CRUSHING VOLUME REACHES 31.5 MILLION TONS WITH

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1 CRUSHING VOLUME REACHES 31.5 MILLION TONS WITH A CAPACITY UTILIZATION RATE OF 86.6%, A NEW RECORD São Paulo, June 1, 2017 Biosev, the world s second-largest sugarcane processor, announces its results for the 2016/17 crop year. HIGHLIGHTS OF THE 2016/17 CROP YEAR Capacity utilization rate of 86.6%, a new record; BM&FBOVESPA: BSEV3 Stock price on 5/31/2017: R$5.89 No. of shares: 219,628,363 Market cap: R$1.3 billion Conference Call Portuguese June 2, :00 a.m. (Brasília - BRT) 10:00 a.m. (NY EDT) 3:00 p.m. (London - BST) Dial-in: +55 (11) (11) Code: Biosev Replay: +55 (11) Code: # Conference Call English June 2, :00 a.m. (Brasília - BRT) 11:00 a.m. (NY EDT) 4:00 p.m. (London - BST) Dial-in: +1 (786) Toll-free: +1 (888) Code: Biosev Replay: Code: # Investor Relations ri@biosev.com Dial-in: (11) Consolidated agricultural yield (TCH) increases 2% to 77.9 ton/ha, highlighting: At Biosev s clusters in Brazil s Center-South region (CS), yield increased 3% to 83.0 ton/ha; At the Ribeirão Preto Cluster (RP), yield increased 9% to 83.8 ton/ha; At the Lagoa da Prata Cluster (LP), yield increased 10% to 83.1 ton/ha. Consolidated Cane TRS increased 1% to kg/ton, highlighting the 6% increase at the Lagoa da Prata Cluster to kg/ton; General and Administrative Expenses decreased 11%, equivalent to 15% in real terms; EBITDA ex-resale/hacc reached R$1.5 billion with margin of 32.2%. Biosev is the world s second largest sugarcane processor, with 11 agroindustrial units in Brazil. Biosev is controlled by the Louis Dreyfus Group and began operating in the sugar and ethanol industry in 2000, when it acquired its first unit in Brazil. Since then it has built a track record of growth through both acquisitions and expansion projects that have led its crushing capacity to increase from 0.9 million tons/year in 2000 to 36.4 million tons/year today. Biosev manages 346,000 hectares of land and has surplus biomass power generation capacity of 1,346 GWh. Biosev adopts the highest standards of corporate governance and its stock is traded on the Novo Mercado segment of the São Paulo Stock Exchange (BM&FBovespa).

2 1. MESSAGE FROM MANAGEMENT Biosev continued to make progress on its entrepreneurial project and confirmed productivity and operating efficiency gains as its key priorities, at the same time it strengthened the commitment to the renewal of its sugarcane fields. This direction comes as result of the belief that value creation will be driven by the combination of high-quality biological assets and industrial units with highly reliable operations and efficient processes, aiming at achieving the lowest production cost. These factors are further leveraged by superior market intelligence based on a commercial information system that combines a global vision with local market knowledge. From the industry standpoint, it is important to highlight the continuous improvement observed over the course of the crop year in the business environment for the sugar and ethanol industry. Sugar prices, which are cyclical by nature and determined globally based on the balance of supply and demand, posted an important recovery, supported by another year of demand outstripping supply, as demonstrated by the reduction in the stock-to-use ratio. At this moment in the cycle, with inventories shifting to new levels, price volatility tends to increase, as shown by recent fluctuations arising from changes in the positions of speculative funds, which have affected sugar prices in recent months. We believe this is a short-term dynamic and that business fundamentals will prevail over time. In our opinion, the outlook for sugar prices in the coming crop year remains positive, which could lead us to increase the share of sugar in the production mix in relation to the previous crop year. Note that Biosev s decision regarding its sugar and ethanol production mix is always driven by profitability maximization and take into consideration the regulatory environment and its potential impacts on ethanol prices. Ethanol prices were more attractive and higher than in the previous crop year. With the new fuelpricing policy adopted by Petrobras last year, we began working with a scenario of ethanol prices more correlated to market dynamics and pegged to oil-price fluctuations in the international market. On the operational front, we consolidated the continuous improvement process in the agricultural area and maintained the level of investment in renewing sugarcane fields and improving crop treatments, which resulted in another year of yield gains (TCH) on our cane fields. This, combined with the improvement in cane quality (TRS), supported an increase in total sugar per hectare (TSH) that places Biosev as a reference in the sugar and ethanol industry. Given the higher yields, we began to encounter bottlenecks at our mills, which affected costs and operational margins. We used the intercrop period to carry out the maintenance and investments required to maximize the operating reliability of our mills and consequently maximize production and dilute fixed costs for the 2017/18 crop year. We also continued to make progress on optimizing internal processes to capture efficiency gains, which included rigorously controlling general and administrative expenses, which fell by approximately 11% in nominal terms in relation to the prior crop year. On the financial front, it is worth to highlight Biosev s relationship with the banking community and the access to financing facilities, as demonstrated by its capacity to roll over short-term debt. We ended the crop year with a cash position of R$1.5 billion, which is sufficient to meet more than 80% of short-term liabilities, which we believe is adequate. From the strategic standpoint, our priorities 2

