Fertilizantes Heringer S.A. Quarterly Information (ITR) at March 31, 2018 and report on review of quarterly information

Transcription

1 Fertilizantes Heringer S.A. Quarterly Information (ITR) at March 31, 2018 and report on review of quarterly information

2 Report on review of quarterly information To the Board of Directors and Stockholders Fertilizantes Heringer S.A. Introduction We have reviewed the accompanying interim accounting information of Fertilizantes Heringer S.A. ("Company"), included in the Quarterly Information Form (ITR) for the quarter ended March 31, 2018, comprising the balance sheet at that date and the statements of income, comprehensive income, changes in equity and cash flows for the quarter then ended, and a summary of significant accounting policies and other explanatory information. Management is responsible for the preparation of the interim accounting information in accordance with the accounting standard CPC 21 (R1), Interim Financial Reporting, of the Brazilian Accounting Pronouncements Committee (CPC) and International Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Quarterly Information (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 Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial 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 information Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim accounting information included in the quarterly information referred to above has not been prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34 applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the Brazilian Securities Commission. 2 PricewaterhouseCoopers, Rua José Pires Neto 314, 10 o, Campinas, SP, Brasil, , Caixa Postal 3136, T: +55 (19) ,

3 Fertilizantes Heringer S.A. Other matters Statement of value added We have also reviewed the statement of value added for the quarter ended March 31, This statement is the responsibility of the Company's management, is required to be presented in accordance with standards issued by the Brazilian Securities Commision applicable to the preparation of Quarterly Information (ITR), and is considered supplementary information under IFRS, which do not require the presentation of the statement of value added. This statement has been submitted to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that it has not been prepared, in all material respects, in a manner consistent with the interim accounting information taken as a whole. Campinas, May 14, 2018 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 Eduardo Dias Vendramini Contador CRC 1SP220017/O-4 3

4 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 (loss) 5 Statement of cash flows 6 Statement of changes in equity 1/1/2018 to 3/31/ /1/2017 to 3/31/ Statement of value added 9 Comments on company performance 10 Notes to the quarterly information 27 Opinions and Representations Report on Review - Without Exceptions 68 Officers' Representation on the Quarterly Information 70 Officers' Representation on the Report on Review 71 Reasons for the restatement 72

5 Company information/capital composition Number of shares Current quarter (in thousands) 3/31/2018 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 Page 1 of 72

6 Quarterly Information /Balance Sheet - Assets (R$ thousand) 1 - Code 2 - Description Current quarter 3/31/2018 Prior year 12/31/ Total assets 2,720,435 2,945, Current assets 1,396,552 1,621, Cash and cash equivalents 80,397 66, Receivables 440, , Trade receivables 440, , Inventories 528, , Taxes recoverable 181, , Current taxes recoverable 181, , Taxes recoverable 155, , Income tax and social contribution recoverable 25,818 15, Other current assets 166, , Non-current assets for sale 166, , Other receivables 162, , Derivative financial instruments 3,610 5, Non-current assets 1,323,883 1,323, Long-term receivables 816, , Trade receivables Accounts receivable Deferred taxes 277, , Deferred income tax and social contribution 277, , Other non-current assets 538, , Income tax and social contribution recoverable 215, , Taxes recoverable 248, , Tax credits acquired 30,475 30, Judicial deposits 25,307 25, Other assets 19,055 20, Property, plant and equipment 500, , Property, plant and equipment in use 471, , Construction in progress 28,758 27, Intangible assets 6,628 6, Intangible assets 6,628 6, Intangible assets in use 6,628 6,639 Page 2 of 72

7 Quarterly Information/Balance Sheet - Liabilities and Equity (R$ thousand) 1 - Code 2 - Description Current quarter 3/31/2018 Prior year 12/31/ Total liabilities and equity 2,720,435 2,945, Current liabilities 2,481,992 2,651, Social and labor charges 37,711 24, Labor obligations 37,711 24, Trade payables 908,272 1,029, Domestic suppliers 185, , Foreign suppliers 722, , Tax liabilities 5,353 10, Federal tax liabilities 5,353 10, Taxes payable 5,353 10, Borrowings 1,145,750 1,127, Borrowings 1,145,750 1,127, Local currency 613, , Foreign currency 532, , Other liabilities 384, , Other 384, , Advances from customers 184, , Other financial instruments 1, Other payables 48,691 70, Forfait 150, , Non-current liabilities 127, , Borrowings 88, , Borrowings 88, , Local currency 88, , Provisions 39,024 26, Tax, social security, labor, and civil provisions 39,024 26, Provisions for contingencies 39,024 26, Equity 111, , Paid-up capital 585, , Accumulated deficit -514, , Carrying value adjustments 40,291 40,529 Page 3 of 72

