Earnings Release 2Q18

Transcription

1 Earnings Release 2Q18

2 São Paulo, August 14, Terra Santa Agro S.A. ( Terra Santa Agro or Company ) (B3: TESA3; Bloomberg: TESA3:BZ; Reuters: TESA3.SA), one of Brazil s largest grain and fiber producers, with operations in the grain/fiber and land enhancement sectors, announces its results for 2Q18, and informs its shareholders on the progress of the Company s business. The Company's interim financial information was prepared pursuant to CPC 21 (R1) Interim Financial Statements and IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), and is presented in accordance with the standards issued by the Brazilian Securities and Exchange Commission (CVM), applicable to the preparation of the Quarterly Information ITR. HIGHLIGHTS Net Income before Tax and Social Contribution of R$52.4 million in 2Q18 and R$57.8 million in the 1S18, versus Net Loss before Tax and Social Contribution of R$61.0 million in 2Q17 and R$14.4 million in 1S17; EBITDA of R$110.4 million in 2Q18 and R$141.1 million in 1S18, versus EBITDA of R$388 thousand in 2Q17 and R$67,4 million in 1S17; Net debt in US dollars fell by 1.3%, from US$221.4 million in June 2017 to US$218.6 million in June 2018; Beginning of the 2nd cotton, corn and sunflower crops harvesting, with expected yield to be as forecast by the Company; Disclosure of planting intention for the 2018/19 crop, with a 2.4% increase in the cotton planted area and a reduction of 9.1% in the soybean planted area (return of leases); and Commercialization of the 2018/19 crop well advanced both in the purchase of inputs and the sale of commodities, mostly in cotton. 2

3 MESSAGE FROM MANAGEMENT The first half of 2018 was marked by the conclusion of the soybean harvest and the beginning of the harvest the corn and cotton crops, which has good operating indicators reflected in the presented result. The Company ended 1H18 with a net income before income tax and social contribution of R$57.8 million, against a negative result of R$14.4 million in the same period of the previous year. It also recorded an EBITDA of R$110.4 million and R$141.1 million in 2Q18 and 1H18, respectively, compared to EBITDA of R$388 thousand and R$67.5 thousand in the same periods of the previous year, respectively. The results achieved in the first half of the year reinforce the Company's operating capacity, which is constantly showing good results, as a consequence of good agricultural planning, cost optimization and better crop yields. It is also worth mentioning that the agricultural planning for the 2018/2019 harvest is now complete and the soil preparation and fertilizer application operations should begin soon. Regarding the 2018/2019 harvest, the soybean area should suffer a 9.1% reduction, due to the return of some leases, while the cotton areas should increase by 2.4%. Unlike the cotton and soybean crops, we prepared about 25% of the corn area as an option so that we can decide, at any time, whether or not to plant it. The volatility of prices of agricultural commodities may lead to good profitability for future crops. In this context, we took advantage of some windows of opportunity during the first and second quarters of the year to build our long position in inputs and short position in the commodity to practically 100% of our cotton crop. The soybean and corn crops are still going through a more challenging period and have presented a slower sale pace. In line with the long-term vision, the Company has constantly invested in soil preparation and correction, essential for the adjustment of the crop mix in order to maximize the expected result. Finally, the strong results presented, supported not only by good market prices but also by solid and consistent operational performance indicators, bring us confidence and optimism regarding the 2018/0219 harvest. 3

4 2016/17 VS 2015/16 HARVEST PERFORMANCE In order to provide information so that investors and analysts can assess and understand the Company s results, we will publish the harvest result whenever it is finalized (100% of sales and 100% of costs). In 2Q18, the 2016/17 harvest was concluded, which still had cotton carryover stock, which was finalized this quarter. Therefore, we present the comparative result of the 2016/17 harvest against the 2015/16 harvest. SOYBEAN Planted Area(ha) x Yield¹ (bgs/ha) ¹ consider partships Net Price - FOB Farm (R$/bgs) , ,0 58,2 52,5 SF 2015/16 SF 2016/17 Planted Area Yiled SF 2015/16 SF 2016/17 Total Cost (R$/ha) Gross Proft (R$/ha) ,7 10 SF 2015/16 SF 2016/17 SF 2015/16 SF 2016/17 The 2016/17 soybean harvest presented a combination of the Company's record yield of 60 bags/ha and cost per hectare lower by 6.7% compared to the previous harvest. As a result, the gross profit of the crop went from R$10.0/ha to R$493.7/ha. 4

5 COTTON Planted Area (ha) x Yiled (@/ha) Net Price - Feather Cotton - FOB Farm (R$/@) , ,6 30,1 234,6 SF 2015/16 SF 2016/17 Planted Area Yiled SF 2015/16 SF 2016/17 Total Cost (R$/ha) Gross Proft (R$/ha) SF 2015/16 SF 2016/17 SF 2015/16 SF 2016/17 The 2016/17 cotton harvest showed a high yield of 267.6@/ha, a 8.2% increase in selling price (R$/@) and a decrease of 3.5% in cost per hectare compared to the previous harvest. As a result, the gross profit of the crop went from a gross profit of R$152/ha to a gross profit of R$2,056/ha. CORN Planted Area (ha) x Yiled (bgs/ha) , ,8 Net Price - FOB Farm (R$/sc) 18,6 15,7 SF 2015/16 SF 2016/17 Planted Area Yiled SF 2015/16 SF 2016/17 5

6 Total Cost (R$/ha) Gross Proft (R$/ha) SF 2015/16 SF 2016/17 (41) SF 2015/16 SF 2016/17 (211) Despite the good productivity recorded in the 2016/17 harvest, the drop in selling prices and increase in costs led to a negative gross result. It is also worth mentioning that the corn margin was positive, which indicates that the option to plant this crop was the right decision. HARVEST INCOME STATEMENT Income Statement ( R$ '000) 2015/16 Crop 2016/17 Crop HA Net Revenue ,3% Soybean ,5% Cotton ,8% Corn ,0% Others COGS ( ) ( ) -4,2% Soybean ( ) ( ) -19,1% Cotton ( ) ( ) 20,2% Corn (94.517) ( ) 7,0% Others 0 (1.965) - Income Gross Soybean Cotton Corn (2.341) (10.792) - Others 0 (174) - SG&A ,1% Corporate Expenses ,3% Housing Expenses ,5% Operational Income - EBIT (45.165) Operational Margin -7,8% 6,7% - Adjusted EBITDA (5.289) Adjusted EBITDA Margin -0,9% 13,2% - 6

