BrasilAgro(US:LND)2021-10-29 19:48Part I Key Information This section details key business, country, and share-related risks, including pandemic impacts and foreign land ownership restrictions Risk Factors The company faces significant risks from health epidemics, land acquisition limitations, customer concentration, and Brazilian economic instability - The company's business is exposed to health epidemics like the COVID-19 pandemic, which could affect operations if a significant portion of the workforce is unable to work. While operations have continued normally to date, future impacts remain uncertain, particularly concerning logistics, supply chains, and commodity price volatility343536 - The business strategy of acquiring, developing, and selling agricultural properties is subject to risks such as the inability to acquire land at attractive prices, failure to obtain necessary permits, adverse climate conditions, and unfavorable economic environments in Brazil, Bolivia, and Paraguay3940 - Brazilian law imposes significant limitations on the acquisition and lease of land by Brazilian companies controlled by foreigners. As approximately 55.1% of the company's shares were held by foreigners as of September 30, 2021, these restrictions could materially limit the ability to acquire new properties and implement the business strategy4244 - A substantial portion of revenue is derived from a small number of customers. In FY 2021, three customers accounted for 49.2% of revenue. This concentration increases risks related to customer loss or default, particularly concerning Brenco, whose controlling shareholder is under investigation and which has filed for bankruptcy reorganization5460 - The company faces significant risks related to the Brazilian economy and government actions, including economic instability, inflation, fluctuating interest and exchange rates, and political uncertainty. The ongoing "Lava Jato" (Car Wash) corruption investigations have adversely affected the Brazilian economy and capital markets124128130 - Holders of American Depositary Shares (ADSs) may face disadvantages in exercising voting rights, may not receive dividends if the board deems it inadvisable, and could face dilution of their equity interest if they are unable to exercise preemptive rights in future capital increases140141143 Information on the Company This section provides a comprehensive overview of BrasilAgro's business model, property portfolio, agricultural activities, and regulatory environment History and Development of the Company This section details the company's business model, property acquisitions, and key corporate developments since its IPO - The company's business model focuses on acquiring, developing, and exploring agricultural properties with high potential for cash flow and value appreciation, eventually selling them to realize capital gains161 - As of the report date, the company holds 267,002 hectares, including 51,747 leased hectares. Since its IPO, it has acquired 16 properties, fully selling four and partially selling six162 - Key recent corporate developments include the merger with Agrifirma in January 2020, a follow-on share offering in February 2021 raising R$440.0 million, the acquisition of Bolivian companies (Acres del Sud) in February 2021, and a capital increase of R$448.2 million from the exercise of warrants in May 2021163168170172 Property Portfolio Cost and Fair Market Value as of June 30, 2021 | Property | Location | Total Area (ha) | Land and Improvement Cost (R$ millions) | Estimated Fair Market Value (R$ millions) | Appreciation | | :--- | :--- | :--- | :--- | :--- | :--- | | Jatobá Farm | Jaborandi/BA | 13,276 | 29.6 | 386.4 | 1205% | | Alto Taquari Farm | Alto Taquari/MT | 5,103 | 33.5 | 304.7 | 810% | | Araucária Farm | Mineiros/GO | 5,534 | 46.2 | 333.2 | 621% | | Chaparral Farm | Correntina/BA | 37,182 | 91.7 | 767.00 | 736% | | Nova Buriti Farm | Januaria/MG | 24,212 | 23.4 | 33.8 | 44% | | Preferência Farm | Barreiras/BA | 17,799 | 28.4 | 89.4 | 215% | | Moroti Farm | Boqueron/Paraguay | 59,585 | 211.4 | 449.6 | 113% | | São José Farm | São Raimundo das Mangabeiras/MA | 17,566 | 112.5 | 407.00 | 262% | | Arrojadinho Farm | Jaborandi/BA | 16,642 | 96.1 | 214.2 | 123% | | Rio do Meio Farm | Jaborandi/BA | 12,288 | 117.9 | 252.3 | 114% | | Serra Grande Farm | Baixa Grande do Ribeiro/PI | 4,489 | 36.7 | 71.8 | 96% | | Acres del Sud | Santa Cruz/ Bolivia | 9,875 | 124.7 | 209.4 | 68% | | Total | | 223,551 | 952.1 | 3518.8 | 270% | Business Overview This section covers the company's COVID-19 response, revenue segments, customer default risks, and compliance with Brazilian land laws - In response to the COVID-19 pandemic, the company created a Prevention and Risk Committee, implemented remote work, and adopted safety protocols to preserve employee health and ensure operational continuity. Measures to preserve cash included contracting new credit lines and anticipating sales of agricultural products189190 Net Revenue Breakdown by Segment (FY 2021 vs. FY 2020) | Segment | FY 2021 (% of Net Revenue) | FY 2020 (% of Net Revenue) | | :--- | :--- | :--- | | Grains | 49.8% | 47.9% | | Sugarcane | 40.0% | 39.6% | | Livestock | 4.4% | 6.7% | | Cotton | 4.2% | 2.7% | - The company faces a default risk from its main sugarcane