8 Quarterly Information/Statement of income (R$ thousand) 1 - Code 2 - Description Current quarter 1/1/2018 to 3/31/2018 Accumulated - prior year 1/1/2017 to 3/31/ Gross Sales/services revenue 1,041,360 1,006, Cost of Sales - goods and services -973, , Gross profit 67, , Operating expenses -107,091-94, Selling -78,461-70, General and administrative -28,418-23, Other operating income 1,847 1, Other operating expenses -2,059-1, Profit before finance result and taxes -39,658 31, Finance result -34,036-21, Finance income 43,127 38, Finance income 43,127 38, Finance costs -77,163-60, Financial expenses -72, , Foreign exchange variation, net -4,641 44, Profit before taxes on net income -73,694 9, Income tax and social contribution on net income 26,945-2, Current 0-2, Deferred 26, Net results from continuing operations -46,749 6, Profit (loss) for the period -46,749 6, Earnings (loss) per share - (reais / share) Basic earnings per share Common shares Page 4 of 72

9 Quarterly Information/Statement of comprehensive income (loss) (R$ thousand) Current quarter 1/1/2018 to 3/31/2018 Accumulated - prior year 1/1/2017 to 3/31/ Code 2 - Description 4.01 Profit (loss) for the period -46,749 6, Comprehensive income (loss) for the period -46,749 6,991 Page 5 of 72

10 Quarterly Information/Statement of Cash Flows - Indirect Method (R$ thousand) 1 - Code 2 - Description Accumulated - current year 1/1/2018 to 3/31/2018 Accumulated - prior year 1/1/2017 to 3/31/ Net cash used in operating activities -25,910-65, Cash flow from operating activities -22,327 44, Profit before taxation -73,694 9, Provision for impairment of trade receivables 2, Provision (reversal) for adjustment of inventories to market value Depreciation 11,606 13, Gains on disposal of property, plant and equipment Reversal of losses on assets for sale Provision for vacation pay, 13th month salary and profit sharing 3,007 2, Provision (reversal of) for contingencies, net 12,187 1, Interest and financial charges - non-current assets 0-1, Unearned interest and foreign exchange variations - current assets and liabilities 20,181 15, Unrealized swaps 2,133 2, Changes in assets and liabilities 24,186-82, Trade receivables -10,731-9, Inventories 241, , Taxes recoverable 10,844 16, Other assets 6, Judicial deposits Purchase bonuses 0 7, Trade payables -117, , Forfait -31,824-9, New import financing 282, , Repayment of principal - import financing -319, , Salaries and charges 9,876 1, Taxes payable -5,433-1, Advances from customers -20,630-62, Other liabilities -21,853-9, Others -27,769-28, Payment of interest on borrowings -27,769-28, Net cash used in investing activities -4,064-2, Purchase of property, plant and equipment -4,861-4, Proceeds from disposal of property, plant and equipment 852 1, Additions to intangible assets Net cash provided by financing activities 43,521 66, New borrowings 370, , Repayment of principal of borrowings -327, , Decrease in cash and cash equivalents 13,547-2, Cash and cash equivalents at the beginning of the period 66,850 64, Cash and cash equivalents at the end of the period 80,397 62,437 Page 6 of 72

11 Quarterly Information/Statement of Changes in Equity / 1/1/2018 to 3/31/2018 (R$ thousand) 1 - Code 2 - Description Paid-up capital Capital reserves, options granted, and treasury shares Revenue reserves Retained earnings/ accumulated deficit Other comprehensive income Equity 5.01 Opening balances 585, ,444 40, , Adjusted opening balances 585, ,444 40, , Total comprehensive income , , Profit for the period , , Other comprehensive income (loss) , , Initial adoption of adjustment to fair value - IFRS , , Internal changes in equity Taxes on realization of revaluation reserve Closing balances 585, ,784 40, ,025 Page 7 of 72

12 Quarterly Information/Statement of Changes in Equity / 1/1/2017 to 3/31/2017 (R$ thousand) 1 - Code 2 - Description Paid-up capital Capital reserves, options granted, and treasury shares Revenue reserves Retained earnings/ accumulated deficit Other comprehensive income 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 Page 8 of 72

