20-F 1 f20f2023_brasilagro.htm ANNUAL REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended June 30, 2023

 

OR

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 001-35723

 

BRASILAGRO – COMPANHIA BRASILEIRA DE
PROPRIEDADES AGRÍCOLAS

(Exact name of Registrant as specified in its charter)

 

BrasilAgro – Brazilian Agricultural Real Estate Company

(Translation of Registrant’s name into English)

 

The Federative Republic of Brazil

(Jurisdiction of incorporation or organization)

 

Av. Brigadeiro Faria Lima, 1309, 5th floor, São Paulo, SP 01452-002, Brazil

(Address of principal executive offices)

 

Gustavo Javier Lopez

Chief Financial Officer and Investor Relations Officer

Tel.: +55 11 3035 5350 – E-mail: ri@brasil-agro.com

Av. Brigadeiro Faria Lima, 1309, 5th floor
São Paulo, SP 01452-002, Brazil

(Name, Telephone, E-mail or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
American Depositary Shares, each representing one ordinary share, no par value   LND   New York Stock Exchange
         
Ordinary Shares*     New York Stock Exchange*

 

  * Not for trading, but only in connection with the registration of American Depositary Shares.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Ordinary shares, no par value     102,377,008  

 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐   No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐.

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐ Accelerated filer Non-accelerated filer ☐
    Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ☐

International Financial Reporting Standards as issued

by the International Accounting Standards Board  ☒

Other ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐  Item 18 ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
Part I   1
     
INTRODUCTION   1
     
ITEM 1—IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS   4
ITEM 2—OFFER STATISTICS AND EXPECTED TIMETABLE   4
ITEM 3—KEY INFORMATION   4
ITEM 4—INFORMATION ON THE COMPANY   26
ITEM 4A—UNRESOLVED STAFF COMMENTS   51
ITEM 5—OPERATING AND FINANCIAL REVIEW AND PROSPECTS   52
ITEM 6—DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   77
ITEM 7—MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   88
ITEM 8—FINANCIAL INFORMATION   92
ITEM 9—THE OFFER AND LISTING   99
ITEM 10—ADDITIONAL INFORMATION   102
ITEM 11—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   132
ITEM 12— DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   134
     
Part II   135
     
ITEM 13—DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES   135
ITEM 14—MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   135
ITEM 15—CONTROLS AND PROCEDURES   135
ITEM 16A—AUDIT COMMITTEE FINANCIAL EXPERT   136
ITEM 16B—CODE OF ETHICS   137
ITEM 16C—PRINCIPAL ACCOUNTANT FEES AND SERVICES   137
ITEM 16D—EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES   138
ITEM 16E—PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS   138
ITEM 16F—CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT   138
ITEM 16G—CORPORATE GOVERNANCE   138
ITEM 16H—MINE SAFETY DISCLOSURE   140
ITEM 16I—DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS   140
     
Part III   141
     
ITEM 17—FINANCIAL STATEMENTS   141
ITEM 18—FINANCIAL STATEMENTS   141
ITEM 19—EXHIBITS   141

 

i

 

 

Part I

 

INTRODUCTION

 

Unless the context otherwise requires, the term “BrasilAgro” refers to BrasilAgro – Companhia Brasileira de Propriedades Agrícolas and its consolidated subsidiaries; and unless indicated otherwise, the terms “we,” the “Company,” “our” or “us” refer to BrasilAgro. The term “Brazil” refers to The Federative Republic of Brazil.

 

Presentation of Financial Information

 

All references in this annual report to “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “dollars” or “US$” are to U.S. dollars, the official currency of the United States of America.

 

On June 30, 2023, the end of our last fiscal year, the exchange rate for reais into U.S. dollars was R$4.8192 to US$1.00, based on the selling rate as reported by the Central Bank of Brazil (Banco Central do Brasil), or the Central Bank. On June 30, 2022, the selling rate was R$5.2374 to US$1.00. The selling rate was R$5.0022 to US$1.00 on June 30, 2021, R$5.4760 to US$1.00 on June 30, 2020, and R$3.8322 to US$1.00 on June 30, 2019, in each case, as reported by the Central Bank. The real/U.S. dollar exchange rate fluctuates widely, and the selling rate on June 30, 2023 may not be indicative of future exchange rates. On September 30, 2023, the selling rate was R$5.0076 to US$1.00, as reported by the Central Bank.

 

Exchange Rates

 

Our dividends, when paid in cash, are denominated in reais. As a result, exchange rate fluctuations have affected and will affect the U.S. dollar amounts received by holders of ADSs on conversion of such dividends by The Bank of New York, as the ADS depositary. The Bank of New York converts dividends it receives from reais into U.S. dollars upon receipt, by sale or such other manner as it has determined, and distributes such U.S. dollars to holders of ADSs, net of The Bank of New York’s expenses of conversion, any applicable taxes and other governmental charges. Exchange rate fluctuations may also affect the U.S. dollar price of the ADSs.

 

The Brazilian government may impose temporary restrictions on the conversion of reais into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Brazil. Brazilian law permits the government to impose these restrictions whenever it determines there is an imbalance in Brazil’s balance of payments or reason to expect that one will occur.

 

On June 30, 2023, the end of our last fiscal year, the exchange rate for reais into U.S. dollars was R$4.8192 to US$1.00, based on the selling rate as reported by the Central Bank. On September 30, 2023, the selling rate was R$5.0076 to US$1.00, as reported by the Central Bank.

 

1

 

 

Financial Statements

 

The Brazilian real is our functional currency and that of our subsidiaries located in Brazil, and is also the currency used for the preparation and presentation of our consolidated financial statements. Our fiscal year is from July 1 of each year to June 30 of the following year.

 

We prepare our annual consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB.

 

The selected financial information should be read together with our audited consolidated financial statements, including the notes thereto, included elsewhere in this annual report.

 

Crop Year, Harvest and Planting Season

 

Our agricultural production is based on the crop year, which varies according to each crop. The crop year for sugarcane is from January 1 to December 31 of each year, and the crop year for grains is from July 1 of each year to June 30 of the following year. We also make reference in this annual report to the planting season and the harvest season, or harvest period. In Brazil, the planting season for grains is from September to December of each year, and the planting season for sugarcane is from February to May of each year. The harvest period in Brazil for grains is from February to July of each year, and the harvest period for sugarcane is from April to November of each year.

 

Market Information

 

The market information included in this annual report concerning the Brazilian economy and the domestic and international agriculture industry was obtained from market research, publicly available information and industry publications from established public sources, such as the Central Bank, the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or the IBGE, the Brazilian Food Supply Company (Companhia Nacional de Abastecimento), or Conab, which is a state-owned company, the Brazilian Ministry of Agriculture, Livestock and Food Supply (Ministério da Agricultura, Pecuária e Abastecimento), or MAPA, the U.S. Department of Agriculture, or USDA, the United Nations Food and Agriculture Organization, or FAO, the United Nations, and the Organization for Economic Cooperation and Development, or OECD, as well as from other public institutions and independent sources as indicated throughout this annual report. We believe that such information is true and accurate as of the date it was made available, although we have not independently verified it.

 

Rounding

 

Certain percentages and amounts included in this annual report have been rounded for ease of presentation. Accordingly, figures shown as totals in certain tables may not be arithmetic aggregations of the figures that precede them.

 

Emerging Growth Company Status

 

We are an “emerging growth company,” as defined in Section 3(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Therefore, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, or any Public Company Accounting Oversight Board, or “PCAOB,” rules, which, if adopted in the future, would require mandatory audit firm rotation and auditor discussion and analysis pursuant to any future audit rule promulgated by the PCAOB (unless the U.S. Securities and Exchange Commission, or the SEC, determines otherwise). We take advantage of the exemption from providing an auditor’s attestation report and may decide to rely on other exemptions in the future, such as compliance with certain PCAOB rules. We do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock and our stock price may become more volatile.

 

2

 

 

We could remain an “emerging growth company” until the earliest of (a) the last day of the first fiscal year in which our annual gross revenue exceeds US$1.235 billion, (b) the last day of our fiscal year following the fifth anniversary of the date of our first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended, or the Securities Act, (c) the date on which we have issued more than US$1 billion in non-convertible debt during the preceding three-year period, or (d) the date on which we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter.

  

Forward-Looking Statements

 

This annual report includes statements that constitute forward-looking statements. These statements are based on the beliefs and assumptions of our management and on information available to our management at the time such statements were made. Forward-looking statements include, but are not limited to: (a) information concerning possible or assumed future results of our operations, earnings, industry conditions, demand and pricing for our services and other aspects of our business described under “Item 4—Information on the Company,” “Item 5—Operating and Financial Review and Prospects” and “Item 11—Quantitative and Qualitative Disclosures About Market Risk”; and (b) statements that are preceded or followed by, or include, the words “believes,” “expects,” “anticipates,” “intends,” “is confident,” “plans,” “estimates,” “may,” “might,” “could,” “will,” “would,” the negatives of such terms or similar expressions.

 

The forward-looking statements included in this annual report relate to, among other factors:

 

our business prospects and future results of operations;

 

  weather and other natural phenomena;

 

  global economic disruptions and disruptions to commodity markets due to global conflicts and events, including the ongoing conflict between Russia and Ukraine and the recent conflict between Israel and Hamas, which may exacerbate market pressures and economic volatility;

 

  increases in raw material costs, fuel costs and insurance premiums, especially in light of the ongoing conflict between Russia and Ukraine and the recent conflict between Israel and Hamas;

 

  developments in, or changes to, the laws, regulations and governmental policies governing our business, including limitations on ownership of farmland by foreign entities in certain jurisdiction in which we operate, environmental laws and regulations;

 

  the implementation of our business strategy;

 

  our plans relating to acquisitions, joint ventures, strategic alliances or divestitures;

 

  the implementation of our financing strategy and capital expenditure plan;

 

  the maintenance of relationships with our customers;
     
  the competitive nature of the industry in which we operate;

 

  the cost and availability of financing;

 

  future demand for the commodities we produce;

 

  international prices for commodities;

 

  the condition of our land holdings;

 

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  the development of the logistics and infrastructure for transportation of our products in the countries where we operate;

 

  the performance of the Brazilian and world economies;

 

  the relative value of the Brazilian real compared to other currencies; and

 

  the factors discussed under “Item 3—Key Information—3.D. Risk Factors” in this annual report.

 

Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Many of the factors that will determine these results are beyond our ability to control or predict.

 

Any of the risk factors described under “Item 3—Key Information—Risk Factors” and those described elsewhere in this annual report or in our other filings with the SEC, among other things, could cause our results to differ from any results or conditions that might be projected, forecasted or estimated by us in any such forward-looking statements.

 

We undertake no obligation to publicly update any forward-looking statement, whether because of new information, future events or otherwise, except as required by applicable law or stock exchange regulation. Investors are cautioned not to put undue reliance on any forward-looking statements. 

 

ITEM 1—IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

ITEM 2—OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

ITEM 3—KEY INFORMATION

 

A. (Reserved)

 

Not applicable.

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the offer and use of proceeds

 

Not applicable.

 

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D. Risk Factors

 

Risks Relating to our Business and Industry

  

Our ability to implement our business strategy successfully may be adversely affected by numerous factors beyond our control, which may materially and adversely affect our business, financial condition and results of operations.

 

Our business strategy depends on our ability to acquire, develop, operate and sell our agricultural properties on a profitable basis. Our strategy is based on our ability to acquire agricultural properties at attractive prices, develop them into efficient and profitable operations and sell them at a profit in the medium and long term. These factors are essential for our prospects of success, but are subject to significant uncertainties, contingencies and risks within our economic, competitive, regulatory and operational environment, many of which are beyond our control. Our ability to execute our business strategy successfully is uncertain and may be adversely affected by any of the following factors, among others:

 

failure to pursue our business strategy;

 

failure or difficulty to acquire and sell agricultural properties at attractive prices;

 

changes in market conditions or failure to anticipate and adapt to new trends in Brazil’s rapidly evolving agricultural sector;

 

inability to overcome certain limitations on the acquisition of land in Brazil by foreigners, as provided in the opinion of the Federal Attorney General’s Office (AGU), as further detailed in this annual report;

 

failure to maintain the fiscal structure of our subsidiaries;

 

inability to develop infrastructure and attract or retain personnel in a timely and effective manner;

  

inability to identify service providers for our agricultural properties and projects;

 

increased competition for suitable land from other agricultural real estate owners or developers, which increases our costs and adversely affects our profit margins;

 

inability to develop and operate our agricultural properties profitably, which may result from inaccurate estimates regarding the cost of infrastructure, other investments or operating costs;

 

failure, delays or difficulties in obtaining necessary environmental and regulatory permits;

 

failure by purchasers of our properties to meet their payment obligations to us;

 

increased operating costs, including the need for improvements to fixed assets, insurance premiums and property and utility taxes and fees that affect our profit margins;

 

adverse climate conditions, such as global warming, which may contribute to the change of frequency of unpredictable or uncommon meteorological phenomena such as hurricanes and typhoons, as well as unpredictable and unusual patterns of rainfall, among others;

 

unfavorable climate conditions in Brazil, Bolivia or Paraguay, particularly in the regions where we carry out our activities;

 

the economic, political and business environment in Brazil, Bolivia or Paraguay, and specifically in the geographic regions where we invest and operate;

 

inflation, fluctuating interest rates and exchange rates;

 

disputes and litigation relating to our agricultural properties; and

 

labor, environmental, civil and pension liabilities.

 

5

 

 

We may not be able to continue acquiring suitable agricultural properties on attractive terms, and our inability to do so could have a material adverse effect on us.

 

In recent years, investments in Brazil’s agriculture sector have increased substantially. As a result, demand and valuations for the kind of properties we seek to acquire have escalated significantly. We believe that prices for such properties are likely to continue to increase in the medium and long-term, perhaps significantly as demand is expected to remain high. We compete with local and foreign investors, many of whom are larger and have greater financial resources than we do. Such investors may be able to incur operating losses for a sustained period, retain their real estate investments for a longer period than we can or accept lower returns on such investments. As a result, such investors may be willing to pay substantially higher prices for agricultural properties than we are able or willing to, depriving us of opportunities to acquire the best agricultural properties or increasing our acquisition costs. As a result of the foregoing, we cannot assure you that we will be able to locate and acquire suitable investments on reasonable terms or at all, and our inability to do so could have a material adverse effect on us.

  

The imposition of restrictions on acquisitions of agricultural properties by foreign nationals may materially restrict the development of our business.

 

In August 2010, the then-president of Brazil approved the opinion of the Federal Attorney General’s Office (AGU) affirming the constitutionality of Brazilian Law No. 5,709/71, which imposes important limitations on the acquisition and lease of land in Brazil by foreigners and by Brazilian companies controlled by foreigners. Pursuant to this legislation, companies that are majority-owned by foreigners are not allowed to acquire agricultural properties in excess of 100 indefinite exploration modules, or MEI (which are measurement units adopted by the National Institute of Agrarian Development (Instituto Nacional de Colonização e Reforma Agrária), or INCRA, within different Brazilian regions, and which range from five to 100 hectares) absent the prior approval of the Brazilian Congress, while the acquisition of areas measuring less than 100 MEIs by such companies requires the prior approval of INCRA. In addition, agricultural areas that are owned by foreigners or companies controlled by foreigners shall not exceed 25% of the surface area of the municipality, of which area up to 40% shall not belong to foreigners or companies controlled by foreigners of the same nationality, meaning that the sum of agricultural areas that belong to foreigners or companies controlled by foreigners of the same nationality shall not exceed 10% of the surface area of the relevant municipality. In addition, INCRA is also required to verify if the agricultural, cattle-raising, industrial or colonization projects to be developed in such areas were previously approved by the relevant authorities. After that analysis, INCRA will issue a certificate allowing the acquisition or rural lease of the property. The purchase and rural lease of agricultural properties that do not comply with the aforementioned requirements need to be authorized by the Brazilian Congress. In both cases, it is not possible to determine an estimated time frame for the approval procedure, since at the date of this annual report, there are no known cases on the granting of such certificates.

 

Recently, Brazilian Law No. 13,986, of April 7, 2020, amended Law No. 5,709/91 and provided that the limitations mentioned above do not apply to: (i) the pledge of real estate as collateral (including the fiduciary transfer of real estate property); and (ii) debt settlements arising from the execution of real estate collateral. Both exceptions favor Brazilian companies controlled by foreigners or foreign entities.

 

We are unable to determine with certainty what percentage of our share capital is owned directly or indirectly by foreign ultimate beneficial owners. If Brazilian authorities determine that we are controlled by foreigners for the purposes of Law No. 5,709/71, the acquisitions and leasing completed by us after the approval of the opinion of the Federal Attorney General’s Office (AGU) in 2010 may be challenged, which could also result in substantial delays in our future acquisitions of rural properties and our inability to obtain the necessary governmental approvals. Additionally, acquisitions made in violation of existing laws and regulations may be declared null and void.

 

The applicability of Law No. 5,709/71 is being discussed in the Original Civil Action (Ação Cível Originária) No. 2,463 and in the Action for Breach of Constitutional Provision (Ação de Descumprimento de Preceito Fundamental) No. 342, both before the Brazilina Supreme Court (STF). The first action (Original Civil Action No. 2,463) concerns the Opinion No. 461/2012-E of the General Inspectorate of Justice of the State of São Paulo (Corregedoria-Geral de Justiça do Estado de São Paulo), which established that notaries and real estate registry officials of the State of São Paulo would be exempt from complying with the restrictions imposed by Law No. 5,709/71 and by Decree No. 74,965/74. The second action (Action for Breach of Constitutional Provision No. 342), which is related to the first lawsuit, was filed on April 16, 2015 by the Brazilian Rural Society (Sociedade Rural Brasileira) questioning the applicability of paragraph 1, article 1, of Law No. 5,709/71 and consequently, of the opinion issued by the Federal Attorney General’s Office (AGU) in 2010.

 

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A trial began before the Brazilian Supreme Court (STF) in February 2021, with the vote of the rapporteur Justice stating that the restrictions on companies considered to be controlled by a foreign entity must be maintained. A second Justice asked to pause the proceedings to review the file, thereby interrupting the trial, which was only resumed in June 2021, when the Justice presented his vote diverging from the rapporteur, confirming the inapplicability of the restrictions. As of the date of this annual report, a final judgment is still pending, and we are not able to provide an estimate of the timeframe for a final judgment to be issued by the Supreme Court. Depending on the final decisions of these pending lawsuits, we may need to modify our business strategy and intended practices in order to be able to acquire agricultural properties.

 

Depending on the final decisions of these lawsuits, we may need to modify our business strategy and intended practices in order to acquire rural properties. This may have the effect of increasing the number of transactions we must complete, which would increase our transaction costs. It may also require us to adopt alternative measures to reduce our interest in companies that own or lease rural properties, including entering into joint ventures, which increases the complexity and risks associated with these transactions.

 

Any regulatory limitations and restrictions may substantially limit our ability to acquire rural properties, increase the investments, transaction costs or complexity of such transactions or complicate the necessary regulatory procedures, any of which could materially and adversely affect us and our ability to successfully implement our business strategy.

 

For more information, see “Item 4—Information on the Company—Business Overview—Ownership of Agricultural Land in Brazil by Foreigners.”

 

A substantial portion of our assets consists of illiquid agricultural properties that may affect our ability to carry out sales of properties timely and profitably, which could have a material adverse effect on us.

 

Our business strategy is based on the appreciation of the capital invested in our agricultural properties and the liquidity of those investments. We cannot assure you that the value of our agricultural properties will increase in the short, medium or long term, or at all, or that we will be able to monetize our agricultural investments successfully. Agricultural real estate assets are, as a general rule, illiquid and volatile, and agricultural properties in Brazil are especially illiquid and volatile. As a result, it may be difficult for us to promptly adjust our portfolio of properties in response to changes in economic or business conditions, and we may be unable to find purchasers willing to acquire our agricultural properties at prices that are favorable to us. Lack of liquidity and volatility in local market conditions would adversely affect our ability to carry out sales of properties timely and profitably, which could have a material adverse effect on us.

   

Fluctuation in market prices for our agricultural products could adversely affect us.

 

We are not able to obtain hedging protection or minimum price guarantees for the entirety of our production and therefore we are exposed to significant risks associated with the level and volatility of crop prices. The prices we are able to obtain for our agricultural products from time to time will depend on many factors beyond our control, including:

 

global commodity prices, which historically have been subject to significant fluctuations over relatively short periods of time, depending on worldwide food supply and demand as well as factors related to financial speculation;

 

  disruptions in commodity markets caused by global events,

 

  global economic disruptions and disruptions to commodity markets due to global conflicts and events, including the ongoing conflict between Russia and Ukraine and the recent conflict between Israel and Hamas, which may exacerbate disruptions, market pressures and volatility;

 

  increases in raw material costs, fuel costs and insurance premiums, especially in light of the ongoing conflict between Russia and Ukraine and the recent conflict between Israel and Hamas;

  

  weather conditions, or natural disasters in areas where agricultural products are cultivated;

 

  worldwide inventory levels (i.e., supply or stock of commodities carried over from year to year);

 

7

 

 

  the business strategies adopted by other major companies operating in the agricultural and agribusiness sectors;

 

  changes in agriculture subsidies with regard to certain important producers (mainly in the United States and the European Economic Community), trade barriers with regard to certain important consumer markets and the adoption of other government policies affecting market conditions and prices;

 

  available transportation methods and infrastructure development in the regions where we operate or in remote areas serving local markets and which affect the local prices of our crops; and

 

  cost of raw materials; and supply of and demand for competing commodities and substitutes.

 

In addition, we believe there is a close relationship between the value of our agricultural properties and market prices of the commodities we produce, which are affected by global economic and other conditions. A decline in the prices of grains, sugar or related by-products below their current levels for a sustained period of time would significantly reduce the value of our land holdings and materially and adversely affect our business, financial condition and results of operations.

 

Ethanol prices are correlated with the price of sugar and are also closely correlated with the price of oil, so that a decline in the price of any of these commodities may adversely affect our sugarcane business.

 

A vast majority of ethanol in Brazil is produced at sugarcane mills that produce both ethanol and sugar. Because sugarcane millers are able to alter their product mix in response to the relative prices of ethanol and sugar, the prices of both products are directly correlated, and the correlation between ethanol and sugar may increase over time. Sugar prices in Brazil are determined by prices in the world market, resulting in a correlation between Brazilian ethanol prices and world sugar prices.

 

In addition, gasoline prices in Brazil are influenced by the Brazilian government. Because flex-fuel vehicles, which have become popular in Brazil, allow consumers to choose between gasoline and ethanol at the pump, ethanol prices are correlated to gasoline prices and, consequently, oil prices.

 

Oil prices varied sharply in 2021, 2022 and 2023, with a record demand shock along with excess supply created by internal dispute among OPEC+ members. In March 2020, a dispute between Saudi Arabia and Russia sparked oil price volatility, which continued through 2023 as a direct result of the Russian invasion of Ukraine and the recent conflict between Israel and Hamas, thereby bringing the price of oil to its highest level since 2008.

 

A decline in sugar prices could have an adverse effect on the financial performance of our sugarcane businesses.

 

Substantially all of our revenue is derived from a small number of customers, which may adversely affect our business, financial condition and results of operations.

 

We currently sell a substantial portion of our total crop production to a small number of customers who have considerable bargaining power. For instance, in the year ended June 30, 2023, three of our customers were responsible for 45.8% of our revenue, and each of these three customers was responsible for at least 10% of our revenue. Of these three customers, two were responsible for 42.0% of our revenue in the grain/cotton segment, and one was responsible for 63.1% of our revenue in the sugarcane segment.

 

Comparatively, in the year ended June 30, 2022, four of our customers were responsible for 57.9% of our revenue, and each of these four customers was responsible for at least 10.0% of our revenue. Of these four customers, two were responsible for 97.8% of our revenue in the sugarcane segment, and two were responsible for 41.0% of our revenue in the grains/cotton segment. See Note 21 to our financial statements included elsewhere in this annual report.

 

8

 

 

In May 2015, we entered into a supply contract and a rural partnership agreement with Brenco – Companhia Brasileira de Energia Renovável (“Brenco”), which is controlled by Novonor S.A. – Em Recuperação Judicial (formerly known as Odebrecht S.A.), pursuant to which we currently supply them with 100% of our sugarcane production from the Alto Taquari and Araucária farms. The term of this supply contract covers two full crop cycles, which consists of six crop years and five harvests. The term of this rural partnership agreement covers a total area of 5,624 hectares, which we expect to explore and operate until March 31, 2026.

 

In addition, in January 2017, we entered into a supply contract and a rural partnership agreement with Agro Pecuária e Industrial Serra Grande Ltda. (“Agro Serra”), pursuant to which we currently supply them with 100% of our sugarcane production from São José farm. The term of this supply contract covers at least 15 crop years, and therefore is scheduled to expire no earlier than in crop year 2032/2033, and encompasses a total area of 14,900 hectares, which we expect to explore and operate until its expiration.

 

The strong competition between a relatively fragmented sector of agricultural producers in the internal and external markets further increases the bargaining power of our highly concentrated customer base. Thus, we may not be able to maintain or form new relationships with customers, which could have a material adverse effect on our business, financial condition and results of operations.

 

Concentration among our customer base also increases the adverse consequences to us should we lose any of our customers or if any of our customers defaults on their obligations to us, either in the form of non-payment or through a breach of any contractual provision or obligation, such as shipping failures or delays. Delays in the shipment of our products could directly affect the planning of our harvest, which could generate losses and result in additional costs to us.

 

We are dependent on third-party service providers and subject to recent changes in the Brazilian labor legal framework.

 

In addition to our own personnel, we are highly dependent on third-party contractors to develop and cultivate our agricultural properties, and to provide the machinery and equipment needed for such purposes. As a result, our future success depends on the skill, experience, knowledge and efforts of our third-party service providers. We cannot assure you that we will be able to continue to hire the desired third-party service providers for our agricultural properties or that such providers will have the ability to ensure quality agricultural production in an efficient manner, and at competitive prices. Our failure to hire the desired service providers for our agricultural properties, or their failure to provide quality services, or the revocation or termination or our failure to renew our service contracts or negotiate new contracts with other service providers at comparable prices and terms could adversely affect us.

 

Our dependence on third-party contractors also subjects us to the risk of labor claims alleging that an employment relationship exists between us and our contractors’ personnel, and that, as a result, we are secondarily liable for our contractors’ labor and social security payment obligations, lease payments or other obligations.

 

Moreover, pursuant to Brazilian environmental law, we are jointly and severally liable, together with our contractors, for all environmental damage caused by our third-party contractors, irrespective of our fault. Such obligations or our costs for defending against any such claims may be significant and could have a material adverse effect on us if we were held liable.

 

Changes in government policies involving biofuels may adversely affect our business, financial condition and results of operations.

 

Government policies for encouraging biofuels as a response to environmental concerns have had, and are likely to continue to have, an impact on commodities prices. The nature and scope of future legislation and regulations affecting our markets are unpredictable, and we cannot assure you that current concessions, prices or market protections involving biofuels will be maintained in their current form for any period of time. Any change in the support afforded to biofuels by the United States government or any other government may result in stagnation or decline in the market prices of certain agricultural commodities and consequently the price of our agricultural properties, which may adversely affect our business, financial condition and results of operations.

 

9

 

 

Because we are subject to extensive environmental regulation, our business, financial condition and results of operations could be adversely affected if we are held liable for breach of such regulation.

 

Our business activities in Brazil are subject to extensive federal, state and municipal laws and regulations concerning environmental protection, which impose on us various environmental obligations, such as environmental licensing requirements, minimum standards for the release of effluents, use of agrochemicals, management of solid waste, protection of certain areas (legal reserve and permanent preservation areas), and the need for a special authorization to use water, among others. The failure to comply with such laws and regulations may subject the violator to administrative fines, mandatory interruption of activities and criminal sanctions, in addition to the obligation to rectify damages and pay environmental and third-party damage compensation, without any caps. In addition, Brazilian environmental law adopts a joint and several and strict liability system for environmental damages, which makes the polluter liable even in cases where it is not negligent and would render us jointly and severally liable for the obligations of our contractors or off-takers. If we become subject to environmental liabilities, any costs we may incur to rectify possible environmental damage would lead to a reduction in our financial resources, which would otherwise remain at our disposal for current or future strategic investment, thus causing an adverse impact on our business, financial condition and results of operations.

 

As environmental laws and their enforcement become increasingly stricter, our expenses for complying with environmental requirements are likely to increase in the future. Furthermore, the possible implementation of new regulations, changes in existing regulations or the adoption of other measures could cause the amount and frequency of our expenditures on environmental preservation to vary significantly compared to present estimates or historical costs. Any unplanned future expenses could force us to reduce or forego strategic investments and as a result could materially and adversely affect our business, financial condition and results of operations.

 

If we fail to innovate and utilize modern agricultural technologies and techniques to enhance production and yields of our acquired agricultural properties, we may be adversely affected.

 

Our business model is focused on our acquiring underdeveloped or underutilized agricultural properties and improving them by applying evolving agricultural technologies and techniques. Therefore, our strategy depends to a large extent on our ability to obtain and apply modern agricultural techniques and technologies to enhance the value of the properties we acquire. If we are unable to apply in a timely manner the most advanced technologies and farming techniques required to add value to our agricultural properties and make our products competitive and attractive to local and international investors, our business, financial condition and results of operations would be adversely affected.

 

We may experience difficulties implementing our investment projects, which may affect our growth prospects.

 

Part of our strategy with regard to our agricultural properties consists of investing in support infrastructure in order to increase the value of such agricultural properties. In implementing our investment projects, we may face a number of challenges, including: (i) failures or delays in acquiring necessary equipment or services; (ii) higher costs than those originally estimated; (iii) difficulties securing the necessary environmental and government licenses; (iv) changes in market conditions, which could render the projects less profitable than originally estimated; (v) impossibility or delays in acquiring land at attractive prices, or an increase in the land prices on account of growing demand for land by our competitors; (vi) impossibility of, and delay in identifying and acquiring land that is in compliance with Brazilian real estate property laws; (vii) lack of capacity to develop infrastructure and attract qualified labor on a timely and efficient basis; (viii) disputes and litigation relating to the land we acquire; (ix) cultural challenges deriving from the integration of new management and employees in our organization; and (x) the need to update accounting systems, administrative data and human resources. Our inability to manage these risks would adversely affect us.

  

Property prices in Brazil could decline significantly, which could adversely affect the value of our property holdings.

 

Real estate property prices in Brazil are influenced by a wide variety of factors beyond our control, and therefore we cannot assure you that property values will continue to increase or that property prices will not decline. A significant decline in property prices in Brazil could adversely affect the value of our property holdings.

 

10

 

 

Failure to retain and attract qualified personnel could harm our business.

 

We are highly dependent on the services of our technical and administrative staff. If we lose any of our senior management, or require additional management personnel, we will have to attract similarly qualified administrative and technical personnel. There is significant demand for high-level, technical personnel with the skills and know-how required to operate our business, and we compete for this talent in the global market. The availability of attractive opportunities in Brazil and other countries may adversely affect our ability to hire or retain highly-qualified personnel. If we fail to attract and retain the professionals we need to expand and manage our operations, our business may be materially and adversely affected.

  

Adverse weather conditions may have an adverse impact on our agricultural properties and products and, to a lesser extent, our cattle production.

 

The occurrence of severe weather conditions, including droughts, floods, heavy rainfall, hail, frost or extremely high temperatures is unpredictable and has had and could have in the future a potentially devastating impact on our agricultural properties or production and, to a lesser extent, our cattle production. Adverse weather conditions may be exacerbated by the effects of climate change. In recent years, different regions in Brazil have been affected by extreme weather conditions, and the regions where our properties are located have also experienced high temperatures and severe drought in recent years. The effect of severe weather conditions may materially reduce the productivity of our farms, impairing our revenue and cash flow, and requiring higher levels of investment or significant increases in our operating costs, any of which could have a material and adverse impact on us.

 

Diseases may affect our crops and cattle, potentially destroying all or part of our production.

 

The occurrence and effect of diseases can be unpredictable and devastating on crops, potentially rendering useless all or a significant portion of the affected crops. The cost of preventing and treating crop disease tends to be high. For example, diseases, such as Asian soybean rust (Phakopsora pachyrhizi) and pests, like corn earworm (Helicoverpa zea) and cotton bollworm (Helicoverpa armigera), can spread and may result in lower crop yields and higher operating costs. Currently, Asian soybean rust, corn earworm and cotton bollworm can only be controlled, not eliminated.

 

Diseases affecting our cattle herds, such as tuberculosis, brucellosis and foot-and-mouth disease, can render cows unable to produce meat for human consumption. Outbreaks of cattle diseases may also result in the closure of certain important markets for our cattle products, such as the United States. Although we abide by national veterinary health guidelines, which include laboratory analyses and vaccination, to control diseases among the herds, especially foot-and-mouth disease, we cannot assure that future outbreaks of cattle diseases will not occur. A future outbreak of diseases among our cattle herds may adversely affect our cattle sales which could adversely affect our financial condition and results of operation.

 

The origination and spread of diseases may occur for many reasons beyond our control, including the failure of other producers to comply with applicable health and environmental regulations. The appearance of new diseases or the mutation or proliferation of existing diseases could damage or completely destroy our crops and cattle herds, which would materially and adversely affect our business, financial condition and results of operations.

 

Fires and other accidents may affect our agricultural properties and adversely affect us.

 

Our operations are subject to various risks affecting our agricultural properties and agricultural installations, including destruction of farms and crops by fire and other natural disasters or events, and theft or other unexpected loss of grains or fertilizers and supplies. We could be materially and adversely affected if any of these risks were to occur.

 

Widespread uncertainties and fraud involving ownership of real estate in Brazil may adversely affect us.