7 FINANCIAL ECONOMIC PERFORMANCE NET REVENUE Income Statement ( R$ '000) 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Net Revenues ,5% ,5% ,8% Net sales of products ,2% ,2% ,1% Hedge Accounting (8.280) (16.493) -49,8% (9.646) (13.837) -30,3% (17.175) (10.722) 60,2% Evaluation of Biological Assets Suitable for Revenue ,3% ,0% ,0% Suitable for Agricultural Product Revenue (19.245) (15.337) 25,5% ,0% (6.497) In 2Q18 and 1H18, the Company's Net Revenue totaled R$203.3 million and R$562.9 million, 53.5% and 17.5% higher than in 2Q17 and 1H17, mainly due to the expected yield of the 2017/18 cotton crop, recognized in the Evaluation of Biological Assets Suitable for Revenue line. Net Revenue was impacted by (a) the net revenue from products; (b) the appropriation of the variation in the fair value of biological assets and agricultural product and (b) hedge accounting. (a) Net Revenue from Products Net revenue from products sold fell by 32.2% over 2Q17, due to a decrease of 26.7% revenue from soybean in 2Q18 compared to 2Q17, reflecting (i) the 9.4% reduction in the soybean planted area in the 2017/2018 harvest compared to the previous harvest and (ii) lower percentage sold in 2Q18 compared to 2Q17. Revenue from soybean in 2018 followed a more accelerated pace, due to better quality products (no damaged grains) and improved logistics (no heavy rains and highway closures), which made it easier to distribute the product in 1Q18. On the other hand, in the 1H18, net revenue from products was 3.2% lower than the same period of the previous year, as a result of an increase of % in the revenue from cotton, due to the larger planted area and higher yields recorded in the 2017/18 cotton crop compared to the 2016/17 crop. Below is a comparative table of the make-up of the Company s net revenues from products for 2Q18 compared to the same periods of the previous year: (R$'000) 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Net Sales of Products ,2% ,2% ,1% Soybean ,7% ,0% ,0% Corn ,4% ,6% ,7% Cotton Feather ,4% ,8% Cotton Seed ,4% ,7% Others (1) ,3% ,7% ,8% (tons) 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Billed amount ,0% ,2% ,2% Soybean ,9% ,9% ,9% Corn ,4% ,6% ,0% Cotton Feather ,7% ,3% ,8% Cotton Seed ,9% ,3% Others (1) ,4% (1) Sunflower, cotton linters and resale of grains/lint/inputs 7

8 (b) Biological Assets and Agricultural Products Biological Assets and Agricultural Products 2Q18 2Q17 1H18 1H17 Jul17 - Jun 18 Jul16 - Jun 17 Biological Assets and Agricultural Products ,8% ,3% Evaluation of Biological Assets ,3% ,0% ,0% Soybean ,0% ,2% ,7% Corn (27.088) (30.262) (1.963) - Cotton ,3% ,9% ,7% Others (1) ,5% ,5% ,5% Evaluation of Agricultural Products (19.245) (15.337) 25,5% ,0% (6.497) Soybean (16.960) (23.674) -28,4% ,3% ,8% Corn ,3% ,4% (6.338) Cotton (2.632) (316) ,5% (3.244) Others (1) Biological Assets: In 2Q18, the biological assets recognized in revenue increased by 436.3%, going from a positive mark-tomarket of R$25.5 million in 2Q17 to a positive mark-to-market of R$136.8 million in 2Q18 due to the increase in the cotton planted area in 2Q18, better prices of the commodity and the exchange rate appreciation, compared to the same period of the previous year, which resulted in the higher mark-tomarket of the crop. The valuation of the biological assets is determined during the relevant transformation phase of the crop and in the harvest taking into account the estimated result of the harvest at market price. Agricultural Products: In 2Q18, we recorded a negative valuation of R$19.2 million on agricultural products, compared to the negative valuation of R$15.3 million in 2Q17. The soybean valuation went from R$23.7 million in 2Q17 to R$17.0 million in 2Q18, due to the higher inventory on March 31, 2017, delivered in 2Q17, compared to the same periods of The prices considered in the calculation of the biological asset do not correspond to the prices already set by the Company, since, in accordance with Technical Pronouncement CPC 29, the biological asset must be booked at fair value, excluding amounts already contracted for future sales. Technical Pronouncement CPC 16 determines that agricultural products should be booked at its net realizable value, in other words, taking into account volumes sold at their selling price and the remaining balance at market price. In both cases, all selling expenses (taxes, freight, port costs, commissions, etc.) are deducted. (c) Hedge Accounting In 2Q18, we recorded a negative impact of R$8.3 million, with a cash effect, on Net Revenue from realizing part of the exchange rate variation booked under shareholders equity, which must always be carried out whenever we realize a hedged asset, which, in our case, is the sale of commodities pegged to the dollar. 8

