Financial risk management | 5. Financial risk management 5.1. Financial risk factors The Company operates with various financial instruments, including cash and cash equivalents, marketable securities, trade accounts receivables, accounts receivable and others, trade accounts payable, accounts payable for the purchase of farms, loans and financing and derivative financial instruments. Certain Company’s operations expose it to market risks, mainly in relation to exchange rates, interest rates and changes in the prices of agricultural commodities. As a result, the Company also enters into derivative financial instruments, used to hedge its exposures with respect to crops or with respect to assets and liabilities recognized in the balance sheet, depending on the nature of the specific operation. Excluding derivative financial instruments, fair value is basically determined using the discounted cash flow method. The amounts recorded under current assets and liabilities are either highly liquid or mature within twelve months, as such their carrying value approximates their fair value. 5.2. Policies approved by the Board of Directors for the use of financial instruments, including derivatives The Company’s policies in respect to transactions with financial instruments, which have been approved by the Board of Directors, are as follows: (i) Investment Policy which provides guidelines in respect to Company’s investment of cash, considering the counterparty risk, the nature of instruments and liquidity, among others; (ii) Derivative financial instrument policy which provides guidelines to manage the Company’s exposures to currency risk, interest rate and index risks, and agricultural commodities price risk, always linking the derivative financial instrument to the asset or liability that generates the exposure; and (iii) Risk Policy, which addresses items not covered by the Investment Policy or the Derivative financial instrument Policy including hedge against future cash flows with respect to future production of commodities. a) Cash and cash equivalents, marketable securities, trade accounts receivable, receivable from sale of farms, loans with related parties and accounts payable. The amounts recorded approximate their estimated fair value. b) Loans, financing and debentures. The book value of loans, financing and debentures, denominated in reais have its interest rates either fixed or based on the variation of IPCA (Broad National Consumer Price Index) and CDI and exchange rate and approximates their fair value. 5.3. Analysis of exposure to financial asset and liability risks a) Currency risk This risk arises from the possibility that the Company may incur losses due to fluctuations in exchange rates, which reduces the nominal amount of assets or increase the amount of liabilities. This risk also arises with respect to commitments to sell products existing in inventories or agricultural products not yet harvested when sales are made at prices to be fixed at a future date, prices which vary depending on the exchange rate. b) Interest rate and index risk This risk arises from the possibility that the Company may incur losses due to fluctuations in the interest rates or indices which increase financial expenses related to certain contracts for the acquisition of farms, indexed by inflation, such as the IPCA. c) Agricultural commodities price risk This risk arises from the possibility that the Company may incur losses due to fluctuations in the market prices of agricultural products. 5.4. Objectives and strategies of risk management and of use of derivative financial instruments The Executive Board is responsible for managing financial risks, and evaluates the Company’s exposure to foreign currency risk, interest rate and index risk and agricultural commodities price risk with respect to assets, liabilities and transactions of the Company. Considering the exposure to such risks, Company management evaluates the convenience, cost and availability in the market of derivative financial instruments which allow the Company to mitigate such risks. After such assessment, the Executive Board decides whether to enter into the transaction within the parameters previously approved in the Policies referred to above and reports it in the Board of Directors’ meetings. 