#1Management Report 2020 SLC Agricola#2Management Report 2020 Management Report 2020 SLC Agrícola Porto Alegre, March 17, 2021 SLC AGRÍCOLA S.A. (B3: SLCE3; ADR: SLCJY; Bloomberg: SLCE3BZ; Reuters: SLCE3.SA) announces today its results for fiscal year 2020. The following financial and operating infor- mation is presented in accordance with International Financial Reporting Standards (IFRS). The information was prepared on a consolidated basis and is presented in thousands of Bra- zilian real, except where stated otherwise. NOTE: 2019 and 2020 refer to the cumulative 12-month periods, from January to December. HA refers to the horizontal percentage variation between two periods and VA refers to the percentage representativeness of the account over a given total. Investor Relations Team Ivo Marcon Brum Chief Financial & Investor Relations Officer Frederico Logemann Investor Relations & Strategic Planning Manager Click here to also read the Integrated Report, which has more information on the company's strategy and performance in Environmental, Social and Governance (ESG) aspects Alisandra Reis Investor Relations Specialist Stéfano Bing Investor Relations Analyst Talk to IR: [email protected] (55) (51) 3230-7864/7797/7799 Rua Bernardo Pires, 128, 3º andar Bairro Santana - Porto Alegre (RS) CEP: 90620-010 Access our website: http://ri.slcagricola.com.br https://www.slcagricola.com.br/ Ricardo Bockmann Investor Relations Assistant 2#3Management Report 2020 Contents SLC Agrícola 6 Message from Management 9 Profile Corporate governance Risk management Ethical conduct Innovation Strategy Actions to combat covid-19 19 Market overview Commodities Cotton Soybean Corn 28 Operating performance 2019/2020 Crop Year 2020/2021 Crop Year 34 Financial performance Income statement analysis Statement of cash flow analysis Hedge position Return indicators 50 Sustainability Climate & soil change Water & biodiversity Stakeholder relations 59 Additional information 69 Independent auditors Submission to Arbitration Chamber 70 10 Disclaimer Financial statements 3#4Management Report 2020 Reference index Figures Figure 1 | Corporate governance structure.. Figure 2 | Risk management... SLC Agrícola .13 Figure 17 | Monthly corn exports, Brazil.. .27 .14 Figure 18 | World corn supply and demand.. .27 Figure 3 | Strategic phases of SLC Agrícola.......... .17 Figure 4 | Price variations (select commodities), Jan/2020 to Jan/2021..... Figure 5 | Cotton prices in international markets and Brazil..... .19 Figure 19 | Change in net debt/adjusted EBITDA ratio.... Figure 20 | Priority vectors... .44 .50 .20 Figure 6 | U.S. cotton shipments to china (annual volume committed in last week of January of each year)... .21 Figure 21 | Integrated management system and certificates... Figure 22 | Iniciativas que ampliam o sequestro de carbono.... Figure 23 | Total water withdrawal by source ('000 m3)... .51 .52 .54 Figure 7 | Estimate of cotton production in united states for 2020/21 crop year......... Figure 24 | Use of own area ('000 hectares)... .55 ..21 Figure 25 | Distribution of our workforce in 2020. .56 Figure 8 | World cotton supply and demand... .22 Figure 9 | Annual cotton exports, Brazil..... .22 Figure 26 | Frequency rate of accidents with lost time for employees.... Figure 27 | Taxa de gravidade de acidentes para colaboradores.. .57 .57 Figure 10 | Monthly cotton exports, Brazil... .22 Figure 28 | Change in adjusted gross debt (R$ '000)...... .64 Figure 11 | Soybean prices in international market and Brazil... .23 Figure 12 | Prices of soy complex in Chicago, Jan/20 to Jan/21. .24 Figure 29 | Adjusted gross debt amortization schedule (R$ '000)... Figure 30 | Gross debt by index and instrument... .65 .65 Figure 13 | U.S. soybean shipments to China (annual volume committed in last week of January of each year)... Figure 31 | Adjusted gross debt profile .65 .24 Figure 14 | Annual soybean exports, Brazil.. .25 Figure 32 | Dividends.......... .67 Figure 15 | World soybean supply and demand.. .25 Figure 16 | Corn prices in international market and Brazil... .26 22 Figure 33 | Shares performance - SLC3 versus Ibovespa B3, Feb/20 to Feb/21......68 4#5Management Report 2020 Tables SLC Agrícola Table 1 | Planted area by crop, 2018/19 vs. 2019/20.. .28 Table 20 | Administrative expenses.. .39 Table 2 | Actual yields, 2018/19 vs. 2019/20.. .29 Table 21 | Adjusted net financial income (expense).. .40 Table 3 | Estimated and actual cost of production 2019/2020... Table 4 | Planted area by crop, 2019/20 vs. 2020/21.. .29 Table 22 | Net income (loss)... .41 .30 Table 23 | Summarized cash flow..... .42 Table 5 | Estimated yields, 2019/20 vs. 2020/21.. .31 Table 24 | CAPEX............... .43 Table | Estimated production cost per crop, 2020/21 Crop Year.. Table 7 | Actual (2019/20) and estimated (2020/21) production cost.. Table 8| Adjusted EBITDA reconciliation.......... .32 Table 25 | Financial net debt.... .45 .32 Table 26 | Hedge position (Mar. 15, 2021).. .47 .33 Table 27 | Return on Equity......... .48 Table 9| Net revenue.. .34 Table 28 | Return on Net Assets... .49 Table 10. | Volume invoiced.. .34 Table 29 | Returno n Invested Capital.... .49 Table 11 | Variation in fair value of biological assets.. .34 Table 30 | GHG emissions inventory.. .53 Table 12 | Cost of goods sold........ 35 Table 31 | Planted area - 2020/21 Crop Year.... .59 Table 13 | Realization of fair value of biological assets...... .35 Table 32 | Planted area - 2019/20 Crop Year.. .60 Table 14 | Gross income - cotton lint............. .36 Table 33 | Land portfolio (17/03/21). .61 Table 15 | Gross income - cotton seed.. .36 Table 34 | Landbank........... .62 Table 16 | Gross income - soybean.......... Table 17 | Gross income - corn...... Table 18 | Consolidated gross income.. Table 19 | Selling expenses....... .37 Table 35 | Machinery base and storage capacity.. .63 .37 Table 36 | Net asset value - NAV.. .63 .37 Table 37 | Proposta de distribuição dos resultados.... .67 288 .38 5#6Management Report 2020 Message from Management SLC Agrícola The year 2020 will remain unforgettable, one in which the world was stunned by a pandemic (covid-19 that brought major impacts on our lives. With such a huge challenge, an unprecedented opportunity has been placed in front of us to reinvent ourselves and innovate. Our busi- ness and our employees were resilient, overcoming challenges and al- lowing important results for the company in the period. We entered 2021 more strengthened and prepared for the challenges, new or con- tinuous, that this new time will bring. Asset light growth In november 2020, we disclosed to the market through a Material Fact notice the planned business combination with Terra Santo Agro S.A., which was approved by Brazil's antitrust agency CADE and is in the due diligence process. The business is aligned with and accelerates signifi- cantly our Asset Light growth strategy, and will support important syn- ergies given the geographic proximity of the production units of Terra Santa and SLC Agrícola in Mato Grosso state. Based on the current planting intentions for the 2020/21 crop year disclosed by Terra Santa, the potential exists to expand our planted area by approximately 130,000 hectares. Efficiency and distancing from industry average In line with our strategy to maximize operating efficiency, we regis- tered, for the third straight year, a record yield for the soybean crop, of 3,900 kg/ha, 8.1% higher than the initial projection and 15.4% higher than the Brazilian average (Feb/21 estimate from CONAB). Meanwhile, our average yield for cotton (first and second crops) was 1,749 kg/ha, 2.9% lower than the Brazilian average. However, our cost per hectare was more competitive in the period, compared to the Feb- ruary 2021 estimate by CONAB (3.7% lower). Regarding second-crop corn, the yield was 7,333 kg/ha, 34.4% higher than the national aver- age (Feb/2021 estimate from CONAB). Financial Solidity and Creating Value for Shareholders In 2020, Net Revenue surpassed for the first time the mark of R$3 billion, growing 22.1% on 2019. The increase was mainly due to the higher prices of the soybean and corn invoiced, as well as the higher volume of cotton invoiced, compared to the levels in 2019. Adjusted EBITDA set a new record, of R$960.3 million, with adjusted EBITDA margin expanding 2.8 p.p. to 31%. Net Income also set a new record, of R$510.9 million, with margin of 16.5%. The operation delivered, for 6#7Management Report 2020 SLC Agrícola another straight year, positive cash generation, of R$415.1 million, with a low leverage ratio of 0.74x (Net Debt/Adjusted EBITDA). We ended 2020 with excellent levels of profitability and robust free cash generation. Cash generation in the year enabled the distribution of R$147.5 million in dividends and R$32.3 million in interest on equity, as well as the maintenance of very low financial leverage, which assures us the capacity to grow with financial solidity. A highlight was the signifi- cant increase in another important indicator, Return on Invested Capital, which ended the year at 13.6%, compared to 9.7% in 2019. Innovation Strategy In the revision of the 2020 Strategic Planning with the Directors, Of- ficers and Managers, we approved a plan for investments in new busi- nesses with a digital focus that adopt the latest technological trends in our agro-industry. The initiative confers a new mandate to our In- novation Strategy with the aim of renewing the business with a long- term vision, and complements the various efforts already being adopted to reinforce the existing business (early-adopter of new tech- nologies). The vehicle for these investments will be SLC Ventures. Leadership in ESG In 2020, we made our first issue of green bonds, in the form Agri- business Receivables Certificates (CRA), with a second-party opinion and report, in the amount of R$480 million. The notes are due in 2025 and all proceeds will be used in eligible projects approved and in- cluded in the Digital Agriculture, Low Carbon and Soil Conservation, and Green Fertilizer programs. Covid-19 In the face of the new coronavirus pandemic, we take assertive ac- tions in order to minimize the impacts on our employees and our business. One of these important actions was the rapid creation of a Crisis Committee, which was responsible for preparing and moni- toring continuously the "Covid-19 Contingency Plan" and the “Guide to Combating Covid-19". We also created a work protocol for identi- fying suspected cases of Covid-19. We did have cases of Covid-19 among employees, but our operations were not affected and contin- ued normally. During the first half of 2020, a total of R$1.6 million was donated to support measures to combat the pandemic, through the newly created SLC Institute. Outlook 2020/21 Crop Year The 2020/21 crop year started with some delay due to below-average rainfall, especially in western Mato Grosso state. However, we set a new record of planted area for the current cycle, 468,200 hectares, which represents expansion of 4.4% on 2019/20. The delay in the start of rains in the Midwest led to a revision of the agricultural plan, in order to optimize the window for planting second-crop cotton and corn. De- spite this, our expectation is positive, especially for the delivery of the expected productivity in soybeans and cotton. In recent months, international cotton, soybean and corn prices have improved significantly, which, combined with the BRL/USD exchange rate remaining above R$5.00, supported an advance in the hedge 7#8Management Report 2020 position of all crops. We also made progress in procuring inputs for the 2021/22 crop year. Considering the current scenario for dollar-denom- inated costs and prices, our expectation is for the good levels of prof- itability to be maintained for 2021/22. Closing Message The successful execution of our strategy in 2020 reflects our solid pillar formed by People, Technology/Innovation and Processes. The goal of our strategy is to obtain the best business opportunities and to remain a reference in our business of producing food and fibers, while allocat- ing the capital invested efficiently and creating value for our share- holders. All this combined with a strong ESG pillar to protect the envi- ronment and consequently future generations. We want to thank especially our employees who, despite facing a chal- lenging scenario marked by physical distancing, rapidly adapted to en- sure the continuity of our operations with the same efficiency. Lastly, we thank our other stakeholders for yet another year of success. The Management Aurélio Pavinato, CEO from SLC Agrícola SLC Agrícola 8#9Management Report 2020 Profile SLC Agrícola For 43 years, SLC Agrícola has operated in Brazil in agribusiness, which is one of the most important sectors for sustainable development and that is essential to meeting the world's growing demand for food. The main commodities we produce (cotton, soybean and corn) on our 16 farms in six Brazilian states form the base of practically all food and textile production chains in the world. PASSION FOR WHAT WE DO BIG DREAM To positively impact future generations, through global leadership in agribusiness and respect to the planet INTEGRITY LASTING RELATIONSHIPS OUR VALUES We believe that if we have passion for what we do we are committed, and do it with the highest quality, preserving our integrity through ethical, coherent and unquestionable conduct. These attitudes generate lasting relationships among all stakeholders, producing sustainable results that are economically viable, socially fair and environmentally responsible. SUSTAINABLE RESULTS 9#10Management Report 2020 Awards & Recognition SLC Agrícola I · 1 2020 Ranking of Institutional Investor magazine Best Company in Agribusiness Sector 1st place in Sustainability (ESG Metrics), Best CEO, Best CFO, Best IR Team, Best IR Program and Best Analyst Day 1st and 3rd places in Best IR Professional 2020 Transparency Trophy 24th ANEFAC-FIPECAFI Awards Incredible Places to Work - Fundação Instituto de Administração (FIA) Em- ployee Experience (FEEX) Best in Agribusiness 2020 - Revista Globo Rural / Editora Globo (winner in Agricultural Production category) Estadão Empresas Mais Award (2nd place in Agriculture & Cattle Raising sector) Largest 500 Companies in the South, 2020 edition (29th place in annual ranking and 9th place among the largest 100 com- panies in Rio Grande do Sul state) 48th edition of Export RS Awards - Brazil- ian Association of Marketing and Sales Leaders (named Highlight in Agribusiness Sector) Época Negócios 360° Ranking (Best Agri- business Company Best Companies to Work For (GPTW) Lugares Incríveis para Trabalhar - Fundação Instituto de Administração (FIA) Employee Experience (FEEX) Valor Career- Valor Econômico newspa- per and consulting firm Mercer Best Companies in Safety & Health Awards 2020 - Brazilian Association of Oc- cupational Safety and Protection Material Industries - ANIMASEG (Best Company in Agribusiness category) 10#11Management Report 2020 STRATEGICALLY POSITIONED FARMS Planeste 59,030 haland 2 Palmeira 20,943 ha¹ Parnaíba 37,786 haland 2 Parnaguá 10,300 ha Pioneira 29,351 ha¹ Perdizes 26,358 ha¹ Paiaguás 63,403 ha¹ Planorte 2 30,912 ha Planalto 22,154 ha¹ 13 12 16 14 17 Paineira leased farm Parceiro 14,352 ha² SLC Agrícola Palmares 23,139 ha¹ Pamplona 20,034 ha¹ Paladino 20,673 ha Panorama 21,751 ha² Piratini 5,499 ha² SLC Agrícola Property SLC LandCo's Farms (SLC Agrícola 82%, Valiance 18%) Joint Venture with Mitsui&Co. Joint Venture with Grupo Roncador Pantanal 42,883 ha Units with 2nd crop. 2Planted area considers the total 2019/2020 crop. HQ - Porto Alegre 11#12Management Report 2020 SLC Agrícola Corporate governance In 2007, our company became the world's first producer of grains and fibers to go public. Our stocks (SLCE3) are listed on the B3's Novo Mer- cado segment, which includes only companies with the highest levels and special practices in corporate governance. SLC Group is the con- trolling shareholder of SLC Agrícola S.A., with a 53% interest in its capital. Another 45% is freely traded (free-float) on the exchange and 2% make up the current balance of treasury shares. Since our IPO, we have aligned our practices with the highest standards of corporate govern- ance and upheld ethics and transparency in our relations with all stakeholders connected to our business model. Our corporate governance structure, in combination with the policies and charters of our management bodies, ensure that our business strategy is executed with re- sponsibility, sustainability and a commitment to creating value for shareholders. as, Fazenda Perdizes egócio Are Prepra auidade: retenç e política cios penhos ctos Ares Fant Fazend • 500 Пові rep antada a de ales 15 RORAMA SLC Agrícola In 2020, our Board of Directors approved the creation of the new ESG Committee. Composed of five members, they advise the directors in all environmental, social and governance aspects. 12#13Management Report 2020 Corporate Governance structure Figure 1 Corporate Governance Structure Board of Directors ESG Comittee Risk Management Committee CEO Aurélio Pavinato Chief Executive Officer SLC Agrícola General Meeting - Stockholders Fiscal Council Fernando Reinach Independent Member Osvaldo Schirmer Independent Member Eduardo Logemann Chairman Jorge Logemann Vice-Chairman Board Click here to learn more about this topic in the SLC Agrícola Governance Report Ivo Brum Chief Financial and IR Officer Gustavo Lunardi Chief Production Officer André Pessoa Independent Member Aldo Tisott Chief Sales Officer Álvaro Dilli Chief HR and Sustainability Officer 13#14Management Report 2020 Risk management Our Risk Management Policy, in force since 2019, estab- lishes the guidelines for structuring a comprehensive framework that is applicable to all our operations. The doc- ument also consolidates the processes conducted continu- ously by managers to identify scenarios and formulate ac- tions for addressing each risk prioritized. The key risks we manage include commodity price varia- tions and foreign exchange fluctuations. To respond to this scenario, we practice our hedge strategy, which is guided by our Market Risk Management Policy. The Operating & Risk Management Committee evaluates the company's level of exposure at the start of every quarter and deter- mines the instruments (derivatives) to be contracted for the hedge operation in the period. Figure 2 Risk management RISK MANAGEMENT POLICY لَهَا CERTIFICATIONS SLC Agrícola MARKET RISK MANAGEMENT POLICY RISK MANAGEMENT COMMITTEE EXECUTIVE COMMITTEE AUDITS CONTRACTS Click here to learn more about this topic in sections 4 and 5 of the company's Reference Form INTEGRATED MANAGEMENT SYSTEM (SGI) RISKS HEDGE Strategic | Operational | Financial | Regulatory and/or Compliance | Socio-environmental | For Image 14#15■■■■■ Management Report 2020 Ethical conduct SLC Agrícola Our principles for building relationships based on ethics and integ- rity with all stakeholders are formalized in the Code of Ethics & Con- duct. The application of the Code is supervised by the Compliance area, which also is responsible for implementing and disseminating the Compliance System, which was created in compliance with the Clean Company Law (12,846/2013). The dissemination of this cul- ture of integrity is important for ensuring not only compliance with legal requirements, but also that all activities adhere to the corpo- rate guidelines, policies and procedures. A key element of this culture is the training courses on the Compli- ance System, which are conducted on-site and through e-learning. In 2020, in view of the need for physical distancing, we adopted a hybrid format with on-site training via videoconference. With this approach, we expanded the percentage of employees trained from 57% in 2019 to 78% last year. Another prevention front in compliance aspects is the management of risks associated with fraud, corruption, bribery, undue benefits or any other deviation of conduct. We evaluate all operations from this standpoint and identify priority actions to strengthen internal controls, improve normative instruments and raise awareness among employees as well as train them on these topics. We also have the Ethics Channel operated by the company Contato Seguro, which is open to everyone for submitting information and re- ports on attitudes that are in breach of the law or our values. All con- tacts are registered via an automated platform, which is managed by the specialized external company. The platform guarantees the confi- dentiality of the information provided by whistleblowers and our policy of non-retaliation, as well as the possibility of anonymous reports. The analyses of all reports submitted to the Ethics Channel are con- ducted internally, by the Loss Prevention Committee. If necessary, in- teraction with the whistleblower is conducted through the platform, without compromising privacy and confidentiality. How to access Contato Seguro 0800 648 6306 contatoseguro.com.br 15#16Management Report 2020 SLC Agrícola Innovation Researching, developing and incorporating new technologies and solutions for agribusiness is one of the growth drivers in which we invest to increase efficiency and productivity on our farms. We are a pioneering company (early-adopter) in integrating these technolo- gies, because we believe in the competitive advantages of this oper- ational model. Agricola The AgroExponential Program, in partnership with the innovation consulting firm Innoscience, is one of our fronts for connecting with startups. The second edition, which occurred in 2020, selected six companies to carry out the prototyping of solutions on our farms, for which three rollouts were approved. The Ideas&Results Program focuses on fostering innovation among our employees. With the support of training and education in inno- vation methodologies, the platform opens opportunities for profes- sionals to suggest improvements and new businesses connected to our challenges. By the end of 2020, nearly 200 ideas had already been presented, six of which already have rollout plans approved, given their success in testing phases and the evaluation of results. Last year, we also developed a new business model to expand innovation in our business model, with the creation of SLC Ventures to operate in two strategic vectors. The first is for direct investments by the company in startups with innovative solutions and a minimum viable product (MVP). The second vector is for selecting projects with prospects for causing high impacts on development in a controlled environment (ven- ture building). 16#17Management Report 2020 SLC Agrícola Strategy Figure 3 Area planted (hectares '000) 450 Strategic phases of SLC Agrícola 400 350 300- 250- 200- 150- 100- 50- О 1977 PHASE 1 "The Miracle of Cerrado" Business model formation Foundation till IPO ■100% own area ■Gradual land transformation ■Land as value reserve ■ Development of a replicable production model 2007 PHASE 2 "Arbitrage window to convert lands" IPO speeds up the growth IPO 2007 to 2015 ▪ Aggressive growth ▪ Onset of the leasing strategy ■ Joint ventures ■Certifications 2015 PHASE 3 "Distance in relation to the average" Technology as "game changer" To date ■"Asset Light" growth ■ Efficiency and distancing from the average ■Financial solidity and Generation of Value for the Stockholder ■Leadership in ESG 2020 Since our founding, we have understood the importance of agribusiness to society and worked to build a business model capable of seizing the opportunities that have emerged in Brazil over recent decades. The capacity to produce grains and fibers with higher yields and efficiency, ensuring economic growth aligned with social and environmental re- sponsibility, is today the industry's main competi- tive advantage. In this scenario, technology and digitalization emerge as determinant factors for driving the com- pany's growth. Investment in innovative solutions, supported by connectivity of equipment and crops, accelerates the improvement in yields and the sus- tainable use of natural resources. Our current business model focuses on developed areas that do not require the suppression of vege- tation. Approximately 99% of our planted areas are currently well developed and with maturity of over three years. In the 2020/21 crop year, we are concluding our cycle of expansion through the transformation of areas so that we can disseminate our commitment to not opening new areas for agricultural produc- tion. In the coming years, even without this convert- ing, we will be able to reach our production and profitability goals. 17#18Management Report 2020 SLC Agrícola Actions to combat covid-19 pandemic All our 16 farms remained operational during even the most critical months of the covid-19 pandemic in Brazil. The production of grains was essential for keeping food production chains functioning in or- der to avoid the risk of shortages and of expanding the public health and economic crisis on all continents. Our operational continuity was ensured by effective and rapid ac- tions taken to ensure the health of employees and of all other people accessing our facilities. We drafted a guide to combat the disease that was distributed to managers at all units and established rigid protocols to be followed for avoiding outbreaks. The various initia- tives included testing employees for covd-19, measuring body tem- perature and evaluating the health conditions of truck drivers and other visitors, intensifying cleaning and hygiene routines in the workplace and making available masks, gloves and hand sanitizer. We adapted our systems so that corporate teams could work from home and provided training to all employees at our headquarters in Porto Alegre on the correct use of work tools during the physical distancing period. In April, we will launch the Mental Health Cam- paign, which is an internal initiative with lectures by external con- sultants on topics that cover the emotional phases of crisis manage- ment and combatting adverse effects, such as stress, anguish, fear and anxiety. In October 2020, we started procedures for resuming on-site activities in our offices, with the return of employees who volunteer and are not part of a risk group. In this first moment, only 25% of all professionals was authorized to return to our offices, which were adapted to avoid crowding and transmission risk. To support civil society in combatting the spread of the novel coronavirus, we donated, through the SLC Institute, R$1.6 million to 18 cities in six different states. Created in 2020, the SLC Institute consolidates the allo- cation of funds for private social investment (learn more on page 59). 