Terra Santa Agro S.A.

Transcription

1 Terra Santa Agro S.A. (formerly Vanguarda Agro S.A.) at June 30, 2017 (A free translation of the original report in Portuguese, as filled with the Brazilian Securities Commission (CVM), prepared in accordance with the Technical Pronouncement CPC 21 (R1) - Interim Financial Reporting and the international standard IAS 34 - Interim Financial Reporting, as issued by the international Accounting Standards Board - IASB) KPDS

2 Contents Message from management 3 Independent auditors report on the interim financial information 6 Balance sheets 8 Statements of income (loss) 9 Statements of comprehensive income (loss) 11 Statement of changes in shareholder's equity 12 Statement of cash flows - Indirect method 13 Statement of added value 14 Explanatory notes to the interim financial information 15 2

3 MESSAGE FROM MANAGEMENT The first half of 2017 was marked by the completion of the soybean harvest and its consequent sale, as well as the beginning of the harvest and sale of corn and the harvest of cotton, which will only be sold from 3Q17, after the beginning of its processing. Brazil's 2016/17 grain harvest, as disclosed in the 10 th Conab Survey, is expected to reach million tons, 27.1% more than the previous harvest. This rise is due to the increase in area and the good average yields of the current harvest, which was not affected by the weather problems of last year. In Terra Santa Agro, the results were no different. The combination of favorable weather conditions during planting, development and harvesting of crops, combined with good agricultural planning, were fundamental to the achievement of these results, as described below: Soybeans: the Company concluded the soybean harvest with a final average yield of 3,602 kg/ha (60 bags/ha), 6.7% above the Company's initial target and 10.0% higher than the average forecasted for the state of Mato Grosso (as disclosed in the 10th Conab Harvest Survey in July 2017). The good agricultural planning and the contingency actions taken were effective in minimizing the impacts of rainfall, leading the Company to reach record soybean yields. Cotton: the Company began the harvest of cotton on June 23, with positive productivity expectations, reflecting the good harvest planning, which includes: (i) technologies in planted crops and (ii) good rainfall, temperature and luminosity conditions. Estimated yield for cotton seed is 3,990 kg/ha in line with the Company s initial target. 2 nd Corn crop: the Company began the harvest of corn on June 1, with good performance, reflecting the combination of (i) the planting performed within the recommended time frame for the crop and (ii) the rainfall, that extended until June. Estimated yield for the 2 nd corn crop is 7,068 kg/ha (117.8 bags/ha), in line with the Company s initial target. As a result of the operational performance of the soybean crop in the 2016/17 harvest, the Company ended 1H17 with positive results, reaching net income of R$12.1 million and R$45.2 million in 2Q17 and 1H17, respectively, compared to a loss of R$41.0 million and R$56.1 million in 2Q16 and 1H16. It also recorded an EBITDA of R$0.4 million in 2Q17 and R$67.5 million in 1H17, against a negative EBITDA of R$27.4 million in 2Q16 and R$27.9 million 1H16. Regarding operating cash generation, it is worth noting that, in 2Q17, it reached R$19.4 million, compared to operating cash generation of R$36.5 million in 2Q16. In 1H17, this amount was R$37.9 million, against operating cash generation of R$70.5 million in 1H16. Despite the good operating results registered in the quarter, cash generation was impacted by the postponement of payments negotiated with suppliers from the 2015/16 harvest, which was done in 1Q17. It is also important to highlight the following two non-recurring events that had a positive impact on the Company's results in the first half of the year: 3

4 Conclusion of the Private Transaction Instrument and Other Covenants with Camera Agroalimentos S.A., for the payment by Camera Agroalimentos of the remaining debt of the sale of the industrial units of Rosário do Sul I and II, as it provides for the ceasing of all existing processes. As a result, a reversal of the provision made in 3Q16, in the amount of R$20.3 million, was carried out in 2Q17. Adherence to the Tax Regularization Program (Programa de Regularização Tributária - PRT), with a tax loss of R$63.2 million and accounting result of R$13.9 million. It is important to note that the Company's debt in dollars represents 91% of total debt, which is why we also analyze the evolution of debt in US dollars. Compared to June 2016, net debt in dollars fell by 3.2%, from US$229.3 million in June 2016 to US$220.5 million in June If converted to reais, the reduction was 11.2%, from R$816.2 million in June 2016 to R$729.4 million in June Another point worth highlighting is the sale of the 2016/17 harvest that, as well as the 2017/18 harvest, although still in the planning stage, has already received costs which, through the Company's Risk Policy, leads to the anticipated sale of the harvest. It should also be mentioned that, specifically for the 2017/18 harvest, the Company took advantage of favorable pricing to fix its purchases at prices equal to or higher than the budget. The graphs below show the percentages already sold, with prices fixed in dollars. 4

