Quarterly Information - ITR Fertilizantes Heringer S.A.

Transcription

1 Quarterly Information - ITR Fertilizantes Heringer S.A.

2 Quarterly information - ITR Contents Independent auditor s report on quarterly information... 1 Quarterly information Balance sheets... 3 Statements of operations... 5 Statements of comprehensive income (loss)... 6 Statements of changes in equity... 7 Cash flow statements... 8 Statements of value added Notes to quarterly information... 11

3 Edifício Trade Tower Av. José de Souza Campos, 900 1º e 3º andares Nova Campinas Campinas SP - Brasil Tel: (5519) Fax: (5519) ey.com.br A free translation from Portuguese into English of Independent Auditor s Review Report on Quarterly Information (ITR) prepared in Brazilian currency in accordance with accounting practices adopted in Brazil, and in accordance with IAS 34 - Interim Financial Reporting, issued by International Accounting Standards Board (IASB) Independent auditor s report on quarterly information The Shareholders, Board of Directors and Officers Fertilizantes Heringer S.A. Introduction We have reviewed the accompanying interim financial information of Fertilizantes Heringer S.A. ( Company ), contained in the Quarterly Information Form (ITR) for the quarter ended September 30, 2015, which comprises the balance sheet as at and the related statements of operations, of comprehensive income (loss), of changes in equity and of cash flows for the nine-month period then ended, including explanatory information. Management is responsible for the preparation of the interim financial information in accordance with Accounting Pronouncement CPC 21 (R1) and IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), as well as for the presentation of this financial information in accordance with the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR). Our responsibility is to express a conclusion on these interim financial statements based on our review. Scope of review We conducted our review in accordance with Brazilian and International Standards on Review Engagements (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 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. 1 Uma empresa-membro da Ernst & Young Global Limited

4 Conclusion on the interim financial information Based on our review, nothing has come to our attention that causes us to believe that the interim financial information included in the quarterly information referred to above was not prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34 applicable to the preparation of Quarterly Information (ITR), and presented consistently with the rules issued by the Brazilian Securities and Exchange Commission (CVM). Other matters Statements of value added We have also reviewed the Statements of Value Added (SVA) for the nine-month period ended, prepared under the responsibility of Company management, the presentation of which in the interim financial information is required by the rules issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the preparation of Quarterly Information (ITR), and as supplementary information under the IFRS, whereby no SVA presentation is required. This statement has been subject to the same review procedures previously described and, based on our review, nothing has come to our attention that causes us to believe that it was not prepared, in all material respects, consistently with the overall interim financial information. Campinas, November 6, ERNST & YOUNG Auditores Independentes S.S. CRC-2SP015199/O-6 Luís Alexandre Marini Accountant CRC-1SP182975/O-5 2

5 A free translation from Portuguese into English of Quarterly Information (ITR) prepared in Brazilian currency in accordance with accounting practices adopted in Brazil, and in accordance with IAS 34 - Interim Financial Reporting, issued by International Accounting Standards Board (IASB) Fertilizantes Heringer S.A. Balance sheets and December 31, 2014 Note 09/30/ /31/2014 Assets Current assets Cash and cash equivalents 3 158, ,908 Trade accounts receivable 4 735, ,570 Inventories 5 1,394, ,771 Taxes recoverable 6 162, ,136 Income and social contribution taxes recoverable 7.a 10,136 27,044 Derivative financial instruments 8 110,445 36,345 Rebates on purchases 58,490 30,185 Other assets 37,466 32,413 2,667,606 2,209,372 Noncurrent assets Trade accounts receivable 4 5, Taxes recoverable 6 277, ,369 Income and social contribution taxes recoverable 7.a 151,839 89,379 Other assets 10,433 14,575 Deferred income and social contribution taxes 7.b 205,077 3,173 Tax credits acquired , ,145 Judicial deposits 13 33,834 28,101 Property, plant and equipment , ,057 Intangible assets 7,601 7,919 1,434,744 1,101,709 Total assets 4,102,350 3,311,081 3

6 Note 09/30/ /31/2014 Liabilities and equity Current liabilities Trade accounts payable 11 1,405,004 1,284,293 Loans and financing 12 1,961,984 1,234,302 Payroll and social charges 27,676 22,338 Taxes payable 2,410 2,222 Advances from customers 311, ,313 Derivative financial instruments 8 13, Other liabilities 53,981 46,012 3,776,088 2,757,903 Noncurrent liabilities Loans and financing ,711 97,199 Provision for contingencies 13 12,317 10, , ,968 Total liabilities 3,910,116 2,865,871 Equity 14 Capital 585, ,746 Equity adjustment 42,696 43,415 Accumulated losses (435,980) (46,951) Total equity 192, ,210 Total liabilities and equity 4,102,350 3,311,081 See accompanying notes. 4

7 Statements of operations Three- and nine-month periods ended and 2014 (In thousands of reais, except for loss per share) Note Quarter ended 09/30/2015 Nine-month period ended Quarter ended 09/30/ /30/2014 Nine-month period ended 09/30/2014 Net operating revenue 16 2,011,860 4,589,086 1,832,970 4,134,998 Cost of sales and services 17 (1,853,850) (4,227,646) (1,593,367) (3,624,977) Gross profit 158, , , ,021 Operating income and expenses Selling expenses 17 (114,462) (277,823) (114,227) (267,138) General and administrative expenses 17 (24,242) (68,441) (23,310) (68,312) Other operating expenses, net 47,686 49,628 6,727 6,155 (91,018) (296,636) (130,810) (329,295) Income (loss) before financial income and expenses 66,992 64, , ,726 Financial income and expenses Exchange gains (losses), net 18 (671,141) (1,038,663) (186,025) (98,317) Financial income (expenses), net , ,207 77,475 (40,798) (384,926) (656,456) (108,550) (139,115) Income before income and social contribution taxes (317,934) (591,652) ,611 Income and social contribution taxes 7.c 108, ,904 (24) (11,918) Income (loss) for the period (209,553) (389,748) ,693 Weighted average number of common shares (in thousands) 53,857 53,857 48,471 48,471 Basic and diluted earnings (loss) per share 15 (3.8909) (7.2367) See accompanying notes. 5

8 Statements of comprehensive income (loss) Three- and nine-month periods ended and 2014 Quarter ended 09/30/2015 Nine-month period ended Quarter ended 09/30/ /30/2014 Nine-month period ended 09/30/2014 Income (loss) for the period (209,553) (389,748) ,693 Other comprehensive income (loss) Comprehensive income (loss) for the period (209,553) (389,748) ,693 See accompanying notes. 6

9 Statements of changes in equity Nine-month period ended and 2014 Capital Equity adjustment Accumulated losses Total Balance at January 1, ,746 44,497 (56,000) 437,243 Income for the period ,693 29,693 Realization of deemed cost, net of deferred income and social contribution taxes - (812) Balances at September 30, ,746 43,685 (25,491) 466,940 Balance at January 1, ,746 43,415 (46,951) 445,210 Share issue 145, ,419 Share issue cost (8,647) - - (8,647) Loss for the period - - (389,748) (389,748) Realization of deemed cost, net of deferred income and social contribution taxes - (719) Balances at 585,518 42,696 (435,980) 192,234 See accompanying notes. 7

10 Cash flow statements Nine-month period ended and 2014 Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Cash flow from operating activities Income (loss) before income and social contribution taxes (591,652) 41,611 Non-cash income (expenses): Allowance for doubtful accounts 11,892 1,855 Provision for inventory losses 5,572 4,198 Depreciation and amortization 38,395 35,329 Loss (gain) on disposal of property, plant and equipment (3,722) (1,703) Provision for adjustment at market value of assets held for sale 40 (126) Unearned interest on debentures 21,616 28,047 Provision for vacation pay, 13th month salary and profit sharing 6,222 5,180 Provision for contingencies, net 1,548 (277) Interest and financial charges on noncurrent assets (30) (12,980) Interest and financial charges on current assets and liabilities - 3,973 Unrealized interest and exchange variation on trade accounts receivable, imports in transit, accounts payable and loans and financing 400, ,127 Unrealized swap (60,589) (31,375) (170,469) 212,859 Increase (decrease) in asset accounts Trade accounts receivable 11,623 (105,552) Inventories (538,967) (392,676) Taxes recoverable (94,708) (88,665) Other assets (552) (2,424) Judicial deposits (4,418) (2,977) Rebates on purchases (28,140) (928) Increase (decrease) in liabilities Trade accounts payable 34,699 (78,360) Import financing taken out 1,786,531 1,396,732 Payment of principal of import financing (1,349,901) (1,056,614) Payroll and social charges (885) (1,001) Taxes payable 188 (6,107) Advances from customers 142,785 11,409 Other accounts payable 9,823 (122) Cash used in operating activities (31,922) (327,285) Interest paid on loans and financing (68,824) (48,871) Net cash used in operating activities (271,215) (163,297) 8

11 Cash flow statements (Continued) Nine-month period ended and 2014 Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Cash flow from investing activities Payment for acquisition of subsidiary, net of acquired cash (3,700) (3,700) Additions to investments (3) (3) Acquisition of property, plant and equipment (73,369) (51,428) Proceeds from sales of property, plant and equipment 8,215 4,042 Additions to intangible assets (299) (419) Net cash used in investing activities (69,156) (51,508) Cash flow from financing activities Loans and financing taken out 138,565 81,180 Payment of principal of loans and financing (89,983) (47,535) Capital increase 136,772 - Net cash provided by financing activities 185,354 33,645 Net decrease in cash and cash equivalents (155,017) (181,160) Cash and cash equivalents at beginning of period 313, ,458 Cash and cash equivalents at end of period 158, ,298 See accompanying notes. 9

12 Statements of value added Nine-month period ended and 2014 Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Revenues Sales of goods, products and services 4,639,698 4,172,776 Other revenues 61,106 12,169 Revenue from construction of own assets 41,872 27,178 Set up, reversal and recovery of doubtful accounts (11,807) (1,773) 4,730,869 4,210,350 Inputs acquired from third parties Cost of goods and products sold and services rendered (4,206,094) (3,588,938) Materials, energy, third-party services and other expenses (386,922) (345,057) Loss/recovery of assets (19,499) (15,132) Other (2,954) (1,594) (4,615,469) (3,950,721) Gross value added 115, ,629 Depreciation and amortization (38,394) (35,328) Net value added produced 77, ,301 Value added received in transfer Equity pickup - - Financial income 921, ,429 Other 1, , ,011 Total value added to be distributed 1,000, ,312 Distribution of value added Personnel Direct compensation 101,848 98,985 Benefits 32,936 31,919 Unemployment Compensation Fund (FGTS) 6,637 6, , ,061 Taxes, duties and contributions Federal (216,425) (11,567) State (83,512) (60,308) Municipal (299,199) (71,056) Debt remuneration Interest 1,523, ,489 Rent 9,730 9,784 Other 14,503 16,341 1,547, ,614 Equity remuneration Income (loss) for the period (389,748) 29,693 (389,748) 29,693 Total value added distributed 1,000, ,312 See accompanying notes. 10