18#19Management Report 2020 Market overview Commodities Figure 4 - Variation in prices (selected commodities) – Jan/20 to Jan/21 160 150 140 130 120 110 100 90 80 70 Jan -20 Apr-20 Jul-20 Oct-20 Jan -21 SLC Agrícola Soybean Corn Cotton Source: Bloomberg. Base 100. 19#20Management Report 2020 SLC Agrícola Cotton Figure 5 US Cents/Lb 90 85 80 75 70 65 60 55 Cotton prices in the international market and in Brazil 50 45 40 Jan-19 Apr-19 Jul-19 Oct-19 Jan -20 Apr-20 Jul-20 Oct-20 Jan-21 Cotton ICE Cotton ESALQ Source: Bloomberg The year 2020 was marked by high volatility in cot- ton prices in the international and Brazilian mar- kets. In a year marked by the pandemic, assets were affected at the global level due to the uncer- tainty inherent to the markets and to the risk- averse posture adopted by agents in the chain, which helped to push prices to near their recent historical lows. The events that had a significant impact on agri- cultural markets also collaborated to the scenario of recovery and higher commodity prices world- wide. The signing of Phase One of the trade deal between the United States and China, in which the Asian country committed to buying agricultural products from the United States on a large scale, as well as the monetary policies adopted and con- sequent reduction in interest rates, were key measures supporting the scenario of recovery and higher prices. 20 20#21Management Report 2020 Figure 6 SLC Agrícola Million bales U.S. cotton shipments to China (annual volume committed in last week of January of each year) 2.0 2.1 1.6 1.7 4.5 2017 Source: USDA 2018 2019 2020 2021 Figure 7 Estimate of cotton production in United States for 2020/21 crop year Combined with the high volumes of U.S. cotton purchased by China, the scenario of downward revisions to production forecasts in the United States, in which unfavorable weather reduced the crop's out- put by approximately 20% in relation to initial estimates, also was a key catalyst for the structural changes in the cotton price in New York during the year. The reduction in U.S. production, combined with the expectation of stability in global consumption of the fiber, has been an important factor sustaining cotton prices. The global supply-demand balance should close the current cycle with a shortfall of approximately 2.9 million bales, according to USDA estimates. Regarding exports in Brazil, the volumes shipped maintained their upward trend over the year, especially in the last quarter, when rec- ord monthly shipments were responsible for sustaining and consol- idating the country's position as the world's second largest cotton exporter. Brazilian exports ended the year at 2.1 million tons, approximately 30% higher than in 2019. Million bales 19.50 17.50 17.05 14.95 May Report July Report October Report January Report Source: USDA 20% reduction in the U.S yield compared to initial estimates catalyzed structural changes in cotton prices in New York 21 221#22Management Report 2020 Figure 8 World cotton supply and demand balance 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 Million bales 30.0 25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -9.8 -15.0 Figure 10 Source: USDA Tons '000 400 300 200 100 о SLC Agrícola Figure 9 Annual cotton exports, Brazil 2,125 1,614 19.6 974 749 834 805 834 573 1.0 -1.6 -2.9 LL 2013 2014 2015 2016 2017 2018 2019 2020 Source: MDIC Monthly cotton exports, Brazil jan feb mar apr may jun jul aug sep oct nov dec 2017 2018 2019 2020 Source: MDIC 22 22#23SLC Agrícola Management Report 2020 Soybean Figure 11 Soybean prices in international market and Brazil 1550 1450 1350 1250 Soybean prices in Chicago and Paranaguá registered similar trends during 2020, in accordance with the different periods ob- served, as shown in Figure 11. Since they hit a low of around 8.50 USD/bushel in April, soybean prices in Chicago have reg- istered a solid and consistent recovery to levels around 14.50 USD/bushel. US Cents/bu 1150 1050 950 850 750 Jan -19 Apr-19 Jul-19 Oct-19 Jan-20 Source: Bloomberg Soybean CBOT Apr-20 Jul-20 Oct-20 Soybean -ESALQ Jan-21 The high prices observed in Chicago dur- ing 2020, combined with the premiums paid and local currency depreciation, ena- bled soybean prices to reach levels above those in the same period last year and, more recently, to over 170.00 R$/bag, based on CEPEA data for Paranaguá. 23 23#24Management Report 2020 SLC Agrícola In a year marked by lower prices and a subsequent recovery in soy com- plex prices in Chicago, the prices of soybeans and meal ended the period from January 2020 to January 2021 up over 45%, while oil prices gained around 30%. The resumption of imports by China driven by the country's domestic demand has been the main factor sustaining prices. This change is es- pecially important after the past cycle marked by the U.S.-China trade war and by African Swine Flu, which contributed to the scenario of de- pressed prices for the commodity in international markets. The resumption of U.S. soybean purchases by China at volumes above those observed in recent years, based on historical data, also was an important factor in the global commodity market sustaining prices in Chicago. In Brazil, soybean exports in 2020 maintained their upward trend ob- served in recent periods, with shipments of 82.9 million tons in the pe- riod, consolidating the country's position as an important soybean sup- plier in the international market. The global supply-demand balance for the current cycle (2020/21) should register a deficit for the second straight year, with consumption expected to outpace production by approximately 8.8 million tons, com- pared to the shortfall of 18.1 million tons in 2019/20. Figure 12 Prices of soy complex in Chicago, Jan/20 to Jan/21 160 150 140 130 120 110 100 90 80 70 60 Jan -20 Mar 20 May-20 Jul-20 ■Soybean ■Soybean meal Source: Bloomberg. Base 100. Sep-20 Nov-20 Soybean oil Jan-21 Figure 13 Million tons U.S. soybean shipments to China (annual volume committed in last week of January of each year) 33.3 28.2 25.2 26.2 34.7 12.0 3.5 2015 2016 2017 2018 2019 2020 2021 Source: USDA 24#25Management Report 2020 Figure 14 Million tons Annual cotton exports, Brazil Figure 15 SLC Agrícola World soybean supply and demand balance 54 83 83 2016/2017 25.0 74 68 20.0 17.5 52 52 Million tons 15.0 10.0 5.0 2017/2018 2018/2019 17.2 2019/2020 2020/2021 4.5 0.0 -5.0 -10.0 -8.8 -15.0 -20.0 -18.1 2015 2016 2017 2018 2019 2020 -25.0 Source: MDIC Source: USDA 25 25#26Management Report 2020 SLC Agrícola Corn Figure 16 US Cents/bu 750 700 650 600 550 500 450 Corn prices in international market and Brazil 400 три 350 300 Jan-19 Apr-19 Corn CBOT Corn - B3 Jul-19 Oct-19 Jan -20 Apr-20 Jul-20 Oct-20 Jan-21 Source: Bloomberg Corn spot prices quoted on the CBOT registered significant volatility over 2020, during which, after a downward cycle during April, prices followed a solid path of recovery and appreciation in both in the international (Chi- cago) and domestic (B3) markets. The period of the sharpest increases in corn prices was the last quar- ter of the year. In July, August and September, prices on the U.S. exchange showed signs of recovery after the corn planted area in the country was affected by ad- verse weather conditions. Later, in the last quarter of the year, the scenario of firm demand, mainly due to record corn shipments by the U.S. to China, continued to provide support for corn prices in Chi- cago. In Brazil, the market also remained strong over the entire year due to demand from the ani- mal protein industry and from export markets. Corn production regions in the Brazilian South and Argentina faced adverse weather conditions for the development of first-crop corn, with production data still to confirm the volumes produced. Accord- ingly, local supply and demand dynamics, com- bined with the conditions marked by uncertainty in the United States, set the tone for prices in the do- mestic market. 26#27Management Report 2020 Figure 17 Million tons 8 7 6 5 4 3 2 L Figure 18 Million tons 70.0 60.0 50.0 40.0 30.0 Monthly corn exports, Brazil jan feb mar apr may jun jul aug sep oct nov 2017 2018 2019 2020 World corn supply and demand balance 2016/2017 64.9 2017/2018 2018/2019 2019/2020 2020/2021 20.0 10.0 0.0 -3.4 -10.0 -20.0 -13.7 -12.2 -11.8 Source: USDA SLC Agrícola dec Source: MDIC Meanwhile, export shipments from Brazil between January and Decem- ber surpassed 34 million tons, which is above the average volume of the last 5 years, but approximately 20% lower than in the previous cy- cle, which registered record exports. In the global scenario, the difference in supply and demand should result in a shortfall of 11.8 million tons. The persistence of global def- icits should work to accelerate the growth in consumption and the drawdown in global stocks, which could become a significant factor sustaining future corn prices in the international market. 27#28Management Report 2020 SLC Agrícola Operating performance 2019/2020 Crop Year Planted area and productivity The planted area contracted by 2.1% from the previous crop year, due to the delay in the start of rains in the state of Maranhão, which post- poned the planting of soybean and consequently reduced the planting potential of second-crop corn. Commercial soybean | For the third straight year, we set a new yield record, which is in line the Company's current strategy of focusing on maximizing operating efficiency. This yield was 8.1% higher than our initial projection and 15.4% higher than the national average (Feb/2021 estimate from CONAB). Soybean seed | Production of 373,000 bags of soybean seeds, of which 120,000 were used for internal consumption (as seeds for the 2020/21 crop year) and 128,000 in the verticalized model. In addition, 125,000 bags were sold under the brand SLC Sementes. The germination qual- ity indicator stood at 94.8%. TABLE 1. PLANTED AREA BY CROP, 2018/2019 vs. 2019/2020 Planted Area (hectares) Mix of crops Cotton First-crop cotton VA HA 19/20 2018/2019 2019/2020¹ 123,727 125,462 28.0 1.4 72,852 74,054 16.5 1.6 Second-crop cotton Soybean (com + seeds) Corn second-crop Other crops² 50,875 51,408 11.5 1.0 243,148 235,444 52.5 -3.2 89,312 82,392 18.4 -7.7 Total area 1,912 458,099 5,270 1.1 175.6 448,568 100.0 -2.1 1. Climatic factors may affect the projection of the planted area. 2. Wheat, corn first-crop, corn seed and brachiaria. First-crop cotton | Despite the crop's good development, some areas in the states of Bahia and Maranhão suffered water scarcity, with low hu- midity and high temperatures during the crop's planting. As a result, production potential was slightly reduced, leading to production 3.4% lower than the initial projection. However, final production reached 1,779 kg per hectare, 5.4% higher than the yield in the previous crop year. 28#29Management Report 2020 SLC Agrícola Second-crop cotton | Second-crop cotton also was affected by water scarcity during the crop's planting and the cotton-ball development phase, manly in the region of Mato Grosso state. The final yield was 1,705 kg/ha of cotton lint, 2.5% lower than the projected volume and 5.7% higher than yield registered in 2018/19 crop year. Second-crop corn | Second-crop corn ended the period with a yield 3.0% higher than in 2018/19 crop year and 0.7% lower than the projected rate, of 7,333 kg/ha. Compared to the national average, the yield was up 34.4% (Feb/2021 estimate from CONAB). TABLE 2. ACTUAL YIELDS, 2018/19 vs. 2019/20 A. B. Yields (kg/ha) 2018/2019 Crop Year (actual) 2019/2020 Crop Year (estimated) 2019/2020 HA HA HA Crope Year (C/A) (B/A) (C/B) (actual) 1,688 1,842 1,779 5.4% 9.1% -3.4% 1,613 1,749 1,705 5.7% 8.4% -2.5% Cotton seed 2,090 2,261 Soybean (com. + seeed) Corn 2nd crop 3,739 3,607 7,121 7,385 2,175 4.1% 8.2% -3.8% 3,900 4.3% -3.5% 8.1% 7,333 3.0% 3.7% -0.7% Cotton lint 1st crop Cotton lint 2nd crop Actual cost of production The actual cost per hectare was 5.2% above the estimate, mainly due to the higher USD/BRL ex- change rate compared to the assumption adopted in the budget. The increase was fully offset by rev- enue, in accordance with the company's hedge policy. TABLE 3. ESTIMATED AND ACTUAL COST OF PRODUCTION 2019/2020 Total (R$/ha) Cotton 1st crop Cotton 2nd crop Soybean Corn 2nd crop Total average cost² Estimated 2019/2020 Actual 2019/2020¹ HA 8,397 9,362 11.5% 7,727 8,264 6.9% 2,901 3,015 3.9% 2,410 2,545 5.6% 4,368 4,597 5.2% 1. Values may change until the end of the cotton processing and the commercialization of the grains. 2. Weighted by areas of the 2019/2020 Crop Year to avoid changes arising from variations in the product mix. 29 29#30Management Report 2020 SLC Agrícola 2020/2021 Crop Year Planted area and productivity Compared to the initial estimate announced in November 2020, the planted area suffered a slight reduction to 468.2 thousand hectares due to some one-time adjustments to the planning still related to the delay in the start of rains in the Midwest. More details on the planted area are included in the "Additional Information" section of this document. Commercial soybean | In the Midwest, the rainy season started later than usual, which led to a revision of the agricultural plan. After planting, there was a good distribution of rainfall that supported good crop devel- opment. Note that, in the Northeast, weather conditions were highly fa- vorable as from the start of the cycle. 61.8% of the total area already had been harvested (position at 03/04/2021). To date, the areas are present- ing good potential and the expectation is to achieve the estimated yield. Soybean seed | The planting of areas allocated to seed production was concluded on December. We currently have 10.4% of the crop harvested (position at 03/04/2021). The areas are presenting good potential and the expectation is for gross production to exceed the budget. We esti- mate total production of 470,000 bags of soybean seeds, of which 120,000 will be used for internal consumption and 150,000 for export under the brand SLC Sementes. For vertically oriented production, 200,000 bags of soybean seeds will be produced. First-crop cotton | Most of the planted area fell within the ideal plant- ing window, i.e., up to end-December. The areas already are passing from the plant development phase to the flowering phase and present potential to reach the estimated yield. TABLE 4. PLANTED AREA BY CROP, 2019/20 vs. 2020/21 Planted Area (hectares) 2019/2020 Mix of crops Cotton VA HA 20/21 2020/20211 First-crop cotton Second-crop cotton 125.462 74.054 51.408 Soybean (com + seeds) 235.444 82.392 5.270 448.568 109.660 78.015 31.645 229.497 110.670 23,4 16,7 -12,6 5,3 6,8 -38,4 49,0 -2,5 23,6 34,3 18.369 468.196 100,0 3,9 248,6 4,4 Corn second-crop Other crops² Total area 1. Climatic factors may affect the projection of the planted area. 2. Corn 1st crop (6.391,89 ha), corn seed (460,79 ha), popcorn (911,87 ha), wheat (675,77 ha), cattle (3.526,71 ha), brachiaria seed (6.069,43 ha) and bean (332,14 ha): total of 18.368,60 ha. 30 30#31Management Report 2020 TABLE 5. ESTIMATED YIELDS, 2019/20 vs. 2020/21 2019/2020 Crop Year 2020/2021 Crop Year Yield (kg/ha) HA (estimated) (estimated) Cotton lint 1st crop 1,842 1,863 Cotton lint 2nd crop 1,749 1,638 1.1% -6.3% Cotton seed 2,261 2,221 -1.8% Soybean (com. + seed) 3,607 3,755 4.1% Corn 2nd crop 7,385 7,567 2.5% SLC Agrícola Second-crop cotton | The delay in planting soy- bean due to the delay of rains and consequently of the harvest affected the ideal window for plant- ing second-crop cotton. To optimize the crop's planting potential, we reduced the planted area for second-crop cotton, replacing it with second- crop corn, which has a longer planting window. This reduced the production potential, leading to a yield estimate of 1,638 kg/ha, 6.3% lower than estimate for the previous crop year. Corn | Regarding the first estimate of productiv- ity, announced in November, there was a small re- duction in the estimate for the second-crop corn, from 7,622kg/ha to 7,567kg/ha, due to the lengthening of the planting period. Despite the delay due rain, our expectation is to de- liver the disclosed yield for all crops 31#32Management Report 2020 Actual cost of production SLC Agrícola TABLE 6. ESTIMATED PRODUCTION COST PER CROP, 2020/21 CROP YEAR % Variable costs Seeds Fertilizers Chemicals Cotton Soybean Corn 20/21 Average 19/20 Average 83.1 77.5 81.8 80.8 79.5 9.8 14.7 18.2 12.4 12.1 21.3 21.3 36.4 22.5 22.1 28.6 24.3 14.5 25.3 23.8 Aerial spraying 1.6 1.0 1.5 1.4 1.7 Fuels and lubrificants 2.9 3.3 3.0 3.0 3.6 Labor 0.9 0.7 0.4 0.6 0.6 Processing 8.3 2.6 2.4 5.8 6.2 Maintenance of machines and implements 3.5 4.3 3.2 3.7 4.1 6.2 5.3 2.2 6.1 5.3 Fixed costs Labor 16.9 22.5 18.2 19.2 20.5 7.3 9.3 7.4 8.0 8.1 Depreciation and amortization 4.5 6.2 4.5 5.1 4.8 Amortization of the right of use - Leases 3.1 4.5 4.3 3.8 5.1 Other 2.0 2.5 2.0 2.3 2.5 TABLE 7. ACTUAL (2019/20) AND ESTIMATED (2020/21) PRODUCTION COST Total (R$/ha) Cotton 1st crop Cotton 2nd crop 2019/2020¹ Actual 2020/2021 Estimated HA 9,362 9,899 5.7% 8,264 9,306 12.6% Soybean 3,015 3,300 9.5% Corn 2nd crop 2,545 2,858 12.3% Custo médio total² 4,735 5,168 9.1% The costs per hectare estimated for the 2020/21 crop year reg- istered an average increase in Brazilian real of 9.1% compared to the actual costs in the 2019/20 crop year, basically due to the depreciation of the Brazilian real against the U.S. dollar in the period, since ap- proximately 60% of costs are denominated in the currency. Other 9,1% average increase in costs per hectare, driven by the increase in the exchange rate between the 2019/2020 and 2020/2021 crops 1. Values may change until the end of the cotton processing and the commercialization of the grains. 2. Weighted by areas of the 2019/2020 Crop Year to avoid changes arising from variations in the product mix. 32 32#33Management Report 2020 SLC Agrícola Financial performance Income statement analysis Adjusted EBITDA In 2020, Adjusted EBITDA amounted to R$960.3 million, representing a record high. Considering only EBITDA from Agricultural Operations (given that the result for 2019 includes a land sale oper- ation), Adjusted EBITDA grew by 34.2% on the prior year. This performance was in large part due to the higher prices for the soybean and corn invoiced. Note that, with the adoption of IFRS 16, lease costs were excluded from adjusted EBITDA. A total of R$129.6 million was paid for leases in 2020, com- pared to R$78.9 million paid in 2019. TABLE 8. ADJUSTED EBITDA RECONCILIATION (R$'000) Net revenue (+) Changes in fair value - biological assets (-) Cost of products sold Cost of products Realization of fair value - biological assets (=) Gross income 2019 2,535,905 2020 HA 504,751 3,097,547 775,534 22.1% 53.6% (2,257,472) (2,802,782) 24.2% (1,733,206) (2,051,786) 18.4% (524,266) (750,996) 43.2% 783,184 1,070,299 36.7% (-) Sales expenses (152,972) (173,964) 13.7% (-) General and administrative expenses (89,324) (115,452) 29.3% General and administrative Profit sharing (63,236) (70,058) 10.8% (26,088) (45,394) 74.0% (-) Management compensation (13,827) (14,716) 6.4% (-) Other operating revenue (expenses) Land sale 31,651 14,763 -53.4% 24,712 6,939 558,712 105,810 - -100.0% 14,763 780,930 39.8% 112.8% 119,686 13.1% 664,522 900,616 35.5% (504,751) (775,534) 53.6% 524,266 750,996 43.2% 12,228 8,067 -34.0% 425 2,455 477.6% 36,029 -100.0% (+) IFRS 16 adjustment - retained profit5 (+) IFRS 16 adjustment - amortization5 19,466 -100.0% 43,336 73,663 70.0% Adjusted EBITDA (agriculture operation + land sale)1 e 1e2 795,521 960,263 20.7% Adjusted EBITDA Margin (agriculture operation + land sale) 1 e a Adjusted EBITDA (agriculture operation) 1 e 2 2 31.4% 31.0% -0.4p.p Adjusted EBITDA Margin (agriculture operation) 1 e2 715,314 28.2% 960,263 34.2% Other operating revenue (expenses) (=) Income from activity (+) Deprecetiation and amortization EBITDA (-) Changes in fair value - biological assets³ (+) Realization of fair value - biological assets4 (+) Settled fixed assets² (+) Other transactions - fixed asset² (+) Land sale cost 31.0% 2.8p.p 1. Excluding the effects of Biological Assets, as they do not represent a cash effect. | 2. Excluding the settled fixed assets and adjustments to IFRS 16. | 3. Change in the fair value of Biological Assets (explanatory note DF 32). | 4. Realization of fair value Biological Assets (explanatory note DF 31). | 5. Amortization of the right-of-use related - leases. 33 33#34Management Report 2020 Net revenue In 2020, net revenue surpassed the mark of R$3 billion for the first time ever, representing growth of 22.1% on 2019. The increase was supported mainly by the higher prices invoiced for soybean and corn as well as the higher volume of cotton invoiced compared 2019. The calculation of Variation in Fair Value of Biological Assets ("VFVBA") reflects the estimated gross margin (sale price at farm less unit costs incurred) of crops presenting significant biological transformation in the calculation period. In the year, VFVBA was 53.6%, higher than in 2019, explained by the expectation of higher margins in the 2019/20 crop year compared to the 2018/19 crop year. TABLE 9. NET REVENUE TABLE 10. VOLUME INVOICED (Tons) Volume invoiced Cotton lint Cotton seed Soybean Corn Other SLC Agrícola 2019 2020 HA 2,004,703 185,374 2,107,961 5.2% 215,965 16.5% 234,986 281,613 19.8% 898,368 899,278 0.1% 634,644 51,331 662,840 4.4% 48,265 -6.0% (R$'000) 2019 2020 HA TABLE 11. VARIATION IN FAIR VALUE OF BIOLOGICAL ASSETS (R$'000) 2019 2020 HA Net revenue 2,535,905 3,097,547 Cotton lint Cotton seed 1,212,573 Soybean Corn Other FX hedge results 77,154 1,036,218 253,376 72,874 (116,290) 22.1% 1,697,671 40.0% 156,269 102.5% 1,291,803 24.7% 383,504 51.4% Var. Fair Value - biological assets Cotton lint 99,907 37.1% Cotton seed Soybean Corn Other 504,751 775,534 53.6% 224,433 298,465 33.0% 15,411 28,208 83.0% 229,668 315,535 37.4% 17,933 62,353 247.7% 17,306 70,973 310.1% (531,607) 357.1% 34#35Management Report 2020 Cost of goods sold TABLE 12. COST OF GOODS SOLD (R$'000) Cost of goods sold Cotton lint Cotton seed Soybean Corn Other 2019 2020 HA (1,733,206) (762,874) (61,257) (2,051,786) 18.4% (945,782) 24.0% (644,331) (198,182) (66,562) (98,128) 60.2% (697,641) 8.3% (230,112) 16.1% (80,123) 20.4% TABLE 13. REALIZATION OF FAIR VALUE OF BIOLOGICAL ASSETS (R$'000) Realization of fair value of biological assets Cotton lint Cotton seed Soybean Corn Other SLC Agrícola In 2020, cost of goods sold increased 18.4% in relation to 2019, reflecting the higher vol- umes invoiced and the higher unit costs, mainly due to the Brazilian real depreciation. This increase was partially offset by the higher yields in the 2019/20 crop year com- pared to the 2018/19 crop year. 2019 2020 HA (524,266) (750,996) 43.2% (254,413) (281,368) 10.6% (15,898) (21,114) 32.8% (217,389) (317,382) 46.0% (19,593) (63,591) 224.6% (16,973) (67,541) 297.9% The Realization of Fair Value of Biological As- sets (RFVBA) is the corresponding entry to Variation in Fair Value (calculated upon har- vest) and is recognized as products are in- voiced. In 2020, RFVBA was 43.2% higher than in 2019, due to the higher margin esti- mated upon the recording of fair value of bi- ological assets. 