LND Brasilagro Cia Brasileira De Propriedades Agricolas

Property Sale

Property Portfolio

On the date of this release, the Company’s property portfolio consisted of 236,958 hectares across six Brazilian states and Paraguay.

With the incorporation of the Parceria V area in August 2018, the Company’s total leased production areas increased to 47%. We believe that this mix between own and leased area leads to greater flexibility in portfolio management, reducing the volatility of the operating cash flow.

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Development of Areas

During the 2018/2019 harvest year, we transformed 2,000 hectares in Paraguay and began the process to transform 3,200 hectares in Bahia, to be concluded in the next harvest. We accumulated a total transformed area of 128,600 hectares in 11 years of operation. This represents an average growth of 29% in portfolio transformation, which is the main valuation index of our properties.

EVOLUTION OF THE PORTFOLIO

LAND DEVELOPMENT – FARM BREAKDOWN

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Market Value of the Portfolio

We review the internal market value of our farms annually, and on June 30, 2019, the market value of our portfolio was R$1.5 billion.

In order to estimate the market value of our farms, we considered for each property: (i) its level of development; (ii) soil quality and maturity; and (iii) agricultural aptness and potential.

As there was no incorporation of new farms, we chose not to carry out the independent appraisal in the 2018/2019 fiscal year.

We hired the independent consulting firm Deloitte Touche Tohmatsu to conduct a market valuation of our properties. According to their appraisal, as of June 30, 2019, the market value of the portfolio was R$1.5 billion.

The table below shows the internal market valuation of the portfolio performed by Deloitte Touche Tohmatsu on June 30, 2017 and 2018, considering the sales of part of the Jatobá Farm and part of the Alto Taquari Farm:

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Details on the productivity of each crop are provided below.

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Soybean

As previously mentioned, December 2018 and January 2019 were impacted by very irregular rainfall, mainly in the MAPITOBA region, where we had short drought periods of 20 to 40 days, which mostly affected a large part of the crops in the growing phase, leading to the decrease in plant population. The earliest soybean cultivars, which were already in the reproductive period, were the most affected.

The table below shows soybean yields in the 2018/2019 harvest:

New and under development areas represent 11% of the total planted area. These areas present lower yields, since they have a less mature soil structure and are consequently more affected by adverse weather conditions. The table below shows productivity by soil maturity level:

Corn

Corn crops in Brazil were affected in their reproductive period due to short drought periods – in December and January – as explained above. In addition, we had the impact of a loss of 556 hectares, equivalent to 3,300 tons, due to the invasion of wild animals at the Parceria V Farm, where we planted this crop for the first time this harvest. We took the necessary measures, respecting the environmental legislation, but the two adverse factors mentioned led to productivity impacts and we registered reductions of 26.0% in the corn crop and of 9.9% in the 2nd corn crop, compared to budgeted estimates.

In Paraguay, there was a 14.6% decrease from the estimated yield, due to lack of rain in December and January, along with the high temperatures, which increased the presence of caterpillars considerably.

The table below shows corn yields in the 2018/2019 harvest:

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Cotton

The table below shows cotton yield in the 2018/2019 harvest

In this harvest, we started to grow cotton at the Chaparral Farm, in Bahia. Results were 20.9% lower than estimated due to adverse weather conditions. As it was the first cotton crop planted in the region, the performance of cotton varieties was also below expectations, as they did not adapt to the Farm’s micro-climate.

In April, we began harvesting the new sugarcane crop. So far, 603,200 tons of sugarcane were harvested, registering a TCH (harvest tons per hectares) of 79.6. As mentioned before, this crop may also suffer a reduction in estimated yield, due to the lower rainfall recorded at the São José Farm, in Maranhão, the Araucária Farm, in Goiás and the Alto Taquari Farm, in Mato Grosso, between November and January, compared to to previous records. In addition, wildfires affected some areas of ratoons of sugarcane (700 hectares at the Alto Taquari Farm and 1,800 hectares at the São José Farm). We took corrective measures in order to intensify the nitrogen fertilization of the affected areas to mitigate the effect of fire in the ratoons, but we should still expect negative yield impacts of approximately 5%.

CATTLE RAISING

Cattle raising is a transitory activity for the Company, aimed at the transformation of the area. We have 20,900 head of cattle in the Preferência

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and the Jatobá Farms and in Paraguay, distributed in 10,659 hectares of already active pasture in Brazil and 2,859 hectares of already active pasture in Paraguay.