13 Notes to quarterly information 1. Operations Fertilizantes Heringer S.A. ( Heringer or Company ), headquartered in the municipality of Viana, Espírito Santo state, is primarily engaged in the manufacturing and sale of fertilizers. The Company currently owns 22 mixing units distributed over the Southeastern, Central-Western, Southern and Northeastern regions of Brazil and 2 sales offices located in Bahia and Paraná states, and 1 warehouse in Rio Grande do Sul state. It should be stressed that Heringer also has a Sulfuric Acid Unit and a Single Super Phosphate (SSP) plant in Paraná State, in addition to a mixing unit included above. In March 2015, the Company entered into a share purchase and sale agreement with PCS Sales (Canada) INC. whereby, under the terms and conditions established, the Individual controlling shareholders disposed of 5,116,441 (five million, one hundred sixteen thousand, four hundred forty-one) registered common no par-value book entry shares, issued by the Company and held by them, jointly representing 9.5% (nine point five percent) of the Company s total capital. This transaction is subject to fulfilment of certain conditions precedent, including regulatory approvals applicable to transactions of this nature. Approval by Brazil s Administrative Council for Economic Defense (CADE) was published in the Federal Official Gazette (DOU) on August 10, In September 2015, the Company entered into a financing agreement with the National Bank for Economic and Social Development (BNDES) and took out a credit facility in the amount of R$110,184 on behalf of the Company. This financing arrangement is repayable within eight years (including a 2-year grace period) and is intended for the construction of fertilizer mixing units in Candeias, Bahia state, Rio Grande, Rio Grande do Sul state, and Rondonópolis, Mato Grosso state. Common shares issued by the Company are traded in the special segment of the São Paulo Stock Exchange (BM&FBOVESPA) named Novo Mercado (New Market), under ticker symbol FHER3. Approval of financial statements The annual financial statements were approved by the Company Board of Directors on November 6, 2015 and authorized for disclosure on November 12,

14 2. Accounting practices 2.1. Basis of preparation The Company s interim financial information for the periods ended and 2014 was prepared in accordance with Accounting Pronouncement CPC 21 - Interim Financial Reporting, issued by the Brazilian Financial Accounting Standards Board - FASB (CPC), and IAS 34 - Interim Financial Reporting. Accordingly, and as described in CVM/SNC/SEP Memorandum Circular No. 03/2011, the Company chose to present summarized notes to interim financial information for the cases of redundancy in relation to what was presented in the financial statements at December 31, For these cases, the complete disclosure of notes to annual financial statements was indicated to avoid misunderstanding of the Company s financial positions and performance during the interim period. Therefore, the interim financial information must be read jointly with the financial statements at December 31, The Company s interim financial information only differs from the IFRS because the Brazilian Corporation Law requires that publicly-held companies present the statement of value added in their interim financial information whilst, for IFRS purposes, such information is presented as supplementary information Summary of significant accounting practices The accounting practices adopted for preparing the interim financial information are consistent with those disclosed in Note 2.2 to the financial statements at December 31, The Company adopted all standards, revised standards and interpretations issued by the Brazilian FASB (CPC), the Brazilian Securities and Exchange Commission (CVM), the IASB and other regulators that were effective as at December 31, Standards, amendments and interpretations to standards In the period ended, no new standards, amendments and interpretations to standards were issued, in addition to those disclosed in Note 2.3 to the Company s financial statements for the year ended December 31, In addition, no changes in relation to expected and disclosed impacts were observed in those financial statements that could affect the interim financial information of such period. 12

15 3. Cash and cash equivalents The Company considers cash equivalents short-term investments readily convertible into a known cash amount and subject to a low risk of change in value. Cash and cash equivalents are held by the Company for the purpose of meeting short-term cash commitments rather than for investment or any other purposes. These refer to investments in Bank Deposit Certificates (CDB) and repurchase agreements (operations subject to a repurchase agreement by the financial institution), redeemable within 90 days from investment date. Average rate 09/30/ /31/2014 Cash and cash equivalents 83,338 45,662 Short-term investments Bank Deposit Certificates (CDBs) (i) 99.6 % of CDI 13, ,100 Debentures repurchase agreements (ii) 99.3 % of CDI 62, , , ,908 (i) These are represented by DI (Interbank Deposit) fund shares. These investments were contracted from top-tier financial institutions and are remunerated based on percentages of variation in the Interbank Deposit Certificates (CDI), immediately redeemable. (ii) These refer to operations carried out with prime financial institutions, immediately redeemable and repurchase agreements by the financial institutions themselves. 4. Trade accounts receivable Trade accounts receivable are initially valuated at fair value, and subsequently measured at amortized cost using the effective interest rate method less allowance for doubtful accounts. The allowance for doubtful accounts is set up when there is objective evidence that the Company will not be able to collect all amounts due by its customers. The evaluation of impairment existence is based on individual analysis of default customers, considering their payment capacity, guarantees provided and assessment of lawyers and specialized collection companies. 09/30/ /31/2014 Domestic trade accounts receivable 785, ,502 Foreign trade accounts receivable 3,155 8,666 Present value adjustment (10,731) (11,347) 778, ,821 Allowance for doubtful accounts (37,152) (25,260) 741, ,561 Current (735,925) (762,570) Noncurrent 5,

16 4. Trade accounts receivable (Continued) At, present value adjustment was calculated based on all sales transactions above 30 days sales outstanding, at nominal interest of 1.39% per month through the discounted cash flow method. The reversal of present value adjustment is recorded in P&L for the year under Financial expenses. The foreign trade accounts receivable balance is denominated in US dollars. At and December 31, 2014, none of the Company s customers represented more than 10% of total revenues or receivable balance. At, trade accounts receivable amounting to R$ 96,253 (R$ 74,824 at December 31, 2014) are past due. The Company did not set up an allowance for doubtful accounts for such amounts, as they refer to a number of independent customers who have no recent history of default, therefore, no losses on these amounts are expected, or for which the Company has security interest. The aging list of these accounts receivable is as follows: 09/30/ /31/2014 Within 3 months 28,343 21,022 From 3 to 6 months 17,648 8,397 Above 6 months 50,262 45,405 96,253 74,824 At, the Company has an allowance for doubtful accounts in the amount of R$ 37,152 (R$ 25,260 at December 31, 2014). The aging list of these trade accounts receivable is as follows: 09/30/ /31/2014 Within 6 months 14 1,222 Above 6 months 37,138 24,038 37,152 25,260 At the periods ended and 2014, changes in allowance for doubtful accounts were as follows: 09/30/ /30/2014 Opening balance 25,260 24,110 Set up of provision (i) 11,892 1,856 Closing balance 37,152 25,966 (i) Recorded under Selling expenses, in P&L for the period. The maximum exposure to credit risk at the reporting date is the book value of each class of the above-mentioned receivables. 14

17 5. Inventories Inventories are stated at cost or net realizable value, whichever is lower. Costs incurred in bringing each product to its current location and conditions are accounted as follows: (i) raw and packaging materials - average acquisition cost, using the weighted moving average; and (ii) cost of finished products and work-in-process - raw materials, labor, other direct costs and related general production overheads, based on normal operating capacity. Imports in progress are recorded at the accumulated cost of each import. 09/30/ /31/2014 Raw and packaging materials 1,046, ,584 Imports in transit 325, ,976 Advances to suppliers 9,896 14,315 Storeroom 18,301 15,942 Provision for inventory loss (i) (5,573) - Provision for adjustment at market value (ii) - (2,046) 1,394, ,771 (i) This refers to a provision for inventory shortage of raw materials and finished products. Such provision is recorded over the year and written off at the end of the year, after inventory counting and consequent loss measurement. (ii) Refers to provision for raw material waste, whose average inventory cost was higher than the replacement cost or realization values. 6. Taxes recoverable 09/30/ /31/2014 Contribution Tax on Gross Revenue for Social Security Financing (COFINS) (i) 266, ,763 State VAT - ICMS (ii) 85,772 77,219 Provision for discount on sale of ICMS credits (ii) (8) (8) Contribution Tax on Gross Revenue for Social Integration Program (PIS) (i) 56,621 49,386 Withholding Income Tax (IRRF) on financial instruments 29,769 40, , ,505 Current (162,088) (146,136) Noncurrent (iii) 277, ,369 (i) These will be recovered partially through the Company s transactions and partially through reimbursement requests, in the total original amount of R$ 227,361, filed in the Brazilian Internal Revenue Service between August 2009 and September 2015, as well as through the request for offset with other taxes administered by the Brazilian IRS (RFB). (ii) These will be used for acquisition of property, plant and equipment and production inputs, and also in the ordinary course of the Company operations. At, the Company had approval to transfer credits with São Paulo state authority amounting to R$ 6,391 and awaits approval to transfer credits with São Paulo state authorities amounting to R$ 8,554, with Minas Gerais state authority amounting to R$ 22,489, and with Bahia state authority amounting to R$ 3,005. (iii) Refers substantially to PIS and COFINS credits, which should be realized between 2016 and

18 7. Income and social contribution taxes Current tax assets and liabilities of last and prior years are measured at the estimated amount recoverable from or payable to tax authorities. Tax rates and laws used to calculate the amounts are those in force, or substantially in force, at the balance sheet date in the countries in which the Company operates and produces taxable income. Current income and social contribution taxes related to items directly recognized in equity are also recognized in equity. From time to time management reviews the tax position in situations in which interpretation of tax regulation is required, and sets up provisions as appropriate. There are uncertainties regarding the interpretation of complex tax regulations, and the amount and timing of future taxable profit/loss. Given the long-term nature and complexity of existing contractual agreements, differences between the actual results and the assumptions made, or future changes to such assumptions, could require future adjustments to tax income and expenses already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of these provisions is based on various factors, such as past tax audit experience and differing interpretations of tax regulations by the taxable entity and by the relevant tax authority. These different interpretations may arise in a wide variety of issues, depending on the prevailing conditions in the respective domicile of the companies included in the financial statements. Deferred income and social contribution taxes ( deferred tax ) are recognized on temporary differences, at period end, between assets and liabilities recognized in the financial statements and corresponding tax bases used in computing taxable profit, including income and social contribution tax losses, where applicable. Deferred tax liabilities are generally recognized on all taxable temporary differences, and deferred tax assets are recognized on all deductible temporary differences only when the Company is likely to recognize future taxable profit at an amount sufficient for such deductible temporary differences to be used. Deferred tax assets and liabilities are measured at the tax rate expected to be applied in the year in which the asset or liability will be realized or settled, based on the tax rates (and tax law) in force at the balance sheet date. 16