13 Quarterly Information/Statement of Value Added (R$ thousand) 1 - Code 2 - Description Accumulated - current year 1/1/2018 to 3/31/2018 Accumulated - prior year 1/1/2017 to 3/31/ Revenue 1,056,149 1,020, Sales of goods, products and services 1,055,359 1,018, Other revenues 977 1, Revenues from the construction of own assets 1,998 1, Provision (reversal) for impairment of trade receivables -2, Inputs acquired from third parties -1,073, , Cost of sales - products, goods and services -978, , Materials, energy, third-party and other services -94,792-88, Loss/recovery of asset amounts , Other Gross value added -17,845 59, Retentions -11,606-13, Depreciation, amortization, and depletion -11,606-13, Net value added generated -29,451 45, Value added received in transfer 92, , Finance income 92, , Other Total value added to be distributed 63, , Distribution of value added 63, , Personnel 49,276 45, Direct compensation 35,963 32, Benefits 11,081 10, Government Severance Indemnity Fund for Employees (FGTS) 2,232 2, Taxes and contributions -73,654-22, Federal -43,945-2, State -30,297-20, Municipal Remuneration of third-party capital 134, , Interest 126, , Rental 2,106 2, Other 5,839 3, Remuneration of own capital -46,749 6, Retained earnings (accumulated deficit) for the period -46,749 6,991 Page 9 of 72

14 Viana, May 14, 2018 Fertilizantes Heringer (FHER3) announces today its results for 1Q18. 1Q18 Conference Call May 16, 2018 Portuguese 11:00 AM BR (10:00 AM U.S. ET) Phone: +55 (11) / Code: Heringer Replay for one week: +55 (11) Password: English 11:00 AM BR (10:00 AM U.S. ET) Phone: +1 (516) Code: Heringer Replay for one week: +55 (11) Password: Investor Relations Phone: +55 (19) ri@heringer.com.br 1Q18 HIGHLIGHTS Delivery volume totaled 866 thousand metric tons of fertilizers in 1Q18, 1.2% higher than the 856 thousand metric tons in 1Q17; Net revenue totaled R$1,041.4 million in 1Q18, 3.5% higher than the R$1,006.3 million recorded in 1Q17; EBITDA was a negative R$28.1 million in 1Q18, lower than the positive EBITDA of R$44.8 million in 1Q17; Net loss came to R$46.7 million in 1Q18, versus a net income of R$7.0 million in 1Q17; Reimbursement of COFINS - the Federal Government made a deposit in the amount of R$32.7 million in 1Q18. Page 10 of 72

15 GLOBAL FERTILIZER MARKET AND AGRIBUSINESS For a better understanding of the Brazilian market in which the Company is inserted, it is important to learn about the global fertilizer market as well as agribusiness in general, which are innovating and growing industries. FERTILIZER RAW MATERIAL PRODUCING COUNTRIES Source: IFA World Potash Capacities 2017, June 2016 IFA World Processed Phosphates Capacities 2017, July 2017 IFA World Ammonia Capacities 2017, June 2017 The charts above show the world's largest fertilizer raw material producers. China is the largest producer of nitrogen and phosphorus, and the 4th largest chloride producer, behind Canada, Russia and Belarus, respectively. Russia also has a leading position in other commodities, and is the second largest producer of nitrogen, followed by the U.S. and India, and the fourth largest producer of phosphorus. Brazil is not one of the leading producing countries of any of the main nutrients (NPK) above, and depends on the importation of fertilizer raw materials. Page 11 of 72

16 FERTILIZER RAW MATERIAL CONSUMING COUNTRIES Source: IFA Short-Term Prospects for World Agriculture and Fertilizer Demand 2016/ /19 CRU Urea Fertilizer Market Outlook September 2017, CRU Potash Outlook August 2017, CRU Phosphate Fertilizer Market Outlook October CANSIM, Table The four largest fertilizer raw material consumers are China, India, the U.S. and Brazil. China is the world's largest consumer of fertilizer and Brazil has a leading position in global consumption and is the second largest consumer of Potassium Chloride, third largest of Phosphorus and fourth largest of Nitrogen. Source: Nutrien Fact Book 2018/ IFA Brazil is the fourth largest fertilizer market in the world growing above the global average and has the highest CAGR (Annual Compound Growth Rate) among the largest fertilizer consumers, at 6.5%, twice the figures of the two largest consumer markets, China and India. From 2014 to 2015, consumption dropped by 6.2% in the Brazilian fertilizer market. In 2016, consumption grew by 12.9% recovering the 2015 drop and reaching a new record, which was surpassed in 2017 with a consumption of 34.4 million metric tons. In 2018, a new record in Brazilian fertilizer consumption is estimated at around 35 million metric tons. Page 12 of 72

