Vale do Tijuco Açúcar e Álcool S.A.

Transcription

1 Vale do Tijuco Açúcar e Álcool S.A. KPDS

2 Contents Independent auditors' report on the financial statements 3 Balance sheets 5 Statements of income 6 Statements of comprehensive income 7 Statements of changes in shareholders' equity 8 Statements of cash flows - Indirect method 9 Notes to the financial statements 10 2

3 KPMG Auditores Independentes Passeio das Castanheiras, Salas 407 a 411 Condomínio Tríade - Torre Nova York - Parque Faber Castell São Carlos/SP - Brazil Caixa Postal CEP São Carlos/SP - Brazil Telephone 55 (16) , Fax 55 (16) Independent auditors' report on the financial statements To Directors and Shareholders of Vale do Tijuco Açúcar e Álcool S.A. Uberaba - MG We have reviewed financial statements of Vale do Tijuco Açúcar e Álcool S.A. ( Company ), comprising the balance sheet as of March 31, 2016 and the related statements of income, comprehensive income, changes in shareholders' equity and cash flows for the year then ended, as well as the summary of the significant accounting practices and other explanatory notes. Management s responsibility for the financial statements Company's management is responsible for the preparation and adequate presentation of the financial statements in accordance with the accounting practices adopted in Brazil, and the internal controls it deemed necessary to enable the preparation of these financial statements free of material misstatements, regardless of whether caused by fraud or error. Responsibility of the independent auditors Our responsibility is to express an opinion on these financial statements based on our audit, undertaken in accordance with Brazilian and international auditing standards. These standards require compliance with ethical requirements by the auditors and that the audit be planned and executed with the objective of obtaining reasonable assurance that the financial statements are free from significant distortions. KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative ( KPMG International ), uma entidade suíça. KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. 3

4 An audit involves the carrying out of procedures selected to obtain evidence related to the amounts and disclosures presented in the financial statements. The procedures selected depend on the auditor's judgment, including an assessment of the risks of significant distortion in the financial statements, regardless of whether the latter are caused by fraud or error. In this risk assessment, according to auditing standards, the auditor considers relevant internal controls for the preparation and adequate presentation of the financial statements of the Company, to plan the audit procedures that are appropriate in the circumstances, but not for purposes of expressing an opinion on the efficacy of these internal controls of the Company. An audit also includes the evaluation of the adequacy of adopted accounting practices and reasonability of accounting estimates made by Management, as well as an assessment of the presentation of financial statements taken as a whole. We believe that the audit evidence obtained is sufficient and appropriate to support our opinion. Opinion In our opinion, the aforementioned financial statements present adequately, in all relevant aspects, the financial position of Vale do Tijuco Açúcar e Álcool S.A. as of March 31, 2016, the performance of its operations and its cash flows for the year then ended, in accordance with the accounting practices adopted in Brazil. Emphasis Without modifying our opinion, we draw attention to note 1 to the financial statements, which demonstrates that the Company's total current liabilities exceeded total current assets by R$ 323,992 thousand as of March 31, This condition, together with other matters, as described in note 1, indicate that a significant uncertainty exists and may raise significant doubts on the Company's operating capacity as a going concern. Our opinion is not qualified in relation to this matter. São Carlos, June 27, 2016 KPMG Auditores Independentes CRC 2SP014428/O-6 Original report in Portuguese signed by André Luiz Monaretti Accountant CRC 1SP160909/O-3 KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative ( KPMG International ), uma entidade suíça. KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. 4

5 Balance sheets at March (In thousands of reais) Assets Note Liabilities Note Current assets Current liabilities Cash and cash equivalents 8 63, ,271 Loans and financing , ,172 Pledged interest earning bank deposits 9 36,008 - Debentures 17 40,486 93,042 Trade accounts receivable and other receivables 10 14,311 7,369 Suppliers and other accounts payable 18 61,055 59,479 Inventories 11 26,763 19,841 Derivative financial instruments 23 40,046 31,999 Recoverable taxes and contributions 12 19,368 16,024 Provision and labor charges 12,584 19,296 Derivative financial instruments 23 11,679 - Tax liabilities 2,555 2,472 Advances to suppliers and other assets 13 58,891 34,316 Advance from clients 19 58,532 46,761 Other current liabilities 3,835 7,854 Total current assets 230, ,821 Total current liabilities 554, ,075 Long-term assets Trade accounts receivable and other receivables 10 4,443 3,213 Non-current liabilities Advances to suppliers and other assets 13 6,923 7,908 Loans and financing , ,750 Judicial deposits 1, Debentures 17 51,439 - Derivative financial instruments 23 5,479 - Suppliers and other accounts payable Recoverable taxes and contributions 12 42,511 29,817 Derivative financial instruments 23 10,496 - Deferred income and social contribution taxes 24 7,118 28,142 Liability interest 1,913 - Provisions for contingencies Total non-current assets 68,013 69,960 Total non-current liabilities 282, ,568 Investments 2 2 Biological assets , ,328 Shareholders' equity Property, plant and equipment , ,827 Capital , ,718 Intangible assets 4,407 4,225 Equity valuation adjustment (23,129) (59,000) Accumulated losses (127,364) (42,198) Total non-current assets 730, ,342 Total shareholders' equity 123,225 72,520 Total liabilities 837, ,643 Total assets 960, ,163 Total liabilities and shareholders' equity 960, ,163 See the accompanying notes to the financial statements 5