19 7. Income and social contribution taxes (Continued) The recoverability of deferred tax assets is reviewed at the end of each reporting period and adjusted by the amount that is expected to be recovered. Deferred tax assets are recognized for all unused tax losses to the extent that taxable profit will likely be available to allow the use of such losses. Significant judgment from management is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profit, together with future tax planning strategies. Current and deferred income and social contribution taxes are recognized as expenses or revenue in P&L for the year, except when these are related to items recorded under other comprehensive income (loss), when applicable. a) Breakdown of income and social contribution taxes recoverable 09/30/ /31/2014 Income tax recoverable 143,496 99,829 Social contribution tax recoverable 18,479 16, , ,423 Current (10,136) (27,044) Noncurrent 151,839 89,379 These will be recovered partially through the Company s transactions and partially through reimbursement requests, in the total amount of R$ 51,031, restated by reference to the SELIC benchmark rate, filed in the Brazilian Internal Revenue Service between August 2009 and September 2015, as well as through the request for offset with other taxes administered by the Brazilian IRS (RFB). b) Breakdown of deferred income and social contribution taxes At and December 31, 2014, the deferred asset and liability balances were as follows: 09/30/ /31/2014 Assets: Income and social contribution tax losses 258,347 39,186 Temporary differences Provision for sales commissions 4,676 4,478 Amortized goodwill of merged investor company Provision for contingencies 4,188 3,662 Allowance for doubtful accounts 3,670 2,736 Present value adjustment 5,491 4,660 Provision for inventory loss and market value adjustment 1, Provision for losses on realization of assets held for sale Unrealized loss on derivative financial instruments 4, Other temporary differences 1,564 1, ,903 57,766 17

20 7. Income and social contribution taxes (Continued) b) Breakdown of deferred income and social contribution taxes (Continued) Liabilities: 09/30/ /31/2014 Unrealized gain on derivative financial instruments (37,551) (12,357) Present value adjustment (4,304) (5,044) Property, plant and equipment deemed cost (i) (27,115) (27,613) Property, plant and equipment review of useful life (ii) (6,516) (5,869) Other (4,340) (3,710) (79,826) (54,593) Net 205,077 3,173 (i) Refers to deferred taxes on deemed cost of property, plant and equipment, arising from their recognition at fair value upon first-time adoption of CPC 27. (ii) Refers to deferred taxes on depreciation of property, plant and equipment generated after review of the economic useful life of the assets. Based on a technical study, the Company expects to fully recover tax credits in the following years: Year 09/30/ , , , , , , , ,903 Considering that basis of income and social contribution taxes on net profit comprises not only profit to be generated, but also non-taxable income, nondeductible expenses, tax incentives and other variables, there is no immediate correlation between net profit of the Company and income and social contribution taxes, net. Accordingly, the expected use of tax credits must not be taken as the sole indication of the Company s future results. 18

21 7. Income and social contribution taxes (Continued) c) Reconciliation of income and social contribution tax expense (income) Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Quarter ended 09/30/2015 Quarter ended 09/30/2014 Income before income and social contribution taxes (317,934) (591,652) ,611 Tax nominal rate 34% 34% 34% 34% Income and social contribution taxes at statutory rate 108, ,162 (83) (14,148) Adjustments for statement of effective tax rate: Tax benefits and grants 672 2, ,175 Equity pickup Goodwill on acquisition of merged company (21) Other (389) (1,589) (483) (924) 108, ,904 (24) (11,918) Income and social contribution tax expense Current ,849 (2,379) Deferred 108, ,904 (21,873) (9,539) 108, ,904 (24) (11,918) Effective tax rate 34% 34% 10% 29% d) Changes in deferred tax assets and liabilities Assets Liabilities Net Balance at January 1, ,406 (47,433) 56,973 Deferred taxes on realization of deemed cost to property, plant and equipment stemming from the depreciation of these assets Tax effect on changes in temporary differences 2,697 (11,715) (9,018) Tax effect on the income and social contribution tax losses for the period (1,350) - (1,350) Balance at September 30, ,753 (58,602) 47,151 Balance at January 1, ,766 (54,593) 3,173 Deferred taxes on realization of deemed cost to property, plant and equipment stemming from the depreciation of these assets Tax effect on changes in temporary differences 7,976 (25,731) (17,755) Tax effect on the income and social contribution tax losses for the period 219, ,161 Balance at 284,903 (79,826) 205,077 19

22 7. Income and social contribution taxes (Continued) e) Law No /2014 The Company analyzed the potential effects of Law No /2014 and concluded that these effects are immaterial on Company operations and financial information for the period ended, based on the best understanding of referred to law. The Company will adopt Law No /2014 for Derivative financial instruments A summary of derivative financial instruments, represented by Non-Deliverable Forwards (NDF) is as follows: Notional value Fair value Instrument curve Gains (losses) incurred in the period 09/30/ /31/ /30/ /31/ /30/ /31/ /30/ /30/2014 Long position Foreign currency 1,330,592 1,067, , , , , ,871 Short position (1,330,592) (1,067,025) (13,935) (681,578) - (681,578) (55,793) (162,313) Total ,510 35,922-38, ,234 (11,342) Gains and losses on transactions involving derivatives are recognized monthly in P&L for the period, based on the fair value of these instruments (Note 21). a) Description of contracts At, the Company had derivative agreements with the purpose of reducing the effects of exchange gains/losses on its liabilities denominated in foreign currency. The Company held Non-Deliverable Forward (NDF) contracts in the total nominal amount of R$ 1,330,592 at a R$ 3.71 to U$ 1.00 forward exchange rate. b) Maturity of contracts At, referred to derivative contracts mature as follows: US dollars (US$) Within 1 month 109,754 From 1 to 2 months 103,927 From 3 to 4 months 121, ,917 20

23 8. Derivative financial instruments (Continued) c) Fair value of derivative financial instrument calculation method Options and swap contracts are carried at present value, at the market rate at the reporting date, of future cash flows calculated through application of contractual rates up to expiry date, based on the US dollar and euro projections included in the futures contracts registered with BM&FBOVESPA. 9. Transactions with related parties Fertilizantes Heringer S.A. is controlled by Dalton Dias Heringer, Dalton Carlos Heringer and Juliana Heringer Rezende, who jointly hold 51.48% of Company shares; OCP International Coöperatieve U.A. (OCP) holds 10% of shares; PCS Sales (Canada) INC. (PCS) holds 9.5% of shares and the remaining 29.02% of shares are held by various investors, and no single investor holds more than 5% of shares. a) Transactions and balances The transactions realized between the Company and related parties consist of commercial transactions, including the lease of a property and other operations, and can be summarized as follows: 09/30/ /31/2014 Assets Accounts receivable (i) Dalton Dias Heringer Other accounts receivable Dalton Dias Heringer (ii) PCS (iii) 9,334 - OCP (iii) 5,860-15, , (i) These arise from the sales of the Company's products in the ordinary course of business. (ii) Sale of property, plant and equipment items in (iii) These arise from performance bonus according to the supply agreement between the parties. 09/30/ /31/2014 Liabilities Accounts payable (i) PCS 94,742 - OCP 25, ,622 - (i) These arise from purchases of inputs made in the ordinary course of business. 21

24 9. Transactions with related parties (Continued) a) Transactions and balances (Continued) Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Three-month period ended 09/30/2015 Three-month period ended 09/30/2014 P&L Sales revenue Dalton Dias Heringer (i) 534 1, Paulo de Araújo Rodrigues 1 2,245-1, , ,464 Cost of sales Dalton Dias Heringer 1,910 2, Paulo de Araújo Rodrigues - 1,875-1,632 PCS (ii) 104, ,794 - OCP (ii) 226,613-50, ,317 3, ,233 2,514 Other operating income Dalton Dias Heringer PCS (iii) 9,336-9,336 - OCP (iii) 4, , ,889 4 Purchases Dalton Dias Heringer 301 1, PCS 225, ,730 - OCP 491, , ,878 1, , (i) (ii) (iii) These arise from sale at market value of by-products originated from the production process. Raw material used in the period. Performance bonus. Sales and purchases involving related parties are carried out at usual market prices and conditions. The outstanding balances at period end do not have guarantees and are settled in cash. No guarantees were provided or received in relation to any accounts receivable or payable involving related parties. In the first quarter of 2015, the Company and its current OCP and PCS shareholders entered into agreements for the purchase of phosphate and potassium fertilizers, respectively, effective for 10 years (renewable for additional 5 years). The agreement entered into with OCP provides for a minimum volume of three hundred and twenty thousand tons a year. 22

25 9. Transactions with related parties (Continued) b) Key management personnel compensation Key management personnel include directors and officers. For the periods ended September 30, 2015 and 2014, management compensation was as follows: 09/30/ /30/2014 Payroll and related charges 2,782 2,121 Management fees 1,756 1,437 Severance payments Profit sharing Private pension plan Other ,026 4, Property, plant and equipment Property, plant and equipment are stated at cost, net of accumulated depreciation and/or accumulated losses from impairment, where applicable. Such cost includes the cost of replacing part of property, plant and equipment and borrowing costs for long-term construction projects, if the recognition criteria are met. Depreciation is calculated by the straight-line method, according to the rates below: Land is not depreciated. Depreciation rate - % p.a. Nominal Weighted average Buildings and constructions From 1.5 to 25 2,6 Machinery, equipment and industrial facilities From 4 to Other From 10 to An item of property, plant and equipment is derecognized on disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising from derecognition of an asset (measured as the difference between the net sale price and the carrying amount of the asset) is recognized in the statement of operations when the asset is derecognized. The net book value and useful life of assets and depreciation methods are reviewed at year end, and adjusted prospectively, when applicable. Certain property, plant and equipment items, amounting to R$ 155,715 at (R$ 166,966 at December 31, 2014), were pledged as collateral in transactions with suppliers and for financing transactions. 23

26 10. Property, plant and equipment (Continued) Land Buildings and constructions Machinery and equipment and manufacturing facilities Other Construction in progress Advances to suppliers of fixed assets Total At January 1, , , ,704 13,034 22, ,477 Acquisitions - 1,848 1,404 2,136 35,106 29,884 70,378 Write-offs (i) - (484) (1,469) (359) (23) - (2,335) Depreciation and amortization - (6,393) (25,445) (2,804) - - (34,642) Transfers - 8,150 6, (7,185) (7,923) - At September 30, , , ,020 12,139 50,857 21, ,878 At January 1, , , ,801 11,565 79,755 16, ,057 Acquisitions ,584 57,856 16,266 80,830 Write-offs (i) - (721) (2,455) (652) (64) (601) (4,493) Depreciation and amortization - (5,981) (28,970) (2,826) - - (37,777) Transfers 1,378 8,681 25, (6,518) (30,211) - At 66, , ,300 14, ,029 2, ,617 Balance at December 31, 2014 Cost 64, , ,788 27,427 79,755 16, ,253 Depreciation and amortization - (41,347) (153,987) (15,862) - - (211,196) Net book value 64, , ,801 11,565 79,755 16, ,057 Balance at Cost 66, , ,311 31, ,029 2, ,411 Depreciation and amortization - (47,329) (172,011) (17,454) - - (236,794) Net book value 66, , ,300 14, ,029 2, ,617 Write-offs (i) - (721) (2,455) (652) (64) (601) (4,493) - Cost - (721) (13,401) (1,886) (64) (601) (16,673) - Depreciation and amortization ,946 1, ,180 24