 

Under Brazilian law, ownership of real estate is conveyed only upon proper registration and filing of the relevant public deeds with the Real Estate Registry Office with jurisdiction where the property is located. In certain locations in Brazil, it is frequent to come across real estate registry errors, including duplicate or fraudulent certificates of enrollment and legal challenges. Lawsuits concerning the lawful title of real estate are prevalent in Brazil and, as a result, there is a risk that such errors, fraud or challenges adversely affect our business, financial condition and results of operations, thereby causing the loss of all or substantially all of our agricultural properties.

 

11

 

 

We depend on international trade and economic and other conditions in our key export markets.

 

Brazil’s current agricultural production capacity is greater than the demands of its domestic agricultural market. Agriculture exports account for an increasingly significant portion of our revenue, especially as our rehabilitated farm properties gain crop production capabilities and increased yield. Therefore, our results of operations increasingly depend on political, economic and regulatory conditions in our principal export markets. The ability of our products to effectively compete in these export markets may be adversely affected by a number of factors beyond our control, including the deterioration of macroeconomic conditions, the volatility of exchange rates, the imposition of tariffs or other trade barriers or other factors in those markets such as regulations relating to the chemical content of agricultural products and safety and health regulations.

 

Due to the growing market share of Brazilian agricultural and beef products in the international markets, Brazilian exporters are increasingly being affected by tariffs and other barriers imposed by importing countries, in order to, among other things, protect local producers by limiting access of Brazilian companies to their markets. For example, the European Union imposes protective tariffs designed to mitigate the effects of Brazil’s lower production costs on local European producers. Developed countries also use direct and indirect subsidies to enhance the competitiveness of their producers in other markets.

 

The adoption of measures by a given country or region, such as restrictions, import quotas or suspension of imports could substantially affect the export volume of agricultural products and, consequently, our results of operations.

 

In July 2018, the U.S. and China began imposing tariffs on approximately $34 billion of each other’s exports. Subsequently, the U.S. imposed tariffs on an additional $216 billion in Chinese goods, and China imposed tariffs on an additional $76 billion worth of U.S goods. Negotiations to resolve the trade dispute are currently ongoing. Continued global trade tensions may lead to the imposition of further tariffs or other future geopolitical economic developments. Future actions of the U.S. administration or other countries, including China, with respect to tariffs or international trade agreements and policies remain currently unclear. We are unable at this time to predict the outcome of the trade tensions between the United States and China. The escalation of such trade tensions between the United States and China, and the imposition of tariffs, retaliatory tariffs or other trade restrictions may result in a rebalancing of global export flows in our key export markets and an increase in global competition, which in turn could adversely affect our business, financial condition and results of operations.

 

If the competitiveness of our products in one or more of our significant markets were to be affected by any one of these events, we may not be able to reallocate our products to other markets on comparable terms, which could therefore adversely affect our business, financial condition and results of operations.

 

A worldwide economic downturn could weaken demand for our products and lead to lower prices.

 

Demand for our products may be affected by international, national and local economic conditions that are beyond our control. Adverse changes in the perceived or actual economic conditions, such as higher fuel prices, higher interest rates, stock and real estate market declines and associated volatility, more restrictive credit markets, higher taxes, and changes in governmental policies could reduce the level of demand for, or the prices of, our products. We cannot predict the duration or magnitude of a downturn or the timing or strength of economic recovery. If a downturn were to occur or continue for an extended period of time or worsen, we could experience a prolonged period of decreased demand and prices. In addition, economic downturns may adversely affect our suppliers, which can result in disruptions to our operations and financial losses. Moreover, the deterioration of global economic conditions, particularly in relevant economies, such as the United States, China and Europe, may ultimately decrease the demand for our products and have a material adverse effect on our financial condition and results of operations.

 

12

 

 

Fluctuations in the value of the Brazilian real in relation to the U.S. dollar could adversely affect us.

 

Foreign exchange fluctuations, particularly of the Brazilian real against the U.S. dollar, may significantly affect our results of operations given that: (1) our products and the basic supplies used in our production are traded internationally; (2) soybean prices are defined based on prices prevalent on the Chicago Board of Trade, or CBOT; and (3) most markets are served by several suppliers from different countries, and competitiveness of farm products abroad may increase in relation to ours in light of the appreciation of the Brazilian currency in relation to the U.S. dollar. Fluctuations in the value of the real in relation to the U.S. dollar could impact our export revenue, our sales in U.S. dollars in the Brazilian market and our financial expenses and operating costs, which may adversely affect our business, financial condition and results of operations.

   

The real has suffered frequent depreciations and appreciations in relation to the U.S. dollar and other foreign currencies during the past decade. The Brazilian government has in the past utilized different exchange rate regimes, including sudden devaluations, periodic mini devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Since 1999, Brazil has adopted a floating exchange rate system with interventions by the Central Bank in buying or selling foreign currency. From time to time, there have been significant fluctuations in the exchange rate between the Brazilian real and the U.S. dollar and other currencies. The devaluations in more recent periods resulted in significant fluctuations in the exchange rates of the real against the U.S. dollar and other currencies.

 

In 2020, the real depreciated by 29.2% against the U.S. dollar, and on December 31, 2020, the real/U.S. dollar exchange rate was R$5.1967. In 2021, the real depreciated by 7.4% against the U.S. dollar, and on December 31, 2021, the real/U.S dollar exchange rate was R$5.5799. In 2022, the real appreciated by 6.5% against the U.S. dollar, and the real/U.S. dollar exchange rate was R$5.2177 per US$1.00 on December 31, 2022. In 2023 (until September 30, 2023), the real appreciated by 4.0% against the U.S. dollar, and the real/U.S. dollar exchange rate was R$5.0076 per US$1.00 on September 30, 2023. There can be no assurance that the real will not depreciate or appreciate against the U.S. dollar in the future.

 

We also hold derivative financial instruments to hedge risks relating to revenue from exports and operating costs denominated in foreign currencies. If we fail to manage these instruments properly, we may be adversely affected by our exposure to these risks, which may have a material adverse effect on our financial condition and results of operations.

 

Our business is seasonal, and our revenue may fluctuate significantly depending on the growing cycle of our crops.

 

Agribusiness operations are predominantly seasonal in nature. In Brazil, the harvest of soybean and corn generally occurs from February to June. The annual sugarcane harvest period in Brazil normally begins in April and ends in November of each year. Therefore, our results of operations are likely to continue to significantly fluctuate between the planting and harvest periods of each crop, which cause fluctuations in our cash flows as a result of disparities between our revenue stream and our fixed expenses. In addition, seasonality creates limited windows of opportunity for our producers to complete required tasks at each stage of crop cultivation. Should events such as adverse weather conditions (including deluges of rain as has recently been the case throughout Brazil) or transportation interruptions occur during these seasonal windows, we may face reduced revenue without an opportunity to recover until the following crop’s planting. Finally, because of the effects of seasonality, our quarterly results may not be indicative of our annual results.

 

Our growth plan will require additional capital, which may not be available on terms and conditions acceptable to us, or at all.

 

Our operations require a significant amount of capital. We may need to seek additional capital by issuing shares or debt instruments, or by incurring indebtedness. Our ability to raise capital will depend on our future profitability, which is currently uncertain, and on political and economic conditions in Brazil and the international agricultural and real estate markets. Depending on these and other factors, many of which are beyond our control, additional capital may not be available at all or on conditions that are favorable or acceptable to us. If we are required to finance our activities through indebtedness, it is likely that the terms of that debt will impose upon us obligations or covenants, financial or otherwise, that could restrict our operational flexibility. Should we fail to raise additional capital under conditions that are acceptable to us, our business, financial condition and results of operations could be adversely affected.

 

13

 

 

We plan to continue to use financial derivative instruments, which may result in substantial losses.

 

We plan to continue to use derivative financial instruments, mainly commodity hedge derivatives, foreign exchange derivatives and exchange rate swaps. If we enter into such hedging agreements and future prices of the underlying commodities differ from our expectations, we may incur substantial losses which could have an adverse effect on our financial condition and results of operations.

 

Furthermore, our hedging strategies may not properly take account of the effects of foreign exchange or commodity variations on our financial position. On entering into forward exchange and commodity agreements, we will be subject to the risk that our counterparties could fail to meet the conditions of such agreements. We may not be able to receive compensation for losses and damages from any defaulting counterparty through legal remedies, on account of laws protecting against bankruptcy or other similar protections for insolvent debtors, foreign laws restricting cross-border legal remedies, or for other reasons, which may adversely affect our business, financial condition and results of operations.

  

We may not be successful in our future partnerships and strategic relationships.

 

We have entered into strategic partnerships and alliances in order to benefit from certain business opportunities. We cannot predict if such strategic partnerships and alliances will be successful or if more partnerships and alliances will take place. Our ability to successfully expand our business by means of strategic partnerships and alliances depends on various factors, including our ability to negotiate favorable conditions for such partnerships and alliances, in addition to factors beyond our control, such as our partners’ compliance with obligations arising from the partnership. Furthermore, our expectations regarding the benefits of these partnerships may not materialize. If we are unable to develop successful strategic partnerships and alliances, we could also be adversely affected.

 

Capital control restrictions imposed by Brazilian or foreign governments may adversely affect us.

 

Restrictions on capital movements, including dividend distributions, and changes in tax laws in the jurisdictions where we and our subsidiaries are incorporated or operate may adversely affect the ability of our subsidiaries to distribute dividends to the Company and to our shareholders.

 

We and our subsidiaries are incorporated and operate in several jurisdictions, including Bolivia and Paraguay. The governments of these jurisdictions may impose restrictions on: (i) the conversion of local currency into foreign currency; (ii) the distribution of the results of investments by foreign investors; and (iii) the the distribution of dividends and other capital distributions to shareholders in those jurisdictions. As a result, we may be limited or restricted from distributing dividends or making other capital distributions to our shareholders. In addition, these restrictions may also affect the market price of our common shares and ADRs.

 

Restrictions and difficulties relating to the transfer of rural properties may adversely affect us.

 

Pursuant to applicable laws and regulations in the countries in which we operate, we may experience difficulties and delays with respect to the transfer of rural properties and the associated titling procedures.

 

As is the case of Brazil, in the other countries in which we operate, there are also laws that impose limitations on the purchase and lease of rural land by foreigners and companies controlled by foreigners, including: (i) Law No. 26,737 in Argentina; (ii) Law No. 1,715 in Bolivia; and (iii) Law No. 2,532 in Paraguay. There is also a proposed bill for the national protection of rural land in Paraguay, which could adversely impact our operations if it is enacted into law.

 

In Bolivia, for example, Law No. 1,715 regulates the process for the reorganization of rural properties and whose scope consists of perfecting real estate titles in favor of individuals. The procedures conducted by the National Institute of Agrarian Reform of Bolivia (INRA), its speed of the process and the actual transfer and titling are subject to various interferences, whether political in nature or derived from actions by third parties who intend to challenge our property transfer and titling procedures.

 

These restrictions and difficulties, which exist in some form in all the countries in which we operate, may affect the liquidity of our properties and make it more difficult for financial institutions to grant credit to us.

 

14

 

 

Cresud, our significant shareholder, and certain members of our board of directors may have interests that differ from those of our other shareholders.

 

As of September 30, 2023, Cresud held 34.32% of our common shares. Cresud has other numerous investments and may have other priorities that may conflict with those of our other shareholders, and as a result thereof, significant conflicts of interest may arise between Cresud and our other shareholders. In addition, five of our nine directors have been nominated by Cresud and certain members of our management, including our Chief Financial Officer and Investor Relation Officer, were previously employed by Cresud. This situation may give rise to actual or apparent conflicts of interest as such directors and officers may have fiduciary duties or other interests owed to both us and Cresud or any of its affiliates. It may also limit the ability of such directors and officers to participate in certain matters.

 

In addition, as a result of Cresud’s ownership interest in us, conflicts of interest could arise with respect to transactions involving our ongoing business activities, and the resolution of these conflicts may not be favorable to us. Specifically, business opportunities, including but not limited to potential targets for rural property acquisitions, may be attractive to both Cresud and us. We may not be able to resolve any potential conflicts and, even if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated party.

  

Increases in the price of raw materials and oil may adversely affect us.

 

Our agricultural properties are located in Brazil’s cerrado biome (also known as the Brazilian savannah region), a location where the soil is mostly acidic and not very fertile, requiring the use of lime and fertilizers. Our operations require other raw materials such as pesticides and seeds which we acquire from local and international suppliers. We do not have long-term supply contracts for these raw materials and therefore are exposed to the risk of cost increases. A significant increase in the price of lime, fertilizers or other raw materials we use would likely reduce our profitability or otherwise adversely affect our business operations as these are not costs that can readily be passed on to our customers. In addition, certain of our production costs, including fertilizers and the cost of leasing agricultural machinery, are linked to the international price of oil and its derivatives. Therefore, if the price of oil increases significantly, our results of operations could be adversely affected.

 

We also rely on fertilizers and agrochemicals, many of which are petrochemical based. In our segments related to agricultural activity (grains, cotton, sugarcane and cattle raising), fertilizers and agrochemicals represented approximately 31% of our total cost of production (including manufacturing and administrative expenses) for the 2022/2023 harvest year. Worldwide production of agricultural products has increased significantly in recent years in response to increased demand for agrochemicals and fertilizers. However, supply shortages have continued to exist and have been aggravated by the ongoing conflict between Russia and Ukraine.

 

In addition, because Russia is one of the world’s largest oil and fertilizer exporters, we expect recent global developments relating to the ongoing conflict between Russia and Ukraine, and resulting export disruptions, will likely lead to decreased global supply and increased fuel prices, the effects of which could be more acute if the members of the Organization of the Petroleum Exporting Countries – OPEC decide not to, or are unable to, increase their oil production.

 

Political risks remain present mainly from the escalating conflict between Russia and Ukraine, medium-term relationship tensions between the United States and China, uncertainty over government instabilities in Europe and other local geopolitical risks. The materialization of these risks may affect global growth and decrease investors’ interest in assets from Brazil and other countries in which we do business, which may materially and adversely our business, financial condition, results of operations and, therefore, adversely affect the market price of our shares, including of our ADSs, making it more difficult for us to access capital markets and, as a result, to finance our operations in the future.

 

We cannot predict the price and future availability of fuel or fertilizers with any degree of certainty, and significant increases in fuel prices or fertilizers, or the unavailability of fertilizers and other raw materials, may adversely affect our business, financial condition and results of operations.

15

 

 

Delays or failures in the delivery of raw materials used by us and our suppliers could have an adverse effect on us.

 

We depend on suppliers to provide us with fertilizers, seeds, other raw materials and machinery services. Possible delays in the delivery of such items may delay our planting efforts until we are able to establish agreements with other suppliers, or may delay our harvest in case of delay in delivery of machinery. Accordingly, any delays, failures or defects in the delivery of raw materials or inputs or with regard to the provision of services to us by our suppliers could adversely affect our business and results of operations. See “—Our business, financial condition and results of operations may be adversely affected by lack of transportation, storage and processing infrastructure in Brazil, which represents an important challenge for the Brazilian agricultural and agricultural real estate sectors.”

 

We may be adversely affected by the ongoing conflict between Russia and Ukraine, the recent conflict between Israel and Hamas, and the ensuing global geopolitical and economic instability.

 

The ongoing conflict between Russia and Ukraine has significantly disrupted supply chains and international trade. Following Russia’s invasion of Ukraine in February 2022, the United States, the United Kingdom, the European Union and other countries and supra-national entities have imposed comprehensive economic sanctions against Russia, including financial measures such as freezing Russia’s central bank assets and limiting its ability to access its U.S. dollar reserves. The United States, the United Kingdom and the European Union have also banned businesses from dealing with the Russian central bank, its finance ministry and its sovereign wealth fund. Certain Russian banks have also been removed from the Swift bank messaging system, which enables the transfer of money across borders. The United States, the United Kingdom and the European Union continue to impost or consider the imposition of additional sanctions on Russian entities and individuals, including major Russian companies and the Russian state. The United States, the United Kingdom and the European Union have also imposed sanctions on individuals with close ties to the Russian government, including their family members and close associates, as well as on the assets held by them worldwide.

 

The effects of the ongoing conflict between Russia and Ukraine on the Russian and global economy remains uncertain. However, they have resulted in significant volatility in financial markets, as well as an increase in energy and commodity prices globally. As a result, in particular, the availability and price of fertilizers for the 2023/2024 harvest year is subject to significant uncertainty in Brazil and the other countries in which we operate. From a supply point of view, Brazil and the other countries in which we operate are highly dependent on imports of fertilizers from Russia and other neighboring countries. In addition, fertilizer prices, which had already risen before the conflict, have continued to rise and have led producers to delay purchase negotiations. As a result of such supply risks, we believe that there may be shortages of some types of fertilizers (mainly of potash-based products). We may also be unsuccessful in finding alternative direct imports from non-sanctioned regions or in increasing our prices to reflect increased supply costs in the future. Failure to obtain fertilizer on favorable terms, or at all, could have a material adverse effect on our business, financial condition and results of operations.

 

 On October 7, 2023, the military-winged Islamic organization called Hamas infiltrated Israel’s Southern border from the Gaza Strip and carried out a series of attacks against civilian and military targets, including firing rockets toward Israeli cities. Shortly following the attack, Israel’s security cabinet declared war against Hamas. The intensity and duration of Israel’s current war against Hamas is difficult to predict, as well as such war’s economic implications on the Company’s business and operations and on the global geopolitical scale.

 

Any deterioration in credit markets resulting directly or indirectly from the ongoing Russian invasion of Ukraine or the the conflict between Hamas and Israel could limit our ability to obtain external financing to fund our operations and capital expenditures. As a result, a downturn in the worldwide economy resulting from the Russian invasion of Ukraine, the conflict between Hamas and Israel and other conflicts with a global impact that may arise from time to time could have a material adverse effect on our business, results of operations and financial condition.

 

Geopolitical tensions in petroleum-producing countries may also affect the global supply of oil and lead to increased prices. The conflict between Russia and Ukraine and the recent conflict between Israel and Hamas led to a spike in oil and energy prices. Although this positively impacted ethanol demand and prices, we cannot assure you that such geopolitical tensions will not adversely affect our business, financial condition and results of operations.

 

16

 

 

Certain of our agricultural products contain genetically modified organisms (GMOs), and risks associated with GMOs remain uncertain, which may result in increased regulatory scrutiny and harm our business and financial condition.

 

The totality of our products, including soybean and corn, contain genetically modified organisms, or GMOs, in varying proportions depending on the crop year. Production and consumption of GMOs remain controversial, and adverse publicity and consumer resistance have led to the adoption of certain governmental regulations limiting sales of GMO products in important markets including the European Union. If GMOs were determined to present risks to human health or to the environment, demand for our GMO products could collapse, and we could face potentially significant liability for harm caused by such products, all of which could materially and adversely affect our business, financial condition and results of operations.

 

In 2018, a Brazilian trial court ruled that new products containing “glyphosate” – a herbicide widely used in soybeans and others crops – were prohibited from being registered in Brazil, and existing registrations would be suspended until the government re-evaluates their toxicity. This decision also suspended the registration of others chemicals, such as the insecticide abamectin and the fungicide thiram. According to the Brazilian Agriculture Minister, this decision would be a disaster for the agricultural industry and, for this reason, the decision was subject to multiple appeals. On September 3, 2018, a court of appeals reversed the trial court’s decision. Currently, the use of glyphosate is permitted. However, we are unable to guarantee that it will continue to be allowed.

 

The prohibition of the use of glyphosate to control weed infestation could compromise no-till farming, which is important for productivity and sustainability, and lead to increased use of other products for pest control. Currently, there is no alternative in Brazil to replace glyphosate. Similar products have a high cost and are not readily available to meet the demand for glyphosate. As a result, our production costs could increase, and our productivity could be significantly impacted, which could result in lower production margins.

 

Our business, financial condition and results of operations may be adversely affected by lack of transportation, storage and processing infrastructure in Brazil, which represents an important challenge for the Brazilian agricultural and agricultural real estate sectors.

 

We depend on efficient access to transportation and port infrastructure for the growth of Brazilian agriculture and our operations. We may decide to acquire agricultural properties in areas where existing transportation infrastructure is inadequate and where improvements may be required to make our agricultural production more accessible to export centers at competitive prices. A substantial portion of Brazilian agricultural production is currently transported by trucks, which is significantly more expensive than transportation by rail cars. Given that our dependence on road transportation prevents us from being considered a low-cost producer, our ability to compete on the world market may be impaired, especially as the price of fuel increases. As a result, we may not be able to secure efficient transportation for our production to reach major markets in a cost-efficient manner or at all, which may adversely affect our business, financial condition and results of operations.

 

In addition, in May 2018, Brazil faced a widespread truck drivers’ strike, which caused a nationwide transportation paralysis, highway blockades, cargo delays, shortages of food, supplies and fuel in Brazil. If a widespread strike or similar disruptive event happens again, it could adversely affect the logistics sector as whole and our business, financial condition and results of operations. 

 

Competition in the markets for our products may materially and adversely affect us.

 

We face significant domestic and international competition in each of our markets and in many of our production lines. The global market for agricultural products is highly competitive and sensitive to changes in industrial capacity, product inventories and cyclical changes in the world economy, any one or more of which may affect to a significant degree the selling price of our products and therefore our profitability. Since many of our products are agricultural commodities, such products compete in international markets almost exclusively based on price. Many other producers of these commodities are larger than us and have more significant financial and other resources. Furthermore, many other producers receive subsidies in their respective countries that generally are not available in Brazil. Such subsidies may afford producers lower production costs or enable them to operate in an environment with sharp price reductions, constrained margins and operating losses for longer periods. Any increased competitive pressure with respect to our products could materially and adversely affect our business, financial condition and results of operations.

 

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Social movements may affect the use of our agricultural properties or cause damage to them.

 

Social movements such as the Landless Rural Workers’ Movement (Movimento dos Trabalhadores Rurais Sem Terra) and the Pastoral Land Commission (Comissão Pastoral da Terra) are active in Brazil and advocate land reform and property redistribution by the Brazilian government.

 

Invasion and occupation of agricultural land by large numbers of people is a common practice among the members of such movements and, in certain regions, including those where we currently invest, remedies such as police protection or eviction procedures are inadequate or non-existent. As a result, we cannot assure you that our agricultural properties will not be subject to invasion or occupation by any social movement. Any invasion or occupation may materially impair the use of our lands and adversely affect our business, financial condition and results of operations.

 

In addition, environmental social movements often promote and organize gatherings and other events to prevent, delay or reduce legal deforestation, which may adversely affect our operations. As a result, we cannot assure you that our operations will be not adversely affected by environmental social movements, which could lead to the revocation of operating licenses, delays or amendments thereto.

 

We made investments in farmland in Bolivia and Paraguay, and we may possibly make investments in other countries in and outside Latin America, in which case we would be subject to the associated economic, legal, political and regulatory risks.

 

Currently, we conduct our activities in Brazil, Bolivia and Paraguay. We are considering expanding into other countries in and outside Latin America, but currently have no definitive commitments or specific plans with respect thereto. In the future, we may expand our activities into other countries in Latin America or elsewhere if we decide that international expansion would be appropriate to achieve our objectives. The success in other countries of our business strategy and business model that we apply in Brazil would be subject to a high level of uncertainty and depend on numerous factors beyond our control. Therefore, we cannot assure you that any such expansion would be profitable or enable us to obtain the expected returns on our investments, or even recover our investments. Any international expansion of our activities would be subject to political, economic and regulatory risks in the relevant country and to risks inherent in the management of a transnational company, including:

 

challenges posed by distance, language, local business practices and cultural differences (i.e. lack of financing; longer payment cycles in the relevant country; difficulties in forming partnerships or strategic alliances with local parties; conflicting or redundant practices in respect to tax, regulatory, legal and administrative aspects);

 

  negative effects of currency fluctuations or the imposition of exchange controls or restrictions on repatriation of capital;

 

  adverse changes in laws and local policies, particularly those relating to import tariffs, labor practices, environment, investment, acquisition of agricultural property by foreign companies or companies controlled by foreigners;

  

  difficulty of enforcement of contracts and collection or enforcement of debts, or difficulties or restrictions imposed by local courts;

 

  expropriation and imposition of legal or administrative limitations to the exercise of property rights as a result of changes in laws or applicable regulations;

 

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  difficulty in obtaining licenses, permits or other approvals from local government authorities;

 

  political disputes, social unrest and deteriorating local economic conditions;

 

  transnational conflicts or disputes involving Brazil and the relevant country; and

 

  terrorism or military conflicts; and natural disasters, epidemics, riots and insurrections.

 

Our inability to recognize and respond to these differences, challenges and risks could adversely affect any operations we may undertake in markets outside of Brazil, which could have a material adverse effect on our business, financial condition and results of operations.

 

We face the risk of political and economic crises, instability, terrorism, civil strife, expropriation and other risks of doing business in emerging markets.

 

In addition to Brazil, we conduct operations in Paraguay and Bolivia or intend to conduct operations in other Latin American countries. Economic and political developments in the countries in which we operate or intend to, including future economic changes or crises (such as inflation or recession), government deadlock, political instability, terrorism, civil strife, changes in laws and regulations, expropriation or nationalization of property, and exchange controls could adversely affect our business, financial condition and results of operations.

 

Fluctuations in the economies of Brazil and actions adopted by the governments of Brazil and the countries in which we operate have had and may continue to have a significant impact on companies operating in those countries, including us. We may continue to be affected by inflation, increased interest rates, fluctuations in the value of the Brazilian real against foreign currencies, price and foreign exchange controls, regulatory policies, business and tax regulations.

 

Although economic conditions in one country may differ significantly from another country, we cannot assure that events in one only country will not adversely affect our business or the market value of, or market for, our common shares.

 

Unauthorized disclosure, or loss of intellectual property or other sensitive business or personal information, or disruption in information technology by cyber-attacks, as well as our failure to comply with existing and future laws and regulations relating to data privacy and data security can subject us to penalties or liability and can adversely affect our operations, reputation and financial results.

 

We collect, store, process and use certain confidential information and other user data in connection with our business operations. We must ensure that any processing, collection, use, storage, dissemination, transfer and disposal of data for which we are responsible complies with relevant data protection and privacy laws. We rely on commercially available systems, software, tools and monitoring to provide secure processing, transmission and storage of confidential information, such as customer, employee, company and other personal information.

 

Data protection and privacy laws are developing to take into account the changes in cultural and consumer attitudes towards the protection of personal data. For example, on August 14, 2018, Brazil enacted Law No. 13,709/2018 (Lei Geral de Proteção de Dados, or the LGPD), a comprehensive data protection law establishing general principles and obligations that apply across multiple economic sectors and contractual relationships. The LGPD establishes detailed rules for the collection, use, processing and storage of personal data and will affect all economic sectors, including the relationship between customers and suppliers of goods and services, employers and employees, and other relationships in which personal data is collected, whether in a digital or physical manner. The LGPD entered into force on September 18, 2020.

 

As we seek to expand our business and operations, we expect that we will be increasingly subject to laws and regulations relating to the collection, use, retention, security, and transfer of information, including the personally identifiable information of our employees and customers. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that will materially and adversely affect our business. If there are breaches of the LGPD obligations, or of other data privacy laws and regulations, as the case may be, we could face significant administrative and monetary sanctions as well as reputational damage, which could have a material adverse effect on our operations, financial condition and prospects.

 

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In addition, despite the security measures that we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, cyber-attacks, acts of vandalism, computer viruses, misplaced or lost data, programming or human errors, or other similar events.

 

See also “—We were the target of a cybersecurity incident that disrupted our systems”.

 

We were the target of a cybersecurity incident that disrupted our systems.

 

In October 2019, we experienced a cybersecurity incident, in which certain of our network and computer systems and data became temporarily unavailable. We have no reason to believe that such incident resulted in the unauthorized disclosure of confidential information. Any security incident, or any perceived failure involving the misappropriation, loss or other unauthorized disclosure of confidential information, as well as any failure or perceived failure to comply with laws, policies, legal obligations or industry standards regarding data privacy and protection, whether by us or our service providers, could damage our reputation, expose us to litigation risk and liability, subject us to negative publicity, disrupt our operations and harm our business. We cannot assure you that our security measures, or those put in place by our service providers, will be sufficient to prevent future security breaches or incidents, which may directly or indirectly affect us, or that our failure to prevent them will not have a material adverse effect on our business, results of operations or financial condition.

  

Cyber-attacks or security breaches could compromise confidential, business and other critical information, cause a disruption in our operations or harm our reputation, as certain of our operations are dependent on information technology and telecommunication systems and services. Information assets, including intellectual property, personal data and other business-sensitive critical information are an attractive asset to cyber criminals, cyberterrorism or other external agents. A significant cyber-attack, a human error, including from our employees and partners, or obsolescence of technology could result in the loss of critical business information and adversely affect our operations and results of operations.

 

We continuously monitor and develop our information technology networks and infrastructure. We also conduct annual tests to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a material impact on us. However, we cannot assure you that these measures will be effective in protecting us against future cyberattacks and other related breaches of our information technology systems.

 

Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities that are discovered in the future. In addition, cyber-attacks could result in important remediation costs, increased cyber security costs, lost revenues due to disruption of activities, litigation and reputational harm affecting customer and investor confidence, which ultimately could materially adversely affect our business, financial condition and results of operations.

 

Risks Relating to Brazil

 

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy, which, together with Brazilian political and economic conditions, may adversely affect us.

 

We may be adversely affected by the following factors, as well as the Brazilian federal government’s response to these factors:

 

economic and social instability;

 

increase in interest rates;

 

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  exchange controls and restrictions on remittances abroad;

 

  restrictions and taxes on agricultural exports;

 

  exchange rate fluctuations;

 

  inflation;

 

  volatility and liquidity in domestic capital and credit markets;

 

  expansion or contraction of the Brazilian economy, as measured by GDP growth rates;

 

  government policies related to our sector; and

 

  fiscal or monetary policy and amendments to tax legislation; and other political, diplomatic, social or economic developments in or affecting Brazil.

 

Historically, the Brazilian government has frequently intervened in the Brazilian economy and has occasionally made significant changes in economic policies and regulations, including, among others, the enactment of new tax laws, changes in monetary, fiscal and tax policies, currency devaluations, capital controls and limits on imports.

 

The Brazilian economy has experienced volatile growth and slowdowns in recent years. The Brazilian GDP decreased 4.1% in 2020. In 2021, the Brazilian economy began to grow considerably. The Brazilian GDP increased 4.6% in 2021, 2.9% in 2022, and 3.7% in the first six months of 2023.

 

Inflation and interest rates have increased in recent years, and the Brazilian real has weakened significantly in relation to the U.S. dollar. Adverse economic conditions in Brazil may materially and adversely affect our business, financial condition and results of operations.

 

The ongoing economic uncertainty and political instability in Brazil may adversely affect the Brazilian economy, our business, and the market price of our shares and ADSs.

 

Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies. 

 

Furthermore, Brazil’s federal budget has been in deficit since 2014. Similarly, the governments of Brazil’s constituent states are also facing fiscal concerns due to their high debt burdens, declining revenues and inflexible expenditures. While the Brazilian Congress has approved a ceiling on government spending that will limit primary public expenditure growth to the prior year’s inflation for a period of at least 10 years, local and foreign investors believe that fiscal reforms, and in particular the reform of Brazil’s pension system, which was approved in 2019 by the Brazilian Congress, will be critical for Brazil to comply with the spending limit. As of the date of this annual report, discussions in the Brazilian Congress relating to fiscal reform remain ongoing. Diminished confidence in the Brazilian government’s budgetary condition and fiscal stance could result in downgrades of Brazil’s sovereign debt by credit rating agencies, negatively impact Brazil’s economy, lead to further depreciation of the real and an increase in inflation and interest rates, thus adversely affecting our business, results of operations and financial condition.

 

Uncertainty about the Brazilian government’s implementation of changes in policies or regulations that affect such implementation may contribute to economic instability in Brazil and increase the volatility of securities issued abroad by Brazilian companies, including our securities. Any of the above factors may create additional political uncertainty, adversely affect the Brazilian economy, our business, financial condition, results of operations and the market price of our shares and ADSs. 

 

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Inflation, coupled with the Brazilian government’s measures to fight inflation, may hinder Brazilian economic growth and increase interest rates, which could have a material adverse effect on us.

 

Brazil has in the past experienced significantly high rates of inflation. As a result, the Brazilian government adopted monetary policies that resulted in Brazilian interest rates being among the highest in the world. The Central Bank’s Monetary Policy Committee (Comitê de Política Monetária do Banco Central), or COPOM, establishes an official interest rate target for the Brazilian financial system based on the level of economic growth, inflation rate and other economic indicators in Brazil. The SELIC rate has increased and decreased over time and, as of June 30, 2023, it was 13.75% per year. The inflation rate, as measured by the General Market Price Index (Índice Geral de Preços–Mercado), or IGP-M, and calculated by Fundação Getúlio Vargas, or FGV, were 7.3% in 2019, 23.1% in 2020, 17.8% in 2021, and 5.5% in 2022. Cumulative inflation in the first six months of 2023, calculated by the same index, was -4.5%. The inflation rates, as measured by the Extended National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA, and calculated by Instituto Brasileiro de Geografia e Estatistica, or IBGE, were 4.3% in 2019, 4.5% in 2020, 10.1% in 2021, and 5.8% in 2022. Cumulative inflation in the first six months of 2023, calculated by the same index, was 2.9%.

 

Inflation and the government measures to fight inflation have had and may continue to have significant effects on the Brazilian economy and our business. In addition, the Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and slowing economic growth. On the other hand, an easing of monetary policies of the Brazilian government may trigger increases in inflation. In the event of an increase in inflation, we may not be able to adjust our daily rates to offset the effects of inflation on our cost structure, which may materially and adversely affect us.