6 Statements of income Years ended March (In thousands of reais) Note Operating income , ,430 Variation of the biological asset's fair value 14 21,310 1,223 Cost of sales and services 26 (379,068) (351,325) Gross income 64, ,328 Sales expenses 26 (34,065) (35,909) Administrative expenses 26 (9,605) (13,841) Other operating income (1,993) 1,450 (45,663) (48,300) Income (loss) before net financial income (expenses) and taxes 18,759 78,028 Financial expenses 27 (211,242) (83,770) Financial income ,804 13,107 Net financial expenses 27 (101,438) (70,663) (Loss) income before taxes (82,679) 7,365 Deferred income and social contribution taxes 24 (2,487) 373 (2,487) 373 Net (Loss) income for the year (85,166) 7,738 See the accompanying notes to the financial statements. 6

7 Statements of comprehensive income Years ended March (In thousands of reais) (Loss) income for the year (85,166) 7,738 Net gains (losses) from cash flow hedge 35,871 (53,209) Total comprehensive income (49,295) (45,471) See the accompanying notes to the financial statements. 7

8 Statements of changes in shareholders' equity Years ended March (In thousands of reais) Note Capital Equity valuation adjustment Accumulated losses Total shareholders' equity Balance at April 1, ,718 (5,791) (49,936) 117,991 Other comprehensive income: Net losses from cash flow hedge - (53,209) - (53,209) Net income for the year - - 7,738 7,738 Balance at March 31, ,718 (59,000) (42,198) 72,520 Capital increase through paid-up capital pursuant to minutes of meeting held on November 27, , ,000 Other comprehensive income Net gains from cash flow hedge - 35,871-35,871 Loss for the year - - (85,166) (85,166) Balance at March 31, ,718 (23,129) (127,364) 123,225 See the accompanying notes to the financial statements. 8

9 Statements of cash flows - Indirect method Years ended March (In thousands of reais) Note Cash flow from operating activities Income (loss) for the year (85,166) 7,738 Adjustments to reconcile income (loss): Change in fair value of biological assets (21,310) (1,223) Depreciation and amortization 38,741 37,771 Decrease in biological assets for the crop of sugarcane 39,246 37,040 Off-season amortization 36,503 36,792 Amortization of cultural treatments of ratoon cane 34,868 22,051 Residual value of written-off fixed assets 7,363 9,649 Interest on loans and financing 72,660 64,921 Unrealized exchange variation on loans and investments 16,487 (5,092) Unrealized losses on derivative financial instruments 43,861 19,608 Reversal of allowance for doubtful accounts - 3 Formation/reversal of provision for contingencies and other liabilities (31) (390) Deferred income and social contribution taxes 2,487 (373) 185, ,495 (Increase) decrease in trade accounts receivable and other receivables (8,831) 18,661 (Increase) decrease in inventories (6,922) 1,051 (Increase) in taxes and contributions recoverable (16,038) (330) (Increase) in advance to suppliers and other assets (23,590) (14,604) Increase (decrease) in suppliers and other accounts payable 2,327 (31,032) (Decrease) increase in provisions and labor charges (6,712) 3,216 Increase in tax liabilities Increase in advances from clients 11,771 46,501 (Decrease) increase in other liabilities (2,106) 5,516 Cash from operating activities 135, ,673 Payment of interest on loans and financing (71,365) (63,788) Cash flow from operating activities 64, ,885 Cash flow from investment activities Increase in pledged interest earning bank deposits (36,008) - Formation of biological assets (70,029) (69,786) Acquisition of fixed assets 31 b (58,400) (44,674) Acquisition of intangible assets (1,055) (1,694) Receipts deriving from the disposal of fixed assets - 9,764 Cash flow (used in) investment activities (165,492) (106,390) Cash flow from financing activities Loans and financing 317, ,354 Payment of principal of loans and financing (394,252) (248,987) Capital increase 100,000 - Cash flow from (used in) financing activities 23,328 (6,633) Net (decrease) increase in cash and cash equivalents (77,838) 80,862 Cash and cash equivalents at April 1 141,271 60,409 Effect of exchange variation on the cash and cash equivalents Cash and cash equivalents on March 31, a 63, ,271 See the accompanying notes to the financial statements. 9