27 10. Property, plant and equipment (Continued) At, construction in progress substantially refers to: (i) construction of Candeias unit, Bahia state; (ii) construction of Rio Grande do Sul unit, Rio Grande do Sul state; (iii) expansion of the warehouse in Rosário do Catete unit, Sergipe state; and (iv) refurbishment of the Paranaguá units, Paraná state. In order to conclude these construction in progress, the Company formalized commitments with building contractors and other suppliers totaling R$ 10,030 (R$ 28,100 at December 31, 2014). These commitments will be paid with the Company s own resources and future cash generation, as well as with funds obtained from financial institutions. 11. Trade accounts payable Trade accounts payable are liabilities for goods acquired or services received from suppliers in the ordinary course of business, classified under current liabilities if their payment falls due within one year. Otherwise, trade accounts payable are stated as noncurrent liabilities. They are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method. 09/30/ /31/2014 Domestic trade accounts payable 184,468 79,029 Foreign trade accounts payable 1,220,536 1,205,264 1,405,004 1,284,293 The Company purchases most of its raw materials from foreign suppliers. These securities are denominated in US dollars. Present value adjustment amounting to R$ 12,657 (R$ 14,727 at December 31, 2014) was calculated based on all purchases from domestic and foreign suppliers with maturities of more than 30 days, at variable interest rates agreed upon for each transaction, using the discounted cash flow method. 12. Loans and financing Loans are financial liabilities which are initially recognized at fair value, in the receipt of funds, net of transaction costs. Subsequently, loans taken out are presented at amortized cost, i.e., plus charges, interest and transaction costs not amortized, proportional to the period incurred, using the effective interest rate method. 25

28 12. Loans and financing (Continued) Loans and financing are classified as current liabilities unless the Company has an unconditional right to defer settlement of such liability for at least 12 months after the balance sheet date. Foreign currency Contractual interest rate Effective interest rate 09/30/ /31/2014 Import financing (i) Fixed US$462,800 thousand (US$392,930 thousand at December 31, 2014) VC % p.a. VC % p.a. 1,761,758 1,043,700 Fixed EUR$ - thousand (EUR$7,828 at December 31, 2014) VC % p.a. VC % p.a. - 25,262 Domestic currency Working capital (ii) % of DI p.a % of DI p.a. 72,292 33,142 FINAME 5.30 % p.a % p.a. 7,236 3,249 Rural credit transactions (iii) 6.96% p.a. 6.96% p.a. 12,907 36,651 Other VC+Libor+3.0% p.a. VC+Libor+3.0% p.a. 21,499 14,310 BNDES 98.87% of DI p.a % of DI p.a. 23,952 - Debentures (iv) DI % p.a. DI % p.a. 184, ,187 2,083,695 1,331,501 Current (1,961,984) (1,234,302) Noncurrent 121,711 97,199 Additional information on the types of loans and financing taken out by the Company is as follows: (i) Import financing Financing involving agreements with various financial institutions to fund raw material imports. Payments are due up to 360 days from the date of the bill of lading of raw materials abroad or from the date of disbursement of the transaction. At, 12.80% (12.20% at December 31, 2014) of the amount financed are guaranteed by the Company s receivables; however, there are no guarantees for the remaining balance. (ii) Working capital This refers to loan transactions with financial institutions, given that, at, 90% of the balance mature in 2015 and 10% mature until The Company settled R$ 15,623 related to operations maturing in 2015 on October 1,

29 12. Loans and financing (Continued) (iii) Rural credit transactions The Company has agreements with financial institutions related to rural credit transactions for preferential customers (cash sales financed by financial institutions directly to purchaser guaranteed by the Company). The balances are classified as liabilities because the Company guarantees these transactions. At, the total rural credit transactions in the amount of R$ 12,907 was covered by credit insurance, which covers for any losses. (iv) Debentures Nominal Series Number Issue value Index Current Noncurrent Total FHER /06/ DI % p.a. 97,437 86, ,051 97,437 86, ,051 Nominal December 31, 2014 Series Number Issue value Index Current Noncurrent Total FHER /06/ DI % p.a. 89,034 86, ,187 89,034 86, ,187 On May 10, 2013, 26,000 non-privileged single-series unsecured nonconvertible junior debenture, with par value of R$ 10,000 each were issued, as approved at the Special General Meeting held on April 29, 2013 and at the Board of Directors meeting held on April 29 and May 7, 2013, making up the 2 nd issue of Company debentures, with restrict distribution efforts. The 2 nd issue totaled R$ 260,000. These debentures are remunerated at Interbank Deposit (DI) rate plus 3.25% p.a., determined on a pro rata day basis from the issue to the maturity date. Interest matures on a semiannual basis from November The principal is payable in three equal annual installments, with the first one being paid on November 10, 2014 and the other ones to be paid on November 10, 2015 and Issue costs totaled R$ 4,604 and were accounted for as a reduction to the principal. At, funding costs to be amortized totaled R$ 718, and will be amortized to P&L according to the debenture maturity schedule by the amortized cost under the effective interest rate method. These debentures are subject to certain covenants which, among other matters, require that the Company comply with certain financial ratios measured on an annual basis. The guarantee is the chattel mortgage of real properties corresponding to 50% of the total issue value. 27

30 12. Loans and financing (Continued) (v) Analysis of loans and financing maturities: Loans and financing mature as follows: 09/30/ /31/ ,018,286 1,234, ,032,228 89, onwards 33,181 7,830 2,083,695 1,331,501 (vi) Fair value of loans and financing At, the fair value of debentures amounted to R$ 184,761. The fair value of other loans and financing at and December 31, 2014 approximates their book value. 13. Provision for contingencies The Company is involved in legal and administrative proceedings arising from the ordinary course of its business. The provisions for losses, if any, arising from these lawsuits are estimated and adjusted by management, supported by the opinion of its legal advisors. At and December 31, 2014, the provision for contingencies comprised the following: 09/30/ /31/2014 Nature of contingencies: Tax 3,558 3,648 (-) Judicial deposits - (197) 3,558 3,451 Labor and social security 8,433 6,651 (-) Judicial deposits (2,782) (2,761) 5,651 3,890 Civil and environmental (-) Judicial deposits (202) Total Provision for contingencies 12,317 10,769 (-) Judicial deposits (2,984) (2,958) 9,333 7,811 28

31 13. Provision for contingencies (Continued) (i) Changes in provision for contingencies For the periods ended and 2014, changes in the provision for contingencies are as follows: 09/30/ /30/2014 Opening balance 10,769 5,008 Additions, net (582) (940) Monetary restatement 2, Closing balance 12,317 4,731 (ii) Judicial deposits linked or not to proceedings for which a provision was recorded 09/30/ /31/2014 Tax and administrative 11,306 16,625 Civil and environmental 11,335 4,554 Social security 6,709 3,577 Labor 4,484 3,345 33,834 28,101 (iii) Contingent liabilities The Company is party to tax, social security, labor, administrative, civil and environmental proceedings, involving risks of loss classified by management and its legal advisors as possible, for which no provision has been recorded. Breakdown of contingent liabilities is as follows: 09/30/ /31/2014 Tax and administrative 231, ,841 Labor and social security 26,475 26,451 Civil and environmental 103,526 86, , ,794 The amounts presented are monetarily restated based on the Brazil s Central Bank benchmark rate (SELIC) or, when applicable, correspond to the updated amounts calculated by the Company s legal advisors. Tax and administrative proceedings substantially refer to disputes involving PIS, COFINS and ICMS, mainly resulting from tax assessment notices and differing interpretations between the tax authorities and the Company. The main disputes are currently at the administrative level. Labor and social security lawsuits arise from the ordinary course of the Company s business and refer to claims by former employees, as well as to disputes regarding the calculation and payment of social security charges. 29

32 13. Provision for contingencies (Continued) (iv) Acquisition of tax credits used for offsetting against taxes due In February 2003, the Company acquired tax credits arising from a federal tax overpayment. A credit assignment agreement was formalized and filed with the Registry of Titles and Documents, and the substitution of the plaintiff was also requested from, and approved by, the Federal Court. The decision regarding the substitution of the plaintiff was also final and unappealable. After the transfer of credit and the substitution of the plaintiff, the Company offset the tax credits against federal taxes payable amounting to R$ 64,554, during the period from January to December Although management, supported by the opinion of the Company s legal advisors, understands that the taxes were offset made in accordance with the Law, in 2009 it decided to enroll the Company in the installment program for payment of federal taxes (REFIS), established by Law No /09, in view of the benefits and amounts involved, as regards both the liabilities and the tax credits acquired. At, the Company has R$ 164,174 in tax credits acquired recognized under noncurrent assets. Based on the opinion of Company legal advisors, management expects to realize these credits in full over a maximum period of 10 years, as monetarily restated by reference to IPCA-E plus corresponding charges. (v) Civil Class Action brought against Paranaguá unit, Paraná State In February 2009, the Federal and State Public Prosecution Offices of Paraná filed a Civil Class Action which claimed irregularities in the licensing process and alleged environmental damages caused by the SSP (Simple Superphosphate) plant in Paranaguá, Paraná state, which is currently in the phase of finding of facts awaiting the parties to make their statements on the court-appointed expert reports. Supported by the opinion of its legal advisors, who classified as remote the likelihood of an unfavorable outcome for the Company of the request of the Public Prosecution Offices to demolish the buildings and vacate the area and as possible the likelihood of loss for the Company in the other items of the lawsuit, the Company did not set up any provision for losses on the assets of Paranaguá unit. At, the restated amount of the lawsuit was R$ 14,361 (R$ 13,002 at December 31, 2014). 30

33 14. Equity a) Capital The Company's capital is fully comprised of common no-par-value shares. Additional costs directly attributable to the issue of new shares or options, when applicable, are stated in equity as a deduction of the amount obtained, net of taxes. Pursuant to the Company's Articles of Incorporation, the Board of Directors is authorized to increase the Company's capital up to the limit of R$ 800,000. At, subscribed capital amounting to R$585,518 comprises 53,857,284 shares. 09/30/ /31/2014 Capital 594, ,746 Share issue costs (8,647) - 585, ,746 On January 12, 2015, OCP International Coöperatieve U.A. subscribed 5,385,742 new registered common no par-value book entry shares issued by the Company, at the issue price of R$ per common share. In addition to OCP, other shareholders exercised their rights issue, thus resulting in the Company s capital increase by R$ 145,419. b) Income reserves Legal The legal reserve is established, after the offset of any accumulated losses, through the appropriation of 5% of the income for the year or the remaining balance, capped at 20% of capital. Tax incentives This refers to the tax benefit granted by Sergipe state (State Decree No /03). This reserve may only be used to increase capital or offset losses. If there is an offset of losses, the amount absorbed must be subsequently returned to the reserve account as profits are available, in order to avoid possible tax contingencies, because this reserve cannot be distributed to shareholders. See additional comments in Note 14.d. 31

