HAROLDO TORRES COST MANAGEMENT IN SUGAR AND ETHANOL INDUSTRY: ANALYZING ITS EVOLUTION AND PERSPECTIVES

SUMMARY INTRODUCTION 2014/2015 CROP SEASON 2015/2016 CROP SEASON EVOLUTION AND PERSPECTIVES

INTRODUCTION

AGROINDUSTRIAL RESULTS FOCUS ON EX WORKS COSTS SUGAR-ENERGY PRODUCTION COSTS AGRICULTURAL INDUSTRIAL ADMINISTRATIVE

SURVEY SCOPE FOCUS ON THE PARTICIPATION OF THE MOST REPRESENTING MILLS' GROUP IN NATIONAL PRODUCTION 9 ANALYZED CROPS MORE THAN 200 COMPANIES HAVE ALREADY PARTICIPATED 14/15 CROP SEASON: 114 PARTICIPANTS MORE THAN 1/3 OF NATIONAL MILLING: ~ 260 MI TONS OF CANE 60% OF MAJOR GRUPOS SPONSOR: CNA

SAMPLE OF 2014/2015 CROP SEASON SAMPLE SAMPLE: 258 mi tons of processed sugarcane (≈ 40% of milling) 50% of the sample concentrated in Sao Paulo (distributed in 6 micro regions) It corresponds to 35% of milling in Traditional region, 49% in Expansion and 46% in Northeast.

2014/ CROP SEASON - CENTRAL-SOUTH & NORTHEAST 2015/ CROP SEASON - CENTRAL–SOUTH

i) Values deflated by the IPC, base = 2015/16 crop season; ii) Values for the 2015/16 crop are preliminary ATR REAL PRICE Vs. TRADITIONAL REGION PRODUCTIVITY PRODUCTIVITY: Under their historical average levels Dropping 5.83% in 14/15 crop season in relation to 13/14 crop season. Recovery of the main technical indicators in the 2015/16 crop season Agricultural ProductivityATR Price

AGRICULTURAL PRODUCTION COSTS– R$/t 89,03 91,51 86,92 88,12 96,01 2,79% 1,38% Cooling of the pressure from production costs TraditionalExpansionNortheast EOC CR + LR

EOC ELEMENTS OF AGRICULTURAL PRODUCTION 76,45 81,00 78,44 82,25 5,95%4,86% Productivity Recovery (t/ha) 56,94 59,16 55,5657,28 59,86 Traditional Expansion Northeast Mechanization Labor Inputs Leases Administrative expenses

56,94 59,16 55,5657,28 59,86 EOC ELEMENTS OF AGRICULTURAL PRODUCTION Traditional Expansion Northeast

SUGARCANE REAL PRICE IN TRADITIONAL REGION Shares in ATR payment of growers' sugarcane Values deflated by the IPC. Base = 2015/16 crop season. ⇩ Cane quality (Kg ATR/t of sugarcane): 137,72 kg/t 2014/15: 137,72 kg/t 132,60 kg/t 2015/16: 132,60 kg/t ⇩ S ugarcane real price in Traditional region white sugar VHP sugaranhydrous ethanol hydrous ethanol

AGROINDUSTRIAL PRODUCTION COSTS OF SUGARCANE PROCESSING – R$/t DESCRIPTION Crop season Participation Variation EOC growers’ sugarcane CONSECANA payment Bonuses own sugarcane EOC Depreciation Land and capital remuneration I – Sugarcane cost II – Industrial cost Industrial operation labor inputs maintenance industrial business Industrial Depreciation Industrial Capital Cost III – Administrative expenses salary others working capital costs Total Cost

SUGAR COSTS, PRICES AND MARGINS 2014/15 CROP SEASON LR + CR EOC TOC CT PRICE Margin TraditionalExpansion WHITE Northeast Traditional Expansion VHP Northeast

