. The subscription warrants of second issue grant their holders the right to subscribe shares issued by the Company, in the amount equivalent to 20% of its capital, after the increase arising from the full exercise of the subscription warrants of second issue.

b.1)    Warrants of First issue

           Since the subscription warrants of first tranche are recorded under IFRS 2 and may be fully exercised since March 15, 2009, which precedes the transition date to IFRS, i.e., July 1, 2009, and the Company has not disclosed the fair value of the subscription warrants on their assessment date, the subscription warrants are not recorded in the financial statements.

b.2)    Warrants of Second issue

Management believes that the subscription warrants of second issue (which may only be exercised if the control is transferred or if significant interest is acquired) have no significant fair value in any of the periods presented, because the exercise price shall be equivalent to the price per share used in the public offering for acquisition of shares formulated on account of obtaining the control or acquiring significant interest in the Company.

c)        Stock option plan – stock option

 

The information on the stock option plan and issue of new grants are described in Note 25.

 

 

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

d)       Legal reserve and retained profits reserve

Pursuant to article 193 of Law No. 6404/76 and article 36, item (a), 5% (five per cent) of the Company’s net income  at the end of each year must, before any other allocation,  be used to set up a legal reserve, which shall not exceed 20% (twenty percent) of capital.

 

The Company is allowed not to set up the legal reserve for the financial year in which the reserve balance, plus the amount of capital reserve addressed in item 1, of article 182, of Law No. 6404/76, exceeds 30% (thirty per cent) of capital. The legal reserve aims at assuring the integrity of the Company’s capital and may only be used to offset loss and increase capital.

According to article 36, item (c), of the Company’s articles of incorporation and article 196 of Law No. 6404/76, the Company may allocate the remaining portion of adjusted net income for the year ended, to reserve for investment and expansion.

The balance of the retained profits reserve, except for the reserves of unrealized profit and reserves for contingencies, may not exceed the amount of capital. Once this maximum limit is reached, the General Meeting may resolve on the investment of the exceeding portion in the payment, increase of capital or in dividend distribution.

e)        Dividends

Pursuant to article 36, of the Company’s Bylaws, income  for the year shall be allocated as follows: (a) 5% (five percent) of net income for the constitution of legal reserves, up to the limit of 20% (twenty percent) of share capital ; (b) 25% (twenty five percent) of adjusted net income, after the deduction addressed in item (a) above, shall be allocated to the payment of mandatory dividends and (iii) the remaining portion of adjusted net income, after the deduction addressed in item (b) above, may  be allocated to the reserve for investment and expansion.

On October 29, 2013, the Board of Directors approved total payment of dividend for the year ended June 30, 2013 in the amount of R$5,883, paid on January 10, 2014.

 

 

   

2015

 

2014

 

2013

Profit (loss) for the year

 

180,810

 

(13,362)

 

28,727

(-) Absorption of accumulated losses

 

(10,988)

 

2,374

 

(20,470)

Adjusted income (loss) at end of year

 

169,822

 

(10,988)

 

8,257

             

(-) Constitution of legal reserves (5% of net income)

 

(8,491)

     

(413)

Adjusted net income

 

161,331

     

7,844

             

(-) Minimum mandatory dividends - 25% of adjusted net income

 

(40,333)

     

(1,961)

(-) Proposed additional dividends - 25% in 2015 (50%, in 2013) of adjusted net income

 

(40,333)

     

(3,922)

             

Proposed dividends – 50% in 2015 (75% in 2013) of adjusted net income

 

(80,666)

     

(5,883)

             

Constitution of reserve for investments and expansion

 

80,665

 

 

 

1,961

       

 

   

Dividend per share (R$)

 

1.39

 

 

 

0.10

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

f)        Other comprehensive income (loss)

At June 30, 2014, (R$3,335) was recorded relating to the effects of variation of the foreign exchange rate resulting from the translation of Cresca’s financial statements.

At June 30, 2015, the effects from foreign exchange rate variation arising from the translation of  Cresca financial statements for the year amounted to R$27,865, and the accumulated effect reached R$36,268.

g)        Treasury shares

 

On January 27, 2015, the Company disclosed to the Market through a “Material News Release”, the cancellation of 195,800 (one hundred and ninety five thousand and eight hundred) common shares which were in treasury ("Shares") in the amount of R$1,934. The Shares were acquired through the repurchase plan of common shares issued, as approved at the Company’s Board of Directors meeting held on September 2, 2013.

 

On June 25, 2015, the Board of Directors approved the plan to repurchase common shares issued to be held in treasury and later disposal or cancellation with no capital decrease. At June 30, 2015, there were two repurchase transactions in the total of 20,000 (twenty thousand shares) and market value of R$224.

 

The Company’s capital of R$584,224 had no changes due to the cancellation of shares, but shall be divided by the 58,226,600 (fifty eight million two hundred and twenty-six thousand and six hundred) remaining common shares.

22.     Segment information

 

The segment information is presented consistently with the internal report provided by the main operating decision maker, that is the Executive Board, responsible for allocating resources, assessing the performance of the operating segments, and for making the Company’s strategic decisions.

 

The segment information is based on information used by BrasilAgro Executive Board to assess the performance of the operating segments and to make decisions on the investment of funds. The Company has three segments, namely: (i) grains, (ii) sugarcane and (iii) real estate. The operating assets related to these segments are located only in Brazil.The main activity of the grains segment is the production and sale of soybean and corn.

 

The Sugarcane segment includes the sale of the raw product.

 

The Real Estate segment presents the P&L from operations carried out in the Company’s subsidiaries.

 

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Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

The selected P&L, assets e liabilities information by segment, which were measured in accordance with the same accounting practices used in the preparation of the financial statements, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

June 30, 2014

 

 

 

 

Agricultural activity

 

 

 

 

Agricultural activity

 

 

 

Total

 

Real
estate

 

Grains

 

Sugarcane

 

Other

 

Not
allocated

 

Total

 

Real
estate

 

Grains

 

Sugarcane

 

Other

 

Not
allocated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

174,351

—

116,289

52,925

5,137

—

131,314

—

91,645

38,235

1,434

—

Gain on sale of farms

193,464

193,464

—

—

—

—

21,845

21,845

—

—

—

—

Change in fair value of biological assets and agricultural products

9,788

—

6,031

4,053

(296)

—

1,092

—

2,059

(719 )

(248 )

—

(Impairment) reversal of impairment of net realizable value of agricultural products after harvest, net

(3,038)

—

(3,036)

—

(2)

—

(2,043 )

—

(2,040 )

—

(3 )

—

Cost of sales

(170,489)

—

(112,714)

(52,799)

(4,976)

—

(138,535 )

—

(98,529 )

(34,790 )

(5,216 )

—

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit (loss)

204,076

193,464

6,570

4,179

(137)

—

13,673

21,845

(6,865 )

2,726

(4,033 )

—

Operating income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

Selling expenses

(9,006)

(3,168)

(5,762)

—

(76)

—

(10,239 )

(2,430 )

(7,283 )

—

(526 )

—

General and administrative expenses

(29,360)

—

—

—

—

(29,360)

(30,378 )

—

—

—

—

(30,378 )

Other operating income (expenses), net

(3,422)

—

—

—

—

(3,422)

285

—

—

—

—

286

Equity pick up (ii)

(4,355)

—

—

—

—

(4,355)

(704)

—

—

—

—

(705 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

157,933

190,296

808

4,179

(213)

(37,137)

(27,363 )

19,415

(14,148 )

2,726

(4,559 )

(30,797 )

F inancial income (expenses), net

 

 

 

 

 

 

 

 

 

 

 

 

Financial income

122,552

5,099

15,693

—

—

101,760

40,051

714

8,556

—

—

30,781

Financial expenses

(89,914)

(6,338)

(17,598)

—

—

(65,978)

(41,611 )

(3,439 )

(5,009 )

—

—

(33,163 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit (loss) before income and social contribution taxes

190,571

189,057

(1,097)

4,179

(213)

(1,355)

(28,923 )

16,690

(10,601 )

2,726

(4,559 )

(33,179 )

Income and social contribution taxes (i)

(9,761)

(7,347)

373

(1,421)

72

(1,438)

15,561

(1,039 )

3,604

(927 )

1,550

12,373

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit (loss) for the year

(180,810 )

181,710

(724 )

2,758

(141 )

(2,793 )

(13,362 )

15,651

(6,997 )

1,799

(3,009 )

(20,806 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

1,017,840

532,925

44,414

44,106

1,190

395,205

828,382

402,555

55,939

38,625

2,288

328,975

Total liabilities

265,734

111,458

25,595

10,912

—

117,769

244,476

112,805

46,901

2,985

—

81,785

 

 

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Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

 

 

 

 

 

 

 

June 30, 2013

 

 

 

 

Agricultural activity

 

 

 

Total

 

Real
estate

 

Grains

 

Sugarcane

 

Other

 

Not
allocated

 

Net revenue

185,647

—

123,237

61,022

1,388

—

Gain on sale of farm

54,815

54,815

—

—

—

 

Change in fair value of biological assets and agricultural products

2,289

—

(22,681)

25,060

(90)

—

Reversal of provision of agricultural products after harvest

1,659

—

1,659

—

—

—

Cost of sales

(170,643)

—

(105,401)

(61,157)

(4,085)

—

 

 

 

 

 

 

 

Gross profit (loss)

73,767

54,815

(3,186)

24,925

(2,787)

—

Operating revenue (expenses)

 

 

 

 

 

 

Selling expenses

(14,028)

(4,294)

(9,790)

(68)

124

—

General and administrative

(29,233)

—

—

—

—

(29,233)

Other operating revenue

(3,539)

—

—

—

—

(3,539)

 

 

 

 

 

 

 

Operating results

(26,967)

50,521

(12,976)

24,857

(2,663)

(32,772)

Net financial income

 

 

 

 

 

 

Financial income

38,000

148

14,656

—

—

23,196

Financial expenses

(38,591)

(17)

(19,856)

—

—

(18,718)

 

 

 

 

 

 

 

Profit/loss before taxation

26,376

50,652

(18,176)

24,857

(2,663)

(28,294)

Income tax and social contribution (i)

2,351

(17,222)

6,180

(8,451)

905

20,939

 

 

 

 

 

 

 

Profit (loss) for the year

28,727

33,430

(11,996)

16,406

(1,758)

(7,355)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

770,830

472,838

112,974

47,930

—

137,088

Total liabilities

183,845

101,363

31,403

7,804

—

43,275

       

 

(i)   The income and social contribution taxes of the real estate refer to the receipts from the sale of farm and leases.

(ii) Refers to equity pickup on Cresca Joint Venture. See Note 13.

The balance sheet accounts are represented by “Trade accounts receivables”, “Biological assets”, “Inventories of agricultural products” and “Investment properties”.

 

 

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

23.     Revenues

 

 

 

 

 

 

2015

 

2014

 

2013

 

Sales of grains

121,791

95,896

128,941

Sales of sugarcane

54,396

39,406

62,583

Lease

3,204

1,143

1,261

Other revenue

4,374

1,730

1,253

Gross operating revenue

183,765

138,175

194,038

Sales deductions

 

 

 

Taxes on sales

(9,414 )

(6,861 )

(8,391 )

 

(9,414 )

(6,861 )

(8,391 )

Net revenue

174,351

131,314

185,647

 

24.     Expenses by nature

 

 

 

 

 

 

 

Cost of
products
sold

 

Selling
expenses

 

General and
administrative

 

Total

 

Depreciation and amortization

26,702

—

1,295

27,997

Personnel expenses

7,652

—

17,971

25,623

Expenses with services provider

50,441

—

5,436

55,877

Lease

—

—

648

648

Cost of agricultural products

82,227

—

—

82,227

Freight and storage

—

8,888

—

8,888

Allowance for doubtful accounts

—

846

—

846

Sale of farm—commission

—

4,294

—

4,294

Maintenance, travel expenses and other

3,621

—

3,883

7,504

At June 30, 2013

170,643

14,028

29,233

213,904

Depreciation and amortization

20,313

—

1,118

21,431

Personnel expenses

6,377

—

19,589

25,966

Expenses with services provider

37,150

—

4,841

41,991

Leasing

4,363

982

698

6,043

Cost of agricultural products

66,721

—

—

66,721

Freight and storage

—

7,793

—

7,793

Allowance for doubtful accounts

—

(525 )

—

(525 )

Onerous contracts

—

579

—

579

Sale of farm—commission

—

1,410

—

1,410

Maintenance, travel expenses and other

3,611

—

4,132

7,743

At June 30, 2014

138,535

10,239

30,378

179,152

Depreciation and amortization

20,973

—

1,249

22,222

Personnel expenses

8,313

—

19,543

27,856

Expenses with services provider

46,829

—

4,077

50,906

Leasing

3,931

—

713

4,644

Cost of agricultural products

86,258

—

—

86,258

Freight and storage

—

6,686

—

6,686

Allowance for doubtful accounts

—

2,731

—

2,731

Onerous contracts

—

(579)

—

(579)

Sale of farm—commission

—

168

—

168

Maintenance, travel expenses and other

4,185

—

3,778

7,963

At June 30, 2015

170,489

9,006

29,360

208,855

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

25.     Management compensation

The expenses associated with Management compensation were recorded under “General and administrative expenses” and are as follows:

 

 

 

 

 

 

2015

 

2014

 

2013

 

Board of directors and executive board compensation

3,107

3,622

3,435

Bonuses

5,261

4,924

4,782

Global compensation

8,368

8,546

8,217

Grant of shares

82

816

1,261

 

8,450

9,362

9,478

The global compensation of the Company’s officers and members of the Board of Directors, for the year ending June 30, 2015 in the amount of R$9,500, was approved at the Annual General Meeting held on October 27, 2014.

Stock option plan

On August 11, 2010, the Board of Directors approved the creation of the Stock Option Program authorizing the Company’s executive board to grant stock options to the elected beneficiaries at that time. In the Program, the beneficiaries, the number of shares that each one may acquire upon exercise of the options, the exercise price per share to be paid in cash by the beneficiaries and the conditions of options were established. Each option, when exercised, entitles the beneficiary to purchase one share of the Company for the exercise price established in the Program. The Programs comprise five beneficiaries and grants 370,007 options at an exercise price of R$8.97 per share, and may be exercised in full as from August 12, 2012 (vesting date), respectively; valid for five years as from the granting date.

On July 03, 2012 the Board of Directors approved the second grant of stock options to the elected beneficiaries in the first grant. The Programs comprise five beneficiaries and grants 315,479 options at an exercise price of R$8.25 per share and may be exercised in full from July 03, 2012 (vesting date), respectively through a period of 5 years from the granting date.

On September 4, 2012 the Board of Directors approved the third grant of stock options to the elected beneficiaries in the first grant. The Programs comprise five beneficiaries and grants 315,479 options at an exercise price of R$8.52 per share, and may be exercised in full as from September 4, 2014 (vesting date), respectively; valid for 5 years as from the granting date.

The stock options to be granted according to the Plan may grant rights on the number of shares which does not exceed, at any time, the maximum and cumulative amount of 2% of shares issued by the Company, respecting the minimum price of the average quotation of the Company’s shares at São Paulo Stock Exchange (BOVESPA) floor, weighted by the volume of trading during the last thirty floors prior to the option grant.

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

The table below presents the changes in the stock option plan per granting:

 

 

 

 

 

 

 

First
grant

 

Second
grant

 

Third
grant

 

Total

 

Outstanding on July 1, 2013

370,007

315,479

315,479

1,000,965

Cancelled

—

(54,527 )

(54,527 )

(109,054 )

Expired

(68,159 )

—

—

(68,159 )

Outstanding at June 30, 2014

301,848

260,952

260,952

823,752

Exercisable at June 30, 2014 (vested)

301,848

—

—

301,848

Outstanding on July 1, 2014

301,848

260,952

260,952

823,752

Cancelled

—

—

—

—

Expired

(68,159 )

(54,527)

(54,527)

(177,213 )

Outstanding at June 30, 2015

233,689

206,425

206,425

646,539

Exercisable at June 30, 2015 (vested)

233,689

206,425

206,425

646,539

 

       

       The table below presents the information on the Program and assumptions used for valuation:

 

 

 

 

 

 

First grant

 

Second grant

 

Third grant

 

Date of issuance

11/08/2010

03/7/2012

04/09/2012

Exercise price (R$/share)

8.97

8.25

8.52

Quoted market price on grant date (R$/share)

9.60

7.69

8.50

Quoted market price at end of year

8.95

8.95

8.95

Free risk interest rate %

11.36

9.37

9.12

Contractual period for exercise

5 years

5 years

5 years

Expected dividend yield %

1.00

0.50

0.50

Volatility of shares in the market – %

67.48

41.62

40.50

Number of outstanding options

233,689

206,425

206,425

Number of options to be exercised

233,689

206,425

206,425

Estimated fair value on the grant date (R$/share)

6.16

3.60

4.08

 

26.     Other income (expense), net

 

 

2015

 

2014

 

2013

Gain / loss on sale of fixed assets

(361)

 

(1,522)

 

204

Write-off of intangible asset - Cresca Agreement (Note 14)

(612)

 

-

 

-

Provisions for legal claims (Note 30)

(111)

 

1,229

 

(3,743)

Farm Horizontina (a) (Note 30.c)

(1,240)

 

-

 

-

Others

(1,098)

 

578

 

-

 

(3,422)

 

285

 

(3,539)

 

(a) Payment for prosecution of hereditary rights over part of Horizontina Farm;

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

27.     Financial income and expenses

 

 

 

 

 

 

2015

 

2014

 

2013

 

Financial Income

 

 

 

Interest on marketable securities

9,325

9,484

5,598

Interest on receivables

4,637

2,635

11,029

Foreign exchange variation

14,720

6,011

5,116

Gain on remeasurement of receivables from sale of farms and machinery (i)

41,530

19,086

214

Realized profit from derivative transactions (Note 6)

24,204

—

—

Unrealized profit from derivative transactions (Note 6)

28,136

2,835

16,043

 

122,552

40,051

38,000

Financial Expenses

 

 

 

Marketable securities charges

(66)

(180 )

(1,083 )

Bank charges

(1,674)

(762 )

—

Interest accrued

(13,895)

(10,674 )

(8,456 )

Monetary variation

(2,967)

(2,328 )

(1,545 )

Foreign exchange variation

(8,139)

(5,688 )

(3,121 )

Loss on reameasurement of receivables from sale of farms and machinery (i)

(23,234)

(13,561 )

(3,380 )

Realized loss from derivative transactions (Note 6)

(6,468)

(6,699 )

(16,622 )

Unrealized loss from derivative transactions (Note 6)

(33,471)

(1,719 )

(4,384 )

 

(89,914)

(41,611 )

(38,591 )

Financial income (expense), net

32,638

(1,560 )

(591 )

 

(i)     The amounts are presented net on the statement of cash flows.

 

 

28.     Income and social contribution taxes

 

 

 

 

 

 

2015

 

2014

 

2013

 

Income (loss) before income and social contribution taxes

190,571

(28,923 )

26,376

Combined nominal rate of income tax and social contribution taxes-%

34%

34%

34%

 

(64,794)

9,834

(8,968 )

Equity pick up

(1,481 )

(240 )

—

Management bonus

(1,789 )

(1,674 )

(1,474 )

Net effect of subsidiaries taxed whose profit is computed as a percentage of gross revenue(*)

60,123

8,345

14,702

Reversal of management bonus – permanent

—

—

(1,000 )

Income tax credit not approved

—

—

(547 )

Other permanent additions

(1,820)

(704 )

(362 )

Income and social contribution taxes for the year

(9,761)

15,561

2,351

Current

(9,344)

(2,777 )

(7,905 )

Deferred

(417)

18,338

10,256

 

(9,761)

15,561

2,351

Effective rate

-5%

-54%

9%

 

(*)    For some of our subsidiaries, income tax is measured based on the regime whereby profit is computed as a percentage of gross revenue “lucro-presumido”, i.e., income tax is determined on a simplified base to calculate the taxable profit (32% for lease revenues, 8% from sale of farms and 100% for other earnings). This results effectively in taxing the profit of subsidiaries at rate a lower rate than if taxable profit were based on accounting records.