3 remain lengthening the debt maturity profile and deleveraging, as well as working intensely on strengthening our capital structure. In the capital markets, it is worth to highlight the increase in stock liquidity and the expansion of our shareholder base, supported by targeted communication efforts. As mentioned earlier, Biosev opted to maintain its level of investments in planting and treatments, while also investing in the maintenance of industrial and agricultural equipment during the intercrop period in order to improve even further the reliability of its operations. We expect a return on these investments in the form of operating efficiency gains (agricultural and industrial) and lower production costs. As part of its commitment to society and to fostering development in local communities, Biosev concluded the Participatory Social Diagnosis, whose results were translated into a more comprehensive study of the social, environmental and economic impacts of our operations. In the process, new ideas and suggestions were formulated to strengthen Biosev s Social Responsibility platform (through the programs Environmental Education, Education for Health, Community Integration and Citizen Participation) in order to create shared value in our relations with communities and other stakeholders. In closing, we believe we have intensely and adequately prepared for the crop year that has just begun. We are determined to improve our performance and results, leveraged by cost reduction via the optimization of internal processes and our capacity to secure higher prices, which is evidenced by a sugar hedge position with prices 30% higher than in the previous crop year for approximately 60% of our exposure. We will move forward, with discipline, towards our goal of consolidating Biosev as a company that sustainably generates positive free cash flow. I want to take this opportunity to thank all of our Clients, Suppliers, Employees, Partners, Shareholders and Business Institutions that have cooperated with Biosev over this last year and invite them this year to further strengthen our Partnership. Rui Chammas Chief Executive Officer 3

4 2. OPERATING PERFORMANCE The following table presents key indicators for operating efficiency and productivity, which are analyzed in this section: Efficiency and Productivity 2016/ /16 % Crushing ('000 tons) 31,535 30, % Own 20,184 19, % Third Parties 11,352 11, % TCH - Agricultural yield (ton/ha)* % Sugarcane TRS (kg/ton) % Capacity Utilization (%) 86.6% 85.1% 1.5 p.p. * Own cane only 2.1 Operating Efficiency In the 2016/17 crop year, Biosev registered crushing volume of 31.5 million tons, which is the highest volume of the last six crop years and 1.9% higher than in the last crop year. The capacity utilization rate reached 86.6%, 1.5 p.p. higher than last crop year. The higher crushing volume in the 2016/17 crop year was supported primarily by the 2.3% increase in yield, measured by tons of cane per hectare (TCH), which reached 77.9 ton/ha. Biosev s units located in Brazil's Center-South region registered a yield of 83.0 ton/ha, increasing 2.6% on the prior crop year. Crushing at the RP Cluster amounted to 16.7 million tons, or 4.2% higher than in the 2015/16 crop year. This performance was supported mainly by the 8.6% increase in yield, to 83.8 ton/ha. It is worth to highlight that MB and Continental units both set new records for crushing volume. At the Mato Grosso do Sul (MS) Cluster, crushing volume was 7.8 million tons, down 4.5% on the previous crop year. This performance reflects the 5.3% decrease in yield, which was partially offset by the increase in the harvested area. Still in the MS Cluster, the Passatempo unit also set a new record for crushing volume. At the Leme (L) and Lagoa da Prata (LP) clusters, combined crushing volume came to 4.9 million tons, representing growth of 16.6% on the previous crop year and also setting a new record. The result is due to the 7.4% higher yield and higher harvested area. 4

5 The following charts show the evolution in crushing volume on a consolidated basis and at the RP and MS clusters: Crushing Volume ('000 tons) Consolidated Ribeirão Preto Mato Grosso do Sul 1.9% 30,959 31,535 15, % 16, % 8,194 7, / / / / / /17 5

6 2.2 Productivity Tons of Cane per Hectare (TCH) The yield (TCH) of Biosev s sugarcane fields in the 2016/17 crop year reached 77.9 ton/ha, increasing 2.3%, mainly due to: (i) the more intensive use of planting and crop treatments inputs; (ii) the adoption of enhanced agricultural practices, including the use of liquid and foliar fertilization, fertiirrigation and the modification of processes and equipment to optimize mechanized harvesting and reduce trampling; and (iii) the use of agricultural technologies, to be detailed in section The highlights in this area were the 8.6% yield increase at the RP Cluster to 83.3 ton/ha and the 7.4% yield increase at the Leme and Lagoa da Prata Clusters to 85.3 ton/ha. TCH at the MS Cluster was 81.0 ton/ha in the 2016/17 crop year, down 5.3% from 2015/16, mainly due to the effects of the adverse weather conditions. The following charts show the evolution in consolidated TCH at Biosev s units located in the Center- South region and in the RP and MS Clusters, with the highlights the consolidated yield in the Center- South and at the RP Cluster: TCH (ton/ha) Consolidated Center South* Ribeirão Preto Mato Grosso do Sul % % % % / / / / / / / /17 * Excludes TCH for mills in the NE Cluster Cane Total Recoverable Sugar (TRS) In the 2016/17 crop year, cane TRS content was kg/ton, increasing 1.2%. The higher Cane TRS content is explained by (i) the progress made in the selection of cane varieties; (ii) the reduction in plant and mineral impurities in the harvest process; (iii) the systematic use of ripeners; and (iv) weather conditions during the 2016/17 crop year that favored the accumulation of TRS. The MS, L, LP and NE clusters all registered increases in cane TRS content. The highlight was the LP Cluster, which recorded a record-high TRS content of kg/ton, or 5.9% higher than in the previous crop year. At the NE Cluster, the severe drought that affected the region favored the accumulation of sugar in the cane and consequently had a positive impact in the TRS content. 6

7 At the RP Cluster, the lower cane TRS content is associated with the resumption of crushing activities in March, when TRS content is typically lower. The following charts show the change in TRS content between crop years: Sugarcane TRS (kg/ton) Consolidated Center South* Ribeirão Preto Mato Grosso do Sul % % % % / / / / / / / /17 * excludes Sugarcane TRS for mills in the NE Cluster 7