In addition to the 13,518 hectares estimated for active pasture during the 2018/2019 harvest, the Company has 4,253 hectares of pasture at the Chaparral Farm, which are part of the area opening strategy, because the grasses increase the organic material level in the soil and reduce impacts that could cause lower productivity in new areas.

Due to the sale of the Jatobá Farm’s agricultural areas and the variation of prices of agricultural products, we refrain from buying 2,000 head of cattle. This had a negative impact of 5.2% on meat production. However, weight gain per day grew this harvest, demonstrating the improvement in efficiency of this activity.

OTHER

In order to improve the Company’s results, mitigate operating risks and as a real estate strategy, in the 2018/2019 harvest, we leased 14,120 hectares to third parties in the state of Bahia, in the Midwest region and in Paraguay. These leases represented expected yields of 7,653 tons of soybean. The areas were leased to local farmers and the contracts have a duration of up to 5 years with a value of up to 18% of production, and the minimum value is 5 soybean bags per hectare.

In addition, we have 2,749 hectares of other crops, such as grasses cover crops and sorghum, in order to increase the organic matter and accelerate the maturation of the soil.

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FINANCIAL PERFORMANCE

The consolidated financial statements were prepared and are being presented in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board.

IFRS 16

IFRS 16/CPC - 06 (R2) entered into force for annual periods beginning on January 1, 2019. Through preliminary assessments prepared by Management, this standard could have significant impacts on the individual and consolidated financial statements. According to the new principles established by IFRS 16, the Company shall recognize the lease liability and the right of use asset on the date of initial application for leases previously classified as operating leases.

Currently, the Company's main agreements subject to IFRS 16 apply to agricultural partnership operations and land leasing, in addition to other minor contracts involving the leasing of vehicles, buildings and machinery. The impact of the new standard will be reflected in accounting from the next quarter, as the Company's fiscal year begins on July 1.

EBITDA and Adjusted EBITDA

EBITDA is presented based on Net Income adjusted for interest, taxes, depreciation and amortization, pursuant to accounting standards.

Adjusted EBITDA was calculated by excluding biological assets in progress (sugarcane and grains planted) and adjusted for the harvest’s derivative results and depreciation expenses, including depreciation of fixed assets of the Farms, developed areas and permanent crops.

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In the 2018/2019 harvest, net revenue from sales reached a record of R$535.1 million, 80.4% higher than the same period of the previous year.

SALE OF FARMS

In the 2018/2019 harvest, the Company recorded the sales of two plots on the Jatobá Farm, an agricultural property located in the municipality of Jaborandi, Bahia, and of a plot of the Alto Taquari Farm, an agricultural property located in the municipality of Alto Taquari, Mato Grosso. At the Jatobá Farm, a total of 9,784 hectares (7,485 arable hectares) were sold in the first operation, corresponding to the nominal value of R$173.8 million (~R$23,767/arable hectare), and, in June 2019, a total of 3,124 hectares (2,473 arable hectare) were sold, corresponding to the nominal value of R$56.8 million (285 soybean bags/arable hectare or ~R$23,500/arable hectare). At the Alto Taquari Farm, a total of 103 arable hectares were sold, corresponding to a nominal value of R$7.9 million (~R$77,690/arable hectare). In the same period of the previous year, a total of R$66.2 million (nominal value) was recorded, referring to the sale of 956 hectares (660 arable hectares) of the Araucária Farm (GO).

The table below shows the revenue from the sale of property in the 2018/2019 harvest:

The variation in the R$58.1 million disclosed through Material Fact and the R$56.8 million recorded in the most recent sale of the Jatobá Farm reflects the possibility of change in price due to differences between the estimated arable

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hectares and the arable hectares verified in the final measurement. This is possibility is remote, and is considered as a variable consideration component, as defined in paragraphs 50 and 51 of IFRS 15. Therefore, in order to represent the risk of revenue reversal, the Company does not recognize the percentage of 2.3% of the previously disclosed value until the final measurement of the negotiated area.

Soybean revenue increased by R$77.9 million in the 2018/2019 harvest compared to the same period last year, from R$83.8 million, from the sale of 74,300 tons at R$1,127.81 per ton, to R$161.7 million, from the sale of 137,100 tons at R$1,179.45 per ton. The rise in sales of soybean in 2019 compared to 2018 reflects the increase in production due to the lease of the Parceria V Farm.

Corn revenue in the 2018/2019 harvest decreased by R$3.4 million compared to the same period of the previous year, from R$13.4 million from the sale of 31,100 tons at R$431.10 per ton, to R$10.0 million, from the sale of 21,300 tons at R$469.35 per ton.