5 Finally, it is worth mentioning that Terra Santa s agricultural planning is complete for the beginning of the 2017/18 harvest, with planting intentions of 164,100 hectares, all in the state of Mato Grosso, as shown below: Crop Mix Planting 2016/ /18 Realized Part. (%) 1 st Planting Intention Part. (%) 2 nd Planting Intention Part. (%) Soybean % % % 1 st Crop % % % 2 nd Crop 0% 0% 0% Cotton % % % 1 st Crop - 0% 0% 2 nd Crop % % % Corn % % % 1 st Crop % % 2 nd Crop % % % Alternative Corn % % Sunflower % Total % % % Compared to the 2016/17 harvest, the planted area had a reduction of 11.8% due to the non-renewal of 7,900 hectares, for which renovation conditions were not adequate for the risk and return criteria determined by the Company, or it was not possible complete negotiations until now. It is worth mentioning that there is still the possibility of renewing part of these areas and, consequently, planting during the 2017/18 season. Another point worth noting is the change in the crop mix after analyzing the forecast in the price of commodities, as well as expected margins. Among them, we highlight the following: (i) reduction of the planted area of the 2 nd corn crop that, with the use of high technology seeds and planting within the recommended time frame, has an average productivity of bags/ha compared to bags/ha in the previous harvest and (ii) increase of the cotton planted area, due to the better yield of the crop. Finally, it is important to clarify that, in the quarter ended June 30, 2017, the Company detected an error in hedge accounting procedures in the 2015 and 2016 fiscal years and, as established in CPC 23, is retrospectively restating the adjusted values in 2Q17, according to Explanatory Note 2.2 of the Quarterly Financial Statements. The error verified did not change assets and liabilities values. Also, regarding shareholders equity, comprehensive income statements, cash flow and value added statements, the total effects are negligible, however, there are changes in values between lines, as fully demonstrated in the Quarterly Information for 2Q17. For the purpose of the Income Statement, we presented the restated data in the Release. 5

6 KPMG Auditores Independentes Rua Arquiteto Olavo Redig de Campos, 105, 6º andar - Torre A São Paulo/SP - Brasil Caixa Postal CEP São Paulo/SP - Brasil Telefone +55 (11) , Fax +55 (11) Independent auditors report on the interim financial information To The Board of Directors and Shareholders of Terra Santa Agro S.A. (formerly Vanguarda Agro S.A.) São Paulo - SP Introduction We have reviewed the accompanying individual and consolidated interim financial information of Terra Santa Agro S.A. ("Company"), included in the Quarterly Information Form - ITR for the quarter ended June 30, 2017, comprising the balance sheets as at that date and the related statements of income (loss) and comprehensive income (loss) for the three and six-month periods then ended, and statements of changes in equity and cash flows for the six-month period then ended, including the explanatory notes. Management is responsible for the preparation of this interim financial information in accordance with Technical Pronouncement CPC 21(R1) - Interim Financial Reporting and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of this information in accordance with the standards issued by the Brazilian Securities and Exchange Commission (CVM), applicable to the preparation of the Quarterly Information Form - ITR. Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of review We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion on the interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual and consolidated interim financial information included in the KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative ( KPMG International ), uma entidade suíça. KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. 6

7 accordance with CPC 21(R1) and IAS 34, issued by the IASB, applicable to the preparation of the Quarterly Information Form - ITR, and presented in accordance with the standards issued by the CVM. Other matters Statement of value added The individual and consolidated interim financial information, related to the statements of value added for the six-month period ended June 30, 2017, prepared under the responsibility of the Company s Management and presented as supplementary information for the purposes of IAS 34, were submitted to review procedures performed together with the review of the Company s Quarterly Information - ITR. In order to form our conclusion, we evaluated whether these statements are reconciled to the interim financial information and to the accounting records, as applicable, and whether their form and content are in accordance with the criteria set forth in Technical Pronouncement CPC 09 - Statement of Value Added. Based on our review, nothing has come to our attention that causes us to believe that they have not been prepared, in all material respects, in accordance with the individual and consolidated interim financial information taken as a whole. Audit and review of corresponding amounts The corresponding amounts related to the individual and consolidated balance sheet as of January 1, 2016 (derived from the financial statements for the year ended December 31, 2015) and December 31, 2016 and the interim financial information related to the statements of income (loss) and comprehensive income (loss) for the three and six-month periods ended June 30, 2016, and statements of changes in equity, cash flows and value added (supplementary information) for the six-month period ended June 30, 2016, presented for comparison purposes, herein restated due to the matters described in Note 2.2, were audited and revised, respectively, by other independent auditors, who issued reports dated August 8, 2017, without qualifications. São Paulo, August 8, KPMG Auditores Independentes CRC 2SP014428/O-6 (Original report signed in Portuguese) Ulysses M. Duarte Magalhães Accountant CRC RJ /O-8 KPMG Auditores Independentes, uma sociedade simples brasileira e firmamembro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative ( KPMG International ), uma entidade suíça. KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. 7