8 2.2.3 Agricultural Technology Biosev consistently invests in agricultural technology to capture productivity gains and increase the longevity of its sugarcane fields. To support these efforts, it maintains Agricultural Operations Centers at its 11 agroindustrial units. This online management tool has been instrumental to improve the monitoring of field operations, especially the performance of harvesting and planting operations, and consequently to increase operating efficiency. The Company already uses an autopilot system for 100% of its mechanized harvesting and planting operations at its units in the Center-South region, and also has georeferenced 100% of its cane fields. To obtain optimal results from its autopilot system, Biosev uses simulators to train harvesters operators. In addition to that, Biosev also uses unmanned aerial vehicles (UAVs) to create images and conduct analyses of its cane fields, which is an essential tool for making decisions regarding field interventions. The tool is used to identify and correct fails in the cane fields at RP, MS and NE Clusters in order to maintain maximum plant populations per hectare and to create conditions for leveraging field productivity and longevity. With regard to the varietal profile, Biosev uses pre-sprouted seedlings (PSS) to accelerate the adoption of more productive and sugar-rich varieties. This technology enables the production of sugarcane from preselected high-quality seedlings that are free of disease and pests, which ensures a higher multiplication rate compared to traditional planting systems. During the 2016/17 crop year, more than six million PPSs (450 ha) were planted. Another important initiative in varietal evolution is the partnership with the Inter-University Network to Develop the Sugar and Ethanol Industry (Ridesa), which supports the development of the NE Cluster Experimental Center in the research and development of new sugarcane varieties to drive genetic enhancement in the Northeast. Cane fields planted with pre-sprouted seedlings also serve as sources of conventional seedlings (culms) of excellent quality and health for conventional planting. In this sense, Biosev began using automated planters that automatically dose and distribute seedlings and require no intervention by the operator. Some of the results obtained in the process are higher planting efficiency and lower seedling consumption, which saves on space for nurseries and makes more cane available for industrial processing. The next step is to install output controllers on planters to control the application of inputs. Also, concerning the enhanced control and monitoring of the use of inputs, Biosev uses precision agriculture techniques for applying soil amendments on areas prepared for new plantations. Georeferenced data supports the creation of maps for applying inputs at variable rates, which enhances distribution and improves control of amendment consumption. Over the coming crop years, this system will also be used to apply fertilizers at variable rates. With the adoption of these best practices, the agricultural technology employed on Biosev s sugarcane fields has evolved consistently and paved the way for new initiatives. One such example is foliar fertilization (aerial spraying), which seeks to ensure maximum cane fields yields and promote 8

9 the accumulation of phytomass during the period of optimal plant development. Another example is the adoption of mathematical modeling for pest control at the RP Cluster, which allocates resources to areas with the highest probability of pests and consequently improves the efficiency of controls and yields. 9

10 2.3 Production The following table shows volumes and the production mix: Production 2016/ /16 % Sugar Mix (%)* 50.7% 45.9% 4.8 p.p. Anhydrous Mix (%) 34.7% 30.8% 3.9 p.p. Production ('000 tons of TRS Product)** 3,924 3, % Sugar ('000 tons) 1,900 1, % Ethanol ('000 m³) 1,138 1, % Cogeneration (GWh) % * As of 2Q16, sugar mix calculation methodology was aligned with that adopted by the Sugarcane Industry Association (UNICA). **It considers the conversion factors applied in São Paulo State, published in Consecana Manual TRS Product Production in terms of tons of TRS Product came to 3,924 thousand tons in the 2016/17 crop year, up 0.9% from the previous crop year. The improvement is explained primarily by the 1.9% higher crushing volume and 1.2% higher Cane TRS content, which were partially offset by the reduction in industrial efficiency. The reduction in industrial efficiency is associated with the lower operating reliability combined with the lower efficiency of the industrial process in the 2016/17 crop year. Note that efforts to improve the efficiency of industrial equipment received special attention during the maintenance services conducted during the last intercrop period with the aim of eliminating bottlenecks and maximizing TRS product. As part of this strategy, Biosev has been intensifying its process engineering activities in order to increase industrial efficiency at its units. In the 2016/17 crop year, the share of sugar in the production mix increased 4.8 p.p. compared to the previous crop year, due to the higher volume of TRS allocated to sugar production because of its higher profitability compared to ethanol. In the crop year, anhydrous ethanol accounted for 34.7% of total ethanol production, increasing 3.9 p.p. from the previous crop year, due to the product's higher profitability compared to hydrous ethanol and energy cogeneration. 10

11 2.3.2 Cogeneration Biosev has cogeneration power plants at all 11 of its industrial sites and is energy self-sufficient during the harvest period. Of these units, nine produce surplus electricity for sale. Cogeneration destined for sale in the 2016/17 crop year decreased 9.2% to 843 GWh. The reduction was mainly due to the cease of power generation from external biomass, which was partially offset by the higher crushing volume and productivity of cogeneration units. Considering only the power generated from own biomass, cogeneration volume increased 5.1% compared to the previous crop year. The productivity of cogeneration units measured in kwh of power sold per ton of cane crushed 1 stood at 30.7 kwh/ton in the 2016/17 crop year, up 2.7% from the previous crop year. This increase reflects the optimizations in the cogeneration process, as well as the more favorable weather conditions (lower precipitation during the current crop year). At the RP Cluster, productivity was adversely affected by the lower operating efficiency of mills in the region. The following charts show a comparison of cogeneration for sale and productivity between the periods on consolidated basis and for the RP and MS Clusters: Cogeneration for Sale Consolidated % Ribeirão Preto % 301 Mato Grosso do Sul % /16 16/ /16 16/ /16 16/17 1 This productivity indicator excludes crushing volume from mills that do not export energy and the amounts of outside biomass. 11

