Page 1 of 50 2016 Management Report and 4Q16 Earnings Release RELEASE 2Q15 MANAGEMENT REPORT 2016 EARNINGS RELEASE 4Q16 Record-high EBITDA and Net Income in 4Q16 of R$160 million and R$114 million, respectively Record-high Free Cash Flow of R$208.7 million in 2016 Net Debt reduction of R$241 million compared to end-2015
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Page 1 of 50
2016 Management Report and 4Q16 Earnings Release
RELEASE 2Q15
MANAGEMENT REPORT 2016
EARNINGS RELEASE 4Q16
Record-high EBITDA and Net Income in 4Q16 of R$160 million and R$114 million,
respectively
Record-high Free Cash Flow of R$208.7 million in 2016
Net Debt reduction of R$241 million compared to end-2015
Page 2 of 50
2016 Management Report and 4Q16 Earnings Release
Porto Alegre, March 15, 2017 - SLC AGRÍCOLA S.A. (Bovespa: SLCE3; ADR: SLCJY; Bloomberg: SLCE3BZ; Reuters: SLCE3.SA), one of Brazil’s largest producers of grains and fibers, announces today its results for the fiscal year and fourth quarter of 2016. The following financial and operating information is presented in accordance with International Financial Reporting Standards (IFRS). The information was prepared on a consolidated basis and is presented in thousands of Brazilian real, except where stated otherwise. NOTE: 4Q15 and 4Q16 refer to the cumulative three-month periods from October to December of fiscal years 2015 and 2016. 2015 and 2016 refer to the cumulative 12-month periods from January to December of fiscal years 2015 and 2016. HA refers to the horizontal percentage variation between two periods and VA refers to the vertical percentage variation of a given total.
4Q16 CONFERENCE CALL Date: Thursday, March 16, 2017
PORTUGUESE 10:00 a.m. (Brasilia) 9:00 a.m. (New York) 1:00 p.m. (London) Dial-in: +55 (11) 2188-0155 Replay for 7 days: +55(11)2188-0400
ENGLISH 12:00 p.m. (Brasilia) 11:00 a.m. (New York) 3:00 p.m. (London) Dial-in: +55 (11) 21880155 Replay for 7 days: +55 (11) 2188-0400
CONTACTS IVO MARCON BRUM
CFO & IRO
FREDERICO LOGEMANN
IR Manager
ALISANDRA MATOS
IR Analyst
MÔNICA PIVA
IR Assistant [email protected] +55 51 3230.7799 +55 51 3230.7864 +55 51 3230.7797 www.slcagricola.com.br/ri Rua Bernardo Pires, 128, 3º andar, Bairro Santana, Porto Alegre/RS
Table 32 Financial Net Debt ........................................................................................................ 33
Table 33 Return on Equity ........................................................................................................... 34
Table 34 Return on Net Assets .................................................................................................... 34
Table 35 Return on Invested Capital ........................................................................................... 34
Table 36 Net Asset Value ............................................................................................................ 34
Table 37 Changes in Working Capital .......................................................................................... 34
Table 38 Proposed Dividend Distribution ................................................................................... 36
Table 39 Educational level by number of employees ......................Erro! Indicador não definido.
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REFERENCES – FIGURES AND CHARTS Figure 1 Accidents per million hours worked................................................................................ 9
Figure 2 Evolution in area with Precision Agriculture ('000 ha) .................................................... 9
Net debt 1,093,757 852,854 -22.0% 1,093,757 852,854 -22.0% (1) As a ratio of net revenue excluding the effects from Biological Assets. (2) Excludes the effects from Biological Assets (revenue and cost), since they are noncash. (3) Net Debt adjusted for any gains and/or losses from derivative instruments linked to Financial Investments and Debt.
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In 2016, the values of the Company’s land portfolio were restated to an aggregate amount of R$3,741,271 thousand, which represents appreciation of 6.8% in the average price per hectare compared to the previous year. The appraisal was based on a report by an independent company (Deloitte), and on other market sources, which include data from real estate brokerages and specialized magazines, as well as other independent sources. We also received several important accolades during the year:
Great Place to Work: tenth best company to work for in Rio Grande do Sul SLC Agrícola figured among the ten Best Companies to Work For in Rio Grande do Sul. The recognition was conferred by the Great Place to Work, an organization operating in 53 countries that compiles a ranking of the best workplaces. Top Human Being, Internal Communication Case Study “Our Way of Being” SLC Agrícola won the Top Human Being award of the Brazilian Human Resources Association of Rio Grande do Sul (ABRH RS) for its case study “Our Way of Being – Internal Communication at SLC Agrícola,” which provides an account of the communication actions and strategies implemented over the last two years. These efforts supported improvements in employee perceptions and engagement.
Social Responsibility Award from the State Legislative Assembly The purpose of the award is to encourage organizations from the state of Rio Grande do Sul to implement projects focusing on social well-being and environmental preservation to support continuous improvement in society. The award garnered by SLC Agrícola was the Social Responsibility Certificate, which is conferred to companies and organizations that obtain the highest scores based on the indicators extracted from the Balance Sheet reported.
SLC Agrícola among Top 10 Public Meetings (APIMEC) In 2016, we received the Quality Award from the São Paulo Chapter of the Capital Market Professionals and Investors Association (APIMEC-SP) for the Public Meeting we hosted in November 2015. The event was selected as one of the ten best of the year of all meetings held at APIMEC-SP. The selection of best meeting was made by an expert jury based on the evaluations made by investment professionals at the end of every meeting.
Institutional Investor – Latam Executive Team In the last six years, the company has been recognized by Institutional Investor magazine in the Agribusiness industry. In 2016, we were recognized in the following categories:
Best Investor Relations Program, first place, elected by sell-side analysts, and third place, elected by buy-side analysts;
Best CEO, second place, elected by sell-side analysts, and third place, elected by buy-side analysts;
Best CFO, second place, elected by sell-side analysts, and third place, elected by buy-side analysts;
Best IR Professional, first place, elected by sell-side analysts, and second place, elected by buy-side analysts.
Best IR Team, first place, elected by sell-side analysts, and second place, elected by buy-side analysts
We maintained our certifications under the international standards ISO 14,001:2004 (environmental management), NBR 16001:2004 (social responsibility) and OHSAS 18,001:2007 (health and safety management) at our five certified farms: Pamplona, Planalto, Paiaguás, Planorte and Panorama. These certifications allow us to standardize processes and to enhance our management. We expect to obtain certification for all of our developed farms by 2020.
We also hold certifications for the sustainable production of soybean, namely from the Round Table on Responsible Soy (RTRS), International Sustainability & Carbon Certification (ISCC) and Certified Responsible Soya (CRS), and of cotton, namely from the Better Cotton Initiative (BCI) and the Sustainable Brazilian Cotton (ABR).
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Given our focus on continually enhancing our operations, in 2016, we launched an internal program to strengthen the three main pillars related to the sustainability and efficiency of our business: Safety, Quality and Productivity, which is known by the acronym SQP. We reached significant reduction in the number of accidents per hour worked, one continuous improvement, ensuring greater workplace safety for our employees. We are striving to reach zero accidents, and we will continue to work towards this goal.
Figure 1 Accidents per million hours worked
Source: SLC Agrícola
We expanded the area with precision agriculture and improved the performance of our tractors by reducing horsepower per hectare (hp/ha).
Figure 2 Evolution in area with Precision Agriculture ('000 ha)
We obtained an increase in operating yields, as shown by figures 4 and 5, which reflects the adoption of modern machinery, intensive training, the conscientious use of resources and efforts to reduce employee turnover.
Figure 4 Soybean Yields (ha/h) – Xingú Planters
Source: SLC Agrícola
Figure 5 Soybean Yields (ha/h) – DB Planters
Source: SLC Agrícola
We registered improvement in the quality of the cotton lint produced compared to recent crop years, as shown in figure 6, which was due to the ongoing efforts to enhance our processes and variety choices. This superior cotton quality is measured based on physical criteria such as fiber length, length uniformity, fiber elongation, color grade and luster. This factor helps us obtain a premium over market prices and consequently to boost the company’s revenue.