5.5. Risks related to each operating strategy The use of derivative financial instruments as an economic hedge reduce the risks of changes in cash flows arising from risks such as foreign currency, interest rate and price index and agricultural commodities prices. However, the change in the fair value of the derivative financial instrument may differ from the change in the cash flows or fair value of the assets, liabilities or forecasted transactions which are being hedged, as a result of different factors, such as, among others, differences between the contract dates, the maturity and settlement dates, or differences in “spreads” on the financial assets and liabilities being hedged and the corresponding spreads in the related legs of the swaps. In the case of the derivative financial instruments strategy to hedge recognized assets and liabilities, management believes that the derivative financial instruments present a high degree of protection with respect to the changes in the assets and liabilities being hedged. In the case of the strategy to hedge forecasted sales of soybean or to hedge accounts payable/receivable, which are susceptible to changes commodity prices, differences may arise due to additional factors, such as differences between the estimated and actual soybean volume to be harvested, or differences between the quoted price of soybean in the international markets where the derivative financial instruments are quoted and the price of soybean in the markets in which soybean is physically delivered/received by the Company. Should the soybean volume effectively harvested be lower than the amount for which derivative financial instruments were contracted, the Company will be exposed to variations in the price of the commodities by the volume hedged in excess and vice-versa should the soybean volume effectively harvested be higher than the hedged volume. In the case of exposure to exchange rates, there is a risk that the volume of U.S. dollars sold through forward contracts will be higher than the volume to which the Company is exposed. In such case, foreign exchange rates risk continues to exist in the same proportion as the mismatch, which could result from a reduction in the expected yield of a certain commodity or in a reduction in prices denominated in foreign currencies. 5.6. Restrictions related to the use of derivative financial instruments Additionally, the Company is subjected to credit risk with respect to the counterparty of the derivative financial instrument. The Company has contracted derivative financial instruments either traded in the stock exchanges market or from prime first-tier financial institutions or “trading” companies. The Company understands that, at the balance sheet date, there are no indications of collectability risk with respect to the amounts recognized as assets with respect to derivative financial instruments. The main restrictions by the Company’s policy are as follows: ● establishment of policies defined by the Board of Directors; ● prohibition to enter into derivative financial instruments that have not been approved by the Executive Officers; ● maintenance by the Executive Officers of a centralized inventory of outstanding derivative financial instruments contracts; ● daily risk report with the consolidated position provided to a company comprising the Executive Officers and designated members of the Board of Directors; ● monthly monitoring by the Executive Officers of the fair values as reported by the counterparties as compared to the amounts estimated by management; and ● the fair value of the derivative financial instruments is estimated based on the market in which they were contracted and also in which the instruments are inserted. 