17 Source: ONU - Rosemberg/ IMF World Economic Database Global GDP is expected to grow by 3.9 % over the next two years, and global per capita income and per capita income in other countries is growing, along with the population, which in 2050 will reach 9.5 billion according to UN estimates. This growth points to the need for increased food production to meet a growing global demand. The sustainable use of fertilizers is one way to increase the productivity of agricultural crops to meet the global demand for food, fiber and energy. GLOBAL GRAIN PRODUCTION IMPACTED BY THE DROUGHT IN ARGENTINA The scenario for soybean in 2018 is positive since prices have risen due to the drought in Argentina, which is the third largest soybean producer in the world (in 2017 it harvested approximately 55 million metric tons of soybeans), which reduces supply of this crop in 2018, causing global supply and demand to nearly match in the current crop. The price of soybean in the international market (CBOT) began the first quarter at approximately USD9.5 a bushel, and ended it at approximately USD10.5 a bushel. In the same period, the price of corn also increased in the CBOT, with effects on the Brazilian market, recording values higher than those practiced in the same period of Therefore, the 2018 scenario for soybean and corn, which are crops responsible for the consumption of about 60% of fertilizers in Brazil, is very positive and tends to provide good demand for fertilizers in the second half of SOYBEANS: BEST SCENARIO FOR 2018 Source: Santander Santander Economia Page 13 of 72

18 BRAZILIAN FERTILIZER MARKET According to ANDA, deliveries in the Brazilian fertilizer market in 1Q18 totaled 6.3 million metric tons, a reduction of 1.3%, mainly due to the reduction in the demand for second-crop corn and sugarcane when compared to 1Q17. Total deliveries of fertilizers in nutrients (NPK) in the first quarter of 2018 reduced by 2.8% reaching 2.75 million metric tons, compared to 2.83 million metric tons in Nitrogen, phosphate and potassium fertilizers decreased by 1.2%, 3.7% and 4.2%, respectively. Mato Grosso State led the deliveries, concentrating the largest volume in the first quarter (22.2%), reaching 1.4 million metric tons, followed by the states of Paraná (13.5%) with 858 thousand metric tons, São Paulo (12.9%) with 818 thousand metric tons, Minas Gerais (12.6%) with 801 thousand metric tons and Goiás (12.2%) with 770 thousand metric tons. Domestic fertilizer production in the first quarter of 2018 reached 1.86 million metric tons, against 1.94 million metric tons in the same period of 2017, corresponding to a reduction of 4.0%. In the analyzed period, nitrogen fertilizer production decreased by 3.1% and phosphate fertilizer production by 2.6%, whereas potassium fertilizer production increased by 6.8% in relation to Imports of fertilizers reached 4.74 million metric tons in 1Q18, a significant reduction of 14.1% in relation to the same period in Nitrogen fertilizers dropped by 20.7%, phosphates by 23.9% and potassium fertilizers grew by 2% in the period analyzed in relation to Through the Paranaguá port, the main fertilizer entry, imports reached 2.08 million metric tons, a decrease of 7.2% in relation to 2017, when 2.24 million metric tons were unloaded and represented 43.9% of total imports across all ports. BRAZILIAN FERTILIZER MARKET DELIVERIES Source: Anda Page 14 of 72

19 BRAZILIAN FERTILIZER MARKET DOMESTIC PRODUCTION Source: Anda BRAZILIAN FERTILIZER MARKET IMPORTS Source: Anda DELIVERIES BY CROP HERINGER Despite the 1.3% drop in deliveries, the volume delivered by Heringer increased by 1.2%, from 856 thousand metric tons in 1Q17 to 866 thousand metric tons in 1Q18. As a result, the Company resumed growth, reaching a market share of 13.6% in the period against 13.2% in 1Q17. In 1Q18, the Company's deliveries for soybean crop dropped by -11.8% in relation to 1Q17 (historically, deliveries for soybean crop in the Brazilian market in this period are incipient). In addition to soybeans, corn (-0.7% in relation to 1Q17) and sugarcane (-3.2% in relation to 1Q17) also dropped. Coffee and other crops recorded an increase in deliveries of 3.3% and 5.7%, respectively, in 1Q18, compared to the same period in Page 15 of 72

