Fertilizantes Heringer S.A. Quarterly Information (ITR) at March 31, 2017 and report on review of quarterly information

Transcription

1 Fertilizantes Heringer S.A. Quarterly Information (ITR) at March 31, 2017 and report on review of quarterly information

2 Contents Company information Capital composition 1 Quarterly information Balance sheet - assets 2 Balance sheet - liabilities and equity 3 Statement of income 4 Statement of comprehensive income 5 Statement of cash flows 6 Statement of changes in equity 1/1/2017 to 3/31/ /1/2016 to 3/31/ Statement of value added 9 Comments on company performance 10 Notes to the quarterly information 11 Opinions and Representations Report on Review - Without Exceptions 48 Officers' Representation on the Quarterly Information 50 Officers' Representation on the Report on Review 51 2

3 Company information/capital composition Number of shares Current quarter (in thousands) 3/31/2017 Paid-up capital Common shares 53,857,284 Preferred shares 0 Total 53,857,284 Treasury shares Common shares 0 Preferred shares 0 Total 0 3

4 Quarterly Information /Balance Sheet - Assets (R$ thousand) 1 - Code 2 - Description Current quarter 3/31/2017 Prior year 12/31/ Total assets 2,718,760 2,855, Current assets 1,445,945 1,575, Cash and cash equivalents 62,437 64, Receivables 474, , Trade receivables 474, , Inventories 591, , Taxes recoverable 135, , Current taxes recoverable 135, , Taxes recoverable 121, , Income tax and social contribution recoverable 13,078 53, Other current assets 182, , Non-current assets for sale 182, , Other receivables 39,880 38, Derivative financial instruments Bonuses on purchases 5,035 11, Tax credits acquired 137, , Non-current assets 1,272,815 1,279, Long-term receivables 725, , Trade receivables 3, Accounts receivable 3, Deferred taxes 183, , Deferred income tax and social contribution 183, , Other non-current assets 538, , Income tax and social contribution recoverable 201, , Taxes recoverable 265, , Tax credits acquired 30,205 29, Judicial deposits 30,833 30, Other assets 10,180 11, Property, plant and equipment 540, , Property, plant and equipment in use 513, , Construction in progress 27,084 27, Intangible assets 6,813 6, Intangible assets 6,813 6, Intangible assets in use 6,813 6,904 4

5 Quarterly Information/Balance Sheet - Liabilities and Equity (R$ thousand) 1 - Code 2 - Description Current quarter 3/31/2017 Prior year 12/31/ Total liabilities and equity 2,718,760 2,855, Current liabilities 2,213,312 2,344, Social and labor charges 28,122 23, Labor obligations 28,122 23, Trade payables 852, , Domestic suppliers 143, , Foreign suppliers 708, , Tax liabilities 7,268 8, Federal tax liabilities 7,268 8, Taxes payable 7,268 8, Borrowings 929, , Borrowings 929, , Local currency 350, , Foreign currency 579, , Other liabilities 396, , Other 396, , Advances from customers 152, , Other financial instruments 15,030 12, Other payables 48,734 58, Forfait 179, , Non-current liabilities 209, , Borrowings 179, , Borrowings 179, , Local currency 179, , Provisions 29,522 27, Tax, social security, labor, and civil provisions 29,522 27, Provisions for contingencies 29,522 27, Equity 296, , Paid-up capital 585, , Accumulated deficit -330, , Carrying value adjustments 41,252 41,492 5

6 Quarterly Information/Statement of Income (R$ thousand) 1 - Code 2 - Description Current quarter 1/1/2017 to 3/31/2017 Accumulated - prior year 1/1/2016 to 3/31/ Gross Sales/services revenue 1,006,327 1,314, Cost of Sales - goods and services -880,827-1,189, Gross profit 125, , Operating expenses -94, , Selling -70,732-78, General and administrative -23,716-22, Other operating income 1,500 2, Other operating expenses -1,251-3, Profit before finance result and taxes 31,301 23, Finance result -21,925-23, Finance income 38,338 42, Finance income 38,338 42, Finance costs -60,263-65, Financial expenses -104, , Foreign exchange variation, net 44, , Profit before taxes on net income 9, Income tax and social contribution on net income -2, Current -2,445-30, Deferred 60 31, Net results from continuing operations 6,991 1, Profit for the period 6,991 1, Earnings per share - (reais / share) Basic earnings per share Common shares

7 Quarterly Information/Statement of Comprehensive Income (R$ thousand) Current quarter 1/1/2017 to 3/31/2017 Accumulated - prior year 1/1/2016 to 3/31/ Code 2 - Description 4.01 Profit for the period 6,991 1, Comprehensive income for the period 6,991 1,542 7