Sugarcane revenue in the 2018/2019 harvest increased by R$22.3 million compared to the same period of the previous year, from R$138.1 million from the sale of 1.7 million tons at R$82.15 per ton, to R$160.5 million from the sale of 1.8 million tons at R$90.09 per ton of sugarcane. The increase in per-ton sugarcane price was due to the higher price of the TRS (total recoverable sugar), which went from 0.577 R$/kg in 2018 to 0.639 R$/kg in 2019.

Cattle-raising revenue in the 2018/2019 harvest increased by R$12.7 million compared to the same period of the previous year, from R$4.1 million from the sale of 2,006 head of cattle at R$4.88 per kilo, to R$16.8 million, which refers to the sale of 8,750 cattle to R$5.18 per kilo.

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Leasing revenue reached R$8.5 million in the 2018/2019 harvest and refers to third-party leases of Farms, equivalent to 7,653 tons of soybean. These lease contracts have a duration of up to 5 years with value of up to 18% of production, and the minimum value is 5 soybean bags per hectare.

In the 2017/2018 harvest, other revenues reached the amount of R$258.0 thousand, and in the 2018/2019 harvest, other revenues totaled R$384.0 thousand. These amounts refer to the provision of storage services and sale of inputs and by-products.

Gains or losses of agricultural products

Gains or losses from the variation in the fair value of agricultural products are determined by the difference between their harvested volume at market value (net of selling expenses and taxes) and the production costs incurred (direct and indirect costs, leasing and depreciation).

Harvested agricultural products are measured at their value at the time of harvest considering the market price of the area of each farm.

The table below shows the results of the sugarcane harvest in the fiscal year, including gains (losses) in the value of agricultural products and biological assets:

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The harvest period closed in December 31, 2018 recorded a reduction of 5.1% in production compared to the same period last year due to rainfall levels. Nevertheless, net revenue rose by 4.6% reflecting the price increase in the Consecana (from 0.543 R$/Kg in 2017 to 0.575 R$/Kg in 2018, an increase of 5.8%) and also the increase in TRS, from 139.4/ton in 2017 to 142.4/ton in 2018.

Gains from cattle raising corresponded to R$1.6 million, with a production of 2,804 tons of meat, a 16.9% increase compared to the same period last year.

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Gains or losses of biological assets

Biological assets correspond to agricultural products in formation (not yet harvested) and cattle, measured at the net present value of the expected cash flow from these products. The calculation of fair value considers the best estimates in relation to sales prices, discount rates, direct and indirect costs, leasing, yields and selling expenses.

The biological assets corresponding to sugarcane represent the total area to be harvested from April 1 to November 30, 2019.

IMPAIRMENT (REVERSAL OF PROVISIONS OF THE RECOVERABLE AMOUNT OF AGRICULTURAL PRODUCTS, NET)

A provision to adjust inventories at the net realized value of agricultural products is constituted when the fair value of the inventory is higher than the realized value. The realization value is the sales price estimated during the normal course of business less estimated selling expenses.

On June 30, 2019, the recognized amount corresponded to a loss of R$2.0 million.

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The estimated cost of production per hectare of sugarcane in the 2019 harvest was 38.5% higher compared to the cost incurred in the last harvest, as handling and irrigation costs of the São José Farm started to be accounted for by the Company in the 2019 harvest, as well as the increase in CCT – Cutting, Loading, and Transportation costs, related to higher diesel fuel price.

Cost of goods sold (COGS) came to R$319.2 million in the 2018/2019 harvest. Due to the fair value adjustments of agricultural products, period changes in costs are directly linked to the market price of commodities at the time of harvest.

Soybean COGS increased by R$61.8 million in the 2018/2019 harvest compared to the previous year, from R$63.4 million, from the sale of 74,300 tons at R$853.73 per ton, to R$125.2 million, from the sale of 137,100 tons at R$912.91 per ton. The

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increase in cost was due to the variation in fertilizer prices, impacted by freight and exchange rates.

Corn COGS decreased by R$2.6 million in the 2018/2019 harvest versus the previous year, from R$13.7 million, from the sale of 31,100 tons at R$439.44 per ton, to R$11.1 million, from the sale of 21,300 tons at R$520.20 per ton. The increase in cost was also due to the variation in input prices, impacted by freight and exchange rates.

Sugarcane COGS increased by R$40.0 million in the 2018/2019 harvest versus the previous year, from R$86.2 million, from the sale of 1.7 million tons at R$51.25 per ton, to R$126.2 million, from the sale of 1.8 million tons at R$70.85 per ton of sugarcane. The increase in cost per ton is mainly due to expenses with crop handling and irrigation in the São José Farm as of this harvest.