5.7. Impact of derivative financial instruments on the statement of income The gains and losses for changes in the fair value of derivative financial instruments are recognized in the statement of income separately between realized profit and loss (corresponding to derivative financial instruments that have already been settled) and unrealized profit and loss (corresponding to derivative financial instruments not yet settled). 5.8. Estimate of fair value of financial instruments The fair value of derivative financial instruments traded on stock exchanges (B3 and Chicago Board of Trade) is determined based on the quoted prices at the balance sheet date. To estimate the fair value of derivative financial instruments not traded on stock exchanges the Company uses quotes for similar instruments or information available in the market and uses valuation methodologies widely used and that are also used by the counterparties. The estimates do not necessarily guarantee that such operations may be settled at the estimated amounts. The use of different market information and/or valuation methodologies may have a relevant effect on the amount of the estimated fair value. Specific methodologies used for derivative financial instruments entered into by the Company: ● Derivative financial instruments of agricultural commodities - The fair value is obtained by using various market sources, including quotes provided by international brokers, international banks and available on the Chicago Board of Trade (CBOT). ● Derivative financial instruments of foreign currencies - The fair value is determined based on information obtained from various market sources including, as appropriate, B3 S.A. – Brasil, Bolsa, Balcão, local banks, in addition to information sent by the operation counterparty. a) Sensitivity analysis Management identified for each type of derivative financial instrument the conditions for variation in foreign exchange rates, interest rates or commodities prices which may generate loss on assets and/or liabilities which is being hedged or, in the case of derivative financial instruments related to transactions not recorded in the balance sheet, in the fair value of the contracted derivatives. The sensitivity analysis shows the impact from the changes in the market variables on the afore mentioned financial instruments of the Company, considering all other market indicators comprised. Upon their settlement, such amounts may differ from those stated below, due to the estimates used in their preparation. This analysis contemplates five distinct scenarios that differ due to the intensity of variation in relation to the current market. At June 30, 2023, as reference for probable scenarios I, II, III and IV, a variation in relation to the current market of 0%, -25%, -50%, +25%, +50%, respectively, was considered. The preparation of the probable scenario took into consideration the market prices of each one of the reference assets of derivative financial instruments held by the Company at year end. Since all these assets are traded in competitive and open markets, the current market price is a meaningful reference for the expected price of these assets. Accordingly, since the current market price was the reference for the calculation of both book value and the Probable Scenario, it resulted in no mathematical difference. The assumptions and scenarios are as follows: 2023 Devaluation in reais R$ Appreciation in Reais R$ Product Price Market Maturity Probable Scenario Scenario Scenario Scenario Soybean R$/bag CBOT 10/16/2023 142.72 107.04 71.36 178.40 214.08 Soybean R$/bag CBOT 12/12/2023 143.09 107.32 71.55 178.86 214.64 Soybean R$/bag CBOT 12/29/2023 140.89 105.67 70.45 176.11 211.34 Soybean R$/bag