Figure 6 Evolution of percentage of cotton lint with superior quality
Source: SLC Agrícola
6.3
7.3
Crop 2014/15 Crop 2015/16
Rendimentos Plantio de Soja (ha/h) - Plantadeiras Xingú
12.6
14.3
Crop 2014/15 Crop 2015/16
Rendimentos Plantio de Soja (ha/h) - Plantadeiras DB
47.5%
38.0%
63.7%
2013/14 2014/15 2015/16
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2016 Management Report and 4Q16 Earnings Release
OUTLOOK FOR 2017
For the 2016/17 crop year, we expanded the planted area by 4.7%, to 395,141 hectares. Weather conditions have not presented relevant fluctuations to date, which leaves us optimistic on surpassing the pre-established yields, which are shown in Table 5.
Sales prices are also favorable. We already have a good percentage of the new crop with prices in BRL hedged at levels higher than the actual prices in 2016, as shown in the following table:
Table 2 Currency and Agricultural Commodity Hedge Fiscal Year 2016 2017
Soybean – Total Hedge 100.0 10.5 58.0 10.6 (1) Commitments with debt payments in U.S. dollar. (2) Based on FOB Port (prices at our production units are also influenced by transport expenses and possible quality discounts). (3) Natural hedge with payments for land acquisitions and lease agreements based on soybean bags.(4) Includes transactions involving futures, swaps and accumulators.
In addition, projections for cost per hectare in the 2016/17 crop year are stable in relation to the 2015/16 crop year, as shown below:
Average total cost (2) 3,271 3,104 3,203 -5.1% -2.1 (1) Based on the position at December 31, 2016. Figures may suffer changes by the end of cotton processing and the sale of grains. (2) Total average cost weighted by area.
Therefore, considering production within the normal range, which is highly probable, combined with hedged prices higher than last crop year and production costs per hectare remaining stable, we expect significant margin expansion in 2017 compared to 2016.
Because of that, and also considering the current steep discount of our shares in comparison to our net asset value, we launched, as per the Minutes of the Board Meeting occurred today, a share repurchase program, through which we shall repurchase a total of up to 2.5 million shares. We believe this to be the best use of the Company’s resources, given the considerable discount on the shares, for it is a form of repurchasing our own land for a fraction of it’s market value.
The Company’s Management thanks its employees, shareholders, clients and suppliers and reiterates its strong confidence in the business and in the excellent opportunities offered by Brazilian agriculture, and will continue to work diligently to build an increasingly efficient company focused on creating value.
The Management
OUR BIG DREAM
To positively impact future generations, trough global leadership in
agribusiness and respect to the planet
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2016 Management Report and 4Q16 Earnings Release
MARKET
OPERATIN
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OVERVIEW
&&
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PERFORMANC
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2016 Management Report and 4Q16 Earnings Release
MARKET OVERVIEW
Figure 7 Change in Commodity Prices from January 2015 to February 2017 (base 100)
COTTON
Cotton prices in the international market recovered over the course of 2016. After reaching a low of 56.31 cents/lb early in the year, spot prices on ICE Futures US rose consistently to levels over 70.0 cents/lb in the second half of the year and remained on an upward trend in this start of 2017. The recovery was supported by a reduction in planted area and production at the global level, which led to a significant decrease in stocks.
Figure 8 Figure 8 Cotton Price in the International Market vs. Brazil
China is leading the decline in world cotton stocks. After intensive stockpiling of cotton between 2011 and 2014, the Chinese government sold a large volume of its reserves in 2016. The Chinese government should resume its sales of stocks in March 2017 (when the local off-season begins). If Chinese demand is similar to last year, it would confirm the expectation that these stocks will be consumed sooner than initially projected.
Figure 9 Cotton Stocks
*Estimated **Projection Source: USDA
SOYBEAN
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2016 Management Report and 4Q16 Earnings Release
Soybean prices on the Chicago Board of Trade (CBOT) also recovered well during 2016 and maintained good support in early 2017, despite the record crop in the United States and the favorable prospects for South America in the 2016/17 crop year.
Figure 10 Soybean Price in International Market vs. Brazil
One of the main factors supporting higher prices is stronger demand, especially from China, where
imports remain strong. Another supporting factor is weather uncertainty. According to NOAA, the
weather rapidly transitioned from a strong El Niño to La Niña weather conditions in 2016. As a result, for
2017, the agency envisages the possibility of a return to neutral conditions or even the development of
a weak El Niño, which has increased the risk of production losses around the world. In Brazil, despite
isolated weather problems, the soybean crop has been presenting good development and soybean
production in the 2016/17 crop year is currently estimated at 105.6 million tons by CONAB. The forecast
represents a new record and a 10.6% increase on the prior crop year. The planted area stood at 33.8
million hectares, expanding 1.6% on the previous crop year. Meanwhile, yield should recover by 8.9%.
Figure 11 Brazil: Soybean Yield and Production
Source: USDA
In Argentina, current estimates point to a significant contraction in the soybean planted area in the current crop. According to the Buenos Aires Grain Exchange, the planted area should contract by 4.5% to 19.2 million hectares, due to economic and weather factors. On the economic front, the corn and
wheat crops, which recently had their export duties reduced to zero, expanded their planted areas at the expense of soybean (which had its export duty cut from 35% to only 30%). The weather also adversely affected Argentina’s soybean planted area: first the lack of precipitation in southern Buenos Aires province, which was followed by floods in the core zone, which affected the size of the planted area and the country's production potential. In the February WASDE report, the USDA revised downward its forecast for Argentina’s production, from 57 to 55.5 million tons.
Figure 12 Argentina: Soybean Production
Source: USDA
CORN
The corn market underwent various periods of turbulence in Brazil during 2016, with prices decoupling significantly from the international market. In 2015, the weaker BRL against the USD supported strong export volumes and inventory drawdowns, which, combined with the substantial shortfall in second-crop corn in 2016, led prices to record highs.
Figure 13 Corn Prices in the International Market vs. Brazil
In the international market, corn prices were pressured in 2016, especially after confirmation of a record crop in the United States, where the planted area expanded 7.4%, combined with a yield at
unprecedented levels. As a result, U.S. production reached 385 million tons in 2016/17, representing an increase of 11.4% on the prior year, according to the USDA. Corn prices in Brazil continue to exceed prices in the international market in 2017. Despite the expansion in planted area of first-crop corn, especially given its higher profitability in relation to soybean in certain regions, prices remain above export parity in key markets, with the situation expected to normalize only after the start of the second crop around midyear. According to CONAB, the first-crop corn planted area expanded 1.7% and yield should increase 9.6% compared to the previous crop year. Production should reach 28.8 million tons, an increase of 11.5% in the same comparison. For second-crop corn, CONAB forecasts increases of 4.7% in planted area and 37.5% in yield. Production should grow by 44% to 58.6 million tons. Combining the first-crop and second-crop, total corn production in Brazil should increase 31.4% to 87.4 million tons.
Figure 14 Corn Production in Brazil
Source: CONAB
34.027.3
25.9
28.8
3.57.7
40.8
58.6
32.4 42.5
66.7
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2016 Management Report and 4Q16 Earnings Release
OPERATING PERFORMANCE
2016/17 CROP YEAR
4Q16 was marked by the end of soybean planting and beginning of harvesting of super-early soybean varieties in the last week of December, with the consequent start of second crop cotton planting.
Soybean
Total soybean planted area, which comprises approximately 230,000 hectares in the current crop year, in general presents good conditions. As of the base date of March 3, 2017, the total area harvested amounted to 85,189 hectares, 67,494 of which in the Midwest and 17,695 in Maranhão. In Bahia and Piauí, the harvest will begin in mid-March. At all farms, current production potential suggests exceeding initial projections. Figure 15 Harvest operations at the Planalto Farm (Mato Grosso do Sul) in February
Figure 16 Plants (defoliated for analysis) presenting excellent conditions at the Planeste Farm (Maranhão)
Figure 17 Crop with high potential at the Panorama Farm (Bahia)
Figure 18 Crop with excellent pod development at the Planorte Farm (Mato Grosso)
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2016 Management Report and 4Q16 Earnings Release
Cotton 1st crop
The planted area remained within the ideal planting window for each unit, i.e. until the end of December for the units in Mato Grosso do Sul, Goiás and Bahia and until early January for the farms in Maranhão. The areas in Goiás and Bahia are currently in the flowering phase, while the Mato Grosso do Sul and Maranhão region is in the vegetative phase. The crop is presenting excellent production potential. Figure 19 Cotton crop in boll development phase, Palmares Farm (Bahia)
Figure 20Close-up of Figure 19, with excellent boll development
Note: Boll development is one of the main indicators of the cotton crop’s production potential. The number of bolls is directly proportional to the volume of cotton lint produced.