20 Heringer has a more diversified delivery profile in relation to the Brazilian market, thus minimizing the volatility associated with the local weather and other specific conditions regarding prices, pests and diseases. DELIVERIES BY CROP SPECIALTY PRODUCTS In 1Q18, delivered volume of specialty products totaled 385 thousand metric tons, 7.7% down from 1Q17, which was 417 thousand metric tons. The CAGR (Composite Annual Growth Rate) for the delivery of special products by the Company was 10.5% in the period from 2007 to The share of specialty products in the Company's total deliveries totaled 44% in 1Q18, 49% down from 1Q17. In spite of the decline in the share of specialty product sales in 1Q18, for 2018 the Company expects to achieve a higher share than the 46% recorded in Heringer continues intensifying its efforts to publicize its specialty product portfolio by participating in the main Brazilian agribusiness fairs and implementing, together with its clients, several demonstration fields, thus proving the superior quality of its specialty products compared with the conventional products available in the market. The Company has also been stepping up the delivery of lectures together with specialized advisors in different Brazilian regions, presenting the agricultural potential of these products to a large number of clients. Heringer has been intensifying the training of both its internal sales team and the sales teams of its distributors in all regions. Heringer continues to invest in R&D to develop new technologies and products that can be added to its three specialty product lines: Solo (specially FH Humics, FH Micro total and FH Nitro Mais ), Ferti and Foliar. Page 16 of 72

21 Heringer provides its clients with a complete vegetable nutrition line. 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. INTERNATIONAL RAW MATERIAL PRICES The prices of phosphate and potassium fertilizers and of urea increased in 1Q18 in relation to the previous quarter, as shown below: Page 17 of 72

22 BRAZILIAN FERTILIZER MARKET AND SEASONALITY In 2018, the Company expects the seasonality observed in Brazil s fertilizer market to be similar to recent years, with approximately 40% of the year s total volume delivered in the first half and nearly 60% in the second half. The 2018 outlook is positive, especially in the second half due to the higher concentration of fertilizer demand from more diversified crops and the improvement in grain prices compared to Heringer estimates that in 2018, the Brazilian fertilizer market will reach a record volume of approximately 35.0 million metric tons, nearly 2% up on The reasons for such fertilizer consumption growth estimate for 2018 are mainly focused on the significant improvement in grain prices (cotton, soybeans and corn). Source: Anda / 2018E Heringer Estimate GRAIN PRODUCTION AND PLANTED AREA According to CONAB's 7 th estimate, the 2017/2018 Brazilian grain crop is expected to reach million metric tons, and although this estimate is 3.4% lower than the last harvest, Brazil is expected to harvest the second-largest crop recorded so far, and the expectation for this 2017/2018 harvest has been revised upwards over the months. The planted area may reach 61.4 million hectares, with yield of 3.74 t/ha, which may correspond to the second-best yield in history. Page 18 of 72

23 Grain: corn, soybean, rice, beans, sorghum, castor bean, cotton, sunflower, barley, rye, canola, oat, peanut, wheat and triticale Total Brazil (all crops) Source: CONAB - 7 th estimate April 2018 FINANCIAL RESULTS 1Q18 INCOME STATEMENTS Delivery volume totaled 866 thousand metric tons of fertilizers in 1Q18, 1.2% higher than the 856 thousand metric tons in 1Q17. First-quarter net revenue came to R$1,041.4 million, 3.5% more than the R$1,006.3 million in 1Q17. We highlight that the average fertilizer price in 1Q18 stood at R$1,203 per metric ton against R$1,176 per metric ton in 1T17, increasing by 2.3%. Gross profit amounted to R$67.4 million in 1Q18, 46.3% down on the R$125.5 million recorded in 1Q17, while the gross margin in 1Q18 stood at 6.5%, lower than the 1Q17 figure of 12.5%. Freight and commissions increased to R$51.6 million in 1Q18, corresponding to 5.0% of net revenue, against R$48.7 million in 1Q17, corresponding to 4.8% of net revenue This figure is mainly concentrated in freight, which increased by approximately 10% per metric ton in relation to the first quarter of Commissions fell by 11.8% in 1Q18 compared to 1Q17, reaching R$10.4 million against R$ 11.9 million in the same period of the previous year. S&A expenses (excluding freight and commissions) totaled R$55.2 million in 1Q18, representing 5.3% of net revenue), an increase of 20.8% compared to R$45.7 million in 1Q17, or 4.5% of net revenue. These expenses are mainly related to the increase in the Foliar team as of 3Q17, a higher provision for doubtful accounts, the increase in expenses from fuels and commercial vehicle fleet leasing, nonexistent in 1Q17, among others. EBITDA was a negative R$28.1 million in 1Q18, lower than the positive EBITDA of R$44.8 million in 1Q17, representing a negative margin of 2.7% of net revenue, while the margin in 1Q17 was a positive 4.5%. Net financial expenses totaled R$34.0 million in 1Q18, higher than the R$21.9 million in 1Q17. This line comprises net interest, discounts granted and expenses related to adjustment to present value, among Page 19 of 72