8 Quarterly Information/Statement of Cash Flows - Indirect Method (R$ thousand) 1 - Code 2 - Description Accumulated - current year 1/1/2017 to 3/31/2017 Accumulated - prior year 1/1/2016 to 3/31/ Net cash used in operating activities -65, , Cash flow from operating activities 46, , Profit before taxation 9, Provision for impairment of trade receivables Provision (reversal) for adjustment of inventories to market value 2,648 4, Depreciation 13,397 12, Amortization - intangible assets Gains on disposal of property, plant and equipment Reversal of losses on assets for sale Reversal of provision for negative goodwill of taxes recoverable Unearned interest on debentures 0 3, Provision for vacation pay, 13th month salary and profit sharing 2,736 2, Provision (reversal of) for contingencies, net 1,992-1, Interest and financial charges - non-current assets -1, Unearned interest and foreign exchange variations - current assets and liabilities 15, , Unrealized swaps 2, , Changes in assets and liabilities -84, , Trade receivables -9,277-78, Inventories 109, , Taxes recoverable 16,899-51, Other assets 86-4, Judicial deposits Purchase bonuses 7,082 10, Recovery of tax credits, court-order debts and court deposits 0 1, Trade payables -122,611 59, Forfait -9,300-54, New import financing 348, , Repayment of principal - import financing -353, , Salaries and charges 1,529-1, Taxes payable -1,442 31, Advances from customers -62, Other liabilities -9,449-7, Others -28,255-39, Payment of interest on borrowings -28,255-39, Net cash provided by (used in) investing activities -2,757 1, Purchase of property, plant and equipment -4,109-3, Proceeds from disposal of property, plant and equipment 1,352 4, Net cash provided by financing activities 66, , New borrowings 588, , Repayment of principal of borrowings -521, , Decrease in cash and cash equivalents -2,113-5, Cash and cash equivalents at the beginning of the period 64,550 69, Cash and cash equivalents at the end of the period 62,437 64,297 8

9 Quarterly information (ITR) - 3/31/ FERTILIZANTES HERINGER SA (Unaudited) Version: 1 Quarterly Information/Statement of Changes in Equity / 1/1/2017 to 3/31/2017 (R$ thousand) 1 - Code 2 - Description Capital reserves, options granted, and treasury shares Retained earnings/ accumulated deficit Other comprehensive income Revenue Paid-up capital reserves Equity 5.01 Opening balances 585, ,803 41, , Adjusted opening balances 585, ,803 41, , Total comprehensive income , , Profit for the period , , Internal changes in equity Taxes on realization of revaluation reserve Closing balances 585, ,573 41, ,197 9

10 Quarterly Information/Statement of Changes in Equity / 1/1/2016 to 3/31/2016 (R$ thousand) 1 - Code 2 - Description Capital reserves, options granted, and treasury shares Retained earnings/ accumulated deficit Other comprehensive income Revenue Paid-up capital reserves Equity 5.01 Opening balances 585, ,960 42, , Adjusted opening balances 585, ,960 42, , Total comprehensive income , , Profit for the period , , Internal changes in equity Taxes on realization of revaluation reserve Closing balances 585, ,178 42, ,556 10

11 Quarterly Information/Statement of Value Added (R$ thousand) 1 - Code 2 - Description Accumulated - current year 1/1/2017 to 3/31/2017 Accumulated - prior year 1/1/2016 to 3/31/ Revenue 1,020,922 1,335, Sales of goods, products and services 1,018,673 1,329, Other revenues 1,398 1, Revenues from the construction of own assets 1,498 4, Provision (reversal) for impairment of trade receivables Inputs acquired from third parties -967,514-1,289, Cost of sales - products, goods and services -876,357-1,188, Materials, energy, third-party and other services -88,724-97, Loss/recovery of asset amounts -2,379-2, Other Gross value added 53,408 46, Retentions -13,489-13, Depreciation, amortization and depletion -13,489-13, Net value added generated 39,919 33, Value added received in transfer 107, , Finance income 107, , Other Total value added to be distributed 147, , Distribution of value added 147, , Personnel 45,292 44, Direct compensation 32,940 32, Benefits 10,191 9, Government Severance Indemnity Fund for Employees (FGTS) 2,161 2, Taxes and contributions -28,404-28, Federal -8,514-3, State -20,443-25, Municipal Remuneration of third-party capital 123, , Interest 117, , Rental 2,611 2, Other 3,190 4, Remuneration of own capital 6,991 1, Retained earnings for the period 6,991 1,542 11

12 Viana, May 5, 2017 Fertilizantes Heringer (Bovespa: FHER3) announces today its results for the first quarter of 2017 (1Q17). 1Q17 Conference Call - May 8, 2017 Portuguese 11:00 a.m. BR (10:00 a.m. U.S. ET) Phone: +55 (11) / Code: Heringer English 11:00 a.m. BR (10:00 a.m. U.S. ET) Phone: +1 (516) Code: Heringer Replay for one week: +55 (11) Password: Replay for one week: +55 (11) Password: Investor Relations Phone: +55 (19) ri@heringer.com.br 1Q17 HIGHLIGHTS Delivery volume totaled 856 thousand metric tons of fertilizers in 1Q17, 12.5% lower than the 978 thousand metric tons in 1Q16; Net revenue came to R$1,006.3 million in 1Q17, 23.4% lower than R$1,314.5 million recorded in 1Q16; EBITDA stood at R$44.8 million in 1Q17, 21.7% higher than the R$36.8 million recorded in 1Q16; Net income totaled R$7.0 million in 1Q17, higher than the R$1.5 million recorded in 1Q16. 12