35 55#36Management Report 2020 SLC Agrícola Gross income by crop To contribute to a better understanding of margins by crop, in this section the gain (loss) from currency hedge is allocated among cotton, soybean and corn. Cotton lint and cotton seed | In 2020, unit gross in- come from cotton fell 21.8% from 2019, due to the 3.1% reduction in unit price combined with the 6.4% increase in unit cost. The latter factor reflects the in- crease in average cost and decrease in average yield per hectare of cotton invoiced during the year (37% in 2018/19, 63% in 2019/20) compared to 2019 (41% in 2017/18, 59% in 2018/19). Cotton seed unit gross income increased significantly in comparison with 2019. Despite the higher unit cost, this performance is mainly due to the increase in unit price, of 69.2%, reflecting the domestic de- mand for animal food supplements and biodiesel pro- duction. TABLE 14. GROSS INCOME - COTTON LINT Cotton lint Volume invoiced Net revenue Result of FX hedge 2019 2020 HA Ton R$'000 R$'000 185.374 1.212.573 215.965 16,5% 1.697.671 40,0% (61.699) (398.374) 545,7% 1.150.874 1.299.297 12,9% 6.208 6.016 -3,1% (945.782) 24,0% R$/ton R$/ton (4.115) 2.093 (4.379) 6,4% 1.637 -21,8% Net income adj. for the result of FX hedge R$'000 Unit price R$/ton Total cost R$'000 (762.874) Unit cost Unit gross income TABLE 15. GROSS INCOME - COTTON SEED Cotton seed Volume invoiced Net revenue 2019 2020 HA Ton R$'000 R$/ton 234,986 77,154 328 281,613 156,269 19.8% 102.5% 555 69.2% Total cost R$'000 (61,257) (98,128) 60.2% Unit cost R$/ton (261) (348) 33.3% Unit gross income R$/ton 67 207 209.0% Unit price 36#37Management Report 2020 SLC Agrícola Ton 2019 898,368 R$'000 1,036,218 2020 899,278 1,291,803 24.7% HA 0.1% R$'000 (46,758) (106,204) 127.1% 989,460 1,185,599 19.8% R$/ton R$'000 R$/ton R$/ton 1,101 (644,331) (717) 384 1,318 19.7% (697,641) 8.3% (776) 8.2% 542 41.1% Soybean | In 2020, soybean unit gross income increased 41.1% from 2019, due to the better average invoiced prices. Corn | In 2020, 93% of the corn invoiced was produced in the 2019/20 crop year. The 162.7% increase in unit gross income reflects the better invoiced prices, with this factor partially offset by the increase in unit cost. Consolidated | To support the analysis of consolidated Gross Income, we excluded the effects from Biological As- sets (Variation and Realization of Fair Value) to show the actual margins of products invoiced in the period. Gross in- come grew 30,3% in 2020 compared to 2019, due to the higher unit gross income from soybean and corn, which was partially offset by the lower income from cotton. TABLE 18. CONSOLIDATED GROSS INCOME TABLE 16. GROSS INCOME Soybean Volume invoiced Net revenue Result of FX hedge - SOYBEAN Net income adj. for the result of FX hedge R$'000 Unit price Total cost Unit cost Unit gross income TABLE 17. GROSS INCOME - CORN Corn (R$'000) 2019 Gross income 783,184 Cotton lint 388,000 Cotton seed 15,897 Soybean 345,129 Corn Other Biological assets 47,361 6,312 (19,515) 2020 1,070,299 353,515 -8.9% 58,141 265.7% 487,958 41.4% 130,227 175.0% 15,920 152.2% 24,538 HA 36.7% Volume invoiced Net revenue Result of FX hedge Ton R$'000 R$'000 2019 634,644 Total cost Net income adj. for the result of FX hedge R$'000 Unit price R$/ton R$'000 (198,182) 2020 662,840 4.4% 253,376 383,504 51.4% (7,833) (23,165) 195.7% 245,543 387 HA 360,339 46.8% 544 40.6% (230,112) 16.1% Unit cost R$/ton n.m Unit gross income R$/ton (312) 75 (347) 197 11.2% 162.7% 37#38Management Report 2020 Selling expenses In 2020, selling expenses increased 13.7% from 2019, mainly due to export expenses, given the higher volume of cotton invoiced and the depreciation in the Brazilian real against U.S. dollar in the period, since these amounts are denominated in foreign cur- rency. TABLE 19. SELLING EXPENSES (R$'000) 2019 Freight Storage 58,191 32,458 2020 63,602 9.3% 36,424 12.2% HA Commissions 13,359 13,979 4.6% Classification of goods 2,070 2,130 2.9% Export expenses 28,535 40,228 41.0% Other 18,359 17,601 -4.1% Total 152,972 173,964 13.7% % Net revenue 6.0% 5.6% -0.4p.p. SLC Agrícola 38#39Management Report 2020 Administrative expenses Administrative Expenses (excluding amounts related to the Profit Sharing Program) in- creased 10.8% in 2020 compared to 2019. The main variations are explained below: (i) increase of 22% in personnel expenses, mainly due to adjustments to the In- formation Technology team to support the automation of processes; (ii) increase in Expenses with Contribu- tions and Donations, due to the sup- port of health institutions for invest- ments in initiatives to combat covid-19 in the first half and in the last quarter of the year (donations with tax incen- tives); (iii) increase in expenses with Communica- tions, due to costs related to the mi- gration to a home-office model in view of the pandemic. Other Subtotal % Net revenue Profit sharing SLC Agrícola TABLE 20. ADMINISTRATIVE EXPENSES (R$'000) 2019 2020 HA Expenses with personnel 31,952 38,989 22.0% Fees 5,058 5,877 16.2% Depreciations and amortizations 1,897 2,094 10.4% Traveling expenses Software maintenance 2,694 1,176 -56.3% 6,161 5,090 -17.4% Marketing/Advertisement 2,674 2,692 0.7% Communication expenses 2,707 3,798 40.3% Rentals 904 1,293 43.0% Tax, labor and environmental conting. Electricity 1,734 186 -89.3% 193 175 -9.3% Taxes and others fees 1,275 1,332 4.5% Contributions and donations 2,322 4,283 84.5% 3,665 3,073 -16.2% 63,236 70,058 2,5% 26,088 2,3% 10.8% -0.2 p.p. 45,394 74.0% Total 89,324 115,452 29.3% 39#40Management Report 2020 SLC Agrícola Net financial income Since the Company's dollar-denominated debt is swapped to BRL (in line with the Risk Management Policy), the exchange variation on such debt does not affect financial income (loss) when we analyze aggre- gated figures, since any gains or losses on such debt from FX variation are offset by proportionate gains/losses in the respective swap. In 2020, Adjusted Net Financial Income (Loss) decreased compared to 2019. The main impact refers to the interest line, mainly due to the reduction in adjusted net debt during the year (vs. 2019) and the de- cline in the CDI rate in the period. The increase in Adjustment to Present Value of Leases was due to the lengthening of the terms of certain agreements and to the increase in the price of the soybean bag in BRL (adjustment index adopted in agreements). In 2020, there also was an increase in the line Other financial income (expenses) related to the recognition of expenses with PIS/COFINS tax on financial income. TABLE 21. ADJUSTED NET FINANCIAL INCOME (EXPENSE) (R$'000) Interest FX variation 2019 2020 HA (101,197) 5,940 (53,637) -47.0% 28,775 384.4% Monetary variation 139 -100.0% Adjust. to present value of leases (IFRS 16) (47,607) (61,106) 28.4% Other financial income (expenses) (1,325) (5,783) 336.5% Total % Net revenue (144,050) (91,751) 5.7% 3.0% -36.3% -2.7p.p. 40 40#41Management Report 2020 SLC Agrícola Net income (loss) In 2020, net income reached R$510.9 million, growing 74.4% from 2019 (considering only the result from agricultural operations). The increase was mainly due to the higher gross income from soybean and corn, which was partially offset by the lower gross in- come from cotton. Net margin ended the year at 16.5%, expanding 5.0 percentage points from 2019. TABLE 22. NET INCOME (LOSS) (R$'000) Income before taxes on profit Income Tax and Social Contribution on profit Consolidated Net Income for the Period Assigned to members of the parent company Attributed to non-controlling shareholders of the company % Net Margin Net income of agricultural operation Net income of agricultural operation Net income of land sale 2019 2020 HA 414.662 689.179 66,2% (99.621) (178.231) 78,9% 315.041 510.948 62,2% 311.514 488.674 56,9% 3.527 22.274 531,5% 12,4% 16,5% 4,1p.p 292.893 510.948 74,4% 11,5% 16,5% 5,0p.p 22.148 -100,0% 41#42Management Report 2020 Statement of cash flow analysis SLC Agrícola In 2020, free cash generation was R$415 million, more than double the amount in 2019, mainly due to the strong growth in operating cash generation supported by the higher gross income from soy- bean and corn. TABLE 23. SUMMARIZED CASH FLOW (R$'000) 2019 2020 HA Cash generated in operations Change in assets and liabilities Net cash in investment activities In fixed assets 778,746 1,155,649 48.4% (245,880) (370,788) 50.8% (161,005) (169,846) 5.5% (235,175) (190,129) -19.2% In intangible assets (5,746) (21,654) 276.9% Receipt for land sold 80,621 42,643 -47.1% Land return payment Free cash submitted Change in fin. invest. account¹ Leases paid² Share buyback (705) (706) 0.1% 371,861 615,015 65.4% (74,436) (55,329) -25.7% (78,929) (129,634) 64.2% (268) 100.0% CRA expenditure payment Adjusted free cash flow 1. The variations in said account have no cash effec. (5,423) (14,700) 171.1% 213,073 415,084 94.8% 2. Due to the adoption of IFRS 16, lease payments are now accounted for in the Financing Activities section. However, it must be considered as an operating cash disbursement. 42#43Management Report 2020 SLC Agrícola CAPEX In 2020, we invested R$234.2million, 15.3% less than 2019. The three main lines of investment were: Machines, implements and equipment | R$92 million, repre- senting 39.3% of total. In line with our efficiency increase strat- egy, we maintained the investments in new technologies that con- tribute to optimize the use of resources and help improve the ag- ricultural potential of cultures. For instance, we acquired more sensor units that are coupled to the sprayers for local herbicide application, generating savings in defensives. In addition, the technology allows applications directed to the culture line, both insecticides and fungicides, in the initial phases of cultivation. Soil correction | R$56.1 million, 31.3% higher than 2019, aim- ing at maintaining the soil's productive capacity. Works and installations | R$22.1 million, representing 9.5% of the year's investments. Some adequations were maid in our units, such as expanding grain expedition in processing and storage units at Paiaguás Farm and the expansion of the cot- ton processing unit at Pantanal Farm. We also made several works at seats, like machinery shelters, fertilizer deposits, op- erational accommodation, implementation of fire protection systems and bio-factories, among others. In 2020, we also ini- tiated infrastructure works to support the crop-livestock inte- gration project. TABLE 24. CAPEX Soil correction Buildings and facilities (R$'000) 2019 2020 HA Machines, implements and equipment Land acquisition 109,101 91,999 -15.7% 3,072 102 -96.7% 42,772 56,156 31.3% 49,575 22,154 -55.3% 33,710 3,687 -89.1% 1,763 2,380 35.0% 3,630 20,009 451.2% 4,029 2,506 -37.8% 7,542 21 -99.7% Software 9,798 Improvements in own properties 2 21,111 39 115.5% n.m Cotton processing plant Grain warehouse Soil cleaning Vehicles Aircrafts Improvements in third parties' properties Buildings Other Total 1,917 1,324 -30.9% 9,620 276,531 106 12,652 234,246 100.0% 31.5% -15.3% 43#44Management Report 2020 Debt SLC Agrícola Adjusted Net Debt ended 2020 at R$708 million, decreasing R$265.3 million compared to 2019. The reduction is explained by the strong free cash generation in the year, of R$415.1 million. Of this free cash, R$147.5 million was used to pay dividends (for fiscal year 2019) and R$32.3 million to pay interest on equity (for fiscal year 2020). Note that, in November, the Company successfully placed its third CRA issue, in the amount of R$480 million, with interest of IPCA + 3.6726% p.a. (with a swap operation to convert IPCA + 3.6726% p.a. to CDI + 1.85% p.a.) and amortizations in the fourth and fifth year, which length- ened the debt maturity profile at an attractive cost. Figure 19 R$ MM 1,600 1,400 1,448 Change in net debt/adjusted EBITDA ratio 1,460 1,226 1,200 974 1,000 800 1.93 1.86 600 1.46 1.22 0.74 400 200 о 796 750 784 dec-19 mar-20 840 960 jun-20 sep-20 5.5x 4.5x 3.5x 708 2.5x 1.5x Adjusted EBITDA 0.5x Adjusted net debt Adjusted net -0.5x dec-20 debt X adjusted EBITDA 44#45Management Report 2020 TABLE 25. FINANCIAL NET DEBT SLC Agrícola Credit line Average annual interest rates Consolidated (R$'000) Indexer 2019 2020 2019 2020 Invested in fixed assets 73.235 Working Capital Financing for Exports Financing for Export Total indebtedness³ Finame - BNDES Pre, Currency Baskets Invested in the working capital Rural Credit Pre CRA CDI¹ CDI¹ Pre CDI¹ 5,4% 5,4% 73.235 1.792.631 57.053 57.053 2.377.936 6,0% 4,3% 108.483 12.186 4,4% 2,9% 561.447 841.616 5,1% 3,1% 413.490 577.936 6,5% 111.422 5,1% 3,2% 597.789 5,0% 3,1% (+/-) Earnings and losses on derivatives linked to Investments and debts² 1.865.866 6.691 946.197 2.434.989 (=) Gross debit (adjusted) (-) Cash (=) Net debit (adjusted) EBITDA in the past 12 months Adjusted Net debt/Adjusted EBITDA 1. Final interest rate with swap. 2. Operations with derivative gains and losses (note 25, letter "e", of FS). 3. The total debt is different from the accounting position due to the costs of transactions with CRA, see note 18 of FS. 1.859.175 885.418 121.794 2.313.195 1.604.716 973.757 708.479 795.521 960.262 1,22 0,74 45#46Management Report 2020 Hedge position Currency and agricultural commodity hedge. SLC Agrícola The company's sales revenue is generated mainly from the sale of ag- ricultural commodities, such as cotton, soybean and corn, which are quoted in U.S. dollar on the foreign exchanges Chicago Board of Trade (CBOT) and Intercontinental Exchange Futures US (ICE). Therefore, we are actively exposed to variations in foreign exchange rates and in the prices of these commodities. To protect from currency variation we use derivative instruments, with the portfolio of these instruments basically comprising non-deliverable forwards (NDFs). In line with the Company's Risk Management Policy, whose purpose is to obtain a pre-established Adjusted EBITDA margin with a combination of factors such as Price, Foreign Exchange and Cost, most of the instruments for protecting against commodity price varia- tion are accomplished through advanced sales directly with our clients (forward contracts). We also use futures and options contracts negoti- ated on the exchange and swap and option transactions contracted with financial institutions. The mark-to-market adjustments of future, swap and option transactions are recorded under financial income (ex- pense). The hedge position for commodities (in relation to the estimated total volume invoiced) and currency (in relation to the total estimated reve- nue in U.S. Dollar) is shown below, broken down by commercial hedge and financial hedge and updated as of March 15. 46 46#47Management Report 2020 TABLE 26. HEDGE POSITION Crop Year % R$/USD FX hedge | Soybean 2019/2020 2020/2021 2021/2022 Ano agrícola 100.0 4.4814 67.5 5.0885 9.8 5.6104 % USD/bu² Commitments¹ Commitments¹ FX hedge | Cotton Crop Year % R$/USD Commitments¹ 2019/2020 2020/2021 2021/2022 Ano agrícola 96.4 4.4476 69.8 5.3236 15.4 5.8486 % US$/lb² Commitments¹ FX hedge | Corn Crop Year % 2019/2020 2020/2021 2021/2022 Ano agrícola R$/USD 100.0 4.4681 59.7 5.2383 24.8 5.6672 % Commitments¹ R$/bag³ Commitments¹ Commodity hedge | Soybean SLC Agrícola 2019/2020 2020/2021 2021/2022 100.0 56.7 20.6 10.29 10.92 11.03 15.9 14.4 Commodity hedge | Cotton 2019/2020 2020/2021 2021/2022 98.7 70.89 71.6 66.27 41.3 74.32 Commodity hedge | Corn 2019/2020 2020/2021 2021/2022 100.0 61.9 35.38 37.29 40.0 49.82 1. Commitments for payment of securities fixed in US dollars, natural hedge with payments of land and leases in soybean bags. 2. FOB Porto base prices at our production units are also influenced by transportation expenses and possible quality discounts. 3. Farm price. 47#48Management Report 2020 Return indicators SLC Agrícola The company understands that the calculation of return on equity, return on net assets and return on invested capital must consider, in addition to the net result for the period or operating result for the period, the net annual appreciation (based on the annual Deloitte Touche Tohmatsu Consultores Ltda's independent report) of the land value. 13.6% return on equity (+ 4.9 p.p.) 9.9% return on net assets (+ 3.3 p.p.) 12.9% return on invested capital (+ 3.7 p.p.) TABLE 27. RETURN ON EQUITY (R$'000) Net revenue¹ Net land appreciation² Subtotal Shareholders equity³ Return 2014 2015 2016 2017 2018 2019 2020 70 121 16 289 405 293 511 428 140 199 19 110 142 216 498 261 215 308 515 435 727 3,771 13.2% 3,911 6.7% 4,346 4.9% 4,438 6.9% 4,641 4,973 5,361 11.1% 8.7% 13.6% 1. Even in periods that contemplate net results from land sales, this analysis considers only the profit from the "agricultural operation", since the gains from land appreciation are being considered in a specific line. 2. Based on an independent report (Deloitte), updated in October 2020; net of tax. 3. Adjusted by land appreciation 48#49Management Report 2020 TABLE 28. RETURN ON NET ASSETS (R$'000) Net revenue¹ Net land appreciation² Subtotal Net assets Working capital Fixed assets³ Return SLC Agrícola 2014 2015 2016 2017 2018 2019 2020 70 121 16 289 405 293 511 428 140 199 19 110 142 216 498 261 215 308 515 435 727 4.859 5.005 5.026 5.097 5.443 6.551 5.964 733 739 561 613 603 912 1.150 4,126 10.2% 4,266 5.2% 4,465 4.3% 4,484 6.0% 4,840 9.5% 5,639 6,202 6.6% 9.9% 1. Even in periods that contemplate net results from land sales, this analysis considers only the profit from the "agricultural operation", since the gains from land appreciation are being considered in a specific line. 2. Based on an independent report (Deloitte), updated in October 2020; net of tax. 3. Adjusted by land appreciation TABLE 29. RETURN ON INVESTED CAPITAL (R$'000) 2014 2015 2016 2017 2018 2019 2020 Operating result¹ 190 285 110 513 657 536 780 IRPJ tax 21.3% 27.3% 0.0% 26.3% 30.5% 24.0% 26.0% Adjusted IR (40) (78) 20 (135) (200) (129) (203) Adjusted operating income 150 207 130 378 457 407 577 Net and land appreciation² 428 140 199 19 110 142 216 Operating income with Lands 578 347 329 397 567 549 793 Invested capital 4,731 5,005 5,255 5,104 5,584 5,947 6,154 Gross debt (ST and LT) 1,332 1,795 1,974 1,578 1,586 1,859 2,313 Cash 372 701 1.065 749 643 885 1.520 Net debt 960 1.094 909 829 943 974 793 Net worth³ Returno n invested capital 3,771 12.2% 12.9% 1. Even in periods that contemplate net results from land sales, this analysis considers only the profit from the "agricultural operation", since the gains from land appreciation are being considered in a specific line. 3,911 6.9% 4,346 6.3% 4,275 4,641 4,973 5,361 7.8% 10.2% 9.2% 2. Based on an independent report (Deloitte), updated in October 2020; net of tax. 3. Adjusted by land appreciation 49#50Management Report 2020 Sustainability SLC Agrícola Evaluating sustainability trends and understanding the social and environ- mental impacts of our business led us to organize our ESG model based on three priority vectors. We identified the Sustainable Development Goals (SDGs) and the Food and Agriculture Business Principles (FAB Principles) to which we can contribute most effectively through investments and internal programs, as well as through stronger relationships with local communities and other actors in civil society. The mechanisms for mitigating and protecting socio-environmental factors are based on the Integrated Management System (SGI) that we implemented more than 10 years ago. The SGI and its certificates are implemented under a standardized model at all our farms. We ended 2020 with 11 units (head- quarters and 10 farms) certified under ISO 14,001, ISO 45,001 and NBR 16,001. Another 7 units (headquarters and 6 farms) are certified under ISO 9,001. Our purpose is to conclude the integration of all units by 2024. In addition to management system certifications, we also worked to ensure that our commodities are certified in quality, traceability and responsible pro- duction model in accordance with best practices and guidelines. These inter- nationally recognized certificates permit our Company to access the world's most important markets, which leverages our growth strategy and adds value to our products. Figure 20 Priority vectors CLIMATE CHANGE AND SOIL MATERIAL TOPICS ■ Emissions ■ Environmental compliance DECENT WORK AND ECONOMIC GROWTH M 12 RESPONSIBLE CONSUMPTION AND PRODUCTION со WATER AND BIODIVERSITY MATERIAL TOPICS ■ Water ■ Biodiversity ■ Effluents and wastes I RELATIONSHIP WITH STAKEHOLDERS MATERIAL TOPICS ■ Economic performance ■Market presence ■Combat of corruption ■ Employment Workplace health and safety ■Training and education CLIMATE 14 BELOV BELOW WATER 15 13 ACTION LIFE ON LAND 50 50#51Management Report 2020 SLC Agrícola Figure 21 Integrated Management System and Certificates Integrated Management System (IMS) ISO 14001 Defines the requirements for implementation and improving of operations environmental management system. ISO 45001 Guides the structuring of norms and procedures for a system of management of health and safety conditions in work environment. NBR 16001 Establishes requirements for social responsibility management system, directing the operations towards promoting citizenship and social development. Soybean RTRS (Round Table on Responsible Soy) Establishes an international standard for environmentally correct, socially fair and economically feasible soy production. ProTerra Standard that ensures compliance with environmental and social requirements in the production of grains without genetic modifications (OGM). ВО Quality Management System ISO 9001 Guides the adoption of policies and requirements to ensure standardization, monitoring and documentation of the production process. Cotton ABR (Responsible Brazilian Cotton) Promotes sustainable cotton production encouraging the adoptions of good practices of environmental management, social responsibility and sustainability vision. BCI (Better Cotton Initiative) Encourages awareness in the whole production chain of the importance of fair labor relations and socio-environmental responsibility in the field. 51#52Management Report 2020 SLC Agrícola Climate change & soil Climate change caused by the increase in the Earth's aver- age temperature has critical impacts on all production sec- tors and communities. Changes in rainfall regimes, the in- tensification of catastrophic weather events and the expan- sion of desertification processes could severely affect agri- cultural potential. To help reverse these risks, our goal is to reduce the carbon footprint of our production model. We also work to improve mechanisms for sequestering and fixing carbon in the soil using agricultural techniques. Figure 22 Initiatives that expand soil carbon sequestration Agriculture and cattle-raising integration systems, introducing cultures with high biomass production and quick root growth Use of cover plants Soil cultivated using direct seeding has the potential to absorb an additional 300kg of CO2 per hectare compared to traditional models. We use this technique on approximately 90% of the area we cultivate each crop year, which represents the potential to absorb 360,000 tons of CO2 equiva- lent, which corresponds to planting 51,000 trees. 98 -O- Conservation practices that avoid losses of soil surface layer Direct sowing system 52#53Management Report 2020 SLC Agrícola Every year we prepare our greenhouse gas emissions inventory in ac- cordance with the Brazilian Greenhouse Gas Protocol Program. The study measures the quality of greenhouse gases that we issue over the year in our direct activities (Scope 1) and in acquisition of elec- tricity (Scope 2). In three years of this work we have found opportunities to improve the methods of calculation and come as close as possible to complete estimates of emissions and carbon capture in the reality of our work in the field. Our goal is to reduce by 25% our greenhouse gas (GHG) emissions by 2030 by investing in new technologies in the field and industry. The financial resources to be invested in projects to achieve this goal were obtained through our first issue of green bonds. In 2020, we raised R$480 million through an issue of Agribusiness Receivables Certifi- cates (CRA) that were classified as Green CRAS in accordance with the opinion and report issued by a third party (second opinion). Selective application of weedkillers We use cutting-edge technology to achieve economic and envi- ronmental gains on our farms. The weedkiller spraying machines have sensors that detect the presence of invasive plants in the soil and command the opening of bi-injectors only in those places. This reduces the use of weedkillers in the plantations by up to 90%. This innovation is still at the pilot phase in one of our farms, and has shown very positive results in terms of expanding it to our other units. TABLE 30. GHG EMISSIONS INVENTORY Greenhouse gas emissions inventory (kt CO2e) 2019 2018 2017 Scope 1 (agricultural operations) Scope 2 (energy use) 573 569 482 4 4 4 53#54Management Report 2020 SLC Agrícola Water & biodiversity The conservation of water resources and biodiversity is one of the priori- ties of the Company's integrated management. Our purpose is to promote agriculture that is responsible and connected to the environment, with a balance between natural and cultivation areas. Our initiatives focus on capturing eco-efficiency gains in production, protecting headwaters and bodies of water and developing reforested and recovered areas. At present, 99% of the areas that we cultivate do not use irrigation sys- tems - this is known as dry, rain-fed or non-irrigation farming. On the Pamplona and Palmares farms, where a small portion of the cultivation is irrigated, we adopt the Irriga System, which continually monitors the soil's specific demand for water for the next 24 to 48 hours. In 2020 the total volume captured was 18.3 million m³, reduction of 28.6% in relation to the previous year due to good rainfall levels at Fazenda Pamplona, which minimized the demand for the Irriga System. Figure 23 Total water withdrawal by source (m³ '000) 26,093 26,050 1,100 1,307 18,612 1,507 2018 24,993 24,743 17,105 2019 2020 Superficial sources Underground sources Bio-factories We have 11 units producing bio-pesticides used on our farms, each one with capacity for 15,000 liters per week. In the structures we produce and test six different types of microorganisms, whose application in substitution to synthetic products is interesting for the natural balance of ecosystems and, combined with localized application technologies, reduces the demand for volume of materials and water in operations. 54#55Management Report 2020 SLC Agrícola A total of 97,400 hectares of our farms are set aside for conserving natural forests and biodiversity. We also operate nurseries on eight farms that supply seedlings, which are predominately of tree species native to the Cerrado biome, to local communities (such as local governments, NGOs and educational institutions). To expand the generation of positive impacts, we work in partnership with universities and civil society organizations to develop projects focusing on pro- tecting the fauna and flora of the Cerrado biome. Ex- amples include our involvement, since 2018, in the Pantanal Headwaters Pact and in the Cerrado Biodi- versity Conservation Program, the latter developed at the Planalto Farm in partnership with the Federal University of Rio Grande do Sul (UFRGS). Figure 24 Use of own area (hectares '000) 12.8 Leased to third parties 24.0 Others** 24.7 Landbank* 143.4 Cultivated by SLC Agrícola 302.3 Total areas 97.4 Preserved (Legal Reserve and Permanent Preservation Area) * Arable areas that are in the process of soil correction and development with cover crops in order to enter the planning with commercial planting and a small portion in the future (1,600 awaiting permission to open). **Seats, roads and other areas not used for cultivation. 