9 COST OF GOODS SOLD Income Statement ( R$ '000) 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Costs of Goods Sold (84.665) ( ) -35,7% ( ) ( ) 0,8% ( ) ( ) -3,3% COGS Products (63.400) ( ) -44,5% ( ) ( ) -10,1% ( ) ( ) -2,0% Conducting Biological Assets at Cost Suitable (21.265) (17.406) 22,2% ( ) (73.931) 49,5% ( ) ( ) -8,5% In 2Q18, Cost of Goods Sold (COGS) totaled R$84.7 million, 35.7% down on 2Q17, as a result of the R$50.9 million reduction in the COGS of Agricultural Products due to the lower sales revenue in the quarter, especially from soybean. In 1H18, COGS amounted to R$406.3 million, 0.8% higher than the same period of the previous year, as a result of the conducting biological assets at cost suitable. The table below gives a breakdown of the COGS of products and the comparison between 2Q18 and 2Q17: (R$'000) 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 COGS Products (63.400) ( ) -44,5% ( ) ( ) -10,1% ( ) ( ) -2,0% Soybean (53.286) (83.931) -36,5% ( ) ( ) -9,4% ( ) ( ) -10,1% Corn (2.693) (5.937) -54,6% (2.706) (6.751) -59,9% (95.465) (92.272) 3,5% Cotton Feather (5.402) (930) 480,9% (53.309) (39.613) 34,6% ( ) ( ) 10,0% Cotton Seed (206) (48) 331,9% (4.311) (1.746) 146,9% (22.296) (16.403) 35,9% Others (1) (1.813) (23.409) -92,3% (3.865) (25.138) -84,6% (46.116) (52.629) -12,4% (1) Sunflower, cotton linters and resale of grains/lint/inputs MARGIN BY CROP Soybean Soybean 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Volume Ton ,9% ,9% ,9% Net Revenues R$ Mil ,7% ,0% ,0% Average Selling Price R$ Mil / Ton 0,94 0,86 9,2% 0,87 0,89-1,2% 0,88 0,89-1,2% COGS R$ Mil (53.286) (83.931) -36,5% ( ) ( ) -9,4% ( ) ( ) -10,1% Average Selling Cost R$ Mil / Ton (0,63) (0,66) -5,4% (0,70) (0,71) -1,6% (0,73) (0,75) -2,4% Margin per unit R$ Mil / Ton 0,311 0,196 58,8% 0,176 0,175 0,7% 0,145 0,137 5,9% In order to make a comparative analysis of the soybean margins between the 2017/18 harvest and the 2016/17 harvest, the best period representing almost all sales and all costs incurred by the crop is the period of the last 12 months. In the last 12 months, the soybean margin was positive by R$0.145 thousand/ton against the positive margin of R$0.137 thousand/ton recorded in the previous corresponding period. The average cost of sales dropped from R$0.75 thousand/ton in the period from July 2016 to June 2017 to R$0.73 thousand/ton in the period from July 2017 to June 2018, due to the lower cost of production up to the end of 1H18, compared to the cost of production up until 1H17. As reported in the Production Cost section, the estimated cost of the 2017/18 harvest, in R$ per hectare, is slightly lower than the cost registered for the 2016/17 harvest. The productivity of the harvests is also very similar, therefore, the cost of production in R$/bag showed only a slight variation in the comparison between the two periods. 9

10 The average selling price fell from R$0.89 thousand/ton in the period between July 2016 to June 2017 to R$0.88 thousand/ton in the period between July 2017 to June 2018, as a direct result of the drop in the price of the commodity between these periods. Cotton Cotton 2Q18 2Q17 Var. % 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Cotton Feather Volume Ton ,7% ,3% ,8% Net Revenues R$ Mil ,4% ,8% Average Selling Price R$ Mil / Ton 7,79 4,68 66,5% 5,38 4,66 15,4% 5,14 4,74 8,4% COGS R$ Mil (5.402) (930) 480,9% (53.309) (39.613) 34,6% ( ) ( ) 10,0% Average Selling Cost R$ Mil / Ton (4,40) (4,49) -2,2% (3,36) (4,55) -26,2% (3,40) (4,41) -22,9% Margin per unit R$ Mil / Ton 3,392 0,184-2,024 0,113-1,739 0, ,2% Cotton Seed Volume Ton ,9% ,3% Net Revenues R$ Mil ,4% ,7% Average Selling Price R$ Mil / Ton 0,27 0,29-5,8% 0,30 0,75-59,3% 0,43 0,67-35,9% COGS R$ Mil (206) (48) 331,9% (4.311) (1.746) 146,9% (22.296) (16.403) 35,9% Average Selling Cost R$ Mil / Ton (0,54) (0,97) -44,2% (0,47) (0,41) 16,0% (0,40) (0,41) -2,4% Margin per unit R$ Mil / Ton (0,274) (0,688) -60,1% (0,169) 0,340-0,032 0,262-87,8% Regarding the cotton lint, the best period for the analysis of the margins between the 2016/17 harvest and the 2015/16 harvest is the accumulated period of the last 12 months. It is worth noting that the sale of the 2017/18 cotton crop impacts the results of 2018 from the second half of the year. In the last 12 months, sales of cotton lint amounted to 44,100 tons, up 42.8% compared to the same period last year, generating net revenues of R$226.6 million. The cotton lint unit net margin was positive in the last 12 months, totaling R$1.739 thousand/ton versus R$0.347 thousand/ton in the same period of the previous year. This growth was mainly due to the 14.1% increase in productivity in the 2016/17 harvest compared to the previous harvest, combined with a 1.3% drop in production cost in R$ per hectare in the 2016/17 harvest, reflecting the 22.9% decrease in the average unit cost of the crop. In addition to the lower unit cost, the 15.4% increase in the price in cotton sold in the 2016/17 harvest also benefited the cotton lint margin compared to the previous harvest. Corn Corn 2Q18 2Q17 Var. % 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Volume Ton ,4% ,6% ,0% Net Revenues R$ Mil ,4% ,6% ,7% Average Selling Price R$ Mil / Ton 0,33 0,26 27,3% 0,33 0,28 16,6% 0,25 0,30-18,6% COGS R$ Mil (2.693) (5.937) -54,6% (2.706) (6.751) -59,9% (95.465) (92.272) 3,5% Average Selling Cost R$ Mil / Ton (0,27) (0,33) -17,0% (0,27) (0,24) 10,2% (0,28) (0,32) -11,6% Margin per unit R$ Mil / Ton 0,061 (0,065) - 0,063 0,041 55,1% (0,037) (0,018) 104,5% Corn sold in 2Q18 is mainly from the 2017/18 harvest, while corn sold in 2Q17 is mainly from the 2016/17 harvest. Over longer periods (1H18 and Jul 2017 to Jun 2018), the crops mix and it becomes more difficult to analyze them. In 2Q18, the unit corn margin was positive at R$0.061/ton, against a negative R$0.065/ton in 2Q17. This variation was mainly due to the 27.3% increase in the unit selling price of the product compared to 2Q17, while the production cost of the 2017/18 harvest is lower than in the previous harvest. 10