13 BRAZILIAN FERTILIZER MARKET According to the National Fertilizer Association (ANDA), fertilizer deliveries in Brazil totaled 6.4 million metric tons in 1Q17, 3.5% higher than in 1Q16, reaching a new period record of 6,418 thousand metric tons. On the other hand, total nutrients (NPK) delivered decreased by 0.3%, due to the reduction in the average formula delivered to the market. Given the year-over-year lower advance purchase of fertilizers for soybean and higher deliveries for the second corn crop in December 2016, the market fell by 3.2% in March compared to the same period last year. Deliveries of nitrogen fertilizers, in nutrients, fell by 1.1% in 1Q17, reaching 1,149 thousand metric tons, compared to 1,162 thousand metric tons in 1Q16, thanks to early deliveries at the close of 2016, especially for second corn crop and coffee. Deliveries of phosphate fertilizers moved up by 4.1% in 1Q17, reaching 727 thousand metric tons. It is worth noting the higher demand for phosphorus in the formulas for second corn crop and sugarcane planting. Deliveries of potassium fertilizers fell by 2.7% in 1Q17, reaching 860 thousand metric tons, thanks to early deliveries at the close of 2016 in order to meet the demands for second corn crop and coffee planting. The State of Mato Grosso, Brazil s leader in the volume of deliveries in the period, accounted for 1,378 thousand metric tons (21.5%), followed by São Paulo, with 894 thousand metric tons (13.9%), Minas Gerais, with 864 thousand metric tons (13.5%), Goiás, with 806 thousand metric tons (12.6%), and Paraná, with 764 thousand metric tons (11.9%). Domestic production in the first three months of 2017 totaled 1,936 thousand metric tons, compared to 2,056 thousand metric tons in 1Q16, a reduction of 5.8%. The production of nitrogen fertilizers decreased by 29.4% and phosphate fertilizers and potassium fertilizers increased by 2.2% and 8.6%, respectively. Fertilizer imports reached 5,486 thousand metric tons in 1Q17, an increase of 30.9% over 1Q16. Nitrogen fertilizer imports grew significantly by 26.1%, as well as phosphate fertilizers (56.2%) and potassium fertilizers (22.9%). At the port of Paranaguá, the main fertilizer entry port, 2,269 thousand metric tons were imported, i.e % more than in 1Q16 (41% of the total imported by all ports). 13

14 BRAZILIAN FERTILIZER MARKET DELIVERIES Source: Anda BRAZILIAN FERTILIZER MARKET DOMESTIC PRODUCTION Source: Anda BRAZILIAN FERTILIZER MARKET IMPORTS Source: Anda 14

15 DELIVERIES BY CROP HERINGER While the market grew by 3.5% in 1Q17, Heringer delivered 856 thousand metric tons, 12.5% less than the 978 thousand metric tons delivered in 1Q16. The decline in the Company s deliveries was concentrated in the corn crop (-23% over 1Q16). Deliveries for coffee and other crops also fell by 11% and 9%, respectively, over 1Q16. Deliveries for sugarcane moved up by 15% over 1Q16, due to the good moment for the crop in the period. Heringer has a more diversified profile of deliveries by crop when compared to the Brazilian market, minimizing the volatility associated with the local climate and other specific conditions related to prices, pests and diseases. DELIVERIES BY CROP 15

16 SPECIALTY PRODUCTS Specialty products are fertilizers that are mostly produced exclusively by Heringer and whose agronomic characteristics are superior to market standards. They currently meet the nutritional needs of all crops. In 1Q17, the delivery of specialty products totaled 417 thousand metric tons, 12.8% down from the 478 metric tons recorded in 1Q16. The Company s delivery of specialty products CAGR (Compound Annual Growth Rate) was 12.6% between 2007 and The share of specialty products in the Company s total deliveries was 49% in 1Q17, in line with 1Q16. Heringer continues to invest in R&D to develop new technologies and products that can be added to its three specialty product lines: Solo (especially FH Humics, FH Micro total and FH Nitro Mais ), Ferti and Foliar. It has one of the largest such portfolios in the market, most of which developed using proprietary technology. 16

17 AGRICULTURAL COMMODITIES AND BARTER RATIOS (AGRICULTURAL PRODUCTS FOR FERTILIZERS) The barter ratio (agricultural products vs. fertilizers) for soybean and corn deteriorated in 1Q17, due to a slight increase in the price of certain fertilizer raw materials. Source: Agroconsult/sc* = bags INTERNATIONAL RAW MATERIAL PRICES Phosphate and potassium fertilizer prices increased quarter-over-quarter, as shown below: 17

18 BRAZILIAN FERTILIZER MARKET AND SEASONALITY The Company expects the average seasonality observed in Brazil s fertilizer market in recent years to continue in 2017, with 39% of deliveries taking place in the first half and 61% in the second. Heringer estimates that the Brazilian fertilizer market will grow by 1% in 2017, reaching 34.5 million metric tons delivered. Source: Anda / 2017E Heringer Estimate GRAIN PRODUCTION AND PLANTED AREA According to Agroconsult, the 2016/2017 Brazilian grain crop should total million metric tons (a record grain production in Brazil), with planted area of 60.0 million hectares and a yield of 3.80 t/ha. Grain: corn, soybean, rice, beans, sorghum, castor bean, cotton, sunflower, barley, rye, canola, oat, peanut, wheat and triticale Total Brazil (all crops) Source: CONAB 18