8 Balance sheets and December 31, 2016 (In thousands of Reais - R$) Assets Note Liabilities and equity Note (restated) (restated) Current assets Current liabilities Cash and cash equivalents 3 2,840 1,768 3,126 4,232 Salaries and social charges 13,272 10,271 13,393 11,274 Marketable securities Trade payables , , , ,245 Trade accounts receivable from customers 4 2, ,222 5,164 Taxes payable 8,946 5,955 11,348 8,707 Notes receivable 5 6,513 3,602 11,877 9,070 Loans and financing , , , ,897 Inventories 6 86, ,712 95, ,930 Intercompany loans 10 46,210 2, Biological assets 7 234, , , ,161 Taxes payable in installments 19 4,027 1,251 10,746 2,075 Taxes recoverable 8 9,796 16,451 12,384 17,549 Advances from customers 17 33,922 64,714 34, ,143 Prepaid expenses 1, ,489 3,438 Derivative financial instruments 22 11,251 5,907 11,251 5,907 Other assets 2,733 3,629 3,015 4,239 Leases and services payable 2,618 15,453 2,618 15,453 Non-current assets held for sale Federal Government Debt - PESA 18 3,216 3,236 3,216 3,236 Notes payable 5,914 6,443 6,221 6,850 Total current assets 346, , , ,993 Total current liabilities 394, , , ,787 Non-current liabilities Trade payables 15-2,067-2,090 Non-current assets Loans and financing , , , ,273 Notes receivable 5 14,327 8,818 28,816 24,385 Taxes payable in installments 19 5,468 4,898 12,346 5,256 Taxes recoverable 8 51,523 26,485 93,297 59,208 Notes payable ,207 2,061 Deferred taxes 9 180, , , ,532 Deferred taxes ,288 8,211 Judicial deposits 20 2,554 2,563 8,215 7,880 Federal Government Debt - PESA 18 2,582 2,978 2,582 2,978 Advances for future capital increase Provision for contingencies 20 19,682 19,795 19,682 19,795 Other assets 14,726 15,028 14,743 15,046 Provision for losses on investments 11 1,463 1, Total long-term assets 264, , , ,051 Total non-current liabilities 649, , , ,664 Total liabilities 1,044,335 1,073,032 1,060,893 1,124,451 Investment properties 12 8,111-8,111 - Investments 11 1,197,138 1,206, Equity 21 Property, plant and equipment , ,906 1,104,764 1,114,547 Share capital 2,707,502 2,707,502 2,707,502 2,707,502 Intangible assets 14 1,112 1, , ,496 Capital reserves 1,821 2,108 1,821 2,108 Equity valuation adjustments (20,605) (22,725) (20,605) (22,725) Total non-current assets 1,722,596 1,668,328 1,721,111 1,657,094 Accumulated losses (1,663,708) (1,709,249) (1,663,708) (1,709,249) Total equity 1,025, ,636 1,025, ,636 Total assets 2,069,345 2,050,668 2,085,903 2,102,087 Total liabilities and equity 2,069,345 2,050,668 2,085,903 2,102,087 The notes are an integral part of this interim financial information. 8

9 Statements of income (loss) Three and six-month periods ended June 30, 2017 and 2016 (in thousands of reais, except earnings (loss) per share) Note Quarter Half-year Quarter Half-year (restated) (restated) Net revenue , , , ,064 Changes in fair value of biological assets and agricultural products 25 29,954 80,992 22,434 50,728 Realization of the fair value of biological assets 25 (17,385) (64,686) (10,362) (39,785) Cost of products sold 25 (118,737) (292,084) (227,182) (448,472) Gross profit (loss) (949) 44,035 (24,367) (38,465) Operating income (expenses) General, administrative and selling expenses 25 (13,130) (25,151) (9,242) (24,236) Management compensation 23 (1,919) (3,706) (1,419) (2,834) Equity in the results of investees 11 (24,770) (6,936) 4,051 15,348 Provision for losses on investments 11 (16) (20) (28) (49) Other income (expenses), net 25 19,544 19,529 (3,149) (597) (20,291) (16,284) (9,787) (12,368) Income (loss) before financial result, income and social contribution taxes (21,240) 27,751 (34,154) (50,833) Financial result 26 Finance income 15,207 21,038 15,133 23,278 Finance expenses (38,141) (64,901) (34,479) (67,057) Foreign exchange variations, net (5,337) 4,571 11,576 30,876 (28,271) (39,292) (7,770) (12,903) Loss before income and social contribution taxes (49,511) (11,541) (41,924) (63,736) Deferred income and social contribution taxes 9(b) 61,629 56, ,609 Net income (loss) for the period 12,118 45,188 (41,010) (56,127) Net income (loss) for the period attributable to controlling shareholders 12,118 45,188 (41,010) (56,127) The notes are an integral part of this interim financial information. 9

10 Statements of income (loss) Three and six-month periods ended June 30, 2017 and 2016 (in thousands of reais, except earnings (loss) per share) Note Quarter Half-year Quarter Half-year (restated) (restated) Net revenue , , , ,102 Changes in fair value of biological assets and agricultural products 25 10,167 96,385 4,985 48,701 Realization of the fair value of biological assets 25 (17,406) (73,931) (9,926) (58,930) Cost of products sold 25 (114,255) (328,948) (226,919) (476,744) Gross profit (loss) ,162 (22,024) (16,871) Operating income (expenses) General, administrative and selling expenses 25 (13,550) (30,237) (10,797) (31,793) Management compensation 23 (1,919) (3,706) (1,419) (2,834) Other income (expenses), net 25 5,538 5,494 (3,971) (1,348) (9,931) (28,449) (16,187) (35,975) Income (loss) before financial result, income and social contribution taxes (9,149) 47,713 (38,211) (52,846) Financial result 26 Finance income 15,473 21,658 16,221 25,343 Finance expenses (62,009) (88,936) (34,125) (66,516) Foreign exchange variations, net (5,357) 5,189 11,624 34,505 (51,893) (62,089) (6,280) (6,668) Loss before income and social contribution taxes (61,042) (14,376) (44,491) (59,514) Deferred income and social contribution taxes 9(b) 73,160 59,564 3,481 3,387 Net income (loss) for the period 12,118 45,188 (41,010) (56,127) Net income (loss) for the period attributable to controlling shareholders 12,118 45,188 (41,010) (56,127) Net income (loss) per common share: Basic and diluted (in R$) (2.2893) (3.1331) The notes are an integral part of this interim financial information. 10