 

An increase in interest rates may have a significant adverse effect on us. In addition, as of June 30, 2023, certain of our loans were subject to interest rate fluctuations, such as the Brazilian long-term interest rate (Taxa de Juros de Longo Prazo, or TJLP), and the interbank deposit rate (Certificados de Depósitos Interbancários), or CDI. In the event of an abrupt increase in interest rates, our ability to comply with our financial obligations may be materially and adversely affected.

 

A deterioration in general economic and market conditions or the perception of risk in other countries, principally in emerging countries or the United States, may have a negative impact on the Brazilian economy and us.

 

Economic and market conditions in other countries, including United States and Latin American and other emerging market countries, may affect the Brazilian economy and the market for securities issued by Brazilian companies. Although economic conditions in these countries may differ significantly from those in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises in other emerging market countries could dampen investor enthusiasm for securities of Brazilian issuers, including ours, which could adversely affect the market price of our common shares. In the past, the adverse development of economic conditions in emerging markets resulted in a significant flow of funds out of the country and a decrease in the quantity of foreign capital invested in Brazil. Changes in the prices of securities of public companies, lack of available credit, reductions in spending, general slowdown of the global economy, exchange rate instability and inflationary pressure may adversely affect, directly or indirectly, the Brazilian economy and securities market. Global economic downturns and related instability in the international financial system have had, and may continue to have, a negative effect on economic growth in Brazil. Global economic downturns reduce the availability of liquidity and credit to fund the continuation and expansion of business operations worldwide.

 

In addition, the Brazilian economy is affected by international economic and market conditions generally, especially economic conditions in the United States. Share prices on B3 S.A. – Brasil, Bolsa, Balcão, or B3, for example, have historically been sensitive to fluctuations in U.S. interest rates and the behavior of the major U.S. stock indexes. An increase in interest rates in other countries, especially the United States, may reduce global liquidity and investors’ interest in the Brazilian capital markets, adversely affecting the price of our common shares.

 

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Risks Relating to our American Depositary Shares and Common Shares

 

A holder of our American Depositary Shares may face disadvantages compared to a holder of our common shares when attempting to exercise voting rights.

 

Holders of our American Depositary Shares, or ADSs, may instruct the depositary to vote the common shares underlying the ADSs. For the depositary to follow the voting instructions, it must receive them on or before the date specified in our voting materials. The depositary must try, as far as practical, subject to Brazilian law and our articles of association, to vote the common shares as instructed. In most cases, if the ADS holder does not give instructions to the depositary, it may vote the common shares in favor of proposals supported by our board of directors, or, when practicable and permitted, give a discretionary proxy to a person designated by us. We cannot be certain that ADS holders will receive voting materials in time to ensure that they can instruct the depositary to vote the underlying common shares. Also, the depositary is not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that ADS holders may not be able to exercise their right to vote and there may be nothing they can do if their common shares or other deposited securities are not voted as requested.

  

Holders of our common shares or ADSs may not receive any dividends or interest on shareholders’ equity.

 

According to our bylaws, we must pay our shareholders at least 25% of our annual net income as dividends or interest on shareholders’ equity, as calculated and adjusted under Brazilian corporate law. This adjusted net income may be capitalized, used to absorb losses or otherwise retained as allowed under Brazilian corporate law and may not be available to be paid as dividends or interest on shareholders’ equity.

 

Additionally, Brazilian corporate law allows a publicly-traded company like ours to suspend the mandatory distribution of dividends in any particular year if our board of directors informs our shareholders that such distributions would be inadvisable in view of our financial condition or cash availability. Holders of our common shares or ADSs may not receive any dividends or interest on shareholders’ equity in any given year if our board of directors makes such a determination or if our operations fail to generate net income.

 

Holders of our common shares or ADSs in the United States may not be entitled to the same preemptive rights as Brazilian shareholders, pursuant to Brazilian law, in the subscription of shares resulting from capital increases made by us.

 

Under Brazilian law, if we issue new shares in exchange for cash or assets as part of a capital increase, subject to certain exceptions, we must grant our shareholders preemptive rights at the time of the subscription of shares, corresponding to their respective interest in our share capital, allowing them to maintain their existing shareholding percentage. We may not legally be permitted to allow holders of our common shares or ADSs in the United States to exercise any preemptive rights in any future capital increase unless (i) we file a registration statement for an offering of shares resulting from the capital increase with the SEC, or (ii) the offering of shares resulting from the capital increase qualifies for an exemption from the registration requirements of the Securities Act. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement for an offering of shares with the SEC and any other factors that we consider important in determining whether to file such a registration statement. We cannot assure the holders of our common shares or ADSs in the United States that we will file a registration statement with the SEC to allow them to participate in any of our capital increases. As a result, the equity interest of such holders in our company may be diluted.

 

If holders of our ADSs exchange them for common shares, they may risk temporarily losing, or being limited in, the ability to remit foreign currency abroad and certain Brazilian tax advantages.

 

The Brazilian custodian for the common shares underlying our ADSs must obtain an electronic registration number with the Central Bank to allow the depositary to remit U.S. dollars abroad. ADS holders benefit from the electronic certificate of foreign capital registration from the Central Bank obtained by the custodian for the depositary, which permits it to convert dividends and other distributions with respect to the common shares into U.S. dollars and remit the proceeds of such conversion abroad. If holders of our ADSs decide to exchange them for the underlying common shares, they will only be entitled to rely on the custodian’s certificate of registration with the Central Bank for five business days after the date of the exchange. Thereafter, they will be unable to remit U.S. dollars abroad unless they obtain a new electronic certificate of foreign capital registration in connection with the common shares, which may result in expenses and may cause delays in receiving distributions. See “Item 10—Additional Information—Exchange Controls.”

 

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Also, if holders of our ADSs that exchange them for our common shares do not qualify under the foreign investment regulations, they will generally be subject to less favorable tax treatment of dividends and distribution on, and the proceeds from any sale of, our common shares. See “Item 10—Additional Information—Exchange Controls” and “Item 10—Additional Information—Taxation—Brazilian Tax Considerations.”

 

Holders of our ADSs may face difficulties in protecting their interests because, as a Brazilian company, we are subject to different corporate rules and regulations and our shareholders may have fewer and less well-defined rights.

 

Holders of our ADSs are not direct shareholders of our company and are unable to enforce the rights of shareholders under our bylaws and Brazilian corporate law.

 

Our corporate affairs are governed by our bylaws and Brazilian corporate law, which differ from the requirements that would apply if we were incorporated in a jurisdiction in the United States, such as the State of Delaware or New York, or elsewhere outside Brazil. Even if a holder of our ADSs surrenders its ADSs and becomes a direct shareholder, its rights as a holder of our common shares under Brazilian corporate law to protect its interests relative to actions by our board of directors may be fewer and less well-defined than under the laws of those other jurisdictions.

 

Holders of our ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.

 

We are organized under the laws of Brazil, and certain of our executive officers and our independent registered public accountants reside or are based in Brazil. Most of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of our ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. In addition, because substantially all of our assets and all of our directors and officers reside outside the United States, any judgment obtained in the United States against us or any of our directors or officers may not be collectible within the United States. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of actions by us or our board of directors or executive officers than would shareholders of a U.S. corporation.

 

In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our common shares and ADSs at a potential disadvantage. Corporate disclosures also may be less complete or informative than those of a public company in the United States or in certain other countries.

 

Our status as a foreign private issuer allows us to follow local corporate governance practices, which may limit the protections afforded to investors.

 

We are a foreign private issuer, as defined by the SEC for purposes of the Exchange Act. As a result, for so long as we remain a foreign private issuer, we will be exempt from most of the corporate governance requirements of stock exchanges located in the United States; accordingly, you will not be provided with the benefits or have the same protections afforded to shareholders of U.S. public companies.

 

The standards applicable to us are considerably different from the standards applied to U.S. domestic issuers. Although Rule 10A-3 under the Exchange Act generally requires that a listed company have an audit committee of its board of directors composed solely of independent directors, as a foreign private issuer, we are relying on a general exemption from this requirement that is available to us as a result of the features of Brazilian law applicable to our statutory audit committee.

 

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In addition, we are not required to, among other things:

 

  have a majority of independent members on our board of directors;

 

  have a compensation committee or a nominating/corporate governance committee of our board of directors; and

 

  have regularly scheduled executive sessions with only non-management directors; or have at least one executive session of solely independent directors each year.

 

For additional information, see “Item 10—Additional Information—B. Memorandum and Articles of Association—Statutory Audit Committee.”

 

We are an emerging growth company within the meaning of the Exchange Act and, if we decide to take advantage of certain exemptions from various reporting requirements applicable to emerging growth companies, our common stock could be less attractive to investors.

 

We are an “emerging growth company” within the meaning of the rules under the Exchange Act. We are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with any PCAOB rules, that, if adopted in the future, would require mandatory audit firm rotation and auditor discussion and analysis pursuant to any future audit rule promulgated by the PCAOB (unless the U.S. Securities and Exchange Commission, or the SEC, determines otherwise). In addition, we are not subject to the additional level of review of our internal control over financial reporting as may occur when outside auditors attest as to our internal control over financial reporting. As a result, our stockholders may not have access to certain information they may deem important. We will remain an emerging growth company for up to five years from the date of our initial public offering of securities under an effective registration statement under the Securities Act, though we may cease to be an emerging growth company earlier under certain circumstances.

 

We take advantage of the exemption from the auditor attestation report requirement and may decide to rely on other exemptions in the future. We do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock, and our stock price may be more volatile.

 

Brazilian tax laws may have an adverse impact on the taxes applicable to the disposition of our common shares and ADSs.

 

Under Law No. 10,833/2003, the gain on the disposition or sale of assets located in Brazil by a non-Brazilian resident, whether to another non-Brazilian resident or to a Brazilian resident, may be subject to income tax withholding in Brazil. With respect to the disposition of our common shares, as they are assets located in Brazil, a non-Brazilian resident should be subject to income tax on the gains assessed, regardless of whether the transactions are conducted in Brazil or with a Brazilian resident. With respect to our ADSs, although the matter is not entirely clear, arguably the gains realized by a non-Brazilian resident upon the disposition of ADSs to another non-Brazilian resident will not be taxed in Brazil, on the basis that ADSs are not “assets located in Brazil” for the purposes of Law No. 10,833/2003. We cannot assure you, however, that the Brazilian tax authorities or the Brazilian courts will agree with this interpretation. As a result, gains on a disposition of ADSs by a non-Brazilian resident to a Brazilian resident, or even to a non-Brazilian resident, in the event that courts determine that ADSs would constitute assets located in Brazil, may be subject to income tax in Brazil. See “Item 10—Additional Information—Taxation—Brazilian Tax Considerations.” 

 

The imposition of IOF taxes may indirectly influence the price and volatility of our ADSs and our common shares.

 

Brazilian law imposes the Tax on Foreign Exchange Transactions, or the IOF/Exchange tax, on the conversion of reais into foreign currency and on the conversion of foreign currency into reais. Brazilian law also imposes the Tax on Transactions Involving Bonds and Securities, or the IOF/Securities tax, due on transactions involving bonds and securities, including those carried out on a Brazilian stock exchange.

 

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The IOF/Exchange tax rate may be modified by the Brazilian government by decree. The IOF/Exchange tax rate was raised from zero to 6% on October 20, 2009. As of December 1, 2011, certain investments were excluded from the 6% tax and subject instead to a 2% IOF/Exchange tax. In 2009, the IOF/Securities tax was increased from zero to 1.5% on shares issued by a Brazilian company and listed on a Brazilian stock exchange for the purpose of allowing depositary receipts traded outside Brazil to be issued. In 2011, the IOF/Securities tax was increased from zero to 1% on currency-related derivative transactions resulting in an increase of the short position exposure in foreign currency or in a decrease of the long position in foreign currency. Since June 30, 2013, the IOF/Exchange tax and the IOF/Securities tax rates have been zero.

 

The imposition of these taxes may discourage foreign investment in shares of Brazilian companies, including our company, due to higher transaction costs, and may negatively impact the price and volatility of our ADSs and common shares if they become listed on a stock exchange in the United States, as well as on the B3.

 

We may be classified as a passive foreign investment company, which could result in adverse U.S. tax consequences for U.S. investors.

 

We may be classified as a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes. Such characterization could result in adverse U.S. tax consequences to you if you are a U.S. Holder (as defined in “Item 10—Additional Information—Taxation—U.S. Federal Income Tax Considerations”) of our common shares or ADSs. For example, if we are a PFIC, U.S. Holders of our common shares or ADSs may become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, for any taxable year we will be classified as a PFIC for U.S. tax purposes if either (i) 75% or more of our gross income in that taxable year is passive income or (ii) the average percentage of our assets by value in that taxable year that produce or are held for the production of passive income is at least 50%. For this purpose, income from commodities transactions is generally considered passive unless such income is derived in the active conduct of a commodities business.

 

See “Item 10—Additional Information—Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company.”

 

ITEM 4—INFORMATION ON THE COMPANY

 

A.History and Development of the Company

 

Overview

 

Our legal and commercial name is BrasilAgro—Companhia Brasileira de Propriedades Agrícolas. We are a corporation (sociedade por ações) organized under the laws of Brazil, and were incorporated on September 23, 2005. Our principal offices are located at Avenida Brigadeiro Faria Lima, 1309, 5th floor, São Paulo, SP, 01452-002, Brazil, and our telephone number is +55 11 3035 5350.

 

We are focused on the acquisition, development and exploration of agricultural properties that we believe possess significant potential for cash flow generation and value appreciation. We seek to transform our acquired properties through investments in infrastructure and technologies which permit cultivation of high value-added crops (soybean, corn, sugarcane and others) and cattle raising and sell our developed properties in order to realize capital gains.

 

Since our initial public equity offering and listing in Brazil on the B3 stock exchange in April 2006, or the IPO, and the subsequent commencement of our operations until the date hereof, we acquired 22 agricultural properties in seven Brazilian states, aggregating 320,990 hectares, of which 214,920 hectares were arable but less than 15% of which were cultivated when acquired and 103,922 hectares were protected by environmental regulation. Since then, five of our agricultural properties were fully sold and five of our agricultural properties were partly sold, representing in the aggregate a total area of 107,661 hectares. As of the date hereof, we hold 273,486 hectares, including 60,157 hectares leased.

 

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On November 22, 2019, we entered into a merger agreement (the “Merger Agreement”) with Agrifirma Holding S.A. (the “Merger Agreement”). Under the terms of the Merger Agreement, Agrifima Holding would be merged into us and we would receive all of its assets, rights and obligations, holding 100% of the equity capital of the subsidiary Agrifirma Agro Ltda. and its subsidiaries, in exchange for common shares and warrants (“Agrifirma Warrants”) issued by us to the selling shareholders of Agrifirma Holding (the “Merger”).

 

Agrifirma Agro Ltda. and its subsidiaries (“Agrifirma”) are engaged in the production, manufacture, storage and trading of agricultural products and the provision of agricultural services, as well as the management and commercial exploration of the properties that it owns. Since Agrifirma is engaged in operations in the same sector as us, we expect the following impacts by reason of the Merger: operational, financial and commercial benefits, such as dilution of general and administrative expenses, capture of synergies and economies of scale in the operations and potential appreciation of undeveloped areas. Agrifirma is comprised of its parent company (Agrifirma Agro Ltda.) and one subsidiary, namely Agrifirma Bahia Agropecuária Ltda.

 

The completion of the Merger was subject to certain requirements and conditions precedent, which were met on January 27, 2020, following which we obtained control of Agrifirma. The Merger was accounted for pursuant to IFRS 3 – Business Combinations.

 

Following the Merger, we added 28,930 hectares to our property portfolio, consisting of land located in the Western region of the State of Bahia, near our Jatobá and Chaparral farms, which are suitable for grain production and cattle raising. After the Merger, the total number of our outstanding shares was 62,104,301.

 

On December 20, 2020, Cresud initiated a corporate reorganization under which we entered into a share purchase agreement to acquire 100% of the shares issued by the following Bolivian companies: (i) Agropecuaria Acres del Sud S.A.; (ii) Ombu Agropecuaria S.A.; (iii) Yatay Agropecuaria S.A.; and (iv) Yuchan Agropecuarian S.A. (collectively, “Acres del Sud”), all of which were indirectly controlled by Cresud. These properties have a total area of 9,875 hectares, will be used to cultivate grains and sugarcane, and distributed among the properties San Rafael, Las Londras and La Primavera.

 

On February 4, 2021, after the fulfillment of the conditions precedent negotiated under the Share Purchase Agreement, we assumed control of the aforementioned companies. The purchase price was negotiated at R$160.4 million, based on the estimated preliminary book value of net assets calculated as of June 30, 2020, which we paid in full in cash. The agreement set forth a price adjustment to reflect the net assets variation of the Bolivia-based companies from June 30, 2020 to the base date of the transaction, in accordance with the criteria established by the parties. The procedures for adjusting the price were concluded on March 21, 2021 and generated an additional payment obligation of R$5.4 million, which was paid and settled by us on April 30, 2021.

 

On February 3, 2021, the Company’s board of directors approved the price per common share of R$22.00 and an increase in the Company’s capital stock in the amount of R$440.0 million, through the issuance of 20,000,000 new common shares of the Company, in connection with the primary and secondary follow-on offering of common shares. The selling shareholder in the offering sold an aggregate of 2,735,355 common shares issued by the Company.

 

The offering consisted of a restricted offering in Brazil, pursuant to Law No. 6,385, of December 7, 1976, as amended, and CVM Instruction No. 476, of January 16, 2009, as amended, and a private placement to (a) a limited number of qualified institutional buyers in the United States, as defined in Rule 144A under the Securities Act, and (b) institutional and other investors outside the United States and Brazil that are not U.S. persons, in reliance on Regulation S under the Securities Act. As a result of this offering, our capital stock was increased to R$1,139.8 million, divided into 82,104,301 common shares.

 

On May 14, 2021, our capital stock was increased by R$448.2 million through the issuance of 20,272,707 new common shares following the exercise of the First Series Warrants by Cape Town LLC, Cresud S.A.C.I.F.Y.A and Turismo Investment S.A.U. (“Subscribing Shareholders”). The First Series Warrants were issued on March 15, 2006 and granted to our founding shareholders in proportion to their respective interests in our capital stock on the issuance date. As a result of the exercise of the First Series Warrants, our capital stock was increased to R$1,588.0 million, divided into 102,377,008 common shares. See “Item 10—Additional Information—Description of Exercised and Expired Warrants.”

 

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On September 19, 2023, our board of directors approved the increase of our capital stock by R$3,064.36 through the issuance of 306,436 new common shares following the exercise of the Warrants by AB (Holdings) 1 S.A.R.L, in connection with the Merger of Agrifirma. As a result of the exercise of the Warrants, our capital stock was increased to R$1,587,984,600.71, divided into 102,683,444 common shares.

 

We will continue the investments to develop and transform our agricultural properties in Brazil, Bolivia and Paraguay. In this regard, we will continue to apply for financing with government development banks.

 

From July 1, 2020 until the date hereof, we completed the following transactions:

 

in June 2023, we sold an area of 4,408 hectares (3,202 arable hectares) in the Jatobá farm, located in the municipality of Jaborandi, in the State of Bahia. The total amount of the sale was 298 soybean bags per arable hectare, or R$121.6 million (approximately R$38,069 per arable hectare);

 

in April 2023, we sold an area of 5,185 hectares (3,796 arable hectares) in the Araucária farm, located in the municipality of Mineiros, in the State of Goiás. The total amount of the sale was 790 soybean bags per arable hectare, or R$409.3 million (approximately R$107,816 per arable hectare);

 

in April 2023, we sold an area of 332 hectares (215 arable hectares) in the Araucária farm, located in the municipality of Mineiros, in the State of Goiás. The total amount of the sale was 297 soybean bags per arable hectare, or R$8.5 million (approximately R$39,558 per arable hectare);

 

in November 2022, we sold an area of 1,965 hectares (1,423 arable hectares) in the Rio do Meio farm, located in the municipality of Correntina, in the State of Bahia. The total amount of the sale was 291 soybean bags per arable hectare, or R$62.4 million (approximately R$43,900 per arable hectare);

 

in November 2022, we sold an area of 863 hectares (498 arable hectares) in the Morotí farm, located in Paraguay. The total amount of the sale was US$1.5 million (approximately US$1,700 per arable hectare);

 

 

in September 2022, we acquired the Panamby farm, located in the municipality of Querência, in the State of Mato Grosso. The Panamby farm has an area of 10,844 hectares, 5,379 hectares of which are arable to be developed, suitable for the cultivation of grains and cotton. The acquisition price was approximately R$285.6 million (approximately R$53,100 per arable hectare);

 

  in October 2021, we sold an area of 3,723 hectares (2,694 arable hectares) in the Alto Taquari farm, located in Alto Taquari, in the State of Mato Grosso. The total amount of the sale was 1,100 soybean bags per arable hectare, or R$589.0 million (approximately R$218,641 per arable hectare);

 

  in September 2021, we sold an area of 4,573 hectares (2,859 arable hectares) in the Rio do Meio Farm located in Correntina, in the State of Bahia. The total amount of the sale was 250 soybean bags per arable hectare, or R$130.1 million (approximately R$45,507 per arable hectare);

 

  in May 2021, we sold an area of 1,654 hectares (1,250 arable hectares) in the Jatobá farm, located in Jaborandi, in the State of Bahia. The total amount of the sale was 300 soybean bags per arable hectare, or R$67.1 million (approximately R$53,640 per arable hectare);
     
  in May 2021, the Subscribing Shareholders exercised their first issue subscription warrants issued by us on March 15, 2006. As a result, our capital stock was increased by R$448,2 million through the issuance of 20,272,707 new common shares, as described above;

 

  in May 2021, ISEC Securitizadora S.A., a Brazilian securitization company, issued agribusiness receivables certificates (Certificados de Recebíveis do Agronegócio) (CRA) in the aggregate amount of R$240.0 million. The CRAs are backed by debentures that were issued by us and are comprised of a single series in the aggregate amount of R$240.0 million. The debentures mature on April 12, 2028 and accrue interest based on the broad consumer price index (Índice de Preços ao Consumidor Amplo) (IPCA), plus 5.36% per year, payable in seven annual installments. Principal is payable in two installments, on April 13, 2027 and April 12, 2028. The debentures are secured by a fiduciary transfer of real estate properties owned by us and located in the city of Correntina, State of Bahia;

 

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  in February, 2021, we and our subsidiaries Agrifirma Agro Ltda. and Imobiliária Engenho de Maracajú Ltda. completed the acquisition of 100% of the shares issued by the following companies based in Bolivia: (a) Agropecuaria Acres del Sud S.A.; (b) Ombu Agropecuaria S.A.; (c) Yatay Agropecuaria S.A.; and (d) Yuchan Agropecuarian S.A. The aggregate amount of the acquisition was R$165.8 million. The acquisition consists of a total area of approximately 9.9 thousand hectares, which are already developed and will be used for grain and sugarcane cultivation. The properties are located in the core region of Bolivia and are suitable for planting second crop;

 

  in February 2021, we completed a primary and secondary follow-on offering of our common shares in the aggregate amount of R$440.0 million, with the issuance of 20,000,000 new common shares, as described above;

 

  during the 2020/2021 crop year, we developed 6,800 hectares of our 143,355 hectares of arable land through the cultivation of soybeans and other value-added crops;

 

  in August 2020, we sold an area of 133 arable hectares in the Jatobá farm, located in Jaborandi, in the State of Bahia, for R$3.8 million;

 

  in July 2020, we recognized the sale, with a zero profit or loss effect, of an area of 2,160 hectares (1,714 arable hectares) in the Bananal X farm, located in Luís Eduardo Magalhães, in the State of Bahia. The sale agreement was executed on March 22, 2019 for a fixed price of R$28.0 million. On the closing date, we received R$7.5 million, and the remaining balance of R$20.5 million will be paid by the buyer in three annual instalments through 2023.

 

The table below indicates the location of our agricultural properties, their arable areas and their current or intended production activities as of June 30, 2023:

 

Property  Location  Acquisition/Lease
Date
  Total Area  Arable Area  Project  Ownership
         (ha)  (ha)
Jatobá Farm  Jaborandi / BA  March 2007   8,868     7,006    Grains and Pasture  Owned
Alto Taquari Farm (1)  Alto Taquari / MT  August 2007   1,380     809    Sugarcane  Owned
Chaparral Farm  Correntina / BA  November 2007   37,182     26,444    Grains and Cotton  Owned
Nova Buriti Farm  Bonito de Minas / MG  December 2007   24,212     17,846    Forest  Owned
Preferência Farm  Baianópolis / BA  September 2008   17,799     12,41    Grains and Pasture  Owned
Avarandado Farm (Partnership II) (2)  Ribeiro Gonçalves / PI  November 2013   7,456     7,456    Grains  Leased
Morotí (Paraguai)  Boquerón  February 2018   58,721     33,554    Grains and Pasture  Owned
ETH Farm (Partnership III) (3)  Alto Taquari / MT  May 2015   5,128     5,128    Sugarcane  Leased
Agro-Serra Farm (Partnership IV) (4)  São Raimundo
das Mangabeiras / MA
  February 2017   15,000     15,000    Sugarcane  Leased
São José Farm  São Raimundo
das Mangabeiras / MA
  February 2017   17,566     10,137    Grains and Sugarcane  Owned
Xingu Farm (Partnership V) (5)  Região do Xingu / MT  August 2018   13,711     13,711    Grains  Leased

 

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Regalito Farm (Partnership VI)  Região do Xingu / MT  September 2022   5,714     5,714    Grains  Leased
Arrojadinho Farm (6)  Jaborandi / BA  January 2020   16,642     11,063    Grains  Owned
Rio do Meio Farm (7)  Correntina / BA  January 2020   5,750     4,219    Grains  Owned
Serra Grande Farm  Baixa Grande do Ribeiro / PI  April 2020   4,489     2,904    Grains  Owned
Serra Grande II Farm (Partnership VII) (8)  Baixa Grande do Ribeiro / PI  December 2019   6,013     6,013    Grains  Leased
Acres del Sud (Bolívia)  Santa Cruz  February 2021   9,875     7,925    Grains and Sugarcane  Owned
Unagro Farm (Partnership VII) (9)  Santa Cruz  December 2019   1,065     1,065    Grains  Leased
São Domingos Farm (Partnership IX) (10)  Comodoro / MT  July 2022   6,070     6,070    Grains  Leased
Panamby Farm  Querência, MT  September 2022   10,844     5,379    Grains  Owned
Total         

273,486

     199,854     

 

(1)We will continue to operate 1,157 hectares of the area sold in October 21 until the 2024 harvest year.

 

(2)We entered into an agricultural development partnership in the Parceria II Farm for up to 11 harvests, involving up to 10,000 hectares.

 

(3)We entered into an agricultural development partnership in the Parceria III Farm that may extent until March 31, 2026.

 

(4)We entered into an agricultural development partnership in the Parceria IV Farm for 15 years of planting of sugarcane, with an option to renew for another 15 years.

 

(5)We entered into an agricultural development partnership in the Parceria V Farm for up to 12 years.

 

(6)Previously referred as Partnership VI, the Farm was acquired through the merger of Agrifirma.

 

(7)Farm acquired through the merger of Agrifirma.

 

(8)We entered into an agricultural development partnership in the Parceria VII Farm for up to 10 years.

 

(9)Farm partnership on the farm for the term of one harvest.

 

(10)Farm partnership on the farm for up to 12 harvests.

 

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We have a policy of performing annual appraisals of the fair market value of our agricultural properties. We estimate the market value of our agricultural properties based on each property’s level of development, soil quality and maturity and agricultural potential. For more information concerning our estimates of the fair market value of our agricultural properties, see Note 10 to our financial statements for the fiscal year ended June 30, 2023.

 

Our estimates of the market value of our agricultural properties are based on several assumptions, methodologies, estimates and subjective judgments, all of which are inherently subject to significant commercial, economic, competitive and operational uncertainties, most of which are beyond our control and unforeseeable and therefore no assurance can be given that they are correct. Furthermore, market values of real estate are subject to significant fluctuations and are also subject to significant commercial, economic and competitive uncertainties, most of which are beyond our control, and thus such estimates should not be considered as indicative of the values that we will or may be able to receive in exchange for such properties. For more information on the risks we are exposed to, see “Item 3—Key Information—Risk Factors.” The table below indicates the historical cost of acquisition of the land and of subsequent improvements, as well as the estimated fair market value, with respect to our agricultural properties, as of June 30, 2023.

 

The SEC maintains an internet website at www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file or furnish documents electronically to the SEC, including us. Our internet website is www.brasil-agro.com. The information included on our internet website or the information that might be accessed through such website is not included in this annual report and is not incorporated into this annual report by reference.

 

The table below shows certain information regarding our agricultural properties as of June 30, 2023:

 

Property  Location  Acquisition/Lease
Date
  Total Area   Land and
Improvement
Cost as of
June 30,
2023 (1)
   Estimated Fair
Market
Value as of
June 30,
2023 (2)
   Appreciation (3) 
         (ha)   (R$ millions)   (R$ millions)     
Jatobá Farm  Jaborandi/BA  March 2007   8,868    13.7    304.9    2,126%
Alto Taquari Farm  Alto Taquari/MT  August 2007   1,380    17.3    31.0    79%
Chaparral Farm  Correntina/BA  November 2007   24,212    24.3    44.2    82%
Nova Buriti Farm  Januaria/MG  December 2007   17,799    34.4    157.9    359%
Preferência Farm  Barreiras/BA  September 2008   58,722    239.9    500.5    109%
Moroti Farm  Boqueron/ Paraguay  February 2018   17,566    114.4    475.1    315%
São José Farm  São Raimundo das Mangabeiras/MA  February 2017   16,642    125.4    350.4    179%
Arrojadinho Farm  Jaborandi/BA  January 2020   5,750    66.3    168.5    154%
Rio do Meio Farm  Jaborandi/BA  January 2020   4,489    42.4    82.4    94%
Serra Grande Farm  Baixa Grande do Ribeiro/PI  April 2020   9,875    120.4    196.6    63%
Acres del Sud  Santa Cruz/ Bolivia  February 2022   10,844    288.9    311.9    8%
Total         213,329    1,198.7    3,604.9    204%

 

(1)Consists of land and capital expenditures, including buildings, infrastructure and other improvements to the property, net of depreciation expenses.

 

(2)Appraisal from independent firm Deloitte Touche Tohmatsu Consultores Ltda.

 

(3)Appreciation includes the impact of inflation since the acquisition date.

 

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B. Business Overview

 

We are focused on the acquisition, development and exploration of agricultural properties that we believe possess significant potential for cash flow generation and value appreciation. We seek to transform our acquired properties through investments in infrastructure and technologies which permit cultivation of high value-added crops (soybean, corn, sugarcane and other) and cattle raising and sell our developed properties in order to realize capital gains. We are currently involved in several farming activities, including grains and sugarcane production and cattle raising.

 

Agricultural Activities and Products

 

Independent Production

 

As of June 30, 2023, we were the operators with respect to our entire portfolio of agricultural properties. In the context of our independent operations, we maintain exclusive control over our production and exclusive responsibility for the acquisition of inputs, raw materials and equipment, hiring and oversight of employees, and infrastructure investment. We currently sell a substantial portion of our production to a small number of import/export companies or customers who have substantial bargaining power. Our net revenue was R$903.4 million for the year ended June 30, 2023 and R$1,168.1 million for the year ended June 30, 2022. All of our sales are to customers located in Brazil, Bolivia and Paraguay.

 

We enter into short-term contractual arrangements with third-party contractors, at all stages of the production process, for the provision of services (including our workforce), equipment, and infrastructure needs. We believe that this allows us to be more agile in adapting to market conditions as they unfold.

 

Leases

 

As an alternative to independent production, as of June 30, 2023, we had leased 17,525 hectares of our agricultural properties to third parties.

 

Generally, our leases are subject to different obligations depending on the stage of development of the subject property. With respect to leases of our properties on which the land is undeveloped, lessees are subject to several terms and conditions, including requirements to invest and to use the techniques and equipment that we believe are necessary and appropriate for the preparation and correction of the soil in order to facilitate agricultural production. In addition to leases of land, we may also lease individual farmhouses or warehouses to lessees, pursuant to which we receive a portion of the agricultural production, in kind, produced by the lessee. Our leases generally last between three to ten years. Under Brazilian law, lessees have a right of first refusal to purchase farms when they are leased by them.

 

Grains

 

The planting season for grains runs from September to December, and harvest occurs between February and May of each year. During the planting season for our 2022/2023 crop year, we planted 89,523 hectares of grains at our grain farms in Brazil, Bolivia and Paraguay. For the years ended June 30, 2023 and 2022, net revenue from sale of grains accounted for 64.1% and 61.7% of our operating net revenue, respectively.

 

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All distribution of production from the farms is made through road transportation. We enter into third-party service contracts to transport production from our farms to our storage facilities or to our customers.

 

Sugarcane

 

 The sugarcane planting season runs from February to May of each year, and harvest occurs between April and November of each year. On June 30, 2023, we had 27,586 hectares planted with sugarcane at our Alto Taquari, São José Farm, ETH, Agro Serra and Acres del Sud farms.

 

 We entered into a supply contract with Brenco, pursuant to which we currently supply the entirety of our sugarcane production from our Alto Taquari, and ETH Farm farms to them. The term of this supply contract covers two full crop cycles, which consists of six crop years and five harvests, and is scheduled to expire in 2023/2024. In the year ended June 30, 2023 and as of the date hereof, Brenco has not defaulted on the payment of any receivable.

 

In the table below, we present the aging of the receivables from Brenco, based on contractual terms.