 

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  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

29.     Earnings (loss) per share

 

 

 

 

 

 

2015

 

2014

 

2013

 

Profit (loss) attributable to equity holders of the parent

180,810

(13,362 )

28,727

Weighted average number of common shares issued (thousands)

58,233

58,292

58,422

Effect from dilution – shares

26

70

23

Antidilutive effect

—

(70 )

—

Weighted average number of common shares issued adjusted by the dilution effect

58,259

58,292

58,445

Basic earnings per share

3.10

(0.23 )

0.49

Diluted earnings per share

3.10

(0.23 )

0.49

 

a)       Basic

Basic earnings (loss) per share are calculated by dividing the profit (loss) attributable to shareholders of the Company, by the weighted average number of common shares issued during the year. Due to the loss for the year, the shares with potential dilution are not considered when there is loss, since they would have an antidilutive impact.

b)       Diluted

           Diluted earnings per share are calculated by dividing the net profit attributable to shareholders by the weighted average number of common shares outstanding during the year plus the weighted average number of shares that would be issued when converted all potential dilutive shares into shares.

 

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Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

30.     Provision for legal claims

The Company and its subsidiaries are involved in civil, labor, environmental and tax lawsuits and in administrative proceedings of labor, tax and environmental natures. The provision for probable losses arising from these lawsuits are estimated and updated by management, supported by the opinion of the Company’s external legal advisors.

 

Probable likelihood of loss 

At June 30, 2015, the Company recorded a provision of R$3,684 (R$3,573 at June 30, 2014) related to legal and administrative proceedings whose likelihood of loss was considered probable, as summarized below:

 

 

Labor (a)

Environmental (b)

Tax (c)

Civil (d)

Total

At June 30, 2013

593

2,396

1,813

—

4,802

           

Additions

311

—

1,450

603

2,364

Monetary restatement

234

—

65

—

299

Reversal/payments

(556)

(2,396)

(940)

—

(3,892)

           

At June 30, 2014

582

—

2,388

603

3,573

           

Additions

203

—

2,093

1,240

3,536

Monetary restatement

67

—

877

—

944

Reversal/payments

(341)

—

(2,185)

(1,843)

(4,369)

           

At June 30, 2015

511

—

3,173

—

3,684

 

(a)      Labor claims

At June 30, 2015, the Company and its subsidiaries, supported by the opinion of its external legal advisors, recorded a provision for labor claims in the amount of R$511 to cover those filed by former employees and third parties. In most of the cases, the Company and its subsidiaries are vicariously liable for such claims, since the discussion involves possible rights between third party companies and their former employees.

(b)      Tax suits

 

At June 30, 2015, the Company recorded provision for tax suits in the amount of R$3,173. The amount of R$2,979 refers especially to the alleged levy of social security taxes on payments to the Company’s foreign members of the Board, and the balance of R$194 refers to tax administrative proceedings under discussion, particularly involving the levy of ICMS on operations at Araucária Farm, State of Goiás. In March 2015, the Company considered that three of the five proceedings challenged by the Goiás State Finance Office had grounds, thus opting to pay the related tax amount. The contingency set up for these cases was reversed at June 30, 2015. 

(c)      Civil suits

 

At June 30, 2015, the Company reversed the balance of provision for civil contingency in the amount of R$603 related to fine due for alleged noncompliance with a contractual obligation taken on by the Company in the rural lease agreement executed in 2012 involving Horizontina Farm. On the other hand, the Company estimated a loss on doubtful accounts in the amount of R$3.000 as set forth in Note 7.

 

In November 2013, the Purchaser filed an injunctive relief for anticipated production of evidence, in  progress at    the Court of the Judicial District of Tasso Fragoso/MA, aiming at judicial approval of expert evidence determining noncompliance with the obligation taken on to open, clean and prepard the area.

 

 

 

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Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

The Company deemed adequate to set up a provision for such amount due to the possibility of a legal discussion,  since the obligation to open an area, taken on  by the Company under the Contract, will possibly be challenged in courts by the Purchaser.

 

In March 2013, the Company is a defendant in legal suit filed by alleged owner of birthrights on a portion of Horizontina Farm, alleging birthrights in relation to 900 hectares of the property, claiming the block of registrations 1744 and 1745. Based on the facts presented by the former owner as well as on the analysis of the suit by the external legal advisors, specialists in landholding legislation, the Company classified the contingent liability as remote loss from the beginning of the suit to September 30, 2014. Considering the cost benefit analysis of maintaining the suit in progress, the Company opted to pay R$1,240 to the plaintiffs, R$1,000 of which was addressed to the plaintiffs and R$240 to their lawyers (Note 26). The payment prompted the plaintiff to discontinue proceedings, the contingent liability was written off and the Company recorded the payment under other operating expenses.

  Possible likelihood of loss

 

The Company and its subsidiaries are parties to legal suits of civil, labor, environmental and tax natures, and administrative tax proceedings which are not provisioned, since they involve risk of loss classified as possible by the Company and its external legal advisors. The contingencies are as follows:

 

 

 

 

 

2015

 

2014

 

Civil (a)

13,129

12,080

Tax (b)

9,275

8,517

Labor (c)

808

1,125

Environmental (d)

279

3,468

 

23,491

25,190

(a)      Civil

 

At June 30, 2015, the Company and its subsidiaries are parties to civil claims in the amount of R$13,129 (R$12,080 at June 30, 2014) referring mainly to: (i) declaration of nullity of acknowledgement of debt due to the purchase and sale of rice, (ii) suspension of protest of promissory note provided as guarantee upon the acknowledgement of debt arising from purchase and sale of rice , (iii) injunctive relief for anticipated production of evidence  aiming at legal approval of expert evidence determining noncompliance with the obligation taken on to open, clean and prepare the area at Nova Horizontina farm, (iv) compensation  for pain and suffering and property damages, allegedly suffered due to a road accident occurred with an employee of a Company’s service provider in Araucária Farm, on October 29, 2011 and (v) annulment of the legal business of purchase and sale of one of the properties of Chaparral Farm, due to challenge by the seller of the validity of his representation when the property deed was drawn up; and (vi) compensation for property damages, loss of profit, pain and suffering, and esthetical damage, which led to  a request for life annuity due to the accident occurred with the employee of a Company’s service provider at Cremaq Farm.

 

 

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Table of Contents

  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

(b)      Tax

 

At June 30, 2015, the Company and its subsidiaries are parties to legal and administrative tax proceedings in the amount of R$9,275 (R$8,517 at June 30, 2014), comprising mainly lawsuits related to  (i) non-compliance statement aiming to overturn the interlocutory decision that partially approved the credit from income tax losses carry forward for the fourth quarter of 2007 and consequently not approving the Company offsets of the aforesaid credits; (ii) action filed aiming at the annulment of tax credit related to the monthly estimates of IRPJ and CSLL for January 2012; (iii) tax notice served for collection of ICMS tax credit on products exported by the Company; (iv) tax notice aiming at the collection of tax credit; (v) tax notice  aiming at the collection of ICMS tax credits, in the amount of R$209, based on the understanding that the Company did not  reverse  ICMS credits, arising from the allegedly undue bookkeeping of credits on capital expenditures, since it did not provide the CIAP book model "C", related to the period from January 1 to December 31, 2012; (vi) tax notice  for collection of ICMS tax credit, based on the understanding that the Company shipped primary products to exporters for the specific purpose of export, alleging that these products were not shipped abroad within the period of 180 (one hundred and eighty) days from the exit of the goods.

(c)      Labor

      

        At June 30, 2015, the Company and its subsidiaries are parties to labor claims in the amount of R$808 (R$1,125 at June 30, 2014) filed by former employees and third parties, mainly claiming indemnities and the recognition of employment relationship.

(d)      Environmental

At June 30, 2015, the Company and its subsidiaries are parties to environmental suits in the amount of R$279 (R$3,468 at June 30, 2014), related to tax notice served for alleged noncompliance with embargo at São Pedro Farm and alleged violation of environmental license pre-requisites  of  Preferência Farm.

 

The Company filed an annulment suit before the Federal Justice of Goiânia, State of Goiás, aiming at the annulment of tax notice for alleged degradation of permanent preservation area at São Pedro Farm. On October 15, 2013, the Company made the judicial deposit in the amount of R$3,056 corresponding to the fine applied, on November 4, 2014, the Company made a judicial deposit in the amount of R$1,030, corresponding to supplementary amount to the fine applied.

 

In 2015, the contingency related to this process was converted into remote, due to the interlocutory decision declaring the annulment of the tax notice which resulted in the application of fine, including its unenforceability.

 

Judicial deposits

 

At June 30, 2015, the Company has judicial deposits in the total amount of R$5,811 (R$4,644 at June 30, 2014), of which R$864 related to tax suits, R$328 related to labor claims, R$112 related to civil suits and R$4,507 related to environmental suits.

 

 

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  BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

31.     Commitments

a) Contract for grains supply

The sales price of soybean may be determined by the Company for the total or partial volume promised to be sold up to the date of delivery. The price, when established, is determined according to a contractual formula based on the soybean quote on the Chicago Board of Trade (“CBOT”). The price established in U.S. dollars is settled at the end of the commitment period in reais considering exchange rates defined in contract some days before the financial settlement date.

Based on the terms of the contract, the Company is subject to fines in the event of non-delivery of the committed volumes. Presently, the Company has no amount recorded related to fines, since all the contracts entered into were delivered as expected.

At June 30, 2015 commitments signed reached 17,940 tons of soybean.

Corn is sold to inumerous clients and the price is established in reais upon the sale. At June 30, 2015 commitments signed reached 14,203 tons of corn.

b) Contracts of sugarcane supply between BrasilAgro and Brenco Companhia Brasileira de Energia Renovável

In March 2008, the Company is a party to two contracts for the exclusive supply to Brenco Companhia Brasileira de Energia Renovável of the Copmany’s total production of sugarcane over two full crop cycles (for sugarcane, one full crop cycle consists of six agricultural years and five harvests, renewable as agreed by and between the parties). One of the contracts refers to an area of approximately 5,718 hectares at Araucária farm and the second to approximately 3,669 hectares at Alto Taquari farm. The price per ton, addressed by  these agreements, is determined based on Total Sugar Recoverable (ATR) price per ton of sugarcane effectively delivered, with ATR corresponding to the quantity of sugar available in the raw material, less sugar content lost during the production process, multiplied by the market prices of sugar and ethanol sold by regional plants in the domestic and foreign market, in each case.

As determined by the São Paulo Council  of Sugarcane, Sugar and Alcohol Producers (CONSECANA), for the year ended June 30, 2015, sales of sugarcane production amounted to R$52.9 million, representing 30% of total revenue. The purpose of the contracts is not to secure a more favorable price than the market price, since we expect that the ATR price as determined by CONSECANA will be generally equivalent to the market price, but rather to secure the sale of the sugarcane production in the long term.

 

June 30, 2015

June 30, 2014

June 30, 2013

54,396

39,406

62,583

   

 

Exclusive gross billing of sugarcane to the company Brenco Companhia Brasileira de Energia Renovável

The table above shows the amounts corresponding to 830,204 tons of sugarcane delivered in the current year up to June 30, 2015, 570,820 tons of sugarcane delivered up to June 30, 2014 and 1,047,791 tons of sugarcane delivered up to June 30, 2013. The price of sugarcane ton delivered was calculated on Total Sugar Recoverable (ATR) assessed on the sales date. There is a future balance of sugarcane to be delivered, the estimated quantity and amounts of which are difficult to be established considering the scenarios of fluctuating market value and crop productivity.

 

 

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BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

c)   Lease agreement - Partnership (II)

 

June 30, 2015

June 30, 2014

June 30, 2013

Lease agreement

307

294

-

On October 11, 2013 the Company executed a rural partnership agreement to operate a farm (Partnership II) located in the municipality of Ribeiro Gonçalves, in the state of Piauí. The partnership shall be effective for 11 (eleven) crop years, beginning on the date of its execution and ending by June 1, 2024. The areas shall be used to plant soybean, cotton, corn and similar crops, as well as other crops, and shall not exceed the term of the agreement.

This partnership agreement complies with the definition of operating lease. The payment will always be in kind (soybean grains), to be deposited until June 30 of each crop year in a warehouse not farther than 100 km (one hundred kilometers) of paved road from the partnership area or not farther than 100 km of unpaved road with a cost of freight equivalent to 100 km of paved road. The quantity of bags to be paid during the effectiveness of the agreement may vary due to two variables, namely: the productivity and the area effectively planted. According to such agreement, the minimum quantity to be paid in the long term would correspond to 539,078 bags, of which 59,898 bags of soybean in up to one year,  299,488 bags of soybean from one to five years and 179,693 bags of soybean with more than five years up to the end of the agreement .

 

d)        Lease agreement - Jatobá Farm

 

 

June 30, 2015

June 30, 2014

June 30, 2013

Lease revenue

2,304

-

-

 

On November 7, 2014 the Company executed a sub-lease agreement for third parties related to an area of 6,746.55 hectares owned by Jatobá farm, located in the municipality of Jaborandi,  state of Bahia. This agreement shall be effective as from the date of its execution and its termination is expected for September 30, 2015, when the mentioned area may be returned to BrasilAgro or acquired by the sub-lessee, in connection with  the purchase of land option included in the agreement. The amount of R$3,200 related to the sub-lease was received in advance. This lease agreement complies with the definition of an operating lease.

 

The agreement also addresses the purchase option of 2 (two) areas more owned by Jatobá farm, one of them totaling 6,984 hectares and the other 17,876 hectares.

 

The mentioned agreement was dissolved  on July 1, 2015.

 

e)          Sugarcane agricultural partnership agreement

 

On May 8, 2015, the Company executed three agreements with Brenco Companhia Brasileira de Energia Renovável.

 

A rural subpartnership agreement was entered into to operate nine farms located in the municipalities of Alto Araguaia and Alto Taquari, in the state of Mato Grosso. The subpartnership starts on the date of execution and is to end by  March 31, 2026. The areas shall be used for plantation  of sugarcane crops and cannot exceed the duration of the agreement. This partnership contract meets the definition of operating lease. The payment shall be always in kind (tons of sugarcane), to be delivered at the plant owned by Brenco Companhia Brasileira de Energia Renovável, located near the farms, during the harvesting period. The quantity to be paid during the effectiveness of the agreement shall be established in tons per hectare and varies according to the area being explored. According to this contract the quantity to be paid in the long term corresponds to 529,975 tons of sugarcane, of which 174,929 tons from one to five years and 355,046 tons for a period longer than five years up to the end of the agreement.

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

The second agreement deals with the regulation of rights and obligations between agricultural partners, in which BrasilAgro acquired the sugarcane crops planted by Brenco Companhia Brasileira de Energia Renovável in the properties addressed by the subpartnership agreement described above. Such agreement contract meets the definition of financial lease. The payment shall be always in kind (tons of sugarcane), to be delivered at the plant owned by Brenco Companhia Brasileira de Energia Renovável during the harvest period of the product. According to this contract the quantity to be paid in the long term corresponds to 127,699 tons of sugarcane, of which 41,470 tons in up to one year and, 86,229 tons from one to five years.

 

June 30, 2015

June 30, 2014

June 30, 2013

Financial lease (sugarcane crop)

7,576

-

-

 

 

The third agreement regulates the exclusive supply to Brenco Companhia Brasileira de Energia Renovável of the total sugarcane production in the properties included in the subpartnership agreement, for  two crop cycles. One cycle shall be effective until the depletion of the already existing sugarcane crops and another cycle for the sugarcane to be planted by BrasilAgro.

 

32.     Transactions with related parties

a) The primary related party transactions are as follows:

 

 

 

 

 

2015

 

2014

 

Current assets

 

 

Cresud (a.i)

856

723

 

856

723

Noncurrent assets

 

 

Cresca (b.i) (Note 4.3.a)

39,060

26,068

 

39,060

26,068

Current liabilities – trade accounts payable

 

 

Cresud (a.i) (Note 4.3.a)

480

218

Cresca acquisition – Cresud Group (a.ii) (Note 4.3.a)

—

33,019

 

480

33,237

 

 

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

 

 

 

 

 

2015

 

2014

 

2013

 

Statement of operations

 

 

 

Cresud (a.ii)

(2,383)

1,194

—

Futures and options

(138)

(55)

—

 

(2,521)

1,139

—

(a.i)    Expenses and revenue related to Due Diligence of new acquisitions and implementation of the budget and controls system and reimbursement of general expenses;

(a.ii)   Financing fully repaid to Cresud – R$18,037, discounted at present value, maturing on 12/12/2014 restated  on the foreign exchange variation (US$) and interest of 7.0% p.a.; acquisition of 50% interest in joint venture payable to Cresca – R$10,663 discounted at present value, maturity  on 12/12/2014, restated on the foreign exchange variation (US$) and interest of 7.0% p.a.;

(b.i)   Accounts receivable from Cresca for assumption of financing from the company Helmir – R$34,147, maturity at 12/31/2016 restated on the foreign exchange variation (US$) and interest of 12% p.a.; and intercompany loan receivable from Cresca granted on 12/23/2013 in the amount of R$4,913, with interest of 12% p.a. and indefinite maturity.

b)  Dividends payable to related party

On June 30, 2015 the Company has a balance of dividends payable in the amount of R$40,358, of which R$16,036 corresponds to the 39.76% stake of its shareholder Cresud S.A.

33.     Insurance

 

The Company and its subsidiaries maintain (i) civil liability insurance for all employees working at the farms, (ii) insurance for vehicles and machinery, (iii) life insurance for all the employees, as well as (iv) insurance for Directors and Officers (D&O) and for other Board members. The coverage amount is considered sufficient by management to cover risks, if any, over its assets and/or liabilities. The Company assessed the risk of farm buildings and facilities owned by the Group, as well as its inventories and biological assets, concluding that there is no need for other types of insurance due to low likelihood of risks.

 

Below is the table of the liabilities covered by insurance and the related amounts at June 30, 2015:

 

Insurance type

Coverage - R$

Vehicles

1,694

Civil liability (D&O)

30,000

Civil, professional and general liability

5,000

Machinery

2,184

Fire/lightning/explosion/electrical damage (office)

600

 

39,478

 

Given their nature, the assumptions adopted are not part of the scope of the audit of the financial statements. As a consequence, they were not audited by our independent auditors.

 

 

 

 

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Table of Contents

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Notes to the financial statements

June 30, 2015

(In thousands of reais, except if stated otherwise)

 

 

34.      Subsequent events

 

Repurchase of shares program

 

In accordance with the repurchase program of share, the Company may repurchase 3,491,550 outstanding common shares issued by the Company in accordance with Minutes of the Board of Directors meeting held on September 3, 2015. To the date of publication of these financial statements, total shares bought back by the Company reached 455,700 in the amount of R$5,068.

 

Collection of IRPJ and CSLL

 

On July 20, 2015, the Company and its subsidiary Jaborandi Ltda. obtained reimbursement related to accumulated credits on negative balances of IRPJ and CSLL. The amounts included in the requests were: R$1,839 for calendar years 2012 and 2013, and the amount of R$165 in Jaborandi Ltda. related to calendar year 2013.

 

Payment of financing

 

After June 30, 2015, the Company and its subsidiary Jaborandi Ltda. settled financing contracts for funding of crops and working capital with Banco do Nordeste – BNB and Santander, respectively (Note 18) in the total amount of R$34,725 related to the principal and R$2,443 related to interest.