11 PRODUCTION COST The table below shows the costs for the 2016/17 harvest as well as the forecast for the 2017/18 harvest. Crop 2016/ /18 Crop - Estimated Crop Current Estimate % Current Estimate Current Estimate % Current Estimate R$/ha Composition % realized by currency Composition % realized by currency % R$/ha % % R$ % US$ % R$ % US$ % R$ % US$ % R$ % US$ Soybeans 1st Crop (2.502) 57% 43% 100% 100% 100% (2.464) 58% 42% 96% 92% 100% Cotton 1st Crop - (7.899) 49% 51% 83% 68% 97% Cotton 2nd crop (6.674) 43% 57% 100% 100% 100% (6.590) 44% 56% 78% 60% 93% Corn 1st crop (2.710) 59% 41% 100% 100% 100% (2.819) 65% 35% 95% 93% 100% Corn 2nd crop (1.930) 61% 39% 100% 100% 100% (1.896) 61% 39% 94% 89% 100% Corn 2nd alternative (1.399) 63% 37% 100% 100% 100% (1.234) 66% 34% 92% 88% 100% Others (1) (1.742) 50% 50% 100% 100% 100% (1.509) 68% 32% 88% 83% 100% In order to provide further information on our costs, we present below the percentage breakdown of our total production cost per item. Breakdown of the total cost of production Crop 2016/17 - Realized Crop 2017/18 - Estimated Cotton Soybeans Corn Sunflower Average Cotton Soybeans Corn Sunflower Stylosanthes Brachiaria Average Variable costs 82,3 75,0 76,6 76,9 77,7 81,6 75,3 75,7 72,2 40,8 49,7 77,7 Seeds 7,2 13,5 21,5 7,8 12,9 8,2 12,8 20,8 12,3 2,4 3,5 12,0 Fertilizers 17,0 19,6 24,2 20,5 19,6 16,8 20,2 24,8 18,7-10,1 19,4 Pesticides 33,2 23,4 15,4 29,5 25,2 30,5 21,5 13,5 22,7 12,2 8,3 24,0 Third party services 2,4 6,9 4,5 8,4 5,0 3,2 7,4 5,3 5,9 4,0 2,7 5,5 Fuels and lubricants 4,5 5,1 5,9 5,6 5,1 4,6 6,4 5,7 7,2 7,6 11,7 5,6 Processing 10, ,5 11, ,6 Maintenance material 4,7 6,3 4,9 5,1 5,5 4,7 6,5 5,2 4,9 14,1 12,8 5,6 Others 2,4 0,1 0,2 0,0 0,9 2,2 0,4 0,3 0,5 0,5 0,6 1,1 Fixed Costs 17,7 25,0 23,4 23,1 22,3 18,4 24,7 24,3 27,8 59,2 50,3 22,3 Labor 7,8 10,6 8,4 8,8 9,3 8,6 11,4 8,8 9,1 25,1 19,4 10,0 Depreciation and amortization 4,8 5,6 4,4 3,6 5,1 4,9 5,7 4,5 4,1 13,1 10,8 5,2 Leases 3,4 6,1 7,9 8,8 5,6 3,0 4,6 8,0 11,8 14,1 15,0 4,5 Others 1,3 1,6 1,3 1,0 1,5 1,5 1,9 1,5 1,3 4,6 3,4 1,7 Corporate Expenses - Support for Production 0,4 1,0 1,3 0,9 0,9 0,4 1,1 1,5 1,6 2,3 1,6 0,9 GROSS PROFIT Income Statement ( R$ '000) 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Net Revenues ,5% ,5% ,8% Net sales of products ,2% ,2% ,1% Hedge Accounting (8.280) (16.493) -49,8% (9.646) (13.837) -30,3% (17.175) (10.722) 60,2% Evaluation of Biological Assets Suitable for Revenue ,3% ,0% ,0% Suitable for Agricultural Product Revenue (19.245) (15.337) 25,5% ,0% (6.497) Costs of Goods Sold (84.665) ( ) -35,7% ( ) ( ) 0,8% ( ) ( ) -3,3% COGS Products (63.400) ( ) -44,5% ( ) ( ) -10,1% ( ) ( ) -2,0% Conducting Biological Assets at Cost Suitable (21.265) (17.406) 22,2% ( ) (73.931) 49,5% ( ) ( ) -8,5% Income Gross ,7% ,6% Gross Margin 58,4% 0,6% 57,8 p.p. 27,8% 15,9% 11,9 p.p. 22,2% 9,2% 13,0 p.p. The Company s gross profit is the combination of the gross result of the crops sold in the period (Net Revenue from Products COGS (Cost of Goods Sold) of Products), as well as the expected future results of crops still in formation and hedge accounting. In 2Q18 and 1Q18, the Company's gross profit totaled R$118.6 million and R$156.6 million, with a gross margin of 58.4% and 27.8%, respectively, against a gross profit of R$782 thousand and R$76.2 million in 2Q17 and 1H18, with a gross margin of 0.6% and 15.9%, respectively, mainly due to the good margins recorded by the soybean crops in the 2017/18 harvest and corn and cotton carryover stock from the 2016/17 harvest, as well as positive future prospects for the corn and cotton crops of the 2017/18 harvest. 11