11 Statements of comprehensive income (loss) Three and six-month periods ended June 30, 2017 and 2016 (In thousands of Reais - R$) and Quarter Half-year Quarter Half-year (restated) (restated) Net income (loss) for the period 12,118 45,188 (41,010) (56,127) Other comprehensive income: Items that will be reclassified to profit or loss Net result with financial instruments designated as hedge accounting (19,004) 3,212 86, ,290 Income tax and social contribution on other comprehensive income 6,461 (1,092) (29,322) (65,039) Other comprehensive income, net of taxes (12,543) 2,120 56, ,251 Total comprehensive income (425) 47,308 15,908 70,124 The notes are an integral part of this interim financial information. 11

12 Statement of changes in shareholder's equity Six-month periods ended June 30, 2017 and 2016 (In thousands of Reais - R$) Share Capital Note Share capital Share issue costs Capital reserves Equity valuation adjustments Accumulated losses Total equity Balance at January 1, 2016, as previously disclosed 2,728,353 (20,851) 2,708 (173,183) (1,514,988) 1,022,039 Impact of correction of error ,704 (42,704) - Balance restated at January 1, ,728,353 (20,851) 2,708 (130,479) (1,557,692) 1,022,039 Comprehensive income for the period Impact of correction of error (17,473) (17,473) Loss for the period (38,654) (38,654) Other comprehensive income for the period , ,251 Total other comprehensive income, net of taxes ,251 (56,127) 70,124 Capital transactions Effects arising from the stock option plan recognized in the period Total capital transactions Balance restated at June 30, ,728,353 (20,851) 2,805 (4,228) (1,613,819) 1,092,260 Balance at January 1, 2017, as previously disclosed 2,728,353 (20,851) 2,108 (69,706) (1,662,268) 977,636 Impact of correction of error ,981 (46,981) - Balance restated at January 1, ,728,353 (20,851) 2,108 (22,725) (1,709,249) 977,636 Comprehensive income for the period Net income for the period ,188 45,188 Other comprehensive income for the period ,120-2,120 Total other comprehensive income, net of taxes ,120 45,188 47,308 Capital transactions Effects arising from the stock option plan recognized in the period (287) Total capital transactions - - (287) Balance at June 30, ,728,353 (20,851) 1,821 (20,605) (1,663,708) 1,025,010 The notes are an integral part of this interim financial information. 12

13 Statement of cash flows - Indirect method Six-month periods ended June 30, 2017 and 2016 (In thousands of Reais - R$) Cash flows from operating activities Loss before income and social contribution taxes (11,541) (63,736) (14,376) (59,514) Adjustments for: Changes in the fair value of biological assets and agricultural products (80,992) (50,728) (96,385) (48,701) Realization of the fair value of biological assets 64,686 39,785 73,931 58,930 Depreciation and amortization 16,208 18,507 19,750 24,980 Result on the sale and write-off of property, plant and equipment Equity in the results of investees 6,936 (15,348) - - Provision for losses on investments Expenses with stock option plans Provision (reversal) for contingencies (113) (178) (113) (178) Allowance for doubtful accounts Provision (reversal) for impairment of notes receivable (20,215) 1,652 (20,215) 1,652 Provision (reversal) of estimated inventory losses (64) 440 (64) 440 Provision (reversal) for adjustment of tax credits to recoverable value (1,799) 283 (1,798) 458 Impairment of assets, including goodwill allocated to agreements 147 2, ,389 Adjustment of financial assets and liabilities to present value 4,062 4,166 3,606 3,983 Interest and foreign exchange variations, net 46,492 64,200 47,049 61,391 Changes in assets and liabilities: Trade accounts receivable from customers (1,971) 44,184 3,268 8,449 Notes receivable 4,636 9,785 6,783 9,150 Inventories 112, , , ,652 Biological assets (59,673) 7,740 (59,673) 7,740 Taxes recoverable (19,468) (6,373) (31,582) (7,830) Prepaid expenses (979) (667) 949 3,225 Other assets 1,198 1,422 1,527 1,699 Judicial deposits (13) (117) (335) (324) Salaries and social charges 3, , Trade payables (34,405) (9,965) (35,412) (12,279) Taxes payable 5,875 4,591 7,097 4,958 Advances from customers (30,999) (81,333) (68,160) (105,621) Taxes paid in installments 26,154-78,950 (656) Leases and services payable (12,823) (36,023) (12,823) (36,023) Intercompany loans 43,379 5, Notes payable (398) (282) (483) (425) Cash provided by operating activities 59, ,725 58, ,779 Interest paid (24,161) (46,808) (24,161) (46,808) Derivative financial instruments received (paid) - NDF 4,060 (427) 4,060 (427) Net cash provided by operating activities 39,885 69,490 37,931 70,544 Cash flows from investing activities Financial investments - (266) (197) (266) Cash received upon disposals of fixed assets 559 1, ,799 Additions to property, plant and equipment (3,492) (3,586) (3,519) (3,586) Additions to intangible assets (4) (43) (4) (43) Net cash used in investing activities (2,937) (2,096) (3,161) (2,096) Cash flows from financing activities Loans and financing 50,992 15,993 50,992 15,993 Amortization of loans and financing (86,585) (103,189) (86,585) (103,189) Payment of funding costs (48) - (48) - Derivative financial instruments paid - Swap (235) (887) (235) (887) Net cash used in financing activities (35,876) (88,083) (35,876) (88,083) Net increase (decrease) in cash and cash equivalents 1,072 (20,689) (1,106) (19,635) Cash and cash equivalents at the beginning of the period 1,768 24,240 4,232 25,414 Cash and cash equivalents at the end of the period 2,840 3,551 3,126 5,779 The notes are an integral part of this interim financial information. 13