 

Stock options

 

On August 7, 2015, the officers exercised the stock option for 233,689 shares in the amount of R$2,006, related to the First Program of Grant of Stock Options.

 

Release of restricted marketable securities for the sale of Cremaq farm

 

On July 10, 2015 the amount of R$159,414, representing 78.16% of the balance of the blocked account related to the   partial record of the registrations on behalf of the purchaser. The remaining balance shall be released through the record  of the remaining registration and of conditions precedent defined in the agreement, according to Note 1.1.

 

Payment of Finance Alto Taquari

 

On September 17, 2015, the previous owners finalized the transfer of the indenture of Alto Taquari Farm to the Company. On the same date, the BrasilAgro made the full payment of the outstanding amount of the accounts payable for the purchase of farm in the amount of R$27,394.

 

General Shareholders Meeting

 

On October 28, 2015, the Company’s Shareholders’ Meeting approved: (i) the Company’s Financial Statements related to the fiscal year ended on June 30, 2015; (ii) the distribution of the income reported for the year ended on June 30, 2015, and the distribution of dividends in the amount of R$80.7 million or R$1.3977 per share; (iii) the election of the members of the Board of Directors and Fiscal Council and (iv) the Company’s management annual overall compensation for the fiscal year initiated on July 1, 2015.

 

F-73

 

 

 

 

 

 

 

 

 

EXHIBIT 4.17

 

PRIVATE INSTRUMENT OF REAL PROPERTIES AND RURAL ASSETS PURCHASE AND SALE COMMITMENT AND OTHER COVENANTS

 

By this private instrument, entered into by and between:

 

1.        IMOBILIÁRIA CREMAQ LTDA. , a legal entity of private law, with its principal place of business in the City of São Paulo, State of São Paulo, at Avenida Brigadeiro Faria Lima, 1.309, 5º andar, sala 02, CEP 01452-002, enrolled in the National Register of Legal Entities of the Ministry of Finance (“ CNPJ/MF ”) under No. 08.490.332/0001-03, herein duly represented by its directors, Messrs. Júlio Cesar de Toledo Piza Neto , Brazilian citizen, married, agronomist, bearer of Identity Card RG No. 14.208.972-SSP/SP, enrolled in the Individual Taxpayers’ Register of the Ministry of Finance (“ CPF/MF ”) under No. 157.429.868-23, and André Guillaumon , Brazilian citizen, married, agronomist, bearer of Identity Card RG No. M-7224381 SSP/MG, enrolled in the CPF/MF under No. 002.728.986-94, both with commercial address in the City of São Paulo, State of São Paulo, at Avenida Brigadeiro Faria Lima, 1.309, 5º andar, hereinafter referred to as “ IMOBILIÁRIA CREMAQ ”;

 

2.        BRASILAGRO – COMPANHIA BRASILEIRA DE PROPRIEDADES AGRÍCOLAS , a publicly-held joint-stock company, with its principal of business in the City of São Paulo, State of São Paulo, at Avenida Brigadeiro Faria Lima, 1.309, 5º andar, CEP 01452-002, enrolled in the CNPJ/MF under No. 07.628.528/0001-59, herein duly represented by its officers, Messrs. Júlio Cesar de Toledo Piza Neto and André Guillaumon , identified above, hereinafter referred to as “ BRASILAGRO ” and, jointly with IMOBILIÁRIA CREMAQ, simply referred to as “ SELLERS ”;

 

3.        ZMACQ 3 AGROPECUÁRIA LTDA. , a Brazilian limited company with its principal place of business in the City of Ribeirão Preto, State of São Paulo, at Avenida Braz Olaia Acosta, 727, conjuntos 1401 e 1402, sala A, Jardim Califórnia, CEP 14026-040, enrolled in the CNPJ/MF under No. 22.122.307 /0001-06 , herein duly represented pursuant to its Articles of Association by its legal representatives, Messrs. CARLOS AGUIAR NETO , Brazilian citizen, married, engineer, bearer of Identity Card RG No. 19.127129.986-8-SSP/SP, and enrolled in the CPF/MF under No. 153.127.368-80, resident and domiciled in the City of São Paulo, State of São Paulo, with commercial address at Rua Funchal, 418, 33º andar, sala 3.301, Vila Olímpia, CEP 04551-060, and

 

 

 

MICHAEL LEWIN FEIBELMANN , Brazilian citizen, married, administrator, bearer of Identity Card RG No. 10.883.097 SSP/MG, and enrolled in the CPF/MF under No. 034.691.146-09, resident and domiciled in the City of Uberlândia, State of Minas Gerais, at Rua dos Picapaus, 1750, Cond. Jardins Roma, CEP 38412-246, duly authorized to perform this act under the Minutes of the Quotaholders’ Meeting held on May 14, 2015, hereinafter referred to as “ ZMACQ 3 ”, and

 

4.        CREMACQ AGROPECUÁRIA LTDA. , a Brazilian limited company with its principal place of business in the City of Ribeirão Preto, State of São Paulo, with comercial address at Avenida Braz Olaia Acosta, 727, suite 1402, part, Jardim Califórnia, CEP 14026-040, enrolled in the CNPJ/MF under No. 21.832.174/0001-90, herein duly represented pursuant to its Articles of Association by its legal representatives , Messrs. Carlos Aguiar Neto and Michael Lewin Feibelmann , qualified above, hereinafter referred to as “ CREMACQ AGRO ”, and jointly with SELLERS and ZMACQ 3, simply referred to as “ Parties ”.

 

WHEREAS :

 

(A)      IMOBILIÁRIA CREMAQ is the owner of the rural real properties better described and identified in clause 1.1;

 

(B)      BRASILAGRO is the current lessee of said real properties and the owner of several rural assets located therein and better described and identified in clause 1.7; and

 

(C)      SELLERS are interested in disposing of, and ZMACQ 3 is interested in acquiring the real properties and the rural assets better described and identified in clauses 1.1 and 1.7, respectively.

 

NOW, THEREFORE, the Parties have decided, out of common agreement, to execute this Private Instrument of Real Properties and Rural Assets Purchase and Sale Commitment and Other Covenants (“ Agreement ”), under the terms set forth below.

 

1.        SUBJECT MATTER OF THE PURCHASE

 

(A)      REAL PROPERTIES

 

 

 

 

1.1.    Real Properties Subject Matter of the Purchase . IMOBILIÁRIA CREMAQ represents to be the owner and lawful holder, free and clear of any liens, encumbrances, litigations, doubts, debts, fines, contingencies, mortgages, whether legal or conventional, or even late taxes (“ Liens ”), except for the provisions in clauses 1.4, 1.5 and 1.6 below, of the following rural real properties located in the cities of Baixa Grande do Ribeiro and Ribeiro Gonçalves, State of Piauí, regionally known as Fazenda Cremaq, which together total an area of thirty-two thousand, five hundred and twenty-two hectares, forty-four ares and thirty-six centiares ( 32,522.4436 ha ), object of real estate records Nos. 40, 91, 113, 868, 1,578, 2,379, 2,380, 2,381, 2,382, 2,551, 2,552, 2,566, 2,567, 2,568, 2,569, 2,570, 2,571, 2,572 and 2,579, of the Real Estate Registry Office of Ribeiro Gonçalves, in the State of Piauí, described and detailed below, and jointly referred to herein as “ REAL PROPERTIES ”:

 

(i)       Rural Real Property named “ Fazenda Buriti Torto ”, located in the city of Baixa Grande do Ribeiro, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by the Brazilian Institute of Settlement and Land Reform (“ INCRA ”) of six hundred and two hectares and sixty-five ares ( 602.65 ha ), object of real estate record No.40 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under Rural Real Property Enrollment Certificate (CCIR) No. 128.015.000.043-9 (“ Real Property I ”);

 

(ii)      Rural Real Property named “ Fazenda Bumerangue ”, located in the city of Baixa Grande do Ribeiro, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of three thousand, two hundred and four hectares, eighty-nine ares and ninety-five centiares ( 3,204.8995 ha ) (observed the provided in clause 5.1.1 (ii)), object of real estate record No. 91 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 128.015.006.734-7 (“ Real Property II ”);

 

(iii)     Rural Real Property named “ Fazenda Altamira ”, located in the city of Ribeiro Gonçalves, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of four thousand, seven hundred and sixty hectares, forty-eight ares and ninety-one centiares ( 4,760.4891 ha ), object of real estate record No. 113 , of the Real Estate Registry Office of Ribeiro Gonçalves,

 

 

 

State of Piauí, duly registered with INCRA under CCIR No. 128.015.003.581-0 (“ Real Property III ”);

 

(iv)     Rural Real Property named “ Fazenda Caximbó ”, located in the city of Ribeiro Gonçalves, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of four hundred and twenty-six hectares, eighty-seven ares and forty-nine centiares ( 426.8749 ha ), object of real estate record No. 868 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 128.015.001.414-6 (“ Real Property IV ”);

 

(v)      Rural Real Property named “ Fazenda Cajufrutos ”, located partly in the city of Baixa Grande do Ribeiro and partly in the city of Ribeiro Gonçalves, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of eleven thousand, two hundred and forty-two hectares, seventeen ares and fifty-one centiares (11,242.1751 ha), object of real estate record No. 1.578 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 128.015.009.369-0 (“ Greater Area of Real Property V ”), from which an area of six thousand and twenty hectares, seven ares and sixty-two centiares ( 6,020.0762 ha ) will be separated, which is the object of this Agreement (“ ZMACQ 3’s Area Detached” or simply “Real Property V ”), with the remaining area being equivalent to five thousand, two hundred twenty-two hectares, nine ares and eighty-nine centiares (5.222,0989) ha , (“ Remaining Area of Real Property V ” or “ Rampelotti’s Area Detached ”), all in the manner described in clause 1.1.2 below. [The difference between the technical material and the provisions contained in the 2 nd Addendum was made by the topographer to try and minimize the area difference after the certification. There is always a small difference between the certified area and the technical documents. OK, area already decreased]

 

(vi)     Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, part of the subdivision of Fazenda Cajufrutos , with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of nine hundred and fifty-five hectares, seven ares and thirty-four centiares ( 955.0734 ha ), object of real estate record No. 2.379 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.591-9 (“ Real Property VI ”);

 

 

 

 

(vii)    Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, part of subdivision of Fazenda Cajufrutos , with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of one thousand, two hundred and fifty hectares, fifty-seven ares and sixty centiares ( 1,250.5760 ha ), object of real estate record No. 2,380 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.575-7 (“ Real Property VII ”);

 

(viii)    Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, part of the subdivision of Fazenda Cajufrutos , with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of one thousand, two hundred and forty-six hectares, thirty-two ares and three centiares ( 1,246.3203 ha ), object of real estate record No. 2.381 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.540-4 (“ Real Property VIII ”);

 

(ix)     Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, part of the subdivision of Fazenda Cajufrutos , with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of one thousand, two hundred and thirty-six hectares, sixty-seven ares and sixty-two centiares ( 1,237.6762 ha ), object of real estate record No. 2.382 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.559-5 (“ Real Property IX ”);

 

(x)      Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, part of the subdivision of Fazenda Condomínio , with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of thirty-nine hectares, eighty-six ares and seventy-seven centiares ( 39.8677 ha ), object of real estate record No. 2.551 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.583-8 (“ Real Property X ”);

 

(xi)     Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, part of the subdivision of Fazenda Cajufrutos , with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of one

 

 

 

thousand, one hundred and fourteen hectares, seventy-six ares and four centiares ( 1,114.7604 ha ), object of real estate record No. 2.552 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.583-8 (“ Real Property XI ”);

 

(xii)    Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of nine hundred and twenty-one hectares, twenty-four ares and forty-four centiares ( 921.2444 ha ), object of real estate record No. 2.566 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.591-9 (“ Real Property XII ”);

 

(xiii)   Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of thirty-nine hectares, eighty-two ares and eighty-eight centiares ( 39.8488 ha ), object of real estate record No. 2,567 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.567-6 (“ Real Property XIII ”);

 

(xiv)   Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of thirty-nine hectares, eighty-five ares and eighty-eight centiares ( 39.8588 ha ), object of real estate record No. 2,568 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.540-4 (“ Real Property XIV ”);

 

(xv)    Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of one thousand, one hundred and seventy-four hectares, fifty-five ares and sixty-five centiares ( 1,174.5565 ha ), object of real estate record No. 2,569 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.559-5 (“ Real Property XV ”);

 

(xvi)   Rural Real Property named “ Fazenda Cajufrutos II ”, located in the city of Baixa Grande do Ribeiro, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of three thousand and eighty-

 

 

 

one hectares, eight ares and forty-nine centiares ( 3,081.0849 ha ), object of real estate record No. 2.570 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.524-2 (“ Real Property XVI ”);

 

(xvii)   Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of one thousand, two hundred and eighty-four hectares, sixty-two ares and sixty centiares ( 1,284.6260 ha ), object of real estate record No. 2,571 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.025.622.540-4 (“ Real Property XVII ”);

 

(xviii) Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of thirty-nine hectares, ninety-seven ares and fifty-two centiares ( 39.9752 ha ), object of real estate record No. 2,572 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.106.269.611-9 (“ Real Property XVIII ”); and

 

(xix)   Rural Real Property located in the city of Baixa Grande do Ribeiro, State of Piauí, with a total registered area, georeferenced by the Brazilian Geodesic System and certified by INCRA, of thirty-nine hectares, eighty-eight ares and sixty-four centiares ( 39.8864 ha ), object of real estate record No. 2.579 , of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, duly registered with INCRA under CCIR No. 950.106.269.638-0, and with the Brazilian Federal Revenue Office under NIRF 1.237.218-8 (“ Real Property XIX ”).

 

         1.1.1.  Real Estate Records . The REAL PROPERTIES are better described and identified in the real estate records, copies of which make up Exhibit 1.1.1 hereto.

 

1.1.2.  Area to be Detached . As referred to in item 1.1(v) above, Real Property V, which is part of the subject matter of this Agreement, consists of the ZMACQ 3’s Detached Area, comprising an area to be detached from record No. 1,578 of the Real Estate Registry Office of Ribeiro Gonçalves, State of Piauí, in the form of Exhibits 1.1.2(i) to 1.1.2(iv) .

 

 

 

 

         1.1.2.1. Part of the Remaining Area of Real Property V, equivalent to 4,957.0989 ha (four thousand, nine hundred fifty-seven hectares, nine ares and eighty-nine centiares) was committed to be sold, under the Private Instrument of Rural Real Property Purchase and Sale Commitment entered into on May 10, 2013, amended on May 13, 2013 and February 20, 2015, between IMOBILIÁRIA CREMAQ and José Carlos Rampelotti, João Cláudio Rampelotti, Jaime Cézar Rampelotti and Jairo Celson Rampelotti (“ Rampelotti Committed Area ”). The balance of the area that composes the Remaining Area of Real Property V consists of the Area under Dispute, as defined in clause 1.5 below.

 

1.1.2.2. The ZMACQ 3’s Detached Area and the Remaining Area of Real Property V, including identification of the Rampelotti Committed Area and the Area under Dispute are better described and identified under the specifications and/or topographic surveys attached hereto as Exhibit 1.1.2(i) to 1.1.2(iv) , and shall be verified upon a process of georeferencing and certification by INCRA, as better detailed in Chapter 5 hereof.

 

1.1.2.3.        In light of the detachment set forth above, the total area of the REAL PROPERTIES object of this Agreement is twenty-seven thousand, three hundred hectares, thirty-four ares and forty-seven centiares ( 27,300.3447 ha ).

 

1.1.2.4         This instrument is entered into in an “ ad corpus ” manner, except for the Additional Area (as defined in clause 5.1.2.1.2 (i) below), the obligation of delivery of which by the SELLERS is entered into in an “ ad mensuram ” manner.

 

1.2.    Deed of Purchase . The REAL PROPERTIES were purchased by IMOBILIÁRIA CREMAQ from Brunetta Participações S.A., under the Public Deed of Sale drafted on April 18, 2008, in the notes of the 12 th Notary Office of São Paulo (book 2,480, pages 117 to 238), duly registered in the records of the REAL PROPERTIES, as per R.7/40; R.32/91; R.7/113; R.8/868; R.8/1.578; R.16/2.379; R.12/2.380; R.6/2.381; R.5/2.382; R.4/2.551; R.9/2.552; R.12/2.566; R.4/2.567; R.4/2.568; R.4/2.569; R.4/2.570; R.4/2.571; R.9/2.572; and R.4/2.579.

 

 

 

 

1.3.    Enrollment before the Brazilian Federal Revenue Office . The REAL PROPERTIES are jointly enrolled with the Brazilian Federal Revenue Office, under NIRF 1.237.218-8, with a total assessed value of one hundred and nineteen million, five hundred and twelve thousand, nine hundred seventy-four Reais and forty centavos (R$ 119,512,974.40) for the fiscal year of 2014.

 

1.4.    Deed of Mortgage . The enrollments of Real Properties II, VI, VII, VIII, X, XI, XII, XIV, XVII and XIX contain the registration of a first mortgage bond created in favor of Banco Nordeste do Brasil S.A., to secure the obligations undertaken by BRASILAGRO under Rural Deed of Mortgage No. 139.2009.1104.3407, issued on October 28, 2009 (and amended on May 2 nd , 2011), at the historic value of twenty-five million, five hundred and thirty-two thousand, nine hundred and eighty-nine Reais and sixteen centavos (R$ 25,532,989.16), due on October 28, 2021 (“ Deed of Mortgage ”).

 

         1.4.1.  Records and Annotations of the Deed of Mortgage . The Deed of Mortgage is registered/annotated under (i) R.33 and Av.34 of record No. 91; (ii) R.17 and Av.18 of record No. 2.379; (iii) R.13 and Av.14 of record No. 2.380; (iv) R.7 and Av.8 of record No. 2.381; (v) R.5 and Av.6 of record No. 2.551; (vi) R.10 and Av.11 of record No. 2.552; (vii) R.13 and Av.14 of record No. 2.566; (viii) R.15 and Av.16 of record No. 2.568; (ix) R.5 and Av.6 of record No. 2.571; and (x) R.5 and Av.6 of record No. 2.579.

 

1.5.    Judicial Possession Dispute . IMOBILIÁRIA CREMAQ represents that there is an action for maintenance of possession in progress, as per Proceedings No. 0000316-94.2009.8.18.0042, being judged by the Lower Agricultural Court of the Judicial District of Bom Jesus, State of Piauí, filed by it against José Carlos Rampelotti, the subject matter of which is a discussion regarding the possession of an area of approximately three hundred and fifty-two hectares (352 ha) of the Real Property V (“ Action for Maintenance of Possession ”). In a topographic survey carried out by the Parties and included in Exhibit 1.1.2.2(iv) , it was verified that the actual area under possessory dispute is two hundred and sixty-five hectares (265 ha), it being tolerated by the Parties a variation of up to 5% (five percent) of said possession area, since due to topographical differences between the criteria used for the preparation of Exhibit 1.1.2.2 (iv) and for the effective georeferencing area (“ Area under Dispute ”).

 

 

 

 

         1.5.1   Filing for Shelving of Action for Maintenance of Possession . Without prejudice to the indemnification obligations set forth in Clause 7.1 hereof, IMOBILIÁRIA CREMAQ undertakes to file, by December 31, 2015, a petition with the court, in the records of the Action for Maintenance of Possession, in a manner to be informed to the ZMACQ 3, requesting its shelving, provided that said shelving does not cause any decrease to the area under possession or ownership of Real Property V (ZMACQ 3’s Area Detached) by ZMACQ 3 (“ Filing for Shelving ”).