55#56Management Report 2020 SLC Agrícola Stakeholder relations We build long-term, ethical and transparent relationships with all stakeholders connected to our business model. We identify and work to improve our operations to meet the expectations and demands of suppliers, employees and communities in the municipalities where we have operations. To strengthen this relationship, we also disclose our corporate values and the strategy to materialize our purpose: Our Big Dream. Open dialogue and respect for diversity are the pillars that sustain our way of acting. Employees All permanent and seasonal workers are cov- ered by collective bargaining agreements and have the right to a benefits package. The pack- age of benefits of the SLC Foundation, which covers 100% of professionals, includes a health plan, dental plan, life insurance and funeral as- sistance, as well as reimbursement of medical and medicine expenses. Furthermore, perma- nent employees are entitled to extended mater- nity and paternity leave (6 months for women and 20 days for men), meal vouchers or cafete- ria meals, temporary renter's assistance and accommodation at the farms, daycare assis- tance, transportation voucher, educational as- sistance and agreements with universities and a food voucher card. Figure 25 1,025 Seasonal DISTRIBUTION OF OUR WORKFORCE IN 2020 By type of contract By gender By region 2,723 Effective 383 Women 3,365 Men 323 South 1,744 Northeast OOO 1.681 Midwest 56#57SLC Agrícola Management Report 2020 The Leadership Academy is our program for encouraging profes- sionals in leadership positions, trainees and potential leaders to improve their leadership skills. The different development pro- grams carried out annually are based on training courses and programs that focus primarily on alignment with the corporate strategy and improving organizational skills for leaders. In addi- tion to training, the Competencies Assessment model provides leaders with structured knowledge for recognizing their strengths and opportunities for development. We also created Digital Inclusion Spaces at our agricultural units. These rooms, which are equipped with computers connected to the Internet, encourage employees to participate in distance- learning courses and gain basic knowledge on computers and digital agriculture. The culture of safety among teams is continuously strengthened over the entire crop year through specific and planned initia- tives. In 2019/20 crop year, we achieved the best performance in the company's history and registered a significant reduction in accidents with lost-time injuries involving both employees (from 38 to 25 compared to the prior crop year) and third par- ties (from 10 to 3). Figure 26 Frequency rate of accidents with lost time for employees 2.85 3.51 2.30 2017/2018 crop 2018/2019 crop 2019/2020 crop Figure 27 76.27 Accident severity rate for employees 69.30 37.60 2017/2018 crop 2018/2019 crop 2019/2020 crop 57 57#58SLC Agrícola Management Report 2020 Communities Our actions to foster local development were expanded in 2020 with the creation of the SLC Institute, which was conceived by the SLC Group (our shareholder) and is responsible for managing the funds we allocate to Private Social Investment (PSI). Created as a non-profit organization, the SLC Institute focuses on developing people and communities by supporting education as an important vector of social transformation and opportunity creation. In 2020, its initiatives focused on cooperation in combating the coro- navirus pandemic, with donations amounting to R$1.6 million. Of this amount, R$1 million came from the own funds of SLC Agrícola. Com- bined with the funds involving tax incentives allocated to social pro- jects in 2020, the Company's total social investment last year came to R$2.9 million. One of these was the Entrepreneur Project, which works to reduce dropout rates through educational initiatives that foster knowledge, self-esteem and better communication between students and teachers. Suppliers Our suppliers are a strategic link in our goal of reaching maximum efficiency and production in our operations. The relations we build with suppliers help us to find innovative solutions that drive the entire production chain towards more sustainable operation in terms of economic, social and environmental impacts. Guided by the Procurement Policy, we require these partners to adopt conduct that is aligned with our values, comply with legisla- tion and fully incorporate respect for human rights. Our Ethics Channel also is open to receiving reports on the improper behav- iors and attitudes of our commercial partners. All suppliers undergo an approval process that involves verifying the documents attesting to their legal compliance and, depending on the case, specific evaluations in the areas of Health, Safety and Environment. We also monitor the payment of all labor contribu- tions and taxes and other obligations related to employment con- tracts involving outsourced companies, whose compliance is nec- essary for approving the payments to these partners. 58#59Management Report 2020 Additional information TABLE 31. PLANTED AREA - - 2020/21 CROP YEAR Planted area (hectares) Mix of areas 1st crop area Own area VA 20/21 HA 2019/2020 2020/20211 313,458 322,085 68.7% 2.8% 111,101 109,999 23.5% -1.0% Leased area 129,946 135,330 28.9% 4.1% Joint ventures² 40,148 41,594 8.9% 3.6% SLC LandCo area³ 32,263 35,162 7.5% 9.0% 2nd crop area 135,110 146,111 31.2% 8.1% Own area 54,156 52,145 11.1% -3.7% Leased area 53,604 63,589 13.6% 18.6% Joint ventures² 9,876 14,229 3.0% 44.1% SLC LandCo area³ 17,474 16,148 3.4% -7.6% Total area 448,568 468,196 100.0% 4.4% 1. Climatic factors may affect the projection of the planted area. 2. Areas belonging to the Roncador Group and Mitsui. 3. SLC Agrícola holds an 81.23% interest in SLC LandCo. SLC Agrícola 59#60Management Report 2020 TABLE 32. PLANTED AREA - 2019/20 CROP YEAR Planted area (hectares) Mix of areas VA 19/20 A% 2018/2019 2019/2020 1st crop area Own area 316,159 313,458 69.9 -0.9 111,279 111,101 24.8 -0.2 Leased area 130,669 129,946 29.0 -0.6 Joint ventures¹ 39,551 40,148 9.0 1.5 SLC LandCo area² 34,660 32,263 7.1 -6.9 2nd crop area 141,940 135,110 30.1 -4.8 Own area 62,000 54,156 12.1 -12.7 Leased area 56,611 53,604 11.9 -5.3 Joint ventures¹ 8,516 9,876 2.2 16.0 SLC LandCo area² 14,813 17,474 3.9 18.0 Total area 458,099 448,568 100.0 -2.1 1. Areas belonging to the Roncador Group and Mitsui. 2. SLC Agrícola holds an 81.23% interest in SLC LandCo. 60 60 SLC Agric Agrícola#61Management Report 2020 TABLE 33. LAND PORTFOLIO Áreas safra 2020/2021 (ha) SLC Agrícola Owned¹ SLC LandCo² Leased Joint Ventures Under control Total planted³ Farm State Pamplona GO 17.994 3.854 21.848 22.547 Pantanal MS 25.996 25.996 43.547 Planalto MS 15.006 1.635 16.641 22.522 Planorte MT 23.454 23.454 29.663 Paiaguás MT 28.129 17.318 45.447 62.930 Perdizes 5 MT 28.893 13.288 42.181 26.667 Pioneira4 MT 19.705 19.705 33.934 Panorama BA 10.373 14.253 24.626 21.806 Paladino5 BA 21.889 21.889 21.889 Piratini BA 25.356 25.356 8.446 Palmares BA 16.195 831 16.470 33.496 24.383 Parceiro BA 27.564 3.680 9.441 40.685 14.365 Parnaíba MA 26.193 11.570 37.763 43.252 Palmeira MA 10.200 14.459 24.659 21.154 Planeste MA 22.784 20.334 43.118 61.872 Paineira ΡΙ 12.892 12.892 Parnaguá ΡΙ 19.416 19.416 9.219 Total 215.736 86.512 135.330 41.594 479.172 468.196 1. Own area includes legal reserve. 2. SLC Agrícola currently owns 81.23% of LandCo, and the Valiance fund equals 18.77%. 3. Including second crop. Climatic factors may affect the projection of the planted area. 4. The Pioneira Farm is part of the joint operation with the Roncador Group. 5. The Perdizes and Paladino Farms are part of the joint operation with Mitsui at SLC-Mit. 6. Farm leased to third parties. 61#62Management Report 2020 TABLE 34. LANDBANK Hectares SLC Agrícola Parnaíba Parnaguá Parceiro Subtotal SLC LandCo Palmeira¹ Piratini Areas in transformation² 1.464 5.627 7.091 4.749 9.993 SLC Agrícola Areas in licensing process 2.872 2.872 Parceiro¹ Subtotal Total 14.742 21.833 2.872 1. Areas acquired by SLC LandCo that will be explored together with these farms. 2. In development for commercial planting. Property appraisal In October, a new independent appraisal of SLC Agrícola's property portfolio was concluded by the firm Deloitte Touche Tohmatsu, the result of which indicated a total value of R$3.962 billion, representing appreciation of 4.62% in relation to 2019. The average price per arable hectare of the Company's properties is currently R$19,455. 662#63Management Report 2020 TABLE 35. MACHINERY BASE AND STORAGE CAPACITY SLC Agrícola 2018 2019 2020 TABLE 36. NET ASSET VALUE - NAV Machinery (quantity) 867 873 868 (R$'000) 4T20 Tractors 216 212 211 SLC Agrícola Farms¹ 2,767 Grain combiners 209 206 196 SLC LandCo Farms¹ 755 Cottonpickers 76 85 92 Infrastructure (excl. land) 1,114 Planters 212 209 210 Accounts receivable (excl. derivatives) 149 Self-propelled sprayers 154 161 159 Inventories 1,225 Storage capacity (tons) Biological assets 808 Grains 764.000 764.000 764.000 Cash 1,520 % Production¹ 52% 52% Cotton 125.148 125.148 44% 125.148 Subtotal 8,338 Suppliers 1,021 % Production¹ 60% 60% 63% Gross debt adjusted for the result of operations with 2,130 1. Estimate based on the planted area and yields for crop year of 2020/2021. derivatives Debts related to land purchase Subtotal Net Asset Value Net Asset Value per share (190.595.000 shares) 3,151 5,187 27.2 1. Based on an independent assessment report (Deloitte, 2020), net of taxes. NOTE: All accounts are adjusted by the interest of SLC Agrícolas in subsidiar- ies/joint venture. 63#64Management Report 2020 Debt Figure 28 1,859,175 Adjusted gross debt Dec/2019 Change in adjusted gross debt (R$ 1000) 1,500,500 (1,045,083) Raising Main amortization 127,701 (115,102) (93.686) 79,690 2,313,195 Interest Interest amortization appropriation Gross debt Negative variation Exchange variation SWAP variation (MTM) Positive variation Adjusted gross debt Dec/2020 SLC Agrícola 64#65Management Report 2020 Figure 29 1,604,716 (352,114) Adjusted gross debt amortization schedule (R$ '000) (1,114,664) (390,202) (233,578) (212,840) Cash liquidity 2021 2022 2023 2024 Figure 30 Figure 31 Gross debt by index and instrument 2% 3% Pre BNDES 0% 24% 0% 97% Rural credit Working capital Other CDI 39% Financing to exports 35% CRA (9,797) 2025 After 2025 Adjusted gross debt profile 15% Short-term 85% Long-term SLC 65 65 Agrícola#66I Management Report 2020 Dividends SLC Agrícola The distribution of dividends, in the last five fiscal years, presented an average payout of 50% of adjusted net income. On March 17, 2021, the Board of Directors approved the Manage- ment Proposal, which will be submitted to the Shareholders' Meet- ing to be held on April 4, 2021. The Proposal indicates the distribu- tion of R$199,691,908.51. The dividend will be paid equally to all shares issued by the company, corresponding to R$1.064543 per common share (excluding treasury shares). Of this amount, R$83,672,518.69 will correspond to mandatory dividend and R$116,019,389.83 to additional dividends. On December 16, 2020, the net amount of R$32,346,871.14 was paid, resolved at a meeting of the Board of Directors held on No- vember 6, 2020, imputed in the calculation of the mandatory divi- dend for fiscal year 2020. The gross amount was distributed as in- terest on equity corresponds to R$37,117,543.63. The sum of the amount to be proposed to the Shareholders' Meeting and the net amount already distributed as interest on shareholders' equity totals R$232,038,779.65, representing 50% of the parent company's adjusted profit ended on December 31, 2020. The divi- dend will be paid equally to all the shares issued by the company (excluding treasury shares), corresponding, then, to R$1.236982 for each common share held by the shareholders. TABLE 37. PROPOSAL OF DIVIDEND DISTRIBUTION (R$'000) Net income of the parent company Appropriation of subvention reserve Appropriation of legal reserve Calculation base for dividends proposed a. Minimum mandatory dividend of 25% Interest On Equity - IOE (Gross) 1 Taxes on IOE b. Net IOE c. Additional Proposed dividend (25%) Proposed Dividendes (a+b+c) % on Net Profit for the Year 1. Amount paid on 12/16/2020. 2019 311,514 939 2020 488,674 171 15,575 24,425 295,000 464,078 73,753 83,673 37,117 -4,770 32,347 73,749 147,502 50% 116,019 232,039 50% Increase of 56,9% in the parent company's net profit, in relation to 2019 Increase of 57,3% in the amount of proposed dividends, in comparison to last year's same period 949 66#67I Management Report 2020 Figure 32 Dividend Yield 14% 12% R$ 200 R$ 200 Dividends R$ 232 250 - 200 R$ 147 Average DY - 5.7% 150 Proposed dividends: R$ 200 MM -100 10%- 8%- 6%- 4%- 2%- 0% R$ 176 III 2017 Interim dividends' 2017 2018 2019 1. Referring to profits for Expansion Reserve, from 2012 to 2015. 50 SLC Agrícola R$ Million R$ 32 IEC paid 16/12/20 0 2020 Proposal Proposed dividends Net Interest on Equity Capital paid on 12/16/20 67#68Management Report 2020 Capital markets SLC Agrícola Figure 33 220 200 180 160 140 120 100 80 60 40 40 Shares performance - SLC3 versus Ibovespa B3, Feb/20 to Feb/21 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-21 Nov-20 Dec-20 Jan-21 Feb-21 IBOV-B3 SLCE3 111,35% appreciation of SLC Agrícola' share (SLC3) in the last 360 days, against a 5.36% appreciation of Ibovespa (Feb-20 to Feb-21) The company's share capital is divided into 190,595,000 common shares with no par value, with a free float of 45.46% on the base date of December 31, 2020. The shares of SLC Agrícola (SLCE3) are traded on B3, at the highest corporate governance segment, the Novo Mercado. In addi- tion, they are available on the North American over-the-counter market via ADR Level1, with the ticker "SLCJY". SLCE3 is part of the following indi- ces: Small Caps (SMLL B3), IBRA3, ICON B3, IDIV B3, IGCT B3, IGCX B3, IGNM B3 and ITAG B3. In the last 360 days (Feb-20 to Feb-21), SLCE3 registered an appreciation of 111.35%, against a 5.36% appreciation of Ibovespa in the same pe- riod, as shown in the chart. The average volume traded on the spot market, in the last 360 days (Feb-20 to Feb-21), reached the mark of R$33.2 million, with an average of 1.27 million shares traded. At the end of February, the company reached a record market value of R$7.8 billion, R$40.98 per share on 2/26/2021. 68#69Management Report 2020 Independent auditors Disclaimer SLC Agrícola Throughout fiscal year 2020, in compliance with CVM Instruc- tion No. 381/03, SLC Agrícola informs that ERNST & YOUNG Auditores Independentes SS provided audit services for the individual and consolidated financial statements for the fiscal year ended on December 31, 2020, also as tax advisory services. The amount referring to the audited services of the financial statements contracted amounted to R$840,889.93, and the tax advisory services represented 13.20% of the audit services. Submission to Arbitration Chamber The Company is subject to arbitration by the Novo Mercado Arbitration Chamber, as per the submission to arbitration clause in its Bylaws. We make statements concerning future events that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of our Management and on the information cur- rently available to the Company. Forward-looking statements include information on our current plans, beliefs or expectations, as well as those of the Company's di- rectors and officers. Forward-looking statements include information on potential or assumed operating results as well as statements that are preceded, followed by or include the words "believe," "may," "will," "continue," "expect," "project," "intend," "plan," "estimate" or similar expressions. Forward-looking statements and information provide no guarantee of performance. Because they refer to future events, they involve risks, uncertainties and assumptions and as such depend on circumstances that may or may not occur. The Company's future re- sults and creation of value for shareholders may differ significantly from the figures expressed or suggested in the forward-looking state- ments. Many factors that will determine these results and values are beyond our capacity to control or predict. 69#70Management Report 2020 Financial statements December 31, 2020 with report of the independent auditor SLC Agrícola 73 Report of the independent auditor on individual and consolidated financial statements 78 Individual and consolidated financial statements Balance sheets Income statements Comprehensive income statements Statements of changes in shareholders' equity Cash flow statements Value added statements Notes to the financial statements 70#71Management Report 2020 Fiscal Council Opinion The Fiscal Council of SLC Agrícola S.A., in compli- ance with the legal and statutory provisions, ex- amined the Management Report and the individ- ual and consolidated Financial Statements of SLC Agrícola S.A., all related to the fiscal year ended on December 31, 2020. Based on the examinations carried out, also con- sidering the report of Ernst & Young Auditores Independentes SS, dated March 17, 2021, as well as the information and clarifications re- ceived during the year, he believes that the re- ferred documents are in conditions to be ana- lyzed and approved by the Annual General Meet- ing of Shareholders. Porto Alegre/RS, March 17, 2021. João Carlos Sfreddo Chairman of the Fiscal Council Paulo Roberto Kruse Member Mauricio Rocha Alves de Carvalho Member Board of Executive Officers' Opinion on FSs In compliance with the provisions contained in article 25 of Instruction No. 480/09, of Decem- ber 7, 2009, the Board of Directors declares that it has reviewed, discussed and agreed with the Financial Statements (Parent Company and Con- solidated) related to the fiscal year ended on De- cember 31, 2020. Porto Alegre/RS, March 17, 2020. Aurélio Pavinato Chief Executive Officer Ivo Marcon Brum Chief Financial and Investor Relations Officer Gustavo Macedo Lunardi Chief Operating Officer Aldo Roberto Tisott Chief Sales Officer Álvaro Luis Dilli Chief HR and Sustainability Officer SLC Agrícola Board of Executive Officers' Opinion on the Auditing Report In compliance with the provisions contained in article 25 of Instruction No. 480/09, of Decem- ber 7, 2009, the Board of Directors declares that it has revised, discussed and agreed with the opinion expressed in the opinion of the Inde- pendent Auditors, dated March 17, 2021, re- garding the Financial Statements (Parent Com- pany and Consolidated) for the fiscal year ended on December 31, 2020. Porto Alegre/RS, March 17, 2021. Aurélio Pavinato Chief Executive Officer Ivo Marcon Brum Chief Financial and Investor Relations Officer Gustavo Macedo Lunardi Chief Operating Officer Aldo Roberto Tisott Chief Sales Officer Álvaro Luis Dilli Chief HR and Sustainability Officer 71#72Management Report 2020 SLC Agrícola Report of the independent auditor on individual and consolidated financial statements To the Shareholders, Board of Directors and Officers SLC Agrícola S.A. Porto Alegre - RS Opinion We have audited the individual and consolidated financial statements of SLC Agrícola S.A. (the "Company"), identified as Individual and Consolidated, respec- tively, which comprise the statement of financial position as at December 31, 2020, and the statements of profit or loss, of comprehensive income, of changes in equity and cash flows for the year then ended, and notes to the financial state- ments, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all ma- terial respects, the individual and consolidated financial position of the Company as at December 31, 2020, and its individual and consolidated financial perfor- mance and cash flows for the year then ended in accordance with the accounting practices adopted in Brazil and with the International Financial Reporting Stand- ards (IFRS) issued by the International Accounting Standards Board (IASB). Basis for opinion We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the individual and consolidated financial statements section of our report. We are independent of the Com- pany and its subsidiaries in accordance with the relevant ethical principles set forth in the Code of Professional Ethics for Accountants, the professional standards issued by the Brazil's National Association of State Boards of Ac- countancy (CFC) and we have fulfilled our other ethical responsibilities in ac- cordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the indi- vidual and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter, including any commentary on the findings or outcome of our procedures, is provided in that context. We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the individual and consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assess- ment of the risks of material misstatement of the financial statements. 72 22#73Management Report 2020 The results of our audit procedures, including the procedures performed to ad- dress the matters below, provide the basis for our audit opinion on the accompa- nying financial statements. Measurement of biological assets As mentioned in Note 8, the Company and its subsidiaries measure their biologi- cal assets, which correspond to agricultural products, mainly soybean, corn and cotton, based on their fair value from the pre-harvest stage. This measurement is a significant estimate based on several assumptions and methodologies adopted by the Company's management, for which internal and external infor- mation was used, mainly related to active market prices, productivity and planted areas. At December 31, 2020, the Company recorded biological assets in the amount of R$739,267 thousand and R$891,804 thousand in current assets in the Individual and Consolidated financial statements, respectively. This was considered a key audit matter due to the materiality of the amounts of the biological assets in relation to total assets and to the net income for the year, as well as due to the uncertainties inherent in this type of estimation, and the required level of judgment to be made by management in determining the as- sumptions for calculating fair value. How our audit addressed this matter Our audit procedures included, among others, reviewing the calculation method used by the Company, and using specialists in the physical inspection of a sample of planted areas to determine the existence of the biological assets and their physical conditions. Additionally, we assessed the assumptions related to active market prices, expected productivity and planted areas, among others. We also tested a sample of documents with costs that were added throughout the year. Finally, we assessed the adequacy of the disclosures made by the Company in this regard in the footnotes. Based on the results of the audit procedures performed for the measurement of biological assets, which are consistent with management's assessment, we con- sider that the criteria and assumptions relating to the measurement of biological SLC Agrícola assets adopted by management, as well as the related disclosures in Note 8, are appropriate in the context of the individual and consolidated financial statements taken as a whole. Hedge accounting As described in Note 25, the Company and its subsidiaries enter into derivative financial instruments to hedge currency risks and commodity price risks for ag- ricultural products, in relation to future revenue highly probable of occurring, recorded in accordance with the hedge accounting model. At December 31, 2020, the Company recorded R$207,640 thousand, net of deferred taxes, in equity (In- dividual and Consolidated), in "Other comprehensive income." Designation of financial instruments as hedged items (hedge accounting) and measuring their effectiveness require compliance with some formal obligations and the use of significant estimates of probable forecast revenues. Due to the large number of transactions entered into, the complex measurement of the fair value of transactions and assessment of hedge effectiveness, in addition to the potential impact that changes in future forecast revenue may have on the Com- pany's results and cash flows, we consider this a key audit matter. How our audit addressed this matter Our audit procedures included, among others: understanding the design of the risk management process and the hedge accounting structure, including the analysis of the policy adopted by the Company; reperforming the measurement of the fair value of transactions, with the involvement of specialists in derivative financial instruments to assist us in the preparation of an independent valuation calculation; crosschecking the amount recorded by the Company with the infor- mation provided by the financial institutions through confirmation procedures - sending out confirmation letters to the respective counterparties to the transac- tions; reviewing the documents with the designation of financial instruments and the corresponding transactions and prospective effectiveness tests prepared by management; reviewing the forecast of probable future revenues based on the analysis of outright sale agreements and sales estimates; and reviewing the 73#74Management Report 2020 disclosures made in the notes to the individual and consolidated financial statemnts. As a result of these procedures, we identified an audit adjustment related to the measurement of the fair value of certain transactions. This adjust- ment was not recorded by management in view of its immateriality in relation to the financial statements taken as a whole. Based on the results of the audit procedures performed, which are consistent with management's assessment, we consider that the Company's hedge ac- counting policies are acceptable in relation to the requirements of NBC TG 48 (IFRS 9) to support the judgments, estimates and information included in the footnotes to the individual and consolidated financial statements taken as a whole. Measurement of lease liabilities and right-of-use assets in ac- cordance with NBC TG 06 (R3) (IFRS 16) As described in Note 13, the Company recorded right-of-use assets and lease liabilities for the contracts covered by NBC TG 06 (R3) (IFRS 16). As at De- cember 31, 2020, right-of-use assets were recorded for R$2,463,254 thousand in the Individual financial statements and for R$828,496 thousand in the Con- solidated financial statements; and lease liabilities were recorded for R$2,615,382 thousand in the Individual financial statements and for R$934,284 thousand in the Consolidated financial statements. This was considered a key audit matter due to the materiality of the amounts involved in relation to the asset and liability balances and to the profit and loss balances, as well as due to the uncertainties inherent in this type of es- timation, and the required level of judgment to be made by management in determining the relevant assumptions, which also include the discount rate used. How our audit addressed this matter Our audit procedures included, among others, assessing the main assump- tions adopted in connection with the lease term, the discount rate and con- sideration amounts, in addition to the calculation methodology used by the SLC Agrícola Company to measure the accounting impacts; reviewing the inventory of the Company's lease contracts, in addition to determining whether the contracts comply with the scope of the standard. We also tested a sample of contracts selected at random for the reasonableness of the criteria adopted by the Com- pany, considering the information contained in the contracts and their amend- ments, in addition to testing the accuracy of the amounts calculated by the Company for these transactions. Finally, we examined the adequacy of the disclosures made by the Company in this regard in the footnotes, including the requirements of NBC TG 06 (R3) (IFRS 16) and the guidelines of the Bra- zilian Securities and Exchange Commission (CVM). Based on the results of the audit procedures performed, which are consistent with management's assessment, we consider that the criteria and assump- tions adopted by management to measure and record lease contracts in ac- cordance with the requirements of NBC TG 06 (R3) (IFRS 16), as well as the related disclosures in Note 13, are appropriate in the context of the individual and consolidated financial statements taken as a whole. Other matters Statements of value added The individual and consolidated statements of value added (SVA) for year ended December 31, 2020, prepared under the responsibility of Company management, and presented as supplementary information for purposes of IFRS, were submitted to audit procedures conducted together with the audit of the Company's financial statements. To form our opinion, we evaluated if these statements are reconciled to the financial statements and accounting records, as applicable, and if their form and content comply with the criteria defined by NBC TG 09 - Statement of Value Added. In our opinion, these statements of value added were prepared fairly, in all material respects, in accordance with the criteria defined in abovementioned accounting pro- nouncement, and are consistent in relation to the overall individual and con- solidated financial statements. 