CBOT 04/26/2024 139.67 104.75 69.84 174.59 209.51 Soybean R$/bag CBOT 04/28/2024 140.89 105.67 70.45 176.11 211.34 Soybean R$/bag CBOT 04/30/2024 139.67 104.75 69.84 174.59 209.51 Soybean R$/bag CBOT 06/13/2024 138.95 104.21 69.48 173.69 208.43 Soybean R$/bag CBOT 06/30/2024 138.95 104.21 69.48 176.69 208.43 Cotton R$/arroba CBOT 11/10/2023 128.08 96.06 64.04 160.10 192.12 Cotton R$/arroba CBOT 11/14/2023 128.08 96.06 64.04 160.10 192.12 Cotton R$/arroba CBOT 11/23/2023 128.08 96.06 64.04 160.10 192.12 Cotton R$/arroba CBOT 11/24/2023 128.08 96.06 64.04 160.10 192.12 Cotton R$/arroba CBOT 11/08/2024 128.08 96.06 64.04 160.10 192.12 Corn R$/bag OTC/Stock Exchange 08/23/2023 55.61 41.71 27.81 69.51 83.42 Corn R$/bag OTC/Stock Exchange 08/25/2023 55.61 41.71 27.81 69.51 83.42 Corn R$/bag OTC/Stock Exchange 08/30/2023 55.61 41.71 27.81 69.51 83.42 Corn R$/bag OTC/Stock Exchange 09/15/2023 55.13 41.35 27.57 68.91 82.70 Corn R$/bag OTC/Stock Exchange 09/15/2024 60.75 45.56 30.38 75.94 91.13 Ethanol R$/m3 CBOT 11/03/2023 2,560.00 1,920.00 1,280.00 3,200.00 3,840.00 Ethanol R$/m3 CBOT 12/04/2023 2,575.00 1,931.25 1,287.50 3,218.75 3,862.50 Ethanol R$/m3 CBOT 01/03/2024 2,518.50 1,888.88 1,259.25 3,148.13 3,777.75 Ethanol R$/m3 CBOT 02/02/2024 2,550.00 1,912.50 1,275.00 3,187.50 3,825.00 Ethanol R$/m3 CBOT 03/04/2024 2,530.00 1,897.50 1,265.00 3,162.50 3,795.00 Ethanol R$/m3 CBOT 04/02/2024 2,540.00 1,905.00 1,270.00 3,175.00 3,810.00 Sugarcane R$/lbs CBOT 02/04/2024 1.16 0.87 0.58 1.45 1.75 Fed cattle R$/bag CBOT 10/30/2023 264.50 198.38 132.25 330.63 396.75 USD - - 08/17/2023 4.82 3.61 2.41 6.02 7.23 USD - - 07/28/2023 4.82 3.61 2.41 6.02 7.23 USD - - 07/31/2023 4.82 3.61 2.41 6.02 7.23 USD - - 09/04/2023 4.85 3.63 2.42 6.06 7.27 USD - - 09/15/2023 4.85 3.64 2.43 6.07 7.28 USD - - 10/02/2023 4.87 3.65 2.43 6.08 7.30 USD - - 10/10/2023 4.87 3.65 2.44 6.09 7.31 USD - - 10/16/2023 4.88 3.66 2.44 6.09 7.31 USD - - 10/30/2023 4.89 3.66 2.44 6.11 7.33 USD - - 10/31/2023 4.89 3.66 2.44 6.11 7.33 USD - - 11/30/2023 4.90 3.68 2.45 6.13 7.36 USD - - 05/29/2024 4.99 3.75 2.50 6.24 7.49 USD - - 06/27/2024 5.01 3.76 2.50 6.26 7.51 USD - - 06/28/2024 5.01 3.76 2.50 6.26 7.51 USD - - 11/25/2024 5.08 3.81 2.54 6.35 7.62 Interest - - 08/15/2023 13.55 % 10.16 % 6.78 % 16.94 % 20.33 % Interest - - 04/17/2028 10.36 % 7.77 % 5.18 % 12.95 % 15.54 % 2023 Devaluation in reais R$ Appreciation in Reais R$ Product Price Market Maturity Probable Scenario Scenario Scenario Scenario Soybean R$/bag CBOT 02/14/2023 167.84 125.88 83.92 209.80 251.76 Soybean R$/bag CBOT 02/24/2023 167.84 125.88 83.92 209.80 251.76 Soybean R$/bag CBOT 02/27/2023 167.84 125.88 83.92 209.80 251.76 Soybean R$/bag CBOT 02/28/2023 167.84 125.88 83.92 209.80 251.76 Soybean R$/bag CBOT 06/30/2023 166.88 125.16 83.44 208.60 250.32 Soybean R$/bag CBOT 04/28/2023 167.49 125.62 83.75 209.36 251.24 Cotton R$/arroba CBOT 11/11/2022 171.19 128.39 85.60 213.99 256.79 Cotton R$/arroba CBOT 11/16/2022 171.19 128.39 85.60 213.99 256.79 Cotton R$/arroba CBOT 11/14/2023 143.34 107.51 71.67 179.18 215.01 Corn R$/bag OTC/Stock Exchange 09/15/2022 87.10 65.33 43.55 108.88 130.65 Corn R$/bag OTC/Stock Exchange 09/19/2022 87.10 65.33 43.55 108.88 130.65 Corn R$/bag OTC/Stock Exchange 03/15/2023 94.63 70.97 47.32 118.29 141.95 Corn R$/bag OTC/Stock Exchange 09/15/2023 86.96 65.22 43.48 108.70 130.44 Ethanol R$/m3 CBOT 07/05/2022 3,080.00 2,310.00 1,540.00 3,850.00 4,620.00 Ethanol R$/m3 CBOT 08/02/2022 2,900.00 2,175.00 1,450.00 3,625.00 4,350.00 Ethanol R$/m3 CBOT 09/02/2022 2,880.00 2,160.00 1,440.00 3,600.00 4,320.00 Ethanol R$/m3 CBOT 10/04/2022 2,875.00 2,156.25 1,437.50 3,593.75 4,312.50 Ethanol R$/m3 CBOT 11/03/2022 2,925.00 2,193.75 1,462.50 3,656.25 4,387.50 Ethanol R$/m3 CBOT 12/02/2022 3,015.00 2,261.25 1,507.50 3,768.75 4,522.50 Ethanol R$/m3 CBOT 01/04/2023 3,120.00 2,340.00 1,560.00 3,900.00 4,680.00 Ethanol R$/m3 CBOT 02/03/2023 3,200.00 2,400.00 