customer, Brenco, due to its controlling shareholder's involvement in the "Lava Jato" investigation and Brenco's own bankruptcy reorganization filing in May 2019. As of June 30, 2021, receivables from Brenco amounted to R$13.7 million19920060 - Brazilian law requires rural properties to maintain a legal reserve area where deforestation is not allowed, ranging from 20% to 80% of the property depending on the region. As of June 30, 2021, approximately 33% (72,974 hectares) of the company's total property area consists of protected areas327328331 - Brazilian law restricts the acquisition of agricultural properties by Brazilian companies controlled by foreigners. With approximately 55.9% of its shares held by foreigners as of June 30, 2021, the company may face additional procedures and approvals for future land acquisitions, potentially causing delays or requiring changes to its business strategy335336339 Operating and Financial Review and Prospects This section analyzes the company's financial performance, liquidity, capital resources, and contractual obligations, including the impact of macroeconomic factors Operating Results This section provides a detailed comparison of the company's operating results for fiscal years 2021, 2020, and 2019 Consolidated Statement of Income Summary | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | (in R$ thousands) | | | | | Revenue | 662,952 | 487,568 | 357,910 | | Gain on sale of farms | 53,097 | 61,420 | 142,812 | | Gross profit | 491,524 | 221,393 | 236,186 | | Operating income (loss) | 394,119 | 164,284 | 186,876 | | Net Profit for the year | 317,646 | 119,554 | 177,079 | | Basic earnings per share (R$) | 4.56 | 2.11 | 3.29 | - FY 2021 vs. FY 2020: - Net Revenue: Increased by R$175.4 million (36.0%) to R$663.0 million, primarily due to a 37.3% increase in the average price of sugarcane and a 41.6% increase in revenue from grain sales, driven by higher commodity prices - Gross Profit: Increased by R$270.1 million (122.0%) to R$491.5 million - Net Profit: Increased by R$198.0 million (165.6%) to R$317.6 million438444450 - FY 2020 vs. FY 2019: - Net Revenue: Increased by R$129.7 million (36.2%) to R$487.6 million, driven by higher sales volumes for grains and cattle, and increased prices for sugarcane - Gain on Sale of Farms: Decreased from R$142.8 million to R$61.4 million - Gross Profit: Decreased slightly by R$14.8 million (6.3%) to R$221.4 million - Net Profit: Decreased by R$57.5 million (32.5%) to R$119.6 million, largely due to the lower gains from farm sales compared to the prior year452453464 Liquidity and Capital Resources This section reviews the company's cash position, indebtedness, equity, and cash flow activities, highlighting capital expenditures Key Financial Position Data (as of June 30) | Metric | 2021 (R$ millions) | 2020 (R$ millions) | | :--- | :--- | :--- | | Cash and cash equivalents | 1,059.1 | 171.0 | | Total consolidated indebtedness | 663.2 | 514.1 | | Total equity | 2,182.6 | 1,121.6 | Consolidated Cash Flow Summary (Year ended June 30) | Cash Flow from | 2021 (R$ thousands) | 2020 (R$ thousands) | 2019 (R$ thousands) | | :--- | :--- | :--- | :--- | | Operating activities | 151,232 | 69,024 | 51,338 | | Investing activities | (214,009) | (29,295) | 21,266 | | Financing activities | 954,857 | 18,451 | (27,621) | - The significant increase in cash from financing activities in FY 2021 was mainly due to a capital contribution of R$871.0 million from a primary share offering and the exercise of warrants477 - Capital expenditures for the fiscal year ended June 30, 2021, totaled R$78.9 million, primarily used for land development for cultivation469 Trend Information This section discusses anticipated market trends and the competitive and regulatory environment affecting the company - The company anticipates continued operation within a highly competitive and regulated environment. Market trends are favorable, with the USDA forecasting record global and Brazilian soybean production for the 2021/22 crop year, supported by strong Chinese demand and a weaker Brazilian real498 Contractual Obligations This section provides a tabular disclosure of the company's contractual obligations by maturity periods Contractual Obligations as of June 30, 2021 (in R$ thousands) | Obligation | Less than One Year | One to Three Years | Three to Five Years | More than Five Years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Trade accounts payable | 75,224 | - | - | - | 75,224 | | Derivative financial instruments | 48,574 | 645 | 1,320 | - | 50,539 | | Loans, financing and debentures | 322,046 | 55,984 | 38,355 | 246,796 | 663,181 | | Lease payables | 30,545 | 70,683 | 86,319 | 11,448 | 198,995 | | Transactions with related parties | 5,568 | 2,519 | - | - | 8,087 | | Other liabilities | 45,133 | 7,295 | - | - | 52,428 | Directors, Senior Management and Employees This section details the company's governance structure, including the Board of Directors, executive officers, Fiscal Council, compensation, and employee information Directors and Senior Management This section identifies the members of the Board of Directors and executive officers, detailing their election terms - The Board of Directors consists of nine members, elected for a two-year term expiring at the 2023 annual shareholders' meeting. Five