10 Notes to the financial statements (In thousands of reais) 1 Operations The Company, located at Rodovia BR 050 (KM 21) - Bairro Industrial de Uberaba, is engaged in the production, sale and export of sugar, ethanol and other products derived from the processing of sugarcane; the provision of services to third parties and the industrialization by order of the latter; the co-generation and sale of electric power, and it may exploit the planting of sugarcane in their own or third-party land; the sale of their own or third-party sugarcane; the intermediation of sale of sugarcane, and holding interest in other companies, as partner or shareholder. The operations of Vale do Tijuco Açúcar e Álcool S.A. began on April 12, Its industrial plant has grinding capacity of around 4 million tons of sugarcane per harvest, producing sugar, anhydrous ethanol, hydrated ethanol and power, as well as the by-products fusel oil and sugarcane bagasse. The planting of sugarcane requires a period of up to 18 months for maturation and beginning of harvest, which usually occurs between April and November. The sale of the production occurs throughout the year and it does not suffer variations due to seasonality, but only variation of the usual market offer and demand (commodity price and foreign exchange). As a means to extend the maturity profile of the Company's debt, which, at March 31, 2016, presented an excess of current liabilities over current assets of R$ 323,992, Management is already renegotiating the balances of borrowings and adequate funding with the main creditor banks whose loans are classified as current liabilities, with a view to adjusting the cash flows from operations. Among the main actions taken, the following stand out: On November 27, 2015, an amount of R$ 100,000 was transferred by the shareholders, as a planned capital increase. Search for a long-term credit line totaling R$ 200,000 from prime banks, to adjust working capital and reduce financial expenses as mentioned in Note 33, the Company has succeeded in part of its negotiations and raised new financing long-term in the amount of R $ 95,385. Projected cash flow with reduction of debt for next crops, being R$18,000 for 16/17 crop. Negotiation of waiver referring to financial indices that were not achieved and, consequently, the amount of R$ 106,911 was reclassified from non-current liabilities to current liabilities in March 31, The purpose of the strategic planning the Company has been implementing is to generate positive results in the coming years. These strategies were approved by the Company s shareholders. 10

11 2 Preparation basis Statement of conformity regarding the Accountant Statements Committee (CPC) standards The financial statements were prepared according to the accounting practices adopted in Brazil (BR GAAP) in conformity with the pronouncements issued by the Accounting Pronouncements Committee (CPC). The issue of financial statements was authorized by the Management on June 27, Details on the Company s significant accounting policies are shown in Note 6. 3 Functional and presentation currency These financial statements are being presented in Brazilian reais, functional currency of the Company. All balances have been rounded to the nearest value, except otherwise indicated. 4 Use of estimates and judgments The preparation of the financial statements, Management used judgments, estimates and assumptions that affect the Company s application of accounting principles and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and assumptions are reviewed in a continuous manner. Reviews of estimates are recognized on a prospective basis. a. Uncertainties on assumptions and estimates Information on uncertainties as to assumptions and estimates that pose a high risk of resulting in a material adjustment in the year ending March 31, 2017 are included in the following notes: Note 10 - realization of accounts receivable and other receivables; Note 20 - Recognition and measurement of provision for contingencies: main assumptions on the probability and volume of outflows; and Note 24 - Recognition of deferred tax assets: availability of future taxable income against which tax losses may be used. Measurement of fair value A series of Company accounting policies and disclosures requires the measurement of fair value, for financial and non-financial assets and liabilities. The Company established a control structure related to measurement of fair value. This includes a valuation team which has overall responsibility for overseeing all significant fair value measurements. 11

12 The Company periodically reviews unobservable data considered significant and valuation adjustments. If third-party information, such as broker quotes or pricing services, is used to measure fair values, the management assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the CPC requirements, including the level in the fair value hierarchy in which such valuations should be classified. When measuring fair value of an asset or liability, the Company uses observable data as much as possible. Fair values are classified at different levels according to hierarchy based on information (inputs) used in valuation techniques, as follows: Level 1: Prices quoted (not adjusted) in active markets for identical assets and liabilities. Level 2: Inputs, except for quoted prices, included in Level 1 which are observable for assets or liabilities, directly (prices) or indirectly (derived from prices). Level 3: Inputs, for assets or liabilities, which are not based on observable market data (nonobservable inputs). The Company recognizes transfers between fair value hierarchic levels at the end of the financial statements period in which changes occurred. Additional information on the assumptions adopted in the measurement of fair values is included in the following notes: Note 14 - Biological assets; and Note 23 - Financial instruments. 5 Measuring basis The financial statements were prepared based on the historical cost, except for the following material items recognized in the balance sheets: Derivative financial instruments measured at fair value; Non-derivative financial instruments designated at fair value through profit or loss are measured at fair value; and Biological assets measured at fair value less selling costs. 6 Significant accounting policies The Company applied the accounting policies described below consistently to all the years presented in these financial statements. 12