24 others, totaling a negative R$23.3 million, a negative exchange variation of R$4.6 million and net income from hedge operations amounting to R$6.1 million. Net loss came to R$46.7 million in 1Q18, below the net income of R$7.0 million recorded in 1Q17. 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, 2018, Heringer s total hedge position formed through NDFs came to US$145.1 million, with a weighted average rate of R$3.30. As of March 31, 2018, the Company had no covenants. Despite the continuation of the temporary stoppage of the SSP and sulfuric acid units, their maintenance is at adequate levels. 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. Page 20 of 72

25 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, diversification of clients, and effective credit analysis, thereby reducing the risk of default and losses. Therefore, accounts receivable days stood at 37 days in 1Q18, lower than the 42 days in 1Q17. The reduction in accounts receivables days in 1Q18 was due to the maintenance of the Company s strict credit policy. Inventory days stood at 32 days in 1Q18, below the 45 days in 1Q17. 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 1Q18 at 155 days, versus 146 days in 1Q17. 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. The higher prices of fertilizer raw materials over the last two years impose greater challenges for the management of its working capital in Page 21 of 72

26 CASH FLOW Heringer s cash and cash equivalents closed 1Q18 at R$80.4 million. The main items leading to this difference were: a) Loss before income and social contribution taxes of R$73.7 million; b) Non-cash revenue of R$51.4 million, basically comprising unrealized exchange variation and interest, amortization and depreciation; c) Net decrease of R$248.5 million in asset accounts, basically in inventory reduction; d) Net decrease of R$252.1 million in liability accounts, whose amounts are basically concentrated in the liquidation of suppliers and import financing; e) Net investments of R$4.1 million; f) Positive net cash flow from financing activities of R$43.5 million. TAXES RECOVERABLE Fertilizantes Heringer S.A. had COFINS federal tax credits recorded in under the non-cumulative system related to the third quarter of 2008 and was granted a favorable decision, and the Federal Revenue Service of Brazil expressly and irrevocably recognized the Company s right to the partial refund of the requested amount, and at the end of the first quarter the Federal Government deposited the amount of R$32.7 million. Page 22 of 72

27 HERINGER OWNERSHIP BREAKDOWN Heringer is currently the only fertilizer company listed on B3 (BM&FBOVESPA), which makes it an attractive investment opportunity. Heringer s shares have been listed in the Novo Mercado, B3 s highest corporate governance trading segment, since April 2007 under the ticker FHER3. Some of Heringer s solid fundamentals are: significant growth potential in a competitive market, geographically evenly distributed sales, diversified client base, focus on retail sales, effective logistics and distribution structure, 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. In the first quarter of 2018, Concórdia S.A. Corretora de Valores Mobiliários Câmbio e Commodities ( Concórdia ), informed that through the funds under its management it reached a position/exposure higher than 5% of the total number of common shares that represent the Company s capital stock, declaring that it does not aim to change the Company s control or its administrative structure and that the funds are not part of any agreement or contract that regulates the exercise of voting rights or the acquisition and sale of securities issued by the Company. Page 23 of 72