1,600.00 4,000.00 4,800.00 Ethanol R$/m3 CBOT 03/03/2023 3,200.00 2,400.00 1,600.00 4,000.00 4,800.00 Ethanol R$/m3 CBOT 04/05/2023 3,150.00 2,362.50 1,575.00 3,937.50 4,725.00 Ethanol R$/m3 OTC/Stock Exchange 07/05/2022 3,080.00 2,310.00 1,540.00 3,850.00 4,620.00 Ethanol R$/m3 OTC/Stock Exchange 08/02/2022 2,900.00 2,175.00 1,450.00 3,625.00 4,350.00 Ethanol R$/m3 OTC/Stock Exchange 09/02/2022 2,880.00 2,160.00 1,440.00 3,600.00 4,320.00 Ethanol R$/m3 OTC/Stock Exchange 09/05/2022 2,880.00 2,160.00 1,440.00 3,600.00 4,320.00 Ethanol R$/m3 OTC/Stock Exchange 10/04/2022 2,875.00 2,156.25 1,437.50 3,593.75 4,312.50 Ethanol R$/m3 OTC/Stock Exchange 11/03/2022 2,925.00 2,193.75 1,462.50 3,656.25 4,387.50 Ethanol R$/m3 OTC/Stock Exchange 12/02/2022 3,015.00 2,261.25 1,507.50 3,768.75 4,522.50 Ethanol R$/m3 OTC/Stock Exchange 01/04/2023 3,120.00 2,340.00 1,560.00 3,900.00 4,680.00 Ethanol R$/m3 OTC/Stock Exchange 01/31/2023 3,200.00 2,400.00 1,600.00 4,000.00 4,800.00 Ethanol R$/m3 OTC/Stock Exchange 02/28/2023 3,200.00 2,400.00 1,600.00 4,000.00 4,800.00 Ethanol R$/m3 OTC/Stock Exchange 03/31/2023 3,150.00 2,362.50 1,575.00 3,937.50 4,725.00 Fed cattle R$/bag OTC/Stock Exchange 10/31/2022 334.85 251.14 167.43 418.56 502.28 USD - - 07/26/2022 5.26 3.95 2.63 6.58 7.89 USD - - 07/28/2022 5.27 3.95 2.63 6.58 7.90 USD - - 10/31/2022 5.40 4.05 2.70 6.75 8.09 USD - - 11/23/2022 5.42 4.07 2.71 6.78 8.14 USD - - 01/30/2023 5.52 4.14 2.76 6.90 8.28 USD - - 05/31/2023 5.66 4.25 2.83 7.08 8.50 USD - - 06/30/2023 5.70 4.28 2.85 7.13 8.55 USD - - 07/31/2023 5.74 4.31 2.87 7.18 8.61 USD - - 11/30/2023 5.88 4.41 2.94 7.35 8.82 Interest - - 08/15/2023 13.70 % 10.28 % 6.85 % 17.13 % 20.55 % Interest - - 04/17/2028 12.74 % 9.55 % 6.37 % 15.92 % 19.11 % This sensitivity analysis aims to measure the impact of variable market changes on the aforementioned financial instruments of the Company, considering all other market indicators remain unchanged. Estimated amounts below can significantly differ from amount eventually settled. In addition, the Company presents a summary of possible scenarios for the following 12 months of the Company’s financial instruments. Reliable sources of index disclosure were used for the rates used in the “probable scenario”. (*) annual Consolidated Scenario I - Probable Scenario I - Possible Scenario II - Remote Scenario III - Possible Scenario IV - Remote average Risk Balance (R$) Notional/ Position Rate Balance (R$) Rate Decrease Balance (R$) -25% Rate Decrease Balance (R$) -50% Rate Increase Balance (R$) 25% Rate Increase Balance (R$) 50% Rate Short-term investments CDI 378,081 - 13.65 % (7,448 ) 11.68 % (11,040 ) 8.76 % (22,080 ) 5.84 % 11,040 14.60 % 22,080 17.52 % Marketable securities IPCA 27,848 - 17.44 % (3,506 ) 4.85 % (338 ) 3.64 % (674 ) 2.43 % 338 6.06 % 674 7.28 % Cash - USD USD 14,296 2,966 4,82 (560 ) 5,01 (3,714 ) 3,76 (7,428 ) 2,50 3,714 6,26 7,428 7,51 Total cash, cash equivalents and marketable securities 420,225 2,966 (11,514 ) (15,092 ) (30,182 ) 15,092 30,182 Financing in Paraguay USD (31,329 ) (6,501 ) 4.82 (5,943 ) 5.01 39,230 3.76 78,463 2.50 (39,230 ) 6.26 (78,463 ) 7.51 Financing in Bolivia USD (5,008 ) (1,039 ) 4.82 (950 ) 5.01 6,271 3.76 12,545 2.50 (6,271 ) 6.26 (12,545 ) 7.51 Debentures CDI + IPCA (301,767 ) - 13.65 % 5,945 11.68 % 8,815 8.76 % 17,623 5.84 % (8,815 ) 14.60 % (17,623 ) 17.52 % Total financing (b) (338,104 ) (7,540 ) (948 ) 54,316 108,631 (54,316 ) (108,631 ) Araucária V Soybean bags 10,419 100,000 114.35 - 114.35 (2,605 ) 85.76 (5,210 ) 57.17 2,605 142.94 5,210 17.52 Araucária VI Soybean bags 4,928 51,830 119.36 - 119.36 (1,232 ) 89.52 (2,464 ) 59.68 1,232 149.20 2,464 17.03 Araucária VII Soybean bags 310,723 3,000,000 125.62 - 125.62 (77,681 ) 94.21 (155,362 ) 62.81 77,681 157.02 155,362 188.43 Jatobá II Soybean bags 53,409 523,799 122.33 - 122.33 (13,352 ) 91.75 (26,705 ) 61.16 13,352 152.91 26,705 183.49 Jatobá III