 

1.6.    Leases . The REAL PROPERTIES are currently occupied pursuant to the Rural Lease Agreement entered into between IMOBILIÁRIA CREMAQ and BRASILAGRO on June 1, 2007, as amended on June 1, 2009, October 22, 2009, November 1, 2010, December 14, 2010, and May 10, 2015 (“ BrasilAgro Lease ”). Additionally, the following leases are registered/annotated in the records of the REAL PROPERTIES, which terms have expired, as stated by the Sellers pursuant to clause 6.1.5 below: (i) Real Property VIII: Rural Lease Agreement for Agricultural Exploration Activity entered into between IMOBILIÁRIA CREMAQ and Cláudio Brunetta, on September 27, 2007; (ii) Real Property VI: (a) Lease Agreement entered into between Cláudio Brunetta, Miguel Brunetta, Anacleto Brunetta and Mário Brunetta, as lessors, and Jurema Brunetta, Adelia Brunetta, Geni Brunetta and Marli Brunetta, as lessees, on September 9, 2003; and (b) Lease Agreement between Cláudio Brunetta, Miguel Brunetta, Anacleto Brunetta and Mário Brunetta, as lessors, and Nativo Brunetta, as lessee, on October 14, 2005 (the leases listed in items (i) and (ii) (a) and (b) above are collectively referred to as “ Brunetta Lease ”).

 

         1.6.1. Waiver of the Right of First Refusal of Brasilagro . BRASILAGRO hereby waives the right of first refusal assured thereto by the BrasilAgro Lease and by Law 4,504/64 for the acquisition of the REAL PROPERTIES under the conditions hereof.

 

 

            (B)      ASSETS

 

1.7.    Assets Object of the Purchase . BRASILAGRO represents to be the owner and lawful holder, free and clear of any Liens, of the assets described and identified in further detail in Exhibit 1.7 , which include the grain silo located in the Real Property VIII (“ Silo ”) and the constructions, improvements and agricultural renovations located in the REAL PROPERTIES (“ ASSETS ”).

 

 

 

 

1.8.    The Parties hereby agree that in no event may CREMACQ AGRO acquire the ASSETS and ZMACQ 3 not acquire the REAL PROPERTIES, and in any event of termination of this Agreement the transaction of purchase and sale of the ASSETS and purchase and sale of the REAL PROPERTIES shall be equally terminated, subject to the termination rules set out in Clause 9 below, as the case may be.

 

2.        PURCHASE PRICE AND FORM OF PAYMENT

 

2.1.    Purchase Price . By this private instrument and pursuant to law, SELLERS undertake to sell to ZMACQ 3 and CREMACQ AGRO, and the latter undertake to purchase, respectively, from the formers, the REAL PROPERTIES and the ASSETS identified in clauses 1.1 and 1.7 below for the total, certain, fixed and non-adjustable price of two hundred and seventy million Reais ( R$ 270,000,000.00 ) (“ Purchase Price ”), of which:

 

(i)      Two hundred and forty-two million Reais (R$ 242,000,000.00) to be paid to IMOBILIÁRIA CREMAQ for the entirety of the REAL PROPERTIES (“ Price of the REAL PROPERTIES ”), observing the amounts broken down by enrollment, as indicated in Exhibit 2.1(i) ; and

 

(ii)      Twenty-eight million Reais (R$ 28,000,000.00) to be paid to BRASILAGRO for the entirety of the ASSETS (“ Price of the ASSETS ”).

 

2.2.    Form of Payment . The Purchase Price shall be paid as follows:

 

2.2.1.  Five million Reais (R$ 5,000,000.00) are paid on the date hereof by CREMACQ AGRO or an affiliate to the account and order of CREMACQ AGRO to BRASILAGRO as down payment and principle payment of the Purchase Price and will be deducted from the Price of Assets (“ Down Payment ”) by means of Wire Transfer (TED) into checking account No. 86049-0, Branch 0160, held with Bank Itaú (341) by BRASILAGRO (“ BRASILAGRO’s Account ”), for which amount BRASILAGRO shall automatically grant to CREMACQ AGRO full, general and irrevocable release as having been paid and settled, upon bank clearance, serving the bank transfer slip as discharge term.

 

 

 

 

2.2.2.  Sixty-two million and five hundred thousand Reais (R$ 62,500,000.00) shall be paid within fifteen (15) Business Days counted from the date of this Agreement (“ Cash Installment ”), provided that the due diligence is completed satisfactorily in accordance with clause 2.5 below, as below:

 

(i)      Thirty-nine million and five hundred thousand Reais (R$ 39,500,000.00) to be paid by ZMACQ 3 to IMOBILIÁRIA CREMAQ, as part of the Price of the REAL PROPERTIES, in the proportion individualized by record as provided in Exhibit 2.1(i) , by means of Wire Transfer (TED) into checking account No. 61896-2, Branch 0393, kept with Bank Banco Itaú (341), held by IMOBILIÁRIA CREMAQ (“ IMOBILIÁRIA CREMAQ’s Account ”), for which amount IMOBILIÁRIA CREMAQ shall automatically grant to ZMACQ 3 full, general and irrevocable release, as having been paid and settled, upon bank clearance, serving the bank transfer slip as discharge term; and

 

(ii)      Twenty-three million Reais (R$ 23,000,000.00) to be paid by CREMACQ AGRO to BRASILAGRO, as balance of the Price of the ASSETS, by means of Wire Transfer (TED) into BRASILAGRO’s Account, for which amount BRASILAGRO shall automatically grant to CREMACQ AGRO full, general and irrevocable release, as having been paid and settled, upon bank clearance, serving the bank transfer slip as discharge term.

 

2.2.3.  Two hundred and two million and five hundred thousand Reais (R$ 202,500,000.00) (“ Blocked Deposit Amount ”), and when collectively with the Cash Installment, the “ Purchase Price Balance ”) shall be paid within fifteen (15) Business Days after the date hereof, by means of Wire Transfer (TED) by ZMACQ 3 into IMOBILIÁRIA CREMAQ’s Blocked Account (as defined in Chapter 3 below), by means of balance of the Price of REAL PROPERTIES, provided that (i) the due diligence is completed satisfactorily in accordance with clause 2.5 below; and (ii) the instrument of termination of the BrasilAgro Lease is signed, pursuant to Exhibit 2.2.3 .

 

2.2.3.1.        Subject to the terms and conditions set out in clauses 3, 5 and 9.2, the funds deposited into the Blocked Account shall be released to IMOBILIÁRIA CREMAQ under the terms of the respective Blocked Account Deposit Agreement (as defined below), provided that, and only if, SELLERS have fulfilled the Conditions Precedent applicable to each of the Deeds, as defined in Chapter 5.

 

 

 

 

2.2.3.2.        Without prejudice to the provisions of clause 9.2(ii), If SELLERS fail to fulfill the Conditions Precedent to which the releases of the Blocked Deposit Amount are bound, the corresponding amounts shall remain withheld in the Blocked Account, and the clearance thereof shall be delayed for as many days as there are days of delay, observing the terms and conditions set out in this Agreement and in the Blocked Account Deposit Agreement.

 

2.3.    If any of the installments of the Purchase Price Balance is not paid within the term set in clauses 2.2.2 and 2.2.3 above, the amount owed shall be added by a default fine of two percent (2%) and interest of one percent (1%) per month and monetary adjustment, from the default date onwards, based on the positive variation of the General Market Price Index disclosed by the Getúlio Vargas Foundation (“ IGP-M/FGV ”), considering as basic index, for purposes of calculating the adjustment, the index related to the month immediately prior to the one contractually set forth for the fulfillment of the obligation and, adjustment index, the index pertaining to the month immediately prior to that when the payment takes place, or if it is unavailable, the index that officially replaces it (“ Monetary Adjustment ”).

 

2.4.    For the purposes hereof, the Parties agree that “ Business Day ” shall mean any day other than a Saturday, Sunday or holiday declared in the City of São Paulo, State of São Paulo, and in the Federative Republic of Brazil. Deadlines related to the payment of any monetary obligation relating to this instrument will be extended, without any increase in the amounts to be paid, until the first Business Day immediately following the due date, if their due date is not business day.

 

2.5.    Satisfactory Completion of the Due Diligence . As a condition for payment of Cash Installment and deposit of the Blocked Deposit Amount , Sellers shall submit the documents and certificates listed in Exhibit 2.5 to ZMACQ 3 until May 29, 2015, in perfect legal order (" Due Diligence Documents "), and the Due Diligence Documents shall not represent or imply any significant direct or indirect risk to REAL PROPERTIES, ASSETS, ZMACQ 3, CREMACQ AGRO or to this transaction.

 

2.5.1.  Based on the Due Diligence Documents submitted by the sellers to ZMACQ 3 until May 29, 2015, ZMACQ 3 shall, by June 5, 2015, manifest in writing of (i) the successful completion of the due diligence and compliance with the payment of the

 

 

 

Cash Installment and deposit of Blocked Deposit Amount ; or (ii) unsatisfactory completion of the due diligence and consequent termination of this Agreement as provided by clause 9.2 (iii) below. For clarity, the lack of submission of all Due Diligence Documents by Sellers to ZMACQ 3 to May 29, 2015 not configure breach of this Agreement, not being SELLERS subject to any penalty, exception made for the immediate return of all payments made by ZMACQ 3 or CREMACQ AGRO in case such parties opt for termination of this Agreement pursuant to clause 9.2 (iii) below.

 

2.5.2.  Sellers are still obliged to use its best efforts to obtain and submit the documents and certificates listed in Exhibit 2.5.2 to ZMACQ 3, and is, however, understood and agreed that obtaining or presenting such documents is not a condition for payment of Cash Installment and deposit of the Blocked Deposit Amount nor could the ZMACQ 3 plead breach of such an obligation for termination purposes of this Agreement.

 

3.        BLOCKED ACCOUNT

 

3.1.    Blocked Account . The Parties and Banco Santander S.A. or any other first-tier financial institution defined by the Parties out of common agreement (“ Escrow Agent ”) shall execute within fifteen (15) Business Days as of this date, the escrow agreement (“ Blocked Account Deposit Agreement ”), substantially pursuant to Exhibit 3.1 , and the Blocked Deposit Amount shall be deposited by ZMACQ 3 into the Blocked Account that will be opened with the Escrow Agent in the name of IMOBILIÁRIA CREMAQ (“ Blocked Account ”) within fifteen (15) Business Days after the date hereof, as set forth in clause 2.2.3. The Blocked Account Deposit Agreement shall provide that any withdrawal, transfer or investment of the available amounts in the Blocked Account shall only be authorized by the joint signature of ZMACQ 3 and IMOBILIÁRIA CREMAQ, pursuant to the Blocked Account Deposit Agreement or in another manner established in an arbitration award rendered under Chapter 10.

 

3.2.    Expenses, Taxes and Fees of the Blocked Account . All expenses, taxes, fees and other bank charges incurred in relation to the opening, maintenance or transfer of funds in the Blocked Account shall be paid directly by IMOBILIÁRIA CREMAQ with funds from the Blocked Account of IMOBILIÁRIA CREMAQ, be they available or invested. If this Agreement is terminated pursuant to clause 9.2 (ii) and the funds of the Blocked Account are transferred to ZMACQ 3, IMOBILIÁRIA CREMAQ shall

 

 

 

promptly reimburse the ZMACQ 3 for any expenses, taxes, fees or other bank charges that have been deducted from the Blocked Account under this clause 3.2.

 

3.3.    Financial Capacity of the Escrow Agent . If (i) SELLERS and ZMACQ 3 are of the opinion, by mutual agreement, at any time, that the financial capacity or health of the Escrow Agent is at risk; or (ii) the rating of the Escrow Agent before any of the following agents is downgraded from the investment grade – Moody’s, Standard & Poor or Fitch, the Parties shall cause the Blocked Account to be transferred to another first-class financial institution, to be chosen out of common agreement between the Parties, and it is hereby agreed that, in such case, the conditions of the Blocked Account Deposit Agreement shall be maintained, and a new deposit agreement, substantially in the same form, shall be entered into by and between and the Parties and the new financial institution, prior to the transfer of the funds.

 

3.4.    Clearance of Funds from the Blocked Account . The balance of the Blocked Deposit Amount (together with all profits accrued thereon and deducted any amounts due under clause 3.2) shall be released to IMOBILIÁRIA CREMAQ, under the terms of the Blocked Account Deposit Agreement and according to the provisions set out in Chapter 5 hereof, by means of TEDs into IMOBILIÁRIA CREMAQ’s Account, or to ZMACQ 3, in the applicable events of termination contained in Chapter 9 below.

 

3.5.    Seizure or Attachment of the Blocked Account . If, at any time during the term of effectiveness of the Blocked Account Deposit Agreement, the whole or a part of the Blocked Deposit Amount is subject to any judicial guarantee, seizure, attachment or any other kind of liens (“ Blocked Amount ”), the Party that triggered such restriction shall, within five (5) days after the date when it becomes aware of such restriction, submit to the other Party a bank guarantee issued by a first-class financial institution, satisfactory to the other Party, at an amount equivalent to the Blocked Amount, which shall remain in full force and effect until the Blocked Amount is fully released from such seizure, attachment or liens.

 

3.6.    Investments . The Blocked Deposit Amount shall be invested as set out in the Blocked Account Deposit Agreement.

 

 

 

 

 

4.        OWNERSHIP OF THE REAL PROPERTIES AND ASSETS

 

4.1.    Investiture in the Ownership and Responsibility for Taxes and Charges . Except as provided for in clause 4.2 below, ZMACQ 3 and CREMACQ AGRO shall be vested in the naked possession of the REAL PROPERTIES and ASSETS, respectively, on the date of payment of the Cash Installment and deposit of the Blocked Deposit Amount in the Blocked Account, becoming fully responsible for the payment of all the taxes, fees and other charges assessed or that may be assessed thereon, as well as the expenses necessary for the proper maintenance, safety and conservation of REAL PROPERTIES and ASSETS, it being certain that the doubts, debts and duties whose triggering events occur prior to the date of ZMACQ 3’s investiture in the REAL PROPERTIES possession and CREMACQ AGRO’s investiture in the ASSETS possession, shall be the responsibility of IMOBILIÁRIA CREMAQ and BRASILAGRO, respectively, even if registered subsequently.

 

         4.1.1.  Except for the provisions contained in Clause 4.2 below, upon the investiture of ZMACQ 3 in the possession of the REAL PROPERTIES and CREMACQ AGRO in the possession the ASSETS, these must be free and clear of persons and things, and in a good state of maintenance and conservation, to be verified by the Parties through the performance of a joint inspection at the REAL PROPERTIES and issuance of a photographical report, which must be conducted within ten (10) Business Days after the date of this Agreement and necessarily before the payment of the Cash Installment and the deposit of the Blocked Deposit Amount into the Blocked Account. The referred photographic report, when in its preparation by the Parties, shall be join this Agreement in the form of Exhibit 4.1.1 .

 

         4.1.2  Between the date of this Agreement and the date of ZMACQ 3’s actual investiture in the possession of the REAL PROPERTIES and CREMACQ AGRO’s actual investiture in the possession of the ASSETS, including during the period to which clause 4.2 refers, SELLERS shall use the REAL PROPERTIES and the ASSETS, as applicable, in compliance with all the applicable laws and regulations and consistently with the best operating practices of the agribusiness industry, with its operational backgrounds and, in the case of the ASSETS, observing the specific destinations for which they were projected.

 

4.2.    Right to Demand Harvesting . BRASILAGRO hereby reserves the right to remain in possession of the Silo and the areas outlined in Exhibit 4.2 to this Agreement (“ Loan Area ”), as a loan for use, and to conclude the harvesting of corn for the

 

 

 

2014/2015 (Winter season), as well as its processing using the Silo, being understood that the direct ownership of the total Loan Area and the Silo will be transmitted to ZMACQ 3 and CREMACQ AGRO no later than September 1, 2015 and October 1, 2015, respectively, independently of whether or not the above harvest has been completed by BRASILAGRO, under penalty of SELLERS being held liable for the payment of a fine of ten thousand Reais (R$ 10,000.00) per day of delay.

 

4.2.1.  During the term of effectiveness of the loan for use, indicated in clause 4.2 above, the Parties hereby agree that:

 

(i)      SELLERS shall remain responsible for the payment of all taxes, fees and other charges assessed or that may be assessed thereon on the Silo and the Loan Area, although later released, as well as expenses necessary for the proper maintenance, safety and conservation of the Loan Area and the Silo;

 

(ii)      the structures described in Exhibit 4.2.1(ii) shall be shared by the Parties, in the manner determined in such exhibit, observing the applicable limit date for delivery thereof, according to clause 4.2 above (“ Shared Structures ”); and

 

(iii)     ZMACQ 3 agrees to authorize SELLERS to have access to the REAL PROPERTIES exclusively to remove agricultural machinery and equipment, respecting the deadline of October 1, 2015; and

 

(iv)     SELLERS shall remain liable for any and all charges and obligations of any kind that are related to the possession of Loan Area and Silo and or to the performance of any activities by SELLERS or their representatives and designees in the Silo and Loan Area, including, but not limited to, any charges and obligations of a fiscal, labor, social security and environmental nature.

 

         4.2.2. Upon the actual investiture by CREMACQ AGRO in the possession of the Silo, SELLERS shall deliver the latter to CREMACQ AGRO duly free of people and things, in perfect conservation and use condition and with the respective equipment maintenance, in order to allow for its immediate operation and use by CREMACQ AGRO for the intended purposes.

 

 

 

 

4.3.    Taxes and Charges on the REAL PROPERTIES and ASSETS . If any of the Parties makes payment of fees and charges assessed on the REAL PROPERTIES and the ASSETS, the responsibility of which is attributed to another Party pursuant to clauses 4.1 and 4.2 above, the debtor undertakes to reimburse the creditor for the amounts provenly incurred thereby within a maximum of ten (10) days counted from notification in this regard, under penalty of incurring into a default fine of two percent (2%) and interest of one percent (1%) per month and Monetary Adjustment calculated on the amounts due.

 

         4.3.1.  For the purposes of the Rural Property Tax Statement (DITR) of the REAL PROPERTIES for the year 2015, to be delivered until September 30, 2015, the Parties agree that IMOBILIÁRIA Cremaq will be responsible for its preparation, subject to the approval of the ZMACQ 3, and its delivery to the Brazilian Federal Revenue. The amount due for the Rural Property Tax Statement (DITR) due and assessed at DITR 2015 will be apportioned between IMOBILIÁRIA Cremaq and ZMACQ 3, in proportion to the period in which the possession of REAL PROPERTIES is used by each Party. If any of the Parties fails to make payment of the portion attributed thereto within the terms established by the applicable law, the other Party may make such payment and request reimbursement from the defaulting Party, duly added by a monetary fine of two percent (2%) and interest of one percent (1%) per month, and Monetary Adjustment.

 

4.4.    Authorization for Assign to Third Parties . ZMACQ 3, after being vested with the ownership of the REAL PROPERTIES, and provided that the legal audit has been completed, under clause 5.1.1”iv”, may lease, arrange partnerships, commit the sale, assign or lend in any way, in whole or in part, the REAL PROPERTIES to third parties, under their exclusive responsibility, without any liens or participation by SELLERS. In such cases, and for as long as the Deeds have not yet been granted, ZMACQ 3 undertakes to cause the instruments it may enter into with third parties to expressly state the Conditions Precedent to which this transaction is subject, as well as the automatic termination thereof in case of termination of this Agreement.

 

4.5.    Improvements . Between the date on which ZMACQ 3 is vested in the possession of REAL PROPERTIES and the grant date of the Deeds, the Parties undertake to jointly or individually, as the case may be, submit projects and begin administrative proceedings before the public authorities which may be necessary for

 

 

 

the implementation of any improvements necessary for the development of the activities of ZMACQ 3 at the REAL PROPERTIES.