Cotton 2nd crop
The planting of the cotton 2nd
crop began after the harvest of the super-early soybean varieties, which began in the last week of December and was concluded in early February. The crop is in full vegetative development and presents excellent production potential.
Figure 21 Cotton 2nd crop at the Planorte Farm (Mato Grosso)
Cotton Boll
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2016 Management Report and 4Q16 Earnings Release
Corn 2nd
crop The planting of corn 2
nd crop began in the second half of January 2017, since progress was made on
harvesting the super-early and early soybean varieties. The areas already planted are well established
and present good vegetative development.
Figure 22 Corn 2nd crop, with optimal establishment and good plant distribution at the Planeste Farm (Maranhão)
The following table presents the latest data on planted area for the 2016/17 crop year and a comparison with the previous season. Table 6 Planted Area by Crop
Crop Mix
Planted Area Planted Area Shares
Δ% 2015/16 2016/17(1) 2016/17 ------------------ ha ------------------ %
Total Area 377,259 395,141 100.0 4.7 (1) Weather factors may affect the planted area forecast. (2)
Areas owned by Grupo Dois Vales and Mitsui. (3) A SLC Agrícola holds an interest of 81.23% in SLC LandCo.
LAND DEVELOPMENT Over the course of the 2015/16 and 2016/17 crop years, we concluded clearing and soil correction on 2,553 hectares of the Paineira Farm, with the area leaded to a third party. We also concluded clearing operations on 9,993 hectares and soil correction on 6,000 hectares at the Piratini Farm. Table 8 Land Development
SLC Agricola Farms Areas in transformation Areas in licensing process
Areas acquired by SLC LandCo to be developed jointly with these farms. Note: The estimate of areas in the licensing process could change due to georeferencing.
LAND PORTFOLIO APPRAISAL
The updated values of the land owned by the company are presented below. There was a slight revision in comparison to the figures that were presented on the 3Q16 Earnings Release. This update was necessary due to the fact that Paineira Farm and also part of Palmares Farm were leased to third parties, and thus were reclassified on the Balance Sheet as “Properties for Investment”. Because of this, these units had to be independently appraised at the end of 2016. With that, there was an increase of R$55,9 million in the total land value of the Company, when compared to the figures disclosed on the previous Release. 2016’s land value update, thus, was done via an independent report (Deloitte), in the cases of SLC LandCo farms, Paineira Farm and also part of Palmares Farm, and other market sources in the case of the other units, which include data from real estate brokerages and specialized magazines, as well as other independent sources.
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The average price per hectare of the Company’s properties, after this revision, appreciated 6.8% compared to the previous year (numbers reported on 3Q16 showed a 5.2% appreciation), excluding variations in areas. Including the land acquisitions between the periods (notably the 13,268 hectares acquired by SLC LandCo in 2015, as announced in the Notice to the Market dated September 24, 2015), the total value of the company's own land portfolio is currently of R$3,741,271 thousand (against R$3,685,361 thousand disclosed on 3Q16).
Table 9 Property Appraisal
2015 Appraisal 2016 Appraisal
Region Total land Appraisal(ha) R$ thd R$/ha Total land Appraisal(ha) R$ thd R$/ha
Total 308,719 3,401,840 11,019 322,529 3,741,271 11,600
PROPERTY PORTFOLIO The portfolio of properties under our management on March 15 is presented below: Table 10 Property Portfolio
2016/17 Crop Year (ha) Owned(1) SLC LandCo(2) Leased Joint
Ventures Under
Control Total Planted
Area(3) Farms State ---------------------------------------- ha ---------------------------------------- Pamplona GO 17,385
3,860
21,245 20,337
Planalto(7) MS 15,006
1,635
16,641 20,503 Planorte MT 23,784
23,784 31,228
Paiaguás MT 34,257
10,295
44,552 65,237 Perdizes(5) MT 28,857 13,288
42,145 23,350
Pioneira(4) MT
19,469 19,462 28,006 Panorama BA
10,374 14,252
24,626 21,793
Paladino(5) BA
19,417 19,417 19,417 Piratini BA
25,355 4,931
30,286 13,377
Palmares BA 16,168 543 15,609
32,320 24,948 Parnaíba(8) MA 31,580 10,200 26,230
68,010 58,177
Planeste MA
23,325 15,591
38,916 48,866 Parceiro BA 32,983 3,680 5,526
42,189 11,588
Paineira (6) PI 12,040
12,040 - Parnaguá PI 24,603
24,603 8,315
Total - 236,663 86,765 97,929 38,879 460,236 395,141 (1)
Own property, includes Legal Reserve. (2)
SLC Agrícola currently owns 81.23% of SLC LandCo, while the Valiance fund owns 18.77%. (3)
Including the second crop. Weather factors may affect the planted area forecast. (4) The Pioneira Farm is part of the joint arrangement with Grupo Dois Vales. (5) The Perdizes and Paladino Farms are part of the joint arrangements with Mitsui in SLC-Mit. (6) Farm leased to third parties. (7) Donation of 2,431 hectares to the Taquari River Headwaters State Park in Mato Grosso do Sul. (8)Termination of the acquisition contract .
MACHINERY AND STORAGE CAPACITY
The following table presents the machinery owned by the Company. Table 11 Machinery and Storage Capacity
Adjusted EBITDA Margin (2) 22.9% 15.6% -7.3 p.p 27.5% 27.8% 0.3 p.p (1) Excludes the effects from Biological Assets, since they are noncash. (2) As a ratio of net revenue excluding the effects from Biological Assets. * Note in the Financial Statements
In 4Q16, Adjusted EBITDA set a new quarterly record, of R$159,948 thousand, with adjusted EBITDA margin of 27.8%, up 0.3 percentage points from adjusted EBITDA margin in 4Q15 (27.5%).
As noted in 3Q16, Adjusted EBITDA in 4Q16 recovered significantly from the previous three quarters, due to the prices contracted in the period (particularly gain/loss from currency hedge), the growth in other operating income due to apportionment of the fair value of property for investment (Paineira Farm, which is currently leased to a third party), in accordance with the independent valuation report (impact of R$20.5 million on EBITDA in the quarter).
In 2016, however, Adjusted EBITDA decreased 26.7%, from R$339,741 thousand in 2015 to R$249,109 thousand in 2016, with a reduction of 7.3 percentage points in EBITDA margin.
This decrease in Adjusted EBITDA is mainly due to the decrease in Gross Income (excluding Biological Assets) from cotton (lint and seed) and soybean, which decreased R$94,391 thousand and R$14,433 thousand, respectively, compared to 2015.
This margin contraction is directly related to the production shortfall in the 2015/16 crop year, as mentioned in recent earnings releases, caused by the severe drought, which affected the yields of all crops.
NET REVENUE
Net Revenue in 4Q16 increased 7.9% on the year-ago period. Excluding the noncash effect from Biological Assets, net revenue advanced 4.1%, due to the increase in invoiced unit price for all crops compared to 4Q15.
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In 2016, Net Revenue excluding the effect from Biological Assets grew 8.1% compared to 2015. Invoiced unit prices increased for all crops, which was partially offset by the 9.8% decrease in invoiced volume due to the production shortfall. Table 13 Net Revenue (R$ thousand) 2015 2016 AH 4Q15 4Q16 AH Net Revenue 1,761,581 1,659,649 -5.8% 583,617 629,639 7.9%
Biological assets are calculated as follows: market price, net of taxes and selling expenses (freight), less costs incurred.
The amount of biological assets apportioned to net revenue in 4Q16 increased 74.6%, mainly due to the projection for the soybean harvest in January 2017, which incorporates the expectation of higher margin and area in relation to the 2015/16 crop year.
In 2016, the amount of biological assets decreased 79.4% (R$222,126 thousand) for all crops except corn, reflecting the lower margins in 2015/16 compared to 2014/15.
COST OF GOODS SOLD
Cost of goods sold decreased 8.8% in 4Q16 compared to 4Q15. Excluding the effect from biological assets, cost of goods sold increased 9.8% in 4Q16. Despite the lower volume of products invoiced, the increase is due to the higher costs per hectare, combined with the lower yield in the 2015/16 crop year compared to the 2014/15 crop year, which increases unit costs. In 2016, cost of goods sold increased 6.4% from 2015. Excluding biological assets allocated at cost, the increase in relation to 2015 was 20.6%.
This increase is also attributed to the higher cost per hectare and to the lower yield in the 2015/16 crop year compared to the 2014/15 crop year.