12 3. ECONOMIC AND FINANCIAL PERFORMANCE 3.1 Change in accounting standards for biological assets As of the 2016/17 crop year, Biosev reports biological assets in accordance with the new accounting standards CPC 27 / IAS 16 and CPC 29 / IAS 41. Accordingly, the following changes were made in the accounting classification and calculation of the fair value of biological assets: i. The value of ratoons continues to be recognized in non-current assets, under property, plant and equipment (PP&E), and no longer in biological assets, with its value recognized at deemed cost, and no longer at fair value; ii. Standing sugarcane is recorded as current assets, under the heading of biological assets, and no longer as non-current assets. It continues to be measured at fair value less estimated costs to sell, and calculated using the discounted cash flow method, which, under the new standard, includes cash flows projected for 12 months (compared to six years previously). To comply with the new standards and maintain the comparability of the Company s results between periods, previously reported figures were restated to reflect the new standards, as applicable. The following tables present details on the effects from adopting the new accounting standards for recognizing biological assets on the Company s income statement in the 2015/16 crop year and for 4Q16: Income Statement (R$ Thousand) 2015/16 Reported Biological Assets Effects 2015/16 Restated COGS (4,400,272) (927,092) (5,327,364) Income Tax and Social Contribution (318,449) 315,211 (3,238) Income Statement (R$ Thousand) 4Q16 Reported Biological Assets Effects 4Q16 Restated COGS (1,111,991) (41,375) (1,153,366) Income Tax and Social Contribution 37,829 14,067 51,896 Note that these adjustments produce only accounting impacts, and therefore do not affect Biosev s cash flow. 12

13 3.2 Net Revenue Net revenue excluding the non-cash effects from the hedge accounting (HACC) of foreigndenominated debt reached R$7.1 billion in the 2016/17 crop year, increasing 12.6%. This performance reflects the higher sales volume of sugar and the higher prices of sugar and ethanol, coupled with the growth in revenue from other products, which will be discussed in item Cogeneration revenue, however, fell 6.2%, mainly due to lower prices. In 4Q17, net revenue excluding the non-cash effects from the hedge accounting (HACC) of foreigndenominated debt reached R$1.6 billion, increasing 15.0%. This performance mainly reflects the lower sugar sales volumes and lower sugar and ethanol prices compared to the same quarter of last crop year, with these factors more than offset by the higher revenue from other products. Note that, in addition to revenue from sales of sugar, ethanol, energy cogeneration and the corresponding byproducts of the sugar and ethanol production process (molasses, dry yeast and sugar cane bagasse), Biosev s Net Revenue also includes revenue from the resale of finished products, such as: (i) sugar, ethanol and energy; and (ii) other commodities, which are required to comply with export performance contracts associated with obligations denominated in foreign currency. The following table presents a breakdown of net revenue ex-hacc by product and market: Net Revenue ex-hacc (R$ Thousand) 4Q17 4Q16 % 2016/ /16 % Sugar 411, , % 2,863,314 2,407, % Domestic Market 141, , % 625, , % Export Market 270, , % 2,237,345 1,805, % Ethanol 795, , % 2,137,912 2,113, % Domestic Market 772, , % 1,953,854 1,661, % Export Market 22,483 39, % 184, , % Energy 34,957 37, % 218, , % Other Products 330,164 96, % 1,891,813 1,559, % Dry yeast, molasses and bagasse 9,850 8, % 84,392 58, % Export performance contracts 320,314 88, % 1,807,421 1,501, % Total 1,572,298 1,366, % 7,111,800 6,314, % Additionally, the following table shows the revenue derived from resale transactions: Resale operations (R$ Thousand) 4Q17 4Q16 % 2016/ /16 % Sugar, ethanol and energy* 218, , % 722, , % Export performance contracts 320,314 88, % 1,807,421 1,501, % Total 538, , % 2,530,257 2,139, % * Revenue from sugar, ethanol and energy resale transactions are accounted in each of the corresponding product lines 13

14 The following charts present a breakdown of net revenue ex-hacc by product in both crop years, excluding: (i) the non-cash effects from the hedge accounting of foreign-denominated debt; and (ii) the revenue from export performance contracts. The highlight was the growth in the share of sugar in Biosev s revenue due to the higher sales volume and higher prices: Net Revenue ex-hacc by Product (%) The following charts present a breakdown of net revenue by market, excluding the effects from hedge accounting and the revenue from export performance contracts: Net Revenue ex-hacc by Market (%) 14

15 The following table presents the sugar and ethanol inventory position at the end of the respective periods: Inventories 2016/ /16 Sugar ('000 tons) Ethanol ('000 m 3 )

16 3.2.1 Sugar Net revenue from sugar sales excluding the non-cash effects from the hedge accounting of foreigndenominated debt (HACC) came to R$2.9 billion in the 2016/17 crop year, increasing 18.9%. This result basically reflects the 10.2% growth in sales volume combined with the 7.9% increase in the average sales price. The higher average sales price in the 2016/17 crop year reflects the recovery of sugar prices in the international market as well as the higher premiums for crystal and refined sugar compared to VHP. Meanwhile, sales volume growth is explained mainly by the higher share of sugar in the production mix. In 4Q17, net revenue from sugar sales excluding the non-cash effects from the hedge accounting of foreign-denominated debt (HACC) amounted to R$412 million, down 31.3% compared to 4Q16. The result reflects the 23.1% contraction in sales volume and the 10.6% decline in the average price compared to the prior-year period. The following charts present the evolution in net revenue and a comparison of sugar volumes and average prices, excluding the non-cash effects from the hedge accounting of foreign-denominated debt (HACC): Net Revenue ex-hacc (R$ million) Volume ( 000 tons) and Average Price (R$/ton) 2, % 2,863 1,156 2, % 10.2% 2,296 1,247 1,805 2,237 1,563 1, / / / /17 16