19 FINANCIAL RESULTS 1Q17 INCOME STATEMENT Delivery volume totaled 856 thousand metric tons in 1Q17, 12.5% down from 978 thousand metric tons in 1Q16, and the diversification of deliveries by crop was maintained in both periods. Net revenue came to R$1,006.3 million in 1Q17, 23.4% less than the R$1,314.5 million reported in 1Q16. It is worth noting that the average fertilizer price was R$1,176 per metric ton in 1Q17, versus R$1,344 per metric ton in 1Q16, a decrease of 12.5% year over year. Gross profit amounted to R$125.5 million in 1Q17, in line with the R$125.3 million reported in 1Q16, while the gross margin stood at 12.5%, higher than the 1Q16 figure of 9.5%. Freight and commissions totaled R$48.7 million in 1Q17, corresponding to 4.8% of net revenue, versus R$57.5 million in 1Q16, or 4.4% of net revenue. SG&A expenses (excluding freight and commissions) came to R$45.7 million in 1Q17, 5.5% higher compared to expenses of R$43.3 million in 1Q16, representing 4.5% of net revenue. EBITDA stood at R$44.8 million in 1Q17, with a margin of 4.5% of net revenue, 4.5% up from R$36.8 million in 1Q16, with a margin of 2.8%. The 1Q17 net financial result was an expense of R$21.9 million, lower than the R$23.0 million net expense recorded in 1Q16. This line comprises net interest, discounts granted and expenses related to adjustment to present value, among others, totaling a negative R$36.0 million, a positive exchange variation of R$44.6 million and expenses with hedge operations amounting to R$30.5 million. Net income totaled R$7.0 million in 1Q17, higher than the R$1.5 million recorded in 1Q16; 19

20 Heringer manages its financial risks using hedges in order to mitigate the impact of foreign exchange risk on its dollar-denominated liabilities arising from raw material imports. On March 31, 2017, Heringer s total hedge position formed through NDFs and swaps came to US$126.0 million (NDFs of US$32.7 million, with a weighted average rate of R$3.30 and swaps of US$93.3 million, with a weighted average rate of R$3.32). Despite the continuation of the temporary stoppage of the SSP and sulfuric acid units, their maintenance is at adequate levels. The adjustment to the provision for labor lawsuits in 1Q17 led to a year-over-year reduction in EBITDA of the SSP production unit. Regarding the public civil lawsuit of Paranaguá - PR, the evidentiary stage has been concluded and the case is pending a decision by the judge of first instance. WORKING CAPITAL MANAGEMENT Heringer s working capital reflects the seasonality of its business. Therefore, comparisons with the same quarters in the previous year provide a clearer understanding of its business model. Heringer maintains a working capital policy designed to maintain operations with a cash position that is appropriate for its needs. It also maintains a strict credit policy in order to keep accounts receivable periods as low as possible through short-term sales, wide spread clients and effective credit analysis, thereby reducing the risk of default and losses. Therefore, accounts receivable days stood at 42 days in 1Q17, in line with 1Q16. Inventory days stood at 45 days in 1Q17, slightly higher than the 40 days in 1Q16. Through synergies between the commercial, supply and logistics areas, Heringer seeks to maintain an adequate level of inventories to meet its clients needs in a timely manner and with quality. Accounts payable days, including import financing operations (FINIMP), closed 1Q17 at 146 days, versus 139 days in 1Q16. Heringer finances its working capital by drawing on credit lines from banks and local and international suppliers, in order to manage its cash flow effectively. 20

21 CASH FLOW Heringer s cash and cash equivalents closed 1Q17 at R$62.4 million. The main items leading to this difference were: a) Income before income and social contribution taxes of R$9.4 million; b) Non-cash revenues of R$37.2 million, basically comprising exchange variation, unrealized interest, amortization and depreciation; c) Net decrease of R$123.6 million in asset accounts, basically in inventory reduction; d) Net reduction of R$236.1 million in liability accounts, whose amounts are concentrated in the settlement of suppliers; e) Net investments of R$2.8 million; f) Positive net cash flow from financing activities of R$66.6 million. 1Q17 4Q16 Income before tax and social contribution 9,376 76,648 Expenses (revenues) with no cash effect 37,179 85,113 Reduction / (Increase) in asset accounts 123,603 35,884 (Reduction) / Increase in liability accounts (236,154) (108,652) Cash flow from operating activities (65,996) 88,993 Cash flow from investment activities (2,757) (2,084) Free cash flow (68,753) 86,909 Cash flow form financing activities 66,640 (116,771) (2,113) (29,862) Statement of Cash Position Opening Cash Balance 64,550 94,412 Closing Cash Balance 62,437 64,550 Cash Variation in the period (2,113) (29,862) 21

22 HERINGER OWNERSHIP BREAKDOWN Heringer is currently the only fertilizer company listed on the São Paulo Securities, Commodities and Futures Exchange (BM&FBOVESPA), which makes it an attractive investment opportunity. Heringer s shares have been listed in the Novo Mercado, the BM&FBOVESPA s highest corporate governance trading segment, since April 2007 under the ticker FHER3. Some of Heringer s solid fundamentals are: growth potential in a rising market, geographically evenly distributed sales nationwide, strategic partnerships with fertilizer raw material production players, diversified client base, effective logistics and distribution infrastructure, highly recognized brand, broad portfolio of specialty products and solid management. Due to delivery seasonality, the Company s business model should be analyzed on an annual basis. 22