12 In the last 12 months, the Company s gross profit totaled R$195.2 million, with a gross margin of 22.2%, compared to the R$72.1 million recorded in the same period of the previous year, with a gross margin of 9.2%, impacted by the mark-to-market of the cotton from the 2017/18 harvest. OPERATIONAL EXPENSES Income Statement ( R$ '000) 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Operational Expenses (15.269) (9.931) 53,8% (34.816) (28.449) 22,4% (72.648) ( ) -32,3% General, Administrative (8.947) (10.924) -18,1% (19.309) (19.836) -2,7% (37.675) (41.103) -8,3% Other Income (Expenses) (1.227) (341) (29.060) - Storage Expenses (4.139) (4.556) -9,2% (8.669) (10.558) -17,9% (17.829) (17.565) 1,5% Selling Expenses (956) 12 - (6.497) (3.548) 83,1% (19.533) (19.605) -0,4% In 2Q18, the Company recorded operating expenses of R$15.3 million versus R$9.9 million in the same period of the previous year, an increase of 53.8%, mainly impacted by the other income (expenses) line. General and administrative expenses totaled R$8.9 million, a 18,1% decrease over the same period of the previous year, reflecting a reduction in personnel expenses by 15.4%. Other operating income (expenses) presented a negative result of R$1.2 million compared to a negative R$5.5 thousand in the same period of the previous year. Storage expenses totaled R$4.1 million, 9.2% lower than the same period of the previous year. Lastly, selling expenses came to R$956 thousand. HEDGE ACCOUNTING OF CASH FLOW A substantial portion of the Company s product sales are pegged to the US dollar. Consequently, in order to avoid non-cash volatility in its results and ensure that its financial statements better reflect its current operations, on August 1, 2013 the Company began recognizing its dollar-denominated bank debt as a hedge for future dollar-pegged sales, in compliance with IFRS 09 and CPC 48 standards. The exchange rate variation balance arising from bank debt designated as hedge accounting totaled R$78.5 million in June 2018 (R$118.9 million gross of IRPJ/CSLL), which was temporarily booked under shareholders equity and will only be recognized in the income statement when the dollar-denominated revenue, the object of the hedge accounting financial instruments, is realized. In 2Q18, the Company recognized a negative exchange variation of R$8.3 million referring to bank debts designated as hedging instruments in the income statement. Lastly, it is worth noting that the Company s result may also be impacted by dollar denominated expenses with customers and suppliers and debt that is not included in the hedge accounting implemented by the Company. 12

13 FINANCIAL RESULT In 2Q18, we recorded a net financial loss of R$50.9 million, versus a net financial loss of R$51.9 million recorded in the same period of the previous year, as shown below. Income Statement ( R$ '000) 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Financial Result (50.924) (51.893) -1,9% (63.987) (62.089) 3,1% (92.337) (90.246) 2,3% Financial income ,0% ,5% ,5% Financial income - Ordinary ,6% Tax regularization programs Financial Expense (40.240) (51.013) -21,1% (68.130) (76.289) -10,7% ( ) ( ) 1,9% Financial Expense - Ordinary (40.240) (51.013) -21,1% (68.130) (76.289) -10,7% ( ) ( ) 20,7% Programas de regularização tributária (11.699) - - Foreign Exchange Variation (27.631) (5.357) 415,8% (23.177) (25.263) Foreign Exchange Cash (5.932) (2.326) (9.692) Foreign Exchange Competence (21.699) (11.716) 85,2% (20.851) (8.619) 141,9% (15.571) Derivatives (495) (1.519) (2.889) - In 2Q18, financial income reached R$13.5 million, against R$5.0 million in the same period of the previous year. Financial expenses, in turn, amounted to R$40.2 million, 21.1% lower than the R$51.0 million recorded in the same period of the previous year. Exchange rate variation negatively impacted the Company s financial result by R$27.6 million, compared to the negative impact of R$5.4 million in the same period of the previous year. Despite the adoption of hedge accounting in August 2013, the exchange rate variation will continue to impact the Company s results, since only dollar-denominated bank debt is designated as a cash flow hedge instrument. As a result, our commitments with suppliers, other foreign currency denominated debt and unhedged bank debt will continue to impact the foreign exchange rate variation line in the financial result. NET RESULT Income Statement ( R$ '000) 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Income (loss) before Tax and Social Contribution (61.042) (14.376) ( ) - Margin of Profit (loss) Before Tax and Social Contribution 25,8% -46,1% - 10,3% -3,0% - 3,4% -16,1% - Tax and Social contribution (71.673) (39.088) (49.254) Current Taxes (6) - Deferred Tax (71.673) (39.088) (49.254) Profit (loss) for the Period (19.253) ,5% (19.078) (53.179) -64,1% Net Margin -9,5% 9,1% - 3,3% 9,4% -6,1 p.p. -2,2% -6,8% 4,6 p.p. In 2Q18, the Company posted a profit before income tax and social contribution of R$52.4 million, compared with a loss of R$61.0 million in 2Q17, mainly due to the greater effect of the adjustment to fair value and net amount realizable for biological assets and agricultural products in 2Q18 compared to the same period of the previous year. The deferred tax line showed a negative variation of R$71.7 million in 2Q18, due to the non-constitution of a new deferred tax credit. The Company's tax loss recorded an increase of R$165.4 million in the period, mainly as a result of the mark-up of passive exchange rate variation on loans and financing, which would generate a positive tax credit of R$56.2 million if activated (according to note 9.b of the financial 13

14 statements). Without the activation, the negative Income Tax recorded in the period is mostly due to the positive mark-to-market of biological assets and agricultural products in the period. Finally, based on the abovementioned impacts, the Company posted a net loss of R$19.2 million in 2Q18, versus a net income of R$12.1 million in 2Q17. In 1H18, the Company reported a net profit of R$18.8 million, against a net profit of R$45.2 million in the same period of the previous year. EBITDA AND ADJUSTED EBITDA Income Statement ( R$ '000) 2Q18 2Q17 1H18 1H17 Jul17 - Jun18 Jul16 - Jun17 Profit (loss) for the Period (19.253) ,5% (19.078) (53.179) -64,1% Net Margin -9,5% 9,1% - 3,3% 9,4% -6,1 p.p. -2,2% -6,8% 4,6 p.p. (+) IR e CSLL (73.160) (59.564) (72.290) - (+) Financial Results ,9% ,1% ,3% (+) Depreciation and Amortization (Expenses) ,7% ,9% ,2% (+) Depreciation and Amortization (Cost) ,2% ,5% ,1% EBITDA ,2% EBITDA Margin 54,3% 0,3% 54,0 p.p. 25,1% 14,1% 11,0 p.p. 18,1% 0,1% 18,0 p.p. (+) Hedge Accounting ,8% ,3% ,2% (+) Operating Exchange Variation (13.010) (4.394) 196,1% (8.364) (7.569) (+) Non-recurring provisions and Impairment of assets 219 (2.169) - 97 (1.868) ,4% (+) Tax regularization programs ,2% ,2% ,4% (+) Stock Options ,0% ,0% ,7% Adjusted EBITDA ,6% ,4% ,4% Adjusted EBITDA Margin 51,0% 18,8% 32,2 p.p. 25,2% 20,6% 4,6 p.p. 20,1% 5,9% 14,2 p.p. (1) Margins calculated on Net Revenue excluding biological assets The EBITDA presented by the Company this quarter was R$110.4 million, versus R$388 thousand in 2Q17, resulting in an EBITDA margin of 54.3% versus a margin of 0.3% recorded in 2Q17. In 1H18, EBITDA was R$141,1 million, against R$67,5 thousand in the same period of the previous year. As of this quarter and previous comparative periods, the Company will begin to demonstrate Adjusted EBITDA excluding hedge accounting effects and non-recurring provisions and considering the operational exchange rate variation. In 2Q18, Adjusted EBITDA was R$107.8 million, with a margin of 51.0%, compared to an Adjusted EBITDA of R$28.0 million in 2Q17, with a margin of 20.2%. In 1H18, Adjusted EBITDA was R$144.5 million, against R$101.5 million in the same period of the previous year. EBITDA BY CROP LAST 12 MONTHS (JULY/2017 JUNE/2018) The Company's accounting results, in most quarters, are influenced by the result of two different harvests due to: (i) crop year calendar, which comprises the period from September to August of the subsequent year; (ii) seasonality of the sale of different crops; and (iii) accounting for the valuation of the fair value of biological assets and agricultural products. In order to better present this information to the market, we will disclose, quarterly, the EBITDA by crop in the last 12 months. 14