17 Net Revenue ex-hacc (R$ million) Volume ( 000 tons) and Average Price (R$/ton) 1, % 1, % Q16 4Q % Q16 4Q17 The following charts present a breakdown by type of sugar, excluding the non-cash effects from the hedge accounting of foreign-denominated debt: Net Revenue ex-hacc by type of sugar (%) 17

18 3.2.2 Ethanol Net revenue from ethanol sales, excluding the non-cash impacts from the hedge accounting of foreign-denominated debt (HACC), came to R$2.1 billion in the 2016/17 crop year, increasing 1.1% from 2015/16. This result reflects the 8.7% increase in the average price, which was partially offset by the 7.0% decrease in sales volume. The higher average price in the 2016/17 crop year is explained by: (i) the higher ethanol prices practiced in the domestic market, which were supported by the product s lower supply due to the higher allocation of TRS to sugar production; (ii) the positive impact from Petrobras new pricing policy; and (iii) the higher share of anhydrous ethanol, a higher value-added product, in the sales mix. In the 2016/17 crop year, the 7.0% decrease in sales volume reflects the higher share of sugar in the production mix. In 4Q17, net revenue from ethanol sales, excluding the non-cash effects from the hedge accounting of foreign-denominated debt (HACC), came to R$795 million, increasing 25.3% from 4Q16. This performance reflects the 40.4% growth in sales volume, which was partially offset by the 10.7% decrease in the average sales price. The following charts present the evolution in net revenue and a comparison of ethanol volumes and average prices, excluding the non-cash effects from the hedge accounting of foreign-denominated debt: Net Revenue ex-hacc (R$ million) Sales Volume ('000 m³) and Average Sales Price (R$/m³) 2, % 2,138 1, % 1, , % 1, ,662 1,954 1,002 1, / / / /17 18

19 Net Revenue ex-hacc (R$ million) Sales Volume ('000 m³) and Average Sales Price (R$/m³) % , % 1, % Q16 4Q17 4Q16 4Q17 The following charts present a breakdown of revenue by type of ethanol, excluding the non-cash effects from the hedge accounting of foreign-denominated debt, with the highlight the higher share of anhydrous ethanol in the sales mix: Net Revenue ex-hacc by type of ethanol (%) 2015/16 6.0% 2016/17 5,9% 36,0% 58,0% 41.3% 52,6% 19

20 3.2.3 Energy Net revenue from energy cogeneration was R$219 million in the 2016/17 crop year, down 6.2% from the previous crop year, mainly due the lower settlement price (PLD), which adversely affected Biosev s average price. The reduction was partially offset by the 5.7% higher sales volume, which was supported by higher crushing volume and a higher number of energy resale operations. Net revenue from energy sales was R$35 million in 4Q17, down 5.7%, due to the lower sales volume, which was partially offset by the higher average sales price in the period. The following charts present the evolution in net revenue and a comparison of energy volumes and average prices: Net Revenue (R$ million) Sales Volume (GWh) and Average Sales Price (R$/MWh) -11.3% % 5.7% ,396 1, / / / /17 Net Revenue (R$ million) Sales Volume (GWh) and Average Sales Price (R$/MWh) % % -31.3% Q16 4Q17 4Q16 4Q17 20

21 3.2.4 Other Products The line Other Products records revenue from sales of dry yeast, powdered molasses, raw and hydrolyzed bagasse for animal feed, in addition to revenue from the sale of commodities in the spot market to fulfill export performance contracts with the aim of settling obligations in foreign currency. In the 2016/17 crop year, revenue from the sale of other products amounted to R$1.9 billion, most of which was related to the performance of export contracts associated with the settlement of foreigndenominated debt. 21

22 3.3 Cost of Goods Sold (COGS) COGS amounted to R$6.4 billion in the 2016/17 crop year, increasing 20.0% from the previous crop year. This increase is mainly explained by: (i) higher unit costs, to be discussed below; (ii) the 2.3% growth in TRS sales volume; and (iii) the higher volume of resale operations, which includes the performance of export contracts. Excluding the non-cash effects and resale costs, COGS amounted to R$2.6 billion, up 14.7% from the 2015/16 crop year. Unit COGS increased from R$574/ton to R$644/ton between crop years, due to: (i) the higher costs associated with the acquisition of third-party cane, due to the 23.2% increase in the CONSECANA price; (ii) the higher costs with harvesting, loading and transportation (HLT) related mainly to labor, maintenance and diesel; (iii) the higher leasing costs (also affected by the CONSECANA price); and (iv) higher industrial costs, mainly related to labor and industrial maintenance. In 4Q17, Cash COGS ex-resale amounted to R$542 million, down 14.0% from 4Q16, mainly due to the higher portion of costs deferred to CAPEX, reflecting the higher number of intercrop days compared to the previous crop year. The following table presents a breakdown of total COGS and cash COGS: COGS and Cash COGS (R$ Thousand) 4Q17 4Q16* % 2016/ /16* % Total COGS (1,686,463) (1,153,366) 46.2% (6,394,521) (5,327,364) 20.0% Non cash items (575,312) (317,619) 81.1% (1,265,196) (1,041,308) 21.5% Depreciation and Amortization (521,207) (369,831) 40.9% (1,510,656) (1,167,266) 29.4% Gains (losses) from changes in the Fair Value minus estimated costs to sell (54,105) 52, % 245, , % Biological Assets Cash COGS (1,111,151) (835,747) 33.0% (5,129,325) (4,286,056) 19.7% Personnel (132,860) (128,216) 3.6% (488,063) (455,401) 7.2% Raw Materials (cane, land lease and HLT) (379,723) (448,792) -15.4% (1,871,973) (1,601,282) 16.9% Inputs (28,988) (52,395) -44.7% (209,124) (182,611) 14.5% Resale goods (569,580) (206,344) 176.0% (2,560,165) (2,046,762) 25.1% Sugar, ethanol and energy (237,243) (116,289) 104.0% (730,371) (575,107) 27.0% Export performance contracts (332,337) (90,055) 269.0% (1,829,794) (1,471,655) 24.3% Cash COGS ex-resale (541,571) (629,403) -14.0% (2,569,160) (2,239,294) 14.7% * Figures restated in accordance with the new standard for accounting of biological assets (CPC27/IAS16 and CPC29/IAS41). Cash COGS ex-resale (R$ Thousand) 4Q17 4Q16 % 2016/ /16* % Agricultural (465,764) (535,403) -13.0% (2,193,058) (1,898,296) 15.5% HLT (own + 3rd party cane) (183,571) (222,396) -17.5% (739,654) (706,240) 4.7% Land lease (135,446) (100,194) 35.2% (476,760) (371,791) 28.2% 3rd party cane (146,747) (212,813) -31.0% (976,642) (820,265) 19.1% Industrial (74,134) (74,865) -1.0% (355,004) (309,957) 14.5% Other (1,673) (19,135) -91.3% (21,098) (31,041) -32.0% Cash COGS ex-resale (541,571) (629,403) -14.0% (2,569,160) (2,239,294) 14.7% TRS Product sold ex-resale ('000 tons) % 3,987 3, % Cash COGS ex-resale (R$/Ton) (562) (686) -18.1% (644) (574) 12.2% 22