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Table 16 Cost of Goods Sold (R$ thousand) 2015 2016 AH 4Q15 4Q16 AH Cost of Goods Sold (1,328,460) (1,413,181) 6.4% (465,867) (424,833) -8.8%
Table 18 Gross Income (R$ thousand) 2015 2016 AH 4Q15 4Q16 AH Gross income 433,121 246,468 -43.1% 117,750 204,806 73.9% Cotton Lint 154,650 80,209 -48.1% 94,369 76,943 -18.5% Cotton seed 20,939 989 -95.3% 7,061 2,423 -65.7% Soybean 144,876 130,443 -10.0% 41,801 45,156 8.0% Corn 35,531 67,284 89.4% 22,030 30,944 40.5% Other 24,565 (5,228) n.m. 2,695 (2,394) n.m. Biological Assets 52,560 (27,229) n.m. (50,206) 51,734 n.m. Note: To calculate gross margin, the results from Biological Assets allocated to Net Revenue are excluded.
Gross Income in 4Q16 amounted to R$204,806 thousand, with gross margin of 35.6%, an increase of 14.3 percentage points from 21.3% in 4Q15. This increase is significantly influenced by the apportionment of Biological Assets, which increased R$101,940 thousand between the periods. This variation reflects the prospects for high margins for the soybean crop in the 2016/17 crop year compared to 2015/16.
Excluding the effect from Biological Assets, Gross Income decreased 8.9%, mainly due to the lower volume invoiced (except for soybean) and to the higher unit cost for all crops, given the lower yield in the 2015/16 crop year.
Analyzing the 12-month period, Gross Income decreased 43.1% compared to 2015. Excluding Biological Assets, Gross Income decreased by 28.1%.
ANALYSIS OF MARGINS BY CROP
To contribute to a better understanding of margins, in this section, the gain (loss) from currency hedge is allocated among cotton, soybean and corn.
Cotton Lint and Cotton Seed
Of the cotton invoiced in 4Q16, 100% is associated with the 2015/16 crop year.
The unit margin of cotton invoiced in 4Q16 increased 4.6% compared to 4Q15. The increase in unit price in the quarter was partially offset by the increase in unit cost.
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In 2016, margin decreased by 44.7% compared to 2015. The impact from the higher unit costs due to the lower yield in the 2015/16 crop year was greater than the improvement in invoiced prices, leading to margin compression from the year-ago period. Table 19 Gross Margin of Cotton Lint and Cotton Seed Cotton Invoiced 2015 2016 AH 4Q15 4Q16 AH Cotton Lint Invoiced
Volume Invoiced Ton 158,183 148,429 -6.2% 79,238 61,756 -22.1% Net Revenue R$ thousand 812,693 749,417 -7.8% 450,106 313,062 -30.4% Result of currency hedge R$ thousand (156,717) (40,092) -74.4% (88,279) 56,749 n.m.
Net income adj.the res.of cur.hedging R$ thousand 655,976 709,325 8.1% 361,827 369,811 2.2% Unit Price R$ thd / Ton 4,147 4,779 15.2% 4,566 5,988 31.1% Cost Total R$ thousand (501,326) (629,116) 25.5% (267,458) (292,868) 9.5% Unit Cost R$ thd / Ton (3,169) (4,238) 33.7% (3,375) (4,742) 40.5% Unitary Margin R$ thd / Ton 978 541 -44.7% 1,191 1,246 4.6%
Cotton Seed Invoiced Volume Invoiced Ton 191,566 173,202 -9.6% 77,167 55,261 -28.4% Net Revenue R$ thousand 85,019 98,902 16.3% 35,464 34,158 -3.7% Unit Price R$ thd / Ton 440 571 28.6% 460 618 34.5% Cost Total R$ thousand (64,080) (97,913) 52.8% (28,403) (31,735) 11.7% Unit Cost R$ thd / Ton (335) (565) 68.7% (368) (574) 56.0% Unitary Margin R$ thd / Ton 109 6 -94.5% 92 44 -52.2%
Soybean
Soybean unit margin in the quarter decreased 22.3% from 4Q15, mainly due to the increase in unit cost resulting from lower yield in the 2015/16 crop year.
In 2016, margin increased 5.7% from 2015, due to the increase in the unit price of 23.7%, which was partially offset by the increase in unit cost of 30.0%.
Volume Invoiced Ton 634,879 539,570 15.0% 61,414 85,364 39.0% Net Revenue R$ thousand 634,055 583,990 -7.9% 72,663 102,474 41.0% Result of currency hedge R$ thousand (69,398) 9,682 n.m. 85 - 100.0% Net income adj.the res.of cur.hedging hedging R$ thousand 564,657 593,672 5.1% 72,748 102,474 40.9% Unit Price R$ thd / Ton 889 1,100 23.7% 1,185 1,200 1.3% Cost Total R$ thousand (419,781) (463,229) 10.4% (30,947) (57,318) 85.2% Unit Cost R$ thd / Ton (661) (859) 30.% (504) (671) 33.2% Unitary Margin R$ thd / Ton 228 241 5.7% 681 529 -22.3%
Corn
Corn unit margin increased 120.3% in 4Q16 and 83.9% in 2016, mainly due to the increase in unit price, which was partially offset by the increase in unit cost. The price increase is explained by the shortage of corn in the domestic market in 2016, caused by the shortfall in second-crop corn in Brazil. There also was an increase in the volume of sales with freight paid by the Company, which improves the invoice price, though with a proportionate increase in selling expenses, which are not recognized in gross income. Table 21 Corn Gross MarginCorn Invoiced 2015 2016 AH 4Q15 4Q16 AH
Volume Invoiced Ton 335,695 345,691 3,0% 171,625 109,800 -36,0% Net Revenue R$ thousand 121,877 164,514 35,0% 66,567 58,583 -12,0% Result of currency hedge R$ thousand (5,258) 9,171 n.m. (4,054) 4,439 n.m.
Net income adj.the res.of cur.hedging R$ thousand 116,619 173,685 48,9% 62,513 63,022 0,8% Unit Price R$ thd / Ton 347 502,00 44,6% 364,00 574,00 57,7% Cost Total R$ thousand (81,088) (106,401) 31,2% (40,483) (32,078) -20,8% Unit Cost R$ thd / Ton (242) (308) 27.4% (236) (292) 23.7% Unitary Margin R$ thd / Ton 106 195 83.9% 128 282 120.3%
PRODUCTION COST
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The breakdown of our total production costs is shown below: Table 22 Breakdown of Production Cost by Crop
Average total cost (2) 3,271 3,104 3,203 -5.4% -2.1% (1)According to the position on September 30, 2016 (budget amounts). Figures may suffer changes by the end of cotton processing and the sale of grains. (2) Total average cost weighted by area.
In an analysis of cost per hectare in the 2015/16 crop year compared to the budget, the decrease was 5.4% or approximately R$80 million, reflecting the lower yield and actions to contain costs. Total average production cost per hectare estimated for the 2016/17 crop year presented a slight decrease of 2.1% in relation to the budget for the 2015/16 crop year, despite inflation of approximately 6% in the period.
SELLING EXPENSES
Selling expenses decreased 5.9% in 4Q16 compared to 4Q15, due to the lower volume of cotton invoiced in the period. In 2016, selling expenses increased 6.0% from 2015, mainly due to the higher volume of corn invoiced in the period with freight paid by the company.
% Net Revenue 6.2% 6.1% -0.1 p.p 6.7% 6.1% -0.6 p.p (1) As a ratio of net revenue excluding the effects from Biological Assets.
GENERAL AND ADMINISTRATIVE EXPENSES
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In 4Q16, General and Administrative Expenses decreased 9.4% from 4Q15, but increased 7.9% in relation to 2015. These changes are shown in table 25, in the line Subtotal, before expenses with Profit Sharing, since it varies in accordance with the Company’s net income expectation.
In the quarter and year, the main changes were in the following items:
(i) Personnel Expenses: a. 4Q16: decrease in allocation resulting from stock option plans; b. 2016: increase due to wages increases under the collective bargaining agreement;
(ii) Third-party fees: a. 4Q16: decrease due to lower costs with land appraisal services; b. 2016: higher expenses with tax legal advisory, consulting and external audit
services; (iii) Higher expenses with software maintenance due to contractual increases and the
effects from currency fluctuations, with impacts in the quarter and year; (iv) Decrease in expenses with depreciation and amortization due to the end of the
useful life of software assets, with effects in the quarter and year; (v) Increase in Contingencies due to new labor claims.