14 Statement of added value Six-month periods ended June 30, 2017 and 2016 (In thousands of Reais - R$) (restated) (restated) Revenue Sales of goods and products 352, , , ,068 Other revenue 2,049 6,781 2,467 7,117 Sales deductions and returns (791) (1,787) (791) (1,791) Allowance from doubtful accounts 20,215 (1,488) 20,215 (1,488) Fair value of biological assets and agricultural products 80,992 50,728 96,385 48, , , , ,607 Inputs acquired from third parties Raw materials consumed (165,994) (216,269) (165,994) (216,269) Realization of the fair value of biological assets (64,686) (39,785) (73,931) (58,930) Materials, energy, outsourced services and other (91,503) (179,089) (114,285) (212,254) Estimated inventory losses 64 (440) 64 (440) Other expenses (4,440) (8,225) (19,570) (9,360) (326,559) (443,808) (373,716) (497,253) Gross added value 128,708 86, , ,354 Depreciation and amortization (16,208) (18,507) (19,750) (24,980) Net added value produced by the Company 112,500 68, ,238 83,374 Added value received as transfer Equity in the results of investees (6,936) 15, Provision for losses on investments (20) (49) - - Financial income 21,038 23,278 21,658 25,343 Total added value to distribute 126, , , ,717 Distribution of added value Personnel: Direct compensation 27,770 35,098 41,504 35,203 Benefits Government Severance Indemnity Fund for Employees (FGTS) 2,040 2,663 3,138 2,676 30,474 38,349 45,309 38,502 Taxes and contributions: Federal 10,281 12,961 11,251 13,678 State 9,228 6,446 11,138 7,554 Municipal Deferred (56,729) (7,609) (59,564) (3,387) (37,118) 11,880 (37,052) 17,956 Third party capital remuneration: Interest and foreign exchange variations 68,159 90,490 79,838 86,220 Fines 3, , Leases 16,168 21,884 16,168 21,884 88, , , ,386 Remuneration of own capital: Net income (loss) for the period 45,188 (56,127) 45,188 (56,127) 45,188 (56,127) 45,188 (56,127) Distributes added value 126, , , ,717 The notes are an integral part of this interim financial information. 14

15 Explanatory notes to the interim financial information In thousands of reais, unless otherwise stated 1 General information 1.1 Operations Terra Santa Agro S.A., formerly Vanguarda Agro S.A. (the "Company" or "Terra Santa Agro") was incorporated on July 18, 2003, under the name Brasil Biodiesel Comércio e Indústria de Óleos Vegetais Ltda., as a limited liability partnership. The Company is currently headquartered at Praça General Gentil Falcão, cj 81, Brooklin Novo, São Paulo, State of São Paulo. On November 9, 2006, through Circular Letter 046/2006 ("OFÍCIO/CVM/SEP/RIC/046/2006"), the Brazilian Securities and Exchange Commission (CVM) authorized the Company's registration as a publicly traded company, thereby enabling the Company to trade its common shares on stock exchanges. On October 28, 2016, shareholders attending the Extraordinary Shareholders Meeting unanimously approved the change of the Company s corporate name to Terra Santa Agro S.A., in honor of one of its farms located in the north of Mato Grosso State. This change aims to be a landmark of the new cycle that began after the conclusion of the operational turnaround started in 2013 and the restructuring of the bank debt. The Company will maintain the organizational identity created and developed, whose main purpose is to achieve operational excellence in land development and grain and fiber production. The Company and its subsidiaries Maeda S.A. Agroindustrial and Vanguarda do Brasil S.A. carry out agricultural activities, mainly the cultivation of soybean, corn and cotton, basically consisting of: cultivation and sale of agricultural products; sale of agricultural inputs; processing of cotton seed, owned by the Company or by third parties; rendering of storage services for agricultural inputs and products; rendering of soil preparation and harvesting services using agricultural machinery. These activities are carried out on Company-owned land, on land leased from third parties, and through agricultural partnerships with the related parties Vanguarda do Brasil S.A. and Maeda S.A. Agroindustrial. 15