 

  

As of

June 30,

2023

 
Falling due:  (in R$
thousands
)
 
     
Up to 30 days   14,303 
30 to 90 days    
91 to 180 days    
181 to 360 days   1,398 
Total   15,701 

  

On May 8, 2015, we entered into a lease agreement with respect to a property located in the municipalities of Alto Taquari and Alto Araguaia, in the state of Mato Grosso (“Partnership III”), pursuant to which we have the right to operate an area of 4,263 hectares until March 31, 2026. The properties are close to Alto Taquari Farm, a region that has had excellent sugarcane production results. This transaction allows us to make use of the operational structure and team already present in the region and ensure greater property management flexibility.

 

We entered into a supply contract with Agro Serra, pursuant to which we currently supply the entirety of our sugarcane production from our Partnership IV farm to them. The term of this supply contract is 15 years, renewable for another 15 years.

 

For the years ended June 30, 2023 and 2022, net revenue from the sale of sugarcane accounted for 27.1% and 32.4% of our net revenue, respectively.

 

Our farm output is distributed through road transportation. We enter into third-party service contracts with trucking companies to transport production from our farms to our customers’ sugar and ethanol refineries.

 

Livestock

 

As of June 30, 2023, we had 21,652 head of cattle distributed over 16,080 hectares of active pasture.

 

For the years ended June 30, 2023 and 2022, net revenue from livestock sales accounted for 2.7% and 2.7% of our net revenue, respectively.

 

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Cotton

 

The planting season for cotton runs from September to December of each year, and the harvest occurs between February and May of each year. During the planting season for our 2022/2023 crop year, we planted 7,142 hectares of cotton at our Chaparral farm.

 

For the years ended June 30, 2023 and 2022, net revenue from the sale of cotton accounted for 4.2% and 0.02% of our operating net revenue, respectively.

 

Investment properties

 

As of June 30, 2023, the net book value of our investment properties was R$1,252.7 million, of which R$929.5 million represented land acquisition costs and R$329.3 million (net of accumulated depreciation) represented improvements, including building and infrastructure improvements and costs of clearing and preparing the land. For the years ended June 30, 2023 and 2022, gains on farm sales accounted for R$346.1 million and R$251.5 million, respectively.

 

Agricultural Properties

 

As of June 30, 2023, we owned 20 agricultural properties, totaling 273,486 hectares of arable land (not including environmental preservation areas in accordance with Brazilian, Bolivian and Paraguayan environmental law), including 60,157 hectares of leased area, located in the Brazilian States of Mato Grosso, Goiás, Minas Gerais, Maranhão, Bahia, Piauí, Bolivia and in Paraguay. During the planting season for our 2022/2023 crop year, we planted 65,772 hectares of soybean, 20,293 hectares of corn (1st and 2nd crops), 27,586 hectares of sugarcane, 28,443 hectares of other grains (sesame, sorghum and others and leased areas to third parties), 3,457 hectares of beans, 7,142 hectares of cotton and 16,080 hectares of pasture. Except for part of the Nova Buriti farm, we acquire and hold our agricultural properties through subsidiaries, a structure we believe will simplify the future sale of such properties in accordance with Brazilian law. In addition, we entered into rural partnerships to operate agricultural properties, Avarandado Farm, ETH Farm, Agro Serra Farm, Xingu Farm, Regalito Farm, Serra Grande Farm, Unagro Farm and São Domingos Farm.

 

São José Farm: As of June 30, 2023, the São José farm had an area of 17,566 hectares. The São José farm was acquired by our subsidiary Imobiliária Ceibo Ltda. in February 2017 for R$100.0 million. The property is located in the State of Maranhão, in the Northeastern region of Brazil. 

 

We acquired 17,566 hectares, 10,137 hectares of which are arable and have already been developed, and will be used for the planting of grain crops. The other 7,429 hectares are permanent preservation and legal reserve areas. The acquisition price is R$100.0 million (R$10 thousand per arable hectare).

 

The agricultural partnership consists of 15,000 hectares of arable and developed land, already planted mostly with sugarcane. The agricultural partnership has a term of 15 years, which may be extended for the same period.

 

Jatobá Farm: As of June 30, 2023, the Jatobá farm had an area of 8,868 hectares. The Jatobá farm was acquired by us, in partnership with Grupo Maeda, in 2007, for R$33.0 million. On May 12, 2012, we acquired Grupo Maeda’s partnership stake and became 100% owners of the Jatobá farm, through our subsidiary Jaborandi Propriedades Agrícolas. The property is located in the Municipality of Jaborandi, State of Bahia, in the Northeastern region of Brazil, which we believe to be advantageous for export purposes due to the presence of the Port of Candeias in the State of Bahia.

 

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On June 30, 2017, we sold 625 hectares of our Jatobá farm, 500 of which are arable, for a total sale price of R$10.1 million, equivalent to 300 soybean bags per arable hectare. In July 2018, we sold 9,784 hectares of our Jatobá farm, 7,485 of which are arable, for a total sale price of R$164.8 million, equivalent to 285 soybean bags per arable hectare. In June 2019, we sold 3,124 hectares of our Jatobá farm, 2,473 of which are arable, for a total sale price of R$58.1 million, equivalent to 285 soybean bags per arable hectare. In September 2019, we sold 1,134 hectares of our Jatobá farm, 893 of which are arable, for a total sale price of R$23.2 million, equivalent to 302 soybean bags per arable hectare. In June 2020, we sold 1,875 hectares of our Jatobá farm, 1,500 of which are arable, for a total sale price of R$45.0 million, equivalent to 300 soybean bags per arable hectare. In August 2020, we sold 133 arable hectares, for a total sale price of R$3.8 million. In May 2022, we sold 1,654 hectares of our Jatobá farm, 1,250 of which are arable, for R$67.1 million, equivalent to 300 soybean bags per arable hectare.

 

On June 2023, we sold an area of 4,408 hectares (3,202 arable hectares) in the Jatobá farm, located in the municipality of Jaborandi, in the State of Bahia. The total amount of the sale was 298 soybean bags per arable hectare, or R$121.6 million (approximately R$38,069 per arable hectare).

 

Alto Taquari Farm: As of June 30, 2023, the Alto Taquari farm had an area of 5,103 hectares. The Alto Taquari farm was acquired by our subsidiary Imobiliária Mogno in August 2007 for R$33.2 million. The deed was granted in September 2015 after we paid the outstanding balance of R$27.4 million. The 2009/2010 crop year marked the beginning of our obligations in compliance with our supply contract with Brenco, under which we supply the entirety of our sugarcane production from the Alto Taquari farm to them for a term of two complete crop cycles (six crop years and five harvests), which is expected to end in 2023. The property is located in the Municipality of Alto Taquari, State of Mato Grosso.

 

In November 2018, we sold 103 hectares of our Alto Taquari farm, all of which are arable, for a total sale price of R$8.0 million, equivalent to 1,100 soybean bags per arable hectare. In October 2019, we sold 85 hectares of our Alto Taquari farm, 65 of which are arable, for a total sale price of R$5.5 million, equivalent to 1,100 soybean bags per arable hectare. In May 2020, we sold 105 hectares of our Alto Taquari farm, all of which are arable, for a total sale price of R$11.0 million, equivalent to 1,100 soybean bags per arable hectare.

 

On October 7, 2021, we entered into an agreement to sell an area comprised of 3,723 hectares (2,694 arable hectares) in the Alto Taquari Farm. The sale price was R$589.0 million (approximately R$218,641 per arable hectare) or 1,100 soybean bags per arable hectare. Part of such price corresponding to R$16.5 million was paid in October 2021 and an additional payment of R$31.4 million was made in November 2021. The remaining balance is indexed in soybean bags and will be paid in eight annual installments, starting in May 2022. The delivery of the area will occur in two phases, the first occurred in October 2021, consisting of 2,566 hectares (1,537 arable hectares), in the amount of approximately R$336.0 million, and the second will occur in September 2024, consisting of 1,157 arable hectares, in the amount of approximately R$253.0 million. We intend to continue to explore and operate the areas that were sold until completion of each delivery phase.

 

Considering this sale, the Alto Taquari Farm area in the portfolio is 1,380 hectares (809 arable hectares).

 

Araucária Farm: As of June 30, 2023, the Araucária farm had an area of 5,534 hectares. The Araucária farm was acquired by our subsidiary Imobiliária Araucária in April 2007, in partnership with Brenco, in the proportion of 75% and 25%, respectively, for the total amount of R$80.0 million. The deed for Araucária farm was granted on November 20, 2008, and it was registered on November 24, 2008, upon which our partnership with Brenco was terminated and we remained the sole owners of 9,682 hectares of the Araucária farm, equivalent to R$70.7 million. The property is located in the Municipality of Mineiros, in the State of Goiás, and is primarily used for the cultivation of sugarcane and grain.

  

In May 2018, we sold 956 hectares of our Araucária Farm, 660 of which are arable (for a total sale price of R$52.4 million, equivalent to 1,208 soybean bags per arable hectare). On March 27, 2017, we sold 274 hectares of our Araucária Farm, 200 of which are arable, for a total sale price of R$12.5 million or (R$13.2 million nominal value, equivalent to 1,000 soybean bags). On May 30, 2017, we sold 1,360 hectares of our Araucária Farm, 918 of which are arable, for a total sale price of R$17.0 million, equivalent to 280 soybean bags. On April 25, 2013, we sold 394 hectares of our Araucária farm, 310 of which are arable, for a total sale price of R$10.3 million, equivalent to 48,000 soybean bags, and on June 27, 2014, we sold 1,164 hectares of our Araucária Farm, 913 of which are arable, for a total purchase price of R$41.3 million, equivalent to 735,000 soybean bags. After the sales, the area of Araucária farm held by us was 5,534 hectares, of which approximately 4,051 hectares are arable.

 

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In April 2023, we sold an area of 5,185 hectares (3,796 arable hectares) in the Araucária farm, located in the municipality of Mineiros, in the State of Goiás. The total amount of the sale was 790 soybean bags per arable hectare, or R$409.3 million (approximately R$107,816 per arable hectare). The buyer has already made an initial payment of R$1.6 million.

 

In April 2023, we sold the remaining area of the Araucária farm (332 hectares, 215 arable hectares) located in the municipality of Mineiros, in the State of Goiás. The total amount of the sale was 297 soybean bags per arable hectare, or R$8.5 million (approximately R$39,558 per arable hectare). The buyer has already made an initial payment of R$78.7 million.

 

The 2009/2010 crop year marked the beginning of our obligations under our supply contract with Brenco to supply the entirety of our sugarcane production from the Araucária farm to them for a term of two complete crop cycles (six crop years and five harvests), which was initially expected to end in 2021/2022. The agreement was not extended due to the sale of the Araucária farm.

 

Chaparral Farm: As of June 30, 2023, the Chaparral farm had an area of 37,182 hectares. The Chaparral farm was acquired by our subsidiary Imobiliária Cajueiro in November 2007 for R$47.9 million. The deed was granted on September 29, 2008 and was registered on December 12, 2008. The property is located in the Municipality of Correntina, State of Bahia.

 

Nova Buriti Farm: As of June 30, 2023, the Nova Buriti farm had an area of 24,212 hectares. The Nova Buriti farm was acquired in December 2007 for the total amount of R$22.0 million. The transfer of 3,064 hectares was made in May 2010 to our subsidiary Imobiliária Flamboyant Ltda. and the remaining 21,147 hectares was transferred to us in August 2017, upon the payment of the balance of the price of the amount of R$12.8 million, with the exclusion of the monetary correction as negotiated with the seller. Our subsidiary Imobiliária Flamboyant Ltda. holds a 13% interest in the property, and we hold the remaining 87%. The property is located in the municipality of Bonito de Minas and Cônego Marinho, State of Minas Gerais in the Southeastern region of Brazil, which is in close proximity to major iron producers who utilize large quantities of biofuel, especially from eucalyptus wood, to generate electricity.

 

Due to the difficulties we have faced in regard to obtaining licenses for the farm, we are studying alternatives for the property. One such option is to sell the farm to offset the legal reserve, a mechanism contemplated in the environmental code pursuant to which holders of a legal reserve deficit can acquire another area to solve certain issues.

 

Preferência Farm: As of June 30, 2023, the Preferência farm had an area of 17,799 hectares. The Preferência farm was acquired in September 2008 by our subsidiary Imobiliária Cajueiro for R$9.6 million. The deed was granted on September 4, 2009, and registration was made on February 24, 2010. The property is located in the Municipality of Barreiras, State of Bahia. We use the property for cattle raising and grain cultivation.

 

Avarandado Farm: On October 11, 2013, we entered into a rural partnership agreement with respect to the Avarandado farm for up to 11 harvests, which is expected to end in June 2024. On March 8, 2023, the partnership was renewed for an additional 13 harvest seasons, with an expected conclusion in July 2036. The Avarandado farm is located in the municipality of Ribeiro Gonçalves, in the state of Piauí, which has had excellent grain production results. We operate an area up to 7,456 hectares, which is suitable for grain crops.

 

ETH Farm: On May 8, 2015, we entered into a rural partnership agreement with respect to a property located in the municipalities of Alto Taquari and Alto Araguaia, in the state of Mato Grosso (“Partnership III”), pursuant to which we have the right to operate an area of up to 5,128 hectares until March 31, 2026. The properties are close to the Alto Taquari Farm, a region that has had excellent sugarcane production results. This transaction allows us to make use of the operational structure and team already present in the region and ensure greater property management flexibility.

 

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Agro Serra Farm: On January 11, 2017, we entered into a rural partnership agreement with respect to a property located in the municipalities of São Raimundo das Mangabeiras, in the state of Maranhão (“Partnership IV”), pursuant to which we have the right to operate an area of up to 15,000 hectares. The agricultural partnership is already planted mostly with sugarcane and has a term of 15 years, renewable for another 15 years.

 

Xingu Farm: On August 28, 2018, we entered into a rural partnership agreement with respect to a property located in São Felix do Araguaia, in the state of Mato Grosso (“Partnership V”), pursuant to which we have the right to operate an area of up to 19,425 hectares for up to 10 years. In August, 2018, the partnership agreement was amended in order to reduce our right to operate to an area of up to 17,150 hectares for up to 10 years.

 

In July 2022, we entered into a rural partnership agreement with respect to a property located in São Felix do Araguaia, in the state of Mato Grosso, in Brazil (Fazenda Nossa Senhora Aparecida) (also included in “Partnership V”), pursuant to which we have the right to operate an area of up to 2,100 hectares for up to six years. This transaction allows us to make use of the operational structure and team already present in the region of Partnership V and ensure greater property management flexibility.

 

These areas are mature, with more than five years under production and are suitable for a second crop. In July, 2022, we renewed the partnership of Fazenda Jataí, with a total useful area of 3,440 hectares, located in the municipality of São Felix do Araguaia, state of Mato Grosso, for the cultivation of grains, for a period of six years.

 

Serra Grande Farm: In April 2020, we acquired the Serra Grande farm located in Baixa Grande do Ribeiro, in the State of Piauí. The acquisition consisted of an area of 4,489 hectares, 2,904 hectares of which are arable to be developed and are suitable for grains cultivation. The other 1,585 hectares are permanent preservation and legal reserve areas. The acquisition price was R$25.0 million, or R$8,600 per arable hectare. We made an initial payment of R$10.7 million and will make remaining payments in three equal annual installments.

 

In addition to the acquisition, the Company has an agricultural partnership in an area of 6,013 hectares of arable and developed land, already planted and operated by the Company (Partnership VII). This area is contiguous to the acquired area, has more than 5 years in average of production and high production potential. Partnership VII has a term up to 12 years, with a call option until 2024.

 

Unagro Farm: On December 9, 2020, we entered into a rural use and call option agreement, valid until October 31, 2021, with respect to a property located in the municipality of Pailón, Chiquitos Province, in Bolivia (“Partnership VIII”), pursuant to which we had the right to operate and purchase an area of 1,057.4528 hectares

 

In April 2022, we entered into a rural partnership agreement with respect to properties located in Obispo Santiesteban, in the State of Santa Cruz de La Sierra, in Bolivia (Fazendas Bolpebra and La Senda) (also included in “Partnership VIII”), pursuant to which we have the right to operate an area of up to 1,035 arable hectares for up to six years. The properties are located close to the Acres del Sud Farm, a region that has had excellent sugarcane production results. This transaction allows us to make use of the operational structure and team already present in the region and ensure greater property management flexibility.

 

São Domingos Farm: In July 2022, we entered into a rural partnership agreement with respect to a property located in Comodoro, in the state of Mato Grosso, in Brazil (Fazenda São Domingos) (“Partnership IX”), pursuant to which we have the right to operate an area of up to 6,070 hectares for up to 12 years. 

 

Arrojadinho Farm: On November 22, 2019, we entered into a Merger Agreement with Agrifirma Holding. Under the terms of the Merger Agreement, Agrifima Holding would be merged into us and we would receive all of its assets, rights and obligations, holding 100% of the equity capital of the subsidiary Agrifirma Agro Ltda. and its subsidiaries, in exchange for common shares and Agrifirma Warrants issued by us to the selling shareholders of Agrifirma Holding.

 

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Agrifirma and its subsidiaries (“Agrifirma”) are engaged in the production, manufacture, storage and trading of agricultural products and the provision of agricultural services, as well as the management and commercial exploration of the properties that it owns. Since Agrifirma is engaged in operations in the same sector as us, we expect the following impacts immediately after the Merger: operational, financial and commercial benefits, such as dilution of general and administrative expenses, capture of synergies and economies of scale in the operations and potential appreciation of undeveloped areas.

 

Agrifirma was originally comprised of its parent company (Agrifirma Agro Ltda.) and four subsidiaries, namely Agrifirma Bahia Agropecuária Ltda., I. A. Agro Ltda., GL Agropecuária Empreendimentos e Participações Ltda. and Agrifirma S.R.L. On September 9, 2020, Agrifirma S.R.L. was dissolved. In addition, I. A. Agro Ltda. and GL Agropecuária Empreendimentos e Participações Ltda. were merged into Agrifirma Bahia Agropecuária Ltda.

 

The completion of the Merger was subject to certain requirements and conditions precedent, which were met on January 27, 2020, following which we obtained control of Agrifirma. The Merger was accounted for pursuant to IFRS 3 – Business Combinations.

 

Following the Merger, we added 28,930 hectares to our property portfolio, of which 16,642 hectares are on the Arrojadinho Farm, located in Jaborandi, in the State of Bahia. The Arrojadinho farm is suitable for grain production and cattle raising.

 

During the planting season for our 2021/2022 crop year, we planted 4,367 hectares of grains at the Arrojadinho farm.

 

Rio do Meio Farm: On November 22, 2019, we entered into a Merger Agreement with Agrifirma Holding. Under the terms of the Merger Agreement, Agrifima Holding would be merged into us and we would receive all of its assets, rights and obligations, holding 100% of the equity capital of the subsidiary Agrifirma Agro Ltda. and its subsidiaries, in exchange for common shares and Agrifirma Warrants issued by us to the selling shareholders of Agrifirma Holding.

 

Agrifirma and its subsidiaries are engaged in the production, manufacture, storage and trading of agricultural products and the provision of agricultural services, as well as the management and commercial exploration of the properties that it owns. Since Agrifirma is engaged in operations in the same sector as us, we expect the following impacts immediately after the Merger: operational, financial and commercial benefits, such as dilution of general and administrative expenses, capture of synergies and economies of scale in the operations and potential appreciation of undeveloped areas.

 

Agrifirma was originally comprised of its parent company (Agrifirma Agro Ltda.) and four subsidiaries, namely Agrifirma Bahia Agropecuária Ltda., I. A. Agro Ltda., GL Agropecuária Empreendimentos e Participações Ltda. and Agrifirma S.R.L. On September 9, 2020, Agrifirma S.R.L. was dissolved. In addition, I. A. Agro Ltda. and GL Agropecuária Empreendimentos e Participações Ltda. were merged into Agrifirma Bahia Agropecuária Ltda.

 

Agrifirma is comprised of its parent company (Agrifirma Agro Ltda.) and four subsidiaries, namely Agrifirma Bahia Agropecuária Ltda., I. A. Agro Ltda., GL Agropecuária Empreendimentos e Participações Ltda. and Agrifirma S.R.L.

 

The completion of the Merger was subject to certain requirements and conditions precedent, which were met on January 27, 2020, following which we obtained control of Agrifirma.

 

Following the Merger, we added 28,930 hectares to our property portfolio, of which 12,288 hectares are on the Rio do Meio Farm, located in Jaborandi, in the State of Bahia. The Rio do Meio farm is suitable for grain production and cattle raising.

 

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Sale of Rio do Meio Farm

 

On September 20, 2021, we entered into an agreement to sell an area comprised of 4,573 hectares (2,859 arable hectares) in the Rio do Meio Farm located in Correntina, in the State of Bahia. The sale price was R$130.1 million (approximately R$45,507 per arable hectare) or 250 soybean bags per arable hectare, which was divided into seven annual installments, with an advance of R$5.3 million, which was already paid, and the first installment in the amount of R$10.6 million was paid in 2021. The remaining balance will be paid in seven annual installments.

 

On November 2022, we entered into an agreement to sell an area comprised of 1,965 hectares (1,423 arable hectares) in the Rio do Meio Farm located in Correntina, in the State of Bahia. The sale price was R$62.4 million (approximately R$43,900 per arable hectare) or 291 soybean bags per arable hectare. The buyer already made an initial payment of R$17.7 million.

 

After the sale, Rio do Meio Farm remained on our portfolio, with a total area of 5,750 hectares.

 

Bananal X Farm: On March 22, 2019, we signed a purchase and sale agreement for a total area of 2,160 hectares (1,714 arable hectares) of the Bananal X Farm, located in Luís Eduardo Magalhães, in the State of Bahia. The agreement was for a fixed price of R$28.0 million to be paid in seven instalments. As of June 30, 2020, the farm was classified as a non-current asset held for sale due to a disagreement with the lessor of the farm that prevented the title transfer to the buyer. On July 31, 2020, the parties reached an agreement and we recognized the sale with a zero profit or loss effect, as the asset was recorded at its fair value, less selling expenses.

 

On the sale closing date, we received R$7.5 million, and the remaining balance of R$20.5 million will be paid by the buyer in three annual instalments through 2023.

 

Acres del Sud: On December 20, 2020, Cresud initiated a corporate reorganization under which we entered into a share purchase agreement to acquire 100% of the shares issued by the following Bolivian companies: (i) Agropecuaria Acres del Sud S.A.; (ii) Ombu Agropecuaria S.A.; (iii) Yatay Agropecuaria S.A.; and (iv) Yuchan Agropecuarian S.A. (collectively, “Acres del Sud”), all of which were indirectly controlled by Cresud. These properties have a total area of 9,875 hectares, will be used to cultivate grains and sugarcane, and distributed among the properties San Rafael, Las Londras and La Primavera.

 

On February 4, 2021, after the fulfillment of the conditions precedent negotiated under the share purchase agreement, we assumed control of Acres del Sud. The purchase price was negotiated at R$160.4 million, based on the estimated preliminary net assets calculated as of June 30, 2020, which we paid for in full in cash. The agreement set forth a price adjustment to reflect the equity variation of the Bolivian companies from June 30, 2020 to the base date of the transaction, in accordance with the criteria established by the parties. The procedures for adjusting the price were concluded on March 21, 2021 and generated an additional payment obligation of R$5.4 million, which was paid for by us on April 30, 2021.

 

Panamby Farm: On September 15, 2022, we acquired the Panamby farm, located in the municipality of Querência, in the State of Mato Grosso. The Panamby farm has an area of 10,844 hectares, 5,379 hectares of which are arable to be developed, suitable for the cultivation of grains and cotton. The acquisition price was approximately R$285.6 million (approximately R$53,100 per arable hectare).

  

Commodity Futures Contracts

 

We enter into sales contracts for the future sale and physical delivery of our agricultural commodities to international import/export companies. Such contracts are primarily with respect to soybean, but also include sugarcane in connection with our exclusive supply agreement with Brenco. In the case of soybean, we may contract a fixed price for all or part of the volume to be delivered. The price is determined according to a contractual formula based on the soybean quotation at the Chicago Board of Trade (CBOT). The price established in U.S. dollars is paid at the end of the commitment period, in reais, according to contractually defined exchange rates prevailing a few days before settlement. The terms of the agreements subject us to fines in the event that we fail to deliver the previously-committed volumes to the purchaser.

 

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Material Agreements

 

New acquisition – Panamby Farm

 

On September 15, 2022, we acquired a rural property located in the municipality of Querência, state of Mato Grosso.

 

The property has an arable area of 5,379 hectares (10,844 hectares of total area), of which 80% are suitable for a second crop. The farm has clay and rainfall levels, and is located at an altitude that, allow cultivation of grains and cotton and is located less than 100 km from paved roads. The farm is located in the Eastern region of the state of Mato Grosso, which is characterized by the high growth of agricultural areas in Brazil, with the advancement of agriculture in pasture areas.

 

The acquisition value is R$285.6 million (302 soybean bags per arable hectare), which will be paid in two installments, a down payment in the amount of R$140.0 million, paid by the Company in September 2022 and an additional installment to be paid in 2023. This transaction was important for the Company to diversify and expand our presence in the state of Mato Grosso, one of the most important in the production of commodities in the world, and support the growth of our productive area, in addition to real estate gains, with the transformation of pasture areas into agriculture exploration areas.

  

Lease – São Domingos Farm

 

On July 21, 2022, we entered into an agricultural partnership agreement with the owner of São Domingos Farm for the commercial exploration of an arable area of approximately 6,070 hectares, located in the municipality of Comodoro, state of Mato Grosso, and the term of the agreement is 12 (twelve) years. Possession of the farm will be granted in two phases of 3,035 hectares each, the first expected in December 2022 and the second in December 2023.

 

Lease - Xingu Farm

 

On June 11, 2022, we entered into an agricultural partnership agreement with the owner of Nossa Senhora Aparecida Farm to commercially explore an agricultural area of 2,100 hectares, located in the municipality of São Félix do Araguaia, state of Mato Grosso, the farm was named Xingu Farm (Partnership V) and the agreement has a term of 6 (six) years, started in August 2022. The lessor granted possession of the farm in August 2022, after concluding the intercrop harvesting and the removal of all machinery.

 

Lease – Regalito Farm

 

On June 1, 2022, we entered into an agricultural partnership agreement with the owner of Rio Preto Farm to commercially explore an agricultural area of 5,714 hectares, located in the municipality of São José do Xingu, state of Mato Grosso, the farm was named Regalito Farm and the agreement has a term of 12 (twelve) years from June 1, 2022.

 

Sale of Alto Taquari Farm

 

On September 1, 2021, we entered into an agreement to sell an area of 3,723 hectares (2,694 arable hectares) of the Alto Taquari Farm located in Alto Taquari, state of Mato Grosso. The total amount of the sale is 1,100 soybean bags per arable hectare, or R$591.3 million (R$219,502 per arable hectare). As of June 30, 2023, the buyer had made a total payment of R$118.2 million. The remaining balance will be paid in eight annual installments.

 

Sale of Rio do Meio Farm

 

On September 20, 2021, we entered into an agreement to sell an area of 4,573 hectares (2,859 arable hectares) of the Rio do Meio Farm located in the municipality of Correntina, state of Bahia. The total amount of the sale is 250 soybean bags per arable hectare, or R$130.1 million (R$45,507 per arable hectare). As of June 30, 2023, the buyer had made an initial payment of R$20.3 million. The remaining balance will be paid in seven annual installments.

 

On November 2022, we entered into an agreement to sell an area comprised of 1,965 hectares (1,423 arable hectares) in the Rio do Meio Farm located in Correntina, in the State of Bahia. The sale price was R$62.4 million (approximately R$43,900 per arable hectare) or 291 soybean bags per arable hectare. The buyer already made an initial payment of R$17.7 million.

 

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Sale of Morotí Farm

 

On November 2022, we sold an area of 863 hectares (498 arable hectares) in the Morotí farm, located in Paraguay. The total amount of the sale was US$1.5 million (approximately US$1,700 per arable hectare); The buyer made an initial payment of U$748,500. The remaining balance will be paid in three equal annual installments.

 

Sale of Araucária Farm

 

On April 2023, we sold an area of 5,185 hectares (3,796 arable hectares) in the Araucária farm, located in the municipality of Mineiros, in the State of Goiás. The total amount of the sale was 790 soybean bags per arable hectare, or R$409.3 million (approximately R$107,816 per arable hectare). The buyer has already made an initial payment of R$1.6 million.

 

On April 2023, we sold an area of 332 hectares (215 arable hectares) in the Araucária farm, located in the municipality of Mineiros, in the State of Goiás. The total amount of the sale was 297 soybean bags per arable hectare, or R$8.5 million (approximately R$39,558 per arable hectare). The buyer has already made an initial payment of R$78.7 million.

 

 Acres del Sud

 

On December 20, 2020, Cresud initiated a corporate reorganization under which we entered into a share purchase agreement to acquire 100% of the shares issued by the following Bolivian companies: (i) Agropecuaria Acres del Sud S.A.; (ii) Ombu Agropecuaria S.A.; (iii) Yatay Agropecuaria S.A.; and (iv) Yuchan Agropecuarian S.A. (collectively, “Acres del Sud”), all of which were indirectly controlled by Cresud. These properties have a total area of 9,875 hectares, will be used to cultivate grains and sugarcane, and distributed among the properties San Rafael, Las Londras and La Primavera.

 

On February 4, 2021, after the fulfillment of the conditions precedent negotiated under the share purchase agreement, we assumed control of Acres del Sud. The purchase price was negotiated at R$160.4 million, based on the estimated preliminary net assets calculated as of June 30, 2020, which we paid for in full in cash. The agreement set forth a price adjustment to reflect the equity variation of the Bolivian companies from June 30, 2020 to the base date of the transaction, in accordance with the criteria established by the parties. The procedures for adjusting the price were concluded on March 21, 2021 and generated an additional payment obligation of R$5.4 million, which was paid for by us on April 30, 2021.

 

Unagro Farm

 

On December 9, 2020, we entered into a rural use and call option agreement with respect to a property located in the municipality of Pailón, Chiquitos Province, in Bolivia (“Partnership VIII”), pursuant to which we have the right to operate and purchase an area of 1,057.4528 hectares

 

Agrifirma

 

On November 22, 2019, we entered into a Merger Agreement with Agrifirma Holding. Under the terms of the Merger Agreement, Agrifima Holding would be merged into us and we would receive all of its assets, rights and obligations, holding 100% of the equity capital of the subsidiary Agrifirma Agro Ltda. and its subsidiaries, in exchange for common shares and Agrifirma Warrants issued by us to the selling shareholders of Agrifirma Holding.

 

Agrifirma and its subsidiaries are engaged in the production, manufacture, storage and trading of agricultural products and the provision of agricultural services, as well as the management and commercial exploration of the properties that it owns. Since Agrifirma is engaged in operations in the same sector as us, we expect the following impacts immediately after the Merger: operational, financial and commercial benefits, such as dilution of general and administrative expenses, capture of synergies and economies of scale in the operations and potential appreciation of undeveloped areas.

 

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Agrifirma was originally comprised of its parent company (Agrifirma Agro Ltda.) and four subsidiaries, namely Agrifirma Bahia Agropecuária Ltda., I. A. Agro Ltda., GL Agropecuária Empreendimentos e Participações Ltda. and Agrifirma S.R.L. On September 9, 2020, Agrifirma S.R.L. was dissolved. In addition, I. A. Agro Ltda. and GL Agropecuária Empreendimentos e Participações Ltda. were merged into Agrifirma Bahia Agropecuária Ltda.

 

Agrifirma is comprised of its parent company (Agrifirma Agro Ltda.) and four subsidiaries, namely Agrifirma Bahia Agropecuária Ltda., I. A. Agro Ltda., GL Agropecuária Empreendimentos e Participações Ltda. and Agrifirma S.R.L.

 

The completion of the Merger was subject to certain requirements and conditions precedent, which were met on January 27, 2020, following which we obtained control of Agrifirma.

 

Based on the terms of the Merger Agreement, the consideration transferred in the form of shares was determined based on an initial exchange ratio (preliminary numbers), final exchange ratio (adjustment to exchange ratio) and adjustments due to indemnifications. The Merger Agreement also sets forth the minimum number of shares to be transferred at 5,392,872.

 

The parties agreed to define a first exchange ratio based on preliminary book values as of June 30, 2019, adjusted for the market value of the real estate held by us and Agrifirma Holding, according to an appraisal report issued by a specialized third party. In addition, part of the consideration was agreed to be issued by us in the form of subscription warrants. As a result, the number of shares and warrants to be issued to the shareholders of Agrifirma was set at 5,215,385 shares and 654,487 warrants.

 

Pursuant to the Merger Agreement, the initial exchange ratio was adjusted to reflect the changes in the assets described above on the preliminary balance sheet as of June 30, 2019 through the acquisition date, on January 27, 2020, which was the date of the consummation of the Merger Agreement.

 

On April 1, 2020, we notified the former shareholders of Agrifirma Holding that the final exchange ratio, based on the changes in net equity from June 30, 2019 to January 27, 2020, was determined and reached the minimum number established in the merger agreement, totaling 5,392,872 shares as the final consideration to be paid by us.

 

The Merger Agreement also sets forth certain obligations for the payment of compensation by us and the selling shareholders of Agrifirma if certain contractually indemnifiable losses occur within two years from the date of the Merger Agreement.

 

On June 18, 2020, we and the selling shareholders of Agrifirma signed a settlement agreement, pursuant to which the final exchange ratio was agreed at the minimum number of shares, totaling 5,392,872 shares. The parties also agreed that, given the resolution of a contingency by the date of the settlement agreement, the selling shareholders of Agrifirma agreed to return the amount of R$3.5 million in restricted shares and Agrifirma Warrants on January 27, 2022, which were calculated using the market price of our average share price during the 90 days prior to the settlement date.