74#75Management Report 2020 Other information accompanying the individual and consoli- dated financial statements and the auditor's report Management is responsible for such other information, which comprise the Man- agement Report. Our opinion on the individual and consolidated financial statements does not cover the Management Report and we do not express any form of assurance con- clusion thereon. In connection with our audit of the individual and consolidated financial state- ments, our responsibility is to read the Management Report and, in doing so, consider whether this report is materially inconsistent with the financial state- ments or our knowledge obtained in the audit or otherwise appears to be mate- rially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the Management Report, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with govern- ance for the individual and consolidated financial statements Management is responsible for the preparation and fair presentation of the indi- vidual and consolidated financial statements in accordance with the accounting practices adopted in Brazil and with the International Financial Reporting Stand- ards (IFRS) issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free of material misstatement, whether due to fraud or error. In preparing the individual and consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. SLC Agrícola Those charged with governance are responsible for overseeing the Company's and its subsidiaries' financial reporting process. Auditor's responsibilities for the audit of the individual and con- solidated financial statements Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free of material misstate- ment, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guar- antee that an audit conducted in accordance with Brazilian and International standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, indi- vidually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepti- cism throughout the audit. We also: Identified and assessed the risks of material misstatement of the indi- vidual and consolidated financial statements, whether due to fraud or error, designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material mis- statement resulting from fraud is higher than for one resulting from er- ror, as fraud may involve collusion, forgery, intentional omissions, mis- representations, or the override of internal control. Obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circum- stances, but not for the purpose of expressing an opinion on the effec- tiveness of the Company's and its subsidiaries' internal control. 75#76Management Report 2020 Evaluated the appropriateness of accounting policies used and the rea- sonableness of accounting estimates and related disclosures made by management. Concluded on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a go- ing concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclo- sures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's re- port. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluated the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the scope and timing of the planned audit procedures and significant audit findings, including deficiencies in internal control that we may have identi- fied during our audit. SLC Agrícola We also provided those charged with governance with a statement that we have complied with relevant ethical requirements, including applicable independence requirements, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where appli- cable, related safeguards. From the matters communicated with those charged with governance, we deter- mined those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Porto Alegre, March 17, 2021. ERNST & YOUNG Auditores Independentes S.S. CRC 2SP015199/0-6 Guilherme Ghidini Neto Accountant CRC-RS 067795/0-5 76#77Management Report 2020 Statements of financial position | December 31, 2020 and 2019 Note Parent Company 12/31/2020 12/31/2019 Consolidated 12/31/2020 12/31/2019 Note 12/31/2020 Parent Company 12/31/2019 SLC Agrícola (In thousands of Reais) Consolidated 12/31/2020 12/31/2019 Assets Current assets Cash and cash equivalents Short-term interest earning bank deposits Accounts receivable Advances to suppliers Inventories LIABILITIES Current liabilities Biological assets Recoverable taxes Securities and credits receivable Operations with derivatives Intercompany transactions Other accounts receivable Prepaid expenses Assets held for sale 556 781229 1,319,290 649,548 53,652 1,604,053 829,427 Suppliers 17 933,146 773,124 1,101,769 922,000 55,342 Loans and financing 18 297,692 623,874 377,547 699,515 178,085 137,114 207,283 178,405 Taxes, rates and sundry contributions 49,452 47,905 57,186 57,510 3,221 1,924 3,580 2,443 Social charges and labor legislation obligations 65,235 44,151 79,989 54,572 1,179,014 941,957 1,031,082 1,071,354 Advances from clients 57,233 28,907 68,264 33,289 739,267 667,954 891,804 780,589 Debts with related parties 16 28,521 33,970 39,447 41,943 Intercompany lease liability 13 10 31,207 71,657 Operations with derivatives 25 25 89,721 30,975 98,587 34,008 Securities payable 21 16 2,475 1,040 8 11 Provisions for tax, environ. and labor risks 19 5,280 7,642 6,217 11,412 Dividends payable 15,471 12,887 17,141 14,030 Leases to pay 810 189 971 Total current assets 3,561,155 2,538,852 4,201,380 189 3,090,810 Third party lease liability 13 9.ក.ស.ជ ១.សី ដ ឌ 1,310 2,763 118 125 204,525 104,591 318,242 47,839 358,969 55,230 12,273 12,273 3,524 3,808 5,429 4,121 22.h 83,680 73,759 86,332 73,759 24.2 225 5,283 225 150,888 105,998 162,258 114,567 Others accounts payables 12,112 10,644 21,680 16,375 Total current liabilities 2,177,039 1,867,588 2,337,097 2,043,561 Non-current assets Long-term interest earning bank deposits Recoverable taxes Deferred income and social contrib. taxes Operations with derivatives Intercompany transactions Non-current liabilities 51229 663 64,236 650 73,432 663 111,203 650 Loans and financing 18 1,753,056 933,853 2,039,736 1,160,251 122,469 Deferred taxes 20 153,553 187,853 230,802 247,531 20 20,480 22,517 Intercompany lease liability 13 1,517,643 795,214 118,126 10,492 146,785 11.328 Operations with derivatives 25 56,965 3,519 58,152 5,643 16 25,246 31,050 Securities payable 21 706 1,412 Advances to suppliers 2,758 5,292 59,814 30,241 Third party lease liability 13 742,326 491,653 772,026 515,149 Prepaid expenses 378 528 437 528 Other debits. 114 161 Other credits 2,071 3,059 13,705 7,945 Total non-current liabilities 4,223,657 2,412,253 114 3,101,536 161 1,930,147 Securities and credits receivable 10 2,700 5,248 213,478 124,503 355,787 200,926 Shareholders' equity Capital 22.a 947,522 947,522 947,522 947,522 Investiments 11 2,212,789 2,200,537 Capital reserves 22.b 97,504 97,760 97,504 97,760 Investment Property 12 224,194 217,010 (-) Treasury shares 22.c (52,921) (64,321) (52,921) (64,321) Right of Use in Lease 13 2,463,254 1,388,969 828,496 555,031 Profit reserves 22.d.e.f.g 978,074 680,719 978,074 680,719 Property, plant and equipment 14 855,159 796,366 2,944,544 2,878,989 Retained Losses 22.j 970,200 1,122,997 970,200 1,122,997 Intangible 15 35,240 5,566,442 15,291 4,401,163 35,290 4,032,524 15,363 Total attributable to shareholders 2,940,379 2,784,677 2,940,379 2,784,677 3,666,393 Total non-current assets 5,779,920 4,525,666 4,388,311 3,867,319 Non-controlling shareholders in subsidiaries Total shareholders' equity 210,679 199,744 TOTAL ASSETS 9,341,075 7,064,518 8,589,691 6,958,129 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 9,341,075 2,940,379 2,784,677 7,064,518 3,151,058 2,984,421 8,589,691 6,958,129 See accompanying notes. 77#78- Management Report 2020 SLC Agrícola Statement of profit or loss | December 31, 2020 and 2019 (In thousands Reais, except profit per share) Statement of comprehensive income | December 31, 2020 and 2019 (In thousands Reais) Note Parent Company 12/31/2020 Consolidated Parent Company Consolidated Income from sales of goods and/or services Biological assets 30 8 2,633,284 676,476 12/31/2019 2,163,990 12/31/2020 12/31/2019 12/31/2020 3,097,547 2,535,905 Income for the year 488,674 12/31/2019 311,514 12/31/2020 12/31/2019 510,948 315,041 470,442 775,534 Cost of goods sold 31 Cost of goods and/or services sold Biological assets cost Gross Income (2,408,692) (1,749,343) (1,514,748) (659,349) (471,174) 901,068 648,510 (1,985,922) (2,802,782) (2,051,786) 504,751 (2,257,472) (1,733,206) (750,996) (524,266) 1,070,299 Other comprehensive income to be reclassified to the result for the year in subsequent periods Derivatives cash flow hedge Derivatives cash flow hedge - subsidiaries Income and social contribution taxes (211,929) 106,498 (239,796) 109,501 (9,704) 994 72,056 783,184 (149,577) (36,210) 71,282 81,531 (158,265) (37,232) 72,269 Operating Income (expenses) Sales expenses 31 (149,471) (134,043) (173,964) (152,972) General and administrative expenses 31 (103,811) (80,864) (115,452) (89,324) Management compensation 16.d (14,040) (12,959) (14,716) (13,827) Other comprehensive income not reclassified to the result for the year in subsequent periods Set deemed cost fixed assets in subsidiary Taxes on fixed asset adjustments (1,991) 62 (1,991) 62 Equity income 11 177,399 175,243 (1,929) (1,929) Other operating (expenses) income (22,550) 397 14,763 31,651 (112,473) (52,226) (289,369) (224,472) Other comprehensive income, net of taxes Total other comprehensive income for the year, (149,577) (69,353) (158,265) 70,340 339,097 380,867 352,683 385,381 Operating result 788,595 596,284 780,930 558,712 net of taxes Financial income 23 344,732 170,915 429,678 203,659 Attributable to: Financial expenses 23 (527,592) (380,262) (521,429) (347,709) Controlling shareholders (182,860) (209,347) (91,751) (144,050) Not controlling interest in subsidiaries Result before Income and social contribution taxes 605,735 386,937 689,179 414,662 339,097 380,867 339,097 380,867 13,586 4,514 352,683 385,381 See accompanying notes. Income and social contribution taxes 20 20 Current (79,305) (59,314) (111,392) (90,856) Deferred assets (37,756) (16,109) (66,839) (8,765) Net Income 488,674 311,514 510,948 315,041 Attributable to: Controlling shareholders Not controlling interest in subsidiaries 488,674 311,514 488,674 311,514 22,274 3,527 510,948 315,041 Earnings per share attributable to shareholders from continuing operations at end of period (expressed in reals per share): Basic earnings per share - R$ Diluted net income per share - R$ 22 22.1 2.60966 1.66838 2.60966 1.66838 22.1 2.59868 1.65486 2.59868 1.65486 See accompanying notes. 78#79Management Report 2020 Statements of changes in shareholders' equity | December 31, 2020 and 2019 Capital reserves Profit reserves Other com- Share capital Goodwill (discount) In the Recognized Issuance of share options granted Treasury shares Balances as of December 31, 2018 947,522 53,941 48,763 (36,816) Investment Incentivized reserv 13.932 47.136 reserve Legal Expansion reserve 341,945 Profit retention reserve 5,628 Additional dividend proposed 88,156 Retained prehensive Income earnings of controlling shareholders SLC Agrícola Total Interest (In thousands Reais) Total sha- reholders' Interest of non-controlling shareholders equity 1,087,961 2,598,168 196,585 2,794,753 Goodwill (discount) on the sale of shares (10,330) (10,330) (10,330) Compensation based on shares recognized in the fiscal year 5,386 5,386 5,386 Stock-based compensation exercised/rebought (27,505) (27,505) (27,505) in the year Unrealized gain on hedge instruments, net of tax Realization of depreciation of the cost assigned to the fixed assets Assigned cost adjustment fixed assets in subsidiary Others Taxes on adjustment of cost attributed to fixed assets in subsidiary Net income for the year Proposed additional dividend Proposed destination: Constitution of reserves Minimum mandatory dividend Additional dividend approved for 2018 71,283 71,283 989 72,272 (32,959) 32,959 (1,992) (1,992) (1,992) (1,358) 1,358 20 62 62 62 311,514 311,514 3,527 315,041 (88,156) (88,156) (1,357) (89,513) 939 15,575 181,815 (198,329) (73,753) (73,753) (73,753) Balances as of December 31, 2019 947,522 43,611 54,149 (64,321) 14,871 62,711 523,760 5,628 73,749 73,749 (73,749) 1,122,997 2,784,677 199,744 2,984,421 Goodwill (discount) on the sale of shares (3,350) (3,350) (3,350) Compensation based on shares recognized in the fiscal year 6,463 6,463 6,463 Stock-based compensation exercised in the year 8,031 8,031 8,031 Restricted shae compensation exercised/rebought in the year (1,338) (2,031) 3,369 Unrealized gain on hedge instruments, net of tax Realization of depreciation of the cost assigned to the fixed assets Net income for the year Proposed additional dividend Proposed destination: Constitution of reserves Minimum mandatory dividend (149,577) (149,577) (8,688) (158,265) 1 (3,220) 3,220 488,674 488,674 22,274 510,948 (73,749) (73,749) (73,749) 171 24,425 230,489 (255,085) (83,673) (83,673) (2,651) (86,324) Distribution of interest on own capital (37,117) (37,117) (37,117) Proposed additional dividend 116,019 (116,019) Balances as of December 31, 2020 947,522 38,923 58,581 (52,921) 15,042 87,136 754,249 5,628 116,019 970,200 2,940,379 210,679 3,151,058 As notas explicativas são parte integrante das demonstrações financeiras. 79#80- Management Report 2020 Statement of cash flows | December 31, 2020 and 2019 Parent Company 12/31/2020 12/31/2019 Consolidated 12/31/2020 12/31/2019 12/31/2020 Parent Company 12/31/2019 SLC Agrícola (In thousands Reais) Consolidated 12/31/2020 12/31/2019 Net cash from operational activities Net income before IRPJ/CSLL 605,735 386,937 689,179 414,662 Net cash used in investment activities In property, plant and equipment (147,796) (195,431) (190,129) (235,175) Adjustments to reconcile net income to cash 42,643 80,621 provided by operating activities: Receipt for sale of land (Note 10) Depreciation and amortization 83,781 76,595 119,686 105,810 Payment land return (706) (705) Income from write-off of property, plant and equipment 7,466 11,576 8,067 (17,811) In intangible assets (21,560) (5,440) (21,654) (5,746) Equity in net income of subsidiaries (177,399) (175,243) Capital payment (47) Interest, exchange and monetary variation 142,422 132,346 148,785 143,595 Net cash used for investing activities (169,403) (200,871) (169,846) (161,005) Share-based compensation 6,463 5,386 6,463 5,386 Variation in biological assets (17,127) 733 (24,538) 19,515 Net cash generated/(consumed) in financing activities Provision of profit sharing and labor contingencies 40,772 22,830 45,590 26,088 Sale and repurchase of shares AVP Lease Liabilities (Note 13) 154,759 121,740 61,106 47,607 Dividends Paid Amortization of Right of Use 119,580 65,787 73,663 43,336 Loans and financing obtained Fair value for investment property (7,184) (7,928) Loans and financing paid Other adjustments 9,416 (1,416) 9,928 (1,514) Rentals paid (277,468) Provision for losses taxes recover 23,799 24,904 Net cash provided by financing activities 4,681 (37,835) (179,843) (176,314) 1,280,800 1,349,430 (854,151) (1,217,138) (147,019) (25,981) (228,876) 4,681 (37,835) (179,843) (181,243) 1,485,800 1,512,923 (1,021,393) (1,269,658) (129,634) (78,929) 159,611 (54,742) 999,667 647,271 1,155,649 778,746 Increase in cash and cash equivalents 669,742 264,920 774,626 317,119 Changes in assets and liabilities:: Trade accounts receivable (40,971) (21,275) (28,878) (46,859) Inventories and biological assets (228,845) (156,743) (273,792) (242,580) Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents 649,548 384,628 829,427 512,308 1,319,290 649,548 1,604,053 829,427 Recoverable taxes (8,480) 9.052 (10,468) 5,426 Increase in cash and cash equivalents 669,742 264,920 774,626 317,119 Short-term interest earnings bank deposits 53,639 75,841 55,329 74,436 See accompanying notes Other accounts receivable 3,140 1,466 (4,367) (4,003) Advance to suppliers 1,237 21,527 5,952 22,012 Suppliers 144,650 192,968 161,769 187,493 Taxes and social payables (57,522) (41,393) (63,699) (53,658) Liabilities with related parties Operations with derivatives 2,915 (47,550) (4) (33) (54,460) 22,924 (83,583) (1,087) Advances from clientes 28,326 (9,096) 34,975 (8,874) Rentals payable (225) (50,021) 5,058 (58,517) Other accounts payable 15,837 (5,699) 23,860 (945) Income tax and social contribution tax on profit paid (68,160) (10,150) (99,255) (31,839) Dividends 150,945 144,563 Interest paid (76,567) (79,018) (93,685) (86,852) (134,541) 47,396 (370,788) (245,880) Net cash provided by (applied to) operating activities 865,126 694,667 784,861 532,866 80 80#81- Management Report 2020 Statement of cash flows | December 31, 2020 and 2019 Parent Company 12/31/2020 Consolidated 12/31/2019 12/31/2020 12/31/2019 Revenues Sale of merchandise, products and services Other income 3,156,501 2,341,916 3,724,727 2,765,663 Distribution of added value Taxes, duties and contributions Parent Company 12/31/2020 12/31/2019 1,923,434 1,249,611 SLC Agrícola (In thousands Reais) Consolidated 12/31/2020 12/31/2019 2,158,089 1,275,024 145,857 76,158 230,457 124,435 36,475 9,799 79,866 19,848 Federal 145,367 75,582 221,541 118,101 Income from construction of own assets 93,189 71,594 110,383 94,145 State 8,426 5,746 Variation of the fair value of biological assets 676,476 470,442 775,534 504,751 Municipal 490 576 490 588 3,962,641 2,893,751 4,690,510 3,384,407 Personnel 292,227 268,653 344,903 312,718 Inputs acquired from third parties Direct remuneration 164,448 163,444 198,077 191,733 Raw materials used (1,002,721) (806,791) (1,207,995) (949,685) Benefits 111,414 89,520 128,292 103,272 Cost of goods, merchandise and services sold. (60,853) (15,100) (72,101) (57,414) FGTS 16,365 15,689 18,534 17,713 Materials, Energy, Third-party services and other (640,819) (556,888) (743,858) (655,952) Third-party capital remuneration 996,676 593,286 1,071,781 493,080 Loss/recovery of asset values (92) (92) Interest 975,267 496,068 1,049,958 467,083 Adjustment to fair value of biological assets Gross added value (659,349) (2,363,742) (1,850,045) 1,598,899 (471,174) (750,996) (524,266) Rents 21,409 97,218 21,823 55,747 (2,774,950) (2,187,409) Remuneration of own capital 488,674 311,514 510,948 315,041 1,043,706 1,915,560 1,196,998 Dividends 120,790 73,754 120,790 73,754 Retained Earnings/Loss for the period 367,884 237,760 367,884 237,760 Part. Interest of non-controlling shareholders in 22,274 3,527 Retentions retained earnings Depreciation, amortization and depletion (83,781) (76,595) (119,686) (105,810) See accompanying notes. Amortization of right of use (119,580) (65,787) (73,663) (43,336) Net added value produced 1,395,538 901,324 1,722,211 1,047,852 Added value received as transfer Equity Income Financial income 177,399 175,243 344,732 170,915 429,678 203,659 Other 5,765 527,896 Total added value payable 1,923,434 2,129 348,287 1,249,611 6,200 435,878 2,158,089 23,513 227,172 1,275,024 81#82" - Management Report 2020 Notes to the financial statements 1. Operations SLC Agrícola S.A., founded in 1977, hereinafter referred to as "Parent Com- pany", "SLC" or "Company", and its subsidiaries (jointly referred to as "the Group" or "Consolidated"), has its headquarters located in the city of Porto Alegre, RS, Brazil and has as its corporate purpose the activities of agriculture and cattle raising; production and marketing of seeds and seedlings; pro- cessing and marketing of its products, being able to export and import goods for its own use and consumption; supply of primary agricultural goods and products and goods in general; reception, cleaning, drying and storage ser- vices of cereals for third parties; provision of services with agricultural ma- chinery and implements for third parties; trade, import and export of agricul- tural products; agro-industrial activity of industrialization of sugar cane, alco- hol and its derivatives; and participation in other companies; lease of own property. On September 1, 2020, the Company and subsidiaries began its cultivation of the 2020/2021 crop with operations at sixteen production units and a total planted area of 468.2 thousand hectares, including company-owned areas and areas leased from third parties and realted parties, which are located in six Brazilian states: Mato Grosso, Mato Grosso do Sul, Goiás, Bahia, Piauí and Ma- ranhão. Effects of COVID-19 on the Financial Statements In compliance with Circular Letter SNC / SEP 02/2020, which deals with guid- ance on the disclosure of the potential impacts of COVID-19 on the financial statements of publicly-held companies, carefully considering the main risks and uncertainties arising from this analysis and observing the accounting standards, Company worked, especially in the analysis of the following possible impacts: SLC Agrícola a) Actions taken by the Company as a result of COVID-19 and possible impacts on its internal controls; b) b) Increased risk of losses on financial assets (CPC 48 - Financial In- struments); c) c) Realizable value of inventories (CPC 16 - Inventories); d) d) Impairment of fixed and intangible assets (CPC 01 - Impairment of Assets); e) e) Measurement of the fair value of Biological assets and investment properties; f) f) Impacts on revenue for the period and margins; g) g) Analysis of the Company's operational continuity; h) h) Cash flow, impacts on access to credit for loans and financing and covenants. The Company carried out a study of the items listed above and did not identify any relevant impacts on its individual and consolidated interim financial state- ments. In this sense, it is important to comment that the operations of the Company and its subsidiaries are being accompanied by a crisis management model and strategies are being set up so that the Company can cross this period with the least possible negative impact. The Company acted quickly and assertively in the creation of a Committee, which was responsible for the prep- aration and continuous monitoring of the COVID-19 Contingency Plan and the COVID-19 Coping Guide, two instruments that aim at the identification of risks and vulnerabilities, in addition to establishing protection, control and contain- ment measures against eventual proliferation of COVID-19 within the scope of the Company and its subsidiaries. In relation to its business, it is worth mentioning that the Company is part of a sector considered essential, in relation to the maintenance of its productive activity, since, among its three main products, two are used by the food and beverage industry as material -cousin. Another factor that deserves mention and that directly involves the Company is the strong demand for exports, 62 82#83- Management Report 2020 favored by the appreciation of the dollar. Regarding the logistics chain, it is worth noting that there were no significant disruptions in the operations and export logistics, as well as in the operations for receiving inputs, which are already largely acquired. Regarding firm sales commitments to customers, the Company does not expect material changes in its composition, since its origin lies in a strong correlation with the way in which negotiations are carried out and the players chosen as commercial partners, having not been identified, to date, issues related to these commitments. Additionally, at times like this, concerns about cash, financial leverage, cost efficiency and debts subject to exchange variation are accentuated and, in this sense, the Company is well positioned to overcome the effects arising from COVID-19, being possible to highlight also the risk management policy applied by the Company consistently in recent years. Short- and long-term liquidity are preserved and, even eventual changes in shipments and receipts, are sized so that they do not materially affect the Company's financial position. Accordingly, the Company has not identified any relevant risks in relation to its ability to continue operating. 