23 3.4 Gross Profit In order to analyze the profitability of the Company s operations, Biosev monitors cash gross profit, which excludes depreciation, amortization, changes in the fair value of biological assets and the effects from hedge accounting of foreign-denominated debt on net revenue, as well as the effects from resale operations (resale operations encompass the performance of export contracts). Accordingly, cash gross profit in the 2016/17 crop year amounted to R$2.0 billion, up 4.0% from R$1.9 billion in the 2015/16 crop year, while gross margin stood at 43.9%, down 2.5 p.p. from the previous crop year. The following chart shows the changes in cash gross profit and cash gross margin between crop years: Cash Gross Profit 2 ex-resale/hacc (R$ million) and Cash Gross Margin ex-resale/hacc (%) 2 Excludes depreciation, amortization, variation in the fair value of biological assets, hedge accounting effects of foreigndenominated debt on net revenue, and resale operations (resale operations consist of the performance of export contracts). 23

24 3.5 Selling, General and Administrative (SG&A) Expenses SG&A expenses amounted to R$571 million in the 16/17 crop year, increasing 3.8% from the previous crop year. Selling expenses came to R$275 million, an increase of 26.0% compared to 2015/16 crop year. The main factor in this variation was the increase in logistics expenses associated with the higher volume of sugar exports in the 2016/17 crop year. General and administrative expenses came to R$295 million, down 10.9% compared to the previous crop year. In real terms, these expenses fell 14.8%, reflecting the Company s continued initiatives to streamline its business processes. Selling expenses in the quarter amounted to R$43 million, down 6.0% from 4Q16, mainly due to the lower export volume. General and administrative expenses came to R$51 million in the quarter, decreasing 27.6% from 4Q16, due to the aforementioned initiatives. The following table presents a comparison of SG&A expenses between periods: SG&A (R$ Thousand) 4Q17 4Q16 % 2016/ /16 % Selling (42,682) (45,402) -6.0% (275,395) (218,613) 26.0% Freight (26,828) (33,442) -19.8% (183,067) (166,569) 9.9% Shipping Charges (12,201) (7,367) 65.6% (75,006) (27,346) 174.3% Commissions, wharfage and other (3,653) (4,593) -20.5% (17,322) (24,698) -29.9% G&A (51,409) (71,046) -27.6% (295,294) (331,440) -10.9% Personnel (20,735) (38,705) -46.4% (142,394) (161,513) -11.8% Services (22,506) (28,428) -20.8% (121,387) (145,082) -16.3% Other (8,168) (3,913) 108.7% (31,513) (24,845) 26.8% SG&A (Cash) (94,091) (116,448) -19.2% (570,689) (550,053) 3.8% Furthermore, depreciation expenses allocated as SG&A expenses amounted to R$27.7 million in the 2016/17 crop year and to R$6.3 million in 4Q17. 24

25 3.6 EBITDA Adjusted EBITDA (including resale/hacc) came to R$1.4 billion, decreasing 5.6% from the 2015/16 crop year. In 4Q17, adjusted EBITDA (including resale/hacc) came to R$368 million, down 22.9% compared to 4Q16. To ensure a more accurate analysis of Biosev s operating profitability, we opted to exclude from the calculation of adjusted EBITDA (3)(4) the effects from (i) resale operations, including the performance of export contracts, and (ii) the non-cash effects from the hedge accounting (HACC) of foreigndenominated debt on net revenue. Accordingly, and as shown in the following chart, adjusted EBITDA ex-resale/hacc was R$1.5 billion in the 2016/17 crop year, down 1.5% compared to the previous crop year. This performance is mainly explained by the increases in COGS and selling expenses, which were partially offset by higher sugar and ethanol prices and sugar sales volume growth, as already discussed. Adjusted EBITDA margin ex-resale/hacc stood at 32.2% in the crop year, down 3.7 p.p. from the previous crop year, basically due to higher unit costs. In 4Q17, Adjusted EBITDA ex-resale/hacc amounted to R$398 million, decreasing 9.6% from the same quarter of the previous crop year. This performance is mainly explained by lower sugar and ethanol sales prices and lower sugar sales volumes, which were partially offset by the reduction in unit COGS. EBITDA margin ex-resale/hacc stood at 38.5%, down 0.7 p.p. from the previous crop year. 3 EBITDA corresponds to earnings before net financial income (expenses); depreciation, amortization and depletion; and income and social contribution taxes on net income for the period. Among other metrics, we use EBITDA as a measure of our operating performance and operating cash flow generation. Adjusted EBITDA is calculated based on EBITDA (CVM Instruction 527), excluding non-recurring items. 4 EBITDA is not a measure of financial performance in accordance with the accounting practices adopted in Brazil (BR GAAP, IFRS) and should not be considered as an alternative to net income, as an indicator of operating performance, as an alternative for operating cash flow or as a measure of liquidity. EBITDA does not consider certain costs, which could significantly affect our profits, such as financial expenses, taxes, depreciation and amortization, thus limiting its use as a measure of our profitability. 25