13 a. Operating income (i) Sale of products Operating income is recognized when (i) the most significant risks and rewards inherent to the ownership of the assets have been transferred to the purchaser, (ii) it is probable that the financial economic benefits will flow to the company, (iii) the costs related and potential return of goods can be reliably estimated, (iv) there is no continued involvement with the goods sold, and (v) the amount of income can be reliably measured. Income is measured net of returns, trade discounts and bonus. The moment for the transfer of risks and benefits varies depending on the individual conditions of each sales agreement. For sugar and ethanol sales in the domestic market, transfer is normally carried out when the product is delivered in the client's premises of when it is picked up by the client in the Company's premises. For sales in the foreign market, the transfer occurs upon loading of goods in the transportation company of the seller harbor. (ii) Sale of electricity Income from the sale of power generation is recorded based on the guaranteed energy and tariffs specified in the terms of supply agreements or the prevailing market price, as applicable. As mentioned in Note 25, the Company has futures contract for trading of electric power in the total volume of 61,320 Mwh per year/crop. b. Financial income and expenses The financial income and expenses of the Company comprise the following: income/losses from derivative financial instruments; net gains/losses in exchange variation of financial assets and liabilities; interest expenses on loans and financing; and other financial income and expenses. Financial income and expenses are recognized in income (loss) using the effective interest rate method. c. Foreign currency Foreign currency transactions Transactions in foreign currency are translated into the functional currency of the Company at the exchange rates on the dates of the transactions. 13

14 Monetary assets and liabilities denominated and calculated in foreign currencies on the balance sheet date are reconverted into the functional currency at the foreign exchange rate on that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into the functional currency at the foreign exchange rate on the date the fair value was determined. Non-monetary items that are measured based on the historical cost in foreign currency are translated using the rate of the transaction date. Exchange differences arising from the translated are recognized in income (loss). However, foreign exchange differences resulting from reconversion of effective cash flow hedge are recognized in other comprehensive income. d. Employee benefits (i) (ii) (iii) Short-term employee benefits Obligations for short-term employee benefits are recognized as personnel expenses as the related service is rendered. The liability is recognized at the amount expected to be paid, if the Company has a legal or constructive obligation to pay this amount as a result of prior service rendered by the employee, and the obligation can be reliably estimated. Defined contribution plan Obligations for contributions to defined contribution pension plans are recognized as employee benefit expenses in profit or loss when the related services are rendered by the employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is possible. The Company has no other post-employment benefits. Defined benefit plan The Company's net obligation in respect of defined benefit plans is calculated individually for each plan by estimating the amount of the future benefit that employees will earn in return for their service in the current and prior periods. This amount is discounted at present value and is presented net of any of the plan s assets fair values. The calculation of defined benefit plan obligation is made each year by a qualified actuary adopting the projected unit credit method. When the calculation results in a potential for the Company, the asset to be recognized is limited to present value of the economic benefits available as future plan refunds or reduction in the future payments. To calculate economic benefits present value, any minimum applicable cost requirements are taken into consideration. e. Income and social contribution taxes The income and social contribution taxes, both current and deferred, are calculated based on the rates of 15% plus a surcharge of 10% on taxable income in excess of R$ 240 (annual basis) for income tax and 9% on taxable income for social contribution on net income, and consider the offset of income tax loss carryforward and negative basis of social contribution, limited to 30% of the taxable income in the year. Income and social contribution tax expense comprises both current and deferred income and social contribution taxes. Current taxes and deferred taxes are recognized in income unless they are related to items directly recognized in Shareholders' equity or in other comprehensive income. 14

15 (i) Current income tax and social contribution expense Current tax expense is the tax payable or receivable on the taxable income or loss for the year and any adjustments to taxes payable in relation to prior years. It is measured based on rates enacted at the balance sheet date. Current tax assets and liabilities are offset only if certain criteria are met. (ii) Deferred income and social contribution tax expenses Deferred tax and liabilities are recognized in relation to the temporary differences between the book values of assets and liabilities for financial statement purpose and used for taxation purposes. A deferred tax asset is recognized for unused tax losses and deductible temporary differences, to the extent that it is probable that future taxable income will be available against those that will be utilized. Deferred tax assets are reviewed at each balance sheet date and reduced when their realization is no longer probable. Deferred tax assets and liabilities are measured at tax rates expected to be applied to temporary differences when they are reversed, based on rates enacted or decreed up to the date of balance sheet date. The measurement of deferred tax assets and liabilities reflects the tax consequences in a manner in which the Company expects to recover or settle its assets and liabilities. The deferred tax assets and liabilities are offset only if certain criteria are met. f. Biological assets Biological assets are measured at fair value, less sales expenses, and any changes are recognized in income (loss). Sale costs include all costs that are necessary to sell the assets, including transport expenses. Sugarcane is transferred to the cost of production at their fair value, minus estimated selling expenses determined on the cutoff date. g. Inventories Inventories are measured at the lower of cost and net realizable value. Inventory costs are valued at the average cost of purchase or production and include expenses incurred in the acquisition of inventories, production and conversion costs and other costs incurred in bringing them to their current locations and conditions. The net realizable value is the estimated price at which inventories can be realized in the normal course of business, less the estimated completion costs and selling expenses. The sugarcane consumed in the production process is measured at its fair value, net of sales expenses determined on the cutoff date. h. Property, plant and equipment (i) Recognition and measurement Property, plant and equipment items are stated at historical acquisition or construction cost, net of accumulated depreciation and impairment losses. 15