Cattle-raising COGS increased R$12.7 million in the 2018/2019 harvest compared to the previous year, from R$4.4 million from the sale cost of 2,006 head of cattle at R$2.2 thousand per head, to R$17.1 million from the sale cost of 8,750 head of cattle at R$2.0 thousand per head.

Other COGS in the amount of R$1.6 million in the 2018/2019 harvest mainly refers to the raw material inventory adjustment, while in the 2017/2018 harvest, other COGS amounted to R$427,000.

SELLING EXPENSES

In the 2018/2019 harvest, we recorded R$10.5 million in selling expenses, 4.5% higher compared to the 2017/2018 harvest, mainly due to the increase in the volume of cargo transported – 85,000 tons of grain –, the 5% increase in freight rate, and the provision for doubtful accounts (PDD), as shown in the other selling expenses line.

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In the 2018/2019 fiscal year, general and administrative expenses increased by 11.1% compared to the same period of the previous year, from R$34.9 million to R$38.9 million.

The 18.7% increase in personnel expenses is due to the provision for the Long-Term Incentive Plan, the payment of bonuses and Social Security (INSS).

In addition, Law 13,606, in its Article 15, §7, states that, as of January 2019, the farmer can opt to calculate social security contribution over the total wage. Before that, social security contribution was a percentage of gross income. The Company chose to adopt the change, which results in an increase in the Personnel expenses account as well as a reduction in the Taxes account.

The 16.5% increase in leases and rents in general is due to the grace period agreed in the renegotiation of lease contracts, which ended last harvest.

The 35.7% increase in software expenses refers to the implementation of the e-social and the effect of the exchange rate variation on subscriptions.

Other expenses include costs regarding telephony services, building maintenance, registry, insurances, shares listing and others.

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The reduction in other operating expenses (income) is mainly due to the accounting of the amounts incurred with the conclusion of the spin-off process of the Cresca operation in Paraguay in the amount of R$35.7 million in the fiscal year ended June 30, 2018.

The consolidated financial result is composed of the following items: (i) interest on financing; (ii) the impact of the monetary variation on the amount payable from the acquisition of farms; (iii) the impact of the U.S. dollar exchange variation on the offshore account and also Cresca’s receivables in 6M18; (iv) the present value of the Araucária, the Alto Taquari and the Jatobá Farms’ sales receivables, fixed in soybean bags, and the leasing of sugarcane areas; (v) the result from hedge operations; and (vi) bank fees and expenses and returns on cash investments.

The realization of the present value of assets and liabilities in 2019, in the amount of R$11.5 million, shows the variation in the amount to be received due to the sales of the Araucária, the Jatobá and the Alto Taquari Farms, denominated in soybean bags, and the variation of Consecana’s price in the lease of the Parceria IV Farm.

The derivatives result reflects the commodities hedge operations result and the impact of the exchange variation on cash, which was partially dollarized in order to maintain purchasing power in regard to inputs, investments and new acquisitions, which have a positive correlation with the U.S. currency. In 2019, the result of derivative transactions was R$15.7 million, R$10.1 million of which are related to currency operations and R$5.6 million are related to operations with commodities. In 2018, derivative operations totaled a negative R$5.3 million, consisting of R$17.8 million negative related to currency operations and R$12.5 million related to operations with commodities.

The rise in other financial income / expenses is due to the increase in the Company’s cash position, from an average cash flow of R$64.5 million in 2018 to R$98.3 million in 2019.

DERIVATIVE OPERATIONS

Our risk policy primarily aims to hedge the Company’s cash flow. In this context, we are concerned not only with the main components of our revenue, but also

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the main components of our production costs. Therefore, we monitor on a daily basis: a) the international prices of the main agricultural commodities produced by the Company, usually expressed in U.S. dollars; b) the base premium, i.e. the difference between the international and domestic commodity price; c) exchange rates; and d) the prices of the main components such as freight, fertilizers and chemicals, that can significantly impact costs.

The points analyzed when deciding on the price and margin hedging strategy and tools are listed below:

•        Estimated gross margin based on the current price environment.

•        Standard deviation from the estimated gross margin for different pricing strategy scenarios.

•        Analysis of the estimated gross margin in stress scenarios for different hedge strategies.

•        Comparison between current estimates and the Company’s budget.

•        Comparison of the estimated gross margin and the historical average.

•        Market expectations and trends.

•        Tax aspects.