General and Administrative Expenses corresponded to 2.9% of Net Revenue in 2016, compared to 3.2% in 2015 (excluding Biological Effects), a decrease of 0.3 p.p.
Total (118,844) (114,476) -3.7% (23,751) (26,399) 11.1%
% Net Revenue -8.0% -7.1% 0.9 p.p -4.3% -4.6% -0.3 p.p (1) As a ratio of net revenue excluding the effects from Biological Assets.
Table 27 Gains (Losses) from Derivative Operations
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(R$ thousand) 2015 2016 AH 4Q15 4Q16 AH Swap of debt in Dollar to Reais 92,268 (129,887) n.m. (21,388) (1,186) -94.5% Swap of Financial asset in Reais to Dollar 10,365 - -100.0% (7,575) - -100.0% Commodities Hedge (229) 13 n.m. (1,353) - -100.0% FX Hedge (not designed as hedge accounting) (363) 2,266 n.m. - - -
Total 102,041 (127,608) n.m. (30,316) (1,186) n.m. Note: As per Note 22 to the Financial Statements. Note that, since a portion of debt in USD was swapped to BRL and another portion is designated as hedge accounting, so that the effects of exchange variation are recorded as Sales Revenue and only after payment of the principal, the effects from exchange variation on dollar-denominated debt does not affect Net Financial Income (Expense) when we analyze the aggregate figures, since any gains and losses on such debt not allocated to hedge accounting are offset by gains/losses in an equal proportion to the respective swap. For a better understanding of this impact, we suggest analyzing below Table 28 - Adjusted Net Financial Income (Expense). Table 28 Adjusted Net Financial Income (Expense) (R$ thousand) 2015 2016 AH 4Q15 4Q16 AH Gain and Losses with derivates (66,182) (94,903) 43.4% (14,194) (26,648) 87.7% Interest and FX variation net of swap operation (43,542) (6,525) -85.0% (8,431) 3,884 n.m. Monetary Variation (1,219) (1,037) -14.9% 413 519 25.7% Other financial revenues (expenses) (7,901) (12,011) 52.0% (1,539) (4,154) 169.9%
Total (118,844) (114,476) -3.7% (23,751) (26,399) 11.1%
% Net Revenue(1) -8.0% -7.1% 0.9p.p. -4.3% -4.6% -0.3p.p (1) As a ratio of net revenue excluding the effects from Biological Assets.
In 4Q16, we recorded a net financial expense of R$26,399 thousand, compared to an expense of R$23,751 thousand in 4Q15, representing an increase of 11.1% or R$2,648 thousand. The main variations included an exchange variation gain of R$3,884 thousand, compared to a loss of R$8,431 thousand in 4Q15, when the BRL appreciated against the USD. Interest increased in the period, from R$14,194 in 4Q15 to R$26,648 in 4Q16, mainly due to the lower interest rate in the period. In addition, in 4Q15 the gain of R$7,575 from the Swap from BRL to USD (see Table 27) contributed to a reduction in net interest, which did not occur in 4Q16, since the transaction was settled.
In 2016, we recorded a net financial expense of R$114,476 thousand, compared to an expense of R$118,844 thousand in 2015, a decrease of 3.7%. The main changes were in interest, due to the higher average debt balance in 2016 compared to 2015 and to the higher interest rate, with these factors partially offset by the lower exchange variation, due to the fluctuation in the exchange rate between the periods. The increase of R$4,110 in Other financial expenses in 2016 was due to the discount on ICMS sale, which did not occur in 2015.
NET INCOME Table 29 Net Income(R$ thousand) 2015 2016 AH 4Q15 4Q16 AH Income before Income Tax 166,654 (4,161) n.m. 45,898 157,500 243.2% Income Tax and Social Contribution (45,483) 19,802 n.m. (10,563) (43,452) 311.4%
Net Income for the period 121,171 15,641 -87.1% 35,335 114,048 222.8%
Attributed to the Parent company’s partners 122,528 29,945 -75.6% 35,020 112,574 221.5%
Attributed to non-controlling partners (1,358) (14,304) -953.3% 314 1,474 369.4%
% Net Revenue(1) 8.2% 1.0% -7.2p.p. 6.4% 19.8% 13.4p.p. (1) As a ratio of net revenue excluding the effects from Biological Assets.
Net Income in 4Q16 increased 222.8% compared to 4Q15, from net income of R$114,048 thousand compared to net income of R$35,335 thousand in 4Q15, setting a new record for quarterly net income.
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As we anticipated in the 3Q16 Earnings Release, Net Income in 4Q16 recovered significantly from the previous three quarters, due to the prices contracted in the period (particularly currency hedge), as well as to the growth in other operating income due to apportionment of the fair value of property for investment (Paineira Farm, which is currently leased to a third party), in accordance with the independent valuation report (impact of R$19.8 million on Net Profit of the quarter). As such, we ended 2016 with Consolidated Net Income of R$15,641 thousand, down 87.1% from 2015. Net Income attributed to the Parent Company, which is the most important result for the Company's shareholders, stood at R$29. 9 million. Despite the sharp drop, the result is still considered satisfactory considering the extremely challenging weather conditions we faced all year (most intense El Niño phenomenon of the last 50 years). The fact that Net Income was positive demonstrates the effectiveness of the series of internal initiatives taken to ensure the Company's continued financial health, which included: reducing the investment plan and intense efforts to cut costs and expenses without losing efficiency. Furthermore, free cash flow in the period was a record R$208.7 million, reflecting Management’s commitment to prioritizing financial solidity.
CURRENCY AND AGRICULTURAL COMMODITY HEDGE
The Company’s sales revenues are generated mainly by the trading of agricultural commodities such as cotton, soybean and corn, which are quoted in U.S. dollar on international exchanges, such as the Chicago Board of Trade (CBOT) and the Intercontinental Exchange Futures US (ICE). Therefore, we are actively exposed to variations in foreign exchange rates and in the prices of these commodities. To protect from currency variation we use derivative instruments, with the portfolio of these instruments basically comprising non-deliverable forwards (NDFs) and option contracts. In line with the Company’s Risk Management Policy, whose purpose is to obtain a pre-established Adjusted EBITDA margin with a combination of factors such as Price, Foreign Exchange and Cost, most of the instruments for protecting against commodity price variation are accomplished through advanced sales directly with our clients (forward contracts). We also use futures and options contracts negotiated on the exchange and swap and option transactions contracted with financial institutions. The mark-to-market adjustments of future, swap and option transactions are recorded under financial income (expense). The hedge position on Feb. 24, 2017 for commodities (in relation to the estimated total volume invoiced) and currency (in relation to the total estimated revenue in U.S. dollar) is shown below broken down by commercial hedge and financial hedge:
Table 30 Currency and Agricultural Commodity Hedge Fiscal Year 2017 2018
Soybean – Total Hedge 58.0 10.6 19.0% 10.7 (1) Commitments with debt payments in U.S. dollar. (2) Based on FOB Port (prices at our production units are also influenced by transport expenses and possible quality discounts). (3) Natural hedge with payments related to land acquisitions and leasing agreements in soybean bags. (4) Includes transactions involving futures, swaps and accumulators. Reference price on 03/02/2017: Cotton ICE July/17 US¢/lb 79.22-. Cotton ICE DEC/17 ¢/lb 74.98 - Soybean 10.45, Soybean CBOT May/17 US$/bushel.
PROPERTY, PLANT AND EQUIPMENT / INTANGIBLE ASSETS
The main investments in 4Q16 were:
(i) Acquisition of agricultural machinery and tools at the Pamplona, Planeste and Perdizes farms;
(ii) Buildings and facilities, mainly at the Pamplona, Planeste, Perdizes and Parnaguá farms.