23 APPENDIX I BALANCE SHEET 23

24 APPENDIX II 1Q17 INCOME STATEMENT 24

25 EBITDA (earnings before interest, tax, depreciation and amortization) is presented as additional information, given our belief that it is an important indicator of our operating performance, as well as useful for comparing our performance with that of other companies in the sector. However, no single figure should be considered a substitute for net income calculated in accordance with Brazilian Corporate Law (BR GAAP) or even as a measure of Heringer s profitability. Moreover, our calculations may not be comparable with similar measures adopted by other companies in the sector. We make forward-looking statements about future events that are subject to risks and uncertainties. These forward-looking statements are based on the beliefs and assumptions of Heringer s management and on information currently available. Forward-looking statements include information about our current plans, beliefs or expectations, as well as those of Heringer's Board of Directors and Executive Officers. The reservations related to forward-looking statements and information also include information on possible or presumed operating results, as well as any statements preceded, followed or including words, such as «believe», «may», «will», «expect», «intend», «plan», «estimate» or similar expressions. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they refer to future events and, therefore, depend on circumstances that may or may not occur. Future results and value creation for shareholders may differ materially from those expressed or suggested by said forward-looking statements. Many factors that may determine these results and figures are beyond Heringer s control or ability to predict. 25

26 1. General information Fertilizantes Heringer S.A. ("Heringer" or "Company"), headquartered in the city of Viana, in the State of Espírito Santo, is mainly engaged in industrial production and sale of fertilizers. The Company currently owns 19 mixing units distributed over the Southeastern, Mid-Western, Southern and Northeastern regions of Brazil, as well as two sales offices located in the States of Bahia and Goiás. In the state of Paraná, in addition to the mixing unit mentioned above, the Company also has a sulfuric acid production unit and a single super phosphate ("SSP") production unit. Common shares issued by the Company are traded in the special segment of the São Paulo Futures, Commodities and Securities Exchange - BM&FBOVESPA named Novo Mercado (New Market), under ticker symbol FHER3. Approval of the financial statements The presentation of the quarterly information was approved and authorized by the Company's Board of Directors on May 4, 2017, for disclosure on May 5, Accounting policies 2.1. Basis of preparation The Quarterly Information (ITR) has been prepared in accordance with accounting practices adopted in Brazil, including the standards issued by the Brazilian Securities Commission (CVM) and the pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC), as well as according to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and disclose all (and only) the applicable significant information related to the financial statements, which is consistent with the information utilized by management in the performance of its duties. Going concern With the forecast of a growth in Brazil's GDP of about 0.50% in 2017, the Company expects an actual increase of its turnover, in all its revenues. With the cuts in expenses already made in 2016, the effects of which will be felt in 2017, the Company hopes to achieve an operational result higher than those previously achieved, and a higher level of efficiency. Also, as implemented in 2016, the CAPEX volume is expected to remain low and without affecting the Company's operations. In addition, with the improvement of the political and local economic scenario and the known expected volume for the 2017/18 harvest, the Company should continue to generate resources for the reduction of the level of indebtedness, establishing a more profitable growth for the subsequent years Summary of significant accounting practices The accounting practices adopted in the preparation of this quarterly information are consistent with those disclosed in Note 2.2 to the financial statements at December 31,

27 The Company adopted all standards, amendments to standards and interpretations issued by the CPC, CVM, IASB and other regulatory agencies, that were effective. Standards, amendments and interpretations to standards In the quarter ended March 31, 2017, no new standards, amendments and interpretations to standards were issued in addition to those already disclosed in Note 2.3 to the Company's financial statements for the year ended December 31, Furthermore, there were no changes in relation to the estimated impacts disclosed in those financial statements that could affect the quarterly information for this period. 3. Cash and cash equivalents The Company considers cash equivalents as short-term investments readily convertible into a known amount of cash and subject to insignificant risk of change in value. They are held by the Company with the purpose of meeting short-term cash commitments rather than for investment or any other purposes, and refer to investments in Bank Deposit Certificates (CDB) and repurchase agreements (operations subject to a repurchase agreement by the financial institution), redeemable within 90 days from the investment date. Average rate March 31, 2017 December 31, 2016 Cash - bank current account 53,213 54,852 Financial investments Bank Deposit Certificates (CDB) (i) 99.0% of CDI 8,324 2,633 Debentures - repurchase agreements (ii) 99.4 % of CDI 900 7,065 62,437 64,550 (i) These are represented by Interbank Deposit (DI) fund quotes. These investments were contracted with prime financial institutions and are remunerated based on percentages of variation in the Interbank Deposit Certificate (CDI) rates, with immediate liquidity. (ii) They refer to transactions with prime financial institutions, with immediate liquidity, and repurchase agreements of the financial institutions. 4. Trade receivables Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method, less provision for impairment of trade receivables. 27