15 Based on the table above, we can observe the composition of each crop in the EBITDA accumulated in the last 12 months, highlighting the cotton crop, which accounts for 87% of gross profit. EBITDA - 2T18 EBITDA - 1H18 SF 2016/17 SF 2017/18 SF 2016/17SF 2017/18 R$ (Mil) R$ (Mil) R$ (Mil) R$ (Mil) EBITDA - Cotton (2.626) (384) EBITDA - Soybean - (11.265) EBITDA - Corn (87) (33) EBITDA - Others G&A (728) (11.308) (1.451) (22.557) EBITDA (2.955) (1.382) Hedge Accounting Operating Exchange Variation 606 (13.616) (10.591) on-recurring provisions and others Adjusted EBITDA (1.571) COMMERCIAL HEDGE As part of the hedge procedure adopted, the Company seeks to lock in its margins, in other words, as it undertakes commitments resulting from the purchase of inputs, it sells part of its production. In the table below, we show the sold and billed position of the 2017/18 and 2018/19 harvests. Harvest Crop Currency % comercialized (1) %billed (2) Average Stock Market (CBOT - NY ICE) R$ 2% 2% Soybean USD 86% 86% US$ 10,09/Bushel Leasing 12% 12% Total 100% 100% 2017/18 R$ 39% 7% Corn USD 57% 0% US$ 4,01/Bushel Total 96% 7% R$ 0% 0% Cotton USD 91% 0% US$ 73,83/ pound Total 91% 0% 2018/19 Soybean Corn Cotton R$ 0% 0% USD 34% 0% US$ 10,07/Bushel Leasing 12% 0% Total 46% 0% R$ 0% 0% USD 42% 0% US$ 4,08/Bushel Total 42% 0% R$ 0% 0% USD 73% 0% US$ 74,70/ pound Total 73% 0% (1) Percentage marketed up to 08/10/2018 (2) Percentage of total production invoiced up to 06/30/2018 As adopted in the most recent releases, aimed at providing increasingly detailed information on the Company s sales, we have been providing a breakdown of the percentage sold in dollars and in reais, as well as, in addition to, in the case of soybean, the amount of farm-gate and port sales. 15

16 BANK DEBT Compared to June 2014, the Company's bank debt increased by 16.8%, up from R$732.5 million in 2Q17 to R$855.5 million in 2Q18, as shown in the table below: Composition of Indebtedness Jul/17 - Jun/18 Indebtedness on 06/30/ (+) Funding (-) Principal repayments ( ) (-) Interest amortization (40.826) (-) Amortization exchange variation (23.413) (+) Interest updates (+/-) Exchange variation adjustments (-) Appropriate funding costs Indebtedness on 06/30/ Dollar-denominated debt accounted for 88% of total debt in June 2018, with an average cost of 7.7% p.a., while the average cost of the Company s total debt in 2Q18 was 8.1% p.a. It is worth noting that foreign-currency debt has a natural hedge, since most of the Company s revenues are denominated in dollars. The chart below shows the change in the Company's net debt in reais and converted into dollars. R$ Evolution of Net Debt in R$ and US$ R$ R$ R$ R$ USD USD USD USD USD Q17(Ptax R$ 3,3082) 3Q17(Ptax R$ 3,168) 4Q17(Ptax R$ 3,308) 1Q18(Ptax R$ 3,3238) 2Q18(Ptax R$ 3,8558) The following breakdown gives a better understanding of the Company s indebtedness: Structural debt: comprises long-term debt, mainly export prepayment facilities (PPEs). Debt duration is 2.3 years. Funding: includes working capital debt and agricultural funding. These are short-term debts and the main lines are rural credit and advances on foreign exchange contracts (ACCs). Debt duration is 0.2 year. 16

17 Capex: comprises financing lines for the acquisition of machinery and fixed assets. Debt duration is 1.5 years. Debt Composition (R$ MM) Q18 Structural Costing Capex The graphs below show the composition of short and long-term indebtedness, by currency and the current amortization flow. Currency indebtedness Short and Long Term Indebtedness 11,8% 9,3% 70,6% 84,6% 88,2% 90,7% 29,4% 15,4% 06/30/ /30/2017 Dollar Real 06/30/ /30/2017 Short Term Long Term Amortization Flow (R$ 000 ) Total Debt