 

4.6.    Environmental Licenses and Authorizations . After issuance of the Deeds, the Parties undertake to jointly or individually, as the case may be, request before the competent public authorities the transfer of the Operation License No. D00045/15s and of the Licenses for Additional Area, if applicable at the time (“ Environmental Licenses and Authorizations ”). Without prejudice to the foregoing, the Parties undertake to require said transfers beforehand, within fifteen (15) days counted from the notice sent by PURCHASER to SELLERS informing about the occurrence of inspection/notification by the competent environmental bodies, requesting the update/transfer of such Environmental Licenses and Authorizations to ZMACQ 3, CREMACQ AGRO or any related party to be indicated by them.

 

         4.6.1.  In case any infraction notice or penalty is imposed by the competent environmental authorities, exclusively due to the lack of prior transfer of the Environmental Licenses and Authorizations to ZMACQ 3, CREMACQ AGRO or any related party to be indicated by them, for exploration purposes of the activities authorized by said Environmental Licenses and Authorizations and provided this transfer occurs prior to the protocol of transfer of Environmental Licenses and Authorizations, SELLERS shall indemnify and hold ZMACQ 3, CREMACQ AGRO or any related party to be indicated by them, harmless from any liability and also immediately assign such Environmental Licenses and Authorizations.

 

4.7.    Except for the provision of clause 4.2 above, from the investiture of ZMACQ 3 in the temporary possession of REAL PROPERTIES, the ZMACQ 3:

 

(i)      will be responsible for any and all expenses and obligations of any nature that are related to the possession of the REAL PROPERTIES or performance of any activities by ZMACQ 3 or its agents in REAL PROPERTIES, including but not limited to fiscal, labor, social security and environmental charges and obligations;

 

(ii)      shall, at its expense, comply with and enforce by third occupant, every law, regulation, rule or order, particularly with regard to health, safety and environment, forcing himself to meet, at its sole account, any requirement of public authorities in relation to activities and improvements wishing to implement there, assuming full

 

 

 

responsibility for any penalties or infractions committed by reason of non-compliance with the determinations of the authorities or for violations to law in the country; and

 

(iii)     respond sole and exclusively for any damages that may suffer things or persons because of activities it carries on REAL PROPERTIES.

 

5.        DEEDS OF PURCHASE AND SALE, CONDITIONS PRECEDENT AND CONDITIONS TO RELEASE THE BLOCKED DEPOSIT AMOUNT

 

5.1.    Deeds of Purchase and Sale . SELLERS shall transfer the title and definitive ownership of the REAL PROPERTIES by granting to ZMACQ 3 the corresponding definitive deeds of purchase and sale of the REAL PROPERTIES described in clauses 5.1.1 and 5.1.2 below (“ Deeds ”), within the terms and under the conditions established therein.

 

         5.1.1. Deed for Real Properties I to IV and VI to XIX and Conditions Precedent . The definitive deed of purchase and sale of Real Properties I to IV and VI to XIX (“ Deed I ”) shall be granted until December 31, 2015, substantially in the form of Exhibit 5.1.1 , upon partial release of the Blocked Deposit Amount to IMOBILIÁRIA CREMAQ, in an amount equivalent to the sum of the remaining prices individually attributed to Real Properties I to IV and VI to XIX deposited in the Blocked Account, according to Exhibit 2.1(i) ,  provided the conditions precedent described below are satisfactorily complied with (“ Conditions Precedent of Deed I ”);

 

(i)      Cancelation of the Deed of Mortgage . SELLERS shall arrange for the cancellation of the Deed of Mortgage with the Real Estate Registry Office of Ribeiro Gonçalves, of the State of Piauí, through the corresponding annotation in the records of Real Properties II, VI, VII, VIII, X, XI, XII, XIV, XVII and XIX.

 

(i.a) Thus, SELLERS shall present, within a maximum of five (5) days prior to the date scheduled for the granting of the Deed I, an updated certificate of the records of the Real Properties II, VI, VII, VIII, X, XI, XII, XIV, XVII and XIX, containing the annotation of cancellation of the Deed of Mortgage and shall be free and clear of any Liens. The annotation of the cancellation must make express reference to all of the registrations and annotation mentioned in clause 1.4.1 above.

 

 

 

 

(i.b)    SELLERS further undertake to practice all acts and take all measures necessary to allow and make feasible the annotation of the cancellation of the Deed of Mortgage and of all acts related thereto which are registered or annotated in the records of the Real Properties II, VI, VII, VIII, X, XI, XII, XIV, XVII and XIX, within the term agreed upon, including, but not limited to, (1) the full payment of the corresponding debts guaranteed by the Deed of Mortgage or the replacement of the real properties with other securities offered by SELLERS; and, in any case, (2) the achievement, before its creditor, of the respective instruments of release and authorization for the referred cancellations, including, without limitation, the full payment of the corresponding debts guaranteed by the Deed of Mortgage and the achievement, before its creditor, of the respective instruments of release and authorization for the referred cancellations.

 

         (ii)      Administrative Rectification of Area . In compliance with the provisions contained in item “ii.a” below, SELLERS shall obtain from INCRA the protocol of application for rectification of the georeferencing certification area of Real Property II, aiming to correct area to three thousand and twenty-four hectares, eighty-nine ares and ninety-five centiares ( 3,024.8995 ha ), and not three thousand two hundred and four hectares, eighty-nine ares and ninety-five centiares (3,204.8995 ha) as is currently listed in the georeferencing certification in the corresponding real estate record.

 

         (ii.a)   If the application protocol mentioned above has been made with INCRA but the corresponding rectification has not been completed: (1) within the period indicated in clause 5.1.1 above, or (2) upon the fulfillment of all other conditions precedent of Deed I, the Condition Precedent of Deed I mentioned in this clause 5.1.1(ii) will be deemed fulfilled; however, SELLERS shall remain liable for all procedures and costs that may be necessary to the satisfactory completion of such area rectification before INCRA, even if after the drawing-up of Deed I.

 

         (iii)     Representations and Warranties . All of the representations and warranties of SELLERS provided in accordance with clause 6.1 below must remain fully valid and accurate up to the date of granting of the Deed I (and of Deed II, as detailed in clause 5.1.2 below).

 

 

 

 

         (iv)     Submit of Essential Legal Due Diligence Documents Needed to Deed I. SELLERS further undertake to present to ZMACQ 3, within two (2) Business Days prior to the date scheduled for the drawing up of the Deed I, updated versions of the documents legally required for the practice of such act before the Notary Public Office to be selected by ZMACQ, as well as the subsequent registration by the Real Estate Registry Office of Ribeiro Gonçalves.

 

         (v)     Regularization of the Registration Situation of the Real Properties before INCRA and RFB . SELLERS undertake to regularize the registration situation of the Real Properties I to IV and VI to XIX before INCRA and the Federal Revenue Office of Brazil, so as to obtain and present to ZMACQ 3, for purposes of granting of Deed I, effective CCIRs and NIRFs capable of permitting the bookkeeping of such real properties.

 

          (v.a) Without prejudice to the obligation assumed in clause 5.1.1(v) above, SELLERS shall be liable for any outstanding amount, debt, debit or obligation pending before INCRA and the Federal Revenue Office of Brazil related to periods prior to the moment when ZMACQ 3 is vested in the possession of the REAL PROPERTIES (unless the sellers have given cause for such disputes), and SELLERS shall remain liable for all procedures and costs required to regularize the areas contained in such records so that they reflect the total areas of Real Properties I to IV and VI to XIX, as well as any cancellation of double registrations of such real properties before such agencies, even after the drawing-up of Deed I.

 

         5.1.2.  Deed for Real Property V (ZMACQ 3’s Detached Area) and Conditions Precedent . The definitive deed of purchase and sale of Real Property V (ZMACQ 3’s Detached Area) (“ Deed II ”) shall be granted within [one hundred and eighty (180)] days as of the date hereof, December 31, 2015, substantially in the form of Exhibit 5.1.2 , provided the conditions precedent described below are satisfactorily complied with (“ Conditions Precedent of Deed II ”);

 

         (i)      Representations and Warranties . All of the representations and warranties of SELLERS provided in accordance with clause 6.1 below must remain fully valid and accurate up to the date of granting of the Deed II (and of Deed I, as detailed in clause 5.1.1 below).

 

 

 

 

         (ii)      Submit of Essential Legal Due Diligence Documents to Deed II. SELLERS further undertake to present to ZMACQ 3, within two (2) Business Days prior to the date scheduled for the drawing-up of the Deed II, updated versions of the documents legally required for the practice of such act before the Notary Public Office to be selected by ZMACQ 3, as well as the subsequent registration by the Real Estate Registry Office of Ribeiro Gonçalves.

 

         (iii)     Regularization of the Registration Situation of the Real Properties before INCRA and RFB . SELLERS undertake to regularize the registration situation of the Real Property V before INCRA and the Federal Revenue Office of Brazil, so as to obtain and present to ZMACQ 3, for purposes of granting of Deed II, effective CCIRs and NIRFs capable of permitting the bookkeeping of such Real Property V.

 

         (iii.a) Without prejudice to the obligation assumed in clause 5.1.2(iii) above, SELLERS shall be liable for any outstanding amount, debt, debit or obligation pending before INCRA and the Federal Revenue Office of Brazil related to periods prior to the moment when ZMACQ 3 is vested in the possession of the REAL PROPERTIES (unless the sellers have given cause for such disputes), and SELLERS shall remain liable for all procedures and costs required to regularize the areas contained in such records so that they reflect the total area of Real Property V, as well as any cancellation of double registrations of such Real Property V before such agencies, even after the drawing-up of Deed II.

 

         5.1.2.1. Conditions for Release of the Real Property V Price from the Blocked Account . Without prejudice to the previous granting of Deed II under the terms and conditions set out in clause 5.1.2 above, the actual partial release of the Blocked Deposit Amount to IMOBILIÁRIA CREMAQ, in an amount equivalent to the installment of remaining price of individual price attributed to Real Property V deposited in the Blocked Account, according to Exhibit 2.1(i) , shall depend on the fulfillment, by SELLERS, of the following conditions (“ Conditions for Release of the Real Property V Price ”, and when together with the Conditions Precedent of Deed II and Conditions Precedent of Deed I, simply the “ Conditions Precedent ”):

 

 

 

 

                   5.1.2.1.1 For release of part of the individual price of Real Property V deposited in the Blocked Account, equivalent to forty million, two hundred and thirty-four thousand, seven hundred and three Reais and ninety-three centavos (R$ 40,234,703.93), added by the applicable profits from the investments made in the Blocked Account:

 

                   (i) Detachment of Real Property V . SELLERS shall perform, at their own costs, the detachment and georeferencing of Real Property V (ZMACQ 3’ s Detached Area), as well as the verification of the remainder consisting of the Remaining Area of Real Property V, according to specifications and topographic surveys contained in Exhibits 1.1.2.2(i) and 1.1.2.2(ii) .

 

                   (i.a.) Therefore, SELLERS undertake to provide (1) certifications for the georeferenced descriptions of Real Property V (ZMACQ 3’s Detached Area) and of the Remaining Area of Real Property V homologated by INCRA under the terms of Law 10,267/2001 and Decree 4,449/2002; (2) independent updated and individualized certificates of record for the area of Real Property V (ZMACQ 3’s Detached Area) and for the Remaining Area of Real Property V, already containing the annotation of the georeferenced perimetric descriptions thereof; and (3) updated and individualized certificate of record for the area of Real Property V (ZMACQ 3’s Detached Area) already containing the registration of Deed II, observed the provisions of clauses 8.1 and 9.2(i) below.

 

                   5.1.2.1.2. For release of the balance of the individualized acquisition price of Real Property V deposited in the Blocked Account, equivalent to four million Reais (R$ 4,000,000.00), added by the proportional applicable profits from the investments made in the Blocked Account (“ Balance of the Price of Real Property V ”):

 

                   (i) Authorization to Deforest an Additional Area . SELLERS undertake to cause, at their sole responsibility and expenses, the preparation of studies and projects, filing of a request with the Environmental State Office and/or IBAMA and obtaining of the proper environmental authorizations and licenses authorizing ZMACQ 3 to clear an additional area currently not explored of at least one hundred and fifty hectares (150ha), located in the REAL PROPERTIES (“ Additional Area ”), without any bond to consideration, environmental compensation or obligation to constitute,

 

 

 

regenerate or preserve legal reserve areas in addition to those already bound to the REAL PROPERTIES (“ Licenses for Additional Area ”). It is hereby agreed between the Parties that the Additional Area shall comply with the following criteria: (i) be located within native vegetation areas, able to be mechanized, areas with too many rocks not being acceptable; and (ii) be adjacent to arable areas already explored in the REAL PROPERTIES. For the purposes of this clause, the Additional Area may be purchased from third parties and transferred to ZMACQ 3, SELLERS bearing all of the applicable costs, fees and taxes, and said area must be totally free and clear from any Liens and comply with the same criteria indicated above.

 

                   (i.a) Once the proper agencies have issued the Licenses for Additional Area and the authorization to deforest the respective Additional Area, SELLERS shall pay to ZMACQ 3 the agreed amount of five hundred thousand Reais (R$ 500,000.00) or three thousand, three hundred and thirty-three Reais and thirty-three centavos (R$3,333.33) per hectare, ratably, duly adjusted in accordance with the same yields applicable to the Investments made with the Blocked Deposit Amount, as from the date it is deposited in the Blocked Account, so as to fund the expenses incurred to clear and transform the Additional Area into a farming area for the plantation of soy and corn (“ Clearance Cost ”). For the sake of clarification, the payment obligation above is not contingent upon evidencing by ZMACQ 3 of the costs that were actually incurred for such clearance and transformation, and they shall not be increased either, in case ZMACQ 3 incurs in a cost greater than the one set forth herein.

 

                   (i.b)    If, by November 30, 2015, SELLERS have partial or totally the obligations set out in items 5.1.2.1.2(i) and (i.a) above, that is, if they have obtained the Licenses for Additional Area total or partially, (1) SELLERS shall pay total or partially the Clearance Cost ratably to the partial or total licensed Additional Area; and (2) PURCHASER shall authorize the release of the Balance of the Price of Real Property V ratably to the partial or total licensed Additional Area, it being agreed that after November 30, 2015, if the Additional Area is not totally licensed, SELLERS shall remain obliged to obtain the Licenses for the remainder of the Additional Area, as well as to pay the balance of the Clearance Cost, as a condition for the clearance of the remainder of the Balance of the Price of Real Property V, in compliance with the provisions in item (i.c) below;

 

 

 

 

                   (i.c)    If, by June 30, 2018, SELLERS have not yet fully fulfilled the obligations set out in items 5.1.2.1.2(i) and (i.a) above, (1) SELLERS shall pay the Clearance Cost ratably to the partial licensed Additional Area between November 30, 2015 and June 30, 2018; (2) SELLERS shall pay to ZMACQ 3 the amount equivalent to the Balance of the Price of Real Property V ratably to the unlicensed Additional Area; and (3) ZMACQ 3 should authorize the release of Balance of the Price of Real Property V still deposited in the Blocked Account.

 

         (ii) Filing for Shelving of Action for the Maintenance of Possession . Notwithstanding the deadline and obligation already set forth in clause 1.5.1 above, the Parties agree that in no case shall any part the Balance of the Price of Real Property V (defined in clause 5.1.2.1.2 above) be released to IMOBILIÁRIA CREMAQ before BRASILAGRO has made the Filing for Shelving.

 

5.2.    Unjustified Refusal to Grant the Deeds . In case of the unjustified refusal to grant any of the Deeds, SELLERS shall be subject to a positive covenant action, pursuant to the terms of article 461 of the Code of Civil Procedure, without prejudice to the right of zmacq 3 to obtain the compulsory adjudication of the REAL PROPERTIES and the ASSETS, as well as the application of the penalties set forth in this Agreement.

 

5.2.1.  Without prejudice to the right to compulsory adjudication, the proven unjustified delay of SELLERS in granting any of the Deeds shall also subject SELLERS to a daily fine equivalent to zero point ten percent (0.10%) of the Purchase Price per day of delay, observing the remediation period of five (5) Business Days as from a notice in this regard sent by zmacq 3 to SELLERS.

 

         5.2.2.  Notwithstanding the obligation of SELLERS to comply with the Conditions Precedent within the deadlines, terms and conditions set forth in this Agreement, in case total compliance therewith does not occur until December 31, 2015, and without prejudice to the other remedies available to zmacq 3, zmacq 3 is hereby authorized to directly take any measure necessary to satisfy the Conditions Precedent.

 

         5.2.3.  For the full efficacy of the provision in clause 5.2.2 above, IMOBILIÁRIA CREMAQ hereby undertakes to grant, on the date of deposit of the Blocked Deposit Amount in the Blocked Account, an irrevocable and irreversible public power of

 

 

 

attorney as a condition to the business and bound thereto, on behalf of zmacq 3, pursuant to the draft found in Exhibit 5.2.3 , in order to grant powers to zmacq 3 for the practice of the measures necessary to satisfy the Conditions Precedent (“ Public Power of Attorney ”), and zmacq 3 shall answer for the acts it performs and for indemnifying SELLERS for the losses caused thereby if it uses the Public Power of Attorney before December 31, 2015 and/or at any time ZMACQ 3 extrapolates the powers expressly granted. In the event of default by ZMACQ 3 of any of its obligations under this Agreement and/or any hypothesis of termination set in this Agreement pursuant to clause 9.2 (i.a) and (i.b), ZMACQ 3 is hereby required to refrain from perform any act as the attorney of IMOBILIÁRIA Cremaq under the Public Power of Attorney, regardless of formalization by IMOBILIÁRIA Cremaq revocation instrument of such Public Power of Attorney.

 

         5.2.4. Without prejudice to the fine set out in clause 5.2.1 above, if zmacq 3 actually takes any measure to fulfill one or more Conditions Precedent under the terms of clauses 5.2.2 and 5.2.3 above, SELLERS are hereby required to reimburse any amounts, costs and expenses duly evidenced by zmacq 3, added by a fine of ten percent (10%) on the total amount incurred, within ten (10) days counted from a notice in this regard, under penalty of also incurring interest of one percent (1%) per month and Monetary Adjustment calculated on the respective amounts.

 

5.3.    Independence of Order to Grant the Deeds. It is hereby certain and agreed that, provided the Conditions Precedent bound thereto are fulfilled, the Parties shall be required to grant the Deed I and/or the Deed II, regardless of the order or priority.

5.4.    Obligation to Inform the Status of the Conditions Precedent . SELLERS also undertake to monthly inform zmacq 3 regarding the progress and status of the proceedings for compliance with the Conditions Precedent and the Conditions for Release of the Price of Real Property V, and must make available a copy of all of the documents requested by zmacq 3 in this regard.

 

6.   -    REPRESENTATIONS AND WARRANTIES

 

6.1.    Representations and Warranties of SELLERS . By this private instrument, SELLERS grant to zmacq 3 the representations and warranties presented in this Chapter 6, which are valid, accurate and complete on this date and shall be the same on the date of granting of the Deeds:

 

 

 

 

         6.1.1.  SELLERS (i) have the powers necessary to assume and comply with the respective obligations set forth in this Agreement and in all of the other instruments contemplated herein, (ii) are in agreement with the transaction contemplated in this Agreement and (iii) were duly advised by competent attorneys with regard to the negotiation and execution of this Agreement and all of the other instruments contemplated herein and are fully aware of the extent of all of the obligations and risks assumed in this act.

 

         6.1.2.  This Agreement and all of the instruments contemplated herein have been duly signed by SELLERS, and this Agreement constitutes a valid and binding obligation of each one of them, enforceable against each one in accordance with the terms and conditions contemplated herein. 