ETHANOL COSTS, PRICES AND MARGINS 2014/15 CROP SEASON TraditionalExpansion ANHYDROUS NortheastTraditionalExpansion HYDROUS Northeast LR + CR EOC TOC CT PRICE Margin

ESTIMATE OF ADDITIONAL REVENUE WITH ENERGY SALES IN 2014/15 CROP SEASON BIOELECTRICITY CR EOC Electricity price TC Traditional Expansion Northeast EOC CR Electricity price

ELECTRICITY REVENUES, COSTS AND MARGIN TRADING FOR ANALYZED REGIONS IN 2014/15 CROP SEASON 8,21 7,08 3,00 BIOELETRICIDADE Increase in electricity sales prices, as well as the use of cogeneration equipment with ways to increase energy production. Traditional Expansion Northeast Costs Revenue

Description2012/132013/142014/152015/16 Agroindustrial cost109,34112,22123,11125,66 Cogeneration cost0,805,504,545,73 Total Cost (TC)110,13117,71127,65131,39 Agroindustrial revenue108,33104,84109,35122,05 Cogeneration revenue0,007,6811,0911,07 Total Revenue (TR)108,33112,52120,44133,12 ECONOMIC MARGIN-1,64%-4,42%-5,65%1,32% TRADITIONAL REGION PROFIABILITY-RS/t Signs that the recovery of the sugar-energy sector is underway, after seven consecutive years of crisis. However, the agricultural industries still need to settle the problems of cash flow and working capital. The sugarcane industry has entered a positive stage Challenge: control and production costs management in an inflationary environment and exchange devaluation.

BENCHMARKING OF AGROINDUSTRIAL COSTS (SUGAR AND ETHANOL): 2014/15 CROP SEASON Heterogeneidade produtiva e econômica Expansion Central-South Traditional Central-SouthNortheast

AGRICULTURAL AND AGROINDUSTRIAL PRODUCTIVITY DISTRIBUTION OF HYDROUS ETHANOL IN 2014/15 CROP SEASON NortheastTraditional Expansion

DEVELOPEMENT COSTS 2007/2008 to 2015/2016

AGROINDUSTRIAL PRODUCTION COSTS OF SUGARCANE'S PROCESSING IN TRADITIONAL REGION - R$/t Nominal Growth Rate of Costs: Administrative 8,96% per year Agricultural 11,05% per year Industrial 3,28% per year Sugarcane costIndustrial costAdministrative expenses

SUGARCANE COSTS IN TRADITIONAL REGION R$/t Growers’ sugarcaneOwn sugarcaneDepreciationCapital and Land remuneration

PRODUCTION COSTS OF OWN SUGARCANE R$/t TRADITIONAL REGION COSTS HIGHER THAN THE GROWERS' SUGARCANE AND THE PRICE PAID BY SUGARCANE! Share of own sugarcane (% ATR): 62,95% EOC CR + LR POTENCIAL PRICE

COSTS DEVELOPEMENT OF VHP SUGAR PRODUCTION– TRADITIONAL REGION - R$/t Raw material EOC Industrial EOCAdministrative EOC CR + LR Average Price

COSTS DEVELOPEMENT OF WHITE SUGAR PRODUCTION– TRADITIONAL REGION - R$/t

COSTS DEVELOPEMENT OF ANHYDROUS ETHANOL TRADITIONAL REGION- R$/m³

COSTS DEVELOPEMENT OF HYDROUS ETHANOL TRADITIONAL REGION- R$/m³ Challenges in the search for measures to prevent the attractiveness loss of ethanol production Negative margin with trend potential improvement for ethanol

PROSPECTS 2007/2008 to 2015/2016

PROSPECTS OFFERING LIMITERS: THE SURVIVAL OF SUGAR-ENERGY INDUSTRY IN CP: 1.Energy cogeneration (it indicates just 14.5% of its potential); 2.Costs Control and Management.

PROSPECTS WHAT IS THE FUTURE OF BIOFUELS IN BRAZIL?

THANK YOU! Haroldo Torres + 55 (19) – Ramal 236