(iii) Soil correction at the Planeste, Perdizes and Parnaíba farms. Table 31 CAPEXCAPEX (R$ thousand) 2015 AV 2016 AV 4Q16 AV Machinery, implements and equipment 32,767 16.4% 25,864 33.2% 6,504 32.2% Land Acquisition 85,579 42.8% 2 0.0% - 0.0% Soil Correction 23,743 11.9% 14,585 18.7% 3,780 18.7% Building and facilities 24,435 12.2% 17,903 23.0% 4,596 22.7% Cotton ginning plant 4,313 2.2% 1,015 1.3% - 0.0% Grain Storage 10,954 5.5% 954 1.2% - 0.0% Soil Cleaning 11,742 5.9% 11,855 15.2% 3,468 17.2% Vehicles 2,912 1.5% 1,110 1.4% 363 1.8% Software 897 0.4% 1,813 2.3% 1,027 5.1% Others 2,671 1.3% 2,886 3.7% 467 2.3% Total 200,013 77,987 20,204
FINANCIAL NET DEBT
Adjusted net debt in 2016 decreased 22.0% to R$852,854 thousand, from R$1,093,757 thousand in 2015. The main variations were:
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(i) Operating Cash Generation of R$208.7 million, as shown in Exhibit 5 of this earnings release;
(ii) Non-cash effect from exchange variation on USD operations not swapped (gain of R$37 million). This variation was designated as hedge accounting and as such
recognized as Sales Revenue, upon maturity.
A highlight was the increase in the Rural Credit and Constitutional Funds compared to 2015 in the amount of R$154 million and R$48 million, respectively, due to the higher availability of these financing facilities in the market.
Table 32 Financial Net Debt Average Interest Rates (%) Consolidated
(R$ thousand) Index 2016 2015 2016 2015 Applied in Fixed Assets Finame – BNDES Pré and TJLP¹ 7.25% 6.21% 177,635 175,494 Constitutional Funds² Pré 7.23% 7.34% 6,980 11,137 Financing of Investments US$+ Libor³ 6.38% 5.89% 3,787 13,559
188,401 200,190
Applied in working capital Rural Credit Pré 12.82% 9.45% 479,468 325,424 Constitutional Funds² Pré 10.50% 9.44% 311,987 263,952 Working Capital Pré 0% 15.53% - 20,447 Working Capital CDI 14.73% 15.05% 348,660 518,445 External Loans CDI 14.82% 15.21% 416,010 242,204 External Loans US$, Libor³+Pré 5.50% 4.91% 156,718 308,215
1,712,844 1,678,687
Total Indebtedness 12.07% 10.72% 1,901,245 1,878,877
Gain and losses with deivates connected with applications and debts(5)
(16,115) 83,661
(=) Adjusted Debt 1,917,360 1,795,216
(-) Cash 1,064,506 701,460
(=) Adjusted Debt 852,854 1,093,757
EBITDA of last 12 months
249,109 339,740
Adjusted Net Debt/Adjusted EBITDA(4) 3.42x 3.22x
Adjusted Net Debt/NAV 21.8% 30.6%
(1) Long-Term Interest Rate (TJLP) (2) To calculate the average cost of the Constitutional Funds, we considered a discount of 15% relative to the performance bonus applicable to these operations. (3) London Interbank Offer Rate (Libor): Interest rate charged by London banks used as a reference for most loans in the international financial system. (4)
Adjusted EBITDA in the last 12 months. (5) Transactions with gains and losses from Derivatives (note 19 of the Quarterly Information).
The Adjusted Net Debt/Adjusted EBITDA ratio increased slightly throughout 2016, from 3.22 times in 2015 to 3.42 times in 2016, since, despite the 26.7% decrease in Adjusted EBITDA, Adjusted Net Debt decreased 22.0%, which was mainly due to the stronger BRL and to the measures adopted by the Company to mitigate the effects from weather problems, such as reducing and postponing CAPEX and OPEX. The Adjusted Net Debt/Net Asset Value ratio ended the quarter at 21.8%, compared to 30.6% in 2015.
Figure 23 Gross Debt Profile in 4Q16
Figure 24 Amortization Schedule of Adjusted Net Debt in 4Q16
1) Weighted average debt cost in BRL. (2) Weighted average debt cost in USD
INDICATORS
The Company believes that the calculation of Return on Equity, Return on Net Assets and Return on Invested Capital should consider, in addition to operating income in the period, the net annual appreciation (based on the report of an independent auditor prepared every year) in the value of its land.
1,162,534
398,606
263,391
24,760 21,602 46,469
2017 2018 2019 2020 2021 After 2011
12.67%(1)
61.2%
38.8%
91.6%
8.4%
Short Term Long Term R$ US$
5,42(2)
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2016 Management Report and 4Q16 Earnings Release
Table 33 Return on Equity (R$ million) 2010 2011 2012 2013 2014 2015 2016 Net Profit 59 160 38 97 70 121 16 Net Land Appreciation SLC Agricola(1) -36 179 222 313 396 108 78 Net Land Appreciation LandCo (1)(2) - - 48 61 32 32 69 Subtotal 23 339 308 471 498 261 163
Return on Equity 1.3% 16.4% 12.8% 16.1% 13.8% 7.0% 4.0% (1) Based on independent (Deloitte), and internal appraisal , net of taxes, updated in June 2016. (2) Adjusted by the interest of 81.23% held by SLC Agrícola in SLC LandCo. (3) Adjusted by the appreciation in the value of land properties.
Table 34 Return on Net Assets (R$ million) 2010 2011 2012 2013 2014 2015 2016 Net Profit 59 160 38 97 70 121 16 Net Land Appreciation(1) (36) 179 271 373 428 140 147 Subtotal 23 339 309 470 498 261 163
Invested Capital 2,598 3,196 3,635 4,113 4,696 4,906 4,805
Working Capital 395 504 626 641 733 628 561 Fixed Asset(2) 2,203 2,692 3,009 3,472 3,963 4,278 4,244
Return 0.9% 10.6% 8.5% 11.4% 10.6% 5.3% 3.4% (1)
Based on independent (Deloitte), and internal appraisal , net of taxes, updated in June 2016. (2) Adjusted by land-price appreciation.
Table 35 Return on Invested Capital (R$ milion) 2010 2011 2012 2013 2014 2015 2016 Operating Income 126 257 145 150 190 285 110 Taxes (38) (87) (72) (35) (40) (78) 20 Adjusted Operating Income 88 170 73 116 150 207 130 Net Land Appreciation(1) (36) 179 270 374 428 140 147
Operating Result 52 349 343 490 578 347 277
Invested Capital 2,110 2,527 2,987 3,753 4,329 4,788 4,856
Return on Invested Capital 2.5% 13.8% 11.5% 13.0% 13.3% 7.2% 5.7% (1) Based on independent (Deloitte), and internal appraisal , net of taxes, updated in June 2016.
(2) Adjusted by the interest held in the subsidiaries. (3) Adjusted by land-price appreciation.
Table 36 Net Asset Value (R$ million) 2016 SLC Agrícola Farms (1)
1,807 Outstanding debt related to land acquisitions (3)
76
Subtotal
2,288
Net Asset Value
3,956
Net Asset Value per share 40.0 (1) Based on an internal study considering market information updated in June 2016, net of taxes. (2) Based on the independent appraisal report (Deloitte), net of taxes, updated in June 2016 and adjusted by the interest held by SLC Agrícola in the subsidiary.
(3) Adjusted by the interest held by
SLC Agrícola in the subsidiaries. (4)
Gross Debt adjusted by operations with derivative instruments and the interest held by SLC Agrícola in the subsidiaries.
Table 37 Changes in Working Capital Working Capital (R$ thousand) 2013 2014 2015 2016 Asset
DIVIDENDS A meeting of the Board of Directors held on this date (March 15, 2017) approved the Management Proposal to be submitted to the next Annual Shareholders’ Meeting to be held on April 26, 2017. In accordance with Brazilian Corporation Law and with the Bylaws of the Company, management proposes the following distribution of net income for fiscal year 2016: Table 38 Proposed Dividend Distribution
(R$) 2016 2015
Net Income for the year 29,944,844.33 122,527,790.25
Appropriation of Legal Reserve 1,497,244.22 6,126,389.51
Calculation base for the dividends proposed 28,447,640.11 116,401,400.74
Balance of Net Income to Others Reserves 14,223,820.06 58,200,700.38
Others Comprehensive Income 7,213,158.92 8,471,624.19
Calculation Base for Expansion Reserve 21,436,978.98 66,672,324.55
Appropriation of Expansion Reserve 21,436,978.98 66,672,324.55
The following chart shows the history of distribution of dividends by the Company:
Figure 25 History and Proposition - Dividends
8 11 7 16 62 15 38 27 58 14
5.1%
0.7%0.4%
0.7%
4.1%
0.8% 0.8%
2.0%
4.2%
1.0%
-4,0%
6,0%
0
10
20
30
40
50
60
70
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
R$
MM
Dividends ( R$ million) Dividend Yield ( última dia útil do ano)
40%2011 - 2014
50%2015 - 2016
% Adjusted Net Income
25%2007 - 2010
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2016 Management Report and 4Q16 Earnings Release
CAPITAL MARKETS In 2016, the stock of SLC Agrícola (SLCE3) dropped 8%, compared to the 48% increase in the Bovespa Index (IBOVESPA). In 2017 as of march 14, SLCE3 appreciated 19%, against 9% increase of Bovespa Index (IBOVESPA) The Company has 98,897,500 thousand shares outstanding, of which 48.7% is free-float traded on the Novo Mercado segment of the São Paulo Stock Exchange (BM&FBOVESPA).