34 14. Equity (Continued) c) Equity adjustment Equity adjustment consists of deemed cost of land and buildings that was recorded on the date of transition to CPCs and IFRS. d) Profit allocation and income reserves At, the amount that would be allocated to income reserves - tax incentives, totaling R$ 14,715, was used for offsetting accumulated losses. These tax incentives have been used for absorbing losses accumulated since December 31, By, the annual amounts of tax incentives that were utilized to offset the accumulated losses and that, as previously mentioned, must be returned to income reserve when there are available profits, are as follows: 2008 to Total PSDI (i) 111,038 23,351 25,099 14, ,203 Other incentives received 5, , ,495 23,351 25,099 14, ,660 (i) Sergipe Industrial Development Program (PSDI) - Government of Sergipe State. State VAT (ICMS) incentive: this tax benefit derives from the tax deferral granted in September 2003 in connection with Company participation in the Sergipe Industrial Development Program (PSDI) - Government of Sergipe State, which enjoys a tax benefit corresponding to a 92% decrease in the State VAT (ICMS) amount computed in the manufacturing unit located in Rosário do Catete - Sergipe state. This benefit is directly recorded in P&L for the year and subsequently transferred from Retained earnings to Income reserve - tax incentive. Originally, the program was valid for 10 years and in 2013, it was renewed for another 5 years, in 2014 for another 10 years, thus totaling 25 years, maturing on September 26, A 75% reduction in income tax payable, determined based on profit from tax-incentive activities (lucro da exploração) for a 10-year period as from grant date, under article 1 of Provisional Executive Order No. 2199/14 of August 24,

35 14. Equity (Continued) d) Profit allocation and income reserves (Continued) From 2007, the Company enjoys the tax benefit obtained from Brazil s Northeast Development Agency (ADENE). This benefit was originally granted in March 2006 to the unit located in Rosário do Catete (Sergipe State) and shall be valid until As from 2012, the benefit was also extended to the unit in Camaçari (Bahia state) and shall be valid until In 2014, the benefit obtained from the Superintendence for the Development of the Amazon (SUDAM) was granted to the two units located in Rondonópolis (Mato Grosso state) and shall be valid until This benefit is directly recorded in P&L for the year and subsequently transferred from Retained earnings to Income reserve - tax incentive. 15. Earnings (loss) per share Shares and P&L used to calculate basic and diluted earnings (loss) per share for the periods ended and 2014 (in thousands, except earnings (loss) per share) are as follows: Quarter ended 09/30/2015 Quarter ended 09/30/2014 Profit (loss) attributable to the Company s shareholders (209,553) 219 Weighted average number of outstanding common shares 53,857 48,471 Basic and diluted earnings (loss) per common share (3.8909) Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Profit (loss) attributable to the Company s shareholders (389,748) 29,693 Weighted average number of outstanding common shares 53,857 48,471 Basic and diluted earnings (loss) per common share (7.2367) For the periods ended and December 31, 2014, the Company carried out no transactions involving potentially dilutive common shares that would generate differences between basic and diluted earnings (loss) per share. 33

36 16. Net operating revenue This revenue comprises the fair value of the consideration received or receivable by the sale of goods and services in the ordinary course of the Company s business. Revenue is stated net of taxes, returns, rebates and discounts granted. Sale revenue is recognized in P&L when all risks and rewards of product are transferred to the buyer, i.e., for cases of Free on Board (FOB) sales, revenue is recognized when the buyer withdraw the goods in the Company s units; for cases of Cost, Insurance and Freight (CIF) sale, revenue is only recognized after the delivery of goods in the local established by the customer. Reconciliation of gross sales to net revenue is as follows: Quarter ended 09/30/2015 Quarter ended 09/30/2014 Gross sales revenue 2,048,260 1,857,290 (-) Deductions from gross sales revenue: Rebates and unconditional discounts, cancelled sales and returns (9,900) (10,048) Sales taxes (29,100) (22,188) Tax incentives ICMS (PSDI) 2,600 7,916 2,011,860 1,832,970 Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Gross sales revenue 4,667,376 4,197,728 (-) Deductions from gross sales revenue: Rebates and unconditional discounts, cancelled sales and returns (27,678) (24,952) Sales taxes (65,327) (55,063) Tax incentives ICMS (PSDI) 14,715 17,285 4,589,086 4,134, Cost and expenses by nature Rebates arising from purchases of raw materials, granted by suppliers, are recognized as discount of costs under Cost of sales, in P&L for the year, as the Company acquires the right to receive, through compliance with the purchase volumes and other pre-established parameters. 34

37 17. Cost and expenses by nature (Continued) The expenses related to freight of purchases of raw and ancillary materials are appropriated to Cost of sales when these are sold. Freight expenses related to the delivery of goods and expenses with sales commission are recorded as Selling expenses, as incurred. Other costs are calculated on an accrual basis. The Company chose to present the statement of operations by function and states below the details by nature: Quarter ended 09/30/2015 Quarter ended 09/30/2014 Raw and production materials 1,790,738 1,534,133 Transportation expenses 65,517 71,496 Personnel expenses (Note 20) 57,036 53,373 Commercial expenses 27,696 24,179 Depreciation and amortization 13,098 11,841 Profit sharing (Note 20) 2,798 2,850 Advertising expenses Operating lease agreements 1,977 1,866 Other expenses 33,408 30,876 1,992,554 1,730,904 Classified as: Cost of sales and services 1,853,850 1,593,367 Selling expenses 114, ,227 General and administrative expenses 24,242 23,310 1,992,554 1,730,904 Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Raw and production materials 4,051,528 3,457,905 Transportation expenses 155, ,294 Personnel expenses (Note 20) 156, ,372 Commercial expenses 64,482 56,240 Depreciation and amortization 38,394 35,328 Profit sharing (Note 20) 8,055 7,653 Advertising expenses 1, Operating lease agreements (Note 25) 5,094 4,978 Other expenses 93,263 88,830 4,573,910 3,960,427 Classified as: Cost of sales and services 4,227,646 3,624,977 Selling expenses 277, ,138 General and administrative expenses 68,441 68,312 4,573,910 3,960,427 35

38 18. Exchange gains (losses), net Transactions in foreign currency are translated into Company functional currency, using the exchange rates prevailing at the date of transaction or evaluation, when the items are remeasured. Exchange gains and losses resulting from these transactions and the translation at the exchange rates prevailing at year end, referring to monetary assets and liabilities in foreign currency, are recognized in P&L for the year. Quarter ended 09/30/2015 Quarter ended 09/30/2014 Exchange gains 98,348 42,724 Exchange losses (769,489) (228,749) (671,141) (186,025) Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Exchange gains 323, ,779 Exchange losses (1,361,999) (299,096) (1,038,663) (98,317) 19. Financial income and expenses Quarter ended 09/30/2015 Quarter ended 09/30/2014 Financial expenses Losses on derivative financial instruments 10,629 (29,060) Interest on financial liabilities and discounts granted (33,043) (25,524) Expenses with present value adjustments (13,546) (10,607) Taxes and rates on financial transactions (13,196) (7,496) Monetary losses (1,688) (22) (50,844) (72,709) Financial income Monetary gains 5,061 5,618 Income from present value adjustments 26,629 18,627 Gains on derivative financial instruments 299, ,664 Short-term investment yields 2,821 5,089 Interest on financial assets and discounts granted 2,916 2, , ,184 Financial income (expenses), net 286,215 77,475 36

39 19. Financial income and expenses (Continued) Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Financial expenses Losses on derivative financial instruments (Note 8) (55,793) (162,213) Interest on financial liabilities and discounts granted (79,265) (70,720) Expenses with present value adjustments (36,579) (29,058) Taxes and rates on financial transactions (42,324) (21,387) Monetary losses (1,805) (70) (215,766) (283,448) Financial income Monetary gains 14,373 20,110 Income from present value adjustments 61,391 48,987 Gains with derivative financial instruments (Note 8) 491, ,871 Short-term investment yields 13,903 14,801 Interest on financial assets and discounts granted 17,279 7, , ,650 Financial income (expenses), net 382,207 (40,798) 20. Expenses with employees Expenses with employees are as follows: Quarter ended 09/30/2015 Quarter ended 09/30/2014 Wages and salaries 33,823 31,275 Social security expenses 8,698 8,136 Benefits set forth by law 4,514 4,311 Additional benefits (i) 10,001 9,651 57,036 53,373 Profit sharing 2,798 2,850 59,834 56,223 Nine-month period ended 09/30/2015 Nine-month period ended 09/30/2014 Wages and salaries 93,456 91,010 Social security expenses 24,611 23,055 Benefits set forth by law 12,535 11,870 Additional benefits (i) 26,081 25, , ,372 Profit sharing 8,055 7, , ,025 (i) Health insurance plan, life insurance, private pension plan, death and meal benefit. 37

40 21. Fair value of financial instruments The Company carries out transactions involving various financial instruments, particularly cash and cash equivalents, trade accounts receivable, trade accounts payable, loans and financing, including rural credit transactions. Additionally, the Company carries out transactions involving derivative financial instruments, particularly NDFs. The breakdown of financial instruments by category is as follows: Assets measured at fair value through profit or loss Loans and receivables Total Assets as per balance sheet Cash and cash equivalents - 158, ,891 Trade accounts receivable - 741, ,071 Derivative financial instruments 110, , , ,962 1,010,407 Assets measured at fair value through profit or loss Other financial liabilities Total Liabilities as per balance sheet Loans and financing - 2,083,695 2,083,695 Trade accounts payable - 1,405,004 1,405,004 Derivative financial instruments 13,935-13,935 13,935 3,488,699 3,502,634 Assets measured at fair value through profit or loss December 31, 2014 Loans and receivables Total Assets as per balance sheet Cash and cash equivalents - 313, ,908 Trade accounts receivable - 763, ,561 Derivative financial instruments 36,345-36,345 36,345 1,077,469 1,113,814 Assets measured at fair value through profit or loss December 31, 2014 Other financial liabilities Total Liabilities as per balance sheet Loans and financing - 1,331,501 1,331,501 Trade accounts payable - 1,284,293 1,284,293 Derivative financial instruments ,615,794 2,616,217 38

41 21. Fair value of financial instruments (Continued) Following is a comparison between the book and fair values of the Company s financial instruments, stated in the financial statements: Book value Fair value Financial assets Cash and cash equivalents 158, ,891 Trade accounts receivable 741, ,071 Financial instruments 110, ,444 Financial liabilities Loans and financing 2,083,695 2,083,695 Trade accounts payable 1,405,004 1,405,004 Financial instruments 13,935 13,935 December 31, 2014 Book value Fair value Financial assets Cash and cash equivalents 313, ,908 Trade accounts receivable 763, ,561 Derivative financial instruments 36,345 36,345 Financial liabilities Loans and financing 1,331,501 1,333,132 Trade accounts payable 1,284,293 1,284,293 Derivative financial instruments The fair value of financial assets and liabilities is included in the amount for which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or settlement. The following methods and assumptions were used for the fair value measurement: Cash and cash equivalents, trade accounts receivable and trade accounts payable approximate their related book value mostly because of the short-term maturity of these instruments; The fair value of loans and financing is estimated by means of the discounted future cash flows, using rates currently available for debts or similar and remaining terms. For further details, see Note 12. The fair value of derivative financial instruments is obtained through valuation technologies with observable market data. For further details, see Note 8. 39