of the nine directors were nominated by the controlling shareholder, Cresud508512 - The company has two executive officers: André Guillaumon (Chief Executive Officer and Chief Operating Officer) and Gustavo Javier Lopez (Chief Administrative Officer and Investor Relations Officer)527529 Compensation This section outlines the aggregate compensation for executive officers and board members, including the long-term incentive plan - The aggregate compensation for executive officers and board members in fiscal year 2021 was R$13.4 million, which included R$3.8 million in fixed compensation, R$8.2 million in bonuses, and R$1.4 million in share-based compensation537 - The company has a Long-Term Stock-Based Incentive Plan to align the interests of key employees with shareholders by granting shares based on performance indicators and continued employment540541 Board Practices This section describes the company's Board practices, including the role and independence of the Fiscal Council - The company has a permanent Fiscal Council (Conselho Fiscal), which is a corporate body independent of management and auditors. It has been modified to comply with the exemption requirements of SEC Rule 10A-3, allowing it to exercise duties similar to a U.S. audit committee to the extent permitted by Brazilian law544545547 Employees This section provides information on the company's employee numbers over recent fiscal years Number of Employees by Year | As of June 30, | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total Employees | 341 | 329 | 367 | Major Shareholders and Related Party Transactions This section identifies major shareholders, particularly Cresud, and details significant related party transactions, including investments and acquisitions Major Shareholders This section identifies the company's major shareholders and their respective ownership percentages Share Ownership as of September 30, 2021 | Shareholder | Percentage (%) | | :--- | :--- | | Cresud | 39.04 | | Charles River Capital | 9.17 | | Elie Horn/Cape Town | 5.96 | | Treasury | 3.11 | | Others | 42.28 | Related Party Transactions This section discloses significant transactions with related parties, including investments and acquisitions - In October 2019, the company invested US$1.0 million in Ag-Fintech Agrofy. The controlling shareholder, Cresud, also holds a significant stake (21.8%) in Agrofy594 - In December 2020, as part of a corporate reorganization initiated by Cresud, the company entered into an agreement to acquire 100% of the shares of four Bolivian companies (Acres del Sud) that were indirectly controlled by Cresud605 Financial Information This section presents consolidated financial statements, discusses legal proceedings, and details shareholder distribution policies and recent dividend payments Consolidated Statements and Other Financial Information This section covers the company's legal proceedings, provisions for losses, and dividend policy, including recent payment details - As of June 30, 2021, the company was a defendant in 65 pending legal and administrative proceedings and had provisions for probable losses totaling R$1.4 million, primarily for labor and environmental matters610611 - The company's bylaws require a mandatory dividend of at least 25% of adjusted net income. The dividend for the fiscal year ended June 30, 2021, was approved at R$260.0 million, or R$2.62 per share629630 Recent Dividend Payments | Fiscal Year Ended | Total Dividend (R$ millions) | Dividend per Share (R$) | | :--- | :--- | :--- | | June 30, 2021 | 260.0 | 2.62 | | June 30, 2020 | 42.0 | 0.7078 | | June 30, 2019 | 50.0 | 0.93 | Additional Information This section details the company's corporate structure, bylaws, share rights, exchange controls, and tax considerations for shareholders Memorandum and Articles of Association This section details the company's capital stock, shareholder rights, and provisions related to change of control - The company's capital stock consists exclusively of common shares, each entitling the holder to one vote. Shareholders have preemptive rights in future capital increases, subject to certain exceptions691728 - A change of control triggers a mandatory tender offer by the acquirer for all outstanding shares at the same price and conditions offered to the controlling shareholder762 - A "poison pill" provision in the bylaws requires any shareholder acquiring 20% or more of the company's capital stock to launch a public tender offer for all remaining shares at a premium price769772 Exchange Controls This section explains Brazilian exchange control regulations for foreign investors, including registration requirements - Foreign investors must register their investment with the Central Bank of Brazil to be able to convert and remit dividends and sales proceeds abroad. Investments can be registered as foreign portfolio investments (Resolution No. 4,373) or foreign direct investments (Law No. 4,131), with different tax implications797801812 Taxation This section outlines Brazilian and U.S. federal income tax considerations for holders of the company's shares and ADSs - Brazilian Tax: Dividends paid from profits generated after January 1, 1996, are generally not subject to withholding tax. Interest on shareholders' equity is subject to a 15% withholding