 

         6.1.3.  The execution and compliance of this Agreement and the instruments contemplated herein do not result (i) in the violation of any law applicable to SELLERS; (ii) in the violation of any provision of articles of incorporation documents of SELLERS; or (iii) in the violation of the rights of any third party.

 

         6.1.4.  No authorization, consent or approval by any third party or governmental authority is necessary for the execution of this Agreement and of each of the other instruments contemplated herein, as well as with regard to compliance, by SELLERS, of the obligations set forth herein.

 

         6.1.5.  IMOBILIÁRIA CREMAQ (i) is the holder and lawful owner of the REAL PROPERTIES the deed of title of which is duly registered with the competent Real Estate Registry Office, without any limitation of transmissibility, free and clear of any Liens, except for the Deed of Mortgage; (ii) conducted due diligence of REAL PROPERTIES upon acquisition, taking responsibility for its regularity and absence of risks related to prior owners, especially for fraud against creditors and fraud to executions; (iii) uses the REAL PROPERTIES in a lawful, peaceful and uncontestable manner, provided the acquisition thereof mentioned in clause 1.2 above, including the areas object of the Brunetta Lease that have expired, except for the Area under Dispute, which is currently held by a third party and object of the Action for Maintenance of Possession; and (iv) legally defined the boundaries of the REAL PROPERTIES.

 

 

 

 

         6.1.6.  BRASILAGRO is the holder and lawful owner of the ASSETS, without any limitation of transmissibility, free and clear of any Liens. The ASSETS are in perfect conservation conditions and fully capable of being used for the intended purposes.

 

         6.1.7.  IMOBILIÁRIA CREMAQ has, and zmacq 3 shall have, on the date of the Deeds, the lawful, peaceful and uncontested ownership of the REAL PROPERTIES, free and clear of any Liens, without any restriction (i) to the assignment of ownership rights; and (ii) to any legal claim that affects the REAL PROPERTIES (including, among others, ownership), except for the Area under Dispute.

 

         6.1.8.  IMOBILIÁRIA CREMAQ has complied with any and all relevant obligations and liabilities related to the REAL PROPERTIES, in any case, including, but not limited to, the payment of any and all relevant cumulative or fixed, absolute or contingent taxes. BRASILAGRO has complied with any and all relevant obligations and liabilities related to the ASSETS, in any case including, but not limited to, the payment of any and all relevant cumulative or fixed, absolute or contingent taxes

 

         6.1.9.  There are currently no restrictions, and there shall be none on the date of the Deeds, with regard to the occupation or use of the REAL PROPERTIES or the ASSETS in accordance with its current purpose.

 

         6.1.10.         Neither the REAL PROPERTIES or the ASSETS, nor their use violate or infringe any construction, environmental, zoning, administrative, occupational health and safety law or any other applicable law.

 

         6.1.11.         The REAL PROPERTIES are not (i) located in a federal or state environmental reserve or permanent protection area, much less in a conservation unit, (ii) located in an area assigned for indigenous occupation, whether as part of an existing reservation or a part of any area to be legally recognized as a reservation, (iii) located in an area of reservation for former slave (quilombolas) communities already recognized or under analysis by INCRA and/or (iv) subject to expropriation or confiscation. There shall be no adverse impact to this condition due to the transfer of the REAL PROPERTIES to zmacq 3 as contemplated in this Agreement.

 

         6.1.12.         There is no existing or threatened litigation or arbitration which

 

 

 

would affect the use and the ownership of the REAL PROPERTIES or of the ASSETS, except for the Action for Maintenance of Possession.

 

         6.1.13.         Except as described in clause 1.6.1, no other consent, permission, authorization from any third party (including governmental authorities), or any right of first refusal in the acquisition is required for the acquisition and the exercise of title and ownership of the REAL PROPERTIES by zmacq 3 pursuant to this Agreement. On the date of the Deeds, SELLERS shall have obtained any and all relevant consent, permission, authorization or waiver, as applicable, for the conclusion of the transaction set forth in this Agreement.

 

         6.1.14.         SELLERS did not receive any written notification from any governmental authority or infraction notice, and there is no litigation with regard to compliance, by IMOBILIÁRIA CREMAQ, of the obligation to annotate the legal reserve of the REAL PROPERTIES with the Real Estate Registry Office, nor are they subject to any penalty and/or fine due to such noncompliance. The REAL PROPERTIES comply with the applicable environmental laws. SELLERS obtained all of the licenses, approvals and consent necessary to explore the REAL PROPERTIES, and comply with the environmental laws and the obligations for the preservation of the permanent protection area and legal reserve.

 

         6.1.15.         The REAL PROPERTIES are not subject to any right of way, restriction of use or zoning ordinances which limit or interfere in the use, by zmacq 3 , in the manner they are being used by SELLERS. The public electric power service currently available for the REAL PROPERTIES shall be suitable to the current use of the REAL PROPERTIES. SELLERS did not receive any notification from any governmental authority with the power to expropriate, interdict or declare the REAL PROPERTIES to be part of the historical property thereof or of similar power. No notification from any governmental authority was received by SELLERS requiring or calling attention to the need for any work, repair, construction, intervention, alteration or installation, which has not been fully complied with prior to the date of this Agreement.

 

         6.1.16.         There is no action, proceedings or investigation for the launch or payment of taxes which are pending in relation to the REAL PROPERTIES or the ASSETS.

 

 

 

 

         6.1.17.         None of the REAL PROPERTIES or part thereof is located in any land belonging to the navy, is considered to be under lease or is subject to enrollment with the Government Property Office (SPU). There will be no adverse impact to this condition due to the transfer of the REAL PROPERTIES to zmacq 3 , as contemplated in this Agreement.

 

         6.1.18.         The REAL PROPERTIES are, as applicable, duly enrolled with the local, state and federal authorities as necessary for the occupation thereof by SELLERS and for the future occupation by zmacq 3 .

 

         6.1.19.         SELLERS were not notified, informed or served process, nor are they aware of any real or personal repercussive action, including those of a civil, environmental, commercial, tax or labor nature, that is currently in progress or is currently filed against them or against the previous owners of the REAL PROPERTIES which affect or may affect the rights to property over or with regard to the REAL PROPERTIES, resulting from any fact occurred in the last twenty (20) years, with SELLERS remaining responsible for this representation within the civil and criminal spheres. IMOBILIÁRIA CREMAQ undertakes to hold zmacq 3 harmless from the risks of loss of the rights acquired herein or the ownership of the REAL PROPERTIES upon the effective transmission thereof, due to a court decision or arbitral award that attributes such rights or the ownership of the REAL PROPERTIES of the ASSETS to third parties, responding for legal eviction.

 

         6.1.20.         There are no individuals or legal entities, even based on legal terms, or any other entity, alleging wrongful possession, adverse possession or threatening a direct or indirect ownership of the REAL PROPERTIES or the ASSETS, except for the Area under Dispute.

 

         6.1.21.         There are no current mineral or mining exploration activities at the REAL PROPERTIES. SELLERS did not enter into any agreement or granted any consent to third parties for the exploration and/or mining activities in the REAL PROPERTIES. SELLERS were not approached by any holder of mining rights in order to discuss or negotiate any agreement or consent for the exploration and/or mining activities at the REAL PROPERTIES. SELLERS are not party to any administrative or legal proceedings for determining the rent for occupation of any of the REAL PROPERTIES or appraisal of damages resulting from exploration and/or mining

 

 

 

activities at the REAL PROPERTIES.

 

         6.1.22. (i) SELLERS and each of the REAL PROPERTIES and ASSETS, as applicable, possess all of the relevant authorizations and licenses required by applicable law or by any governmental authority with competence over SELLERS, the REAL PROPERTIES and/or the ASSETS to conduct their activities at the REAL PROPERTIES and use the ASSETS in the manner projected therefor. These licenses were validly issued by the competent governmental authorities and shall be neither harmed nor cancelled due to the implementation of the purchase and sale transaction set forth in this Agreement; (ii) SELLERS, as well as the REAL PROPERTIES and the ASSETS, as applicable, are in full compliance with all of the relevant governmental licenses, standards, rules and regulations, including with regard to zoning, basic sanitation, heath, safety, the environment, sanitary protection and control related to their activities at the REAL PROPERTIES and use of the ASSETS in the manner for which they were projected; and (iii) there is no investigation, inquiry or proceedings in progress, to the knowledge of SELLERS, or which may imminently result in the suspension, cancellation, modification or revocation of these licenses, such that none of these license was violated and there is not reasonable possibility that they will be suspended, cancelled, modified or revoked.

 

         6.1.23.         SELLERS are not a party (as plaintiff, defendant or interested party) to any judicial action or legal, administrative or arbitration proceedings in progress (or, to the knowledge of SELLERS, imminent) of a civil, administrative, regulatory, commercial, criminal, environmental, tax labor or any other nature which may affect, directly or indirectly, the REAL PROPERTIES or the ASSETS, exception made to the Action for Maintenance of Possession . There is no litigation in progress against SELLERS before any court, arbitrator or governmental authority which may in any way affect, prevent, substantially alter or delay the transaction contemplated in this Agreement.

 

         6.1.24.         SELLERS (i) paid all of their respective relevant taxes related to the REAL PROPERTIES and to the ASSETS; (ii) complied with the relevant obligations regarding taxes and social security contributions established in applicable law, including ancillary obligations, such as the submission of tax statements to the competent governmental authorities; and (iii) punctually pay any fine or penalty imposed by the competent government due to any lack of payment or delayed

 

 

 

payment of any relevant taxes related to the REAL PROPERTIES or the ASSETS.

 

         6.1.25.         No order was issued and no request was presented in order to request the winding up, bankruptcy or judicial or extrajudicial reorganization of any of SELLERS. No act was practiced to appoint a legal manager or fiduciary agent for any part of the REAL PROPERTIES or ASSETS. SELLERS neither made nor proposed any agreement or arrangement with its creditors or any class creditors that affects this transaction.

 

         6.1.26.         SELLERS and any of their shareholders, board members, directors, employees, consultants, agents or representatives did not pay, offer, promise or authorize the payment in case or item of value, directly or indirectly , of a representative from the government while aware or with reason to believe that any part of this exchange would be made in order to: (a) influence, in a corrupt manner, any act or decision of this representative(s) of the government in an official capacity, including the noncompliance of an official duty, in order to aid SELLERS in obtaining or conducting business; (b) guarantee an inadequate advantage, including in relation to any approval, registration, permission, license or other regulatory authorization; (c) include, in a corrupt manner, this representative(s) of the government to use their influence in order to affect or influence any act or decision by of governmental authority in order to aid SELLERS in obtaining or conducting business or guaranteeing an unfair advantage; (d) provide illegal gain or person benefit, of financial value or other, from this representative(s) of the government; or (d) expedite the performance of an obligation or act from a representative of the government.

 

         6.1.27.         (i) SELLERS comply and have been complying, in all material respects, with all applicable laws, including but not limited to, environmental and labor laws, and have all material permits required for their business and transactions in the REAL PROPERTIES and use of the ASSETS; (ii) sellers do not use nor used at any time during the operation of its activities in the REAL PROPERTIES, labor, child labor or in conditions analogous to slavery; and (iii) SELLERS did not receive any notice about any actual or alleged breach of any law or any actual or potential liability related to any such demands.

 

         6.1.28.         (i) There has been no release or leakage not suitably remedied in the areas of the REAL PROPERTIES and controlled by SELLERS of any hazardous

 

 

 

material or substances that may contaminate the environment in any way, nor of any other material subject to any environmental law in any areas of the REAL PROPERTIES, not having remained contamination or environmental damage to the REAL PROPERTIES; and (ii) no such materials requiring disclosure, investigation, or remediation were threatened to be released in the REAL PROPERTIES.

 

         6.1.29.         There is no environmental claim against SELLERS involving the REAL PROPERTIES, and, to the knowledge of SELLERS, there is no circumstance that may reasonably be expected to serve as basis for any material environmental claim.

 

         6.1.30.         SELLERS are provided with properties more than sufficient to pay for any demands and pay any amounts, convictions, credits, and obligations created and/or proposed against it and/or its predecessors in the ownership of the REAL PROPERTIES and that may affect this sale of the REAL PROPERTIES or the ASSETS.

 

6.2.    Representations and Warranties of ZMACQ 3 and CREMACQ AGRO . ZMACQ 3 and CREMACQ AGRO hereby make to SELLERS the representations and warranties presented in this Chapter 6, which are valid, accurate, and complete on the date hereof and shall remain the same on the date of granting of the Deeds:

 

         6.2.1.  ZMACQ 3 and CREMACQ AGRO (i) have the powers required to undertake and perform their respective obligations set forth in this Agreement and in all other instruments contemplated hereby, (ii) agree with the transaction contemplated by this Agreement and (iii) were duly assisted by competent attorneys regarding the discussions and the execution of this Agreement and of all other instruments contemplated hereby and are completely aware of the extent of all obligations and risks undertaken hereby.

 

         6.2.2.  This Agreement and all other instruments contemplated hereby have been duly executed by ZMACQ 3 and CREMACQ AGRO and this Agreement is a valid and binding obligation of each of them, enforceable against it pursuant to the terms and conditions contemplated hereby.

 

         6.2.3.  The execution and delivery of this Agreement and of the instruments contemplated hereby do not result in the violation of (i) any law applicable to ZMACQ 3 and CREMACQ AGRO; (ii) any provision of ZMACQ 3 and CREMACQ AGRO’s acts of

 

 

 

incorporation; or (iii) any third parties’ rights.

 

         6.2.4.  No authorization, consent, or approval by any governmental authority is required for the execution of this Agreement and of each of the other instruments contemplated hereby, as well as regarding ZMACQ 3 and CREMACQ AGRO’s performance of the obligations set forth herein.

 

         6.2.5.  ZMACQ 3 and CREMACQ AGRO have or shall have access to the funds required to perform the obligations undertaken in this Agreement – including the payment of the Purchase Price as established herein. ZMACQ 3 and CREMACQ AGRO are not aware of any actual or threatened event that could reasonably be expected to materially affect ZMACQ 3 and CREMACQ AGRO’s business, operations, and financial conditions as to cause the representation made herein to be false or inaccurate at any time.

 

6.3.    Effectiveness of the Representations and Warranties . The representations and warranties provided above by the Parties shall be expressly stated and shall survive, as applicable, the granting and subsequent registration of the Deeds of the REAL PROPERTIES and the transfer of ASSETS.

 

7.        INDEMNIFICATION

 

7.1.    Indemnification by SELLERS . SELLERS hereby agree to indemnify, defend, and hold ZMACQ 3, CREMACQ AGRO and its respective successors, affiliates, directors, officers, and employees harmless against any and all demands, executions, proceedings, suits, procedures, arbitration, sentences, obligations, expenses (including attorney’s fees and costs incurred in the defense of its interests), or even expenses, losses, damages, or injuries of any kind effectively incurred and suffered as a result of:

 

(i)            any infraction, breach, or inaccuracy of the representations and warranties provided by SELLERS under Chapter 6 of this Agreement;

 

(ii)           observed the provisions of clause 9.2.1 below, any breach, infraction, or failure to perform any obligation undertaken by SELLERS under this Agreement;

 

 

 

 

(iii)          any contingent liabilities directly or indirectly related to the REAL PROPERTIES or the ASSETS resulting from acts, facts, omissions or events that occurred before the date of granting of the Deeds, whether disclosed or not in this Agreement, in any of its exhibits, or audit documents, except if ZMACQ 3 or CREMACQ AGRO has caused such liabilities in the period comprised between its investiture in possession of the REAL PROPERTIES and granting of the Deeds;

 

(iv)          any third-party claims directly or indirectly related to the REAL PROPERTIES or the ASSETS resulting from acts, facts, omissions, or events of any kind that occurred before the date of granting of the Deeds, involving noncompliance with any contractual or legal (civil, tax, real state, environmental, labor, social security, or any other) obligation, even if the effects of these acts, facts, omissions, or events occur and/or are materialized after the date of granting of the Deeds, whether disclosed or not under this Agreement, in any of its exhibits or audit documents; it being understood that, for the avoidance of any doubts, SELLERS shall remain responsible for any and all risks related to the period before the date of granting of the Deeds, except if ZMACQ 3 or CREMACQ AGRO has caused such liabilities in the period comprised between its investiture in possession of the REAL PROPERTIES and the granting of the Deeds; or

 

(v)           any partial or total loss of the ownership right to the REAL PROPERTIES or ASSETS resulting from acts, facts, omissions, or events of any kind that occurred before the date of granting of the Deeds, including defects, nullities, or lack of authorizations and/or consents of governmental authorities, being liable for any lawful eviction as provided by law, except if ZMACQ 3 or CREMACQ AGRO has given rise to said loss.

 

         7.1.1.  Joint and Several Liability . For purposes of the indemnification obligations included in clause 7.1 above, SELLERS hereby represent to be jointly and several liable, waiving any benefit of order.

 

 

 

 

7.2.    Indemnification by ZMACQ 3 and CREMACQ AGRO . ZMACQ 3 and CREMACQ AGRO hereby agree to indemnify, defend, and hold SELLERS, their affiliates and respective directors, officers, and employees harmless against any and all demands, executions, proceedings, suits, procedures, arbitration, sentences, obligations, expenses (including attorney’s fees and costs incurred in the defense of their interests), or even expenses, losses, damages, or injuries of any kind effectively incurred and suffered as a result of:

 

(i)            any infraction, breach, or inaccuracy of the representations and warranties provided by ZMACQ 3 and CREMACQ AGRO under Chapter 6 of this Agreement;

 

(ii)           in compliance with the provisions in clause 9.2.1 below, any breach, infraction, or failure to perform any obligation undertaken by ZMACQ 3 and CREMACQ AGRO under this Agreement;

 

(iii)          any contingent liabilities directly or indirectly related to the REAL PROPERTIES or the ASSETS resulting from acts, facts, omissions, or events occurring after the date of ZMACQ 3’s investiture in the possession of the REAL PROPERTIES, except if SELLER has caused such liabilities; and

 

(iv)          any third-party claims directly or indirectly related to the REAL PROPERTIES or the ASSETS resulting from acts, facts, omissions, or events of any kind occurring after the date of granting of the Deeds, involving noncompliance with any contractual or legal (civil, tax, real state, environmental, labor, social security, or any other) obligation, and, to avoid doubts, ZMACQ shall be responsible for any and all risks related to the period subsequent to the date of ZMACQ’s investiture in the possession of the REAL PROPERTIES, except if SELLER has caused such liabilities.

 

7.3.    Indemnification Payment . The indemnifications provided for in this Chapter 7 shall become paid as reimbursement and shall be due by the relevant Indemnifying Party in up to thirty (30) days of receipt of a written notice sent by the Indemnified Party (“ Indemnification Notice ”), describing the relevant loss (or the triggering facts or

 

 

 

events that may cause a subsequent loss), together with the effective evidence of such loss.

 

8.        Registration and Related Expenses

 

8.1.    All expenses related to the Deeds, especially the property transfer tax (ITBI) and the Notary Office’s and the Real Estate Registry Office’s fees, shall be fully borne by ZMACQ 3, subject to the provisions of clause 5.1.2.1.2 regarding the Alternative Additional Area, as the case may be.

 

8.2.    The Parties hereby authorize the Officer of the Real Estate Registry Office of the Judicial District of Ribeiro Gonçalves to perform all acts required for the registration of this Agreement with the competent real estate district, and SELLERS also undertake to execute all documents, including contract amendments, and to submit all documents and information required, as well as to promptly take all measures that may be required for the feasibility of such registration.

 

9.        TERMINATION EVENTS

 

9.1.    This Agreement is entered into on a full irrevocable and irreversible basis, binding the Parties, their heirs, or successors in any way or at any time.