42 21. Fair value of financial instruments (Continued) Fair value hierarchy Assets measured at fair value Level I Level II Level III Derivative financial instruments - 110,445 - December 31, 2014 Level I Level II Level III Derivative financial instruments - 36,345 - At and December 31, 2014, there were no other assets measured at fair value. Liabilities measured at fair value Level I Level II Level III Derivative financial instruments - 13,935 - December 31, 2014 Level I Level II Level III Derivative financial instruments At and December 31, 2014, there were no other liabilities measured at fair value. 22. Financial risk management objectives and policies a) Financial risk management policy The Company s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse impacts on its financial performance. The Company uses derivative financial instruments to hedge certain risk exposures. 40

43 22. Financial risk management objectives and policies (Continued) a) Financial risk management policy (Continued) The Company monitors and evaluates its derivative positions on a daily basis and adjusts its strategy in response to market conditions. The Company also periodically reviews the credit limits and creditworthiness of its customers. In view of the policies established for derivative financial instruments, management considers the occurrence of non-measurable risk situations to be unlikely. The Company s risk management policy was established by the Board of Directors and provides for the existence of a Hedge Policy Committee which is responsible for managing the risk of hedging transactions, supported by external advisors from a specialized company. This Committee is a permanent technical and advisory body that aims at assisting the Board of Directors in its responsibilities related to the periodic analyses of protection measures against exchange variations and interest rates, by analyzing the effects of such variations on income and expenses. The Hedge Policy Committee also analyzes the effectiveness of the hedge measures adopted every month and provides recommendations regarding future hedge variations. In accordance with the risk management policy, the Company manages some of the risks by using derivative instruments, and speculative negotiations and short sales are prohibited. Derivative financial instruments are solely used for the purposes of protecting cash flow. b) Market risk Interest rate risk This risk derives from the possibility of the Company incurring losses due to fluctuations in interest rates that increase financial expenses related to loans and financing taken out in the market. Since it has no significant interest-earning assets, the Company s income and operating cash flows are substantially independent of changes in market interest rates. The Company s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Company to a cash flow interest rate risk. Borrowings issued at fixed rates expose the Company to the fair value risk associated to the interest rate. 41

44 22. Financial risk management objectives and policies (Continued) b) Market risk (Continued) Foreign exchange rate risk The Company operates internationally and is exposed to the currency risk arising from exposure to certain currencies, basically in relation to the US dollar. This risk arises from the possibility that the Company may incur losses due to fluctuations in exchange rates, which may increase the amounts of transactions denominated in foreign currencies. At and December 31, 2014, a summary of assets and liabilities denominated in foreign currency, financial instruments that mitigate currency risks and the net exposure to exchange rate risk is as follows: Period for the expected financial impact 09/30/ /31/2014 Import in transit (Note 5) US$81,893 thousand (US$69,263 thousand at 12/31/2014) Within 35 days (325,353) (183,976) Foreign trade accounts payable (Note 11) US$307,215 thousand (US$453,755 thousand at 12/31/2014) Within 233 days 1,220,536 1,205,264 Loans and financing (Note 12) Import financing US$443,444 thousand (US$392,930 thousand at 12/31/2014) Within 244 days 1,761,758 1,043,700 Import financing EUR$ - thousand (EUR$7,828 at 12/31/2014) Within 58 days - 25,262 Other payables (receivables), net US$8,399 thousand (US$4,707 thousand at 12/31/2014) Within 270 days (33,369) (12,504) 2,623,572 2,077,746 Financial instruments that mitigate currency risks (Note 8) US$334,917 (US$392,478 thousand at 12/31/2014) Within 114 days (1,330,592) (1,042,500) Financial instruments that mitigate currency risks (Note 8) EUR $ 0 - (EUR$7,600 at 12/31/2014) - (24,525) Net exposure 1,292,981 1,010,721 42

45 22. Financial risk management objectives and policies (Continued) b) Market risk (Continued) Foreign exchange rate risk (Continued) Because of the importance of raw material imports to the Company's operations, the volatility of the exchange rate represents a significant risk to its operations. If the effects of a devaluation of the Brazilian real are not passed on to sales prices, or if the effects of an appreciation of the Brazilian real are passed on to sales prices, significant reductions in gross profit margins could occur and, consequently, pose a significant risk to the Company s operations. In a scenario of raw materials with stable prices in US dollars in the foreign market, the Company's inventories permit a natural hedge for its liabilities denominated in foreign currency. In order to mitigate exchange rate risks, the Company has been engaging in transactions involving derivative financial instruments, contracted with financial institutions, to reduce its exposure to market and currency risks. These financial instruments are derivatives that represent commitments for the future purchase and sale of currencies or indexes on contractually specified dates. The hedge volume contracted at and December 31, 2014 was a result of the decision of the Company s Board of Directors supported by the Hedge Policy Committee. c) Credit risk Credit risk arises from cash and cash equivalents, derivative financial instruments, deposits with banks and financial institutions, as well as credit exposures with customers, including outstanding receivables. The Company limits its exposure to credit risks associated with banks and financial investments by investing with top-tier financial institutions, in accordance with pre-established limits and ratings, and by entering into derivative transactions only with financially sound counterparties. No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by the counterparties. 43

46 22. Financial risk management objectives and policies (Continued) c) Liquidity risk (Continued) The creditworthiness of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings made by Lopes Filho & Associados, Consultores de Investimentos (Riskbank), when applicable, or internal classifications based on historical information about the default rates of counterparties: 09/30/ /31/2014 Current account and short-term bank deposits Low risk for long-term 148, ,160 Low risk for medium-term 10,158 82,748 Low risk for short-term , ,908 Derivative financial instruments Low risk for long-term 96,510 35,922 d) Liquidity risk This is the risk of the Company not having sufficient net funds to meet its financial commitments, as a result of mismatching of term or volume between expected receivables and payables. In order to manage the cash liquidity in local and foreign currencies, policies for future disbursements and receipts are determined, and these are monitored daily by the Company s Finance Executive Board. In order to meet customer needs for credit sales matched to harvests, the Company utilizes financial instruments to assure liquidity. These instruments are guaranteed by the Company and are recorded in Trade accounts receivable, the book values of which do not differ significantly from their market values. The Company s sales policy is closely associated with the credit risk level it is willing to accept in the ordinary course of its business. Diversification of its receivables portfolio, selectivity of its customers, and monitoring of sales financing maturities by business segment and individual position limits are procedures adopted to minimize any defaults inherent in its accounts receivable. 44

47 22. Financial risk management objectives and policies (Continued) d) Liquidity risk (Continued) Credit risk arising from customer transactions, due to the dispersion of customers, is managed through the individual evaluation of the Company's customers, considering their history of non-default, prospects of growth for the customer's crop and payment capacity. The analysis below presents the Company's financial liabilities and the derivative financial liabilities settled on a net basis, by maturity ranges, corresponding to the period from the balance sheet date to the maturity date established in the contracts. The amounts disclosed in the table are the contractual undiscounted cash flows. The balances due within 12 months are equal to the book balances, as the impact of the discount to present value is not significant. Within 1 year From 1 to 2 years From 2 to 5 years Above 5 years At December 31, 2014 Loans and financing 1,245,542 97,941 9, Trade accounts payable 1,284, Derivative financial instruments At Loans and financing 1,964, ,849 28,400 7,002 Trade accounts payable 1,405, Derivative financial instruments 13, e) Sensitivity analysis of derivative financial instruments The table below presents the sensitivity analysis of financial instruments, including derivatives. Company management considered the following assumptions for scenario I - Probable: Instruments subject to currency risk - the probable scenario considers an exchange rate of R$ /US$ and a CDI rate of 14.13% p.a., the rates effective at the closing date. 45

48 22. Financial risk management objectives and policies (Continued) e) Sensitivity analysis of derivative financial instruments (Continued) Instruments subject to interest rate risk - maintenance of the rate in view of the economic environment and funds offered by financial institutions during the period. These analyses take into consideration unearned gains and losses for the next 12 months or up to the contract maturity dates, shown in brackets, if the US dollar quotation and the CDI rate vary in accordance with the percentages below. Derivative financial instruments Exchange rate derivatives Impact on P&L for the period and equity Scenario II Scenario III Scenario II Scenario III -25% -50% 25% 50% Dollar quotation R$ R$ R$ R$ Hedge - NDF (332,640) (665,279) 332, ,279 (332,640) (665,279) 332, ,279 Non-derivative financial instruments Foreign exchange Impact on P&L for the period and equity Scenario II Scenario III Scenario II Scenario III -25% -50% 25% 50% Dollar quotation R$ R$ R$ R$ Foreign suppliers, net of import in transit 223, ,580 (223,790) (447,580) Import financing 440, ,857 (440,429) (880,857) Other accounts payable (8,342) (16,684) 8,342 16, ,600 1,309,198 (654,600) (1,309,198) Interest Impact on P&L for the period and equity Scenario II Scenario III Scenario II Scenario III -25% -50% 25% 50% CDI 10.60% 7.07% 17.66% 21.20% Debentures 19,505 13,003 32,508 39,010 46

49 22. Financial risk management objectives and policies (Continued) f) Capital risk management The Company s objectives in managing its capital are to safeguard its ability to continue as a going concern in order to provide returns for its shareholders and benefits for other stakeholders as well as to maintain an optimal target capital structure to reduce the cost of capital. The Company uses capital from third parties, suppliers and import financing to fund a portion of its working capital. It also uses its own and third-party capital to make long-term investments. In order to maintain or adjust its capital structure, the Company may revise the policy for payment of dividends, return capital to shareholders, issue new shares, or sell assets to reduce its indebtedness, for example. g) Capital risk management The Company monitors capital based on the indebtedness ratio. As established in letter I of article 18 of the Company s Articles of Incorporation, the indebtedness ratio for borrowings contracted by the Executive Board cannot exceed 25% of the gross operating revenue for the last fiscal year ended. Ratios exceeding this percentage must be approved by the Board of Directors. At, this ratio was 34.26% (24.3% at December 31, 2014).The Company was authorized by the Board of Directors to increase its indebtedness ratio up to 40% of the gross operating revenue of the last fiscal year ended, expiring on December 31, Insurance coverage The Company does not maintain insurance coverage for all its assets, as it understands that the risk of significant losses is remote. However, the Company has insurance policies for the production units of Paranaguá, Paraná state, and Rondonópolis, Mato Grosso state, with maximum indemnity limit of R$ 10,000; for the units located in Dourados, Mato Grosso do Sul state, Catalão, Goiás state, Rio Verde, Goiás state, Porto Alegre, Rio Grande do Sul state, Manhuaçú, Minas Gerais state, Três Corações, Minas Gerais state and Uberaba, Minas Gerais state with maximum indemnity limit of R$ 56,961; for the units located in Paulínia, São Paulo state with maximum indemnity limit of R$ 29,500; for the vehicle fleet with maximum indemnity limit of R$ 31,000; for FINAME-financed equipment with maximum indemnity of R$ 10,632; and for part of accounts receivable, rural credit, with maximum indemnity limit of R$90,