16 When significant parts of a property, plant and equipment item have different useful lives, are accounted for as separate items (major components) of property, plant and equipment. Any gains and losses on disposal a property, plant and equipment item are recognized in income (loss). (ii) (iii) Subsequent costs Subsequent costs are capitalized in accordance with the probability that associated future economic benefits may be earned by the Company. Maintenance expenses and recurring repairs are recognized in the income when incurred. Maintenance costs The maintenance cost of a component of property, plant and equipment is recognized in the book value of the item when it is probable that the future economic benefits embodied in the component will flow and its cost can be reliably measured. The book value of the component that has been replaced by another is written off. Costs of normal maintenance on property, plant and equipment are charged to the income statement as incurred. The Company performs annual maintenance at its manufacturing unit, approximately in the period from December to March. The main maintenance costs include costs of labor, materials, outsourced services and overhead allocated during the off-season period. Said costs are accounted for as a component of the cost of the equipment and depreciated during the following harvest. Any other type of expenditure, which does not increase the useful life or maintain the grinding capacity, is recognized as an expense. (iv) Depreciation Depreciation is calculated to amortize the cost of items of fixed asset items, net of their estimated residual values, using the straight-line method based on estimated useful lives of such items. The depreciation is recognized in income (loss) and in production cost. Land is not depreciated. The estimated useful lives such as weighted average rates, for the current and comparative years are as follows: Years Rates Industrial equipment % Constructions and buildings % Agricultural machinery and tractors % Paving 10 10% Vehicles 5 20% Agricultural equipment % Machinery, equipment and tools % Furniture and fixtures % Computers and peripherals % Others % Depreciation methods, useful lives and residual values are reviewed at each balance sheet date and adjusted if appropriate. 16

17 i. Intangible assets (i) (ii) (iii) Other intangible assets Other intangible assets acquired by the Company with finite useful lives are carried at cost, net of accumulated amortization and any accumulated impairment losses. Subsequent expenses Subsequent expenses are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred. Amortization Amortization is calculated under the straight-line method based on the estimated useful life of items to amortize the cost of intangible asset items, net of their estimated residual values. Amortization is recognized in profit or loss. The average estimated useful lives for the current and comparative is 5 years. Amortization methods, useful lives and residual values are reviewed at each balance sheet date and adjusted if appropriate. j. Financial instruments The Company classifies non-derivative financial assets in the following categories: financial instruments measured at fair value through profit or loss and loans and receivables. The Company classifies non-derivative financial liabilities in the category of other financial liabilities. (i) Non-derivative financial assets and liabilities - recognition and derecognition The Company initially recognizes the loans, receivables and debt instruments on the date that they are originated. All other financial assets and liabilities are initially recognized on the date of the negotiation when the Company becomes a party to the instrument's contractual provisions. The Company derecognizes a financial asset when the contractual rights to the cash flow of the asset expire, or when the Company transfers the rights to the reception of contractual cash flows over a financial asset in a transaction in which essentially all the risks and benefits of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. The Company derecognizes a financial liability when its contractual obligations are discharged or canceled or expire. Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right of the Company to offset and there is intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. 17

18 (ii) Non-derivative financial assets - Measurement Financial assets measured at fair value through profit or loss A financial asset is classified as measured at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. The transaction costs are recognized in income (loss) as incurred. They are measured at fair value and changes in the fair value, including gains with interest and dividends, are recognized in the income for the year. Loans and receivables Such assets are initially recognized at fair value plus any transaction costs directly assignable. After their initial recognition, loans and receivables are measured at amortized cost using the effective interest rate method. Cash and cash equivalents In statements of cash flow, cash and cash equivalents are immediately receivable and an integral part of the Company s cash management. (iii) Non-derivative financial liabilities - Measurement A financial liability is classified as measured at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. The transaction costs are recognized in income (loss) as incurred. Financial liabilities recorded at fair value through profit or loss are measured at fair value and changes in the fair value of such liabilities, including gains with interest and dividends, are recognized in the income for the year. Other non-derivative financial liabilities are initially measured at fair value less any transaction costs directly assignable. After their initial recognition, these financial liabilities are measured at amortized cost using the effective interest rate method. (iv) Capital Common shares Additional costs directly attributable to the issue of shares are recognized as reduction in the shareholders equity. Effects from taxes related to these transactions costs are accounted for in accordance with CPC 32 - Taxes on income. Dividends The Company s bylaws determines a percentage higher than 25% to payment of compulsory minimum dividends. (v) Derivative financial instruments, including hedge accounting The Company holds derivative financial instruments to hedge its exposure to foreign currency and interest rate changes. 18