 

The unrestricted shares issued for the consideration in connection with the acquisition of Agrifirma’s control are recognized as equity. The restricted shares, the Agrifirma Warrants and the Agrifirma Warrant dividends are recorded under “other liabilities” in the statement of financial position as their final amount may vary due to certain conditions set forth in the Merger Agreement and, for such reason, do not meet the definition of equity instrument in accordance with IAS 32 – Financial Instruments, and therefore are recognized as financial liabilities at fair value through profit or loss. The restricted shares are considered in the calculation of basic earnings per share, while the Agrifirma Warrants are considered potential common shares and as such included in the calculation of diluted earnings per share. See notes 19 and 25 to our financial statements for the fiscal year ended June 30, 2023.

 

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Serra Grande Farm Acquisition

 

In April 2020, we acquired the Serra Grande farm located in Baixa Grande do Ribeiro, in the State of Piauí. The acquisition consisted of an area of 4,489 hectares, 2,904 hectares of which are arable to be developed and are suitable for grains cultivation. The other 1,585 hectares are permanent preservation and legal reserve areas. The acquisition price was set at R$25.0 million, or R$8,600 per arable hectare. We made an initial payment of R$10.7 million and the balance will be paid through three equal annual installments. 

 

In addition to the acquisition, the Company has an agricultural partnership in an area of 5,473 hectares of arable and developed land, already planted and operated by the Company during the 19/20 harvest (Partnership VII). This area is contiguous to the acquired area, has more than 5 years in average of production and high production potential. Partnership VII has a term up to 12 years, with a pre-fixed call option until 2024.

 

Xingu Farm

 

On July 11, 2018, we entered into an agricultural rural partnership agreement with 3SB Produtos Agrícolas S.A. (“Brasilagro/3SB Partnership Agreement”), which was amended on August 28, 2018. The scope of 3SB Partnership Agreement involved a total of 11 rural properties, all located in the Municipality of São Felix do Araguaia, in the State of Mato Grosso, comprising a total agricultural area of 23,615 useful hectares. 3SB Produtos Agrícolas S.A. holds the rural properties under the Brasilagro/3SB Partnership Agreement by reason of rural lease agreements that it had previously entered into with the owners of such properties. For this reason, the term of the Brasilagro/3SB Partnership Agreement varies from property to property, according to the term of each rural lease agreement entered into with each the owners. On June 1, 2019, the total agricultural area of the Brasilagro/3SB Partnership Agreement was reduced by 3,242 useful hectares. On June 13, 2019, we entered into a new rural lease agreement with the owner of Fazenda Santa Luzia and Fazenda Jataí II (following the expiration of the rural lease agreements orignially entered into with 3SB Produtos Agrícolas S.A.). Considering both the Brasilagro/3SB Partnership Agreement and the agreements that we entered into with the owner of Fazenda Santa Luzia and Fazenda Jataí II, the total agricultural area currently occupied by us in São Felix do Araguaia, in the State of Mato Grosso, is 20,138 hectares.

 

Agro Serra Farm

 

On February 7, 2017, we entered into two agreements for an agricultural partnership in relation to a property in São Raimundo das Mangabeiras, state of Maranhão, or Partnership IV.

 

The first agreement under Partnership IV establishes an agricultural partnership with Agro Pecuária e Industrial Serra Grande Ltda. (“Serra Grande”), which consists of a sugarcane exploration agreement of an area of around 15,000 hectares. The agricultural partnership will last for 15 years from the date of the agreement and may be extended for the same period. The amount to be paid to Serra Grande corresponds to 10% of the entire production obtained in the area referred to in the agreement and the initial volume to be produced in the area during the first year of the agreement was established at 850,000 tons. After this period, spanning between one and five years, the minimum volume to be produced in the partnership areas is 4,500,000 tons of sugarcane, and from the sixth year onward until the expiration of the agreement, the minimum production volume is 1,250,000 tons of sugarcane per crop year.

 

The second agreement under Partnership IV governs the rights and obligations of the agricultural partners, through which we acquired sugarcane crops planted by the agricultural partner in the areas referred to in the partnership agreement described above. This agreement meets the definition of a finance lease. As consideration, we undertake to return, at the end of the agreement, the area referred to in the partnership agreement together with sugarcane stubble crops with the capacity to produce 850,000 tons of sugarcane in the crop year subsequent to the termination of the agricultural partnership agreement.

 

Brenco – Companhia Brasileira de Energia Renovável

 

In March 2008, we signed two contracts for the exclusive supply to Brenco of the entirety of our sugarcane production over two full crop cycles (for sugarcane, one full crop cycle consists of six agricultural years and five harvests). They are expected to expire in 2022/2023, but are renewable upon the agreement of the parties. One of the contracts refers to our cultivation from an area of approximately 5,718 hectares at our Araucária farm and the other refers to approximately 3,669 hectares at our Alto Taquari farm. The price per ton, for the purpose of these agreements, is determined based on Total Recoverable Sugar, or ATR, price per ton of sugarcane effectively delivered, with ATR corresponding to the quantity of sugar available in the raw material, minus sugar content lost during the production process, multiplied by the market prices of sugar and ethanol sold by regional plants in the internal and external market, in each case, as determined by the Counsel of Sugarcane, Sugar and Alcohol Producers in São Paulo (Conselho de Produtores de Cana, Açúcar e Álcool de São Paulo, or CONSECANA). For the year ended June 30, 2023, net revenue of our sugarcane production to Brenco was R$77.6 million, representing 8.6% of our total net revenue. The purpose of the contracts is not to secure a more favorable price than the market price, since we expect that the ATR price as determined by CONSECANA will be generally equivalent to the market price, but rather to secure the sale of our sugarcane production over the long term. We believe this gives us the predictability that makes it practicable for us to grow and commercialize sugarcane, given that sugarcane crops have a productive cycle lasting six years from the first harvest.

 

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On May 8, 2015, we executed three agreements with Brenco:

  

The first agreement consists of a rural sub partnership to operate nine farms located in the municipalities of Alto Araguaia and Alto Taquari, in the state of Mato Grosso. The sub partnership started at the date of its signature and is estimated to end on March 31, 2026. The areas are to be used for the plantation and cultivation of sugarcane, which cannot exceed the duration of the contract. This contractual partnership meets the definition of an operating lease. The payment must always be in kind (tons of sugarcane) and delivered at the mill owned by Brenco, which is located in the vicinity of the farms, during the harvest period of the product. The quantity to be paid for the duration of the contract shall be established in tons per hectare and varies according to the area being explored. According to this contract, the quantity to be paid in the long term corresponds to 529,975 tons of sugarcane, of which 174,929 tons will be paid within one to five years and 355,046 tons will be paid after more than five years up to the expiration of the agreement.

 

The second agreement relates to the regulation of rights and obligations between agricultural partners from whom we acquired the crops of sugarcane planted by Brenco in the properties subject to the sub partnership agreement described above. This contract meets the definition of a financial leasing. The payment must always be in kind (tons of sugarcane) and delivered at the mill owned by Brenco during the harvest period of the product. According to this contract, the quantity to be paid in the long term corresponds to 53,845 tons of sugarcane, of which 18,604 tons will be paid within one year and 35,241 tons will be paid within one to five years.

 

In the year ended June 30, 2023, we delivered a total of 501.1 million tons of sugarcane pursuant to the agreements described above.

 

The third agreement regulates the exclusive supply to Brenco of the total sugarcane production in the properties included in the sub partnership agreement for two crop cycles, one cycle shall be effective until the depletion of the already existing sugarcane crops and the other cycle consists of the sugarcane being planted by us.

 

 

Raw Material Acquisition Risks

 

For the acquisition of farming inputs, our primary risks are foreign-exchange variations, the supply and demand of each input, farming commodity prices and freight prices. Our dependence on imported raw materials is also subject to supply and customs clearance delays. We are also subject to risks regarding the availability of fertilizers, and of the specific varieties of seeds we use, which are affected by weather conditions, among other factors.

 

In addition, the price of diesel fuel, which is the primary fuel used in farming machinery and trucks, is affected by the variation in oil prices as well as by the price-control policies adopted by the Brazilian government.

 

See “Item 3—Key Information—Risk Factors—Risks Relating to our Business and Industry” for information regarding the prohibition of the use of glyphosate and the freight rate schedule.

 

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Customers

 

We currently sell a substantial portion of our total crop production to a small number of customers who have substantial bargaining power. In the year ended June 30, 2023, three of our customers were responsible for 45.8% of our revenue, and each of these three customers was responsible for at least 10% of our revenue. Of these three customers, two were responsible for 42.0% of our revenue in the grain/cotton segment, and one was responsible for 63.1% of our revenue in the sugarcane segment. There are no customers in the other segments that account for 10% or more of our revenue in relation to our total revenue. See “Item 3—Key Information—Risk Factors—Substantially all of our revenue is derived from a small number of customers, which may adversely affect our business, financial condition and results of operations.”

 

Competition

 

The agriculture industry is composed of widely traded commodities, where the prices are freely determined based on supply and demand. The supply side is characterized by a large number of producers, each contributing a small part of the total production and thus having minimal influence over commodity prices, which are generally determined by indexes or exchanges in international markets, as is the case with soybean, the price of which is largely determined by the CBOT. Agricultural commodity producers therefore compete largely based on their production costs, and their scale of production. At the domestic level, producers compete on similar conditions, whereas at the international level, competition is affected significantly by, among other factors, government policies such as subsidies to agricultural producers, which can be substantial in developed countries.

 

Land acquisition is subject to intense competition. In this case, we compete to acquire the most appropriate land for cultivating our agricultural products. We believe that this process has contributed to an increase in land prices over the years and that the strongest competition has been from the larger groups having in-depth knowledge of the sector, management excellence and continuous objectives to increase their agricultural area portfolio. We understand that these large groups are mainly SLC Participações, operating in four Brazilian states; and Terra Santa Agro. In addition, we may face significant competition from large international companies which have greater financial resources than we do.

 

Seasonality

 

Our principal products are subject to seasonality variations between the crop season and the off-season. The off-season occurs between the end of the harvest of a crop year and the beginning of the harvest of the following crop year. Such period occurs at different parts of the year depending on the agricultural product, as follows: (i) the off-season for grains in Brazil typically occurs between August and January; (ii) the off-season for sugarcane in Brazil typically occurs between December and March; and (iii) the off-season for cattle-raising in Brazil typically occurs between September and January. Because of the reduced supply of agricultural products during each product’s respective off-season, prices for such products are typically higher during that time.

 

Throughout the year, our working capital needs vary significantly depending on the harvest period of grains, sugarcane and other crops in Brazil. Changes in the harvest periods, resulting from unfavorable weather or financial restrictions on us, have a direct impact on our inventory levels, advances to producers, loans and sales volume during the year.

 

Insurance

 

Our businesses are generally subject to a number of risks and hazards, which could result in damage to individuals, or destruction of properties, facilities and equipment. As a general rule, we believe that our insurance coverage against risks that are typical in our business is adequate and consistent with the usual practices adopted by other companies operating in the same sector in Brazil. Nevertheless, we cannot ensure that the coverage set forth in our insurance policies will suffice for purposes of protecting us from all losses and damages that may occur.

 

We have a civil liability insurance policy that covers liability arising from compensation for damages caused to third parties, an insurance policy that covers certain specific machinery (harvesters and planters), as well as the irrigation pivot system at our farms, and an insurance policy (rural multi-risk) for storage structure (silos) and machinery, which are located at three different farms. These policies are currently in force and will expire on December 19, 2023. We are negotiating with the insurance company to extend these policies.

 

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We have also a Directors and Officers (D&O) insurance policy, which covers the members of our board of directors, executive board, audit board or other body created by our bylaws or employees that hold a management position to which they have been elected or appointed, provided that such election or appointment has been ratified by competent bodies, as applicable, and that the indemnification shall always be subject to the limits provided in the respective insurance policy. Consultants, external auditors, shareholders, partners, interveners, depositaries or liquidators of the Company are not covered by this D&O insurance policy. This insurance policy covers civil liability up to R$50.0 million, and environmental damages up to R$50.0 million. This policy is currently in force and will expire on February 2, 2024.

 

Intellectual Property

 

In Brazil, title to a patent or trademark is obtained by means of the registration with the National Institute of Industrial Property (Instituto Nacional de Propriedade Industrial, or INPI). When such right is granted, the titleholder is ensured the exclusive use right thereof all over Brazil for a period of ten years, which may be renewed for successive equal periods indefinitely, as long as there is an interest in maintaining the trademark ownership.

 

Pursuant to the Brazilian legal framework, a trademark can be categorized as either a product, service, certification or collective mark. With regard to its presentation in local law, the trademarks can be nominative, mixed, figurative or three-dimensional. During the registration process, the depositor has an expectation of right to use the deposited trademarks, which he may avail himself from in order to identify its products or services until the registration process is ultimately concluded.

 

We have filed three trademark registration applications with the INPI for the trademark name (which corresponds to our current corporate name) “BrasilAgro – Companhia Brasileira de Propriedades Agrícolas” under Nos. 828045089, 828045097 and 828045100.

 

Registration No. 828045089 concerning intermediation, purchase, sale or lease of properties, land, buildings and real estate in rural and urban areas, intermediation in real estate transactions of any kind, as well as participation in other companies, in undertakings in Brazil and abroad was granted to us by the INPI on June 2, 2020 and will expire on June 2, 2026. Registration No. 828045097 concerning marketing, distribution, importation and export of agricultural and livestock products was granted to us by the INPI on June 5, 2012 and will expire on June 5, 2032. Registration No. 828045100 concerning products related to agriculture and livestock, such as agricultural products, vegetables, forestry, grains and animals, fruits, vegetables, seeds, plants and natural flowers and animal feed was granted to us by the INPI on September 20, 2016 and will expire on September 20, 2026.

 

We also have filed three trademark registration applications for the trademark name “BrasilAgro – Companhia Brasileira de Propriedades Agropecuárias,” under applications No. 827971575, 827971567 and 827971583. Registration No. 827971567 was approved on April 7, 2020 and will expire on April, 7, 2030. Registration Nos. 827971575 and 827971583 were approved on June 14, 2011 and January 28, 2014, respectively, and will expire on June 14, 2031 and January 28, 2024, respectively.

 

In addition, we filed three trademark registration applications for the single name “BrasilAgro.” The first one, filed at INPI under No. 829541870 is a service trademark, refers to NCL (9) 35 - marketing, distribution, importation and export of agricultural and livestock products, was approved on November 1, 2011 and expires on November 1, 2022. The second one, filed under No. 829541853, refers to a product trademark, on NCL 31, involving products related to agriculture and livestock, such as agricultural products, vegetables, forestry, grains and animals, fruits, vegetables and fresh vegetables, seeds, plants and natural flowers, animal food and malt, was approved on September 20, 2016 and remains in force until September 20, 2026. Finally, the third trademark registration application for the name “BrasilAgro” had the analysis thereof postponed by means of a decision dated June 28, 2011 and is currently halted given that it is pending of evaluation of another prior trademark registration application by the INPI. 

 

Following the Merger of Agrifirma, we also became the title owner of the following trademarks: (i) Registration No. 830154647, concerning the participation in other companies as a partner or shareholder, purchase and sale of real estate, and management of real estate, which was renewed on February 8, 2021 and will expire on February 8, 2031; (ii) Registration No 830154566, concerning coffee and cotton processing services, which was registered on November 29, 2016 and will expire on November 29, 2026; (iii) Registration No 830154620, concerning harvesting services (agricultural services), services of advice, consultancy and information on research in the field of agriculture, which was renewed on February 8, 2021 and will expire on February 8, 2031; (iv) Registration No. 830154663, concerning buying, selling, importing, exporting and commercialization of products related to agriculture, livestock and reforestation, such as coffee, cotton, soy, corn, firewood, cattle and their derivatives, such as meat and milk, which was registered on February 14, 2012 and will expire on February 8, 2031; and (v) Registration No. 830154582, concerning transport and storage services, which was renewed on February 8, 2021 and will expire on February 8, 2031.

 

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Risk Management

 

We analyze and monitor the various risks to which our business and operations are exposed. In addition to monitoring the specific factors that directly affect our agricultural production and business operations, we also monitor the risks derived from commodity price variations for our individual agricultural products, as well as foreign-exchange variations. Through our risk management policy coordinated among our Strategic Planning department, Risk Management Committee and board of directors, we hedge our exposure to commodity price risks for our transactions through over-the-counter instruments including options and futures contracts negotiated in the commodity market and maintain our exposures within pre-established limits.

 

Cash Management

 

 

To the extent we are unable or decide not to deploy our capital through agricultural property acquisitions or other investments, we maintain any uninvested cash and cash equivalents in an investment fund, which holds investments in fixed income securities in short-term, liquid investments (such as bank certificates of deposit, government securities and other cash-equivalents).

 

Regulation

 

In addition to the descriptions of regulatory matters set forth below, see the description of certain legal proceedings, including judicial and administrative proceedings relating to regulatory matters, set forth in “Item 8—Financial Information—Legal Proceedings.”

 

Environmental Regulation

 

The development of our agribusiness activities depends on a number of federal, state and municipal laws and regulations related to environmental protection. We may be subject to criminal and administrative penalties, besides being obligated to restore the environment and reimburse third parties for possible damages arising from non-compliance with such laws and regulations.

 

Administrative Liability

 

Administrative liability derives from an action or omission that results in violation of the standards of preservation, protection or restoration of the environment. Federal Decree No. 6,514 of July 22, 2008 establishes a set of sanctions that may be imposed as a result of breach of environmental regulation. Such sanctions include warning, fine, destruction of the product, suspension of activities, termination of tax benefits and credit lines granted by public institutions. Fines are determined based on the relevance and economic impact of the breach and can reach R$50.0 million. See “Item 3—Key Information—Risk Factors.”

 

Civil Liability

 

Under civil law, the offender is strictly liable for any environmental damage and subject to an objective standard of care, which creates liability regardless of negligence by the offender. Consequently, we are jointly liable with any third parties providing services for us to the extent their activities cause environmental damage. Environmental regulation also permits the regulator to recover damages from the controlling entity through the chain of share ownership if the direct offender is unable to pay the related damage.

 

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Criminal Liability

 

Our officers, directors, employees and agents who engage in environmental crimes are subject to criminal sanctions, including fines, prison sentences and the imposition of community service requirements. 

 

Environmental Licenses

 

Environmental licensing is required for activities utilizing environmental resources that are considered potentially pollutant, or those that may in any way cause environmental degradation. Some Brazilian states, Paraguay and Bolivia require licenses for agricultural and animal-raising activities.

 

The environmental licensing procedure includes authorizations to change land use, water use licenses, licenses for agriculture, animal-raising activities and livestock activities, etc. All of these licenses guarantee that activities are being carried out in compliance with environmental laws and their possible impacts are being mitigated or compensated.

 

We have or are in the process of obtaining environmental licenses for all of four operations. As of the date of this annual report, we own and manage 200 environmental licenses, including water use licenses, operating permits, controlled burning and vegetation clearing permits.

 

Protected Areas

 

All rural properties in Brazil are required by law to maintain legal reserve areas. A legal reserve area is an area of each rural property where deforestation is not allowed and that is necessary for the sustainable use of natural resources, conservation and rehabilitation of ecological processes, conservation of biodiversity and shelter and protection for native fauna and flora. These areas are required in perpetuity and, in some cases, are recorded as such in the real estate registry.

 

In Brazil, it is mandatory to maintain as legal reserve at least 80% of an agricultural property located in Floresta biome within Amazonia Legal, 35% for an agricultural property in the savannah region within Amazonia Legal and 20% for an agricultural property located in other forms of native vegetation in other regions of Brazil. In Paraguay, it is mandatory to maintain as legal reserve at least 25% of all agricultural property with more than 20 hectares in forest regions and also a corridor of native vegetation of at least 100 meters for every 100 hectares of agricultural or livestock.

 

Our properties in Brazil and Paraguay have legal reserve areas, and a part of such legal reserves are currently being recorded with applicable government agencies. Additionally, applicable environmental laws require the protection of certain other areas, such as permanent preservation areas.

 

Permanent preservation areas are spaces, in both public domain and private domain, where the exercise of property rights has been limited. Permanent preservation areas include the margins of any water streams, the surroundings of headwaters and of natural water reservoirs, as well as lands inclined more than 45º. It is only be possible to modify these areas through previous authorization obtained from the competent state environmental agency.

 

In addition to these areas, there are also areas for environmental compensation, and ecological corridors, which safeguard interconnection of fragments of vegetation, ensuring protection of local biodiversity. Protected areas may not be suppressed and may be used only under a regime of sustainable forest stewardship in accordance with technical and scientific criteria set forth in applicable regulations.

 

As of June 30, 2023, 68,769 hectares, or approximately 32% of the total area of our properties, consisted of protected areas.

 

Rural Environmental Register (CAR)

 

In Brazil, all rural properties are required by law (Law No. 12.651/12 and Decrees Nos. 7.830/2012 and 8.235/2014) to register with the rural environmental register (“CAR”). This electronic registration integrates environmental information regarding the property, deforestation control, the monitoring and combating of forests and other forms of native vegetation, as well as environmental and economic planning of rural properties. The CAR gathers environmental information for each property regarding the situation of permanent preservation areas, legal reserve areas, forests and remnants of native vegetation, restricted use areas, consolidated areas, etc.

 

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This register requires the rural proprietary to regularize their environmental situation. It is a requirement to have access to credit, however, sanctions are not imposed for those who are not registered with CAR.

  

All of our owned properties are registered or in the process of being registered with CAR. We currently own and manage approximately 100 CARs.

 

Ownership of Agricultural Land in Brazil by Foreigners

 

In August 2010, the then-president of Brazil approved Opinion AGU-LA-2010 of the Federal Attorney General’s Office (AGU). The AGU-LA-2010 Opinion revised Opinions GQ-181 of 1998 and GQ-22 of 1994, accepted paragraph 1 of article 1 of Law No. 5,709/1971 and article 1 of Decree No. 74,965/1974 (which regulates Law No. 5,709/1971), in the light of the Brazilian Federal Constitution of 1988, and considered companies headquartered in Brazil with majority foreign ownership that grants their owners the power to influence the resolutions of the general meeting, to elect the majority of the company’s directors and to direct the company’s business activities and guide the functioning of the company’s corporate governance bodies, for the purposes of Law No. 5,709/1971, as foreign companies. As a result, Brazilian companies treated as foreign companies for the purposes of Law No. 5,709/1971 became subject to restrictions on the acquisition of rural properties in Brazil, under the terms of Law No. 5,709/1971 and Decree No. 74,965/1974. Under Article 23 of Federal Law No. 8,629/1993, the same restrictions apply to the leasing of rural properties by foreigners.

 

Article 9 of Decree No. 74,965, of November 26, 1974, which regulates Law No. 5, 709/1971, provides that the interested party wishing to obtain authorization to acquire a rural property must apply to INCRA stating: (i) whether or not they own other rural properties; (ii) whether, considering the new acquisition, their properties in the aggregate do not exceed an area equivalent to 50 indefinite exploitation modules (MEI), in a continuous or discontinuous area; (iii) the purpose for using the property, by means of the presentation of an exploitation project, if the area exceeds 20 MEIs. Article 12 of Decree No. 74,965/1974 provides that the interested party seeking approval of the project must submit it to the competent body, which is: (i) INCRA, for colonization; (ii) SUDAM and SUDENE, for agricultural and livestock projects located in their respective jurisdiction areas; and (iii) the Ministry of Industry and Commerce, for industrial and tourist projects, through the Industrial Development Council and the Brazilian Tourism Company, respectively. The project must be accompanied by documents showing, among other things: (i) the total area of the municipality where the property to be acquired is located; and (ii) the sum of the rural areas registered in the name of foreigners in the municipality, by nationality group. In addition, agricultural areas belonging to foreigners or Brazilian companies whose majority share capital is held by foreigners must not exceed 25% of the municipality’s surface area, up to 40% of which must not belong to foreigners or Brazilian companies whose majority share capital is held by foreigners of the same nationality, which means that the sum of agricultural areas belonging to foreigners or Brazilian companies whose majority share capital is held by foreigners of the same nationality must not exceed 10% of the surface area of the relevant municipality.

 

Since the approval of the AGU-LA-2010 Opinion, there has been no approval of acquisitions or leases by Brazilian companies whose majority share capital is held by foreigners by INCRA.

 

Law No. 13,986, of April 7, 2020, amended Law No. 5,709/91 and established that the limitations mentioned above do not apply to: (i) the constitution of real estate collateral or real guarantees (including the transfer of fiduciary ownership of real estate); and (ii) the settlement of debts arising from the execution of real estate collateral or real guarantees. Both exceptions favor Brazilian companies whose majority share capital is held by foreigners of the same nationality or foreign entities, which creates certain business opportunities.

 

In accordance with the applicable regulations, we are unable to identify with certaintiy what percentage of our share capital is held by foreign final beneficiaries. If the relevant authorities in Brazil conclude that we should be considered a foreign company for the purposes of Law No. 5,709/71, we may be subject to challenges involving acquisitions and leases made by the Company after the approval of the AGU-LA- 2010 Opinion, and the possible application of Law No. 5,709/71 could result in substantial delays in our future acquisitions of rural properties and our inability to obtain the necessary approvals. In addition, acquisitions made in breach of existing restrictions may be declared null and void.

 

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The applicability of Law No. 5,709/71 is being discussed in the Original Civil Action (Ação Cível Originária) No. 2,463 and in the Action for Breach of Constitutional Provision (Ação de Descumprimento de Preceito Fundamental) No. 342, both before the Brazilina Supreme Court (STF). The first action (Original Civil Action No. 2,463) concerns the Opinion No. 461/2012-E of the General Inspectorate of Justice of the State of São Paulo (Corregedoria-Geral de Justiça do Estado de São Paulo), which established that notaries and real estate registry officials of the State of São Paulo would be exempt from complying with the restrictions imposed by Law No. 5,709/71 and by Decree No. 74,965/74. The second action (Action for Breach of Constitutional Provision No. 342), which is related to the first lawsuit, was filed on April 16, 2015 by the Brazilian Rural Society (Sociedade Rural Brasileira) questioning the applicability of paragraph 1, article 1, of Law No. 5,709/71 and consequently, of the opinion issued by the Federal Attorney General’s Office (AGU) in 2010.

 

A trial began before the Brazilian Supreme Court (STF) in February 2021, with the vote of the rapporteur Justice stating that the restrictions on companies considred to be controled by a foreign entity must be maintained. A second Justice asked to pause the proceedings to review the file, thereby interrupting the trial, which was only resumed in June 2021, when the Justice presented his vote diverging from the rapporteur, confirming the inapplicability of the restrictions. As of the date of this annual report, a final judgment is still pending, and we are not able to provide an estimate of the timeframe for a final judgment to be issued by the Supreme Court. Depending on the final decisions of these pending lawsuits, we may need to modify our business strategy and intended practices in order to be able to acquire agricultural properties.

 

Depending on the final decisions of these lawsuits, we may need to modify our business strategy and intended practices in order to acquire rural properties. This may have the effect of increasing the number of transactions we must complete, which would increase our transaction costs. It may also require us to adopt alternative measures to reduce our interest in companies that own or lease rural properties, including entering into joint ventures, which increases the complexity and risks associated with these transactions.

 

Any regulatory limitations and restrictions may substantially limit our ability to acquire rural properties, increase the investments, transaction costs or complexity of such transactions or complicate the necessary regulatory procedures, any of which could materially and adversely affect us and our ability to successfully implement our business strategy.

 

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C.Organizational Structure

 

The chart below illustrates our corporate structure as of June 30, 2023. All of our subsidiaries are incorporated in Brazil, Bolivia and Paraguay.

 

 

(1) Part of our common shares are held by Cresud, in its capacity as our significant shareholder, are deposited with The Bank of New York Mellon, in the form of ADRs (American Depositary Receipts). These common shares account for 36.61% of our common shares and include the common shares held by Cresud S.A.C.I.F.Y.A., as well as by Cresud’s controlling shareholder, Mr. Eduardo Elsztain, and by Agro Managers, a company incorporated under the laws of Argentina and controlled by Cresud.

 

(2) The percentage of 7.59% of our common shares held by Charles River Capital considers the consolidated position of all of the funds managed by Charles River Capital. 

   

D.Property, Plants and Equipment

 

See “—History and Development of the Company—Overview,” “—Business Overview—Agricultural Activities and Products,” “—Business Overview—Leases,” “—Business Overview—Investment Properties,” “—Business Overview—Agricultural Properties,” “—Business Overview— Environmental Regulation” and “—Business Overview—Environmental Licenses.”

 

ITEM 4A—UNRESOLVED STAFF COMMENTS

 

There are no unresolved staff comments as of the date of this annual report.

 

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ITEM 5—OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

You should read the following discussion in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this report. Our audited annual consolidated financial statements have been prepared in accordance with IFRS as issued by IASB.

 

The following discussion contains forward-looking statements that involve risks and uncertainties, in particular with respect to our historical and future results of operations and financial condition. See “Forward-Looking Statements” and “Item 3. Key Information—Risk Factors.”

 

A.Operating Results

 

Impact of the Ongoing Conflict between Russia and Ukraine and the Recent Conflict between Israel and Hamas

 

We have been following the developments of the conflict between Russia and Ukraine since February 2022 and the recent conflict between Israel and Hamas. Although neither our customers nor suppliers reside in such countries, we expect that the price of some agricultural inputs necessary for our operations, such as fertilizers and fuel, may increase due to the impact of such conflicts on the global economy and geopolitical instability. In addition, the increase of fuel and fertilizer prices, as well as logistical costs resulting from the conflict between Russia and Ukraine and the recent conflict between Israel and Hamas may have an adverse effect on our business, financial condition and results of operations.

 

Business Drivers and Measures

 

Brazilian Macroeconomic Environment

 

Our financial condition and results of operations are influenced by the Brazilian economic environment.

 

The Brazilian GDP decreased 3.6% in 2016, increased 1.0% in 2017, increased 1.1% in 2018, increased 1.1% in 2019 and decreased 4.1% in 2020. In 2021, the Brazilian economy began to grow considerably. The Brazilian GDP increased 4.6% in 2021, 2.9% in 2022, and 3.7% in the first six months of 2023. Inflation, as measured by the Broad Consumer Price Index (Índice de Preços ao Consumidor Amplo) (IPCA), published by IBGE, was 4.31% in 2019, 4.52% in 2020, 10.06% in 2021 and 5.78% in 2022. Cumulative inflation in the first six months of 2023, calculated by the same index, was 3.23%.

 

In 2019, the real depreciated by 0.6% against the U.S. dollar, and on December 31, 2019, the real/U.S. dollar exchange rate was R$4.0307. In 2020, the real depreciated by 29.2% against the U.S. dollar, and on December 31, 2020, the real/U.S. dollar exchange rate was R$5.1967. In 2021, the real depreciated by 7.4% against the U.S. dollar, and on December 31, 2021, the real/U.S dollar exchange rate was R$5.5799. In 2022, the real appreciated by 6.5% against the U.S. dollar, and the real/U.S. dollar exchange rate was R$5.2177 per US$1.00 on December 31, 2022. In 2023 (until September 30, 2023), the real appreciated by 4.0% against the U.S. dollar, and the real/U.S. dollar exchange rate was R$5.0076 per US$1.00 on September 30, 2023. There can be no assurance that the real will not depreciate or appreciate against the U.S. dollar in the future.

 

In September 2015, Standard& Poor’s started to review the sovereign credit risk rating of Brazil, and downgraded it to a grade below the investment grade and, since then Brazil had been successively downgraded by the three major credit rating agencies worldwide. After the downgrading on September 30, 2015, Standard & Poor’s once more reduced the credit risk rating of Brazil from BB+ to BB and, more recently, on January 11, 2018, it downgraded the sovereign credit risk rating of Brazil from BB to BB- with stable outlook, citing the delay in the approval of tax measures intended to rebalance the government budget. In February 2016, Moody’s downgraded the credit risk rating of Brazil to a grade below the investment grade, to Ba2, with negative outlook, which in April 2018 changed to a stable outlook. In February 2018, Fitch downgraded the sovereign credit risk rating of Brazil to BB negative, which was reaffirmed in August 2018, with a stable outlook, citing structural weaknesses in public finance, high government indebtedness, a poor growth outlook, political environment and issues related to corruption.

 

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Other Factors Affecting our Business

 

Market price variations for commodities: our principal products are subject to changes in commodities prices, including those of indexes such as the Intercontinental Exchange and the CBOT, exchange rates, as well as other indexes linked to our debts. Commodity prices are generally influenced by international, domestic and local supply and demand, which are in turn influenced by climactic and weather conditions, technology, and economic, commercial and political conditions, as well as exchange rates and transportation costs. For more information, see “Item 3—Key Information—Risk Factors—Risks Relating to our Business and Industry—Fluctuation in market prices for our agricultural products could adversely affect us” and “— Qualitative Evaluation of Market Risks.”

 

Foreign exchange: a portion of our income (loss) is linked to the exchange rate between the real and the U.S. dollar, and consequently our revenue is sensitive to foreign exchange fluctuations. Certain of our commodities, such as soybean, may be priced in reais or in U.S. dollars. In addition, certain of the raw materials necessary for farming activities, such as chemicals, pesticides and fertilizers, are priced in or based on the U.S. dollar. See “Item 3—Key Information—Exchange Rates.”

 

Inflation: inflation does not directly affect our revenue because our products are commodities whose prices are determined by reference to international commodity exchanges. Nevertheless, our labor and other operating costs are affected by inflation which directly affects our results of operations.