 

9.2.    Notwithstanding the irrevocable and irreversible nature of this Agreement, it may be deemed lawfully terminated upon the following events:

 

(i)      Default by ZMACQ 3 or CREMACQ AGRO . Observing the remediation period of five (5) Business Days as from notice in this regard by ZMACQ 3 and CREMACQ AGRO, as well as the provisions in clause 9.2.2 below, SELLERS may terminate this Agreement if, upon compliance with all their obligations set out herein, ZMACQ 3 (1) fails to pay any installment that composes the Purchase Price as agreed; (ii) fails to pay, within five (5) Business Days after notice of the SELLERS, the fees payable for the registration of Deed II with the Real Estate Registry, whose protocol and registration is the responsibility of the SELLERS, in accordance with clause 5.1.2.1.1(i) and 5.1.2.1.1(i.a)(3); or (3) fails to execute any documents to release any amount from the Blocked Account, after fifteen (15) days of the notice it may receive in this regard, and

 

 

 

        

         (i.a) if the termination occurs due to lack of payment of the Balance of Purchase Price, CREMACQ AGRO shall lose the Down Payment in favor of SELLERS, and shall be required to pay a termination fine equivalent to eight million and five hundred thousand Reais (R$ 8,500,000.00) within fifteen (15) days, as liquidated damages, regardless of SELLERS’ notice in this regard, under penalty of application, as from such date, of Monetary Adjustment and interest of one percent (1%) per month on such amount;

 

         (i.b)  if the termination takes place after the payment of the Balance of Purchase Price, ZMACQ 3 and CREMACQ AGRO shall lose in favor of SELLERS five percent (5%) of the Price of REAL PROPERTIES and the Price of ASSETS, as liquidated damages. SELLERS shall reimburse the remaining amount of the sums theretofore paid by ZMACQ 3 and CREMACQ AGRO, including return of the balance of the Cash Installment and the balance of the Blocked Deposit Amount and the respective income, within fifteen (15) days, irrespectively of notice from ZMACQ 3 or CREMACQ AGRO, in this regard, under penalty of incurring in Monetary Correction and interest of one percent (1%) per month of such amount as of this moment; and

 

(ii)      Default by SELLERS . Observing the remediation period of five (5) Business Days counted from a notice in this regard sent to SELLERS, as well as the provisions in clause 9.2.1 below, ZMACQ 3 may terminate this Agreement if, upon compliance with all its obligations set out herein, (a) the Conditions Precedent are not satisfied until December 31, 2015; or (b) IMOBILIÁRIA CREMAQ unjustifiably refuses to grant any of the Deeds for the REAL PROPERTIES, as applicable . In any of these events, SELLERS shall fully reimburse the amounts paid by ZMACQ 3 and CREMACQ AGRO, until the date of default, including return of the Down Payment, the Cash Installment and the Blocked Deposit Amount and the respective income, plus five percent (5%) of the Purchase Price of the REAL PROPRTIES and Purchase Price of ASSETS, as liquidated damages, within fifteen (15) days, regardless of ZMACQ 3 or CREMACQ AGRO,’s notice in this sense, under penalty of application of Monetary Adjustment and interest of one percent (1%) per month on such amount, as of that moment.

 

(iii)     Non-satisfactory Conclusion of the Audit . Observing the provisions set in clauses 2.5 and 2.5.1, in case, based on the Due Diligence Documents submitted by SELLERS to ZMACQ 3 until May 29, 2015, ZMACQ 3 concludes that such documents

 

 

 

entail relevant risks to the REAL PROPERTIES, ZMACQ 3, CREMACQ AGRO or to the transaction set in this Agreement, ZMACQ 3 may terminate this Agreement. In such case, SELLERS shall reimburse the totality of the Down Payment paid, within fifteen (15) days as from a notice from ZMACQ 3 or CREMACQ AGRO, in this regard, under penalty of application of Monetary Adjustment and interest of one percent (1%) per month on such amount, as of that moment. In the event of termination as established herein, no indemnities or termination fines will be due between the Parties.

 

         9.2.1. If, during the period between the execution of this Agreement and December 31, 2015, there occur any acts of God or events of force majeure, as characterized by law, which provably affect in a direct manner the fulfillment of the Conditions Precedent by SELLERS, and provided that SELLERS have timely adopted all of the measures necessary for such fulfillment, such period shall be postponed for as many days as there are days of delay actually caused by such act of God or event of force majeure, without prejudice to application, if SELLERS fail to observe the new term, of the provisions in clause 9.2(ii) above.

 

         9.2.2. In the occurrence of any acts of God or events of force majeure, as characterized by law, which provably affect in a direct manner the payment of the Purchase Price by ZMACQ 3 and/or CREMACQ AGRO,, such period shall be postponed for as many days as there are days of delay actually caused by such act of God or event of force majeure, without prejudice to application, if SELLERS fail to observe the new term, of the provisions in clause 9.2(i) above.

 

         9.2.3. For purposes of characterization of acts of God or events of force majeure referred to in clauses 9.2.1 and 9.2.2 above, the Parties shall notify each other of such facts within five (5) Business Days of the occurrence thereof, except if such facts result from the delay and/or mistakes by registry offices and/or public bodies in the exercise of their respective duties.

 

9.3.    Notwithstanding the provisions in clause 9.2(i), SELLERS may extend the term for payment of the installments of the Purchase Price by ZMACQ 3 or CREMACQ AGRO,, without prejudice to the application of the provisions in clause 9.2(i) above in case the new term is not met by ZMACQ 3 or CREMACQ AGRO,.

 

9.4.    In the same regard of the previous clause, ZMACQ 3 may extend the term for

 

 

 

SELLERS to satisfy the Conditions Precedent and/or and grant the Deeds of the REAL PROPERTIES, as applicable. In these cases, the payment of the installments of the Purchase Price linked to such obligations shall be postponed for the same number of days as the delay, without any adjustment or Monetary Adjustment and without prejudice to the application of the provisions in clause 9.2(ii) above in case the new term is not met by SELLERS.

 

10.      GOVERNING LAW AND ARBITRATION.

 

10.1.   Governing Law . The interpretation, understanding, and performance of this Agreement and of all matters related to this instrument shall be governed by the Laws of the Federative Republic of Brazil.

 

10.2.   Previous Negotiation Stage . The Parties express their commitment to the good and productive relationship with each other and agree that, in the event of any dispute, question, disagreement, doubt or controversy arising from or related, directly or indirectly, with the existence, validity, interpretation, due performance, termination or any other points of this Agreement and/or its exhibits (" Conflict " ) or disagreement related to this Agreement, the Parties shall use their best efforts to settle it amicably based on the principle of good faith. For this purpose and without prejudice to the other provisions of this Agreement that set out a dispute resolution mechanism, any of the Parties is entitled to notify the other of its intention to initiate negotiations aiming at an amicable settlement of the dispute. If the Parties do not reach an agreement within thirty (30) days after delivery of such notice, then the conflict shall be unfailingly resolved by arbitration, as described below. Despite the intention of the parties to amicably resolve the conflict within this period, nothing bar whether to initiate arbitration proceedings before the end of that period, and such a situation will not be considered valid question to the beginning and processing of arbitration.

 

10.3.   Arbitration Clause . A Conflit not resolved amicably between the Parties, shall be submitted, in a mandatory, and definitive manner, to arbitration to be carried out by the Arbitration and Mediation Center of the Brazil-Canada Chamber of Commerce – CCBC (“ Arbitration Chamber ”). The arbitration procedure shall be started and processed according to the Arbitration Rules of the Arbitration Chamber (“ Arbitration Rules ”).

 

10.4.   Arbitration Court . The arbitration court (“ Arbitration Court ”) shall be made up

 

 

 

of three (3) arbitrators; one (1) of whom shall be appointed by the Applicant(s), the other by the Required and the third one – who shall be the president of the Arbitration Court – by the two (2) arbitrators chosen by the Parties, in the terms and conditions fixed under the Arbitration Rules. If a party fails to appoint an arbitrator or the president of the Arbitration Court is not appointed by the two (2) co-arbitrators within fifteen (15) days after the appointment of the second arbitrator, the President of the Arbitration Court shall be responsible for appointing such arbitrators under the terms and conditions of the Arbitration Rules. In case of joinder, the Applicant(s) and/or Required, as the case may be, shall jointly appoint an arbitrator, it being hereby agreed that if such Parties do not reach an agreement in this regard, the arbitrator shall be chosen by the President of the Arbitration Court, pursuant to the Arbitration Rules. In the event of arbitration proceedings involving three or more parties in which they cannot be united in requesting and requested blocks, all parties will jointly appoint two arbitrators within fifteen (15) days of receipt by the parties of the final notification of the Chamber of arbitration accordingly. The third arbitrator, who will act as president of the arbitral tribunal, shall be chosen by the arbitrators appointed by the parties within 15 days from the acceptance of responsibility by the last arbitrator or, if this is not possible for any reason, the President of the Arbitration Court. If the Parties fail to jointly appoint the arbitrators, all members of the Arbitral Court will be chosen and appointed by the President of the President of the Arbitration Chamber, which shall appoint one of them to act as chairman, in accordance with, pursuant to the Arbitration Rules.

 

10.5    Impediments . In addition to the impediments set out in the Arbitration Rules, no arbitrator may be an employee, representative or former employee of any of the Parties or any other person directly or indirectly connected to them, or the owner of any of the Parties or a person directly or indirectly related to them.

 

10.6.   Seat of Arbitration . The arbitration shall be based and conducted in the City of São Paulo, State of São Paulo, where the award shall be rendered.

 

10.7.   Language and Applicable Law . The official language of the arbitration acts, pursuant to this instrument, shall be Portuguese, and the Parties may freely perform any act (including depositions and oral testimonies) and submit any documents

 

 

 

(including procedural documents and evidence of any kind) in English. The Laws of the Federative Republic of Brazil shall be applied, and the Arbitration Court shall not resort to equity to settle the disputes submitted thereto.

 

10.8.   Arbitration Rules . The Parties hereby represent to be fully aware of the Arbitration Rules and that they agree with all of their provisions, The Arbitration Rules in force on the date hereof and the provisions of Law No. 9,307, of September 23, 1996, as amended (“ Arbitration Law ”), the latter applied subsidiary to the arbitration are an integral part of this instrument, to the extent applicable.

 

10.9.   Decisions in absentia . The arbitration procedures shall continue, notwithstanding the absence of any of the Parties, as set forth in the Arbitration Rules.

 

10.10. Binding Effect . The arbitration award shall be definitive, non-appealable and binding in relation to the Parties, their successors and assignees, which undertake to voluntarily comply with its terms and expressly waive any form of appeal, except (i) a request for correction of a material error or clarification of any obscure point, doubt, contradiction or omission in the arbitration award, as set forth in the Arbitration Rules and in article 30 of the Arbitration Law; (ii) as set forth in Clause 10.12 below. If necessary, the arbitration award may be enforceable in any court or tribunal with jurisdiction over the Parties and their assets.

 

10.11. Costs . The costs, expenses and fees incurred in as a result of the arbitration shall be equally divided between the respective Parties, until a final decision regarding the dispute is rendered by the Arbitration Court. After the definitive sentence is rendered, the defeated Party shall compensate all the reasonable costs, expenses and fees of counsel and arbitrators actually incurred in by the other Party, updated for Monetary Adjustment, calculated pro rata die in the period between the date when such costs, expenses and fees were incurred in and the date when the indemnification is actually paid, added by interest of one percent (1%) per month, calculated pro rata die as from the date of disclosure of the arbitration award until the date when the compensation is actually paid. If one Party wins only partially, both Parties shall bear the costs, expenses and fees incurred in, ratably to their defeat, as decided in the arbitration award.

 

 

 

 

10.12. Special Competence of the Courts . The Parties are fully aware of all terms and effects of the arbitration commitment herein provided and irrevocably agree that arbitration is the only form of settlement of disputes resulting from and/or related to this Agreement. Without prejudice to the validity of this arbitration clause, the Parties hereby elect the Judicial District of São Paulo, State of São Paulo, Brazil, to the exclusion of any other – if and when necessary, exclusively to: (i) obtaining coercive measures, or acautelatórios procedures of a preventive nature, as collateral to the arbitration procedure to be initiated or  already in progress between the Parties and/or to ensure the existence and effectiveness of the arbitration procedures; (ii) obtaining character measures writ and specific performance, given that, hit the writ providence or persecuted specific performance, will repay to the arbitral tribunal to be constituted or have made, as appropriate, the full and exclusive jurisdiction to decide on any matter, whether procedure or merit, which has given rise to election writ or specific execution by hanging up the relevant legal proceedings pending a decision of the arbitral tribunal, partial or final, concerning; and (iii) exercise, in good faith, application for the annulment of the award pursuant to Article 32 of the Arbitration Law. The request for these measures shall not be a waiver to the commitment clause or the full jurisdiction of the Arbitration Court.

 

10.13. Before the signing of the arbitration term, the Arbitration Chamber may consolidate concurrent arbitration proceedings in accordance with the Arbitration Rules. After signing the arbitration term, the arbitral tribunal may consolidate simultaneous arbitration procedures based on this or any other instrument signed between the parties, provided that such proceedings concern the same legal relationship and arbitration clauses are compatible. Responsibility for consolidation will be to the first Arbitral Court constituted, and its decision will be binding on all parties of the consolidated procedures.

 

11.      Miscellaneous

 

11.1.   Forbearance . Any forbearance, by any of the Parties, as to the failure by the other to comply with any of the clauses or conditions established herein, at any time, shall not constitute novation and shall be interpreted simply as an act of concession,

 

 

 

not implying, therefore, the waiver to enforce the provisions contained herein or the right to require in the future the total performance of each the obligations contained herein, as well as to claim losses and damages.

 

11.2.   Notices . The notices, services of process, and summons to be sent between the Parties having as subject matter the obligations agreed herein shall be sent by letter with delivery confirmation or through fax or email, as indicated below:

 

If to IMOBILIÁRIA CREMAQ:

 

Address:       Avenida Brigadeiro Faria Lima, 1309, 5th floor, suite No. 02, Zip Code 01452-002, São Paulo-SP

Fax:             (11) 3035-5366

Email:           gustavo.lopez@brasil-agro.com / juridico@brasil-agro.com

Att.:             Gustavo Javier Lopez, with a copy to the Legal Department

 

If to BRASILAGRO:

 

Address:       Avenida Brigadeiro Faria Lima, 1309, 5th floor, Zip Code 01452-002, São Paulo-SP

Fax:             (11) 3035-5366

Email:           gustavo.lopez@brasil-agro.com / juridico@brasil-agro.com

Att.:             Gustavo Javier Lopez, with a copy to the Legal Department

 

If to zmacq 3 :

 

Address:       Avenida Braz Olaia Acosta, No. 727, suites 1401 and 1402, room A, Jardim Califórnia, Zip Code 14026-040, Ribeirão Preto - SP

Email:           michael.feibelmann@macquarieag.com

Att.:             Michael Feibelmann

 

If to CREMACQ AGRO:

 

Address:       Avenida Braz Olaia Acosta, No. 727, suite 1402, part, Jardim Califórnia, Zip Code 14026-040, Ribeirão Preto-SP

Email: michael.feibelmann@macquarieag.com

Att.:             Michael Feibelmann

 

 

 

 

11.3.   Change of Address . In case of change of address, the Parties shall communicate such fact immediately, under penalty of any services of process, summons, or notifications sent to the prior address being deemed valid.

 

11.4.   Survival to Partial Invalidity . If any individual clause, term, provision, or condition hereof is deemed invalid, illegal, or unenforceable in any aspect, it shall be examined/assessed/construed separately, not invalidating the other clauses to the extent that this instrument is not materially and adversely affected.

 

11.5.   No Brokerage . Both Parties represent, for all legal purposes and effects, that they did not use brokerage services to execute this Agreement, and no commission is payable by one Party to the other or by third parties.

 

11.6.   Assignment or Transfer . Except as provided in clause 4.4, the Parties are hereby expressly prohibited from assigning or transferring this Agreement or its rights to third parties, in any way, directly or indirectly, without the prior and express consent of the other Party.

 

11.7.   Formal Amendment . It is hereby expressly agreed that no amendment to the provisions in this Agreement or waiver of any of its terms and conditions shall be valid, unless collectively signed by the Parties.

 

11.8.   Succession . This Agreement is an obligation of the Parties and binds their heirs and/or successors in any way.

 

11.9.   Enforcement Instrument . This Agreement, signed by two witnesses, is an extrajudicial enforcement instrument for all purposes of article 585, item II, of the Brazilian Code of Civil Procedure. The Parties hereby agree that all obligations undertaken herein are subject to specific performance, under articles 461, 632, and 466-B of the Brazilian Code of Civil Procedure.

 

11.10. Entire Agreement . This Agreement, together with documents and exhibits herein expressly referred to or initialed by the Parties, summarizes and represents the

 

 

 

entire agreement between the Parties with respect to the subject matter contracted herein and replaces, for all legal effects, any previously agreed understandings, whether verbal or written, conflicting with the provisions herein.

 

11.11. Terms . All terms under this Agreement shall be counted pursuant to the provisions in article 184 of the Brazilian Code of Civil Procedure, i.e., excluding the first day and including the last day. All terms provided for herein and ending on Saturdays, Sundays, or holidays shall be automatically extended to the first subsequent business day.

 

11.12. Press Release . The Parties shall not issue or authorize any press release, public statement, interview, manifestation, pronouncement, or other announcement with respect to the transaction or this Agreement and/or any other instruments related hereto to the internal (employees) or external (clients, suppliers, and other third parties) public, except with the prior consent of SELLERS (in case of ZMACQ 3, CREMACQ AGRO or any of its affiliates) or ZMACQ 3 and CREMACQ AGRO (in case of SELLERS); provided that no Party shall be restricted in any way in case the other Party’s consent has an impact on the legal term necessary for the releases required pursuant to the applicable law.

 

11.13. Confidentiality . The Parties mutually undertake to ensure that any information related to this Agreement (including the existence thereof) and information obtained from each other is kept confidential (“ Confidential Information ”); it being understood that they are not to use any such Confidential Information, unless expressly authorized by its holder, and they further agree and undertake not to disclose any aspect related to this Agreement and its Exhibits and to the transactions provided for in these instruments without the prior consent of the other Party, except with respect to (i) the disclosure of this information or documents by ZMACQ 3 and CREMACQ AGRO to Macquarie Serviços Agrícolas Ltda., Cruzeiro do Sul Grãos Ltda., Macquarie Agricultural Funds Management Limited, Macquarie Crop Partners GP, LLC, Macquarie Crop Feeder, LP, Macquarie Crop Partners, LP and its investors, as well as to any affiliates of ZMACQ 3 and CREMACQ AGRO; and (ii) by SELLERS to their affiliates and controlled entity.

 

11.13.1.        Confidentiality Exception. For the period of three (3) years counted from this date, pursuant to the express provisions in Clause 11.13

 

 

 

above, the Parties agree that the Confidential Information shall not be disclosed by any means of communication nor to any individual, legal entity, or institution, except if:

 

(a)          the Confidential Information is in the Public Domain, provided that it did not fall in the public domain as a result of an act by any of the Parties, their representatives, parent companies, controlled companies, or companies directly or indirectly under common control with such Party;

 

(b)           disclosure is required by a governmental authority or a competent court, under penalty of default or other penalty; it being understood that, in this case, the Party required to disclose such Confidential Information (when allowed by the applicable legislation, authority, or order) shall promptly notify the other Party so that it may assess the adoption of applicable procedures before the governmental authority or court in order to protect the Confidential Information;

 

(c)           disclosure is required according to the rules of any authority, stock exchange, or regulatory or supervisory  body regarding any of the Parties, their representatives, holding companies, parent companies, or entities to which they report; and

 

(d)          the Confidential Information in possession of the Party results of its own research, provided that this Party gives proper evidence of any such circumstance.