19 Upon initial designation of the derivative as a hedging instrument, the Company formally documents the relationship between the hedge instruments and the hedgeable items, including the risk management goals and the strategy in the execution of the hedge transaction and the hedgeable risk, together with the methods that will be used to assess the effectiveness of the hedge relationship. The Company evaluates the hedge relationship, initially and then continuously, to conclude if hedge instruments are expected to be "highly effective" in the offset of variations in fair value or cash flows of items subject to hedge during the period for which hedge is assigned whether the actual results of each hedge are within the range of 80%-125%. For a cash flows hedge of a planned transaction, the transaction should have its occurrence as highly probable and should present exposure to variations in the cash flows that at the end could affect the reported income (loss). Derivatives are initially measured at their fair value; any attributable transaction costs are recognized in profit or loss when incurred. After the initial recognition, derivatives are measured at fair value and changes are recorded in profit or loss. Cash flow hedge When a derivative is designated as a hedge instrument to hedge cash flow variability, the effective portion of variation in the derivative's fair value is recognized in other comprehensive income and disclosed in equity valuation adjustments caption in shareholders' equity. Any non-effective portion of the variations in the fair value of the derivative is recognized immediately in net income. Accumulated value held under equity valuation adjustments is reclassified to income for the same period in which hedged item affects income. In case (i) occurrence of foreseen transaction is no longer expected, (ii) hedge instrument no longer satisfies the hedge accounting criteria, (iii) the hedge instruments expires or is sold, wound up, exercised or has its designation revoked, then the hedge accounting is discontinued prospectively. If there are no more expectations regarding the occurrence of the planned transaction, the balance in other comprehensive income is reclassified to income (loss). k. Impairment (i) Non-derivative financial assets Financial assets not classified as financial assets at fair value through profit or loss, including investments accounted for under the equity method, are evaluated at each balance sheet date to determine if there are objective impairment evidence. Objective evidences of financial assets impairment include: debtor s default or delays; restructuring of an amount owed to the Company at conditions that would not be accepted under normal conditions; indications that the debtor or issuer will face bankruptcy/court-ordered reorganization; negative changes in payment situation of debtors or issuers; 19

20 the disappearance of an active market for an instrument due to financial distress; or observable data indicating that expected cash flow measurement of a group of financial assets decreased. Financial assets measured at amortized cost The Company considers as evidence of impairment of assets measured by amortized cost both individually and on an aggregate basis. All individually significant assets are assessed for impairment. Those non-impaired on an individual basis are collectively assessed for any impairment loss not yet identified. Assets that are not individually significant are assessed on an aggregate basis in relation to impairment by grouping the assets with similar risk characteristics. When assessing impairment on an aggregate basis the Company makes use of historical trends of the recovery term and the amounts of losses incurred, adjusted to reflect the management's judgment if the current economic and credit conditions are such that the actual losses will probably be higher or lower than those suggested by historical trends. An impairment is calculated as the difference between the asset's book value and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate of the asset. The losses are recognized in income and reflected in an account for allowance for losses. When the Company considers that it is not possible to reasonably expect recovery, amounts are written-off. When a subsequent event indicates loss reduction, provision is reversed through profit or loss. Investees recorded under the equity method of accounting An impairment loss referring to an investee value at the equity method is measured by comparing the investment s recoverable value to its book value. An impairment loss is recognized in the statement of income and is reversed if there has been a favorable change in the estimates used to determine the recoverable value. (ii) Non-financial assets The book values of the Company's non-financial assets, except for biological assets, inventories, biological assets and deferred tax assets are reviewed at each balance sheet date for indication of impairment. If such indication exists, the asset's recoverable amount is estimated. In case of goodwill, recoverable value is tested on an annual basis. For impairment tests, assets are grouped at the lowest possible group of assets that generates cash inflows for their continued use, these entries that are largely independent of the cash inflows from other assets or CGU (cash generating units). Recoverable value or CGU of an asset is the higher of value in use and fair value less selling costs. Value in use is based on estimated future cash flows discounted to present value using a discount rate before taxes that reflects current market evaluations of times value of money and the specific risks of the assets or CGU. An impairment loss is recognized when the book value of an asset or its CGU exceeds its recoverable value. 20

