Earnings Release 2Q16

Portuguese

11:00 BR (10:00 AM U.S. ET)

Phone: +55 (11) 3728-5971/ 3127-4971

Code: Fertilizantes Heringer

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+55 (11) 3127 4999

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English

11:00 BR (10:00 AM U.S. ET)

Phone: +1 (516) 300 1066

Code: Fertilizantes Heringer

Replay for one week:

+55 (11) 3127 4999

Password: 87566587

Investor Relations

Phone: +55 (19) 3322-2294

ri@heringer.com.br www.heringer.com.br/ri

• Deliveries totaled 838 thousand metric tons in 2Q16, 18.8% down on the 1,032 thousand metric tons recorded in 2Q15, and 1,816 thousand metric tons in 1H16, 15.9% less than the 2,160 thousand metric tons reported on the same period last year;

• Second-quarter net revenue came to R$994.8 million, 19.7% lower than the 2Q15 figure of R$1,239.4 million, while net revenue in the first half fell by 10.4% over 1H15, from R$2,577.2 million to R$2,309.3 million;

• EBITDA was negative by R$10.2 million in 2Q16, versus a negative R$4.4 million in 2Q15. In the first half, EBITDA amounted to R$26.6 million, higher than the R$23.1 million posted in 1H15;

• The net result was negative in all periods: R$33.3 million in the quarter, versus R$37.3 million in 2Q15, and R$31.7 million in the half, a substantial improvement over the R$180.2 million recorded in the first six months of last year, impacted by the period exchange variation;

• Deliveries of specialty products posted year-on-year record growth in both periods - 12.3% in 2Q16, to 435 thousand metric tons, and 15.6% in 1H16 to 913 thousand metric tons. As a result, their share of the Company's portfolio increased from 38% to 52% in the quarter and from 37% to 50% in the half;

According to the National Fertilizer Association (ANDA), fertilizer deliveries in Brazil totaled 7.2 million metric tons in 2Q16, 17.8% up on 2Q15. In 1H16, deliveries came to 13.1 million metric tons, a 12.6% improvement over the first six months of last year.

The Company expects annual deliveries of 32.2 million metric tons, identical to the 2014 figure.

In the first half, deliveries of nitrogen, phosphate and potassium fertilizers climbed by 9.7%, 8.7% and 13.7%, respectively, fueled by demand from the second corn crop and the anticipation of deliveries for the soybean crop, which did not occur in any significant manner in the same period last year.

Mato Grosso state continued to account for the bulk of period deliveries, with 2.9 million metric tons, followed by Paraná with 1.8 million metric tons, São Paulo with 1.5 million metric tons, Goiás with 1.4 million metric tons and Minas Gerais with 1.3 million metric tons.

Domestic production increased by 2.8% in 2Q16, but fell by 2.2% in 1H16, with nitrogen, phosphate and potassium fertilizers recording respective declines of 1.3%, 4.5% and 4.4%.

Fertilizer imports decreased by 4.9% in 2Q16 and edged up by 0.2% in the first half, when imports of nitrogen and potassium fertilizers climbed by 3.02% and 2.99%, respectively, and those of phosphate fertilizers fell by 3.72%.

As we have seen, first-half fertilizer deliveries climbed 12.6% year-on-year to 13,182 thousand metric tons, while imports only inched up by 0.2% to 9,741 thousand metric tons and output dropped by 2.2% to 4,275 thousand metric tons. As a result, supply is lagging projected deliveries of around 19 million metric tons in 2H16.

Source: Anda

In thousands of metric tons

In thousands of metric tons

4,157

4,370

4,275

2,210 2,158 2,219

2Q14 2Q15 2Q16

1H14 1H15 1H16

Source: Anda

Source: Anda

In line with the Company's 2016 business plan, which prioritizes a greater share of specialty products than in 2015, with a consequent reduction in deliveries of conventional products, Heringer's delivery volume fell by 18.8% year-on-year in 2Q16, while market deliveries grew by 17.8% in the same period, chiefly due to the increase in anticipated deliveries for the soybean crop, a feature that was absent in 2Q15. The Company's first-half deliveries fell by 15.9% over 1H15, versus a 12.6% upturn for the market as a whole. As a result, the share of specialty products reached 50% of delivered volume in 1H16, versus 37% in the first six months of 2015.

Given that the Company's fertilizer deliveries by crop are, on average, more diversified than those of the market, with a greater concentration in the second half, we estimate that its 2H16 deliveries will be similar to the 2H15 total.

In the case of sugarcane, although crop renewal areas were small in 1H16, fertilizer demand in the second half should be higher than in 2H15 given the substantial improvement in the earnings of the sugar and ethanol industry.

As for coffee, growers' current profitability levels, as well as the excellent barter ratio, will certainly fuel consumption in the second half.

In the case of the second corn crop, part of the volume to be consumed during planting in 1Q17 is expected to be delivered in 4Q16, a situation that did not arise in 2015.

Historically, the second quarter is the weakest for Company deliveries due to the Brazilian agricultural calendar and the crops it concentrates on.

Due to delivery seasonality, the Company's business model should be analyzed on an annual basis.