50 23. Insurance coverage (Continued) In addition, the Company has a civil liability policy for directors, officers and management with a maximum indemnity limit of R$ 15,000. The scope of independent auditor s work does not include the review regarding the sufficiency of the insurance coverage, which was determined by management. 24. Segment reporting Management has determined the Company s operating segments based on the reports used for strategic decisions, reviewed by the main decision-makers, namely: the Chairman of the Board of Directors, the Company s CEO and member of the Board of Directors and the other members of the Board of Directors. The Executive Board performs its analysis of the Company s businesses from the perspective of the production process, comprised by two segments: (i) Industrial Segment, which comprises the sulfuric acid and Single Superphosphate (SSP) plant located in Paranaguá; and the (ii) Mixing Segment, which comprises the Company's 22 mixing units. Segment reporting reviewed by the major chief decision makers for the periods ended September 30, 2015 and 2014 is as follows: Industrial segment 09/30/ /30/2014 Mixing Industrial Mixing segment Total segment segment Total Gross sales revenue - 4,667,376 4,667,376-4,197,728 4,197,728 Deductions and taxes on sales - (78,290) (78,290) - (62,730) (62,730) Sales revenue, net - 4,589,086 4,589,086-4,134,998 4,134,998 Cost of sales (16,871) (4,210,775) (4,227,646) (17,317) (3,607,660) (3,624,977) Gross profit (loss) (16,871) 378, ,440 (17,317) 527, ,021 Operating expenses - - (296,636) - - (329,295) Financial expenses, net - - (656,456) - - (139,115) Operating income (loss) - - (591,652) ,611 Income and social contribution taxes , (11,918) Net income (loss) for the period - - (389,748) ,693 Depreciation and amortization 8,040 30,355 38,395 8,107 27,221 35,328 EBITDA (8,831) 112, ,198 (9,210) 225, ,053 48

51 24. Segment reporting (Continued) As previously mentioned, the Industrial Segment is currently utilized to meet the requirements of the Mixing Segment. Consequently, the sales of the Industrial Segment to the Mixing Segment were measured considering the market price of the products at the time the sales were realized. The revenues from the Mixing Segment reported to the chief decision makers were measured in a manner consistent with that presented in the statement of operations, and the revenues generated by the Industrial Segment were excluded. Assets by business segment are as follows: 09/30/ /31/2014 Industrial segment Mixing segment Total Industrial segment Mixing segment Total Inventories 3,285 1,390,880 1,394,165 3, , ,771 Property, plant and equipment 67, , ,617 75, , ,057 Other assets - 2,128,568 2,128,568-1,909,253 1,909,253 Total assets 70,424 4,031,925 4,102,350 78,611 3,232,470 3,311,081 No information on the liabilities by segment is available. Management analyzes liabilities as a whole, as it understands that, at present, an analysis of the balances of liabilities by segment is not relevant. Since the Federal Prosecution Office and Paraná State Prosecution Office filed a Civil Class Action (see Note 13) claiming irregularities in the licensing process and alleged environmental damages caused by the SSP (Simple Superphosphate) plant in Paranaguá, Paraná state, the P&L of the Industrial Segment was adversely impacted by the suspension of operations at this plant. Currently, because of a preliminary injunction, which is therefore provisional, dated April 28, 2010, the production of the Acidulation, Granulation and Sulfur Conversion unit is suspended, as informed in a material news release to the market. Nevertheless, the Paranaguá Mixing Unit is authorized and operating. The annual production of the Paranaguá unit, Paraná State, is approximately 250 thousand metric tons of Simple Superphosphate (SSP) and 200 thousand metric tons of sulfuric acid (unaudited), which currently meets approximately 40% of the SSP needs, i.e., 6% of the Company s total consumption of fertilizer raw materials (unaudited). For the period ended, the plant depreciation recorded in P&L amounted to R$ 8,040 (R$ 8,107 for the same period in 2014). 49

52 Viana, November 12, 2015 Fertilizantes Heringer (Bovespa: FHER3) announces its results for the third quarter and first nine months of 2015 (3Q15 and 9M15). 3Q15 and 9M15 Conference Call - November 13, 2015 Portuguese 12:00 BR (09:00 AM U.S. ET) Phone: +55 (11) / Code: Fertilizantes Heringer English 12:00 BR (09:00 AM U.S. ET) Phone: +1 (866) Code: Fertilizantes Heringer Investor Relations Phone: +55 (19) ri@heringer.com.br 3Q15 and 9M15 HIGHLIGHTS In 3Q15, deliveries came to 1.6 million metric tons, 10.9% down on the 1.7 million metric tons in 3Q14, and 3.7 million metric tons in 9M15, 5.3% down on 9M14; Net revenue totaled R$2,011.9 million in 3Q15, 9.8% up on the same period last year. In 9M15, net revenue was R$4,589.0, 11.0% up on 9M14; EBITDA was R$80.0 million in 3Q15, 33.6% down on 3Q14, and R$103.2million in 9M15, down by 52.2% when compared to the same period last year; Net financial expenses was R$384.9 million in 3Q15 and R$656.4 million in 9M15, chiefly impacted by a foreign exchange depreciation of 28% in 3Q15 and 50% in 9M15. Important gain from foreign exchange hedge operations of R$310.3 million in 3Q15 and R$435.2 million in 9M15. The Company recorded a net loss of R$209.5 million in 3Q15, against net income of R$219.0 thousand in 3Q14. In 9M15 net loss was R$389.7 million, against net income of R$29.7 million in 9M14; Deliveries of specialty products dropped in both periods, by 3.4% in 3Q15 and 0.8% in 9M15, in relation to the same periods last year. However, the share of the deliveries of special products in total deliveries climbed from 36% to 39% in 3Q15 year-on-year, and from 36% to 38% in 9M15 versus 9M14. Operations startup of the new Rio Grande unit in Rio Grande do Sul State in September 2015 and Candeias unit in Bahia State in October 2015.

53 BRAZILIAN FERTILIZER MARKET According to the National Fertilizer Association (ANDA), fertilizer deliveries in Brazil totaled 10.6 million metric tons in 3Q15, 1.5% down on 3Q14. In 9M15, deliveries came to 22.3 million metric tons, contracting by 5.9% year-on-year. Mato Grosso State has accounted for the bulk of deliveries in 9M15, with 4.5 million metric tons, followed by Paraná State, with 3.1 million metric tons, Rio Grande do Sul, with 2.6 million metric tons, São Paulo, with 2.4 million metric tons, and Goiás, with almost 2.3 million metric tons. Domestic production in the first nine months of 2015 totaled 6.7 million metric tons, against 6.5 million metric tons year-on-year, an increase of 3.2%. Fertilizer imports declined by 9.0% in 3Q15 and by 11.3% in 9M15 when compared to In the first nine months of 2015, imports totaled 16 million metric tons, short of 2 million metric tons in relation to the same period last year, when fertilizer imports came to 18 million metric tons. Such significant reduction in imports in 9M15 surpassed the decline in deliveries in the same period. BRAZILIAN FERTILIZER MARKET DELIVERIES

54 BRAZILIAN FERTILIZER MARKET DOMESTIC PRODUCTION BRAZILIAN FERTILIZER MARKET IMPORTS Source: ANDA DELIVERIES BY CROP HERINGER In 3Q15, deliveries were approximately 1.6 million metric tons, 10.9% down from the 1.7 million metric tons in 3Q14. In 3Q15, the Company s deliveries had greater reduction in relation to the market, which fell by 1.5% in 3Q15, a period marked by high foreign exchange rate volatility, in which the Company sought to prioritize better profitability. In 9M15, deliveries fell by 5.3% when compared to 9M14, from 3.9 million metric tons to 3.7 million metric tons. Such reduction was lower than the 5.9% reduction in the market year-on-year.

55 This quarter s deliveries for soybeans (+ 4.2%) and other crops (+ 12.0%) increased when compared to the same period last year. Deliveries for coffee, sugarcane and corn crops decreased in the period due to the prolonged drought occurred in central Brazil, among other factors. DELIVERIES BY CROP 3Q15 Source: Heringer/Anda In 9M15, deliveries totaled approximately 3.7 million metric tons, down by 5.3% year-on year. In the same period, the Brazilian fertilizer market shrank by 5.9% over the same period last year. DELIVERIES BY CROP - 9M15 Source: Heringer/Anda

56 SPECIALTY PRODUCTS Specialty products are fertilizers that are mostly produced exclusively by Heringer and whose agronomic characteristics are superior to market standards. The share of specialty products in Heringer s total deliveries is growing every year, contributing to improved margins and helping strengthen customer loyalty. In 3Q15, the delivery of specialty products was thousand metric tons, 3.4% down from 3Q14, which recorded thousand metric tons. In 9M15, deliveries amounted to 1.4 million metric tons, in line with 9M14. The share of specialty products in the Company s total deliveries was 39% in 3Q15, an increase over the 36% share in 3Q14. In 9M15, this share climbed to 38% against 36% in 9M14. Heringer continues to invest in R&D to develop new technologies and products that can be added to its specialty product portfolio. It has one of the largest portfolios in the market, most of which developed using proprietary technology. The significant growth in sales of Heringer s specialty products over the past years has been sustained by the positive agronomic results obtained by customers. The Company has three specialty product lines: Linha Solo, Linha Fertirrigação and Linha Foliar.

57 AGRICULTURAL COMMODITIES AND BARTER RATIOS (AGRICULTURAL PRODUCTS FOR FERTILIZERS) The quarter experienced a worsening of barter ratios (agricultural products vs. fertilizers) for most of the crops due to the rising prices of fertilizers in Brazilian reais due to the foreign exchange rate depreciation this period, despite the slight decrease in the prices in US dollars of the main fertilizer raw materials. Source: Agroconsult/sc* = bags INTERNATIONAL RAW MATERIAL PRICES Despite lower volatility in the prices of fertilizer raw materials recently, when compared to last year, dollar prices for these raw materials dropped in the international market.

58 Urea Potassium Chloride MAP BRAZILIAN FERTILIZER MARKET AND SEASONALITY Given 9M15 deliveries, which fell by 5.9% over 9M14, Heringer expects the market volume of fertilizers in 2015 to come to 30.5 million metric tons, a 5% reduction compared to the record volume in 2014, of 32.2 million metric tons. Brazil s fertilizer consumption is concentrated in certain crops, particularly soybean and corn, which account for more than half of domestic demand. The decision regarding the time for purchasing these two crops influences the seasonality of the sector s deliveries during the year. Due to the country s economic scenario, the delay in credit granting, higher interest rates and the foreign exchange volatility, producers postponed until the second half their decision to buy fertilizers for this crop. As a result, the seasonality of fertilizer deliveries in 2015 is estimated at 38% in 1H15 and 62% in 2H15.