21 The Company s Management did not identify any evidence that would justify the need of provision for recoverability on March 31, l. Provisions Provisions are determined by discounting the estimated future cash flows at a pre-tax rate which reflects the current market evaluations as to the value of the cash over time and the specific risks of the related liability. Effects from de-recognition of elapsing of time discount are recognized in income as financial expenses. 7 New standards and interpretations not yet effective Several new standards, amendments to standards and interpretations will be effective for the years started after January 1, 2016, and have not been adopted to the preparation of these financial statements. Those that may be relevant to the Company are listed below. The Company does not plan to adopt this standard in advance. IFRS 9 Financial Instruments IFRS 9, published in July 2014, replaces guidelines of IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the hedge accounting requirements. The regulation maintains the IAS 39 guidelines about acknowledging and disacknowledging financial instruments. IFRS 9 is effective for periods beginning on or after January 1, 2018, with early adoption allowed. IFRS 15 Income from Contracts with Clients The IFRS 15 requires an entity to recognize the amount of income reflecting the consideration that it expects to receive in exchange for control of these goods or services. The new standard will replace most of the detailed guidance on income recognition that currently exists in IFRS and when the new standard is adopted. The new standard is applicable beginning on or after January 1, 2018, with early adoption permitted by the IFRS. The standard may be adopted retrospectively, adopting a cumulative effects approach. The Company is evaluating the effects IFRS 15 will have on its financial statements and disclosures. The Company has not yet chosen the transition method to the new standard or determined the effects of the new standard in today's financial reports. Agriculture: Production Plants (amendments to CPC 27 / IAS 16 and CPC 29 / IAS 41) These changes require that production plants defined as live plants must be accounted for as property, plant and equipment and included in the ambit of CPC 27 / IAS 16 Property, plant and equipment and no longer in the scope of CPC 29/ IAS 41 Agriculture. These changes are to be enforced in years starting on or after January 1, 2016, and early adoption is permitted. In addition, the following new rules or changes are not expected to have a significant impact on the financial statements of the Company. 21

22 IFRS 16 Leases IFRS 16, published in January 2016, includes guidelines on single model, without lease classification test and all leases recognized in the balance sheet. Lessee recognizes a right of use asset (right-of-use, ROU) and a lease liability and treatment equal to financed purchase of an asset. IFRS 16 is effective for periods beginning on or after January 1, 2019, with early adoption allowed, only if IFRS 15 is also adopted. The Company is evaluating the effects IFRS 16 will have on Company s financial statements. In addition, the following new rules or changes are not expected to have a significant impact on the financial statements of the Company. IFRS 14 - Regulatory Deferral Accounts; Acceptable Methods of Depreciation and Amortization (changes in CPC 27 / IAS 16 and CPC 04 (R1)/ IAS 38); Annual improvements of IFRS s - several standards; and Disclosure Initiative (Amendment of CPC 26 (R1)/ IAS 1). The Accounting Pronouncements Committee has not yet issued any accounting pronouncement or amendments in current pronouncements corresponding to all new IFRSs. Therefore, early adoption of IFRS is not allowed for entities that disclose their financial statements in accordance with accounting practices adopted in Brazil. 8 Cash and cash equivalents Cash and banks 9,062 21,021 Interest earning bank deposits 54, ,250 Total 63, ,271 The cash balance arises from receipts of business transactions and are resources available to meet the immediate cash needs of the Company. All funds are deposited in prime bank institutions. Interest earning bank deposits are cash equivalents since they are promptly convertible into a known sum of cash and subject to an insignificant risk of change of value. These interest earning bank deposits refer to Bank Deposit Certificates (CDB) in several financial statements, remunerated at rates that vary from 95% to 100% of the CDI - Interbank Deposit Certificate. Interest earning bank deposits have no monthly maturity and may be redeemed at any time. Information on the Company's exposure to market, credit and fair value measurements risks related to cash and cash equivalents are included in Note

23 9 Interest earning bank deposits linked Refers to financial investments linked to delivery of 40,000 thousand metric tons of VHP sugar up to July 2016 with remuneration fees of % of Interbank Deposit Certificate (CDI). Information on the Company's exposure to market, credit and fair value measurements risks related to cash and cash equivalents are included in Note Trade accounts receivable and other receivables From the sale of ethanol From the sale of energy 10,900 4,322 From the sale of sugar 54 - From the sale of sugarcane 39 1,257 Others 3,042 1,062 Trade accounts receivable 14,311 7,369 Related party credits (Note 29) 4,443 3,213 Other receivables Total 18,754 10,582 Current assets 14,311 7,369 Non-current assets 4,443 3,213 As of March 31, 2016, the Company did not have any operations that might generate a material effect from adjustments to present value. Information on the Company s exposure to credit, market risk, fair value measurement and impairment losses in the accounts receivable and other receivables are disclosed in Note Inventories Finished product Anhydrous ethanol 11,653 5,624 VHP Sugar 3, Hydrous ethanol Storeroom Warehouse, sundry (a) 9,876 7,794 Our inventory held by third parties 1,520 2,882 Advance to sundry suppliers - 2,222 Others - 1,044 Total 26,763 19,841 (a) The most representative amounts of supplies refer to inputs and agricultural pesticides to be used in the planting areas in plantation - own or third parties. 23