Soybean bags 20,348 200,078 122.33 - 122.33 (5,087 ) 91.74 (10,174 ) 61.16 5,087 152.91 10,174 183.49 Jatobá IV Soybean bags 7,187 70,000 121.61 - 121.61 (1,797 ) 91.21 (3,594 ) 60.80 1,797 152.01 3,594 182.41 Jatobá V Soybean bags 17,986 180,000 124.76 - 124.76 (4,497 ) 93.57 (8,993 ) 62.38 4,497 155.96 8,993 187.15 Jatobá VI Soybean bags 19,713 200,032 129.16 - 129.16 (4,928 ) 96.87 (9,857 ) 64.58 4,928 161.45 9,857 193.74 Jatobá VII Soybean bags 86,341 909,337 131.77 - 131.77 (21,585 ) 98.82 (43,171 ) 65.88 21,585 164.71 43,171 197.65 Alto Taquari III Soybean bags 5,159 49,478 119.71 - 119.71 (1,290 ) 89.78 (2,580 ) 59.86 1,290 149.64 2,580 179.57 Alto Taquari IV Soybean bags 100,769 965,703 128.06 - 128.06 (25,192 ) 96.05 (50,385 ) 64.03 25,192 160.08 50,385 192.10 Rio do Meio I Soybean bags 59,467 571,868 128.43 - 128.43 (14,867 ) 96.32 (29,734 ) 64.21 14,867 160.54 29,734 192.64 Rio do Meio II Soybean bags 8,813 92,403 119.65 - 119.65 (2,203 ) 89.74 (4,407 ) 59.83 2,203 149.57 4,407 179.48 Total receivables from farms (b) 705,262 6,914,528 - (176,316 ) (352,636 ) 176,316 352,636 Derivative operations Grains (14,163 ) (3,248,155 ) (a) (14,162 ) (a) 67,695 (a) 121,612 (a) (40,139 ) (a) (94,056 ) (a) Derivative operations USD 34,505 (82,405 ) (a) 34,504 (a) 94,581 (a) 191,010 (a) (96,889 ) (a) (202,078 ) (a) Derivative operations Cotton (lbs) 2,391 (12,638,200 ) (a) 2,389 (a) (2,052 ) (a) (2,251 ) (a) (1,655 ) (a) (1,457 ) (a) Derivative operations Ethanol (M^3) 504 (5,700 ) (a) 504 (a) 2,036 (a) 3,850 (a) (1,590 ) (a) (3,403 ) (a) Derivative operations Swap (BRL) 4,905 - (a) 4,906 (a) (34,565 ) (a) (69,442 ) (a) 34,165 (a) 67,865 (a) Derivative operations Sugarane (lbs) (2,231 ) (26,700,000 ) (a) (2,231 ) (a) 7,767 (a) 15,534 (a) (7,767 ) (a) (15,534 ) (a) Margin - LFT Socopa and XP SELIC 35,099 - 0.14 (691 ) 0.12 (1,025 ) 0.09 (2,053 ) 0.06 1,025 0.15 2,050 0.18 Total derivatives (a) 61,010 25,219 134,437 258,260 (112,850 ) (246,613 ) Cresca, net USD (1,349 ) (280 ) 4.82 (53 ) 5.01 351 3.76 701 2.50 (351 ) 6.26 (701 ) 7.51 Cresud, net USD (58 ) (12 ) 4.82 (2 ) 5.01 15 3.76 30 2.50 (15 ) 6.26 (30 ) 7.51 Helmir, net USD (5,040 ) (1,046 ) 4.82 (199 ) 5.01 1,310 3.76 2,620 2.50 (1,310 ) 6.26 (2,620 ) 7.51 Total related parties (6,447 ) (1,338 ) (254 ) 1,676 3,351 (1,676 ) (3,351 ) (*) SOURCE Risks: Bloomberg (a) For sensitivity analysis of derivative positions, forward rates and prices at each maturity date of the operation were used, according to the table above. (b) The sensitivity analyses do not consider financing transactions and receivables from farms with fixed rate. b) Credit risk Credit risk refers to the risk of the noncompliance by a counterparty of its contractual obligations, leading the Company to incur financial losses. The risk to which the Company is exposed arises from the possibility of not recovering the amounts receivable from the sale of sugarcane, grains, and from the leasing of land. To reduce credit risk in commercial transactions, the Company adopts the practice of defining credit limits in which it analyzes factors such as: the counterparty’s history, history of its business, commercial references and Credit Protection Institution (Serasa). The Company also constantly monitors the outstanding balances. Currently, management does not expect losses due to the default of its counterparties and has no significant exposure to any individual counterparty. c) Liquidity risk The table below shows the Company’s financial liabilities by group of maturity based on the remaining period at the balance sheet date up to the contract maturity date. The amounts disclosed in the table are the discounted contractual cash flows, except for “Loans, financing and debentures” and “Leases payable” lines, in addition to the net derivative financial instruments, whose fair value is disclosed. Note Book value Contractual value Less than From one to From three to Above five