 

The table below sets forth certain market indices that affect our operating and financial results:

 

   Year Ended June 30,    
   2023   2022   2021   Source
       (R$/bag)     
Soybean Price (Paranaguá)               
Closing   138.70    194.96   158.12    Bloomberg
Exchange rate        (R$ per US$ 1.00)   
Beginning   5.24    5.00   5.37    Bloomberg
Closing   4.82    5.24   5.00    Bloomberg
Average   5.16    5.24   5.39    Bloomberg
ATR (R$/Kg of ATR)(1)   1.22    1.18   0.94    http://www.udop.com.br
Closing IGP-M (%)(2)   (6.85)%   10.70%  35.75%   BACEN
IPCA(3)   3.16%   11.88%  8.35%   BACEN
CDI(4)   13.48%   8.63%  2.26%   BACEN
NPK(5) (R$/ton)   2,125.92    4,329.24   2,146.91    Bloomberg

  

(1) ATR corresponds to the quantity of sugar available in the raw material subtracted from the losses in the industrial process.

 

(2) IGP-M is published monthly by FGV.

 

(3) IPCA is published monthly by IBGE.

 

(4) The CDI rate is the average of the rates of inter-bank deposits charged during the day in Brazil (accumulated in the period).

 

(5) NPK is the chemical compound of farming fertilizers made up of nitrogen, phosphorus and potassium combined at a ratio of 2:20:20.

  

Principal Components of Our Statement of Operations

 

Revenue

 

Our operating revenue is derived mainly from the sale of (i) grains (comprised of soybean, corn, bean, cotton and sorghum); (ii) sugarcane; (iii) cattle and (iv) other farming products.

 

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Taxes on sales

 

Taxes on sales vary depending on the product and the market, as follows:

 

Tax   Direct
Export
  Sale to   Domestic
market
Importer/Exporter
ICMS   Not levied   Not levied   Levied
PIS   Not levied   Not levied   Levied
COFINS   Not levied   Not levied   Levied
FUNRURAL   Not levied   Not levied   Levied
FETHAB (MT)   Levied   Levied   Levied
FUNDEINFRA (GO)   Levied   Levied   Levied
FDI (PI)   Levied   Levied   Levied
TFTG (MA)   Levied   Not levied   Levied

 

Below is a description of the principal taxes on sales of our products:

 

ICMS (Value-Added Tax on Sales and Services): ICMS is a state tax levied on the price of a product at an average rate of 18% for transactions within a state and 7% to 12% for transactions across states. ICMS payments are not applicable to exports of goods and services.

 

Federal Social Integration Program (Programa de Integração Social, or PIS) and Social Security Financing Contribution (Contribuição para o Financiamento da Seguridade Social, or COFINS): PIS and COFINS tax payments, levied at (i) 0.65% and 3.0% of gross revenue, respectively (cumulative) or (ii) 1.65% and 7.6%, respectively, after certain deductions (non-cumulative), depending on the business conducted and the nature of revenue earned, among other factors. PIS and COFINS payments are not applicable to exports of goods and services, or sales to import/export companies located in Brazil. Since we sell the entirety of our soybean production to such companies, such activities are not subject to PIS or COFINS payments. Brazilian law also exempts PIS and COFINS payments upon the sale of sugarcane used for the production of ethanol or biofuel, sale of maize to rural producers and manufacturers of animal feed and food and the sale of cattle.

 

Rural Workers Assistance Fund (Fundo do Produtor Rural), or FUNRURAL: Agricultural producers are subject to a tax of 2.05% levied on total output sold. The FUNRURAL tax is not payable on exports of goods and services, but applies on direct sales to import/export companies located in Brazil.

 

State Fund for Transport and Housing (Fundo Estadual de Transporte e Habitação), or FETHAB, is a contribution per ton of products (soybean, corn, beans, cotton, cattle) sold in the State of Mato Grosso, as follows: R$46.91 per ton of soybean, R$13.31 per ton of corn and R$10.65 to R$21.23 per ton of beans (vary according to type of bean).

 

State Fund of Infrastructure (Fundo Estadual de Infraestrutura), or FUNDEINFRA, is a contribution established by the state of Goiás on the sale of soybean, corn and sugar cane. A rate of 1.65% is applied on the invoice amount.

 

State Fund of development and infrastructure (Fundo de Desenvolvimento da Infraestrutura), or FDI, is a contribution established by the state of Piauí on the sale of soybean and corn. A rate of 1.5% is applied on the invoice amount.

 

Inspection Fee for Grain Transport (Taxa de Fiscalização de Transporte de Grãos), or TFTG, is a contribution per ton of soybean and corn sold in the State of Maranhão, in the amount of R$27.75 per ton of soybean and R$9.90 per ton of corn.

 

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Gain (loss) on sale of farms

 

Upon the sale of investment property, such as our farms, we recognize in the statement of operations a gain (loss) for the difference between the sale proceeds and the carrying amount of the property sold. We account for our investment properties at cost.

  

Changes in fair value of biological assets

 

Our biological assets consist mainly of the cultivation of soybean, corn, cotton, bean, sorghum, sugarcane and cattle raising (see livestock), which are measured at fair value less cost to sell.

 

The fair value of biological assets is determined upon their initial recognition and at each subsequent balance sheet date. Gains and losses arising from the changes in fair value of biological assets is determined as the difference between fair value and the costs incurred in the plantation and treatment of crops of biological assets at the balance sheet date, and are recorded in the statement of operations in “Changes in fair value of biological assets.” In certain circumstances, the estimated fair value less cost to sell approximate cost incurred at that moment, especially when only a minor biological transformation has taken place or when no material impact is expected from that biological transformation on the price. Biological assets continue to be recorded at their fair value.

 

The sugarcane crop productive cycle is five years on average, and for a new cycle to start depends on the completion of the previous cycle. In this regard, the current cycle is classified as biological asset in current assets, and the amount of the constitution of the bearer plant (bearer of the other cycles) are classified as permanent culture in property, plant and equipment. The calculation to estimate the value of the biological asset “sugarcane” was the discounted cash flow at a rate reflecting the risks and the terms of the operation. As a result, we projected the future cash flows in accordance with the projected productivity cycle, taking into consideration the estimated useful life of each area, the prices of total sugar recoverable, estimated productivity and the related estimated costs of production, including the cost of land, harvest, loading and transportation for each hectare planted. The soybean, corn and sorghum are temporary cultures, in which the agricultural product is harvested after a period of time spanning from 110 to 180 days after the planting date, depending on the cultivation, variety, geographic location and climate conditions. The calculation methodology used to estimate the value of the grains was the discounted cash flows at a rate reflecting the risk and terms of operations. As a result, we projected the future cash flows taking into consideration the estimated productivity, costs to be incurred based on the Company’s budget or on new internal estimates and market prices. The commodities’ prices available in futures markets, were obtained from quotes on the following boards of trade: CBOT (“Chicago Board of Trade”), the B3, and NYBOT (“New York Board of Trade”). For the agricultural products not quoted in these markets, we used the prices obtained through direct market surveys or disclosed by specialized companies. We considered the related logistic expenses and tax discounts in order to arrive at the prices of each of these products in each production unit of the Company.

 

As mentioned above, the fair value of the biological assets disclosed in the balance sheet was determined using valuation techniques – the discounted cash flows method. The data used in these methods is based on the information observed in the market, whenever possible, and if unavailable, a certain level of judgment is required to establish such fair value. Judgment is used the data to be used, e.g. price, productivity and production cost. Changes in the assumptions on these inputs might affect the fair value of biological assets.

 

Livestock

 

In 2016 we began cattle raising operations, which typically consists of producing and selling beef calves after weaning, which characterizes the activity as breeding.

 

For segregation purposes, when applicable, the Company classifies its cattle herd into: beef cattle (current assets), which can be sold as a biological asset for meat production; and dairy cattle (non-current assets), which is used in farm operations to generate other biological assets. Up to the reporting date the Company only had beef cattle, which includes calves, heifers, cows and bulls.

 

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The fair value of beef cattle is determined based on market prices, given the existence of an active market. Gain or loss from changes in the fair value of beef cattle is recognized in profit or loss for the period. The Company considered the prices in the cattle market in Bahia state and the metrics used in the market. Accordingly, beef and dairy cattle are measured based on arroba and the age bracket of animals.

 

Adjustment to net realizable value of agricultural products after harvest

 

Agricultural products from biological assets are measured at fair value when they are ready to be harvested, less selling expenses, when they are reclassified from biological assets to inventories.

 

A provision for adjustment of agricultural products to net realizable value is recognized when the fair value recorded in inventories is higher than the net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs to sell. Adjustments to net realizable value are recognized in the statement of operations in “Adjustment of net realizable value of agricultural products after harvest.”

 

Cost of sales

 

Cost of sales for sugarcane and grains includes: (i) the historical cost of the inventories including costs of raw materials such as seeds, fertilizers, pesticides, fuels and lubricants, as well as labor, maintenance of machines and agricultural equipment, depreciation and amortization and (ii) the difference between such historical cost and the fair value of the grains and sugarcane at the time of harvest.

 

Operating expenses

 

  Selling expenses: selling expenses refer mainly to shipping, storage, commissions, classification of products and other related expenses.

 

  General and administrative expenses: general and administrative expenses refer mainly to personnel, legal counsel, depreciation and amortization, lease payments and expenses related to our headquarters.

 

Financial income and expenses

 

Financial income and expenses consist mainly of interest from financial investments, foreign exchange variations, monetary variations, interest on financial assets and liabilities and realized and unrealized gains (losses) with derivative financial instruments.

 

Income and social contribution-current and deferred taxes

 

Current and deferred income and social contribution taxes refer to taxes on net profits. We and our subsidiaries Imobiliária Jaborandi Ltda. and Agrifirma Brasil Agropecuária S.A. assess such taxes under the taxable income regime, with a maximum rate of 34%, consisting of: (i) income tax, at a rate of 15% of profits; (ii) income tax surcharge of 10% levied upon profits exceeding R$240,000 per year; (iii) social contribution tax on net profit, at a rate of 9%; and (iv) deferred income and social contribution taxes.

 

Our other subsidiaries assess such taxes under the presumed profit regime under which the tax base is computed as a percentage of revenue. This consists of income and social contribution taxes at a rate of 15% (plus a 10% surcharge for amounts exceeding R$240,000 per year) and 9%, respectively, levied on (i) 8% and 12%, respectively, of property sales; (ii) 32% of leases and services; and (iii) other revenue and capital gains.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with IFRS. We summarize our significant accounting policies, judgments and estimates in note 3 to our audited consolidated financial statements.

 

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The critical accounting policies described herein are important to the presentation of our financial condition and results of operations, requiring the most difficult, subjective and complex judgments by our management, often as a result of the need to make estimates and assumptions about matters that are inherently uncertain. While preparing our financial statements, our management uses estimates and assumptions to record assets, liabilities and transactions. Our financial statements include different subjective and complex estimates regarding, among others, accounting for revenue recognition for grains and farm sales and related accounts receivable, determining the fair value of derivatives, biological assets and accounting for investments in investment properties, warrant, residual value and useful life of property, plant and equipment, deferred taxes, share base payment and legal claims. In order to provide a better understanding of how our management makes its judgments about future events, including the variables and assumptions underlying such estimates, we have identified the following critical accounting policies.

 

Fair value of biological assets

 

The fair value of biological assets is determined using valuation techniques, including the discounted cash flows method. The inputs for estimates are based on market information, whenever possible, and when such inputs are not available, a certain level of judgment is required to estimate the fair value. Judgment involves, for example, price, productivity, crop cost and production cost. Changes in the assumptions involving any of these factors may affect the fair value calculations of biological assets.

 

With regard to cattle, the Company values its breeding stock at fair value based on market price for the region.

  

Residual amount and useful life of property, plant and equipment and investment properties

 

The residual amount and useful life of assets are assessed and adjusted when necessary at the end of each reporting period. The carrying amount of the asset is immediately reduced to its recoverable value if the carrying amount is estimated to exceed the recoverable value.

 

Legal claims

 

We are party to judicial and administrative lawsuits, as described in Item 8-Financial Information-Legal Proceedings. Provisions are recorded for contingencies related to judicial lawsuits that are estimated to represent probable losses (present obligations resulting from past events where an outflow of resources is probable and can be reliably estimated). The evaluation of the probability of loss includes the opinion of external legal advisors. Management believes that these contingencies are properly recorded and presented in the financial statements.

 

Revenue from contracts with customers

 

We recognize our revenue in an amount that reflects the Company’s expected consideration in exchange for the transfer of good or services to a customer when all performance obligations have been fulfilled.

 

Sale of goods

 

Our revenue from grain and sugarcane sales is recognized when performance obligations are met, which consists of transferring the significant risks and benefits of ownership of the goods are transferred to the purchaser, usually when the products are delivered to the purchaser at the determined location, according to the agreed sales terms.

 

In the case of grains, we normally perform forward contracts where the price is set up by us for the total or partial volume of grains to be sold at the delivery date, based on the calculations agreed on the selling contracts. Certain selling contracts are established in U.S. dollars where the amount in reais is also established based on the foreign exchange rate according to the sale terms. The price can also be adjusted by other factors, such as humidity and other technical characteristics of grains. Upon the grains delivery, the revenue is recognized based on the price established with each purchaser considering the foreign exchange rate on the delivery date. After the grains are delivered to the addressee, the quality and final weight are evaluated, thus determining the final price of the transaction, and adjusting the contractual amounts in accordance with such factors as well as by the foreign exchange rate variation up to the settlement date.

 

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As for the sale of sugarcane, the Company generally enters into sales contracts for future delivery where data such as volume and minimum ATR are pre-fixed. The price of sugarcane takes into account the amount of ATR per ton of sugar cane delivered, and the value of the ATR, released monthly by CONSECANA.

 

Sale of farms

 

Sales of farms are not recognized until the performance obligation is met, which happens when: (i) control of the asset has been transferred; (ii) the Company has determined that it is probable the sale price will be collected; and (iii) the amount of revenue can be reliably measured. Usually these are met when the buyer makes the first down payment, and transfer of possession of the asset is completed, according to the contractual terms. The result from sales of farms is presented in the statement of operations as “Gain on sale of farm” at net value of the related cost.

 

Revenue from cattle raising

 

Revenue from the sale of beef cattle is recognized when the related performance obligations are met, which consists of transferring control of the cattle to the buyer, usually when the cattle is delivered to the buyer at a specific place, in accordance with the contractual terms.

 

The beef cattle raising business consists of the production and sale of beef calves after weaning (rearing process). Some animals that prove to be infertile may be sold to meat packers for slaughtering. At the Paraguay operations, the business consists of growing and selling these animals for slaughtering. The price for the sale of cattle is based on the market price of the arroba of fed cattle in the respective market on the transaction date, the animal weight, plus the premium related to the category. The sale of cattle in Brazil and Paraguay operations, in turn, considers the price of the arroba of fed cattle or heifer/cow on the date of sale in the respective market, applied to carcass yields.

 

Revenue from leasing of land

 

The revenues from operating lease of land are recognized on a straight-line basis over the leasing period. When the lease price is defined in quantities of agricultural products or livestock, the lease amount is recognized considering the price of the agricultural product or livestock effective at the balance sheet date or at the date established in contract. The amounts received in advance as leasing, where applicable, are recognized in current liabilities. Leasing revenues in which a significant portion of the risks and benefits of ownership are retained by the lessor are classified as operating leases.

 

Investment properties

 

The land of rural properties purchased by us is measured at acquisition cost, which does not exceed its net realizable value and is presented in “non-current assets.” The fair value of the investment properties were obtained through valuation reports of the farms prepared by independent experts. The valuation is carried out according to market practices. Certain factors such as location, type of soil, climate of the region, calculation of the improvements, presentation of the elements and calculation of the land value are all taken into account during the valuation process.

 

Deferred income and social contribution taxes

 

Deferred income and social contribution taxes are calculated to take into account all tax timing differences as follows: (1) income or expenses which are not yet taxable or deductible, such as gain on fair value of biological assets and provisions for contingencies, respectively; and (2) tax loss carryforwards, which have no expiration, when realization or recovery in future periods is considered probable.

 

Deferred tax assets are generated under the taxable income regime only, based on our business plan. The business plan includes consideration of a variety of factors including the 30% annual limitation for utilizing tax loss carryforwards and changes in the Brazilian economic conditions. We evaluate whether a valuation allowance is required for these assets and deferred tax assets are recognized only to the extent that is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized, otherwise a valuation allowance is recorded. We also include in our evaluation the limitation of utilizing up to only 30% of annual taxable income in connection with recognition of tax loss carryforwards.

 

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Fair value of financial instruments

 

When the fair value of the financial assets and liabilities presented in the balance sheet cannot be obtained in the active market, it is determined using valuation techniques, including the discounted cash flow method. The data for such methods is based on those practiced in the market, when possible; however, when it is not viable, a certain level of judgment is required to establish the fair value. The judgment includes considerations on the data used, such as liquidity risk, credit risk, and volatility. Changes in the assumptions about these factors may affect the presented fair value of financial instruments.

 

Transactions with share-based payment

 

We measure the cost of transactions to be settled with shares with employees based on the fair value of equity instruments on the grant date. The estimate of the fair value of share-based payments requires the determination of the most adequate pricing model to grant equity instruments, which depends on the grant terms and conditions. It also requires the determination of the most adequate data for the pricing model, including the expected option life, volatility and dividend yield, and the corresponding assumptions.

 

Leases

 

We account for lease agreements in accordance with the requirements of IFRS 16 – Leases and recognize right-of-use assets and lease liabilities for the lease operations under agreements that meet the requirements of the accounting standard. In order to measure lease liabilities, our management considers only the minimum fixed lease payments. The measurement of lease liabilities corresponds to the total future payments of leases and rentals, adjusted to present value, considering the incremental borrowing rate.

 

New standards, amendments and interpretations of standards

 

For information with respect to new standards, amendments and interpretation of standards, see note 3.29 to our financial statements

 

JOBS Act

 

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain requirements for qualifying public companies.

 

Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions, we may not be required to, among other things, provide an auditor’s attestation report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act to comply with any PCAOB rules, that, if adopted in the future, would require mandatory audit firm rotation and auditor discussion and analysis pursuant to any future audit rule promulgated by the PCAOB. These exemptions apply until we are no longer an “emerging growth company.” The JOBS Act also provides “emerging growth companies” an election to comply with new or revised accounting standards on a delayed basis for those standards that have a different effective date for public and private companies. However, such election is limited to companies that prepare their financial statements and report in accordance with accounting principles generally accepted in the United States of America. As our financial statements are prepared in accordance with IFRS, such accommodation is not available to us, and we will be required to apply new or revised accounting standards under IFRS as from the effective date established in the corresponding standard.

 

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Recent Developments

 

Capital Increase

 

On September 19, 2023, our board of directors approved the increase of our capital stock by R$3,064.36 through the issuance of 306,436 new common shares following the exercise of the Warrants by AB (Holdings) 1 S.A.R.L, in connection with the Merger of Agrifirma. As a result of the exercise of the Warrants, our capital stock was increased to R$1,587,984,600.71, divided into 102,683,444 common shares.

 

Sale of Jatobá VII Farm

 

On June 29, 2023, we entered into an agreement to sell an area of 4,408 hectares (3,202 arable hectares) of the Jatobá VII Farm, a rural property located in Jaborandi, state of Bahia. The total amount of the sale is 298 soybean bags per arable hectare, or to R$121.6 million (approximately R$38,069 per arable hectare). The buyer paid the first installment, therefore meeting the conditions for the transfer of possession of the area sold, while the other installments will be paid on July 31 of each year through 2029.

 

Sale of Araucária VI and VII Farm

 

We entered into two agreements for the sale of the remaining area of 5,517 hectares (4,011 arable hectares) of the Araucária Farm, an agricultural property located in Mineiros, state of Goiás, as follows:

 

(i) on March 28, 2023, 5,185 hectares (3,796 arable hectares) were sold for 790 soybean bags per arable hectare, or R$409.3 million (approximately R$107,816 per arable hectare); the buyer paid the first installment on July 30, 2023, the second installment on August 16, 2023, and the remaining installments will be paid on March 1 of each year through 2028; possession of the area sold was transferred on June 15, 2023; and

 

(ii) on March 29, 2023, 332 hectares (215 arable hectares) were sold for 297 soybean bags per arable hectare, or R$8.5 million (approximately R$39,558 per arable hectare); the buyer paid the first installment on April 14,2023, and the remaining installments will be paid on March 30 of each year through 2027; possession of the area sold was transferred on May 31, 2023.

 

Sale of Rio do Meio II Farm

 

On November 8, 2022, we entered into an agreement to sell an area 1,964 hectares (1,422 arable hectares) of the Rio do Meio Farm, a rural property located in Correntina, state of Bahia. The total amount of the sale is 291 soybean bags per arable hectare, or to R$62.4 million (approximately R$43,900 per arable hectare). The agreement contains a timetable for the transfer of possession of the area sold, with the proceeds being recognized in four phases. The first and second phases were concluded on November 14, 2022 and June 7, 2023, respectively, with the other phases planned for July of each year through 2025.

 

Sale of Marangatu I Farm

 

On October 6, 2022, we entered into an agreement to sell an area 863.3 hectares (498 useful hectares) of the Marangatu Farm (“Marangatu I”), a property located in Mariscal Estigarribia, Boquerón, Paraguay. The total amount the sale is US$1,497 thousand (US$3,000 per arable hectare), or R$7,786 on the sale date. On October 21, 2022, the buyer made the initial payment of US$749 thousand (R$3,886), and the remaining balance will be paid in three fixed annual installments.

 

Results of Operations

 

The following discussion of our results of operations is based on our consolidated financial statements prepared in accordance with IFRS. The discussion of the results of our business segments is based upon financial information reported for each of the segments of our business, as presented in the table below.

 

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The following tables set forth operating results of each of our segments and the reconciliation of these results to our consolidated statement of income.

 

   Year Ended June 30, 2023 
   (in R$ thousands) 
           Agricultural activity 
   Total   Real estate   Grains   Cotton   Sugarcane   Cattle raising   Other   Corporate 
Net revenue   903,372    14,893    579,018    38,195    244,830    24,807    1,629    - 
Gain from sale of farm   346,065    346,065    -    -    -    -    -    - 
Gain (loss) on fair value of biological assets and agricultural products   78,238    -    111,304    (3,631)   (6,903)   (13,824)   (8,708)   - 
Adjustment to net realizable value of agricultural products after harvest, net   (47,708)   -    (47,168)   (509)   -    -    (31)   - 
Cost of sales   (886,225)   (6,190)   (556,554)   (34,565)   (242,165)   (25,536)   (21,215)   - 
Gross profit (loss)   393,742    354,768    86,600    (510)   (4,238)   (14,553)   (28,325)   - 
                                         
Operating income (expenses)                                        
Selling expenses   (41,008)   (2,190)   (33,633)   (3,394)   (1,068)   (553)   (170)   - 
General and administrative expenses   (65,792)   -    -    -    -    -    -    (65,792)
Other operating income   (11,049)   -    -    -    -    -    -    (11,049)
Equity pickup   (70)   -    -    -    -    -    -    (70)
Operating income (loss)   275,823    352,578    52,967    (3,904)   (5,306)   (15,106)   (28,495)   (76,911)
                                         
Net financial income                                        
Financial income   732,715    238,012    184,845    13,697    25,891    4,023    -    266,247 
Financial expenses   (726,829)   (263,195)   (167,664)   (13,964)   (15,838)   (2,195)   -    (263,973)
Income (loss) before taxes   281,709    327,395    70,148    (4,170)   4,747    (13,278)   (28,495)   (74,637)
                                         
Income and social contribution taxes   (13,173)   (5,912)   (23,850)   1,418    (1,614)   4,515    9,689    2,581)
                                         
Net income (loss) for the year   268,536    321,483    46,298    (2,752)   3,133    (8,763)   (18,806)   (72,056)

 

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   Year Ended June 30, 2022 
   (in R$ thousands) 
           Agricultural activity 
   Total   Real estate   Grains   Cotton   Sugarcane   Cattle raising   Other   Corporate 
Net revenue   1,168,137    6,450    720,883    25,242    378,919    31,507    5,136    - 
Gain from sale of farm   251,534    251,534    -    -    -    -    -    - 
Gain (loss) on fair value of biological assets and agricultural products   549,764    -    313,944    7,122    227,717    968    13    - 
Adjustment to net realizable value of agricultural products after harvest, net   (50,822)   -    (49,244)   (1,576)   -    -    (2)   - 
Cost of sales   (1,142,688)   (4,536)   (720,236)   (24,967)   (352,519)   (27,948)   (12,482)   - 
Gross profit (loss)   775,925    253,448    265,347    5,821    254,117    4,527    (7,335)   - 
                                         
Operating income (expenses)                                        
Selling expenses   (43,578)   -    (33,359)   (794)   (1,260)   (970)   (7,195)   - 
General and administrative expenses   (55,968)   -    -    -    -    -    -    (55,968)
Other operating income   13,829    -    -    -    -    -    -    13,829 
Equity pickup   (31)   -    -    -    -    -    -    (31)
Operating income (loss)   690,177    253,448    231,988    5,027    252,857    3,557    (14,530)   (42,170)
                                         
Net financial income                                        
Financial income   955,783    356,337    423,883    17,490    11,363    3,054    -    143,656 
Financial expenses   (1,008,643)   (324,297)   (497,102)   (25,924)   (8,127)   (2,746)   -    (150,447)
Income (loss) before taxes   637,317    285,488    158,769    (3,407)   256,093    3,865    (14,530)   (48,961)
                                         
Income and social contribution taxes   (117,217)   (18,277)   (53,981)   1,158    (87,072)   (1,314)   4,940    37,329 
                                         
Net income (loss) for the year   520,100    267,211    104,788    (2,249)   169,021    2,551    (9,590)   (11,632)

 

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   Year Ended June 30, 2021 
   (in R$ thousands) 
           Agricultural activity 
   Total   Real estate   Grains   Cotton   Sugarcane   Cattle raising   Other   Corporate 
Net revenue   662,952    11,365    330,417    27,771    264,978    28,966    (545)    
Gain from sale of farm   53,097    53,097                         
Gain (loss) on fair value of biological assets and agricultural products   527,348        348,307    30,051    142,302    10,234    (3,546)    
Adjustment to net realizable value of agricultural products after harvest, net   (22,728)       (22,728)                    
Cost of sales   (729,145)   (1,874)   (431,126)   (37,082)   (231,543)   (25,596)   (1,924)    
Gross profit (loss)   491,524    62,588    224,870    20,740    175,737    13,604    (6,015)    
                                         
Operating income (expenses)                                        
Selling expenses   (27,951)   (491)   (26,073)   (289)   (563)   (535)        
General and administrative expenses   (46,852)                           (46,852)
Other operating income   (22,613)                           (22,613)
Equity pickup   11                            11 
Operating income (loss)   394,119    62,097    198,797    20,451    175,174    13,069    (6,015)   (69,454)
                                         
Net financial income                                        
Financial income   849,623    269,001    524,696    3,253    3,406    4,113        45,154 
Financial expenses   (945,611)   (233,339)   (601,953)   (7,431)   (8,929)   (7,273)       (86,686)
Income (loss) before taxes   298,131    97,759    121,540    16,273    169,651    9,909    (6,015)   (110,986)
                                         
Income and social contribution taxes   19,515    (10,762)   (41,324)   (5,533)   (57,681)   (3,369)   2,045    136,139 
                                         
Net income (loss) for the year   317,646    86,997    80,216    10,740    111,970    6,540    (3,970)   25,153 

 

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The table below shows a summary of our statement of operations for the years indicated.

 

   2023   2022   2021 
   (in R$ thousands, except share and per share information) 
CONSOLIDATED STATEMENT OF INCOME            
Revenue   903,372    1,168,137    662,952 
Gain on sale of farms   346,065    251,534    53,097 
Changes in fair value of biological assets and agricultural products   78,238    549,764    527,348 
Adjustments to net realizable value of agricultural products after harvest, net   (47,708)   (50,822)   (22,728)
Cost of sales   (886,225)   (1,142,688)   (729,145)
Gross income   393,742    775,925    491,524 
Selling expenses   (41,008)   (43,578)   (27,951)
General and administrative expenses   (65,792)   (55,968)   (46,852)
Other operating income (expenses) net   (11,049)   13,829    (22,613)
Share of (loss) profit of a joint venture   (70)   (31)   (11)
Operating income (loss)   275,823    690,177    394,119 
Financial income   732,715    955,783    849,623 
Financial expenses   (726,829)   (1,008,643)   (945,611)
Financial (expense) income, net   5,886    (52,860)   (95,988)
Profit before income and social contribution taxes   281,709    637,317    298,131 
Income and social contribution taxes   (13,173)   (117,217)   (19,515)
Net Income for the year   268,536    520,100    317,646 
Profit attributable to equity holders of the parent   268,536    520,100    317,646 
Issued shares at the fiscal year end   102,377,008    102,377,008    102,377,008 
Basic earnings per share   2.72    5.26    4.56 
Diluted earnings per share   2.70    5.23    4.45 

 

Year Ended June 30, 2023 Compared to Year Ended June 30, 2022

 

Net revenue

 

Net revenue decreased R$264.7 million from R$1,168.1 million for the year ended June 30, 2022 to R$903.4 million for the year ended June 30, 2023. This decrease was mainly due to the following:

 

  i. Revenue from sugarcane sales: revenue from sugarcane sales decreased R$134.1 million from R$378.9 million (reflecting sales of 1,997,307 tons at an average price of R$190 per ton) for the year ended June 30, 2022 to R$244.8 million (reflecting sales of 1,640,394 tons at an average price of R$149 per ton) for the year ended June 30, 2023. The decrease in the revenue from sugarcane sales was due to (i) a decrease in TRS (total recoverable sugar) price from R$1.40 to R$1.16 and (ii) lower sales volume. In addition to a decrease in the planted area compared with the previous crop year, a fire affected production volume and, consequently, our associated costs.

 

  ii. Revenue from grain sales: revenue from grain sales decreased R$140.8 million from R$719.8 million for the year ended June 30, 2022 (reflecting sales of 356,171 tons at an average price of R$2,021 per ton) to R$579.0 million for the year ended June 30, 2023 (reflecting sales of 315,812 tons at an average price of R$1,833) per ton. This represented a decrease of 19.6% over the previous year, as explained below:

 

  Revenue from soybean sales: revenue from soybean sales decreased R$180.9 million from R$600.1 million (reflecting sales of 236,127 tons at an average price of R$2,542 per ton) for the year ended June 30, 2022 to R$419.2 million (reflecting sales of 180,088 tons at an average price of R$2,327 per ton) for the year ended June 30, 2023. This decrease is due to the lower prices of commodities, especially soybean, and the decrease in the volume sold by 24% in the year ended June 30, 2023 compared to  the year ended June 30, 2022.

  

  Revenue from corn sales: revenue from corn sales increased R$38.6 million from R$108.7 million (reflecting sales of 116,091 tons at an average price of R$936 per ton) for the year ended June 30, 2022 to R$147.3 million (reflecting sales of 132,610 tons at an average price of R$1,110 per ton) for the year ended June 30, 2023. This represents an increase of 50% in unit cost (R$/ton), which was mainly driven by the production of second-crop corn last year, whose cost still comprised fertilizers at higher prices, which affected unit cost (R$/ton) during the period and, thus, margin from corn sales.

 

  iii. Revenue from cattle sales: cattle-raising revenue decreased by R$6.7 million from R$31.5 million (related to the sale of 8,451 head of cattle at R$9.76 per kilo) for the year ended June 30, 2022 to R$24.8 million (related to the sale of 8,341 head of cattle at R$8.29 per kilo) for the year ended June 30, 2023. The reduction in meat production and weight gain per hectare is mainly due to the loss of quality and death of pastures in Bahia on account of drought, which reduced the herd’s production potential.

 

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The table below shows a summary of the number of hectares harvested, productivity and revenues from grain and sugarcane production:

 

   Harvest (hectares)   Productivity (tons)   Revenue
(in R$ thousands)
 
   2023   2022   2023   2022   2023   2022 
Grain   89,523    95,051    331,948    348,322    579,018    720,883 
Sugarcane   28,992    28,992    2,121,691    2,116,890    244,830    378,919 

 

Gain on sale of farms

 

For the year ended June 30, 2023, the gain on sale of farms was R$346.1 million, due to the recognition of gain on sale of R$2.7 million from the sale of the Morotí Farm, R$22.2 million from the sale of the Rio do Meio Farm, R$249.5 million from the sale of the Araucária Farm and R$71.7 million from the sale of the Jatobá Farm.

 

Changes in fair value of biological assets and agricultural products

 

Changes in fair value of biological assets and agricultural products decreased R$501.5 million, from a gain of R$549.7 million in the fiscal year ended on June 30, 2022, to a gain of R$78.2 million in the fiscal year ended on June 30, 2023. This decrease was mainly due to the decrease in commodity prices and the increase of expenses with fertilizers in comparison with the previous fiscal year.

 

Adjustments to net realizable value of agricultural products after harvest

 

We recognized an impairment of net realizable value of agricultural products after harvest of R$50.8 million for the year ended June 30, 2022. For the year ended June 30, 2023, we recognized an impairment of net realizable value of agricultural products after harvest of R$47.7 million. Such variation resulted from the decrease in the corn and soybean prices from the harvest time to the end of the fiscal year.

 

Cost of sales

 

Cost of sales decreased R$256.5 million from R$1,142.7 million for the year ended June 30, 2022, to R$886.2 million for the year ended June 30, 2023.