2. Summary of significant accounting practices a) Declaration of accounting The individual and consolidated financial statements were prepared in accord- ance with accounting practices adopted in Brazil, which comprise the provi- sions of corporate legislation, as provided for in Law No. 6404/76 with amend- ments to Law No. 11638/07 and Law No. 11.941/09, and the accounting pro- nouncements, interpretations and guidance issued by the Accounting Pro- nouncements Committee ("CPC"), approved by the Brazilian Securities and Ex- change Commission ("CVM") and also in accordance with the International Ac- counting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Re- porting Interpretations Committee ("IFRIC"). - SLC Agrícola The Company's management believes that all the relevant information in the financial statements is being evidenced and corresponds to that used by it in its management, as provided for in OCPC 7 Evidence in the Disclosure of General Purpose Financial-Accounting Reports. We highlight, even though the accounting policies considered immaterial were not included in the financial statements. The issuance of the individual and consolidated financial statements was au- thorized by the Board on March 17, 2021. b) Basis of measurement The individual and consolidated financial statements have been prepared based on historical cost, except for the following material items recognized on the statements of financial position: Derivative financial instruments measured at fair value; Biological assets, not classified as carrying plants, measured at fair value, using the market approach, less sales expenses and costs to be incurred from pre-harvest; Investment property, measured at fair value; Share-based payment transactions, measured at fair value at the grant date. c) Functional currency and foreign currency transactions and balances The individual and consolidated financial statements are presented in Brazilian Real (BRL), which is the functional currency of the Company and its subsidiar- ies. Foreign currency transactions are initially recorded at the exchange rate of the functional currency prevailing on the transaction date. Monetary assets and liabilities denominated in foreign currency are converted at the functional cur- rency exchange rate prevailing at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such trans- actions and from translation at year-end exchange rates on monetary assets and liabilities in foreign currencies are recognized in the income statement, except when deferred in equity as qualified cash flow hedge transactions. 83#84- .... SLC Management Report 2020 d) Transactions eliminated on consolidation Intragroup balances and transactions, and any unrealized revenues or ex- penses derived from intragroup transactions, are eliminated in the preparation of the consolidated financial statements. Unrealized gains arising from trans- actions with investees recorded by equity method are eliminated against the Group's investment in the investee. Unrealized losses are eliminated in the same way as unrealized gains are elim- inated, but only to the extent that there is no evidence of impairment loss. e) Significant accounting judgments, estimates and assumptions The preparation of the individual and consolidated financial statements re- quires the use certain critical accounting estimates and also the exercise of judgment by the Management in the process of applying accounting policies, for the accounting for certain assets, liabilities, income and expenses. Estimates and exercise of judgment are continually revisited and the results of this process are recognized on a timely basis and in any affected future peri- ods. Actual results may differ from these estimates when it is actually carried out. Information on judgments, estimates and accounting assumptions that may result in significant effects on the amounts recognized in the financial state- ments financial statements are presented below: Grades 3.c and 8 3.e, 14 and 15 3.q and 13 3.j and 19 3.h and 10 3.i and 25 3.k and 28 12 Measurement of the fair value of biological assets Nature Selection of useful lives of property, plant and equipment and intangible assets Discount rate applied in measuring lease liabilities Provision for tax, environmental, labor and civil risks and contingent as- sets Deferred income and social contribution taxes Measurement of the fair value of financial instruments Measurement of the fair value of share-based payment transactions on the grant date Measurement of the fair value of investment properties 3. Accounting policies Agrícola The accounting policies described in detail below have been applied consist- ently for all years presented in these individual and consolidated financial statements. a) Revenue recognition Revenue is recognized when control of the product or service is transferred to the customer for an amount that reflects the consideration that the Company expects to be entitled to. Revenue is measured at the fair value of the consid- eration received, excluding discounts, rebates and taxes or sales charges. The following specific criteria must also be met before revenue recognition: Sale of goods | Operating revenue from the Sale of goods in the normal course of business is recognized in income, when control of the products is transferred to the customer and the Company and its subsidiary no longer have control or responsibility over the products sold. Land sales | Some subsidiaries are engaged in land sales. Sales take place in line with the current real estate gains realization strategy, being recognized as provided for in the Revenue recognition section above. In the consolidated financial statements, these revenues are classified in the group "other operating income", as they do not represent the main object of the Group's business. b) Inventories Agricultural produce from biological assets is measured at fair value less sell- ing expenses at the point of harvest when it is transferred from the biological asset group to the inventory group and measured at the weighted average of fair harvest values. Inventories of seeds, fertilizers, pesticides, fuels, lubricants, packaging and wrapping material, spare parts and other Inventories were valued at average purchase cost. Provisions for slow-moving or obsolete Inventories are set up when deemed nec- essary by management. 84#85- Management Report 2020 The provision for adjustment of inventory to market value of agricultural prod- ucts is set up when the fair value recorded in the inventory is higher than the realizable value. The realizable value is the estimated selling price in the nor- mal course of business less the estimated costs necessary to sell them. c) Biological assets The biological assets correspond substantially to the soybeans, corn, cotton and other minor crops, whose agricultural products are sold to third parties. They are measured by the expenses incurred with the formation of the crops up to the point of biological transformation, when they are valued at fair value, deducting sales expenses and costs to be incurred. At this time the transfor- mation of the biological asset is significant and the impact on the value is material. The fair value measurement of biological assets is classified as level 3 - Assets and liabilities whose prices do not exist or those prices or valuation techniques are supported by a small or non-existent market, unobservable or illiquid. This measurement is an accurate estimate based on various assumptions and methodologies adopted by the Company's management, for which internal and external information was used, mainly related to: productivity volume, profita- bility, costs necessary to put in sale condition, prices and discount rate. The fair value of biological assets is determined using discounted cash flow methodology, considering basically: (a) cash inflows obtained by multiplying (i) estimated production (hec- tares planted multiplied by estimated productivity), and (ii) market price/prices sold. (b) Cash outflows represented by the total cost of production for the crop such as: (i) seeds, fertilizers, agricultural pesticides, depreciation and labor applied to crops. Based on the estimated revenues and costs, the Company determines the dis- counted cash flows to be generated and brings the corresponding amounts at present value, considering a discount rate, compatible for investment remu- neration. Changes in fair value are recorded under the biological assets SLC Agrícola heading and are offset against "Changes in fair value of biological assets" in the statement of income. The valuation of biological assets at fair value considers certain estimates, which are subject to uncertainties and may have effects on future results as a result of their variations. d) Investments (Parent Company) Investments in subsidiary are determined by the equity method of accounting, as CPC18 (R2) (IAS 28), for the purpose of the parent company's financial statements. After the application of the equity method for the purposes of the parent com- pany's financial statements, the Company determines whether it is necessary to recognize an additional impairment loss on the Company's investment in each of its subsidiaries. The Company determines, at each balance sheet clos- ing date, whether there is objective evidence that investments in subsidiaries have suffered impairment losses. If so, the Company calculates the amount of the impairment loss as the difference between the subsidiary's recoverable amount and book value and recognizes the amount in the parent company's income statement. e) Fixed assets Recognition and measurement | Property, plant and equipment items are stated at historical acquisition or construction cost, net of accumulated depre- ciation and impairment losses. The cost includes expenses that are directly attributable to the acquisition of an asset. The cost of assets built by the Company itself includes: The cost of materials and direct labor; The costs of dismantling and restoring the site where these assets are located; Costs of loans on qualifying assets; Any other costs to place the assets on the premises and conditions neces- sary for them tobe able to operate in the manner intended by Management. 85#86- Management Report 2020 When parts of an asset item have different useful lives, they are recorded as indi- vidual asset items (main components). Gains or losses on the disposal of an item of property, plant and equipment (calculated as the difference between the pro- ceeds from disposal and the book value of the asset), are recognized in other op- erating income (expenses) in profit or loss. Subsequent costs | Subsequent expenses are capitalized to the extent that it is probable that future benefits associated with the expenses will be received by the Group. Recurring maintenance and repair expenses are recorded in the result. Depreciation | Property, plant and equipment items are depreciated using the straight-line method in income for the year based on the estimated economic use- ful life of each component. Leased assets are depreciated over the shorter of the estimated useful life of the asset and the term of the lease unless it is certain that the Group will obtain ownership of the asset at the end of the lease. Land and land plots are not depreciated. Fixed asset items are depreciated from the date they are installed and are availa- ble for use, or in the case of assets built in-house, from the day construction is completed and the asset is available for use. The estimated useful lives for the current year are as follows: Description Rate Soil correction and development 10% Buildings and improvements 3.33% Furniture and fixtures 10% Office equipment and facilities 16.67% Agricultural equipment and industrial facilities 9.09% Vehicles Other 8.33% 10% Average lifetime 10 years 30 years 10 years 6 years 11 years 12 years 10 years An item of property, plant and equipment is written off when sold or when no future economic benefit is expected from its use or sale. Any gain or loss re- sulting from the write-off of the asset (calculated as the difference between the net sale value and the book value of the asset) is included in the income statement in the year the asset is written off. SLC Agrícola In the year ended December 31, 2020, the Company found that its fixed assets were not above recoverable value, and consequently no provision for impair- ment of fixed assets was required. The Company calculates for certain asset classes the residual value consider- ing the revenue it would obtain from the sale less estimated selling expenses if the asset had the expected age and condition at the end of its useful life. Assets' residual values and useful lives and depreciation methods are reviewed at year end, and are adjusted on a prospective basis, if applicable. f) Reduction to recoverable value Financial assets (including receivables) | A financial asset not measured at fair value through profit or loss is evaluated at each reporting date to determine whether there is objective evidence that an impairment loss has occurred. An asset has a loss in its recoverable amount if objective evidence indicates that a loss event occurred after the initial recognition of the asset, and that loss event had a negative effect on projected future cash flows that can be reliably estimated. The objective evidence that financial assets have lost value may include non- payment or delayed payment by the debtor, restructuring of the amount due to the Group under conditions that the Group would not consider in other transactions, indications that the debtor or issuer will go bankrupt, or the dis- appearance of an active market for a security. In addition, for an equity instru- ment, a significant or prolonged decline in its fair value below its cost is ob- jective evidence of impairment. Financial assets measured at amortized cost | The Group considers evidence of loss of value of assets measured at amortized cost, both at the individualized and collective levels. Individually significant assets are assessed for loss of spe- cific value. All individually significant receivables and investment securities held to maturity that are identified as not having suffered a loss in value are then collectively valued for any loss in value that has occurred but has not yet been identified. Individually important assets are collectively valued for the loss in value by grouping these securities together with similar risk characteristics. 86#87" - Management Report 2020 CPC 48 (IFRS 9), requires the Company to perform a risk assessment of ex- pected credit losses, evaluating the credit with the counterparty and recording the effects when there are indications of losses. The Company has evaluated its financial assets and established the values found to be immaterial. Non-financial assets | The book values of the Group's non-financial assets, other than biological assets, investment property, inventories and deferred in- come and social contribution taxes, are reviewed at each reporting date to de- termine whether there are indications of impairment losses. If such indication occurs, the asset's recoverable amount is estimated. g) Government subsidies Government grants are recognized when it is reasonably certain that the ben- efit will be received and that all the corresponding conditions will be met. When the benefit refers to an item of expense, it is recognized as revenue over the period of the benefit, systematically in relation to the costs whose benefit is intended to offset. In line with Article 30 of Law 12.973/14, this subsidy was excluded from the calculation basis for income tax and social contribution, as it is an investment subsidy. The investment subsidy amount cannot be distributed to shareholders as divi- dends, which is why the annual benefit amount was transferred from the re- tained earnings item to the tax incentive reserve, in Shareholders' Equity. This reserve can only be used to be added to the share capital or to absorb losses. h) Taxes Income and social contribution taxes | The Income and social contribution taxes for the current and deferred fiscal year are calculated based on the rates of 15%, plus an additional 10% on taxable income exceeding R$ 240 per year for income tax and 9% on taxable income for social contribution on net income, and take into account the offsetting of tax losses and negative basis of social contribution, which for the rural activity is up to 100% of the annual actual profit and in the other activities is limited to 30% of the annual taxable income. SLC Agrícola For companies taxed by the presumed profit, the Income Tax and Social Con- tribution for the current year, are calculated on a cash basis, based on the rates of 15%, plus an additional 10% on the basis of a surplus of R$ 240 an- nually for income tax and 9% on the basis of presumption for social contribu- tion on net income. Income and social contribution taxes expenses include current and deferred taxes. Current and deferred tax are recognized in profit or loss unless they are related to the business combination, or items directly recognized in equity or other comprehensive income. Current tax is the tax payable or receivable expected on the taxable profit or loss for the year at the tax rates enacted or substantively enacted at the date of presentation of the financial statements and any adjustment to the taxes payable in respect of prior years. Deferred tax is recognized with respect to temporary differences between the book values of assets and liabilities for accounting purposes and the corre- sponding amounts used for taxation purposes. Deferred tax is measured at the rates applicable to temporary differences when reversed, based on laws that have been enacted or substantively enacted by the reporting date of the financial statements. In determining current and deferred income taxes, the Company takes into consideration the impact of uncertainties related to tax positions taken and whether additional income and interest tax payments must be made. The Com- pany believes the provision for income tax in liabilities is adequate for all out- standing tax periods based on its assessment of several factors, including in- terpretations of tax laws and past experience. This assessment is based on estimates and assumptions that may involve a series of judgments about fu- ture events. New information can be available which would cause the Company to change its judgment as to the adequacy of the existing provision; such changes will impact the income tax expense for the year in which they are made, if applicable. 10 87#88" - SLC Agrícola Management Report 2020 A deferred income tax and social contribution asset and liability are compen- sated when there is a legally enforceable right of the Company to compensate the current asset and liability, and if they correlated to the income tax esti- mated by the same tax agency over the same taxable entity. A deferred income tax asset is recognized for tax losses, tax credits and unused deductible tem- porary differences when it is probable that future taxable profit will be availa- ble against which it will be used. Deferred income and social contribution tax assets are reviewed at each re- porting date and will be reduced to the extent that their realization is no longer probable. Sales taxes | Income and assets are recognized, net of sales taxes, except for: " " When sales taxes incurred on the purchase of goods or services are not recoverable from the tax authorities, in which case the sales tax is recog- nized as part of the cost of acquisition of the asset or expense item, as appropriate; When the amounts receivable and payable are presented together with the amount of sales taxes; The amount net of sales tax, recoverable or payable, is included as a com- ponent of the amounts receivable or payable on the balance sheet. Sales revenues are subject to the following taxes and contributions at the fol- lowing basic rates: ICMS Value-Added Tax on Sales and Services COFINS Contribution for social security funding PIS Social Integration Program Rural Worker Assistance - Funrural Rates 0% to 18.00% 7.60% 1.65% 2.05% In the income statement, revenues are shown net of these taxes. The consid- eration is in taxes payable on liabilities. The amounts of taxes payable are offset against any tax credits arising from the purchase of inputs and property, plant and equipment, on farms that allow for credit. i) Financial instruments Non-derivative financial assets | The Group recognizes loans and receivables initially at the date they originated. All other assets are initially recognized on the date of negotiation when the Group becomes a party to the contractual provisions of the instrument. The Group writes-off a financial asset when the contractual rights to the cash flows from the asset expire, or when the Group transfers the rights to receive the contractual cash flows from a financial asset in a transaction in which es- sentially all risks and rewards of ownership of the financial asset are trans- ferred. Any interest that is created or retained by the Group in financial assets is recognized as an individual asset or liability. Financial assets or liabilities are offset and the net amount shown on the bal- ance sheet when, and only when, the Group has the legal right to offset the amounts and intends to settle on a net basis or to realize the assets and settle the liabilities simultaneously. The Group classifies non-derivative financial assets as amortized cost. Amortized cost - Financial assets with fixed or calculable payments that are not quoted on the market. Such assets are initially recognized at fair value plus any attributable transaction costs. They are measured at amortized cost using the effective interest method, less any impairment loss. They cover ac- counts receivable from customers and other receivables. Cash and cash equivalents - Cash and cash equivalents comprise cash balances and financial investments with original maturities of three months or less from the date of contracting. Items classified as cash and cash equivalents are sub- ject to an insignificant risk of change in value, and are used in the management of short-term obligations. 88#89- Management Report 2020 Non-derivative financial liabilities | The Group recognizes debt securities issued and subordinated liabilities initially at the date they arise. All other financial lia- bilities are initially recognized on the trade date on which the Group becomes a party to the contractual provisions of the instrument. The Group discharges a fi- nancial liability when its contractual obligations have been discharged, cancelled or expired. The Group classifies non-derivative financial liabilities in the category of other fi- nancial liabilities. Such financial liabilities are recognized initially at fair value plus any attributable transaction costs. After initial recognition, these financial liabili- ties are measured at amortized cost using the effective interest method. The Group has the following non-derivative financial liabilities: financing and loans, suppliers, loan agreements and related party leases, third-party leases, se- curities payable and other accounts payable. Derivative financial instruments, including hedge accounting | The Company uses derivative financial instruments such as currency forward contracts, commodities forward contracts and interest rate swaps to hedge against the risk of changes in foreign exchange rates, the risk of changes in commodities prices and the risk of changes in interest rates. Embedded derivatives are separated from their master contracts and recorded individually if the economic characteristics and risks of the master contract and the embedded derivative are not intrinsically related; or an individual instrument with the same conditions as the embedded derivative meets the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. At the time of the initial hedge assignment, the Group formally documents the relationship between the hedge instruments and the hedged items, including the risk management objectives and strategy in conducting the hedging transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group assesses whether the forecasted or contracted hedging items remain in the same amount and term of the hedging instrument. In addition, continuous monitoring is performed to check whether the hedge SLC Agrícola instruments are expected to be "highly effective" in offsetting changes in the fair value or cash flows of the respective hedged items during the year for which the hedge is designated. Derivatives are initially recognized at fair value; attributable transaction costs are recognized in profit or loss as incurred. After initial recognition, derivatives are measured at fair value, and changes in fair value are recorded as described below. Hedges of cash flows | When a derivative is designated as a hedging instrument in a hedge of variability in cash flows attributable to a specific risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of the changes in the derivative's fair value is recognized in other comprehensive income and presented in the equity valuation reserve. Any ineffective portion of the changes in the fair value of the derivative is recognized immediately in profit or loss. When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to the asset's book value when the asset is realized. The value recognized in other comprehensive income is reclassified to net income in the same year as the hedged cash flows affect net income on the same line in the income statement as the hedged item. If there are no longer expectations that the forecast transaction will occur, then the balance in other comprehensive income is recognized immediately in the income statement. In other cases the value recognized in other comprehensive income is transferred to net income in the same fiscal year as the hedged item affects the result. If the hedging instrument no longer meets the criteria for hedge accounting, ex- pires, i.e. sold, closed, exercised, or has its designation revoked, then hedge ac- counting is discontinued prospectively. The retained earnings, previously recog- nized in other comprehensive income and presented in the equity valuation re- serve, remain there until the forecast transaction affects profit or loss. For the years ended December 31, 2019 and 2018, the Group had operations clas- sified as cash flow hedge. 