28 The provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due from customers. Impairment testing is based on an individual analysis of delinquent customers, taking into consideration their ability to pay, the collateral provided and the evaluation of legal advisors and collection companies. March 31, 2017 December 31, 2016 Domestic trade receivables 516, ,511 Foreign trade receivables 203 1,284 Adjustment to present value (4,645) (6,744) 512, ,051 Provision for impairment of trade receivables (34,649) (33,983) 477, ,068 Current (474,542) (466,987) Non-current 3, At March 31, 2017 and December 31, 2016, the adjustment to present value was calculated based on all sales with a collection term of more than 30 days, with nominal interest of 1.80% per month (1.80% at December 31, 2016), using discounted cash flows. The reversal of the adjustment to present value is recorded in the statement of income for the year under "Finance income". The balances of foreign trade receivables are denominated in U.S. dollars. At March 31, 2017 and December 31, 2016, none of the Company's customers represented more than 10% of the Company's total revenue or balances receivable. At March 31, 2017, trade receivables of R$ 97,914 (December 31, R$ 96,063) were past due. The Company did not record a provision for impairment of trade receivables, since these amounts refer to a number of independent customers who have no recent history of default, with no expected losses thereon, or for which the Company holds real guarantees. The ageing analysis of these trade receivables is as follows: March 31, 2017 December 31, 2016 Up to 3 months 21,550 24,592 3 to 6 months 10,125 7,505 Over 6 months 66,239 63,966 97,914 96,063 At March 31, 2017, the Company has a provision for impairment of trade receivables amounting to R$ 34,649 (R$ 33,983 at December 31, 2016), whose maturity analysis is as follows: 28

29 March 31, 2017 December 31, 2016 Up to six months Over 6 months 34,476 33,601 34,649 33,983 During the quarters ended March 31, 2017 and 2016, changes in the provision for impairment of trade receivables were as follows: Quarter ended 3/31/2017 Quarter ended 3/31/2016 Opening balance 33,983 39,264 Constitution (reversal) of provision (i) 666 (194) Closing balance 34,649 39,070 (i) They are recorded in the statement of income for the period under "Selling expenses". The maximum exposure to credit risk at the balance sheet date is the carrying value of each class of receivable mentioned above. 5. Inventories Inventories are stated at the lower of cost and net realizable value. Costs incurred to transfer each product to its current location and condition are accounted for as follows: (i) raw material and packaging materialsaverage cost of purchase, using the weighted moving average method; and (ii) the cost of finished products and work in process comprises raw materials, direct labor, other direct costs and related general production expenses, always based on the normal operating capacity. Imports in transit are stated at the accumulated cost of each import. March 31, 2017 December 31, 2016 Raw and packaging materials 492, ,231 Imports in transit 70, ,332 Advances to suppliers 17,893 3,717 Warehouse 12,614 12,790 Provision for inventory losses (2,648) - Provision for adjustment to market value (i) - (1,690) 591, ,380 (i) This provision refers to raw material residues, whose average inventory cost was higher than replacement cost or realizable values. At March 31, 2017, certain inventory items, representing 11% of the account, were provided as guarantee for operations with suppliers (9% at December 31, 2016). 29

30 6. Taxes recoverable March 31, 2017 December 31, 2016 Social Contribution on Revenues (COFINS) (i) 233, ,919 Value-added Tax on Sales and Services - (ICMS) (ii) 95,584 89,724 Social Integration Program (PIS) (i) 57,078 55,424 Withholding Income Tax (IRRF) on financial instruments 1,501 2,372 Other , ,604 Current (121,943) (101,341) Non-current (iii) 265, ,263 (i) They will be recovered partially through the Company's transactions and partially through reimbursement requests, for the total original amount of R$ 270,538, filed in the Federal Revenue Secretariat of Brazil between August 2009 and March 2017, as well as via request for offsetting with other taxes administered by the Brazilian Federal Revenue Service. (ii) They will be used in the acquisition of property, plant and equipment and inputs for production, in addition to being used in the normal operations of the Company. At March 31, 2017, the Company had approval to transfer credits with the São Paulo state authority amounting to R$ 1,311 and with the Minas Gerais state authority amounting to R$ 25,529, and awaits approval to transfer credits with São Paulo state authorities amounting to R$ 15,115. (iii) This refers substantially to PIS and COFINS credits, which should be realized between 2018 and Income tax and social contribution Current tax assets and liabilities for the period and prior years are measured at the expected amount recoverable from or payable to the tax authorities. The tax rates and tax laws used to calculate the amount are those enacted or substantively enacted at the end of the reporting period. Current income tax and social contribution related to items recognized directly in equity are recognized in equity. Management periodically assesses the tax position of situations in which tax regulation requires interpretation, and records provisions therefor when appropriate. There are uncertainties related to the interpretation of complex tax regulations and to the amount and period of future taxable profits. Considering the non-current nature and the complexity of the existing contractual instruments, any differences between actual results and assumptions adopted, or future changes in these assumptions, could require future adjustments to the tax credits and expenses already recognized. The Company, based on applicable estimates, records provisions for possible tax assessment notices resulting from inspections by tax authorities from the respective jurisdictions where it operates. The amount of these provisions is based on various factors, such as past tax audits and different interpretations of tax regulations by the taxable entity and by the relevant tax authority. These different interpretations may arise in a wide variety of matters, depending on the conditions prevailing in the respective domicile of the companies included in the financial statements. 30