 

Changes in costs year-over-year are directly linked to the market prices of commodities at the time of harvest as well as the harvested volumes (tons), as explained below:

 

  i. Cost of soybean sold: the cost of soybean sold decreased by R$179.5 million. Our average cost per ton of soybean sold decreased 8.7% from R$2,502 per ton (corresponding to 236,127 tons at a total cost of R$590.8 million) for the year ended June 30, 2022 to R$2,283 per ton (corresponding to 180,088 tons at a total cost of R$411.3 million) for the year ended June 30, 2023, mainly affected by higher prices of fertilizers and seeds in the period, as well as lower productivity;

 

  ii. Cost of corn sold: the cost of corn sold increased by R$21.8 million. Our average cost per ton of corn sold increased 4.7% from R$958 per ton (corresponding to 116,091 tons at a total cost of R$111.3 million) for the year ended June 30, 2022 to R$1,003 per ton (corresponding to 132,610 tons at a total cost of R$133.1 million) for the year ended June 30, 2023, mainly due to costs that still comprised fertilizers at higher prices, which affected unit cost during the period;

  

  iii. Cost of sugarcane sold: the cost of sugarcane increased by R$110.3 million. Our average cost per ton of sugarcane sold decreased 16.4% R$176 per ton (corresponding to 1,997,307 tons at a total cost of R$352.5 million) for the year ended June 30, 2022 to R$148 per ton (corresponding to 1.640.394tons at a total cost of R$242.2 million) for the year ended June 30, 2023, mainly due to an decrease in planted area compared to the previous crop year and a fire affected production volume and, consequently, costs.

 

Gross income

 

For the reasons mentioned above, our gross income for the year ended June 30, 2023 was R$393.7 million, representing a decrease of R$382.2 million, compared to R$775.9 million for the year ended June 30, 2022.

 

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Selling expenses

 

Selling expenses decreased by R$2.6 million from R$43.6 million for the year ended June 30, 2022 to R$41.0 million for the year ended June 30, 2023. The decrease of 6.0% in relation to the previous year is mainly due to an increase in freight and provision for doubtful accounts expenses, which was offset by a decrease in commission expenses.

 

General and administrative expenses

 

General and administrative expenses increased R$9.8 million from R$56.0 million for the year ended June 30, 2022 to R$65.8 million for the year ended June 30, 2023. The increase of 17.5% over the previous year is mainly due to: (i) the increase in the provision for payment of the long-term share-based incentive plan (ILPA) in accordance with the achievement of the Company’s long-term targets plus taxes; (ii) the increase in expenses with services provided, mainly audit fees; and (iii) the increase in the “taxes and fees” line, explained by the increase in municipal assessments of the cleared land value (valor de terra nua, or VTN), which is used as a parameter for the calculation of rural land tax (imposto territorial rural, or ITR). 

 

Other operating income (expenses), net

 

Other operating expenses, net decreased R$24.9 million from an expense of R$13.8 million for the year ended June 30, 2022 to an income of R$11.0 million for the year ended June 30, 2023. The decrease was primarily due to: (i) the indemnity payout received in connection with the agreement with Agrifirma, which provided for the early payment of unrealized contingencies, resulting in a gain for the Company; (ii) sugarcane losses in Bolivia (ratoon cane) caused by drought; (iii) the transfer of donations to the BrasilAgro Institute pertaining to 2020, 2021 and 2022, which were made in the year ended June 30, 2023 (R$3.5 million relating to the year 2020/2021, and R$5.0 million relating to the year 2021/2022); (iv) expenses with commissions for the acquisition of farmland; (v) the impact in the “warrants” line, reflecting the variation and consequent value of the warrants issued in connection with the merger of Agrifirma and the variation in the Company’s share price; the warrants operated as a guarantee of the two-year lockup period (through September 2023), considering the specific characteristics of one of Agrifirma’s shareholders, and do not represent a premium or advantage for any new shareholder; and (vi) impairment of R$4.8 million on the investment in Agrofy.

 

Equity pickup

 

For the year ended June 30, 2023 we recorded a loss of R$0.07 million compared to a loss of R$0.03 million for the year ended June 30, 2022.

 

Financial income (expenses), net

 

Financial income decreased R$223.1 million from R$955.8 million for the year ended June 30, 2022 to R$732.7 million for the year ended June 30, 2023, and financial expenses decreased R$725.8 million from R$1,008.6 million for the year ended June 30, 2022 to R$726.8 million for the year ended June 30, 2023. The consolidated financial result decreased from R$(52.8) million for the year ended June 30, 2022 to R$(5.8) million for the year ended June 30, 2023. The variation in financial income (expenses), net is mainly attributable to:

 

  i. The decrease in the interest line relating to our debt profile, approximately 56% of which is pegged to inflation indexes, and which fell sharply from 11.88% in July 2021 through June 2022 to 3.16% in July 2022 through June 2023.

 

  ii. The restatement of fair value, in the amount of R$(74.3) million in 2023, which is explained by the variation in the amount to be received from sales of the Araucária, Jatobá, Alto Taquari and Rio do Meio farms (based on soybean bag prices), impacted by the decline in soybean price (R$/bag), reflecting the decrease in soybean prices quoted on the Chicago Board of Trade – CBOT (USD and basis), combined with the variation in the Consecana price for the lease of the Agro-Serra farm.  

 

  iii. The result from derivatives, in the amount of R$82.4 million, which reflects the commodities hedge operations results and the impact of the exchange rate variation of the Brazilian real against the U.S. dollar, which was partially indexed to the U.S. dollar to maintain purchasing power with regard to inputs, investments and new acquisitions, which have a positive correlation with the U.S. dollar.

  

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Income and social contribution taxes

 

We recognized income and social contribution tax expenses of R$13.2 million for the year ended June 30, 2023 and of R$117.2 million for the year ended June 30, 2022. Current income and social contribution tax expenses increased from R$41.0 million for the year ended June 30, 2022 to R$53.2 million for the year ended June 30, 2023. Deferred income and social contribution tax expenses decreased from R$76.2 million for the year ended June 30, 2022 to R$40.0 million for the year ended June 30, 2023.

 

Net income for the year

 

As a result of the above, net income for the year ended June 30, 2023 decreased to R$268.5 million, compared to R$520.1 million for the year ended June 30, 2022.

 

Year Ended June 30, 2022 Compared to Year Ended June 30, 2021

 

Net revenue

 

Net revenue increased R$505.1 million from R$663.0 million for the year ended June 30, 2021 to R$1,168.1 million for the year ended June 30, 2022. This increase was mainly due to the following:

 

  i. Revenue from sugarcane sales: revenue from sugarcane sales increased R$113.9 million from R$265.0 million (reflecting sales of 2,026,640 tons at an average price of R$130.75 per ton) for the year ended June 30, 2021 to R$378.9 million (reflecting sales of 1,997,307 tons at an average price of R$189.72 per ton) for the year ended June 30, 2022. This represents an increase of 43% over the previous year, mainly resulting from the increase in average per-ton sugarcane sales price, which was partially offset by a decrease in sales volume. The increase in per-ton sugarcane price was due to the higher price of the TRS (total recoverable sugar) of sugarcane sold.

 

  ii. Revenue from grain sales: revenue from grain sales increased R$390.5 million from R$330.4 million for the year ended June 30, 2021 (reflecting sales of 280,878 tons at an average price of R$1,176.4 per ton) to R$720.9 million for the year ended June 30, 2022 (reflecting sales of 356,547 tons at an average price of R$2,019 per ton). This represented an increase of 118% over the previous year resulting from increases in soybean and corn sales, as explained below:

 

  Revenue from soybean sales: revenue from soybean sales increased R$364.3 million from R$235.8 million (reflecting sales of 137,581 tons at an average price of R$1,713.64 per ton) for the year ended June 30, 2021 to R$600.1 million (reflecting sales of 235,918 tons at an average price of R$2,542 per ton) for the year ended June 30, 2022. This represents an increase of 155% over the previous year resulting mainly from the increase in commodity prices.

  

  Revenue from corn sales: revenue from corn sales increased R$31.7 million from R$77.0 million (reflecting sales of 139,485 tons at an average price of R$552.09 per ton) for the year ended June 30, 2021 to R$108.7 million (reflecting sales of 116,676 tons at an average price of R$931 per ton) for the year ended June 30, 2022. This represents an increase of 41% over the previous year, which was a result of the increase in the number of hectares planted, as well as an increase in the corn sales price.

 

  iii. Revenue from cattle sales: cattle-raising revenue increased by R$2.5 million from R$29.0 million (related to the sale of 9,685 head of cattle at R$7.91 per kilo) for the year ended June 30, 2021 to R$31.5 million (related to the sale of 8,451 head of cattle at R$9.76 per kilo) for the year ended June 30, 2022. The decrease in the volume sold is due to the stage of maturity of the herd in 2022, with fewer heads of cattle in the point of sale during the year ended June 30, 2022.

 

The table below shows a summary of the number of hectares harvested, productivity and revenues from grain and sugarcane production:

 

   Harvest (hectares)   Productivity (tons)   Revenue (in R$
thousands
)
 
   2022   2021   2022   2021   2022   2021 
Grain   95,051    89,571    348,322    282.420    720,883    330,417 
Sugarcane   28,992    27,831    2,116,890    2,248,492    378,919    264,978 

 

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Gain on sale of farms

 

For the year ended June 30, 2022, the gain on sale of farms was R$251.5 million, including the sale of 2,566 hectares (1,537 arable hectares) of the Alto Taquari Farm, and R$132.0 million from the sale of 4,573 hectares (2,859 arable hectares) of the Rio do Meio Farm. In the first fiscal quarter of the 2021/2022 fiscal year, we recorded R$8.4 million from the sale of the Jatobá Farm, and the effect of the variable consideration paid in connection with such sale, which corresponded to 133.0 additional hectares upon delivery. Sales of farms reached R$461.6 million in 2022, due to recognitions of R$329.7 million from the sale of the Alto Taquari Farm, and R$132.0 million from the sale of the Rio do Meio Farm.

 

Changes in fair value of biological assets and agricultural products

 

Changes in fair value of biological assets and agricultural products increased R$22.5 million from a gain of R$527.4 million for the year ended June 30, 2021 to a gain of R$549.8 million for the year ended June 30, 2022. This variation resulted mainly from the increase in the fair value of biological assets and agricultural products of sugarcane, which increased R$85.4 million from a gain of R$142.3 million for the year ended June 30, 2021 to a gain of R$227.7 million for the year ended June 30, 2022. Such variation was a result of the increase in ethanol prices.

 

Adjustments to net realizable value of agricultural products after harvest

 

We recognized an impairment of net realizable value of agricultural products after harvest of R$22.7 million for the year ended June 30, 2021. For the year ended June 30, 2022, we recognized an impairment of net realizable value of agricultural products after harvest of R$50.8 million. Such variation resulted from the decrease in the corn and soybean prices from the harvest time to the end of the fiscal year.

 

Cost of sales

 

Cost of sales increased R$413.6 million from R$729.1 million for the year ended June 30, 2021, to R$1,142.7 million for the year ended June 30, 2022.

 

Changes in costs year-over-year are directly linked to the market prices of commodities at the time of harvest as well as the harvested volumes (tons), as explained below:

 

  i. Cost of soybean sold: the cost of soybean sold increased by R$258.7 million. Our average cost per ton of soybean sold increased 3.8% from R$2,413.92 per ton (corresponding to 137,581 tons at a total cost of R$332.1 million) for the year ended June 30, 2021 to R$2,504 per ton (corresponding to 235,918 tons at a total cost of R$590.8 million) for the year ended June 30, 2022, mainly due to an increase in the commodity price and in the volume sold;

 

  ii. Cost of corn sold: the cost of corn sold decreased by R$32.8 million. Our average cost per ton of corn sold increased 69.6% from R$562.5 per ton (corresponding to 139,485 tons at a total cost of R$78.5 million) for the year ended June 30, 2021 to R$953.9 per ton (corresponding to 116,676 tons at a total cost of R$111.3 million) for the year ended June 30, 2022, mainly due to an increase in the commodity price and an increase in the volume sold;

  

  iii. Cost of sugarcane sold: the cost of sugarcane increased by R$121.0 million. Our average cost per ton of sugarcane sold increased 53.9% from R$114.72 per ton (corresponding to 2,018,393 tons at a total cost of R$231.5 million) for the year ended June 30, 2021 to R$176.5 per ton (corresponding to 1,997,307 tons at a total cost of R$352.5 million) for the year ended June 30, 2022, mainly due to an increase in the sugarcane market price, which was partially offset by a decrease in the volume sold.

 

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Gross profit

 

For the reasons mentioned above, our gross profit for the year ended June 30, 2022 was R$775.9 million, representing an increase of R$284.4 million, compared to R$491.5 million for the year ended June 30, 2021.

 

Selling expenses

 

Selling expenses increased by R$15.6 million from R$28.0 million for the year ended June 30, 2021 to R$43.6 million for the year ended June 30, 2022. The increase of 55.7% in relation to the previous year is mainly due to: (i) an increase in freight expenses, in the amount of R$7.2 million, due to higher volumes sold, higher gas prices, and the start of our operations in Bolivia. (ii) an increase in the fees and commissions paid, mainly relating to commissions paid on the sale of the Alto Taquari Farm.

 

General and administrative expenses

 

General and administrative expenses increased R$9.1 million from R$46.9 million for the year ended June 30, 2021 to R$56.0 million for the year ended June 30, 2022. The increase of 19.4% over the previous year, is mainly due to: (i) a growth of expenses with personnel, in the amount of R$6.9 million, which is explained by (a) bonus payments higher than the provisioned amount; and (b) salary increases of 8.5% due to annual collective bargaining agreements entered into by our employees; (ii) higher travel expenses, with the return of travel after a period of stricter travel restrictions during the COVID-19 pandemic; (iii) an increase in other expenses, in the amount of R$1.2 million, due to (a) the increase of expenses with listing and bookkeeping costs; (b) publication of the financial statements in full, which did not occur in the previous year due to exemptions under Brazilian laws and regulations, and (c) expenses with civil liability insurance (D&O) indexed to the U.S. dollar.

 

Other operating income (expenses), net

 

Other operating expenses, net, decreased R$8.8 million from R$22.6 million for the year ended June 30, 2021 to R$13.8 million for the year ended June 30, 2022. The decrease was primarily due to: (i) revenue compensation from the contractual losses and costs related to commercial contracts resulting from the crop failures in Paraguay; and (ii) the variation and the value of subscription warrants issued upon the absorption of Agrifirma, together with the variation of the Company’s share prices that were used as a reference to issue such warrants.

 

Equity pickup

 

For the year ended June 30, 2022 we recorded a loss of R$0.03 million compared to a gain of R$0.01 million for the year ended June 30, 2021.

 

Financial income (expenses), net

 

Financial income increased R$106.2 million from R$849.6 million for the year ended June 30, 2021 to R$955.8 million for the year ended June 30, 2022 and financial expenses increased R$63.0 million from R$945.6 million for the year ended June 30, 2021 to R$1,008.6 million for the year ended June 30, 2022. The variation in financial income (expenses), net is mainly attributable to:

 

  i. The increase of the SELIC interest rate and inflation, which had an effect of R$37.8 million on our indebtedness, which is indexed as follows: (i) 34% to inflation; (ii) 50% to the CDI and; (iii) 26% to fixed rates.

 

  ii. The remeasurement of fair value, in the amount of R$14.2 million in 2022, of the amount to be received from the sales of the Araucária, Jatobá, Alto Taquari and Rio do Melo farms, fixed in soybean bags, and the variation of Consecana’s price in the lease agreement for the Parceria IV farm.

 

  iii. The result from derivatives, in the amount of R$65.7 million, which reflects the commodities hedge operations results and the impact of the exchange rate variation of the Brazilian real against the U.S. dollar, which was partially indexed to the U.S. dollar to maintain purchasing power with regard to inputs, investments and new acquisitions, which have a positive correlation with the U.S. dollar.

  

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Income and social contribution taxes

 

We recognized income and social contribution tax expenses of R$117.2 million for the year ended June 30, 2022 and of R$19.5 million for the year ended June 30, 2021. Current income and social contribution tax expenses increased from R$31.0 million for the year ended June 30, 2021 to R$41.0 million for the year ended June 30, 2022. Deferred income and social contribution tax expenses increased from R$50.5 million for the year ended June 30, 2021 to R$76.2 million for the year ended June 30, 2022.

 

Profit for the year

 

As a result of the above, profit for the year ended June 30, 2022 increased to R$520.1 million, compared to R$317.6 million for the year ended June 30, 2021.

 

B. Liquidity and Capital Resources

 

As of June 30, 2023, we held R$383.8 million in cash and cash equivalents and marketable securities. We usually hold cash and cash equivalents in Certificate of Deposits and Repurchase Agreements issued by banks rated at least AA by Moody’s and Brazilian and American treasury bonds. Of the total amount of cash and cash equivalents, approximately R$30.7 million was held in jurisdictions outside Brazil and as a result there may be tax consequences if such amounts were moved out of these jurisdictions or repatriated to Brazil. We regularly review the amount of cash and cash equivalents held outside of Brazil to determine the amounts necessary to fund the current operations of our foreign operations and their growth initiatives and amounts needed to service our Brazilian indebtedness and related obligations.

 

Throughout the year, our working capital needs vary significantly depending on the harvest period of grains, sugarcane and other crops in Brazil.

 

See “Item 4—Information on the Company—B. Business Overview—Seasonality.”

 

We believe that our current capital resources, together with our ability to obtain loans and credit facilities and, when appropriate, to raise equity in the capital markets, are sufficient to meet our present cash flow needs.

  

Sources and Uses of Funds

 

We finance our investments both by using (i) our own resources; (ii) loans and credit facilities with development banks and governmental development agencies, under which interest rates are lower than market rates, due to the fact that such credit facilities have long-term characteristics; (iii) funds obtained from public offerings of our common shares; and (iv) securitization transactions in the Brazilian capital markets. Our principal sources of financing are discussed below under the heading “Indebtedness and cash and cash equivalents” and our main uses of funds include acquisition of land, cultivation of sugarcane, improvements and acquisition of machinery and vehicles.

 

The investments made in the fiscal year ended June 30, 2023 totaled R$155.1 million, all of which were used for the development of land for cultivation of grains, sugarcane and pasture.

 

Cash Flows

 

Our cash flow generation from operating activities may vary from period to period depending on fluctuations in our sales and service revenue, costs of goods sold, acquisition of agricultural properties, developing of such properties for cultivation and operating income (expenses) and may also vary within such periods as a result of seasonality. Operating activities primarily refer to revenue generated from the sale of grains, sugarcane and sale of farms.

 

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Investing activities primarily refer to the acquisition of machines, re-modeling, construction and investments in sugarcane cultivation.

 

Financing activities primarily refer to loans and credit facilities, principally from development banks, for the development of new projects and the purchase of machines and equipment.

 

The table below presents our cash flows for the periods indicated (*).

 

   Year ended June 30, 
   2023   2022   2021(*) 
   (in R$ thousands) 
CONSOLIDATED CASH FLOW            
Net cash flows from operating activities   155,733    205,178    117,400 
Net cash flows from (used in) investment activities   55,044    (89,729)   (180,177)
Net cash flows from (used in) financing activities   (261,057)   (737,800)   954,857 
Net change in cash and cash equivalents   (50,280)   (622,351)   892,080 

 

(*) The Company revised the cash flow statements and related disclosures for the year ended June 30, 2021 for comparative purposes to reflect the immaterial change in the classification of cash inflows and outflows as detailed in Note 3.26 of the Consolidated Financial Statements.

 

Years ended June 30, 2023 and 2022

 

Operating activities: Net cash generated from operating activities was R$155.7 million for the fiscal year ended June 30, 2023, compared to R$205.2 million for the fiscal year ended June 30, 2022. This decrease was primarily due to: (i) adjustments to reconcile the amount of R$78.2 million related to the adjustment of the fair value of unrealized biological assets and agricultural products in the year ended June 30, 2023, compared to R$549.8 million in the year ended June 30, 2022; (ii) adjustments to reconcile the amount of R$47.2 million related to the fair value of changes in accounts receivable from farm sales and other financial liabilities, compared to R$31.6 million in the year ended June 30, 2022; and (iii) a decrease in the amount of R$44.7 million in customer accounts, which consider all income from commodities and farm sales, in the year ended June 30, 2023, due to decreased profitability and falling selling prices, which adversely affected customer accounts receivable and farm sales receivables, compared to a decraese of R$110.5 million in the year ended June 30, 2022.

 

Investing activities: Net cash generated by investment activities was R$55.0 million for the year ended June 30, 2023, compared to net cash used in investment activities of R$89.7 million for the year ended on June 30, 2022. This variation is primarily due to a higher amount of cash being invested in redemption of marketable securities.

 

Financing activities: Net cash used in financing activities was R$261.1 million for the year ended June 30, 2023, compared to net cash used in financing activities of R$737.8 million for the year ended June 30, 2022. The decrease is mainly due to the increase in the amount of proceeds from loans during the period and lower interest expenses on loans, considering the decrease in the inflation index measured by IPCA.

 

Years ended June 30, 2022 and 2021

 

Operating activities: Net cash generated from operating activities was R$205.2 million for the year ended June 30, 2022, compared to R$117.4 million for the year ended June 30, 2021. This increase was primarily due to: (i) an increase in net income for the year in the amount of R$202.5 million; (ii) adjustments to reconcile profit for the year in the amount of R$549.8 million related to the adjustment to the fair value of biological assets and unrealized agricultural products in the year ended June 30, 2022, compared to the amount of R$527.3 million in the year ended June 30, 2021; (iii) adjustments to reconcile profit for the year in the amount of R$31.6 million related to the variation in the fair value of accounts receivable from the sale of farms, compared to the amount of R$124.7 million for the year ended June 30, 2021; and (iv) an increase in the amount of R$25.7 million in cash flow from customers in the year ended June 30, 2022, due to increased profitability and improvement in sales prices, with a positive impact on accounts receivable of customers and amounts receivable from sales of farms, compared to an increase of R$127.4 million in the year ended June 30, 2021.

 

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Investing activities: Net cash used in investing activities was R$89.7 million for the year ended June 30, 2022, compared to net cash used in investment activities of R$180.2 million for the year ended June 30, 2021. This variation resulted mainly from the acquisition of entities under common control in Bolivia.

 

Financing activities: Net cash used in financing activities was R$737.8 million for the year ended June 30, 2022 compared to net cash from financing activities of R$954.9 million for the year ended June 30, 2021. This decrease was mainly due to: (i) new loans in the aggregate amount of R$60.4 million in 2022, compared to new loans of R$488.2 million in 2021; and (ii) an increase in dividends paid in 2022, of R$460.0 million, compared to R$42.0 million paid in 2021, which was offset by a decrease in repayment of loans and financing, of R$296.6 million in 2022, compared to R$345.8 million in 2021.

 

Indebtedness and Cash and Cash Equivalents

 

Our total consolidated indebtedness (loans, financing, debentures and leases) was R$554.6 million as of June 30, 2023, compared to R$453.0 million as of June 30, 2022. Our short-term indebtedness as of June 30, 2023, amounted to R$198.2 million, compared to R$123.4 million as of June 30, 2022. Our long- term indebtedness as of June 30, 2023, was R$356.4 million, compared to R$329.6 million on June 30, 2022. Of the total indebtedness outstanding as of June 30, 2023, 64.2% consisted of long-term debt, compared to 72.8% as of June 30, 2022.

 

Our indebtedness is primarily comprised of loans and credit facilities with development banks and government agencies, by means of direct or indirect disbursements, and acquisitions payable with regard to our agricultural properties. Interest rates are generally lower than prevailing rates in Brazil, due to the fact that these credit facilities have long-term characteristics and other terms specific to the development agencies.

 

In addition, on May 25, 2018, 142,200 first issue debentures were subscribed and paid-in, not convertible into shares, in two series, for private placement totaling R$142.2 million, of which R$85.2 million in the first series and R$57.0 million in the second series. The debentures were tied to a securitization transaction, used as guarantee for the issue of 142,200 Agribusiness Receivables Certificates (Certificados de Recebíveis do Agronegócio). The first series of debentures, which were subject to interest corresponding to 106.5% of the DI Rate, matured and were fully repaid on August 1, 2022, and the second series of debentures, which were subject to interest corresponding to 110.0% of the DI Rate, matured and were fully repaid on July 31, 2023. The second series of debentures were secured by a fiduciary transfer of real estate properties owned by us and located in the city of Correntina, State of Bahia.

 

In May 2021, ISEC Securitizadora S.A., a Brazilian securitization company, issued agribusiness receivables certificates (Certificados de Recebíveis do Agronegócio) (CRA) in the aggregate amount of R$240.0 million. The CRAs are backed by debentures that were issued by us and are comprised of a single series in the aggregate amount of R$240.0 million. The debentures mature on April 12, 2028 and accrue interest based on the broad consumer price index (Índice de Preços ao Consumidor Amplo) (IPCA), plus 5.36% per year, payable in seven annual installments. Principal is payable in two installments, on April 13, 2027 and April 12, 2028. The debentures are secured by a fiduciary transfer of real estate properties owned by us and located in the city of Correntina, State of Bahia.

 

The debentures contain certain financial covenants related to the maintenance of certain financial ratios, based on the ratio of net debt to fair value of investment properties. Failure by us to maintain these ratios for the period of time during which the debentures remain outstanding may lead to the acceleration of the debt. On June 30, 2023 and as of the date of this annual report, we were in compliance with these covenants.

 

All loans and financing agreements listed below are in reais and have specific terms and conditions defined in the respective contracts with governmental economic and development agencies (including the Brazilian Development Bank – BNDES and the Northeastern Development Bank – BNB) that directly or indirectly grant those loans. 

 

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The table below summarizes our material outstanding loans and financing agreements as of June 30, 2023.

 

     

Annual interest rates and
charges - %

           
   Index  2023     2022     2023   2022 
Financing for agricultural costs                       
  Fixed rate   9.40%     -      25,663    - 
  Fixed rate   9.53%     -      87,695    - 
  Fixed rate   9.54%     -      8,764    - 
  Fixed rate   -%     4.26%     -    6,106 
  Fixed rate   6.34%     6.34%     378    1,493 
  Fixed rate   7.64%     7.64%     5,752    7,93 
  Fixed rate   9.53%     -%     868    - 
  Fixed rate   12.99%     -      10,128    - 
  Fixed rate   16.00%     -      10,156    - 
  Fixed rate   -      9.85%     -    4,147 
                    149,404    19,676 
Financing for agricultural costs (USD)                           
  Fixed rate   3.66%     -      11,566    - 
                    11,566    - 
Financing for agricultural costs (Paraguayan guarani)                           
  Fixed rate   -      9.60%     -    16,628 
  Fixed rate   9.50%     9.50%     5,38    6,815 
  Fixed rate   8.75%     8.75%     7,21    9,206 
                    12,59    32,649 
Bahia Project Financing                           
  Fixed rate   3.50%     3.50%     8,885    9,661 
  Fixed rate   9.05%     -      19,849    - 
                    28,734    9,661 
Financing of working capital (USD)                           
  Fixed rate   8.72%     4.40%     5,008    10,84 
  Fixed rate   7.93%     -      2,482    - 
  Fixed rate   8.71%     -      17,281    - 
                    24,771    10,84 
Financing of Machinery and Equipment – FINAME                           
  Fixed rate   9.05      -      2,808      
      -             2,808      
Financing of sugarcane      -             -      
  Fixed rate   6.76%     6.76%     744    1,23 
  Fixed rate   6.34%     6.34%     27,537    32,694 
      -             28,281    33,924 
Debentures                           
  CDI   -      106.50%     -    30,897 
  CDI   110.00%     110.00%     16,197    31,096 
  Fixed rate + IPCA   5.37%+100%     5.37%+100%     285,570    274,396 
                    301,767    336,389 
(-) Transaction costs                    (5,283)   (6,858)
                    554,638    453,041 
Current                    198,213    123,411 
Non-current                    356,425    329,630 

  

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Changes in loans and financing during the year ended June 30, 2023 as follows:

 

   2022   Contracting   Payment of
Principal
   Payment of
Interest
   Appropriation
of Interest
   Foreign
Exchange
Variation
   Total as of
June 30,
2022
 
                             
Agricultural Cost Financing (reais)   19,676    174,929    (51,701)   (4,523)   11,023    -    149,404 
Agricultural Cost Financing (Paraguayan guarani)   49,409    -    (20,968)   (3,456)   3,152    (3,981)   24,156 
Bahia Project Financing   9,661    18,974    (1,045)   (46)   1,190    -    28,734 
Working Capital Financing   10,84    21,020    (5,159)   (508)   1,022    (2,444)   24,771 
Financing of Machinery and Equipment – FINAME   -    2,660    -    -    148,000    -    2,808 
Sugarcane Financing   33,924    -    (6,457)   (1,447)   2,261    -    28,281 
Debentures   336,389    -    (42,651)   (20,704)   28,733    -    301,767 
Transaction costs   (6,858)   -    -    -    1,575    -    (5,283)
    453,041    217,583    (127,981)   (30,684)   49,104    (6,425)   554,638 

 

Capital Expenditures

 

We are focused on the acquisition, development and exploration of agricultural properties and the acquisition and development of properties that we believe have significant potential for cash flow generation and value appreciation. Our total capital expenditures related to these assets for the year ended June 30, 2023 were R$388.9 million, of which R$272.1 million is related to land acquisition, R$110.3 million is related to construction in progress, mostly for the clearance of areas, and R$6.1 million is related to the opening and preparation of areas for cultivation and buildings and for improvements of the farm facilities.

 

All of our capital expenditures to date have been made as planned and according to the normal course of our operations.

 

Contractual Obligations

 

The following table summarizes the material sales contracts for future delivery with certain of our customers:

 

Consolidated 
Culture  Delivery date  Quantity   Contracts   Unit  Currency  Price 
Crop 2022/23                     
Cotton in Pluma  Aug/23-Nov/23   5,125    9   Ton  US$   1,920.51 
Corn  May/23-Nov/23   292,271    8   Bag  R$   42.17 
Corn  May/23-Nov/23   668,761    9   Bag  US$   7.79 
Soy  Jun/23-Aug/23   147,816    6   Bag  R$   122.22 
Soy  Jun/23-Sep/23   370,250    8   Bag  US$   24.72 

 

Consolidated 
Culture  Delivery date  Quantity   Contracts   Unit  Currency  Price 
Crop 2022/23                     
Cotton in Pluma   Aug/23-Nov/23   5,125    9   Ton  US$   1,920.51 
Corn   May/23-Nov/23   292,271    8   Bag  R$   42.17 
Corn   May/23-Nov/23   668,817    11   Bag  US$   7.79 
Soy   Jun/23-Aug/23   148,038    7   Bag  R$   122.22 
Soy   Jun/23-Sep/23   370,266    9   Bag  US$   24.72 
Sugarcane   Aug/23-Dec/23   956,260    1   Ton  US$   ** 

 

** The price applied in sugarcane sales varies according to the Consecana price of the month invoiced.

 

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With respect to sugarcane contracts denominated in Brazilian reais, we are committed to delivering 1,250,000 tons, but if productivity exceeds this amount, we expect to sell and deliver the surplus to the same customer.

 

The following table summarizes our material contractual obligations and commitments as of June 30, 2023:

 

           Maturities per period 
                   Three to     
   Book   Contractual   Less than   One to   Five   More than 
   Value   Value   One Year   Two Years   Years   Five Years 
           (in R$ thousands) 
Trade accounts payable   61,972    61,972    61,972    -    -    - 
Derivative financial instruments   22,837    22,837    22,006    831    -    - 
Loans, financing and debentures(1)   554,638    678,509    218,975    48,461    405,512    5,561 
Lease payables   208,767    352,955    53,258    92,732    79,836    127,129 
Transactions with related parties(2)   6,569    6,569    -    6,569    -    - 
Other liabilities   156,666    156,666    156,666    -    -    - 

 

(1) Interest on variable interest rate loans and financing has been computed considering the interest rate as of June 30, 2022. See “Indebtedness and Cash and Cash Equivalents.”

 

(2) See “Item 7—B. Related Party Transactions.”

 

On May 8, 2015, we executed three agreements with Brenco:

 

The first agreement consists of a rural sub partnership to operate nine farms located in the municipalities of Alto Araguaia and Alto Taquari, in the state of Mato Grosso. The sub partnership started at the date of its signature and is estimated to end on March 31, 2026. The areas are to be used for the plantation and cultivation of sugarcane, which cannot exceed the duration of the contract. This contractual partnership meets the definition of an operating lease. The payment must always be in kind (tons of sugarcane) and delivered at the mill owned by Brenco, which is located in the vicinity of the farms, during the harvest period of the product. The quantity to be paid for the duration of the contract shall be established in tons per hectare and varies according to the area being explored. According to this contract, the quantity to be paid in the long term corresponds to 529,975 tons of sugarcane, of which 174,929 tons will be paid within one to five years and 355,046 tons will be paid over five years up to the expiration of the agreement.

 

The second agreement relates to the regulation of rights and obligations between agricultural partners from whom we acquired the crops of sugarcane planted by Brenco in the properties subject to the sub partnership agreement described above. This contract meets the definition of a financial lease. The payment must always be in kind (tons of sugarcane) and delivered at the mill owned by Brenco during the harvest period of the product. According to this contract, the quantity to be paid in the long term corresponds to 53,845 tons of sugarcane, of which 18,604 tons will be paid within one year and 35,241 tons will be paid within one to five years.

 

The third agreement regulates the exclusive supply to Brenco of the total sugarcane production in the properties included in the sub partnership agreement for two crop cycles, one cycle shall be effective until the depletion of the already existing sugarcane crops and the other cycle consists of the sugarcane being planted by us.

 

On February 7, 2017, we entered into two agreements for an agricultural partnership in relation to a property in São Raimundo das Mangabeiras, state of Maranhão, or Partnership IV.