At June 30, 2023 Derivative financial instruments 7 22,837 22,837 22,006 831 - - Lease payables 15 208,767 352,955 53,258 92,732 79,836 127,129 Trade payable 16 61,972 61,972 61,972 - - - Loans, financing and debentures 17 554,638 678,509 218,975 48,461 405,512 5,561 Other liabilities 19 156,666 156,666 156,666 - - - Transactions with related parties 30 6,569 6,569 - 6,569 - - At June 30, 2022 Derivative financial instruments 7 39,336 39,336 34,064 2,878 2,394 - Lease payables 15 137,434 247,412 35,801 59,130 64,473 88,008 Trade payable 16 80,426 80,426 80,426 - - - Loans, financing and debentures 17 453,041 648,267 137,919 48,666 323,929 137,753 Other liabilities 19 41,248 41,248 28,846 - - 12,402 Transactions with related parties 30 7,472 7,472 - 7,472 - - 5.9. Capital management The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for stockholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend paid to stockholders, return capital to stockholders or, also, issue new shares or sell assets to reduce, for example, debt. Consistent with others in the industry, the Company monitors capital based on the leverage ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as total loans, financing and debentures (including “current and noncurrent loans and financing” as shown in the Consolidated statement of financial position), acquisitions payable and derivatives less cash and cash equivalents. The following table demonstrates the financial debts. 2023 2022 Total derivatives (Note 7) (61,010 ) (24,421 ) Loans, financing and debentures (Note 17) 554,638 453,041 Total acquisitions payable (Note 19) 156,666 41,248 650,294 469,868 Less: cash and cash equivalents (Note 6.1) (383,837 ) (435,493 ) Less: marketable securities (Notes 6.2) (49,785 ) (114,450 ) (433,622 ) (549,943 ) Net debt (net cash) 216,672 (80,075 ) Total equity 2,197,142 2,216,048 Leverage ratio 9.86 % - 5.10. Fair value hierarchy The carrying amount (less impairment) of trade accounts receivable and payables approximate their fair values. The fair value of financial liabilities, for disclosure purposes, is estimated by discounting the future contractual cash flows at the current market interest rate that is available for similar financial instruments. The Company adopted IFRS 7 and IFRS 13 for financial instruments that are measured in the balance sheet at fair value; this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: ● Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). ● Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). ● Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). The following table presents the Company’s assets and liabilities, their classification and the fair value, as well as the level hierarchy: June 30, 2023 Consolidated - R$ thousand Note Book value Fair value Quoted prices in active markets Significant observable data Significant non-observable data Financial assets measured at amortized cost Current Trade accounts receivables, net 8.1 119,357 119,357 - 119,357 - Non-current Transactions with related parties 30 2,157 2,157 - 2,157 - Financial assets measured at fair value through profit and loss Current Cash equivalents 6.1 361,544 361,544 361,544 - - Marketable securities 6.2 28,205 28,205 28,205 - - Receivables from sale of farm, net 8.1 266,601 266,601 - - 266,601 Derivative financial instruments (b) 7 76,815 76,815 41,983 34,832 - Noncurrent Marketable securities 6.2 21,580 21,580 21,580 - - Receivables from sale of farm, net 8.1 442,867 442,867 - - 442,867 Derivative financial instruments (b) 7 7,032 7,032 75 6,957 - Non-financial assets measured at fair value Current Biological assets 10 216,924 216,924 - 216,924 - Noncurrent Biological assets 10 37,305 37,305 - - 37,305 Non-financial assets measured at cost Noncurrent Investment properties 11 1,198,741 3,560,260 - - 3,560,260 Total 2,779,128 5,140,647 453,387 380,227 4,307,033 Financial liabilities measured at amortized