26 The following chart shows the change in adjusted EBITDA ex-resale/hacc and EBITDA margin between periods: Adjusted EBITDA ex-resale/hacc (R$ million) and EBITDA Margin (%) The following table presents breakdowns of Adjusted EBITDA and Adjusted EBITDA exresale/hacc: EBITDA Composition (R$ Thousand) 4Q17 4Q16 % 2016/ /16 % Net Revenue 1,572,298 1,366, % 7,025,054 6,162, % Cash COGS (1,111,151) (835,747) 33.0% (5,129,325) (4,286,055) 19.7% Gross Profit (Cash) 461, , % 1,895,729 1,876, % SG&A (Cash) (94,091) (116,448) -19.2% (570,689) (550,053) 3.8% TEAG Profit/(Loss)¹ (778) 2, , % Other Operating Revenue/Expenses 1,699 55, % 36,823 90, % Non-recurring items (389) 4,657 - (1,837) 8,873 - Adjusted EBITDA 367, , % 1,360,537 1,440, % Adjusted EBITDA Margin 23.4% 34.9% p.p. 19.4% 23.4% -4 p.p. Resale effect² 30,643 (36,589) - 29,908 (92,567) - HACC effect³ , , % EBITDA ex-resale/hacc 398, , % 1,477,190 1,499, % EBITDA Margin ex-resale/hacc 38.5% 39.2% -0.7 p.p. 32.2% 35.9% -3.7 p.p. 1 - Equivalent to 50% of TEAG's shareholding position 2 - Excludes the effects from resale operations of sugar, ethanol, energy and exports performance contracts 3 - Excludes the impact from hedge accounting (HACC) of foreign currency debt on net revenue (non-cash impact) 26

27 The following table presents a reconciliation of Adjusted EBITDA with Net Income / (Loss): EBITDA Reconciliation (R$ Thousand) 4Q17 4Q16* % 2016/ /16* % NET INCOME (LOSS) (313,427) 22,355 - (600,429) (884,538) -32.1% Income Tax and Social Contribution 23,613 (51,896) - 211,426 3,238 - Financial result 74, , % 450,126 1,233, % Depreciation and Amortization 527, , % 1,538,311 1,197, % EBITDA CVM , , % 1,599,434 1,549, % Losses (gains) from changes in the Fair Value minus estimated costs to sell Biological Assets 54,105 (52,212) - (245,460) (125,958) 94.9% Amortization of Concession - TEAG 2,100 2,100-8,399 8,399 - Non-recurring items (389) 4,657 - (1,837) 8,873 - Adjusted EBITDA 367, , % 1,360,537 1,440, % Adjusted EBITDA Margin 23.4% 34.9% p.p. 19.4% 23.4% -4 p.p. * Figures restated in accordance with the new standard for accounting of biological assets (CPC27/IAS16 and CPC29/IAS41). 27

28 3.7 Hedge The following table shows the aggregate position of our hedged sugar volumes and prices via derivative commodity and foreign exchange contracts on March 31, The volume hedged of 1,105 thousand tons accounts for 60% of Biosev s exposure for the 2017/18 crop year. It is worth to highlight that sugar hedged prices for the 2017/18 crop year, as shown above in cr$/lb, are 30% higher than the observed in the last crop year. 3.8 Financial Result Hedge on 03/31/ /18 Sugar (#NY11) Volume ('000 tons) 1,105 Average Price (cus$/lb) FX (US$) Amount (US$ million) 233 Average Price (R$/US$) Hedged Price (cr$/lb) In the 2016/17 crop year, the net financial result was an expense of R$450 million, down 63.5% from the previous crop year. The reduction is mainly due to the effects from exchange variation on dollardenominated assets and liabilities. Net exchange variation in the period generated a gain of R$327 million, due to the effects from the 11.0% appreciation in the BRL against the USD on the dollar-denominated portion of assets and liabilities. This amount represents 51% of the entire effect from exchange variation in the crop year. The remaining portion, of R$315 million, was deferred to other comprehensive income, in accordance with the Company s hedge accounting policy. Excluding the effects from exchange variation, the net financial result in the year was an expense of R$778 million, practically in line with the previous crop year. In 4Q17, the net financial result was an expense of R$74 million, down 57.9% from 4Q16. Excluding the effects from exchange variation, the net financial result in 4Q17 was an expense of R$131 million, down 68.3% from the same quarter of the last crop year, mainly due to the gain from markto-market of positions in currency derivatives. On March 31, 2017, the U.S. dollar exchange rate was R$3.1684/US$. 28