 

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The first agreement under Partnership IV establishes an agricultural partnership with Agro Pecuária e Industrial Serra Grande Ltda. (“Serra Grande”), which consists of a sugarcane exploration agreement of an area of around 15,000 hectares. The agricultural partnership will last for 15 years from the date of the agreement and may be extended for the same period. The amount to be paid to Serra Grande corresponds to 10% of the entire production obtained in the area referred to in the agreement and the initial volume to be produced in the area during the first year of the agreement was established at 850,000 tons. After this period, spanning between one and five years, the minimum volume to be produced in the partnership areas is 4,500,000 tons of sugarcane, and from the sixth year onward until the expiration of the agreement, the minimum production volume is 1,250,000 tons of sugarcane per crop year. 

 

The second agreement under Partnership IV governs the rights and obligations of the agricultural partners, through which we acquired sugarcane crops planted by the agricultural partner in the areas referred to in the partnership agreement described above. This agreement meets the definition of a finance lease. As consideration, we undertake to return, at the end of the agreement, the area referred to in the partnership agreement together with sugarcane stubble crops with the capacity to produce 850,000 tons of sugarcane in the crop year subsequent to the termination of the agricultural partnership agreement.

  

Equity

 

Our total equity amounted to R$2,197.0 million as of June 30, 2023 and R$2,216.0 million as of June 30, 2022.

 

On February 3, 2021, the Company’s board of directors approved the price per common share of R$22.00 and an increase in the Company’s capital stock in the amount of R$440.0 million, through the issuance of 20,000,000 new common shares of the Company, in connection with the primary and secondary follow-on offering of common shares. The selling shareholder in the offering sold an aggregate of 2,735,355 common shares issued by the Company.

 

The offering consisted of a restricted offering in Brazil, pursuant to Law No. 6,385, of December 7, 1976, as amended, and CVM Instruction No. 476, of January 16, 2009, as amended, and a private placement to (a) a limited number of qualified institutional buyers in the United States, as defined in Rule 144A under the Securities Act, and (b) institutional and other investors outside the United States and Brazil that are not U.S. persons, in reliance on Regulation S under the Securities Act. As a result of this offering, our capital stock was increased to R$1,139.8 million, divided into 82,104,301 common shares.

 

On May 14, 2021, our capital stock was increased by R$448.2 million through the issuance of 20,272,707 new common shares following the exercise of the First Series Warrants by Cape Town LLC, Cresud S.A.C.I.F.Y.A and Turismo Investment S.A.U. The First Series Warrants were issued on March 15, 2006 and granted to our founding shareholders in proportion to their respective interests in our capital stock on the issuance date. As a result of the exercise of the First Series Warrants, our capital stock was increased to R$1,588.0 million, divided into 102,377,008 common shares. See “Item 10—Additional Information—Description of Exercised and Expired Warrants.”

 

On September 19, 2023, our board of directors approved the increase of our capital stock by R$3,064.36 through the issuance of 306,436 new common shares following the exercise of the Warrants by AB (Holdings) 1 S.A.R.L, in connection with the Merger of Agrifirma. As a result of the exercise of the Warrants, our capital stock was increased to R$1,587,984,600.71, divided into 102,683,444 common shares.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

C. Research and Development, Patents and Licenses, etc.

 

We do not currently have research and development policies and have not incurred research and development expenditures in prior years.

 

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D. Trend Information

 

We expect to continue to operate in a highly competitive and regulated environment that will pose continued risks and threats to our existing businesses, placing the profitability of our assets under pressure. We expect our business to continue to be subject to the risks and uncertainties discussed in “Item 3—Key Information—Risk Factors.”

 

According to a report released in September 2021 by the United States Department of Agriculture (“USDA”), the soybean global production is forecasted at a record 384.4 million tons for the 2021/22 crop year, and Brazil’s production estimate was raised to a record 144.0 million tons. As of September 2021, Brazilian soybean producers have already sold almost 39.5% of expected production at higher prices due to the weaker Brazilian real and stronger Chinese demand.

 

In addition to the information set forth in this section, additional information about the trends affecting our business can be found in “Item 5. Operating and Financial Review and Prospects—Operating Results—Business Drivers and Measures.”

 

We are not aware of any other trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information to not necessarily be indicative of future operating results or financial condition.

 

For a description of the effects of the ongoing conflict between Russia and Ukraine on our results of operations, see “—Operating Results—Impact of the Ongoing Conflict between Russia and Ukraine and the Recent Conflict between Israel and Hamas.”

 

E. Critical Accounting Estimates

 

For information with respect to critical accounting estimates, see note 4 to our financial statements.

 

ITEM 6—DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Senior Management Board of Directors

 

Our board of directors is responsible for establishing our overall business plan, guidelines and policies, including our long-term strategy, and for overseeing our performance. Our board of directors is also responsible for the supervision of our executive officers.

 

Pursuant to our bylaws, our board of directors consists of a minimum of five and a maximum of nine members. Election of our directors is made at annual shareholders’ meetings. As of the date of this annual report, five of our directors, namely Eduardo Elsztain, Alejandro G. Elsztain, Saul Zang, Matias Gaivironski and Alejandro Casaretto were nominated by Cresud, which is our significant shareholder. The members of our board are elected at the shareholders’ meeting for a term of approximately two years, reelection being permitted. A director must remain in office until replaced by a successor unless resolved otherwise at the shareholders’ meeting or by the board of directors.

 

Under Novo Mercado regulations and our bylaws, a minimum of 20% of the members of our board of directors must be independent (as such term is defined under Novo Mercado regulations). However, three directors must be independent if nine members are elected to our board. Prior to taking office, our board members are required to sign an agreement to comply with the Novo Mercado regulation.

 

Pursuant to section 19 of our bylaws, our board of directors holds mandatory meetings six times a year, and may hold extraordinary meetings, as necessary. Meetings of our board of directors are convened only if a majority of the directors are present and all board decisions are taken by a 2/3 or 3/4 majority, or by simple majority, depending on the nature of the specific matters brought to discussion.

 

Brazilian corporate law and CVM Resolution No. 70/2022 allow the adoption of a cumulative vote process by the request of shareholders representing a minimum of 5% of our capital stock. Brazilian corporate law allows minority shareholders that, individually or as a group, hold at least 15% of our common shares to appoint one director, by means of a separate vote. Brazilian corporate law does not allow for the election of a member to our board of directors, unless waived by our shareholders, if that person is an employee or senior manager of one of our competitors or has an interest conflicting with ours.

 

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Our board of directors is currently comprised of nine members, all of whom were elected at the general shareholders’ meeting held on October 24, 2023, and whose terms will expire at our annual shareholders’ meeting for the approval of our financial statements for the fiscal year to end on June 30, 2025. The table below sets forth the name, title and date of election of each current member of our board of directors:

 

Directors*  Title  Date of election  Age 
Eduardo S. Elsztain  Chairman  October 24, 2023   63 
Alejandro G. Elsztain  Director  October 24, 2023   57 
Saul Zang  Director  October 24, 2023   77 
Isaac Selim Sutton  Director  October 24, 2023   62 
Matias Gaivironski  Director  October 24, 2023   47 
Alejandro Casaretto  Director  October 24, 2023   71 
Efraim Horn  Director  October 24, 2023   43 
Eliane Aleixo Lustosa de Andrade  Director  October 24, 2023   60 
Isabella Saboya de Albuquerque  Director  October 24, 2023   53 

 

*

Ms. Carolina Zang and Mr. Miguel Falcón were elected to the positions of first and second alternate members of our Board of Directors, solely in the case of absence or vacancy in the position of the following members of the Board of Directors: Messrs. Eduardo S. Elsztain, Alejandro G. Elsztain, Saúl Zang and Alejandro Casaretto.

 

Mr. João de Almeida Sampaio Filho was elected to the position of alternate member of our Board of Directors, solely in the case of absence or vacancy in the position of the following member of our Board of Directors: Mr. Matias Gaivironski.

 

Mr. Ricardo de Santos Freitas was elected to the position of first alternate member of our Board of Directors, solely in the case of absence or vacancy in the position of the following members of our Board of Directors: Messrs. Issac Selim Sutton and Efraim Horn, Members of our Board of Directors.

 

Ms. Janine Meira Souza Koppe was elected to the position of alternate member of our Board of Directors, solely in the case of absence or vacancy in the position of the following member of our Board of Directors: Ms. Eliane Aleixo Lustosa de Andrade.

 

Mr. Sérgio Werneck Filho was elected to the position of alternate member of our Board of Directors, solely in the case of absence or vacancy in the position of the following member of our Board of Directors: Ms. Isabella Saboya de Albuquerque.

 

Below is a brief biographical description of each member of our board of directors:

 

Eduardo S. Elsztain is the Chairman of our Board of Directors and also a member of our Executive Committee. He has extensive experience in the real estate segment. He is the founder of Consultores Asset Management and currently holds several executive positions, including Chairman of the Board of Directors of Austral Gold Limited, Cresud S.A.C.I.F.y A., Endeavor Argentina, Banco Hipotecario S.A. (where he is also the CEO) and IRSA Invesriones y Representaciones Sociedad Anónima. He holds degrees in Medicine and Economics from the University of Buenos Aires.

 

Alejandro Gustavo Elsztain is the Vice-Chairman of our Board of Directors and also a member of our Executive Committee, Compensation Committee and Risk Committee. He has extensive experience in management positions in agricultural and real estate companies in Argentina. He is currently the CEO of Cresud S.A.C.I.F.y A. and Second Vice-President of IRSA Inversiones y Representaciones Sociedad Anónima, and also holds other management positions in real estate and agricultural companies in Argentina. He holds a degree in Agricultural Engineering from the University of Buenos Aires and an Advanced Management Program degree from Harvard Business School.

 

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Saúl Zang is a member of our Board of Directors and also a member of our Executive Committee and Compensation Committee. He has an extensive business experience and is a founding partner of the law firm Zang, Bergel & Viñes Abogados. He is also the CEO of Porto Retiro S.A. and Vice-Chairman of IRSA Inversiones y Representaciones Sociedad Anónima, Cresud S.A.C.I.F.y A., Consultores Assets Management S.A. and other companies, such as Fibesa S.A. He is also a member of the Board of Directors of companies such as Banco Hipotecario S.A., BACS Banco de Crédito & Securitización S.A., Nuevas Fronteras S.A., Palermo Invest S.A., among others. He holds a Law degree from the University of Buenos Aires. He is a member of the International Bar Association (IBA) and the Inter-American Federation of Lawyers (IFL).

 

Isaac Selim Sutton is a member of our Board of Directors and also a member of our Audit Committee, and Risk Committee. He has extensive experience in management and finance, mergers and acquisitions, fundraising, and strategic consulting for shareholders and boards of directors. He is the founder and current CEO of BH26 Gestão e Finanças. Additionally, he is also a member of the Board of Directors of Eco Brasil Florestas. He holds a degree in Economics from the University of São Paulo (USP).

 

Matias Gaivironski is a member of our Board of Directors. He has extensive experience in the financial sector. Currently, he holds the position of CAO and CFO of IRSA Inversiones y Representaciones Sociedad Anónima and Cresud S.A.C.I.F.y A., as well as a member of the Board of Directors of Banco Hipotecario S.A. He holds a degree in business administration from the University of Buenos Aires, with a specialization in finance from the University of CEMA.

 

Alejandro Gustavo Casaretto is a member of our Board of Directors. He has extensive experience in agribusiness-related matters. Currently, he holds the position of member of the Board of Directors and Chief Regional Agricultural Officer at Cresud S.A. He holds a degree in Agricultural Engineering from the University of Buenos Aires.

 

Efraim Horn is a member of our Board of Directors and is also a member of our Audit Committee. He has extensive experience in urban development, land, and finance. Currently, he serves as co-president of Cyrela and is the executive responsible for Cyrela’s product and brand vision. He holds a degree in Administration and Theology from the Talmudic University of Florida (TUF) and an MBA from the Armando Alvares Penteado Foundation (FAAP).

 

Eliane Aleixo Lustosa de Andrade is a member of our Board of Directors and also a member of our Risk Committee. She has extensive experience in economics, finance, mediation, and arbitration, as well as corporate governance. Currently, she is a member of the Boards of Directors of CCR, Bunge, Aegea, and Bluebell, as well as a member of the Arbitration Chambers of B3 - Brasil, Bolsa, Balcão, the Brazilian Center for Mediation and Arbitration - CBMA, and the Brazilian Chamber of Resolution and Conflict Resolution in Energy and Mining. Additionally, she is a board member of the Institute of Labor and Society Studies - IETS, a nonprofit institution. She holds a degree in Economics from the Pontifical Catholic University of Rio de Janeiro (PUC-RJ), a master’s degree in economics from PUC-RJ, and a Ph.D. degree in Finance from the Department of Industrial Engineering at PUC-RJ. She is a certified Board Member by IBGC and by the ESG Competent Boards. Ms. Eliane Aleixo Lustosa de Andrade was nominated by CCR to assume the presidency of the CCR Institute – ICCR.

 

Isabella Saboya de Albuquerque is a member of our Board of Directors and also a member of our Compensation Committee. She has extensive experience in corporate law, capital markets, and corporate governance. She currently serves on the Board of Directors of Grupo Mateus, Wiz Soluções e Corretagem de Seguros, and Klabin. Additionally, she is a Committee Member for People at Wiz Soluções e Corretagem de Seguros and a member of the Advisory Board of Artha Educação and Trikoma Ltda. She is also a member of the Executive Committee of the Brazilian Stewardship Code and a member of the Working Group of AMEC. She holds a degree in Economics from the Pontifical Catholic University of Rio de Janeiro (PUC-RJ) and is a Certified Board Member by IBGC.

 

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Board Committees

 

Pursuant to our bylaws, in order to assist with the fulfillment of its duties, our Board of Directors has adopted three advisory statutory committees (Compensation Committee, Executive Committee and Statutory Audit Committee) and one non-statutory committee (Risk Committee). Additional committees may be created by resolution of the Board of Directors. Our board committees act with the purpose of advising our Board of Directors and do not have binding decision-making power over it. The committees are comprised of members appointed by the Board of Directors from among the members of our management and/or other people directly or indirectly linked to the Company.

 

As established in the Company’s bylaws, the attributions of each of our three advisory statutory committees are described below:

 

Compensation Committee

 

The Compensation Committee performs advisory functions in accordance with its internal regulations, in order to assist the Board of Directors in establishing the terms of compensation and other benefits and payments to be received in any capacity from the Company by officers and directors, in compliance with the terms of the Company’s bylaws and its internal regulations.

 

The Compensation Committee operates on a permanent basis and is comprised of three members of the Board of Directors, who are appointed and may be dismissed by the Board of Directors, provided that they are independent from the board of executive officers.

 

The Compensation Committee has its own internal regulations, the latest update of which was approved by the Board of Directors at a meeting held on September 1, 2022. These internal regulations establish the rules and regulations for the operation of the Compensation Committee, in addition to the duties set out in the Company’s bylaws and other applicable rules.

 

The Compensation Committee is currently composed of the following members of our board of directors, all of whom were elected on November 7, 2023 for a term of office of two years, which will end at the annual general meeting for approval of our financial statements for the fiscal year to end on June 30, 2025: (i) Alejandro G. Elsztain, (ii) Saul Zang and (iii) Isaac Selim Sutton.

 

Executive Committee

 

The Executive Committee performs advisory functions in accordance with its internal regulations, in order to assist the Board of Directors in its role as a supervisory body, giving its opinion on, and periodically reviewing, certain strategic and/or financial matters of the Company.

 

The Executive Committee operates on a permanent basis and is comprised of three members of the Board of Directors, who are appointed and may be dismissed by the Board of Directors.

 

Currently, the Executive Committee is composed of the following members of our board of directors, all of whom were elected on November 7, 2023 for a term of office of two years, which will end at the annual general meeting for approval of our financial statements for the fiscal year to end on June 30, 2025: (i) Eduardo S. Elsztain, (ii) Alejandro G. Elsztain and (iii) Saul Zang.

 

Statutory Audit Committee

 

The Statutory Audit Committee is a collegiate advisory body directly linked to the Company’s Board of Directors, which performs its duties in accordance with the provisions of the Company’s Bylaws, its internal regulations and the applicable CVM and B3 regulations.

 

The Statutory Audit Committee operates on a permanent basis and is comprised of three members, with a term of office of two years (re-election is permitted), who are appointed and may be dismissed by the Board of Directors, in accordance with the following criteria: (a) at least one of the members of the Statutory Audit Committee must also be a member of the Board of Directors, (b) at least one of the members of the Statutory Audit Committee may not be also a member of the Board of Directors; (c) at least one member of the Statutory Audit Committee must have recognized experience in corporate accounting matters; and (d) the majority of the members of the Statutory Audit Committee must be independent members, as defined by CVM Resolution No. 23, of February 25, 2021, as amended. If any member of the Statutory Audit Committee has held office for any period of time and has not been re-elected, such member of the Statytory Audit Committee may only rejoin it after at least three years have elapsed since the end of their most recent term of office. In addition, members of the Statutory Audit Committee may not remain in office for more than 10 years.

 

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The Statutory Audit Committee must have the means to receive and process information, including confidential information, both internal and external to the Company about non-compliance with legal and regulatory provisions applicable to the Company, as well as internal regulations and codes, with specific procedures to protect the provider and the confidentiality of the information.

 

The Statutory Audit Committee has its own internal regulations, the latest update of which was approved by the Board of Directors at a meeting held on September 1, 2022. These Internal Regulations establish the rules and regulations governing the functioning of the Statutory Audit Committee, in addition to the duties set out in the Company’s bylaws and other applicable rules.

 

A more detailed list of duties of the statutory audit committee may be found in its internal rules (regimento interno). Our statutory audit committee is currently composed of Mr. Isaac Selim Sutton (board member), Mr. Efraim Horn (board member), and Mr. Fabiano Nunes Ferrari (external member), who is also the coordinator of the Statutory Audit Committee.

 

The Statutory Audit Committee is a permanent advisory body to our board of directors, in compliance with CVM Resolution No. 23/2021 and the U.S. Sarbanes-Oxley Act of 2002 (the “SOX”), which allows us to rely on the exemption from the audit committee requirements of the SEC contained in paragraph (c)(3) of Rule 10A-3 under the Securities Exchange Act of 1934, as amended. See “Item 16D. Exemptions from the Listing Standards for Audit Committees.”

 

NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. However, as a foreign private issuer, we only need to comply with the requirement that our statutory audit committee meet the SEC rules regarding audit committees for listed companies.

 

The SEC has recognized that, for foreign private issuers, local legislation may delegate some of the functions of the audit committee to other advisory bodies. We have established a statutory audit committee, as approved at the board of directors meeting held on November 24, 2022. Our statutory audit committee meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The statutory audit committee is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority.

 

Below is a brief biography of the member of our Statutory Audit Committee who is not a member of our Board of Directors:

 

Fabiano Nunes Ferrari is the Coordinator of our Statutory Audit Committee. He has extensive experience in business, corporate, international and M&A law. He also works in related areas, especially corporate accounting, controls and analysis of financial statements, having previously served as a member of our Fiscal Council for nine years. With over 24 years of experience, he is currently a managing partner of Suchodolski Advogados Associados. Mr. Ferrari holds a degree in Law from the Pontifical Catholic University of São Paulo (PUC/SP), a specialization degree in Business Law from PUC/SP, and has completed an extension program at New York University (NYU). He is a member of the International Bar Association (IBA) and the São Paulo Lawyers Association (AASP).

 

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Executive Officers

 

Pursuant to our bylaws, we must have two to six executive officers who may or may not be shareholders. Our executive officers are elected by our board of directors. We currently have two executive officers, who hold the following titles: chief executive officer, and chief financial officer and investor relations officer. Our executive officers are elected for a one-year term with the possibility of reelection, and they are required to remain in office until the election of their successors. Under Novo Mercado regulation, our executive officers are also required to sign an agreement to comply with the rules of the Novo Mercado prior to taking office.

 

Our executive officers are our legal representatives and are responsible for our day-to-day management, implementation of the policies and directives set by our board of directors and other duties assigned to them under the law and our bylaws. Our executive officers are authorized to take all actions required for the operation of our business unless the law or our bylaws specifically delegate such authority to the shareholders’ meeting or our board of directors.

  

The table below indicates the name, title, date of election and term of office of each of our current executive officers:

 

Executive Officers   Title  Date of most
recent election
  End of term of
current office
  Age 
André Guillaumon   Chief Executive Officer  November 7, 2023  November 7, 2024  49 
Gustavo Javier Lopez   Chief Financial Officer and Investor Relations Officer  November 7, 2023  November 7, 2024  56 

 

Below is a brief biographical description of our executive officers:

 

André Guillaumon is the CEO of Brasilagro. He is an executive with extensive strategic experience, especially in areas related to agribusiness, having previously worked as a technical and commercial leader. He also directly led the development and implementation of fertilizer production and marketing strategies. He began his career in 1996 at Fertibrás S.A. and has represented the Company at technical forums such as the 25th International Fertilizer Management Seminar in Chicago and the Fertilizer Quality Commission (ANDA). Mr. Guillaumon holds a degree in Agronomic Engineering from the Luiz de Queiroz College of Agriculture (ESALQ/USP) in Piracicaba and is a member of the Superior Agribusiness Council (COSAG).

 

Gustavo Javier Lopez is the Finance and Investor Relations Director of Brasilagro. He is an executive with extensive strategic experience, especially in business, budgeting, administration and finance. He began his career in 1999 at Cresud S.A.C.I.F.y A., having also worked at IRSA Inversiones y Representaciones Sociedad Anónima, Estancias Unidas del Sud and Loma Negra. He holds a degree in accounting from the University of Buenos Aires.

 

Agreements with our Directors and Executive Officers

 

We are not party to any agreement or obligations involving the members of our board of directors and our executive officers.

  

Family Relationship among our Directors and Officers

 

Eduardo S. Elsztain, the chairman of our board of directors and a member of the Executive Committe, and Alejandro G. Elsztain, the vice-chairman of our board of directors and a member of the Compensation Committee, Risk Committee and Executive Committe, are brothers.

 

Saul Zang, a member of our board of directors and of the Executive Committee and Compensation Committee, is Carolina Zang’s father, an alternate member of our Board of Directors.

 

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B. Compensation

 

Pursuant to our bylaws, the total amount of compensation paid to the members of our board of directors, fiscal council, statutory audit committee, and executive officers, in the aggregate, is set annually at the general shareholders’ meeting. Our directors, pursuant to the recommendation of the compensation committee, allocate the aggregate compensation among our executive officers and directors. Although our executive officers are entitled to fixed compensation and a bonus depending on individual and company performance, the compensation of the fiscal council and audit committee members is fixed. The bonus is paid to our executive officers based on the achievement of certain individual and company targets.

 

The aggregate compensation paid to our executive officers and members of our board of directors (including for service as members of the compensation committee and executive committee) in the fiscal year ended June 30, 2023 was R$16.8 million, comprised of a fixed amount of R$11.5 million, a bonus paid to our executive officers and members of our board of directors in the amount of R$1.9 million and R$3.5 million as share-based compensation paid to our executive officers pursuant to our Long Term Incentive Plan based on Shares. The bonus to the board of directors was paid based on a recommendation of our compensation committee. The fixed amount paid to the members of our fiscal council in the 2023 fiscal year was R$0.3 million.

 

Neither we nor our subsidiaries have set aside any amount to provide pension, retirement or similar benefits. 

 

Stock Option Plan

 

Long-Term Incentive Plan based on Shares

 

Our Long-Term Stock-Based Incentive Plan, or the Plan, was approved at the general meeting of our shareholders held on October 2, 2017. Executive officers and other key employees are eligible for the Plan, however, members of the Board of Directors are not eligible.

 

In establishing the Plan, the Company seeks to foster the achievement of the Company’s objectives, to strengthen the participants’ commitment in achieving certain pre-established goals. Since the elected participants receive shares issued by us, this causes them to aim at improving the results the Company and also results in the appreciation of the price of our common shares, thereby aligning the employees’ long-term interests with the Company’s. Finally, there is a long-term alignment of interests, since the vesting period and the potential for valuation of our common shares under the Plan also encourage participants to generate better long-term results, as well as to remain as employees of the Company. The Plan helps retain key executives and key employees for a longer period, which is fundamental to the Company’s long-term management and strategies.

 

The Long-Term Stock-Based Incentive Program No. 1, or Program No. 1, was established under the Plan and was duly approved at the Board of Directors meeting held on June 18, 2019. Program No. 1 was approved with the purpose of establishing a share bonus to the participants of the program to: (i) stimulate the expansion, success and achievement of the Company’s objectives; (ii) encourage participants to contribute substantially to the Company’s success; (iii) align the interests of the Company’s shareholders with those of the participants; (iv) provide the Company with a competitive differential in relation to the market with respect to variable compensation; and (v) encourage the retention of key executives and key employees of the Company. The shares granted under Program No. 1 were only delivered to the elected participants who achieved the key performance indicators (KPIs), the time limits and other conditions described in the program. The maximum number of shares that each participant received varied depending on the dividends declared by the Company during the vesting period of Program No. 1, the position held by each participant and other applicable conditions. The vesting period of Program No.1 started on October 2, 2017 and ended on October 1, 2019.

 

The Long-Term Stock-Based Incentive Program No. 2, or Program No. 2, was established under the Plan and was duly approved at the Board of Directors meeting held on May 6, 2021. Program No. 2 was approved with the purpose of establishing a share bonus to the participants of the program to: (i) stimulate the expansion, success and achievement of the Company’s objectives; (ii) encourage participants to contribute substantially to the Company’s success; (iii) align the interests of the Company’s shareholders with those of the participants; (iv) provide the Company with a competitive differential in relation to the market with respect to variable compensation; and (v) encourage the retention of key executives and key employees of the Company. The shares granted under Program No. 2 were only delivered to the elected participants who achieved the key performance indicators (KPIs), the time limits and other conditions described in the program. The maximum number of shares that each participant received varied depending on the dividends declared by the Company during the vesting period of Program No. 2, the position held by each participant and other applicable conditions. The vesting period of Program No. 2 started on July 1, 2020 and ended on June 30, 2023.

 

Currently, we do not have any approved program under the Plan.

 

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C. Board Practices

 

For information about the date of expiration of the current term of office and the period during which each director and executive officer has served in such office, see “Item 6—Directors, Senior Management and Employees—A. Directors and Senior Management.”

 

Neither we nor any of our subsidiaries have entered into a service contract with any of our directors that provide for benefits upon termination of employment.

 

Fiscal Council

 

Under Brazilian corporate law, the Conselho Fiscal, or fiscal council is a corporate body independent from our management and our independent auditors. Its primary responsibilities are monitoring management activities, reviewing our financial statements, and reporting its findings to our shareholders.

 

The fiscal council also operates pursuant to its charter (regimento interno). Because Brazilian corporate law does not permit the board of directors to delegate responsibility for the appointment and removal of the external auditors and does not provide the fiscal council with the authority to resolve disagreements between management and the external auditors regarding financial reporting, the fiscal council cannot perform these functions.

 

However, the fiscal council’s charter (regimento interno) provides the fiscal council with the authority to submit recommendations to the board of directors for the appointment or removal of the external auditors and their compensation.

 

The fiscal council’s members are elected at the annual shareholders’ meeting with a term of office that extends through the following annual shareholders’ meeting. Our fiscal council shall be composed of three to five effective members and their alternates, who may or may not be shareholders. All members of our fiscal council are also required to sign an agreement to comply with the Novo Mercado rules prior to assuming their roles.

 

In addition, minority shareholders representing a minimum of 10% of our voting shares are entitled to elect one fiscal council member and his or her alternate by a separate vote. Our fiscal council must not have members of our board of directors, our executive officers, or our employees or of any subsidiary or a company under common control with us, or spouses or close family members of our directors and officers. Brazilian corporate law requires fiscal council members to receive a remuneration of at least 10% of the average annual amount paid to our officers, which excludes benefits and other allowances, or profit sharing, if any.

 

Our fiscal council is currently composed of three members and three alternates.

 

The table below indicates the name, title, date of election and term of office of each current member of our fiscal council::

 

Fiscal Council Members  Position  Date of Election  End of Current
Term
Ivan Luvisotto Alexandre  Fiscal Council member  October 24, 2023  October 24, 2024
Geraldo Affonso Ferreira Filho  Fiscal Council member  October 24, 2023  October 24, 2024
Marcos Paulo Passoni  Fiscal Council member  October 24, 2023  October 24, 2024
Leonardo de Paiva Rocha  Fiscal Council alternate member  October 24, 2023  October 24, 2024
Ariane Cristina Vilalta  Fiscal Council alternate member  October 24, 2023  October 24, 2024
Luis Fernando Oliveira Fernandes da Silva  Fiscal Council alternate member  October 24, 2023  October 24, 2024

 

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Below is a brief biography of each member and alternate member of our fiscal council:

 

Ivan Luvisotto Alexandre is the Chairman of our Fiscal Council. He has extensive experience in corporate planning and consulting, M&A, and international agreements and transactions. He is currently an associate lawyer at Araújo e Policastro Advogados. He holds a degree in Law from the Law School of the University of São Paulo (USP), a specialization degree in accounting applied to law from Fundação Getúlio Vargas in São Paulo (FGV-SP), as well as specialization degre in Law and Information Technology and Fiscal Council certification from IBGC.

 

Geraldo Affonso Ferreira Filho is a member of our Fiscal Council. He has extensive experience in the international forest-based industry, gained in senior leadership positions at large national and multinational companies in Brazil and Asia. He is a specialist in Corporate Governance and Socio-Environmental Sustainability. He serves as a member of the Statutory Audit Committees of SPTrans and CET - Companhia de Engenharia de Tráfego, and, on a pro bono basis, he is a member of the Executive Committee of the Brazilian Stewardship Code, the Sustainability and Capital Markets Committees of IBGC, and co-founder of the Governance Confraternity. He holds a degree in Economics from the Pontifical Catholic University of Campinas (PUCCamp) and an MBA from the FIA Business School. He is a Certified Board Member by IBGC.

 

Marcos Paulo Passoni is a member of our Fiscal Council. He has extensive experience in Civil Law and Litigation. Currently, he is an associate lawyer at Suchodolski Advogados Associados. He holds a degree in Law from the Pontifical Catholic University of São Paulo (PUC-SP), a master’s degree in Diffuse and Collective Rights from Unimes, and is currently pursuing a doctorate degree in Collective Procedural Law at PUC-SP. He also serves as a Professor of Civil Procedural Law at the São Paulo School of Advocacy.

 

Leonardo de Paiva Rocha is an alternate member of our Fiscal Council. He is currently a member of the Board of Directors of Norte Energia S.A., Eletronuclear S.A., and Eletronorte S.A. He also serves as the Coordinator of the Audit Committee, Compliance, and Financial Risks, and is a Committee Member for Finance at Norte Energia S.A. Additionally, he is a member of the Fiscal Council of IRB, the Board of Directors of Júnior Achievement Brasil (NGO), and the Advisory Board of Vocação (NGO). He holds a degree in Mechanical and Automotive Engineering from the Military Institute of Engineering (IME), and a specialization degree in Business Administration from the Pontifical Catholic University of Rio de Janeiro (PUC-RJ).

 

Ariane Cristina Vilalta is an alternate member of our Fiscal Council. She is currently an associate lawyer at Suchodolski Advogados Associados, specialized in Litigation and Labor Law. She holds a degree in Law from the Pontifical Catholic University of São Paulo (PUC-SP) and a postgraduate degree in Labor Law from PUC-SP.

 

Luiz Fernando Oliveira Fernandes da Silva is an alternate member of our Fiscal Council. He has experience in corporate law, civil litigation, and real estate law. He is currently an associate lawyer at Suchodolski Advogados Associados. He holds a degree in Law from the Mackenzie University Law School in São Paulo and a postgraduate degree in Business Law from Fundação Getúlio Vargas (FGV). He is a member of the São Paulo Lawyers’ Association (AASP).

 

For information about the compensation committee, see “Item 6—Directors, Senior Management and Employees—Directors and Senior Management—Board Committees.”

 

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D. Employees

 

The table below shows the evolution of the total number of our employees for the period indicated:

 

   As of June 30, 
Location  2023   2021   2020 
Head Offices/São Paulo   92    91    87 
Araucária Farm   5    11    13 
Alto Taquari Farm   8    12    13 
Chaparral Farm   6    37    46 
Nova Buriti Farm   10    2    2 
Jatobá Farm   12    11    11 
Preferência Farm   41    24    26 
Avarandado Farm   2    8    9 
Xingu Farm   11    44    42 
São José Farm   24    50    44 
Arrojadinho Farm   9    20    15 
Serra Grande Farm   33    8    8 
AgriMAQ   55    31    25 
Total   342    350    341 

 

   As of June 30, 
Location  2023   2022   2021 
Head Offices/São Paulo   92    87    83 
Goiás   10    26     
Mato Grosso   83    42    47 
Bahia   120    123    89 
Piauí   17    17    12 
Maranhão   55    44    96 
Minas Gerais   2    2    2 
Total   350    341    329 

 

All of our employees are located in Brazil, and we do not employ a material number of temporary employees.

 

Compensation and benefits

 

Our compensation policy for our employees is based on legal and market rates of compensation, as well as merit-based increases in individual employees’ compensation, based on individual goals set for such employees and administered and monitored by our human resources department. We are also party to agreements, entered into with unions representing our employees, providing for employee profit-sharing arrangements (programa de participação nos resultados), pursuant to which all of our employees receive annual bonuses based on our financial and operating results, as well as personal goals set for individual employees. Finally, we also seek to retain quality personnel through offering benefits such as health and dental care, life insurance, meal vouchers, transportation and lodging, as well as job and technical training and subsidies for post-graduate, business administration and language courses. We also employ security officers at each of our agricultural properties, in an effort to maintain safe working conditions for employees contracted through our third-party service providers, including through regular workplace safety training programs.