18 OPERATING CASH GENERATION In order to show the Company s results without non-cash effects, the chart below presents the operating cash generation. 2Q17 1H17 Net cash generated (consumed) by operating activities (R$ thousand) 2Q18 1H18 Jul17 - Jun18 Jul16 - Jun17 Loss before income tax and social contribution (61.042) (14.376) ( ) (+) Non-cash adjustments to results (46.088) (+/-) Variations in operating assets and liabilities (-) Interests paid (10.915) (21.346) (15.149) (24.161) (15.149) (53.242) (-) Derivative financial instruments paid (9.919) (9.477) (9.477) Operating cash generation (consumption) NET VALUE OF ASSETS The table below contains the Company s net value of assets. Net Asset Value ( NAV ) R$ million (+) Own Land + Infraestructure 1S (+) Accounts receivable / Securities Receivable 40 (+) Inventories 96 (+) Biological assets 349 (+) Cash 13 (+) Subtotal (-) Providers 173 (-) Advances from Customers 65 (-) Bank Debt 855 (-) Subtotal (=) Net Asset Value (NAV) Number of shares (million) 17,9 Net Asset Value (NAV) per share 63,47 Share value (R$ per share) on March 31, ,00 Discount on share market value in relation to NAV 84,2% (1) Considering the Appraisal Report of October 31, (2) Tax on capital gains from land sales were not excluded because the Company had accrued corporate income and social contribution tax credits on June 30, 2018, resulting from a tax loss, a negative calculation base for social contribution on net income and unamortized tax goodwill totaling R$486.0 million. 18

19 OPERATING PERFORMANCE As shown in the chart below, 2Q18 was marked by the beginning of harvesting of the 2nd cotton, corn and sunflower crops. Soybean Crop MT 1st Crop Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Cotton MT 2nd Crop Corn Sunflower MT 1st Crop MT 2nd Crop MT Alternative MT 2nd Crop Planting Cultivation Harvest We present below the current stages of our crops: 1st and 2nd Corn Crops Production Unit Corn - 1st and 2nd Crop Planted Area Harvest Area (%) Yiled Kg/ha bgs/ha Mato Grosso (1st crop)¹ ,0% ,5 Mato Grosso (2nd crop) ,2% ,5 Mato Grosso (Alternative) ,1% ,7 Mato Grosso (Cotton Curtain) ,0% 0 0,0 Total ,2% ,3 1 Technical project corn w ith brachiaria, soil recovery 2 Low cost project (planting March / 18) 3 Cotton crop protection borders Harvesting of the 1st corn crop, in a planted area of 380 hectares, was carried out from May 22 to 30, The planting of corn, together with Brachiaria ruziziensis, aims at the formation of haystacks, increase of organic matter and improvement of soil quality for rotation of areas with soybean crop in the later harvest. Harvesting of the 2nd corn crop began on May 24 in the Ribeiro do Céu Production Unit. Up to August 12, the Company had harvested 30,469 ha, accounting for 97.2% of total planted area, with average yield of 7,590 kg/ha (126.5 bags/ha). 19

20 The above-average levels of rainfall and low light conditions resulted in end-of-cycle diseases and damaged grains in the areas harvested between the second half of June and the first week of July. However, given the good quality of the grains harvested later, it will be possible to carry out the blend for shipments within the quality standard levels allowed for commercialization. Due to the factors described above, the estimated yield for the 2nd corn crop is 7,698 kg/ha (128.8 bags/ha), 2.9% below the Company s initial target. 1st and 2nd and Cotton Crops Production Unit Cotton - 1st and 2nd Crop Planted Area Harvest Area (%) Mato Grosso (1st crop) ,0% ,0 Mato Grosso (2nd crop) ,8% ,2 Total ,4% ,5 Harvesting of the 1st cotton crop, in a planted area of 3,206 hectares, was carried out from June 23 to July 31, 2018, with average yield of 4,170 kg/ha Harvesting of the 2nd cotton crop began on July 5 at the Guapirama Production Unit, with a delay in relation to the initial schedule due to low temperatures in May and June, which made it difficult to manage defoliation and maturation of crops. Up to 12 August, the Company had harvested 12,539 ha, 43.8% of the total planted area, with average yield of 4,143 kg/ha of cotton seed and 1,724 kg/ha of cotton lint. Estimated yield for cotton seed is 4,200 kg/ha 4.8% above the Company s initial target. Cotton lint has presented yield of 41.4%, 0.9% higher than the initial estimate. The positive prospects for the crop are a reflection of the good harvest planning, which includes: (i) technologies in planted crops and (ii) good rainfall, temperature and light conditions. Kg/ha 2nd Sunflower Crop Production Unit Sunflower Planted Area Harvest Area (%) Yiled Kg/ha bgs/ha Mato Grosso ,0% ,3 Total ,0% Harvesting of the 2nd sunflower crop began on June 27 in the Parecis Production Unit, and was concluded on July 24, with average yield of 1,758 kg/ha (29.3 bags/ha), 12% higher than the Company's initial target. 20

21 COTTON PROCESSING Once harvested, the cotton crop goes through processing, a procedure that divides the cotton into lint and seed. The cotton lint is then analyzed and classified under two different categories: (i) visual, according to the lint appearance, that is, type, color, leaf and contaminants; and (ii) HVI analysis, which establishes the lint s length, resistance, fiber thickness, uniformity, among others. With the result of these analyzes, it is determined if the lint fits in the normal market standard, that is, it will be sold without any discount on the price. Therefore, if the lint standard is considered above normal, it will be liable to a price premium. Up to August 1, the Company had already processed 7,894 bales from the 2017/18 crop. The chart below, presents the quantity of bales breakdown according to its classification and consequent possibility of obtaining a premium/discount on price. Processing of cotton (tons) Discount discount No discount Award Pass PLANTED AREA The chart below shows the first planting intentions for the 2018/19 season. Crop Mix PLANTING 2017/18 Realizado Part. (%) 2018/19 1st Intention Part. (%) Soybean % % 1st Crop % % Cotton % % 1st Crop % 0 0% 2nd Crop % % Milho % % 1st Crop 380 0% 0 0% 2nd Crop % % Alternative % 0 0% Curtain % % Sunflower % 0 0% Others % 0 0% Total % % 21