31 Deferred income tax and social contribution ("deferred taxes") are recognized on temporary differences at every period end, between the balance of assets and liabilities recognized in the financial statements and the related tax bases used to determine taxable profit, as well as on the balance of income tax and social contribution losses, if applicable. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are recognized for all deductible temporary differences only if it is probable that the Company will have sufficient future taxable income against which such deductible temporary differences can be utilized. Deferred tax assets and liabilities are measured at the tax rate expected to be applied in the year in which the asset or liability will be realized or settled, based on the tax rates (and tax law) in force at the balance sheet date. Recovery of deferred tax assets is reviewed at each period end, and the balance is adjusted to the amount expected to be recovered. Deferred tax assets are recognized for all unused tax losses to the extent that taxable profit will likely be available to allow the use of such losses. Significant judgment by management is required to determine the amount of deferred tax assets that can be recognized based on the probable timing and level of future taxable income, together with future tax planning strategies. Current and deferred income tax and social contribution are recognized as income or expense in the profit or loss for the year, except when referring to items recorded in other comprehensive income (loss), as applicable. (a) Composition of income tax and social contribution recoverable March 31, 2017 December 31, 2016 Income tax recoverable 188, ,101 Social contribution recoverable 26,262 24, , ,586 Current (13,078) (53,046) Non-current 201, ,540 They will be recovered partially through refund requests, for the total original amount of R$ 97,345, as adjusted at the Special System for Settlement and Custody (SELIC) rate, filed in the Brazilian Federal Revenue Service between August 2009 and March 2017, as well as via request for offsetting with other taxes administered by the Brazilian Federal Revenue Service. On January 24, 2017, the Federal Government deposited R$ 41.5 million related to a portion of the refund requests. 31

32 (b) Composition of deferred income tax and social contribution The balances of deferred tax assets and liabilities and December 31, 2016 were as follows: March 31, 2017 December 31, 2016 Assets: Income tax and social contribution losses 189, ,107 Temporary differences: Provision for sales commissions 3,762 3,979 Amortized goodwill of merged holding company - 7 Provision for contingencies 10,037 9,360 Provision for impairment of trade receivables 3,363 3,462 Adjustment to present value 2,525 3,408 Provision for losses on inventories and adjustment to market value Provision for losses on realization of assets held for sale Unrealized loss on derivative financial instruments 5,110 4,178 Other temporary differences 1,270 1, , ,729 Liabilities: Unrealized gains on derivative financial instruments (107) (75) Adjustment to present value (2,925) (3,656) Property, plant and equipment - deemed cost (i) (26,116) (26,282) Other (4,238) (4,067) (33,386) (34,080) Net 183, ,649 (i) Deferred taxes calculated based on deemed cost of property, plant and equipment, arising from the accounting of its fair value at initial adoption of CPC 27. Based on a technical study, the Company expects to recover all tax credits in the following years: Year , , , , , , ,095 As the income tax and social contribution taxable bases arise not only from the profit that may be generated, but also from the existence of non-taxable income, non-deductible expenses, tax incentives and other variables, there is no immediate correlation between the Company's profit and the income subject to income tax and social contribution. Therefore, the expectation of the offset of deferred tax assets should not be used as the only indicator of the future profitability of the Company's operations. 32

33 (c) Reconciliation of Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) income (expenses) Quarter ended 3/31/2017 Quarter ended 3/31/2016 Profit before income tax and social contribution 9, Statutory tax rates 34% 34% Income tax and social contribution at the nominal rates (3,188) (206) Effects of permanent deductions in the calculation of taxes: Tax benefits and grants 928 1,329 Other (125) (186) (2,385) 937 Income tax and social contribution in the result for the quarters: Current (2,445) (30,449) Deferred 60 31,386 (2,385) 937 Effective tax rates 25% (155%) (d) Changes in deferred tax assets and liabilities Assets Liabilities Net At January 1, ,095 (43,907) 182,188 Deferred taxes on realization of deemed cost of property, plant and equipment resulting from the depreciation of these assets Tax effect on changes in temporary differences 35,302 9,237 44,539 Tax effect on income tax and social contribution losses generated in the period (13,320) - (13,320) At March 31, ,077 (34,504) 213,573 At January 1, ,729 (34,080) 183,649 Deferred taxes on realization of deemed cost of property, plant and equipment resulting from the depreciation of these assets Tax effect on changes in temporary differences ,090 Tax effect on income tax and social contribution losses generated in the period (1,196) - (1,196) At March 31, ,095 (33,386) 183,709 33

34 8. Derivative financial instruments The amounts of derivative financial instruments, represented by Non-deliverable forwards (NDFs) and swap contracts, can be summarized as follows: Notional amount Fair value, net Instrument curve Gains (losses) in the period 3/31/ /31/2016 3/31/ /31/2016 3/31/ /31/2016 3/31/2017 3/31/2016 Net position 399, ,852 (14,717) (12,065) (13,578) (9,143) (30,491) (157,237) Gains and losses on transactions involving derivatives are recognized monthly in the statement of income, based on the fair value of these instruments. (a) Description of contracts At March 31, 2017, the Company had derivative swap contracts in the total notional amount of R$ 295,571 (R$ 440,852 at December 31, 2016), for the purpose of reducing the effects of foreign exchange rate changes on its liabilities denominated in foreign currency. The Company has the right to receive the effects of foreign exchange variation of U.S. dollars less interest of 1.36% p.a. and is liable for the payment of 100% of the CDI rate. The Company had derivative NDF contracts in the total notional amount of R$ 103,689, with the forward exchange rate of R$ 3.30 for each USD 1.00, for the purpose of reducing the effects of foreign exchange rate changes on its liabilities denominated in foreign currency. 34