 

11.14. List of Exhibits . The following documents are or shall be, when prepared and approved by the Parties, as the case may be, Exhibits and an integral and inseparable part of this Agreement:

 

Exhibit 1.1.1           Real Estate Records;

Exhibit 1.1.2(i)        Area of Real Property V (ZMACQ 3’s Area Detached);

Exhibit 1.1.2(ii)       Remaining Area of Real Property V;

Exhibit 1.1.2(iii)      Rampelotti Committed Area ;

Exhibit 1.1.2(iv)      Area Under Dispute;

Exhibit 1.7              ASSETS Description;

 

 

 

Exhibit 2.1(i)          Individualized Values of Real PROPERTIES ;

Exhibit 2.2.3           Form of Termination of BrasilAgro Lease;

Exhibit 2.5              List of Due Diligence Documents;

Exhibit 2.5.2           List of Desirable Documents (Best Efforts);

Exhibit 3.1                 Form of Blocked Account Deposit Agreement;

Exhibit 4.1.1             Photographic Report Conducted by Parties within 10 Business Days;

Exhibit 4.2                 Loan Area to Imobiliária CREMAQ until September 1 st , 2015;

Exhibit 4.2.1(ii)        Shared Structures with IMOBILIÁRIA CREMAQ until October 1 st , 2015;

Exhibit 5.1.1             Form of Deeds Related to Real PROPE RTIES I to IV and VI to XIX (Deed I);

Exhibit 5.1.2             Form of Deed to REAL PROPERTY V (Deed II);

Exhibit 5.2.3          Form of Public Irrevocable and Irreversible Power of Attorney .

 

IN WITNESS WHEREOF, the Parties sign this instrument in four (4) counterparts of equal form and content in the presence of the witnesses below.

 

São Paulo, May 19, 2015

 

[ Signature page follows ]

 

 

 

 

IMOBILIÁRIA CREMAQ LTDA.

 

 

/s/ Julio Cesar de Toledo Piza Neto

 __________________________

Julio Cesar de Toledo Piza Neto

Chief Executive Officer and Investor Relations Officer

 

/s/ André Guillaumon

__________________________

André Guillaumon

Chief Operating officer

 

 

 

 

 

 

 

 

 

 

BRASILAGRO – COMPANHIA BRASILEIRA DE PROPRIEDADES AGRÍCOLAS

 

 

/s/ Julio Cesar de Toledo Piza Neto

__________________________

Julio Cesar de Toledo Piza Neto

Chief Executive Officer and Investor Relations Officer

/s/ André Guillaumon

__________________________

André Guillaumon

Chief Operating Officer

 

 

 

 

 

 

 

 

 

ZMACQ 3 AGROPECUÁRIA LTDA.

 

 

//s/ Michael Lewin Feibelmann

__________________________

Michael Lewin Feibelmann

Chief General Manager Business &

Operations

/s/ Carlos Aguiar Neto

__________________________

Carlos Aguiar Neto

Chief Executive Officer

 

 

 

 

 

 

 

CREMACQ AGROPECUÁRIA LTDA.

 

 

/s/ Michael Lewin Feibelmann

__________________________

Michael Lewin Feibelmann

Chief General Manager Business &

Operations

 

 

 

Witnesses: /s/ Ana Luisa Gomes Kós

Duboc de Almeida

/s/ Elaine Cardoso

/s/ Carlos Aguiar Neto

__________________________

Carlos Aguiar Neto

Chief Executive Officer

 

 

 

 

EXHIBIT 4.18

 

Summary of Private Instrument for Regulation of Rights and Obligations between Farmer Partners

 

Parties: Brenco – Companhia Brasileira de Energia Renovável, as Farmer Partner 1, and Brasilagro – Companhia Brasileira de Propriedades Agrícolas, as Farmer Partner 2.

Purpose:  Considering that the Farmer Partner 1 executed rural partnership agreements, in order to develop the plantation of sugarcane crop in the arable area of the properties listed in the attachment II; and considering that the Farmer Partner 2 intended to take part of  Farmer Partner 1 rights in the mentioned contracts, the agreement’s purpose is the assignment, by Farmer Partner 1 to Farmer Partner 2, of co-possession of the arable area of the properties

Term:   The agreement shall remain in force for the periods set forth in attachment II.

Parties’s participation: Farmer Partner 1, Farmer Partner 2 and the owner partners shall receive the quantity of sugarcane established in the attachment IV.

____________________________________________________________________

BRENCO – COMPANHIA BRASILEIRA DE ENERGIA RENOVÁVEL

/s/ Luiz Paulo Sant’Anna

Agro-industrial Superintendent 

/s/    Celso Luiz Tavares Ferreira

Vice Chief Operating Officer

 

 

_____________________________________________________________________

BRASILAGRO COMPANHIA BRASILEIRA DE PROPRIEDADES AGRÍCOLAS

/s/ André Guillaumon

Chief Operating Officer

/s/ Gustavo Javier Lopez

Chief Administrative Officer

 

 

 

 

WITNESSES:

/s/Ana Luisa Gomes Kós Duboc de Almeida

/s/ Ana Carolina Carpegiani

 

 

 

 

 
 

 

Attachment II – List of Real Properties

Real Property, Localization, Register(s)

Owner(s)

Purpose

(arable area)

Beginning of Term

Private Instrument for Regulation of Rights and Obligations between Farmer Partners

Expiration of Term

Private Instrument for Regulation of Rights and Obligations between Farmer Partners

Enfurnado Farm, Alto Araguaia/MT, M. 1.735 of Real Estate Registry Office of Alto Araguaia/MT

Silvio Ramos Rodrigues

 

409,06 ha

 

04/01/2015

 

03/31/2019

Terra Boa Farm, Alto Taquari/MT, M. 37 of Real Estate Registry Office of Alto Taquari/MT

Sebastião de Sá

454,34 ha

 

04/01/2015

 

03/31/2017

Primavera Farm, Alto Taquari/MT, M. 1.295 of Real Estate Registry Office of Alto Taquari/MT

Roberta Grellet da Costa

 

96,55 ha

 

 

04/01/2015

 

 

03/31/2017

Camilana Farm, Alto Taquari/MT, M. 878 of Real Estate Registry Office of Alto Taquari/MT

Camila Cristina Wihelms Naumann

 

162,6 ha

 

04/01/2015

 

03/31/2019

Bavia Farm, Alto Taquari/MT, M. 1.224 of Real Estate Registry Office of Alto Taquari/MT

Bruna e Paula Bavia

 

319,43 ha

 

04/01/2015

 

03/31/2018

Rancho Alegre Farm and Girassol Farm, Alto Taquari/MT, M. 1.225 and 1.227 of Real Estate Registry Office of Alto Taquari/MT

Bruna Alves Bavia

 

 

197,42 ha

 

 

 

04/01/2015

 

 

 

03/31/2018

Santa Paula Farm and Bom Jesus Farm, Alto Taquari/MT, M. 1.226 and 494 of Real Estate Registry Office of Alto Taquari/MT

Paula Alves Bavia

 

 

263,49 ha

 

 

 

04/01/2015

 

 

 

03/31/2017

Fabiano Farm, Alto Taquari/MT, M. 2.405, 474, 3.961 and 1.584 of Real Estate Registry Office of Alto Taquari/MT

 

Vilson Schneider

 

2.013,62 ha

 

 

04/01/2015

 

 

03/31/2019

 

 
 

 

 

  Attachment IV – Parties’s participation

 

Parties’s participation

Harvest of 2015 Harvest of 2016 Harvest of 2017 Harvest of 2018

Estimated production

(t)

262.615,99

217.400,42

112.464,56

25.042,43

Owner Partner’s participation (t)

40.470,44

44.200,86

16.969,78

3.864,60

Farmer Partner 1’s participation

1.000,00

1.000,00

1.000,00

19.193,19

Farmer Partner 1’s participation

221.145,55

172.199,56

94.494,78

1.984,64

 

 

 

 

 

 

 

EXHIBIT 4.19

Summary of Agricultural Sub Partnership Agreement

Parties: Brenco – Companhia Brasileira de Energia Renovável, as Partner Possessor, and Brasilagro – Companhia Brasileira de Propriedades Agrícolas, as Sub Partner Farmer.

Object: The assignment, by the Partner Possessor Sub Partner Farmer, possession of arable land of the properties listed in Annex I, for purposes of exploitation of the sugarcane crop.

Term:  The Agreement shall remain in force contract for each agricultural area of the properties listed in Annex I, according to the deadlines set out in Annex II.

Participation of Parties: The participation of Partner Possessor will be each harvest, 10% (ten percent) of fruits produced and the participation of Sub Partner Farmer will each harvest, 90% (ninety percent) of fruits produced.

However, under Article 96 of Law 4,504/64, the Parties pre established the participation of Partner Possessor, as follows:

For Areas 1, 2 and 5 listed in Annex II, the partner Possessor will be entitled to receive 17.97 (seventeen point ninety-seven) tons of sugarcane per hectare of sugarcane per year for year Agreement period;

For areas 3, 4, 6, 7, 8 and 9 listed in Annex II, the partner Possessor will be entitled to receive the following amounts of tons of sugarcane per hectare, per year: (a) for the harvest 2018 / 2019, the amount of 23.53 (twenty-three point fifty three) tons of sugarcane; (b) for the 2019/2020 crop, the amount of 28.55 (twenty eight point fifty-five) tons of sugarcane; (c) for the 2020/2021 crop, the amount of 27.96 (twenty seven point ninety-six) tons of sugarcane; and (d) for other crops (before or after the time period set forth above), the amount of 17.97 (seventeen point ninety-seven) tons of sugarcane.

 

Sharing Risk : The Parties will share only the risks resulting from changes in the price of sugarcane, and the production of sugarcane is insufficient to remedy the volumes due to Partner Possessor, the Sub Partner Farmer shall indemnify Partner Possessor.

 

________________________________________________________________

BRENCO – COMPANHIA BRASILEIRA DE ENERGIA RENOVÁVEL

/s/ Luiz Paulo Sant’Anna

Agro-industrial Superintendent

/s/    Celso Luiz Tavares Ferreira

Vice Chief Operating Officer

 

 

 

 

 
 

 

 

_____________________________________________________________________

BRASILAGRO COMPANHIA BRASILEIRA DE PROPRIEDADES AGRÍCOLAS

 

/s/ André Guillaumon

Chief Operating Officer

/s/ Gustavo Javier Lopez

Chief Administrative Officer

 

 

 

 

WITNESSES:

/s/Ana Luisa Gomes Kós Duboc de Almeida

/s/ Ana Carolina Carpegiani

 

 

 
 

 

 

 
 

 

ANNEX I – REAL ESTATE REGISTER

Number, Real Estate, Localization,

Register(s)

Proprietary(s)

Object

(Agricultural Area)

Beginning of Validity of Partnership Agricultural

 

Expiration of Validity of Partnership Agricultural

 

Enfurnado Farm, Alto Araguaia/MT, M. 1,735 RI de Alto Araguaia/MT

Silvio Ramos Rodrigues

409.06 ha

03/10/2012

12/31/2016

Terra Boa Farm, Alto Taquari/MT, M. 37 RI de Alto Taquari/MT

Sebastião de Sá

454.34 ha

08/20/2012

12/31/2018

Primavera Farm, Alto Taquari/MT, M. 1,295 RI de Alto Taquari/MT

Roberta Grellet da Costa

96.55 ha

09/01/2011

12/30/2025

Santo Antônio Farm, Alto Araguaia/MT, M. 8,156 RI de Alto Araguaia/MT

Antonio Demilson de Oliveira

346.92 ha

01/10/2012

12/30/2026

Camilana Farm, Alto Taquari/MT, M. 878 RI de Alto Taquari/MT

Camila Cristina Wihelms Naumann

162.6 ha

08/01/2011

12/30/2018

Bavia Farm, Alto Taquari/MT, M. 1,224 RI de Alto Taquari/MT

Bruna e Paula Bavia

319.43 ha

09/01/2011

12/30/2025

Rancho Alegre Farm and Girassol Farm, Alto Taquari/MT, M. 1,225 and 1.227 RI de Alto Taquari/MT

Bruna Alves Bavia

197.42 ha

03/01/2011

12/30/2025

Santa Paula Farm and Bom Jesus Farm, Alto Taquari/MT, M. 1,226 and 494 RI de Alto Taquari/MT

Paula Alves Bavia

263.49 ha

03/01/2011

12/30/2025

Fabiano Farm, Alto Taquari/MT, M. 2,405, 474, 3,961 and 1,584 RI de Alto Taquari/MT

Vilson Schneider

2,013.62 ha

01/02/2012

08/30/2028

 

 

 
 

 

ANNEX II – VALIDITY OF SUB PARTNERSHIP AGRICULTURAL

Number, Real Estate, Localization,

Register(s)

Proprietary(s)

Agricultural Area

Beginning of Validity of Agricultural Sub Partnership

 

Expiration of Validity of Agricultural Sub Partnership

1 – Enfurnado Farm, Alto Araguaia/MT, M. 1.735 RI de Alto Araguaia/MT

Silvio Ramos Rodrigues

 

409.06 ha

 

04/01/2019 *

 

03/31/2025

2 - Terra Boa Farm, Alto Taquari/MT, M. 37 RI de Alto Taquari/MT

Sebastião de Sá

 

454.34 ha

04/01/2017 *

03/31/2024

3 – Primavera Farm, Alto Taquari/MT, M. 1.295 RI de Alto Taquari/MT

Roberta Grellet da Costa

 

96.55 ha

04/01//2017 *

03/31/2024

4 - Santo Antônio Farm, Alto Araguaia/MT, M. 8.156 RI de Alto Araguaia/MT

Antonio Demilson de Oliveira

 

346.92 ha

 

04/01/2016 *

 

03/31/2023

5 – Camilana Farm, Alto Taquari/MT, M. 878 RI de Alto Taquari/MT

Camila Cristina Wihelms Naumann

 

162.6 ha

 

04/01/2019 *

 

03/31/2026

6 – Bavia Farm, Alto Taquari/MT, M. 1.224 RI de Alto Taquari/MT

Bruna e Paula Bavia

 

319.43 ha

 

04/01/2018 *

 

03/31/2025

7 - Rancho Alegre Farm and Girassol Farm, Alto Taquari/MT, M. 1.225 and 1.227 RI de Alto Taquari/MT

 

Bruna Alves Bavia

 

197.42 ha

 

04/01/2018 *

 

03/31/2025

8 - Santa Paula Farm and Bom Jesus Farm, Alto Taquari/MT, M. 1.226 e 494 RI de Alto Taquari/MT

Paula Alves Bavia

 

263.49 ha

 

04/01/2017 *

 

03/31/2024

9 – Fabiano Farm, Alto Taquari/MT, M. 2,405, 474, 3,961 and 1,584 RI de Alto Taquari/MT

 

Vilson Schneider

 

2,013.62 ha

04/01/2019 *

03/31/2024

 

 

 

EXHIBIT 4.20

Summary of Sugarcane Purchase and Sale Agreement

 

Parties: Brenco – Companhia Brasileira de Energia Renovável, as Purchaser, and Brasilagro – Companhia Brasileira de Propriedades Agrícolas, as Seller.

Purpose: Purchase and Sale of the sugarcane owned by the Seller by virtue of the agricultural sub partnership agreement and/or the instrument for regulation of rights and obligations between farmer partners.

Duration: The Agreement shall remain in force until the end of crop 2025/2026.

Final price : The price that the seller will receive by the sugar cane sell will be determined at the end of the respective crop year, based on the formula: PF = QC x QATR x VATR

Wherein:

PF: means the price, in reais, that the buyer will pay to the seller on each crop year

QC: means the total volume of sugar cane delivered to the seller on each crop year, measured in tons

Q ATR : means the weighted average number of TOTAL RECOVERABLE SUGAR CONTENT (ATR) measured in kilograms, extracted in a ton of sugar cane under the harvest

V ATR : means the fixed value and/or payment based on the Regulation for the Business of Purchase and Sale of Sugarcane in the State of São Paulo (CONSECANA-SP) in the Plant Mix.

 

____________________________________________________________________

BRENCO – COMPANHIA BRASILEIRA DE ENERGIA RENOVÁVEL

/s/ Luiz Paulo Sant’Anna

Agro-industrial Superintendent

/s/    Celso Luiz Tavares Ferreira

Vice Chief Operating Officer

 

_____________________________________________________________________

BRASILAGRO COMPANHIA BRASILEIRA DE PROPRIEDADES AGRÍCOLAS

/s/ André Guillaumon

Chief Operating Officer

/s/ Gustavo Javier Lopez

Chief Administrative Officer

 

 

 

 

WITNESSES:

/s/Ana Luisa Gomes Kós Duboc de Almeida

/s/ Ana Carolina Carpegiani

 

 

 
 

 

 

EXHIBIT 8.01

Our subsidiaries, each of which is incorporated under the laws of the Federative Republic of Brazil, are listed below.

Imobiliária Araucaria Ltda.

Imobiliária Cajueiro Ltda.

Imobiliária Ceibo Ltda.

Imobiliária Cremaq Ltda.

Imobiliária Engenho de Maracaju Ltda.

Imobiliária Flamboyant Ltda.

Imobiliária Mogno Ltda.

Jaborandi Agrícola Ltda.

Imobiliária Jaborandi Ltda.

Imobiliária Ipê Ltda.

FIM Guardian – Fundo de Investimento Multimercado Crédito o Privado Exclusivo Guardian—Guardian Multi Strategy (aka Hedge Fund) Private Debt Securities Exclusive Fund.

* FIM Guardian is a opened-end investment fund, intended to receive applications exclusively from BrasilAgro’s resources

 

 

 

EXHIBIT 12.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Julio Cesar de Toledo Piza Neto, certify that:

1.       I have reviewed this annual report on Form 20-F of BrasilAgro – Companhia Brasileira de Propriedades Agrícolas;

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.       The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15e-15(f)) for the company and have:

(a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles.

(c)      Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)      Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5.       The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

 
 

 

 

(b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: October 30, 2015

 

 

 

/s/ Julio Cesar de Toledo Piza Neto

Julio Cesar de Toledo Piza Neto

Chief Executive Officer

 

 

 

 

EXHIBIT 12.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gustavo Javier Lopez, certify that:

1.       I have reviewed this annual report on Form 20-F of BrasilAgro—Companhia Brasileira de Propriedades Agrícolas;

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.       The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15e-15(f)) for the company and have:

(a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with general accepted accounting principles.

(c)      Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)      Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5.       The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 

 
 

 

 

(b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: October 30, 2015

 

 

 

/s/ Gustavo Javier Lopez

Gustavo Javier Lopez

 

Chief Administrative Officer

 

 

 

 

 

 

EXHIBIT 13.1

CERTIFICATION PURSUANT TO 18 U.S. C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of BrasilAgro—Companhia Brasileira de Propriedades Agrícolas (the “Company”) on Form 20-F for the fiscal year ended June 30, 2015, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Julio Cesar de Toledo Piza Neto, Chief Executive Officer, certify, pursuant to 18 U.S. C. section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that:

(i)       the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

(ii)      the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Julio Cesar de Toledo Piza Neto

Name: Julio Cesar de Toledo Piza Neto

Title: Chief Executive Officer

October 30, 2015

 

 

 

 

EXHIBIT 13.2

CERTIFICATION PURSUANT TO 18 U.S. C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of BrasilAgro – Companhia Brasileira de Propriedades Agrícolas (the “Company”) on Form 20-F for the fiscal year ended June 30, 2015, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Gustavo Javier Lopez, Chief Administrative Officer, certify, pursuant to 18 U.S. C. section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that:

(i)       the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

(ii)      the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Gustavo Javier Lopez

Gustavo Javier Lopez

Chief Administrative Officer

October 30, 2015