16 1.2 Economic and financial situation of the Company At June 30, 2017, the Company presented negative working capital of R$47,927 in the Parent Company, mainly represented by intercompany loans in the amount of R$ 46,210 with its subsidiaries Maeda S.A. Agroindustrial and Vanguarda do Brasil S.A. The Company entered into loan agreements with its subsidiaries, through which the parties grant each other a credit of R$ 120,000 and these transactions were carried out with variable and renewable maturity terms, adjusted at 100% of the CDI rate. The funds arise from the sale of agricultural products by the subsidiaries. However, as part of Management s cash management, the Company presented positive working capital of R$ 2,889 on a consolidated basis. 2 Summary of significant accounting policies 2.1 Basis of preparation The interim financial information was prepared in accordance with Technical Pronouncement CPC 21(R1) - Interim Financial Reporting and with international accounting standard IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), and is presented in accordance with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of the Quarterly Information - ITR. As permitted in CVM Circular Letter CVM/SNC/SEP 03/2011, the Company chose to present the explanatory notes in this ITR in a summarized manner when the information is the same as that presented in the annual financial statements. As a result, this quarterly information was prepared in accordance with the basis of preparation, calculation methods and accounting policies consistent with those adopted in the preparation of the financial statements of December 31, 2016, disclosed on March 8, 2017, and therefore must be read along with those statements. Except for the restatement of corresponding amounts related to hedge accounting, as described in Note 2.2, the information included in the notes to the interim financial information that was not subject to significant changes or presented irrelevant disclosures as compared to December 31, 2016 were not fully restated in this quarterly information. However, selected information was included to explain the main events and transactions for the understanding of the changes in financial position and operating performance since the publication of the Company s operations since the publication of the financial statements as of December 31, In the preparation of these interim financial information, Management used judgments, estimates and assumptions that affect the application of the Company s accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. The estimates and assumptions are reviewed continuously and have not occur any relevant changes in the preparation of this interim financial information in relation to the financial statements as of December 31, 2016, The Company declares that all significant information specific to the quarterly information, and only them, are being evidenced and that correspond to those used by it in its management. The Statement of Added Value (DVA) is required by Brazilian corporate law and by the practices adopted by the publicly held companies in Brazil. The IFRS do not require the presentation of this statement, which is considered a supplementary information, without prejudice to all the quarterly information as whole. 16

17 The issue of this interim financial information was authorized by the Company's management and Board of Directors on August 8, Restatement of corresponding amounts During the six-month period ended June 30, 2017, the Company identified amounts recorded in previous periods as equity valuation adjustments arising from the foreign exchange variation of financial liabilities designated as cash flow hedge instruments to hedge future expected transactions (hedge object) against foreign exchange risk. The amounts of these transactions should have been reclassified to the result of previous periods as the future transactions occurred. As a result, the Company rectified the corresponding individual and consolidated amounts related to the balance sheets as of January 1, 2016 and December 31, 2016, the statements of income (loss) and comprehensive income (loss) for the three and six-month periods ended June 30, 2016, and the statements of changes in equity and added value (supplementary information) for the six-month period ended June 30, 2016, in accordance with CPC 23/IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors. The impact on the corresponding amounts is as follows: Balance sheets - December 31, 2016 January 1, 2016 As previously disclosed Impact Restated As previously disclosed Impact Restated Total assets December 31, 2016 January 1, 2016 As previously disclosed Impact Restated As previously disclosed Impact Restated Total liabilities Equity Share capital Capital reserves Equity valuation adjustments (69.706) (22.725) ( ) ( ) Accumulated losses ( ) (46.981) ( ) ( ) (42.704) ( ) Total equity Total liabilities and equity The effect of the adjustment is null between the total balance of assets and the total balance of liabilities. 17

18 Balance sheets - December 31, 2016 January 1, 2016 As previously disclosed Impact Restated As previously disclosed Impact Restated Total assets December 31, 2016 January 1, 2016 As previously disclosed Impact Restated As previously disclosed Impact Restated Total liabilities Equity Share capital Capital reserves Equity valuation adjustments (69.706) (22.725) ( ) ( ) Accumulated losses ( ) (46.981) ( ) ( ) (42.704) ( ) Total equity Total liabilities and equity The effect of the adjustment is null between the total balance of assets and the total balance of liabilities. Statements of income (loss) - June 30, Quarter As previously disclosed Impact Restated June 30, Half-year As previously disclosed Impact Restated Net revenue (26.475) Other ( ) - ( ) ( ) - ( ) Gross loss (25.259) 892 (24.367) (11.990) (26.475) (38.465) Operating expenses, net (9.787) - (9.787) (12.368) - (12.368) Loss before financial result, income and social contribution taxes (35.046) 892 (34.154) (24.358) (26.475) (50.833) Financial result (7.770) - (7.770) (12.903) - (12.903) Loss before income and social contribution taxes (42.816) 892 (41.924) (37.261) (26.475) (63.736) Deferred income and social contribution taxes (303) 914 (1.393) Loss for the period (41.599) 589 (41.010) (38.654) (17.473) (56.127) Loss for the period attributable to controlling shareholders (41.599) 589 (41.010) (38.654) (17.473) (56.127) Statements of income (loss) - June 30, Quarter As previously disclosed Impact Restated June 30, Half-year As previously disclosed Impact Restated Net revenue (26.475) Other ( ) - ( ) ( ) - ( ) Gross loss (22.916) 892 (22.024) (26.475) (16.871) Operating expenses, net (16.187) - (16.187) (35.975) - (35.975) Loss before financial result, income and social contribution taxes (39.103) 892 (38.211) (26.371) (26.475) (52.846) Financial result (6.280) - (6.280) (6.668) - (6.668) Loss before income and social contribution taxes (45.383) 892 (44.491) (33.039) (26.475) (59.514) Deferred income and social contribution taxes (303) (5.615) Loss for the period (41.599) 589 (41.010) (38.654) (17.473) (56.127) Loss for the period attributable to controlling shareholders (41.599) 589 (41.010) (38.654) (17.473) (56.127) 18