22 Compared to the 2018/19 season, the planted area was reduced by 11% due to the return of leased areas whose contracts were terminated and the owner has chosen to use them for planting. Regarding the crop mix, the planted area of the 2nd corn crop was reduced, which should be re-analyzed in the coming months and, if it offers a more attractive contribution margin than currently projected, this area may be increased. Additionally, it is important to highlight the increase in the cotton planted area, as a result of the Company's investment aimed at preparing and correcting the soil so that, at a more favorable time in the market, cotton could be planted with machines and equipment operating in a safe manner. YIELD The table below presents a record of the Company's yield for the last 4 harvests. Yiled (kg/ha) 14/15 15/16 16/17 17/18E Soybean (MT) Corn - 2nd Crop Cotton Feather -2nd Crop Cotton Seed -2nd Crop LAND PORTFOLIO The Company s land portfolio in the 2017/18 crop season will be as follows: Production Unit Localization Own Leased Total Total Cultivable Total Cultivable Total Cultivable PU Parecis Campo Novo do Parecis - MT 0,0 0,0 14,2 14,0 14,2 14,0 PU Guapirama Diamantino - MT 3,2 1,4 19,4 19,2 22,6 20,6 PU Mãe Margarida Santa Rita do Trivelato - MT 12,7 6,0 7,8 7,6 20,5 13,6 PU Ribeiro do Céu Nova Mutum - MT 12,5 8,6 14,6 14,2 27,1 22,8 PU São José Campo Novo do Parecis - MT 17,1 10,6 10,3 10,0 27,4 20,6 PU Terra Santa Tabapora - MT 29,3 14,3 2,7 2,7 32,0 17,0 Fazenda Iporanga Nova Maringá - MT 12,8 0,0 0,0 0,0 12,8 0,0 Total 87,6 41,0 68,9 67,7 156,6 108,7 LAND APPRAISAL An independent consulting company appraised the Company s land at R$1.3 billion on the base date of October 31, Ribeiro do Céu 213,0 304,6 309,8 362,9 414,2 435,3 428,5 Terra Santa 206,8 272,8 283,8 318,8 360,6 365,9 360,0 Mãe Margarida 180,0 241,8 243,2 284,5 259,9 282,4 261,6 São José 129,8 194,2 198,3 231,8 245,9 256,2 248,8 Iporanga 50,0 52,0 52,0 55,2 61,4 61,7 50,4 Total Year 779, , , , , , ,3 22

23 MACHINERY In June 2018, the Company owned the following farm equipment: Machinery Own Leased Total % Self-Sufficiency Tractors % Avarage Capacity (ha/day) Planters % Sprayers % Agricultural Aircraft % Grain Harvesters % Cotton Harvesters % 700 Trucks % Total STORAGE The Company owns five grain storage units located in Mato Grosso, with a joint static storage capacity of 186,000 tons. It also has four leased units, with a static storage capacity of 59,500 tons. Therefore, the total static storage capacity in the 2016/17 crop season is 245,500 tons. In the case of cotton bales, the Company has enough processing and storage capacity for a planted area of 35,000 ha. 23

24 APENDIX MARKET Commodities Prices (2Q18 Chg.) COTTON 80 SOYBEAN 12/29/2017 1/29/2018 2/28/2018 3/31/2018 4/30/2018 5/31/2018 6/30/2018 CORN +4.8% -9.7% -17.9% In 2Q18, future soybean and corn prices on the international exchanges decreased by 17.9% and 9.7%, respectively, while cotton prices increased by 4.8%. International soybean prices ended the quarter at US$8.56/bu, 17.9% down on the end of March The soybean price in Chicago has been in a continuous decline since the start of the US-China trade dispute. This decline is even more significant in June and this downward trend is nothing more than the reflection of the intensification of the dispute between the two countries, as well as the beginning of the taxation as of July 6. In the case of soybean in North-America, this taxation is equivalent to an increase of 25% in the import tax in China, which is expected to hamper US exports. Regarding the US harvest, it is worth mentioning that planting took place within the recommended time frame and it has been developing in a rather satisfactory manner. It is worth noting that the market scenario in Brazil is very distinct from Chicago, basically due to two factors: (i) exchange rate devaluation and (ii) high premiums in port sales. The exchange rate is being continuously depreciated, which demonstrates the market's concern about the US-China trade dispute, coupled with Brazil's political uncertainty scenario in the upcoming presidential election. Regarding the increasingly number of premiums paid in Brazil, the justification is nothing more than the expected higher demand for the Brazilian soybean as a substitute for the North-American soybean. 24

25 Corn prices depreciated, reaching US$3.50/bu at the end of the quarter, down 9.7% over the first quarter. With the beginning of the harvest season, the corn market is under pressure from the increase in local supply. The first crops harvested, mainly in the Midwest region, have been showing good yield, as they suffered less with the dry spells that affected the planted area at the end of March and April. Similar to soybean, the American corn crop has been developing satisfactorily and its condition is better than last season. Cotton prices increased by 4.8%, ending the quarter at US$0.85/lb. The cotton market is going through a rise in prices, supported by three main factors, among them: (i) appreciation of the US dollar against the main currencies, (ii) low supply due to the period between harvests in Brazil and (iii) high prices on the New York Stock Exchange. Crop in Brazil have been developing within the normal range, with prospects of good productivity. In the state of Mato Grosso, planted area has been increased and weather conditions have contributed to the good development of the crop. CAPITAL MARKET STOCK PERFORMANCE Terra Santa s shares (TESA3) closed 2Q18 at R$10.00/share, giving a market cap of R$179.1 million. In 2Q18, TESA3 depreciated by 23.7%, from R$13.10/share at the close of March 2018 to R$10.00/share at the close of June In the same period, the Ibovespa index decreased by 14.8%. 120,00 110,00 100,00 90,00 80,00 70,00 TESA x Ibovespa (base 100 = dec/30/17) 60,00 12/28/17 1/28/18 2/28/18 3/31/18 4/30/18 5/31/18 TESA3 IBOV Terra Santa Agro s shares, listed in the top corporate governance trading segment (Novo Mercado), were traded in all trading sessions in 2Q18. Daily traded volume averaged R$551.2 thousand from an average of 49 trades. 25

26 CAPITAL STOCK AND FREE FLOAT The Company s capital stock consists of 17,914,118 registered common shares with no par value. Of this total, 34.0% are held by individuals, 56.4% by institutional investors and 9.6% by foreign investors, totaling more than 7,000 investors. The Company's share structure is widely dispersed. More than 99% of investors are Brazilian and the largest shareholder retains 40.1% of the Company. Below is the current shareholding structure: June/18 Bonsucex¹ Laplace Investimentos Gávea Investimentos Others 40.1% 23.0% 13.9% 23.0% (1) Considers the direct and indirect holdings of Bonsucex Holding 26