89#90- SLC Agrícola Management Report 2020 j) Provisions A provision is recognized, based on a past event, if the Group has a legal or constructive obligation that can be reliably estimated, and it is probable that an economic resource will be required to settle the obligation. Provisions for tax, civil, environmental and labor risks | Provisions are made for all disputes relating to legal proceedings for which an outflow of resources is likely to be made to settle the litigation/obligation and a reasonable esti- mate can be made. The evaluation of the probability of loss includes the eval- uation of available evidence, the hierarchy of laws, available jurisprudence, the most recent court decisions and their relevance in the legal system, as well as the evaluation of external lawyers. The provisions are reviewed and adjusted to consider changes in circumstances, such as applicable statute of limitations, tax inspection findings or additional exposures identified based on new mat- ters or court decisions. k) Share-based payment The Company has a Stock Option Plan and a Restricted Stock Plan for directors and managers, under the administration of a management committee, created by the Board of Directors. In the years ended December 31, 2020 and 2019, the Company measured and recognized these benefits as an expense in ac- cordance with CPC 10 (R1) (IFRS 2). Details of the Company's programs can be found in note 27. The fair value of share-based payment benefits at the grant date is recognized as personnel expenses, with a corresponding increase in equity, for the period in which the employees unconditionally acquire the right to the benefits. The amount recognized as an expense is adjusted to reflect the number of shares for which there is an expectation that the conditions of service and non-market vesting conditions will be met, so that the amount finally recognized as an expense is based on the actual number of awards meeting these conditions at vesting date. For share-based payment awards with a non-market vesting con- dition, the fair value at grant date is measured to reflect such conditions and there is no change for differences between expected and actual benefits. 1) Financial income and financial expenses Financial income includes interest income, foreign exchange variation in re- ceivables and payables balances, changes in fair value of financial assets measured at fair value through profit or loss, gains on hedge instruments that are recognized in profit or loss and reclassifications of gains previously recog- nized in other comprehensive income. Interest income is recognized in income using the effective interest method. Financial expenses include interest expense on loans, foreign exchange varia- tion in accounts receivable and payable balances, changes in fair value of fi- nancial assets measured at fair value through profit or loss, impairment losses recognized on financial assets (except receivables), AVP- present value adjust- ment of lease contracts and losses on hedge instruments that are recognized in profit or loss. Loan costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are measured in income using the effective interest method. m) Earnings per share The basic calculation of earnings per share is made by dividing net income for the year, attributed to the holders of the parent company's common shares, by the weighted average number of common shares outstanding during the year in accordance with technical pronouncement CPC 41 (IAS 33). The calculation of diluted earnings per share is the division of net income for the year adjusted for any dividends or other items related to dilutive potential common shares that have been deducted to determine profit or loss attributable to the holders of the Company's common equity, any interest recognized in the period related to the dilutive potential common shares, and any other changes in revenues or expenses that would result from the conversion of the dilutive potential com- mon shares into the weighted average number of common shares that would be issued on the conversion of all dilutive potential common shares into com- mon shares (Note 22.i). 90 96#91- Management Report 2020 n) Employee benefits Benefits granted to the Company's employees and managers include, in addi- tion to fixed compensation (salaries and social security contributions INSS, vacation, 13th salary), variable compensation such as profit sharing and a stock option plan and restricted stock for directors and managers. These ben- efits are recorded in income for the year when the Company has an accrued obligation as incurred. o) Segment Information The Company concentrates its activities on the production and sale of agricul- tural products (soybeans, corn, cotton and other minor crops) and on the ac- quisition and development of land for agriculture, thus it is organized in two business segments: agricultural production and land investments. The operat- ing results are regularly reviewed by the Company's chief operating manager for decisions on resources to be allocated to the segment and for the evalua- tion of its performance. The Company's products are not controlled and managed by Management as independent segments, and the Company's results are monitored, monitored and evaluated in an integrated manner. There are no other segments or any aggregation of operating segments. p) Statements of value added and cash flows The Group has prepared individual and consolidated Value Added Statements (VAS) in accordance with CPC 09 - Value Added Statement (NBC TG 09), which are presented as an integral part of the financial statements in accordance with BRGAAP applicable to public companies, while for IFRS they represent supplementary financial information. The Group has prepared individual and consolidated cash flow statements in accordance with technical pronouncement CPC 03 (R2) - Cash Flow Statement (IAS 7), using the indirect method. q) Leasing operations SLC Agrícola The Company recognizes the lease liability and the right to use asset on the date the lease agreement is signed. The Company's main contracts refer ra- tions, in addition to other less relevant contracts that involve the rental of cotton and vehicles. The Company's management considers as a lease component only the mini- mum fixed amount for purposes of measuring the lease liability. The measure- ment of the lease liability corresponds to the total of future lease and rental payments, net of tax effects, adjusted to present value, considering the nominal discount rate. The incremental funding rate, used by the Company for discounting, is com- posed of the "weighted curve of the CDI / Pre", added to the Company's credit risk and to a risk spread of the underlying asset. It is worth noting that the land lease contracts are indexed by the price of the sack of soybeans in the region of each production unit, with the values of the right to use assets and liabilities being converted into Reais using the price of soybeans in each region. Payment amounts may vary significantly up to the time of payment, depending on the change in the soybean market value in each region. The calculation methodology used is the modified retrospective method con- sidering the value of the right to use the asset measured at the amount equiv- alent to the lease liability, calculated at present value using the lessee's incre- mental interest rate on the transition date. For the cases below, the right-of-use asset and the lease liability were not measured, as they present uncertainty in the measurement of the value (totally variable price), do not present a minimum amount to be paid or are of short duration: (a) Partnership contracts: contracts that determine that the Company pays the lessor, per year / harvest period, percentage of the production earned, the price being totally variable; 91#92" - Management Report 2020 (b) Additional costs linked to productivity: in addition to the lease price, some contracts provide for an increase in value, through additional productivity, resulting from the arithmetic average of the productivity obtained with the agricultural exploration by the lessee. Contracts with this type of char- acteristic are measured at the minimum fixed amount, with the additional linked to productivity being considered as totally variable; and (c) Other leases of machinery and equipment: contracts have variable value, based on the use of the underlying assets, in addition to having a term of less than one year. Impact on income for the year | The leases are accounted for as financial leases, with a financial component, which reduces the cost of production, due to the effect of re- cording the adjustment to present value in the financial result. r) New or revised standards Changes in CPC 15 (R1): Definition of business | The amendments to CPC 15 (R1) clarify that, to be considered a business, an integrated set of activities and assets must include, at a minimum, an input-input of resources and a substantive pro- cess that, together, contribute significantly to the capacity to generate output - output of resources. In addition, he clarified that a business can exist without in- cluding all the inputs - inputs of resources and processes necessary to create out- puts - outputs of resources. These changes had no impact on the Group's individ- ual and consolidated financial statements, but may impact future periods if the Group enters into any business combinations. Changes to CPC 38, CPC 40 (R1) and CPC 48: Reference Interest Rate Reform | The amendments to Pronouncements CPC 38 and CPC 48 provide exemptions that apply to all protective relationships directly affected by the reference interest rate reform. A protection relationship is directly affected if the reform raises uncertainties about the period or the value of cash flows based on the reference interest rate of the hedged item or hedging instrument. These changes have no impact on the Group's individual and consolidated financial statements, as it does not have interest rate hedging rela- tionships. SLC Agrícola Changes to CPC 26 (R1) and CPC 23: Material definition | The amendments provide a new definition of material that states, "the information is material if its omission, distortion or obscurity can reasonably influence decisions that primary users of gen- eral purpose financial statements make based on those financial statements, which provide financial information on entity-specific report". The amendments clarify that the materiality will depend on the nature or magnitude of the information, individu- ally or in combination with other information, in the context of the financial state- ments. Distorted information is material if it could reasonably be expected to influ- ence decisions made by primary users. These changes had no impact on the individ- ual and consolidated financial statements. Review in CPC 00 (R2): Conceptual Framework for Financial Reporting | The state- ment reviews some new concepts, provides updated definitions and recognition cri- teria for assets and liabilities and clarifies some important concepts. These changes had no impact on the Group's individual and consolidated financial statements. Changes in CPC 06 (R2): Benefits Related to Covid-19 Granted to Lease- holders in Lease Contracts. The amendments provide for concession to tenants in the application of the guide- lines of CPC 06 (R2) on the modification of the lease, when accounting for the related benefits as a direct consequence of the Covid-19 pandemic. As a practical expedient, a tenant may choose not to evaluate if a benefit related to Covid-19 granted by the lessor is a modification of the lease. The lessee who makes this option must account for any change in the lease payment resulting from the benefit granted in the lease contract related to Covid-19 in the same way that it would account for the change by applying CPC 06 (R2) if the change was not a modification of the contract lease. These changes had no impact on the individual and consolidated financial state- ments. There are no standards and interpretations issued and not yet adopted that, in the opinion of the Management, may have a significant impact on the result or on the shareholders' equity disclosed by the Company. 92#93" - .... SLC Management Report 2020 4. Consolidated financial statements Agrícola The consolidated financial statements include the operations of the Company and of the following subsidiaries, whose equity interest as of the reporting date is as follows: Main activity Culture of soybean, corn and herd. Culture of cotton and soybean. Culture of soybean, corn and cotton. Investments in other companies or commercial ventures and leasing. Purchasing and sale, lease, construction and managing of real estate Companies Fazenda Pioneira Empreendimentos Agrícolas S.A. SLC-MIT Empreendimentos Agrícolas S.A. Fazenda Perdizes Empreedimentos Agrícolas Ltda. SLC Investimentos Agrícolas Ltda Fazenda Parnaíba Empreendimentos Agrícolas Ltda. Fazenda Planorte Empreendimentos Agrícolas Ltda. Fazenda Pamplona Empreendimentos Agrícolas Ltda Fazenda Planalto Empreendimentos Agrícolas Ltda. Fazenda Palmares Empreendimentos Agrícolas Ltda Fazenda Parnaguá Empreendimentos Agrícolas Ltda. Fazenda Paiaguas Empreendimentos Agrícolas S.A. SLC Perdizes Empreendimentos Agrícolas S.A. SLC LandCo Empreendimentos Agrícolas S.A. Fazenda Planeste Empreendimentos Agrícolas Ltda. Fazenda Piratini Empreendimentos Agrícolas Ltda Fazenda Panorama Empreendimentos Agrícolas Ltda. Fazenda Palmeira Empreendimentos Agrícolas Ltda. Fazenda Parceiro Empreendimentos Agrícolas Ltda. Fazenda Paineira Empreendimentos Agrícolas Ltda. Subsidiaries Directs Indi- rects Location (State) 50.0 52.2 50.1 100.0 100.0 Mato Grosso - MT Rio Grande do Sul - RS Mato Grosso - MT Rio Grande do Sul - RS Maranhão MA 100.0 100.0 100.0 Mato Grosso - MT Rio Grande do Sul - RS Rio Grande do Sul - RS 100.0 Rio Grande do Sul - RS 100.0 100.0 100.0 81.2 81.2 Rio Grande do Sul - RS Rio Grande do Sul - RS Rio Grande do Sul - RS Rio Grande do Sul - RS Rio Grande do Sul - RS 81.2 Rio Grande do Sul - RS 81.2 81.2 6.1 100.0 93.9 Rio Grande do Sul - RS Rio Grande do Sul - RS Rio Grande do Sul - RS Rio Grande do Sul - RS O período das demonstrações financeiras das controladas incluídas na consolidação é coincidente com o da Controladora e as políticas contábeis foram aplicadas de forma uniforme nas empresas consolidadas e são consistentes com aquelas utilizadas no período anterior. Em Assembleia Geral Extraordinária, realizada no dia 10 de março de 2020, da controlada SLC-MIT Empreendimentos Agrícolas S.A, foi o aprovado aumento de capital no valor de R$ 47, sendo totalmente integralizado pela Companhia, passando essa a ter o montante de 52,2% do capital total da controlada. Essa subscrição exclusiva por parte da SLC Agrícola S.A. teve anuência da outra acionista, Mitsui & Co. Ltd. 93#94" - .... Management Report 2020 5. Cash and cash equivalents and short-term interest earning bank deposits Description Yields Parent Company 12/31/2020 Cash and cash equivalents in R$ Forex exchange cash² CDB-DI Repurchase and resale commitments LAM Other investments Cash and cash equivalents CP Interest earnings bank deposits LP Interest earnings bank deposits 1. Average yield on December 31, 2020. SLC Agrícola Consolidated 12/31/2019 31/12/2020 31/12/2019 100.75% of CDI¹ 80,080 15,073 1,224,137 84 80,104 5,228 645,154 15,073 1,508,558 105 6,656 820,891 28,889 32,360 100.00% of CDI¹ 70.58% of CDI¹ 23,843 318 24,755 663 1,319,953 1,319,290 652 703,850 649,548 663 652 1,604,716 1,604,053 885,419 829,427 663 53,652 650 55,342 663 650 2. Amounts in reais, converted by the dollar P-tax purchase on December 31, 2020. The financial operations contracted by the Company are represented by investments in bank certificates of deposit and lease bills, at market prices and rates, updated by the income earned up to December 31, 2020, not exceeding the trading value. Long-term financial investments are reciprocated (collateralized operations), which represent in the non-current assets the amount of R$ 663 of the portfolio in the parent company and in the consolidated. The Group's exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 25. The increase in the balance of cash and cash equivalents is mainly due to the positive operating cash flow in the period, the release of the values from escrow account regarding with the land sale (Parnaíba Farm) made in November 2019, as well as the funding of CRA (Agribusiness Receivables Certificate), carried out in December 2020 by the Company. 94#95" - .... Management Report 2020 6. Trade accounts receivable Domestic market Foreign market Total 7. Inventories Parent Company 12/31/2020 12/31/2019 Consolidated 12/31/2020 12/31/2019 11,510 166,575 11,135 125,979 178,085 137,114 13,870 193,413 207,283 11,463 166,942 178,405 Parent Company Consolidated 12/31/2020 Agricultural products 518,292 12/31/2019 431,819 12/31/2020 12/31/2019 Agricultural products - formation costs 402,266 333,616 541,467 421,670 476,433 379,394 Agricultural products - Adjustment at fair value for bi- ological assets 116,026 98,203 119,797 97,039 Seeds, composts, fertilizers and pesticides 561,228 470,911 646,305 549,264 Packages and containerization material 10,822 9,848 12,240 11,492 Spare parts Other inventories Advances to suppliers 10,960 8,364 12,928 10,145 34,500 19,296 38,407 22,264 43,312 1,179,014 1,719 941,957 49,735 1,756 1,301,082 1,071,354 8. Biological assets Below is the movement of the Company's biological assets: Biological assets - culture in formation Biological assets - herd of cattle Total Parent Company 12/31/2020 723,600 15,667 739,267 Consolidated 12/31/2019 12/31/2020 12/31/2019 666,930 1,024 667,954 871,048 20,756 779,543 1,046 891,804 780,589 SLC Agrícola The Group's exposure to credit and currency risk re- lated to trade accounts receivable is disclosed in note 25. The Company has no provision for losses on inven- tories recorded on December 31, 2020 (R$ 14 on December 31, 2019 in the parent company and in the consolidated). 95#96- .... Management Report 2020 a) Biological assets culture The movement in fair value of biological assets during the year is as follows: SLC Agrícola Parent Company Soybean Cotton Corn Other crops² Balances at december 31, 2019 370,603 217,205 42,837 36,285 Expenditures with planting 493,614 982,903 204,771 131,695 Total 666,930 1,812,983 Variation of the fair value¹ 251,799 306,910 61,248 52,170 Harvesting and production adjustment - agricultural products (756,978) (1,276,873) (254,600) (139,989) 672,127 (2,428,440) Balances at December 31, 2020 359,038 230,145 Agricultural products - formation costs 290,795 230,145 54,256 54,256 80,161 723,600 80,161 Biological assets - adjustment at fair value 68,243 655,357 68,243 Consolidated Soybean Cotton Balances at december 31, 2019 Expenditures with planting 461,928 237,584 Corn 43,959 Other crops² 36,072 619,067 1,164,052 240,221 161,122 Total 779,543 2,184,462 Variation of the fair value¹ 315,535 326,673 62,353 Harvesting and production adjustment - agricultural products (949,503) (1,457,011) (288,196) 65,325 (168,133) 769,886 (2,862,843) Balances at December 31, 2020 447,027 271,298 58,337 94,386 871,048 Agricultural products - formation costs 364,608 271,298 58,337 94,386 Biological assets - adjustment at fair value 82,419 788,629 82,419 1. Effect of biological assets in the statement of income for the period. 2. Other crops include soybean seed, brachiaria, mung beans, popcorn, seed corn, wheat and permanent livestock. 96 96#97" - Management Report 2020 SLC Agrícola Below we present the main assumptions used in determining the fair value of biological assets: Parent Company 2020¹ Consolidated Unit Location 20192 20201 20192 Soybean Pamplona Farm Cristalina (GO) Harvested area (ha) 164,833 186,239 205,508 229,960 Productivity achieved (sc/ha) 63 62 64 61 Average price (R$/sc)³ R$ 73.79 R$ 64.85 R$ 73.33 R$ 64.43 Corn Harvested area (ha) Productivity achieved (sc/ha) 71,874 125 Average price (R$/sc)3 R$ 31.66 75,606 122 R$ 24.08 86,271 120 R$ 30.91 88,929 118 R$ 23.62 Planalto Farm Planorte Farm Paiaguás Costa Rica (MS) Sapezal (MT) Cotton seed Harvested area (ha) Productivity achieved (@/ha). Average price (R$/@)3 1. Crop date 2019/20 on the calculation date. 2. Crop date 2018/19 on the calculation date. 3. Average prices at market value on the date of calculation. 108,132 287 R$ 39.40 105,432 282 R$ 35.01 125,441 285 123,702 273 R$ 39.15 R$ 34.80 Farm Perdizes Farm Pioneira Farm Panorama Farm Paladino Farm Piratini Correntina (BA) São Desidério (BA) Jaborandi (BA) Below we present the main assumptions used in determining the fair value of biological assets referring to the 2020/21 harvest: Farm Palmares Crop 2020/21 Parent Company 12/31/2020 Consolidated 12/31/2020 Soybean Harvested area (ha) Average price (R$/sc) Productivity achieved (sc/ha) 29,279 60 33,834 61 R$ 107,07 R$ 106,67 Farm Parceiro Farm Parnaíba Farm Planeste Farm Parnaguá Farm Pantanal Farm Palmeira Farm Barreiras (BA) Formosa do Rio Preto (BA) Tasso Fragoso (MA) Balsas (MA) Soybean, corn and cotton crops occur in the following periods: Diamantino (MT) Porto dos Gaúchos (MT) Querência (MT) Santa Filomena (PI) Chapadão do Sul (MS) Tasso Fragoso (MA) Soybean September 25 to April 15 September 20 to March 25 September 20 to March 15 September 20 to March 15 September 20 to March 15 October 10 to March 25 October 20 to April 30 November 01 to April 30 November 01 to April 30 October 20 to April 30 November 01 to April 30 October 20 to April 15 October 15 to April 15 November 01 to April 15 September 20 to March 25 October 10 to April 15 Crops Cotton November 05 to August 30 December 05 to August 30 January 01 to August 30 January 01 to August 30 December 20 to August 30 December 20 to August 30 December 01 to August 30 December 01 to August 30 Does not plant December 01 to August 30 December 01 to August 30 December 10 to August 30 December 20 to August 30 Does not plant December 05 to August 30 December 10 to August 30 Corn January 20 to July 15 January 20 to July 10 February 10 to July 10 February 10 to July 15 February 01 to July 10 January 20 to July 15 Does not plant Does not plant Does not plant Does not plant Does not plant January 25 to July 15 January 25 to July 15 December 01 to July 15 January 10 to July 10 February 01 to July 15 97#98- Management Report 2020 SLC Agrícola The following is an updated table of the planned area for crop year 2019/20 and comparison with the previous crop year: a Area The Company considered the prices practiced in the cattle market in the regions considering the main market, and through the metrics used in the market. In this way the measurement is based on the at sign and age group. The change in the fair value of the cattle herd during the year is as follows: Parent Company Consolidated Planted area Planted area Crops 2019/20 2018/19 Cotton ha 125,462 123,727 Soybean (commercial + seed) ha 235,444 243,148 Balances at December 31, 2019 Corn ha 82,392 89,470 Purchase cost Other Crops¹ ha 5,270 448,568 1,754 Variation in fair value adjustment¹ 458,099 Low por sale 1,024 1,046 21,961 39,054 4,349 5,648 (11,667) (24,992) 15,667 20,756 11,318 15,108 4,349 5,648 1. Other crops include corn seed, wheat and sorghum. For crop year 2020/21, the following area is planned: Crops Area Cotton ha Soybean (commercial + seed) Corn ha Other Crops¹ ha ha Planned area 2020/212 Balances at december 31, 2020 Biological assets - cattle Biological assets - adjustment at fair value 1. Effect of biological assets in the statement of income for the period. 109,660 229,497 117,061 11,978 9. Recoverable taxes 468,196 Controladora Consolidado 1. Other crops include corn seed, popcorn, brachiaria, wheat. beans and catle raising permanent. 2. Planned area, subject to changes in crops that are under planting. 