24 12 Recoverable taxes and contributions COFINS recoverable 32,716 21,722 ICMS recoverable - purchase of inputs 10,150 4,779 ICMS recoverable - Acquisition of fixed assets 8,315 9,103 PIS recoverable 5,031 7,849 Income tax on interest earning bank deposits 4,918 1,388 Other taxes recoverable 749 1,000 Total 61,879 45,841 Current assets 19,368 16,024 Non-current assets 42,511 29,817 PIS and COFINS The balance comprises credits arising from the non-cumulative collection of PIS and COFINS (taxes on income) on purchases of parts used to perform maintenance on the manufacturing facilities and agricultural fleet, maintenance services provided at the manufacturing and agricultural facilities, freight and storage related to sales transactions and electric power, as well as other credits arising from purchases of machinery and equipment, buildings and constructions to be used in production. These credits may be compensated with other federal taxes and no limitation periods. ICMS The balance is mainly comprised of credits calculated on acquisition of fixed asset items, realized at the rate of 1/48, and may be offset against taxes of the same nature. IRRF Refers to withholding income tax on financial investments and income tax and social contribution prepayments through an offset against federal taxes and contributions due. 13 Advances to suppliers and other assets Advance to suppliers of sugar-cane - third parties 59,665 35,446 Advance to sugarcane suppliers - related parties (note 29) 2,279 1,896 Others 3,870 4,882 Total 65,814 42,224 Current assets 58,891 34,316 Non-current assets 6,923 7,908 The balance of advance to suppliers refers to the agreement for supply of sugarcane, signed by the Company and its suppliers. Balance classified in non-current assets refers to advance supply sugarcane contracts that will be realized upon receipt of sugarcane beginning as of 2016/17 crop, priced based on Total Recoverable Sugar (TRS) index disclosed by Consecana (Council of Sugarcane, Sugar and Ethanol Producers in the São Paulo State) at the end of the crop. 24

25 14 Biological assets The Company s biological assets comprise cultivation and planting of own sugarcane and cultivation and planting through contracts with sugarcane partners, whose yield is to be used as raw material in its ethanol and sugar industrial processes. The sugarcane plantation is initiated with the plantation of seedlings on land owned by third-party landowners, and the first cutting occurs after a period of 12 to 18 months after planting, when the sugarcane is cut and the root ( ratoon ) continues in the soil. After each cut or year/crop, treated ratoon grows again and yields an average of five or six crops, depending on culture and genetic material. Biological assets movement is as follows: Balance at April 1, ,410 Increase due to additions of planting 69,786 Decrease due to harvesting (59,091) Fair value less estimated selling expenses 1,223 Balance at March 31, ,328 Increase due to additions of planting 70,029 Decrease due to harvesting (74,114) Fair value less estimated selling expenses 21,310 Balance at March 31, ,553 Biological assets will be realized in the following crops: 2016/ , / , / , / , onwards 3,683 Sugarcane plantations Planted areas refer only to sugarcane plantations, and do not consider planted land. The following assumptions were used in the determination of the fair value: , Estimated harvest area (hectares) 21,637 21,911 Estimated productivity (sugarcane tons/hectares) Total recoverable sugar (ATR) (kg) TRS value/kg (R$) The discount rate used in the cash flow of each year, called as Weighted-Average Cost of Capital, corresponded to 5.25% per year (6.11% on March 31, 2015), which was revised and approved by the Company s Management. The Company is exposed to several risks related to its harvests: 25

26 Regulatory and environmental risks The Company is subject to laws and regulations and established environmental policies and procedures directed to compliance with environmental laws and other. The management carries out regular analyses to identify environmental risks and assure that systems under operation are appropriate to manage those risks. Supply and demand risks The Company is exposed to risks resulting from the prices fluctuation and sales volume of its plantations. Whenever possible, the Company manages this risk by aligning its extraction volume to the market's offer and demand. The management analyzes on a regular basis the trend of the industry to ensure that a price structure of the Company is in accordance with market and to ensure that estimated volumes of extraction are consistent with expected demand. Climatic risks and others The Company's plantations are exposed to the risk of damage due to climate changes, pests and diseases, forest fires and other forces of nature. The Company had extended processes in progress to monitor and reduce those risks, including health regulation inspections of the sugar cane areas and analysis of diseases and plagues of the industry. The Company also protects itself against natural disasters. 26