19 Statements of comprehensive income (loss) - and June 30, Quarter As previously disclosed Impact Restated June 30, Half-year As previously disclosed Impact Restated Loss for the period (41.599) 589 (41.010) (38.654) (17.473) (56.127) Other comprehensive income (loss): Items that will be reclassified to profit or loss Net result with financial instruments designated as hedge accounting (892) Income tax and social contribution on other comprehensive income (29.625) 303 (29.322) (56.037) (9.002) (65.039) Other comprehensive income, net of taxes (589) Total comprehensive income Statement of added value - and June 30, As previously disclosed Impact Restated June 30, As previously disclosed Impact Restated Total added value to distribute Distribution of value added Personnel: Direct compensation Benefits Government Severance Indemnity Fund for Employees (FGTS) Taxes and contributions: - - Federal State Municipal Deferred (9.002) (7.609) (9.002) (3.387) Third party capital remuneration: - - Interest and foreign exchange variations Fines Leases Remuneration of own capital: - - Loss for the period (38.654) (17.473) (56.127) (38.654) (17.473) (56.127) Distributes added value Statement of cash flows - and There is no impact on total operating, investing and financing activities in the individual and consolidated cash flows for the six-month period ended June 30, Consolidation basis This interim financial information was prepared in accordance with the consolidation basis consistence with those adopted in the preparation of the financial statements as of December 31, Therefore, the corresponding information in explanatory Note 2.2 to those financial statements should be referred to. 2.4 New standards not yet effective The following new standards were issued by the IASB, but are not yet effective for the period ended June 30, The early adoption of the new standards, although encouraged by the IASB, is not permitted in Brazil by the Accounting Pronouncements Committee (CPC). IFRS 9/ CPC 48 - "Financial Instruments" addresses the classification, the measurement and the recognition of financial assets and liabilities. The complete version of IFRS 9 was issued in July 2014, with validaty for January 1, 2018 and replaces IAS 39/CPC 38 guidance in relation to the classification and measurement of financial instruments. IFRS 9 includes the following main changes: (i) new criteria for the classification of financial assets; (ii) new impairment model for financial assets, hybrid of expected and incurred losses, replacing the current model of incurred losses; and (iii) flexibilization of requirements to adopt hedge accounting. Management have evaluate the new pronouncement and, considering its current transactions, did not identify changes that could have a material impact the Company s financial statements. 19

20 IFRS 15/ CPC 47 - "Revenue from Contracts with Customers" - This new standard addresses the principles used by an entity to determine when revenue is recognized and how it is measured. This standard is based on the principle that revenue is recognized when the control of an asset or service is transferred to a customer, and thus the principle of control will replace the principle of risks and benefits. It will take effect on January 1, 2018, replacing IAS 11/CPC 17 - Construction Contracts, IAS 18/ CPC 30 - Revenue and its corresponding interpretations. Management have evaluated this new standard, and based on its opinion, this regulation should not have relevant effect on their financial statements, considering the kind of their selling transactions, where the performance obligations are clear and the control transference of goods and services are not complex. IFRS 16 - "Leases" - with this new standard, the lessees must become to recognize the liability of the future payments and the right of use of the leased asset for almost all leasing contracts, including the operational ones, being able to stay out of the scope of this new regulation some short-term or small amount contracts. The recognition and measurement criterias for the leasings in the financial statements of the lessees will stay substantially kept. The IFRS 16 will take effect as of or after January 1, 2019, and replaces the IAS 17/ CPC 06 - "Leasing Operations and Corresponding Interpretations. The management is currently evaluating the impacts on adopting this regulation, since it is keeping leasing operations with third parties for the purpose on the tillage of biological assets, totalizing 74 thousand hectares of agriculturable lands and future commitments in the order of R$ (according to the review note 30 (b)). For the time being, the understanding of the management is that the referred amount shall be recognized as asset and liability in the balance sheets. Given the complexity of the topic, it may be that, until the initial adoption of this standard, would occur a review of this conclusion. 3 Cash and cash equivalents Description Banks - local currency 622 1, ,762 Banks - foreign currency ,330 Financial investments (i) 2, , ,840 1,768 3,126 4,232 (i) At June 30, 2017, financial investments classified as cash equivalents were mainly represented by bank deposit certificates and/or compromised operations at an average of 90% of the CDI rate (5% at December 31, automatic short-term investments). The Company can immediately redemption these investments, without any charge or restrictions. 20