tax (or 25% for residents of tax havens)818821 - U.S. Federal Income Tax: For U.S. Holders, distributions are generally taxable as dividends. The company does not believe it was a Passive Foreign Investment Company (PFIC) for its most recent taxable year, but this status is determined annually and could change845854 Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, including foreign exchange and commodity prices, and its hedging policies using derivative instruments - The company is exposed to foreign exchange risk as some revenues and input costs are linked to the U.S. dollar. A hypothetical 5% devaluation of the Brazilian real against the U.S. dollar would result in a pre-tax loss of R$20.9 million, based on the position as of June 30, 2021883884 - To mitigate farming commodity price risks, the company uses financial instruments like derivatives, options, and futures contracts. As of June 30, 2021, a hypothetical 5% decrease in the price of unhedged soybeans would decrease expected revenues by R$11.1 million over the next 12 months887888 - The company's risk management policy, overseen by a dedicated committee and the board, uses hedging to protect cash flows from volatility in commodity prices, exchange rates, and input costs889891 Part II Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2021, with no auditor attestation due to emerging growth company status - Management, including the CEO and CAO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2021903 - Management assessed the effectiveness of internal control over financial reporting as of June 30, 2021, using the COSO framework, and concluded that it was effective909 - As an emerging growth company, this annual report does not include an attestation report from the company's registered public accounting firm on internal controls910 Corporate Governance and Other Matters This section covers corporate governance topics, including accountant fees, changes in auditors, and differences from NYSE listing standards Principal Accountant Fees and Services This section details the fees paid to the principal accountant for audit and audit-related services Principal Accountant Fees (in R$ thousands) | Fee Type | Year Ended June 30, 2021 | Year Ended June 30, 2020 | | :--- | :--- | :--- | | Audit fees | 965.1 | 945.4 | | Audit-related fees | 2,110.1 | 336.6 | | Total fees | 3,075.2 | 1,282.0 | Change in Certifying Accountant This section reports the change in the company's independent registered public accounting firm from EY to PwC - On September 20, 2021, the company's board of directors dismissed Ernst & Young Auditores Independentes S.S. (EY) and engaged PricewaterhouseCoopers Auditores Independentes (PwC) as the new independent registered public accounting firm, effective for the fiscal year ending June 30, 2022928 - There were no disagreements with EY on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure during the two most recent fiscal years930 Corporate Governance This section discloses significant differences between the company's corporate governance practices and NYSE standards - The company discloses significant differences between its corporate governance practices and those required by NYSE standards for U.S. companies. Key differences include: - Not required to have a majority of independent directors - No requirement for separate meetings of non-management directors - No requirement for a nominating/corporate governance committee934937938939 Part III Financial Statements This section presents the company's audited consolidated financial statements, including statements of financial position, income, and cash flows, with detailed notes Consolidated Statement of Financial Position (Assets) | (in R$ thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Current assets | 1,761,206 | 616,607 | | Cash and cash equivalents | 1,059,107 | 171,045 | | Inventories | 265,859 | 138,778 | | Biological assets | 210,489 | 115,553 | | Noncurrent assets | 1,667,112 | 1,401,904 | | Investment properties | 997,100 | 858,261 | | Accounts receivable and others | 348,933 | 262,387 | | Total assets | 3,428,318 | 2,044,368 | Consolidated Statement of Financial Position (Liabilities and Equity) | (in R$ thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Current liabilities | 661,292 | 400,092 | | Loans, financing and debentures | 322,046 | 217,274 | | Noncurrent liabilities | 584,425 | 522,707 | | Loans, financing and debentures | 341,135 | 296,839 | | Total liabilities | 1,245,717 | 922,799 | | Total equity | 2,182,601 | 1,121,569 | | Total liabilities and equity | 3,428,318 | 2,044,368 | Consolidated Statement of Income | (in R$ thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | 662,952 | 487,568 | 357,910 | | Gross profit | 491,524 | 221,393 | 236,186 | | Operating income | 394,119 | 164,284 | 186,876 | | Net profit for the year | 317,646 | 119,554 | 177,079 | Consolidated Statement of Cash Flows | (in R$ thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash flows from operating activities | 151,232 | 69,024 | 51,338 | | Net cash flows (used in) from investment activities | (214,009) | (29,295) | (21,266) | | Net cash flows from (used in) financing activities | 954,857 | 18,451 | (27,621) | | Net change in cash and cash equivalents | 892,080 | 58,180 | 2,451 |