35 (b) Maturities of swaps and NDFs At March 31, 2017, the derivative contracts described above have the following maturity dates: USD Real One month 18,499 58,612 One to two months 28,973 91,798 3 to 4 months 56, ,078 5 to 6 months 22,021 69, , , Related parties Fertilizantes Heringer S.A. is controlled by Heringer Participações Ltda., which holds 51.48% of the Company shares; OCP International Coöperatieve U.A. (OCP) holds 10% of the shares, PCS Sales (Canada) INC. (PCS) holds 9.5% of the shares and the remaining 29.02% are held by several investors, and no single investor holds more than 5% of the shares. (a) Transactions and balances The transactions realized between the Company and its related parties and their subsidiaries consist of commercial transactions, including the lease of a property and other operations, and can be summarized as follows: March 31, 2017 December 31, 2016 Assets Trade receivables (i) Dalton Dias Heringer Other receivables Dalton Dias Heringer (iii) 6 - PCS (ii) - 1,660 OCP (ii) 2,436 2,430 JFC V-Jorf Fert. Company(ii) 2,232 1,709 Canpotex Limited(ii) ,925 6,050 4,955 6,138 (i) (ii) (iii) They arise from products sold, as performed in the normal course of the Company's business, and are recorded in trade receivables in the balance sheet. They arise from performance bonuses, according to the supply contract entered into by the parties, and are recorded in purchase bonuses in the balance sheet. They arise from used agricultural implements (manual cultivator) sold, as received from a customer as payment in kind, in the normal course of business, and are recorded in other assets in the balance sheet. 35

36 March 31, 2017 December 31, 2016 Liabilities Trade payables (i) OCP 67, ,742 JFC V-Jorf Fert. Company 75,151 51,536 Canpotex Limited 198, , , ,296 Loans (ii) Dalton Dias Heringer 30,732 29,665 Dalton Carlos Heringer 6,132 5,919 Juliana Heringer Rezende 5,268 5,085 Eny de Miranda Heringer 6,146 5,933 48,278 46, , ,898 (i) They arise from purchase of inputs, as performed in the normal course of the Company's business, and are recorded in trade payables in the balance sheet. (ii) Loans payable to related parties are recorded in borrowings in the balance sheet. 36

37 Quarter ended 3/31/2017 Quarter ended 3/31/2016 Results of operations Sales revenue Dalton Dias Heringer (i) Paulo de Araujo Rodrigues 4 1 OCP (ii) Cost of sales Dalton Dias Heringer (i) (894) (116) OCP (ii) (2) -) Paulo de Araujo Rodrigues (3) - (899) (116) Operating expenses and income General and administrative Claudia Povoa Miranda Brissolla EPP Other operating income OCP (iii) JFC V-Jorf Fert.Company (iii) Dalton Dias Heringer Finance costs Interest on loans 1, , Purchases PCS - 28,085 OCP 35,966 57,075 JFC V-Jorf Fert.Company 41,066 4,519 Canpotex Limited 33,130 37,612 Claudia Povoa Miranda Brissolla EPP - 33 Dalton Dias Heringer - 46 (i) These arise from sale of byproducts originated in the production process. (ii) Raw material consumed in the period. (iii) Bonus for performance. 110, ,370 37

38 Sales and purchases with related parties are carried out under normal market prices and conditions. Outstanding balances at the end of the period have no guarantees and are paid in cash. There were guarantees in relation to accounts payable involving related parties (Note 10). In the first quarter of 2015, the Company entered into, with the current stockholders OCP and PCS, contracts for the purchase of phosphate and potassium fertilizers, respectively, with term of 10 years (renewable for another 5 years). The contract entered into with OCP establishes the minimum volume of 320 thousand metric tons per year. In December 2016, the Company approved the amendment to the Contract with Canpotex (a subsidiary of PCS), through which the Company and Canpotex agree to certain terms of payment for the supply of products and determine compensatory interest. The Company also approved the execution of a Contract with the OCP, through which the Company gets a credit facility, related to the commercial contract for the supply of phosphate fertilizers as well as determines compensatory interest. For these contracts, there are guarantees in relation to accounts payable involving related parties (Note 10). (b) Related-party remuneration At the quarters ended March 31, 2017 and 2016, the total related-party (management) remuneration was as follows: Quarter ended 3/31/2017 Quarter ended 3/31/2016 Salaries and social charges 1,081 1,010 Management fees Private pension plan Other ,900 1,803 38

39 10. Property, plant and equipment Property, plant and equipment are stated at cost, net of accumulated depreciation and/or accumulated losses due to impairment, if applicable. This cost includes the cost of replacing items of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. Depreciation is calculated on the straight-line method, in accordance with the rates disclosed below. Land is not depreciated. Depreciation rates - % per year Weighted Nominal average Buildings and construction 1.5 to Machinery, equipment and industrial facilities 4 to Other 10 to A property, plant and equipment item is derecognized upon disposal or when no future economic benefit is expected from its use or sale. Any gain or loss arising from derecognition of an asset (measured as the difference between the net selling price and the carrying amount of the asset) is recognized in the statement of income when the asset is derecognized. Net book value and useful lives of assets as well as the depreciation methods are reviewed at year end, and adjusted prospectively, when applicable. In the quarter ended March 31, 2017, acquisitions of property, plant and equipment totaled R$ 1,649 (R$ 7,560 at March 31, 2016) with ICMS tax credits. Certain PPE items, amounting to R$ 230,698 (R$ 231,843 at December 31, 2016), were pledged as collateral in transactions with suppliers, including related parties, and for financing transactions. 39