59 Source: Anda / 2015E Heringer Estimate GRAIN PRODUCTION AND PLANTED AREA According to the 12 th CONAB survey, the 2014/2015 Brazilian grain crop recorded grain production of million metric tons, and the planted area was approximately 58.0 million hectares, with yield of 3.61 t / ha. The planted area estimate for grains in the 2015/2016 crop ranges between 58.0 and 59.0 million hectares, corresponding to growth of up to 1.5% over the previous crop. We highlight the soybean crop, chiefly responsible for the area s expansion * ** , , , , , , , , , , ,868 49,866 50,982 53,430 57,060 58,036 59,709 62,117 36,971 37,847 95/96 00/01 05/06 10/11 11/12 12/13 13/14 14/15 15/16** 16/17** Productivity (1000 kg/ha) Platnted Area(1000 ha) Production (1000 t) Fertilizers (1000 t) Grains: corn, soybean, rice, beans, sorghum, castor bean, cotton, sunflower, barley, rye, canola, oat, peanut, wheat and triticale ¹ Total Brazil (all crops) Source: IBGE, CONAB (12th Survey September 2015) **Agroconsult Forecast ** Heringer Forecast

60 SCENARIO AND OUTLOOK As of September 09, 2015, the rating agency S & P downgraded Brazil s credit risk to speculative grade, causing rapid foreign exchange rate depreciation, increasing the depreciation of the Brazilian real against the US dollar. In 3Q15 alone, the Brazilian real depreciated 28% against the US dollar, and in 9M15, approximately 50%. The country had received the investment grade from the same agency in May Brazil s primary surplus target for 2015, 1.1% of the GDP, was reduced to 0.15% of the GDP at the end of July, and at the end of August the government submitted the 2016 budget to Congress with a deficit of R$30 billion. Consequently, at the beginning of September the Country's credit rating was downgraded by S&P with a negative outlook. We note that Brazil still has an investment grade rating with MOODY S and FITCH. Despite the political and economic crisis in Brazil, with prospects of GDP reduction of approximately 3% in 2015, inflation close to 10% per year, and foreign exchange rate depreciation of 60% in the past 12 months, agribusiness remains an important pillar of the Country s economy. The fertilizer industry recorded a 5.9% drop in deliveries to the final consumer in the first nine months of 2015 and we believe that it should end the year with a 5% reduction when compared to 2014, a slight fall when compared to other industries of the Brazilian economy which have been facing strong slowdown in relation to the previous year. The foreign exchange rate causes an increase in the foreign-currency-denominated liabilities of the Company, which imports fertilizer raw materials in the international market, because the country meets only 30% of the demand of these raw materials. Such foreign exchange rate, at the same time, favors the export of agricultural commodities, generating competitiveness to our soybean, corn, coffee and sugar clients, among others, consequently generating future growth opportunity in the Brazilian fertilizer market. Heringer remains confident about the continuation of the positive performance recorded by the Brazilian agribusiness market and of its relevance to the country s economy. It also reiterates its mission of offering to the farmer the best solution in plant nutrition, with service excellence, innovation and quality of our products, meeting the expectations of our clients, shareholders and employees and helping to create an efficient, profitable and sustainable agriculture.

61 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Ratings range of key agencies - Brazil S&P Fitch Moody's AAA Investiment Grade AAA Aaa AA+ AA+ Aa1 AA AA Aa2 AA- AA- Aa3 A+ A+ A1 A A A2 A- A- A3 BBB+ BBB+ Baa1 BBB BBB Baa2 BBB- BBB- (Negative Outlook) Baa3 (Stable Outlook) Speculative Grade BB+ (Negative Outlook) BB+ Ba1 BB BB Ba2 BB- BB- Ba3 B+ B+ B1 B B B2 B- B- B3 CCC+ CCC+ Caa1 CCC CCC Caa2 CCC- CCC- Caa3 CC CC -- C C -- SD1 DDD3 Ca D2 DD C -- D -- Source: RA Bloomberg PIB - Median (%yoy) 3,7 3,2 2,7 2,2 1,7 1,2 0,7 0,2-0,3-0,8-1,3-1,8-2,3-2,8-3,3 IPCA - Median Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 (%yoy) 10,8 10,3 9,8 9,3 8,8 8,3 7,8 7,3 6,8 6,3 5,8 5,3 4,8 4,3 Source: Banco Central RA. Last data: Nov/15 Source: Banco Central RA. Last data: Nov/15

62 FINANCIAL RESULTS 3Q15 and 9M15 Income Statements Deliveries totaled 1.6 million metric tons in 3Q15, 10.9% down on the 1.7 million metric tons in 3Q14. Third-quarter net revenue came to R$2,011.9 million, up 9.8% from the R$1,832.9 million in 3Q14. Gross income amounted to R$158.0 million in 3Q15, down by 34.1% on the R$239.6 million posted in 3Q14. The 3Q15 gross margin was 7.9%, less than the 13.1% margin in 3Q14. Freight and commissions came to R$85.9 million in 3Q15, corresponding to 4.3% of net revenue, versus R$91.2 million in 3Q14, which represented 5.0% of net revenue. SG&A expenses, excluding freight and commissions, amounted to R$52.7 million in 3Q15, and R$46.2 million in 3Q14, and its share was similar to that of net revenue for both periods at approximately 2.5%. EBITDA was R$80.0 million in 3Q15, accompanied by a margin of 4.0% as a percentage of net revenue, compared to R$120.6 million in 3Q14, with a margin of 6.6% as a percentage of net revenue. Heringer recorded a net financial expense of R$384.9 million in 3Q15, versus R$108.5 million in 3Q14. This figure is composed of net interest, discounts granted, expenses with adjustment to present value (AVP) and other items, which amounted to a negative R$24.0 million, a foreign exchange loss of R$671.1 million and revenue from hedging transactions amounting to R$310.2 million. The net loss of R$209.5 million in 3Q15 was impacted by the strong foreign exchange rate variation of 28% in the period, against net income of R$219 thousand in 3Q14. Currency hedge mitigated the financial expenses from foreign exchange variation in the period. Financial expenses from foreign exchange variation result from foreign-currency-denominated liabilities, arising from the term purchase of fertilizer raw materials in the international market. Such expenses were a result of the depreciation of the Brazilian real against the US dollar (R$ in 3Q15 versus R$ in 2Q15).

63 In 9M15 deliveries dropped by 5.3%year-on-year, from 3.9 million metric tons to 3,7 million metric tons. Net revenue came to R$4,589.0 million, 11.0% up on the R$4,134.9 million recorded in 9M14. Gross profit in 9M15 was R$361.4 million, 29.1% down from the R$510.0 million recorded in 9M14. Gross margin in 9M15 was 7.9%, lower than that of 9M14, which stood at 12.3%. Freight and commissions in 9M15 stood at R$200.8 million, corresponding to 4.4% of net revenue, lower than the R$203.4 million in 9M14, which represented 4.9% of net revenue. SG&A expenses in 9M15 totaled R$145.4 million, accounting for 3.2% of net revenue, in line the 3.2% recorded in 9M14. 9M15 EBITDA came to R$103.2 million, with a margin of 2.2% as a percentage of net revenue, down by 52.2% when compared to 9M14, when it totaled R$216 million, accompanied by a margin of 5.2%. Net financial expenses totaled R$656.4 million in 9M15, versus R$139.1 million in 9M14. This figure is composed of net interest, discounts granted, expenses with adjustment to present value (AVP) and other items, which amounted to a negative R$53.0 million, a foreign exchange loss of R$1,038.6 million and gain from hedging transactions amounting to R$435.2 million.

64 Heringer has a hedge policy in order to mitigate the impact of foreign exchange risk on its dollardenominated liabilities arising from raw material imports. On, Heringer s total hedge position formed through swaps was US$334.9 million, at a weighted average rate of R$ Despite the continuity of the temporary stoppage of the SSP and sulfuric acid unit, the units are at adequate maintenance levels. Regarding the public-interest civil action of Paranaguá, in Paraná State, the parties have yet to express themselves about the reports submitted by the legal experts. Once this phase is concluded, the Lower Court will be able to issue a decision. 9M15 % RL 9M14 % RL 9M15 % RL 9M14 % RL 9M15 9M14 Net Revenue 4,589, % 4,134, % - 0.0% - 0.0% 4,589,086 4,134,998 COGS (4,210,775) -91.8% (3,607,660) -87.2% (16,871) % (17,317) % (4,227,646) (3,624,977) Gross Profit 378, % 527, % (16,871) % (17,317) % 361, ,021 Freights and Commission FERTILIZERS SALES SSP AND SULFURIC ACID PRODUCTION HERINGER TOTAL (200,874) -4.4% (203,414) -4.9% - 0.0% - 0.0% (200,874) (203,414) VG&A (145,390) -3.2% (132,036) -3.2% - 0.0% - 0.0% (145,390) (132,036) EBITDA 112, % 225, % (8,831) % (9,210) % 103, ,053

65 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 to provide the capital needed for its operations, while maintaining a cash position that is adequate 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 and effective credit analysis, thereby reducing the risk of default and losses. As a result, accounts receivable days stood at 32 days in 3Q15, lower than the 37 days in 3Q14. In 3Q15, inventory days stood at 53 days, higher than the 47 days in 3Q14. 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 fashion and with quality. Accounts payable days, including import financing operations (FINIMP), closed 3Q15 at 154 days, more than the 124 days in 3Q14. Heringer finances its working capital by drawing on credit lines from local and international suppliers and from banks, in order to manage its cash flow effectively.

66 CASH FLOW On, Heringer s cash and cash equivalents amounted to R$158.8 million, against R$218.0 million in 1H15. Cash generation was negative at R$59.1 million at the end of 3Q15. The main factors leading to this difference were: a) Loss before income tax and social contribution of R$317.9 million; b) Non-cash expenses of R$389.6 million, basically consisting of interest, foreign exchange variation and unrealized hedge operations; c) Net increase of R$156.4 million in asset accounts, basically due to accounts receivable; d) Net increase of R$61.3 million in liability accounts, whose amounts are concentrated in the contracting and payment of suppliers and import financing operations; e) Net investments of R$16.8 million; f) Net cash flow from financing activities of R$18.9 million. 3Q15 9M15 Income before tax and social contribution (317,934) (591,652) Expenses (revenues) with no cash effect 389, ,183 Reduction/(Increase) in asset accounts (156,357) (655,162) Increase/(Reduction) in liability accounts 61, ,416 Cash flow from operating activities (23,342) (271,215) Cash flow from investment activities (16,833) (69,156) Free cash flow (40,175) (340,371) Cash flow from financing activities (18,970) 185,354 (59,145) (155,017) Statement of Cash Position Opening Cash Balance 218, ,908 Closing Cash Balance 158, ,891 Cash variation in the period (59,145) (155,017)

67 HERINGER OWNERSHIP BREAKDOWN FHER3 is currently the only fertilizer company listed on the São Paulo Stock Exchange (BM&FBovespa), which makes it an attractive investment opportunity. Heringer s stock (FHER3) has been listed on Novo Mercado, BM&FBovespa s highest corporate governance segment, since April Heringer is listed in the ITAG, IGC and IGCM indices. Thanks to its solid fundamentals, Heringer has significant growth potential in a competitive market, geographically evenly distributed sales, a diversified client base, a focus on retail sales, effective logistics and distribution infrastructure, a highly recognized brand and a broad portfolio of specialty products and solid management, among other elements.

68 NEW UNITS In the second half of 2015 there were operational startups of two new units of fertilizer compounds under construction, one in Rio Grande (Rio Grande do Sul State) which will replace contracted outsourcing operations and one in Candeias (Bahia State), which will replace the leased Camaçari unit. With the addition of these new plants the Company now has production capacity of 6.5 million metric tons / year.

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