Figure 26 SLC x Ibovespa
In the last six years, the company has been recognized by Institutional Investor magazine in the Agribusiness industry. In 2016, we were recognized in the following categories:
Best Investor Relations Program, first place, elected by sell-side analysts, and third place, elected by buy-side analysts;
Best CEO, second place, elected by sell-side analysts, and third place, elected by buy-side analysts;
Best CFO, second place, elected by sell-side analysts, and third place, elected by buy-side analysts;
Best IR Professional, first place, elected by sell-side analysts, and second place, elected by buy-side analysts.
Best IR Team, first place, elected by sell-side analysts, and second place, elected by buy-side analysts.
80
100
120
Ja
n-1
7
Fe
b-1
7
Ma
r-1
7
SLCE3 IBOV
Base 100 -Source: BM&FBOVESPA/ CMA - Update 03/14/2017
+19%
+9%
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2016 Management Report and 4Q16 Earnings Release
PEOPL
E SUSTAINABILITY
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2016 Management Report and 4Q16 Earnings Release
PEOPLE
People development is an integral part of the corporate DNA of SLC Agrícola. With over 2,700 employees, communication and trust are the foundation of good work performance. We value our employees by offering a comprehensive benefit package, profit sharing, a career and salary advancement plan, continuous education, workplace safety, recognition for years of service and promoting quality of life. Internal campaigns are conducted to encourage Security, Innovation and Quality of Life in the Workplace. We also carry out practices to meet our commitments to preventing accidents, preserving the environment, promoting ethics and sustainable development. Guided by this objective, we encourage our employees to work as volunteers through the Social and Environmental Action Group (GAS) implemented at all units, where citizenship projects related to environmental and social issues are carried out, with a focus on improving the quality of life of local communities. Also at the units, SLC Agrícola works to promote the inclusion of persons with disabilities in the workplace through the Semear Program.
Social and Environmental Action Group (GAS)
Formed by volunteer employees, the Social and Environmental Action Group (GAS) was created to develop social projects and initiatives with organizations in need, seeking to contribute to the growth and quality of life of these institutions. The company and its employees take part in social programs that aim to achieve these goals and provide the community with brighter prospects by contributing and fulfilling their social role.
Furnishing Lives Project
Volunteer employees from the Social and Environmental Action Group (GAS) organize, with the support
of the Company, workshops on producing shower chairs made from PVC adapted for children with
multiple disabilities who received assistance from Kinder, a philanthropic organization in the city of
Porto Alegre. Visit the following link to learn more about the project:
https://www.youtube.com/watch?v=vV0ZgfRR654.
Semear Program
The Semear Program was developed by the Human Resources Department to raise awareness among employees and leaders on fostering the inclusion of persons with disabilities at their units. Initiatives included producing a video and textbook for the Semear Program, lectures, workshops, training teams on sign language and hiring interpreters for communication meetings.
Certifications
SLC Agrícola has five units certified by the standard ABNT NBR 16001:2012 Social Responsibility and aims to have ten farms certified by 2020. The certification process is integrated with that of the Environmental Responsibility certifications: ISO 14 001: 2004 Occupational Health and Safety: OHSAS 18 001: 2007.
Recognition
These certifications, combined with the continuous pursuit of best practices in processes and products by raising awareness and adopting efficient people management programs, led SLC Agrícola to be recognized for its practices. In 2016, the Company was elected by its employees one of the 10 Best Companies to Work For in Rio Grande do Sul (Great Place to Work) and received the Top Human Being Award from the Brazilian Human Resources Association in Rio Grande do Sul (ABRH-RS) for the internal communication case study “Our Way of Being.”
In 2016, we ended the year with a total 2,764 employees, of which 2,289 were permanent and 475 were seasonal workers. In 2015, we ended the year with 3,016 employees (2,343 permanent and 673 seasonal workers).
Our employee turnover rate has been declining over the past two years, to 22.9% in 2015 and 18.9% in
2016.
The following chart presents a breakdown of the workforce by geographic location on the base date of
December 31, 2016:
Figure 27 Breakdown of workforce by geographic location
Educational level profile:
Table 39 Educational level by number of employees
Complete High School 799 Complete Elementary School 437 Elementary School – 5th to 8th grade 312 Complete Technician 304 College Education 219 Incomplete High School 214 Elementary School - 4 Complete 154 Elementary School - 4 Incomplete 130 Incomplete College Education 76 Post Graduate 66 Incomplete Technician 26 Illiterate 17 Masters Degree 8 Doctorate Degree 2
Total 2,764
Investments in Training and Development of Continued Education
RS8%
GO7%
BA24%
MA24%
MS6%
MT28%
PI3%
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2016 Management Report and 4Q16 Earnings Release
Figure 28 Manager Development
Figure 29 Operational Training
Our employees can use tools such as distance learning and other structured methods to support their career advancement within the company. Aligned with the Organizational Competencies and value assessment, they can plan their career based on the experiences they amassed and knowledge they acquired through our annual investments in training and development for both leaders and the teams in general. The company has a Leader Academy, which works to develop leaders, successors and potential leaders in the organizational competencies essential to the business, with a view to preparing them to work strategically. The academy also offers career guidance and Leader Performance Management, the latter a program involving competency assessments employing a 180° methodology as well as value assessments. The program generates positive results in our talent matrix and involves the calibration committee for updating the Company's Succession Plan and the subsequent individual feedback, which is a process conducted annually. Attracting, developing and retaining employees are key to the company’s performance. Through the Internship Program and Trainee Program, we have built a network with agribusiness vocational schools across the country to support the hiring of new professionals to complement our team. In this way, we guarantee our Big Dream of “positively impacting future generations.” In 2016, the company had 20 trainees and 97 interns. As recognition of the various actions executed, in 2016, SLC Agrícola was recognized by Great Place to Work as one of the ten best companies to work for in Rio Grande do Sul.
111 h/emp 55 h/emp
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Career Opportunity and Development
More than 75% of leadership positions at SLC Agrícola are held by employees who were promoted.
Figure 30 Profile of Leadership Positions
SUSTAINABILITY
Environment and Sustainability
Sustainability Policy SLC Agrícola is committed to preventing accidents, promoting ethical conduct and sustainable development and preserving the environment in all aspects, for which it works to continually improve its processes and products, raise awareness and adopt effective programs. To achieve this, it undertakes the following commitments to its stakeholders:
To continuously improve our processes and systems.
To ensure, as a minimum standard, the compliance of the activities of SLC AGRÍCOLA S.A. with applicable legal and other requirements related to the safety and health of employees and to the company’s environmental and social aspects.
To minimize risks and prevent pollution, accidents and other incidents by adopting appropriate practices for:
the efficient use of natural resources; the reduction wastewater and gaseous effluents; the reuse, recycling and proper disposal of solid waste generated; the elimination of unsafe work conditions and the pursuit of “zero accidents”;
To promote ethics and sustainable development through: stakeholder engagement; tolerance of different opinions; not discriminating and respecting human rights; fair compensation; combating child and forced labor; accountability, transparency and ethical conduct.
To assume its leadership position in building a safe, environmentally adequate and socially responsible workplace.
To thoroughly investigate all environmental and occupational accidents on the farms owned by SLC AGRÍCOLA S.A.
75.9%
Promoted employees
24.1%
External Recruitment
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To inform service providers that carry out any kind of activity in its facilities, of the need to comply with internal rules and those related to social responsibility, the environment and occupational safety and health.
To maintain and implement projects to raise awareness on environmental, occupational and social responsibility issues across all levels of the organization, including professionals and other people acting on behalf of SLC AGRÍCOLA S.A.