28 APPENDIX I BALANCE SHEET Page 24 of 72

29 APPENDIX II 1Q18 INCOME STATEMENT Page 25 of 72

30 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. Page 26 of 72

31 1. Operations 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 14, 2018, for disclosure on May 14, Basis of preparation The Quarterly Information (ITR) has been prepared in accordance with accounting practices adopted in Brazil, including (BR GAAP), which correspond to 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. 2.1 Economic and financial situation of the Company At March 31, 2018, the Company had negative working capital amounting of R$ 1,085,440 thousand and loss and accumulated loss for the period amounting to R$ 46,749 and R$ 514,784, respectively. With the expected growth in Brazil's GDP of about 2.8% (management's estimate based on Focus Bulletin - unaudited) in 2018 the Company expects to increase of its net sales revenue. Following the cost rationalizations made in 2016, and the investing in the improvement of sales network for distinguished products in 2017, the Company expected to obtain a better operating result in comparison with 2017 that is aligned with its historical levels, despite the working capital problems caused by the appreciation of the U.S. dollars and the resulting increase in the raw materials for fertilizers acquired using this currency in the last year, in addition to the risks posed by the election for presidency of the Republic to be held in Also, as implemented in 2017, the CAPEX volume is expected to remain low and without affecting the Company's operations. The Company has credit lines with a number of financial institutions and suppliers, some of these were not used during theperiod ended March 31, 2018 or have been renewed up to the date of presentation of these financial statements. The Company s management understandes that these credit lines as well as the generation of funds during the current year are sufficient for the Company to continue as a going concern. Page 27 of 72

32 In addition, with the improved local economic scenario and the expectations regarding the harvest for the grain crop, with effects on the growth of the demand for fertilizers of about 2% (management's estimates - unaudited) for 2018, the Company expects to resume its historical generation of funds and reduce its gearing ratio also by improving the deliveries of distinguished products with higher value added, thus creating a more profitable growth for the subsequent periods 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, The Company adopted all standards, amendments to standards and interpretations issued by the CPC, CVM, IASB and other regulatory agencies, that were effective at March 31, Standards, amendments and interpretations to standards In the quarter ended March 31, 2018, no new standards, amendments and interpretations to standards were issued in addition to those already disclosed in Note 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 Pronouncements applied for the first time in 2018 The Company applied for the first time a number of amendments to standards with effectiveness for years beginning on or after January 1, The nature and the impact of each of the new standards and amendments to standards are described below: IFRS 9/CPC 48 - "Financial instruments": addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014 and is effective as from January 1, It replaces the orientation included in IAS 39/CPC 38 related to the classification and measurement of financial instruments. The main amendments brought by IFRS 9 are: (i) new criteria for the classification of financial assets; (ii) new impairment model for financial assets, which is a hybrid of expected and incurred losses, replacing the current model of incurred losses; and (iii) relaxation of the requirements for adoption of the hedge accounting. Up to December 31, 2017, the Company's financial instruments could be classified into the following categories: i) Financial asset or financial liability measured at fair value through profit or loss; ii) Investments held to maturity; iii) Loans and receivables; and iv) Available-for-sale financial instruments. With IFRS 9/CPC 48, Financial Instruments, effective as from January 1, 2018, the classification can be made in three different categories: i) Amortized cost; ii) Fair value through other comprehensive income; or iii) Fair value through profit or loss. Page 28 of 72

33 The Company assessed the impacts of the amendments to the standard and concluded that its financial assets, which were previously classified as loans and receivables, will be classified in the following categories: Up to December 31, 2017 Classification As from January 1, 2018 Assets as per balance sheet Cash and cash equivalents Loans and receivables Amortized cost (**) Trade receivables Loans and receivables Fair value through profit or loss and/or amortized cost(*) Other assets, excluding advances made Loans and receivables Amortized cost (**) Judicial deposits Loans and receivables Amortized cost (**) Derivative financial instruments Derivative financial instruments at fair value through profit or loss Derivative financial instruments at fair value through profit or loss (**) (*) The Company negotiates part of its trade receivables with financial institutions by anticipating the balances of these receivables ("Credit Rights Investment Funds" (FIDC)). In these cases, the Company does not derecognize the financial asset because of the right of recourse held by the financial institution. For these securities, the balances are classified as financial assets at fair value through profit or loss. Other receivables are classified as financial assets at amortized cost. (**) in practical terms, there was no impact on the measurement of the financial assets resulting from such amendment, because the Company's financial assets that had been classified as loans and receivables have already been accounted for at amortized cost. (***) there is no impact in classification and/or measurement. The impact on the initial adoption of IFRS 9/CPC 48, Financial instruments arises only from the change in measurement of outstanding Credit Rights Investment Funds (FIDCs) on January 1, The adjustment is accounted for in the opening balance of R$ 5,829, net of deferred taxes. The Company opted to not restate the previous balances and to account for the adjustment as reduction of equity on January 1, 2018 within accumulated deficit. There will be no impact on the classification and measurement of financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Company does not adopt such classification. Page 29 of 72