cost Current Trade payables 16 61,972 61,972 - 61,972 - Loans, financing and debentures (a) 17 198,213 198,213 - 198,213 - Accounts payables for farm acquisitions 19 142,985 142,985 - 142,985 - Noncurrent Transactions with related parties 30 6,569 6,569 - 6,569 Loans, financing and debentures (a) 17 356,425 356,425 - 356,425 - Financial liabilities measured at fair value through profit and loss Current Derivative financial instruments (b) 7 22,006 22,006 19,628 2,378 - Lease payable 15 55,502 55,502 - 55,502 - Accounts payable for acquisition 19 13,681 13,681 7,773 5,908 - Noncurrent Derivative financial instruments (b) 7 831 831 830 1 - Lease payable 15 261,831 261,831 - 261,831 - Total 1,120,015 1,120,015 28,231 1,091,784 - June 30, 2022 Consolidated - R$ thousand Note Book value Fair value Quoted prices in active markets Significant observable data Significant non-observable data Financial assets measured at amortized cost Current Trade accounts receivables, net 8.1 184,260 184,260 - 184,260 - Non-current Transactions with related parties 30 1,839 1,839 - 1,839 - Financial assets measured at fair value through profit and loss Current Cash equivalents 6.1 397,001 397,001 397,001 - - Marketable securities 6.2 94,870 94,870 94,870 - - Receivables from sale of farm, net 8.1 183,342 183,342 - - 183,342 Derivative financial instruments (b) 7 61,013 61,013 49,124 11,889 - Noncurrent Marketable securities 6.2 19,580 19,580 19,580 - - Receivables from sale of farm, net 8.1 373,954 373,954 - - 373,954 Derivative financial instruments (b) 7 2,744 2,744 690 2,054 - Non-financial assets measured at fair value Current Biological assets 10 264,976 264,976 - 9,711 255,265 Noncurrent Biological assets 10 57,906 57,906 - 57,906 - Non-financial assets measured at cost Noncurrent Investment properties 11 946,778 3,308,718 - - 3,308,718 Total 2,588,263 4,950,203 561,265 267,659 4,121,279 Financial liabilities measured at amortized cost Current Trade payables 16 80,426 80,426 - 80,426 - Loans, financing and debentures (a) 17 123,411 92,651 - 92,651 - Noncurrent Transactions with related parties 30 7,472 7,472 - 7,472 - Loans, financing and debentures (a) 17 329,630 323,608 - 323,608 - Financial liabilities measured at fair value through profit and loss Current Derivative financial instruments (b) 7 34,064 34,064 25,055 9,009 - Lease payable 15 18,581 18,581 - 18,581 - Accounts payable for acquisition of Serra Grande Farm 19 28,846 28,846 10,221 2,402 16,223 Noncurrent Derivative financial instruments (b) 7 5,272 5,272 - 3,270 2,002 Lease payable 15 230,570 230,570 - 230,570 - Accounts payable for acquisition of Serra Grande Farm 19 12,402 12,402 1,928 1,811 8,663 Total 870,674 833,892 37,204 769,800 26,888 (a) The book value of loans and financing presented in the financial statements approximates the fair value, since the rates of these instruments are substantially subsidized and there is no intention of early settlement; (b) The derivative transactions negotiated at active market are measured at fair value at Level 1, over-the-counter transactions are measured at Level 2, as presented in the table above The significant non-observable inputs used in the measurement of the fair value of the credits from the sale of the farm classified as Level 3 in the fair value hierarchy, along with an analysis of quantitative sensitivity on June 30, 2022, are as follows. The significant non-observable inputs used in the measurement of the fair value of biological assets and investment properties are disclosed in Notes 10 and 11, respectively: Description Evaluation method Significant Variation of Sensitivity of inputs to fair value Credits for farm sales Discounted cash flow Premium (or Basis) (0.41) – 0.81 USD/bu The increase or decrease of 0.20 USD/bu in the premium (or basis) paid for the soybean would result in an impact of R$10,899 representing an increase or reduction of 1.5% in farm receivables. |