Management and Certification Systems For more than nine years, we have adopted the use of an Integrated Management System (IMS) that complies with the international standards ISO 14001 OHSAS 18001 and the Brazilian standard NBR 16001. The activities of the IMS include addressing issues that go beyond mere legal compliance to focus on aspects related to the Environment, Occupational Health and Safety and Social Responsibility. The system is implemented and certified at the Planalto (Mato Grosso do Sul), Paiaguás and Planorte (Mato Grosso), Panorama (Bahia) and Pamplona (Goiás) farms, and is in the final implementation stage at the Parnaíba and Planeste (Maranhão) farms. Practices linked to this management system are being complied with by the employees, suppliers and outsourced service providers at these units. The plan is to extend the implementation of this system to the other production units of the Company, with the process expected to be concluded at 10 units by year-end 2020. In 2012, the Planalto Farm became the first agricultural company to be simultaneously certified by the international standards 14001 and OHSAS 18001 and by the Brazilian standard NBR 16001. SLC Agrícola’s sustainable production practices are also demonstrated by the agricultural production certifications that it holds, which include those for soybean (RTRS) and cotton (BCI and ABR).
5S Program Actions to raise environmental awareness involve all of the Company’s employees as well as their family members, and include lectures or seminars and environmental education classes at schools to encourage the adoption of the 5S phases along with the 3 Rs (Reduce, Reuse and Recycle waste). The purpose is to show the importance of preserving the environment, as well as the simplicity of the methods adopted and the returns generated by the project. 5S is a method for organizing the workplace. The letter “S” in 5S comes from Japanese and relates to the following words: SEIRI – Sort: eliminate all unused and obsolete objects; SEITON – Streamline: arrange things in their proper places with a view to increasing efficiency; SESIO – Cleanliness: keep the environment clean and conduct regular maintenance; SEIKETSU – Hygiene and Workplace Safety: practice safe acts and maintain good relationships in the work environment; SHITSUKE - Discipline: adopt the other S phases as a regular routine.
Sustainability: An Organizational Competency Sustainability is one of the competencies required and developed in all leadership levels at the Company. It is attributed great importance because it is one of the main pillars of the Company's growth and perpetuity. Leaders are encouraged to increasingly consider sustainable development in the planning, implementation and operation of their projects or areas. This involves knowing legal, regulatory and technical aspects, minimizing social, economic and environmental impacts, using resources rationally and the interaction of their projects with society. Promoting sustainability helps to ensure the desired level of profitability, legal security, risk management and reductions in non-compliance and future losses.
Sustainability in the Organizational Climate Survey Conducted every two years among all of the Company's employees, the Climate Survey is an excellent tool for assessing employee's perceptions and level of satisfaction with regard to various aspects of the Company, including Sustainability. The opportunities for improvement identified in areas related to Sustainability are addressed through action plans developed in cooperation with all areas of the Company.
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SUBMISSION TO THE ARBITRATION CHAMBER The Company submits to arbitration by the Novo Mercado Arbitration Chamber, as per the arbitration clause in its Bylaws.
RELATIONSHIP WITH THE INDEPENDENT AUDITORS KPMG Auditores Independentes was engaged by the Company to conduct the external audit of its financial statements. In compliance with CVM Instruction 381/03, we inform that in 2016 the audit firm did not provide services other than those related to the external audit whose fees exceeded 5% of the total fees received for this service.
LOCATION OF UNITS
DISCLAIMER This release makes statements concerning future events that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of our Management and on the information currently available to the Company. Forward-looking statements include information on our current plans, beliefs or expectations, as well as those of the Company’s directors and officers. Forward-looking statements include information on potential or assumed operating results as well as statements that are preceded, followed by or include the words "believe," "may," "will,” "continue," "expect," "project," "intend," "plan," "estimate" or similar expressions. Forward-looking statements and information provide no guarantee of performance. Because they refer to future events, they involve risks, uncertainties and assumptions and as such depend on circumstances that may or may not occur. The Company's future results and creation of value for shareholders may differ significantly from the figures expressed or suggested in the forward-looking statements. Many factors that will determine these results and values are beyond our capacity to control or predict.
STRATEGIC AND DIVERSIFIED LOCATION OF FARMS
Fully owned by SlCAgrícola
HEAD OFFICE
PORTO ALEGRE - RIO GRANDE DO SUL
MIDWEST
MARANHÃO
PIAUÍ & BAHIA
SlCLandCo‘s farms
Joint Venture with Grupo DoisVales
Joint Venture with Mitsui Co.
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EXHIBIT 1: AGRICULTURAL WEIGHTS AND MEASURES
1 tonelada 1,000 kg
1 kg 2.20462 libras
1 libra 0.45359 kg
1 acre 0.40469 hectares
1 acre 0.1840 alqueire
1 hectare (ha) 2.47105 acres
1 hectare (ha) 10,000 m²
1 alqueire 5.4363 acres
Soja e Trigo
1 bushel de soja 60 libras 27.2155 kg
1 saca de soja 60 kg 2.20462 bushels
1 bushel/acre 67.25 kg/ha
1.00 US$/bushel 2.2046 US$/saca
Milho
1 bushel de milho 56 libras 25.4012 kg
1 saca de milho 60 kg 2.36210 bushels
1 bushel/acre 62.77 kg/ha
1.00 US$/bushel 2.3621 US$/saca
Algodão
1 fardo 480 libras 217.72 kg
1 arroba 14.68 kg*
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EXHIBIT 2: BALANCE SHEET - ASSETS
(R$ thd) 2015 AV 2016 AV AH Current Asset 2,176,848 41.0% 2,332,168 42.8% 7.1%
Other operating income (expenses) 5,415 27,250 403.2% 2,884 20,523 611.6%
Income (loss) before financial income (loss) and taxes 69,649 183,899 164.0% 285,498 110,315 -61.4% Financial income (loss) (23,751) (26,399) 11.1% (118,844) (114,476) -3.7%
Financial income 129,114 95,536 -26.0% 447,366 399,656 -10.7%
Income (loss) before income tax 45,898 157,500 243.2% 166,654 (4,161) n.m. Income and social contribution taxes (10,563) (43,452) 311.4% (45,483) 19,802 n.m.
Current (7,265) (5,807) -20.1% (33,038) (27,061) -18.1%
Net Income (loss) for the period 35,335 114,048 222.8% 121,171 15,641 -87.1% Attributed to the Parent company's partners 35,020 112,574 221.5% 122,528 29,945 -75.6% Attributed to non-controlling partners 314 1,474 369.4% (1,358) (14,304) 953.3%
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EXHIBIT 5:STATEMENT OF CASH FLOWS (R$ thd) 4Q15 4Q16 AH 2015 2016 AH Net cash from operational activities 176,040 432,496 145.7% 274,832 305,651 11.2% Cash generated in operations 144,880 47,654 -67.1% 482,199 204,468 57.6%
Net income (loss) before income and social contribution taxes 45,898 157,500 243.2% 166,654 (4,161) n.m.
Depreciation and amortization 31,984 27,158 -15.1% 106,803 104,242 -2.4%
Depreciation and amortization recorded in the income 31,984 27,158 -15.1% 106,803 104,242 -2.4%
Income from write-off of permanent assets 1,009 - -100.0% 6,230 2,938 -52,8%
Income tax and social contribution paid (7,478) (9,085) 21.5% (26,208) (21,758) -17.0% Net cash used in investment activities (18,072) (36,413) 101.5% (142,348) (96,922) -31.9%
In Investment - - - - - -
In biological assets - - - - - -
In Fixed assets (17,886) (35,458) 98.2% (141,437) (83,352) -32.8%
In Intangible assets (186) (955) 413.4% (911) (1,915) 110.2%
Net cash before cash used in investment activities 157,968 398,559 154.3% 132,484 208,729 -55.7%
Net cash generated/(consumed) in financing activities 243,797 79,328 -67.5% 251,983 56,403 -77.6%
Sale (repurchase) of shares (1,180) 401 n.m. 35 1,023 n.m
Loans and financing obtained 454,615 164,821 -63.7% 1,321,100 1,135,244 -14.1%
Loans and financing paid (209,638) (85,894) -59.0% (1,041,268) (1,021,663) -1.9%
Dividends paid - - - (27,884) (58,201) 107.1%
Payment of capital - - - - - - Increase (decrease) in cash and cash equivalents 401,765 477,887 18.3% 384,467 265,132 -31.0% Opening balance of cash and cash equivalents 221,843 410,853 85.2% 239,141 623,608 160.8% Closing balance of cash and cash equivalents 623,608 888,740 42.1% 623,608 888,740 42.5%