34 Regarding the new template concerning the impairment of financial assets, the Company reviewed its criteria for recognizing provisions for impairment of its financial assets, mainly those related to sales and trade receivables, and changed from a incurred loss assessment template to the expected and incurred loss assessment template. This assessment was based on actual losses incurred in the last nine years. As a result of this adoption, no material adjustment was identified by the Company. IFRS 15/CPC 47 - "Revenue from Contracts with Customers": replaces IAS 11, "Construction Contracts", IAS 18, "Revenue" and related interpretations and introduces the principles to be applied by an entity to determine the measurement and recognition of revenue. This standard is based on the principle that revenue is recognized when the control of a good or service is transferred to a customer, so the control principle will replace the principle of risks and rewards. The Company assessed the effects of the initial adoption of the standard, including the five-step model: i) identify the contract; ii) identify the performance obligations in the contract; iii) determine the transaction price; iv) allocate the transaction price; and v) recognize revenue. As a result of this assessment, the Company did not identify any relevant adjustment in its financial statements. Management adopted the new rules on January 1, 2018, using the modified retrospective approach, which means that the comparative figures for the prior year were not restated Restatement of comparative figures For adequacy to the presentation of the financial statements, during the period ended March 31, 2018, only the judicial deposits linked to the provision for contingencies originally recorded within judicial deposits and amounting to R$ 5,935 at March 31, 2017 were reclassified to provision for contingencies. The reclassification also impacted the cash flow by R$ 406 in the quarter ended March 31, 2017, within Judicial Deposits and Provision for Contingencies, net, in operating activities. There were no impacts on the statements of income, comprehensive income, changes in equity, and value added for the year ended December 31, In addition, management identified the necessity to reclassify the statement of cash flows according to the presentation of the changes in the contracting flows and payment of principal of borrowings originally presented in the statement of cash flows at March 31, These amendments generated no impacts on the balance sheet and on the statements of income, comprehensive income, changes in equity, and value added for the quarter then ended. As previously presented Adjustments Original balance Cash flow from financing activities New borrowings 588,333 (220,939) 367,394 Payment of borrowing principal (521,693) 220,939 (300,754) Net cash (used in) provided by financing activities 66,640-66,640 Page 30 of 72

35 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 without penalties within 90 days from the investment date. Average rate March 31, 2018 December 31, 2017 Cash - bank current account 50,482 55,255 Financial investments Bank Deposit Certificates (CDB) (i) 79.0% of CDI 29,915 11,595 80,397 66,850 (i) 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. 4. Trade receivables Trade receivables are amounts due from customers for sales made in the ordinary course of the Company's business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method, less estimated impairment of trade receivables. The estimated loss with impairment of trade receivables is established based on the historical averages on losses incurred by the Company. The Company analyzes at least on a quarterly basis whether there is objective evidence of impairment in its trade receivables. The assessment of the evidence 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. Page 31 of 72

36 March 31, 2018 December 31, 2017 Domestic trade receivables 491, ,403 Foreign trade receivables 385 1,961 Adjustment to fair value - negotiated subportfolio of receivables (6,650) (FIDC) (5,829) Adjustment to present value (3,650) (4,463) 481, ,072 Estimated and incurred loss for impairment of trade receivables (41,254) (38,365) 440, ,707 Current (440,332) (437,688) Non-current At March 31, 2018 and December 31, 2017, the adjustment to present value was calculated based on all sales with a collection term of more than 30 days, with nominal interest of 1.50% per month (1.50% at December 31, 2017), using discounted cash flows. The realization of the adjustment to present value is recorded in the statement of income for the year under "Finance income". At March 31, 2018 and December 31, 2017, the fair value was calculated based on the negotiated trade receivable subportfolio, considering the effective interest rate of the traded securities. The balances of foreign trade receivables are denominated in U.S. dollars. At March 31, 2018 and December 31, 2017, none of the Company's customers represented more than 10% of the Company's total revenue or balances receivable. The fair values of trade receivables approximate their carrying amounts and At March 31, 2018, R$ 87,545 in trade receivables (December 31, R$ 51,062) were overdue and not provided for, 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, 2018 December 31, 2017 Up to 3 months 39,415 1,653 3 to 6 months 1, Over 6 months 46,667 48,566 87,545 51,062 At March 31, 2018, the Company has a provision for estimated or incurred impairment of trade receivables amounting to R$ 41,254 (R$ 38,365 at December 31, 2017), whose maturity analysis is as follows: Page 32 of 72