21 4 Trade accounts receivable from customers Trade accounts receivable in local currency 2,240-2, Trade accounts receivable in foreign currency ,164 2, ,240 5,182 ( - ) Allowance for doubtful accounts (18) (18) (18) (18) The aging of trade accounts receivable from customers is as follows: 2, ,222 5, Not yet due: Up to 30 days ,169 From 91 to 180 days 2,213-2,213 - Overdue: Up to 30 days More than 180 days , ,240 5,182 At June 30, 2017, trade accounts receivable from customers in the amount of R$9 (R$ 995 at December 31, 2016) were overdue, but not impaired. This amount refers to a number of independent customers who have no recent history of default. Management has collection procedures and believes that these customers will not result in losses. The procedures include: (a) (b) (c) Credits more than thirty days overdue: Issue out-of-court notice informing the counterparty in advance of the inclusion in bad credit lists. Inclusion in bad credit lists: The counterparty will be included in a bad credit list thirty days after confirmation of receipt of the out-of-court notice. Credits more than ninety days overdue: The Company will carry out a judicial collection, gathering all documents related to the negotiation. The Company recognizes estimated losses on receivables more than 180 days overdue or in the case of insolvent customers. In addition, the Company and its subsidiaries analyze their customers on a case-by-case basis to record an allowance for doubtful accounts. The Company and its subsidiaries analyzed the realization of overdue balances and recorded an allowance for doubtful accounts of the amounts with a low possibility of recovery. 21

22 The changes in the allowance for doubtful accounts of trade accounts receivable from customers were as follows: Opening balance Allowance for doubtful accounts recognized Receivables written off during the period as uncollectible - (182) - (182) Closing balance Notes receivable For sale of property, plant and equipment 6,697 10,704 13,875 19,506 For sale of oil plant ,800 13,800 For sale of industrial units 12,885 20,304 12,885 20,304 Subleases and admissions of debt 5,714 4,062 5,714 5,714 Credit with agricultural partners 991 1, ,464 Other credits 481 2, ( - ) Adjustments to present value (126) (168) (1,251) (1,749) ( - ) Provision for impairment (i) (5,802) (26,017) (5,802) (26,017) 20,840 12,420 40,693 33,455 Current 6,513 3,602 11,877 9,070 Non-current 14,327 8,818 28,816 24,385 (i) On June 30, 2017, the Company entered into a Private Instrument of Transaction and Other Covenants with Camera Agroalimentos S.A. Under this agreement, the provision for impairment (recorded in the previous year) was reversed in the amount of R$ 20,304. The amount agreed upon totaled R$ 35,000, resulting in the receipt of R$ 2,000 on the signature date, the transfer of a grain warehouse in Rosário do Sul (RS) in the amount of R$ 8,113 thousand (classified as Investment Properties), and receivables in monthly and half-yearly installments. The remaining balance is guaranteed by an Accessory Property Fiduciary Sale Agreement between the parties. The secured property was appraised in a valuation report issued by independent appraisers. The instrument envisages that, for each payment of the amount agreed upon, a performance bonus of % will be calculated, so that for every R$ 1.00 that is amortized, R$ will be discounted from the amount agreed upon, as long as the debtor strictly complies with the conditions and maturities in the agreement. 22

23 The aging of notes receivable is as follows: (i) Not yet due: Up to 30 days From 31 to 90 days 340 2, ,156 From 91 to 180 days 1, ,038 2,458 From 180 to 360 days 4, ,184 2,241 More than 360 days 13,984 7,247 15,609 10,496 Subject to conditions (i) ,539 16,103 Overdue: Up to 30 days From 31 to 90 days From 91 to 180 days From 180 to 360 days 80 1, ,632 More than 360 days 5,712 26,042 5,172 26,072 26,768 38,605 47,746 61,221 The amount of R$ 16,103 will be paid by the buyers of property, plant and equipment and the oil plant after the Company proves the effective write-off and cancellation of the guarantee of the Special Program for Asset Recovery (PESA) debt at the real estate registry office, expected for November Inventories Agricultural products Agricultural products - formation cost 25,381 6,393 21,166 46,953 Agricultural products - adjustment to net realizable value (5,052) (798) 4,510 2,616 Seeds, compost, fertilizers and crop protection products 34,570 98,000 34,570 98,148 Packaging, storage materials and spare parts 6,515 4,895 6,599 5,771 Advances to suppliers 12, , Expenditures with maintenance in the inter-crop period 8,075 47,983 11,055 47,983 Other inventories 5,394 4,360 5,396 4,580 ( - ) Provision for impairment (i) (519) (583) (519) (583) 86, ,712 95, ,930 (ii) Refers substantially to the obsolescence of materials in inventory with little expectation of realization. At June 30, 2017, 167,624 metric tons of agricultural products, amounting to approximately R$ 151,201, were pledged as collateral to suppliers of agricultural inputs (2,723 metric tons at December 31, 2016, totaling approximately R$ 11,898). The amount collateralized includes the balances under the Biological assets rubric. 23