29 The following table shows the change in the financial result between periods: Financial Result (R$ Thousand) 4Q17 4Q16 % 2016/ /16 % Financial Result, net (74,041) (175,743) -57.9% (450,126) (1,233,092) -63.5% FX Variation 56, , % 327,398 (457,605) - Financial Result before FX (131,006) (413,498) -68.3% (777,524) (775,487) 0.3% Interest Expenses (175,590) (164,435) 6.8% (691,329) (658,550) 5.0% Income from Short-term Investments 6,037 11, % 32,739 41, % Derivative transactions 44,387 (278,130) - (125,350) (206,476) - Other Revenues/(Expenses) (5,840) 17,341-6,416 48, % 3.9 Earnings Before Taxes (EBT) Earnings before provision for income and social contribution taxes amounted to negative R$389 million in the 2016/17 crop year, compared to negative R$881 million in the previous crop year. In addition to the aspects discussed above, the result benefitted from the variation in the fair value of biological assets less their estimated selling costs between the periods analyzed, in the amount of R$120 million. In 4Q17, earnings before provision for income and social contribution taxes was negative R$290 million, compared to a negative result of R$30 million in 4Q16. In addition to the aspects already discussed, this result was adversely impacted by the variation in the fair value of biological assets less their estimated costs to sell between the periods, of R$106 million. As already mentioned, due to the new accounting standards for recognizing biological assets, financial statements for 4Q16 and for the 2015/16 crop year were restated, as shown in the following table: Reconciliation of reported EBT and restated EBT (R$ thousand) 4Q /16 Reported EBT 11,834 45,792 Effects from the new accounting standards for Biological Assets (41,375) (927,092) Gains (losses) from changes in the fair value minus estimated costs to sell Biological Assets (37,553) (867,083) Depreciation and Amortization (3,822) (60,009) Restated EBT (29,541) (881,300) 29

30 3.10 Net Income (Loss) In the crop year, Biosev reported a net loss of R$600 million, which represents a reduction of 32.1% from the net loss of R$885 million in the previous crop year. In addition to the aforementioned factors, the result in the period was affected by the expense with deferred Income and Social Contribution taxes of R$211 million. This expense was due to: (i) the variation in taxable temporary differences in the period, which are concentrated mainly in unrealized exchange variation and markto-market of derivative operations; coupled with (ii) the non-recognition of deferred tax assets associated with tax losses carryforwards, all of which have economic effects with no impact on cash. In 4Q17, Biosev reported a net loss of R$313 million, which represents a reversal from the net profit reported in 4Q16. In addition to the effects described above, note that the impact from the provision for Income Tax was negative in the amount of R$24 million in the quarter mainly due to the variation in taxable temporary differences in the period. As noted above, in view of the new accounting standards for recognizing biological assets, financial statements for 4Q16 and for the 2015/16 crop year were restated, as shown in the following table: Reconciliation of reported Net Income and restated Net Income (R$ thousand) 4Q /16 Reported Net Income/(loss) 49,663 (272,657) Effects from the new accounting standards for Biological Assets (27,308) (611,881) Gains (losses) from changes in the Fair Value minus estimated costs to sell Biological Assets (37,553) (867,083) Depreciation and Amortization (3,822) (60,009) Income Tax and Social Contribution 14, ,211 Restated Net Income/(loss) 22,355 (884,538) 30

31 4. CAPITAL EXPENDITURE Biosev invested R$1.4 billion during the 2016/17 crop year, or 19.1% more than in the previous crop year. This increase is explained by: (i) (ii) higher expenditures with planting and treatments, reflecting (a) the higher doses of inputs, which is in line with the plan to increase yields described in item , and (b) the expansion in planted area; industrial investments made to increase operational reliability; (iii) higher amount of deferred costs due to the longer intercrop period in 2016/17. Investments in expansion amounted to R$18 million, in line with the Company s strategy to prioritize investments in planting, treatment and industrial/agricultural maintenance. The following table presents a breakdown of capital expenditures: Capex (R$ Thousand) 4Q17 4Q16 % 2016/ /16 % Expansion 1,343 2, % 18,024 17, % Operations 241, , % 947, , % Industrial 50,278 39, % 116,449 67, % Agriculture 1,649 7, % 15,433 20, % Planting 111, , % 393, , % Treatment 75,599 95, % 396, , % Other 2,220 15, % 25,093 33, % Intercrop deferred costs 288, , % 412, , % Total CAPEX 531, , % 1,378,104 1,156, % 31

32 5. INDEBTEDNESS Biosev s gross debt stood at R$6.3 billion at the end of the crop year, down 6.3% from the end of the previous crop year. The main factor driving this reduction in gross debt was the positive impact from exchange variation between periods in the amount of R$541 million. The balance of cash and short-term investments stood at R$1.6 billion at the end of the period, of which 47% was denominated in USD. The variation in cash and short-term investments between crop years is mainly explained by the effects from operating performance discussed throughout this report, which were mainly offset by the lower working capital needs in 2016/17. Adjusted net debt came to R$4.5 billion, an increase of 6.8% from the previous crop year, as shown in the following table: Debt (R$ Million) 2016/ /16 Var. % Gross Debt (6,289) (6,712) -6.3% Short Term (1,944) (1,831) 6.2% Long Term (4,345) (4,881) -11.0% Cash and Short-term Investments 1,590 2, % Net Debt (4,699) (4,473) 5.0% Readily Marketable Inventories % Adjusted Net Debt (4,535) (4,248) 6.8% Net Debt/Adjusted EBITDA 3.3x 2.9x The following charts present a breakdown of debt by index and instrument on March 31, 2017, as well as the cash position by currency. Gross Debt by Instrument and Index (%) Cash and ST Investments by Currency (%) 1.9% 7.4% 21.5% 19.1% 11.4% 0.4% 17.1% 0.2% 10.0% 46.5% 53.5% 38.7% 72.3% BNDES/FCO/FNE Reestructed Debt Export Pre Payment ACC Other NCE USD = 79.4% LIBOR Fixed CDI TJLP Other BRL USD 32

33 The following chart shows our cash position and debt amortization schedule: Cash & Short-term investments and Amortization Schedule (R$ million) 1,590 1,944 1,614 1, Cash and ST Investments 1,573 1,110 1, / / / / /28 BRL USD 33