31/12/2020 31/12/2019 31/12/2020 31/12/2019 Income tax 49 Social contribution 2,570 85 708 12 b) Biological assets - cattle raising The Pioneira, Perdizes, Planorte, Paiaguás, Planalto, Pantanal and Planest farms compose the Company's Livestock Integration Project - ILP. This system aims to optimize land use, in places where it is only possible to carry out a crop (soybean), using the herd as a second crop. The ILP project is characterized as fattening activity. As of the 2020/21 harvest, in addition to the ILP, the Company will also maintain a permanent herd of cattle in specific areas for livestock. The fair value of cattle raising is calculated using the market value, due to the existence of an active market. The gain or loss in the variation in the fair value of biological assets is recognized in the income statement in the period in which it occurs. in non-current assets ICMS 77,895 87,005 112,967 3,027 128 119,633 COFINS 10,381 9,861 26,993 28,795 PIS 2,295 2,120 5,635 6,080 IRRF recoverable Other 1,787 4,815 3,667 5,580 350 946 668 1,169 92,757 107,402 150,650 164,412 Portion classified 28,521 33,970 39,447 41,943 in current assets Portion classified 64,236 73,432 111,203 122,469 98#99- SLC Agrícola ■■■ Management Report 2020 Income and social contribution taxes | It corresponds to the prepayments of In- come and social contribution taxes, which will be offset with taxes of the same nature, in addition to the negative balance of IRPJ and CSLL, which will be offset with federal taxes and contributions. Recoverable IRRF | Corresponds to withholding income tax on financial invest- ments. Throughout the year they are offset against the IRPJ debt, after closure, these credits are realizable by offsetting with federal taxes and contributions. ICMS, PIS and COFINS to be offset/recovered | These refer to credits generated in normal operations of the Company and its subsidiaries and may be offset with taxes of the same nature. The estimated realization of ICMS, PIS and COFINS sales taxes is evaluated by management based on estimated projections of sales of agricultural products, commercialization of ICMS tax credits and on compensation or offsetting of PIS and COFINS with other taxes generated by the Group's operation. The estimated terms of realization of these assets are described below. As of December 31, 2020, a provision was made in the amount of R$ 24,904, related to ICMS tax credits whose loss is estimated due to non-realization. The amount was recorded in Other operating expenses in the income statement for the year. Parent Company Deadline ICMS Up to 1 year 17,021 35,802 17,048 COFINS 7,621 45 PIS ICMS 1,693 9 21,243 46,966 Consolidated COFINS 10,875 5,017 PIS 2,262 1,150 23,882 8,024 77,895 2,715 10,381 593 2,295 20,876 112,967 11,101 26,993 2,223 5,635 1 to 2 years 2 to 3 years Over 3 years 10. Securities and credits receivable At December 31, 2020, the consolidated balance of securities receivable is com- prised of an amount of R$ 33,907 (R$ 76,905 at December 31, 2019) as follows: Balance at December 31, 2019 Monetary variation Withholding income tax Receipts Others¹ Balance at December 31, 2020 Portion classified in current assets Portion classified in non-current assets 1. Amount settled without cash effect. Consolidated 76,905 2,018 (672) (42,643) (1,701) 33,907 31,207 2,700 Sale of land in the subsidiaries Fazenda Paiaguás and Fazenda Parceiro | The subsidiaries Fazenda Paiaguás Empreendimentos Agrícolas Ltda. and Fazenda Parceiro Empreendimentos Agrícolas Ltda. In February 2018, the buyer sold 11,604 hectares of land to third parties in 2017, in the total amount of R$ 176,654, of which R$ 52,996 was received in that year, and the rest was depos- ited by the buyer, in February 2018, in a guaranteed account ("Escrow Account"), being invested in securities backed by an Interbank Deposit Certificate (CDI). The contract provided that some documental formalizations such as transfer of reserves, registration with the real estate registry with the unfolding of their registration and release of mortgages, in addition to the transfer of the funds to the Company itself, should be completed within 12 months of signing the contract, which occurred on December 20, 2017. The contract was postponed, in November 2018, in order to postpone the deadline for some documental formal- izations, such as transfer of reserves, registration in real estate registries with the unfolding of their registration and release of mortgages, in addition to agreeing on the transfer of the funds to the Company itself, in relation to the previous conditions already met, in the amount of R$ 63,789. 99#100" - SLC Management Report 2020 In April 2019 the amount of R$ 38,999 was released from the escrow account due to the bookkeeping of the last glebe of Fazenda Paiaguás for the buyer, totaling R$ 102,787 of the original amount, in favor of the Company. In December 2019 there was a new amendment to the contract, with the re- placement of an area of the Partner Farm with another area in the same unit, as provided for in the initial pact as a possibility. In view of the need to dismem- ber this replaced area, the new deadline for complying with the remaining prec- edent conditions was agreed for June 20, 2020, which may be extended for a period to be adjusted between the parties. With the advent of the pandemic and the difficulties resulting from the event, the dismemberment of the replaced area was hampered in relation to the term, making it understood by the need to postpone the dismemberment date. As of December 31, 2020, the balance of receivables related to this transaction is R$ 29,506 (R$ 29,193 as of December 31, 2019). 11. Investments (Parent company) Agrícola Total investments at December 31, 2020 and December 31, 2019 are comprised of the following: Investments parent company 12/31/2020 2,212,789 2,212,789 12/31/2019 2,200,537 2,200,537 The relevant investments in subsidiaries, valued by the equity method, with a bal- ance on December 31, 2020, are shown in the table below: Sale of land in the subsidiary Fazenda Parnaiba | On November 12, 2019, the subsidiary Fazenda Parnaíba Empreendimentos Agrícolas Ltda. sold 5,205 hec- tares of land to third parties, in the total amount of R$ 83,245. The payment for the acquisition of the land was divided into two installments, the first of which, in the amount of R$ 41,623, corresponding to 50% of the total amount and received on November 28, 2019. The remaining balance, in the amount of R$ 41,622, de- posited in a guaranteed account ("Escrow Account"), remained invested in securi- ties backed by the Interbank Deposit Certificate (CDI) and were released in De- cember 2020 after the completion of the document formalizations. The amount redeemed was R$ 42,643. Complements the item "securities receivable" balances of other amounts receiva- ble in the amount of R$ 4,401 on December 31, 2020 (R$ 5,961 on December 31, 2019). 100#101- Management Report 2020 Unreali- Capital Sharehol- Investiment stock ders' equity zed gain 06 (R2) in in equity shareholders' riod equity Fazenda Parnaíba Emp. Agr. Ltda. 21,053 194,721 (28,846) 19,171 Fazenda Planorte Emp. Agr. Ltda. 57,099 247,604 (1) (17,683) 32,922 Adjustments to IFRS 16 / CPC Net income for the pe- Unrealized profit for the period in- come 7,871 1,325 Adjustments to IFRS 16 / CPC 06 (R2) for the period Percen- tage of SLC Equity in in- come of sub- sidiaries and Agrícola Equity parti- cipation interest associated companies (8,033) 100.00% 19,009 165,875 (15,838) 100.00% 18,409 229,920 Fazenda Pioneira Emp. Agr. S.A. 91,672 94,768 20,076 50.00% 10,038 47,386 SLC-MIT Emp. Agr. S.A. 109,981 117,870 (1,793) 18,579 (1,201) 52.20% 8,927 57,794 SLC Invest. Agrícolas Ltda. 279,405 746,242 1,266 50,817 (5,210) 984 100.00% 46,591 747,508 Fazenda Pamplona Emp. Agr. Ltda. 31,766 174,135 (7,764) 16,630 236 (6,529) 100.00% 10,337 166,371 Fazenda Planalto Emp. Agr. Ltda. 9,137 247,005 (10,491) 27,062 (135) (9,196) 100.00% 17,731 236,514 Fazenda Palmares Emp. Agr. Ltda. Fazenda Parnaguá Emp. Agr. Ltda. Fazenda Paineira Emp. Agr. Ltda. Fazenda Paiaguás Emp. Agr. Ltda. SLC Perdizes Emp. Agr. Ltda. 109,800 184,667 (16) (4,919) 19,596 77 (4,489) 100.00% 15,184 179,732 34,291 52,509 1,848 3,793 2 1,622 100.00% 5,417 54,357 73,985 151,234 8,562 6.082% 522 9,192 20,347 232,250 77,163 110,963 (20,068) (5,005) 34,178 1,039 (17,746) 100.00% 10,010 626 (2,873) 100.00% 17,471 7,763 177,399 212,182 105,958 2,212,789 The main movements in investments in direct permanent equity interests, as at December 31, 2020, are as follows: Balance on Capital integrali- Investimento 12/31/2019 zation Fazenda Parnaíba Emp. Agr. Ltda. Fazenda Planorte Emp. Agr. Ltda. 228,766 231,211 Fazenda Pioneira Emp. Agr. S.A. 1 38,124 SLC-MIT Emp. Agr. S.A.1 60,593 47 SLC Invest. Agrícolas Ltda. 706,562 Fazenda Pamplona Emp. Agr. Ltda. 163,734 Fazenda Planalto Emp. Agr. Ltda. 231,433 Fazenda Palmares Emp. Agr. Ltda. Fazenda Parnaguá Emp. Agr. Ltda.¹ Fazenda Paineira Emp. Agr. Ltda. Fazenda Paiaguás Emp. Agr. Ltda. SLC Perdizes Emp. Agr. Ltda. 174,348 50,641 8,670 208,260 98,195 2,200,537 47 Distributed dividends² Unrealized gain/(loss) with Equity accounting hedge instruments Balance on 12/31/2020 (81,900) 19,009 165,875 (19,700) 18,409 229,920 (542) 10,038 (234) 47,386 (2,303) 8,927 (9,470) 57,794 (5,645) 46,591 747,508 (7,700) 10,337 166,371 (12,650) 17,731 236,514 (9,800) 15,184 179,732 (1,701) 5,417 54,357 522 9,192 (13,549) 17,471 212,182 (155,490) 7,763 177,399 105,958 (9,704) 2,212,789 1. The Company controls Fazenda Pioneira Empreendimentos Agrícolas S.A. and SLC-MIT Empreendimentos Agrícolas S.A. because it is responsible for managing the relevant activities of these companies and is exposed to variable returns on investment due to its influence over them. 2. The dividend received from the company Fazenda Parnagua Emp. Agr. Ltda, in the amount of R$ 1,701 without cash effect. 101#102- Management Report 2020 The following is the main information on investments in permanent equity investments as of December 31, 2020: SLC Agrícola Investments Current Assets Non-current Assets Current Liabilities Non-current Liabilities Equity Income Expenses Fazenda Parnaíba Emp. Agr. Ltda. Fazenda Planorte Emp. Agr. Ltda. 9,158 201,688 5,976 10,149 194,721 27,589 8,418 9,982 245,933 716 7,595 247,604 39,966 7,043 Fazenda Pioneira Emp. Agr. S.A. 147,373 114,737 97,670 69,672 94,768 181,586 161,511 SLC-MIT Emp. Agr. S.A. 378,439 347,444 266,226 341,787 117,870 484,569 465,989 SLC Investimentos Agricolas Ltda 198 770,609 11,568 12,997 746,242 63,385 12,568 Fazenda Pamplona Emp. Agr. Ltda 8,046 172,407 330 5,988 174,135 20,189 3,559 Fazenda Planalto Emp. Agr. Ltda. 11,871 244,548 470 8,944 247,005 33,195 6,133 Fazenda Palmares Emp. Agr. Ltda 8,985 179,963 998 3,283 184,667 22,962 3,367 Fazenda Parnaguá Emp. Agr. Ltda. 5,047 48,102 62 578 52,509 4,621 828 Fazenda Paineira Emp. Agr. Ltda. 10,526 143,106 87 2,311 151,234 9,677 1,115 Fazenda Paiaguás Emp. Agr. Ltda. 28,129 214,582 1,206 9,255 232,250 41,023 6,845 SLC Perdizes Emp. Agrícolas Ltda. 3,182 132,080 23,444 855 110,963 16,161 6,151 SLC LandCo Emp. Agrícolas S.A. Fazenda Planeste Emp. Agr. Ltda. Fazenda Piratini Emp. Agr. Ltda 10,304 549,846 342 559,808 22,259 2,093 15,507 135,353 157 3,763 146,940 10,624 2,166 2,477 122,602 105 2,216 122,758 4,938 1,122 Fazenda Panorama Emp. Agr. Ltda. 13,554 113,940 104 2,107 125,283 7,555 1,865 Fazenda Palmeira Emp. Agr. Ltda. 611 Fazenda Parceiro Emp. Agr. Ltda. 30,339 7,206 91,042 62 38 7,717 499 97 699 698 119,601 3,159 866 12. Investment property Balance on 12/31/2020 92,647 1,572 7,184 Investment properties include cropland and the infrastructure on it that is leased to third parties. Investment property is recorded at fair value, which was determined based on valuations performed by independent appraisers on October 16, 2020. The Com- pany performs annually, the valuation of the fair value of assets recorded as in- vestment property. The fair value of the properties was determined by the direct comparison of mar- ket data, which consists in determining the market value of an asset by comparing it with other similar assets, through their selling prices, in view of their similar characteristics. In this method, adjustments are made using factors that aim to correct any differences between the goods available on the market and the asset Balance on 12/31/2019 Fair value adjustments Crop lands Buildings and improve- 92,647 1,572 ments Soil correction and deve- 10,954 lopment Gain on fair value 111,837 7,184 Total 217,010 7,184 10,954 119,021 224,194 Fair value adjustments - 7,184 Income 102#103- Management Report 2020 SLC Agrícola being evaluated. In determining the fair value of investment properties, the Com- pany adopts "Level 3". Revenue from rental of investment property | Revenue from rental of investment property is recognized in income on a straight-line basis over the lease term. Lease incentives granted are recognized as an integral part of total rental income, for the duration of the lease. Rental income from other properties is recognized as operating income. In 2020, rental revenue totaled R$7,587 (R$5,457 in 2019). 13. Leasing operations The movement of the right-of-use assets in the period ended December 31, 2020 is shown below: The change in lease liabilities in the period ended December 31, 2020 is shown below: Parent Company Balance at 12/31/2019 Additions of new contracts and remeasurement Realization of the APV on lease liabilities lease liability (-) Payments (*) Balance at 12/31/2020 Liabilities current Intercompany (note 16.a) Liabilities non-current Third-party Intercompany (note 16.a) Third-party Consolidated 1,497,456 629,716 1,242,336 374,797 154,759 (279,169) 61,106 (131,335) 2,615,382 934,284 355,413 162,258 204,525 150,888 162,258 2,259,969 772,026 1,517,643 742,326 772,026 Parent Company Consolidated Balance at 12/31/2019 Remeasurement Additions of new contracts (-) Amortization of the right to use asset 1,388,969 1,175,161 67,277 (168,153) Balance at 12/31/2020 2,463,254 Cotton rental Culture lands 16,809 2,423,168 555,031 314,739 60,163 (101,437) 828,496 21,766 782,091 Leasing of buildings 986 Machinery 15,190 Rental cars 7,101 2,463,254 15,190 8,463 828,496 Amortization of right of use in the year: Cotton rental (1,530) Culture lands (161,348) (2,491) (93,522) Leasing of buildings (612) Machinery (3,301) Rental cars (1,362) Total period (168,153) (612) (3,301) (1,511) (101,437) 1 The amount of R$ 1,701 as payment for leases was without cash effect. 986 Of the contracts that were included in IFRS 16/ CPC 06(R2), the Company's man- agement considered as a leasing component only the fixed minimum amount for the measurement of the lease liability. The measurement of the lease liability cor- responds to the total of future rent and lease payments, net of tax effects, adjusted to present value, considering the nominal discount rate. The incremental rate of funding used by the Company for discount is composed by the "CDI / Pre weighted curve", added to the Company's credit risk and to a risk spread of the underlying asset. It should be noted that the land leasing contracts are indexed by the price of the soybean sack in the region of each production unit, and the values of the right of use and lease liabilities are converted into Reais using the quotation of the soy- bean in each region. The amounts of the payments may suffer significant variation until the moment of payment, due to the change in the value of the soybean mar- ket in each region. 103#104" - Management Report 2020 Impacts on income for the period With the implementation of IFRS 16 / CPC 06 (R2), all leases were accounted for under a single model, similar to the accounting of financial leases, bringing a new financial component, which reduced the cost of production, due to the effect of recording the adjustment to present value in the financial result. The amount recorded in the financial result for the period represents R$ 154,759 in the parent company and R$ 61,106 in the consolidated. The expense for the period related to variable lease payments not included in the measurement of lease liabilities was R$ 6,553 in the parent company and R$ 11,936 in the consolidated. The Company has land lease agreements with its subsidiaries, as described in note 14. The adoption of said rule caused differences between the results of the parent company and the consolidated, which were adjusted in the calcula- tion of equity of the parent company, so that the results of the parent compa- ny's period and the consolidated result attributed to the controlling sharehold- ers were equal, based on ICPC 09 (R2) - Individual Financial Statements, Sep- arate Statements, Consolidated Statements and Application of the Equity Method. The calculation of the equity method is shown in note 11. Sub-lease of right of use asset On December 27, 2019, a rural lease agreement was signed between SLC Agrícola S.A with SLC Landco Empreendimentos Agrícolas S.A, for a minimum period of 7 years. Concomitant with the signing of this rural lease, SLC Agrícola S.A entered into a sublease agreement with Fazenda Perdizes Empreendimen- tos Agrícolas S.A., for the same lease period. The Parent Company's revenue in the period, resulting from the subleasing of rights-of-use assets, was R$ 4,814. Additional information The Company, in full compliance with IFRS 16 / CPC 06 (R2), in measuring and remeasuring its lease liabilities and the right to use, proceeded to use the discounted cash flow technique without considering the projected future SLC Agrícola inflation in the flows to be discounted, according to the prohibition imposed by IFRS 16 / CPC 06 (R2). As of December 31, 2020, the gross contractual flow of lease contracts entitled to PIS / COFINS credit is R$ 4,448,983 in the parent company and R$ 1,300,043 in the consolidated (R$ 2,489,415 in the parent company and R$ 839,494 in the consolidated, in December 31, 2019). The potential PIS and COFINS credit on the gross contractual flow, brought to present value, is R$ 283,066 in the parent company and R$ 864,245 in the consolidated (R$ 156,092 in the parent company and R$ 55,326 in the consolidated, as of De- cember 31, 2019). In compliance with the guidance of CVM's technical areas, as required in cir- cular letter CVM / SNC/SEP/ nº 02/2019 in order to provide additional in- formation to users, the comparative balances of the lease liability, the asset are presented below rights of use, adjustment to present value and amortiza- tion of the right of use considering the projection of future inflation in the flows to be discounted. When remeasuring lease liabilities, the Company projected cash flow with future inflation, incorporating the inflation obtained through the quotation of future contracts available at B3 SA - Brasil, Bolsa and Balcão, discounted at the same rate identified in the initial measurement, presenting the impacts as below: Right of use asset Liabilities leasing - current Liabilities leasing - non current Parent Company Considerations without inflation¹ 2,463,254 355,413 2,259,969 1. Discounted cash flow without considering projected future inflation. 2. Discounted cash flow considering projected future inflation. Considerations with inflation² 2,941,746 363,647 2,911,925 104#105- Management Report 2020 Right of use asset Liabilities leasing current Liabilities leasing - non current Consolidated Considerations Considerations without inflation¹ 828,496 162,258 772,026 with inflation² 1,004,628 165,421 939,717 1. Discounted cash flow without considering projected future inflation. 2. Discounted cash flow considering projected future inflation. Below is the gross contractual flow: Parent Company Consolidated Considera- Considera- Considera- Considera- tions without tions with in- inflation¹ flation² inflation¹ tions without tions with in- flation² Up to year 373,173 381,912 167,950 1 to 2 years 368,208 391,147 161,396 171,293 170,243 2 to 3 years 363,507 401,337 156,185 171,147 3 to 4 years 339,393 390,235 130,314 148,749 4 to 5 years 330,710 396,864 110,445 131,493 Over 5 years 2,743,187 4,082,762 626,965 876,695 4,518,178 6,044,255 1,353,255 1,669,621 1. Discounted cash flow without considering projected future inflation. 2. Discounted cash flow considering projected future inflation. SLC Agrícola CVM Resolution 859, of July 7, 2020, approved the document for revision of Technical Pronouncements no. 16, referring to Technical Pronouncement IFRS 16 / CPC 06 (R2) Leases, issued by the Accounting Pronouncements Committee CPC, bringing the practical procedures described below in its wording. A lessee may choose not to assess whether a lease concession related to COVID-19 is a lease modification. The lessee who makes this option must ac- count for any change in lease payments resulting from the lease concession related to COVID-19 in the same way that it would account for the change that applies IFRS 16 (CPC 06 (R2)) if the change were not a modification of the lease. The practical expedient applies only to rental concessions that occur as a di- rect consequence of COVID-19 and only if all of the following conditions are met: " The change in lease payments results in a revised consideration for the lease that is substantially the same or less than the consideration for the lease immediately prior to the change; Any reduction in rental payments affects only payments originally due on or before June 30, 2021 (a rental concession would meet this condition if it results in reduced rental payments on or before June 30, 2021 and in- creased rental payments that extend beyond June 30, 2021); and There are no substantial changes to other lease terms and conditions. During the period ended December 31, 2020, there was no change in the Com- pany's lease contracts related to COVID-19, which would result in remeasure- ment of the lease liability. 105#106" - Management Report 2020 14. Property, plant and equipment a) Composition of fixed assets SLC Agrícola Parent Company Cost of the gross fixed assets Balance on 12/31/2019 Additions Write-offs Transfers Reclassification¹ Balance on 12/31/2020 Soil correction and development Buildings and improvements Agricultural equipment and industrial facilities Vehicles Furniture and fixtures Equipment and facilities of the office Other Works in progress Plants carrier Total 419,286 47,026 269,823 785,385 856 81,500 (83) (25,725) (67) 26,027 466,245 296,623 2,451 843,611 57,644 2,623 (1,892) (7) (5,697) 52,671 13,765 2,739 (353) 80 16,231 21,022 8,005 (618) 12 (1) 28,420 3,336 581 (172) 42 3,787 15,677 21,928 (18) (28,538) 9,049 4,239 1,590,177 4,239 165,258 (28,861) (5,698) 1,720,876 1. Reclassification Assets available for sale and Intangible assets (R$ 2,566). Depreciation Balance on 12/31/2019 Depreciation Write-offs Reclassification¹ Soil correction and development Buildings and improvements Agricultural equipment and industrial facilities Vehicles Furniture and fixtures Equipment and facilities of the office Others (293,772) (21,854) (44,144) (10,103) 20 (413,067) (54,994) 19,335 (20,654) (5,093) 1,195 5 3,127 (7,017) (1,171) 273 Balance on 12/31/2020 (315,626) (54,227) (448,721) (21,425) (7,915) (10,880) (3,196) 572 (38) (22) (13,504) (60) Plants carrier (4,239) (96,433) 21,395 3,132 (4,239) (865,717) Total 1. Reclassification Assets available for sale and Intangible assets (R$ 2,566). Soil correction and development Buildings and improvements Net residual value Agricultural equipment and industrial facilities Vehicles Furniture and fixtures Equipment and facilities of the office Other Works in progress Total (793,811) 12/31/2019 125,514 225,679 372,318 36,990 6,748 10,142 3,298 15,677 796,366 12/31/2020 150,619 242,396 394,890 31,246 8,316 14,916 3,727 9,049 855,159 106#107- Management Report 2020 SLC Agrícola Consolidated Cost of the gross fixed assets Balance on 12/31/2019 Additions Write-offs Transfers Reclassification¹ | Balance on 12/31/2020 Crop lands 1,719,924 102 1,720,026 Soil correction and development Buildings and improvements Agricultural equipment and industrial facilities Vehicles Furniture and fixtures Equipment and facilities of the office Other Works in progress Plants carrier Total 644,369 478,602 76,166 1,373 (63) 720,472 (98) 33,414 513,291 923,512 89,666 (26,758) 2,525 988,945 65,261 2,636 (2,047) (35) (6,384) 59,431 16,235 3,033 (404) 80 18,944 27,600 8,863 (637) 12 (1) 35,837 7,177 763 (265) 417 8,092 20,031 27,170 (18) (36,350) 10,833 4,239 3,906,950 4,239 209,772 (30,227) (6,385) 4,080,110 1. Reclassification Assets available for sale and Intangible assets (R$ 2,802). Depreciation Balance on 12/31/2019 Depreciation Write-offs Reclassification¹ Soil correction and development Buildings and improvements Agricultural equipment and industrial facilities Vehicles Furniture and fixtures Equipment and facilities of the office Other Plants carrier Total 1. Reclassification Assets available for sale and Intangible assets (R$ 2,802). (420,391) (34,160) (101,918) (20,186) 25 (456,196) (68,329) 19,950 (24,218) (5,609) 1,292 21 3,562 (7,809) (1,411) 301 Balance on 12/31/2020 (454,551) (122,079) (504,554) (24,973) (8,919) (12,844) (3,618) 592 (346) (35) (4,239) (1,027,961) (133,348) 22,160 3,583 (15,870) (381) (4,239) (1,135,566) Net residual value Crop lands Soil correction and development Buildings and improvements Agricultural equipment and industrial facilities Vehicles Furniture and fixtures Equipment and facilities of the office Other Works in progress Total 12/31/2019 1,719,924 223,978 376,684 467,316 41,043 8,426 14,756 6,831 20,031 2,878,989 12/31/2020 1,720,026 265,921 391,212 484,391 34,458 10,025 19,967 7,711 10,833 2,944,544 107#108- SLC Agrícola Management Report 2020 b) Construction in progress As of December 31, 2020, the balance of works in progress in the amount of R$ 9,049 in the parent company and R$ 10,833 in the consolidated, is substantially represented by works in cotton, construction of warehouses, sheds and ware- houses, integration of livestock farming, expansion of the expedition, fire preven- tion project and other improvements. The amount of interest that was capitalized for works in progress in the period ended December 31, 2020 was R$ 728 (R$ 2,274 as of December 31, 2019). The capitalization rate used to determine the amount of borrowing costs eligible for capitalization was approximately 4.45% y.y. c) Guarantees At December 31, 2020 and December 31, 2019, property, plant and equipment were pledged as collateral for mortgages, bank loans and lawsuits, as shown below: Assets under se- cure Parent Company 12/31/2020 Consolidated 12/31/2019 Hypothec 134,753 12/31/2020 12/31/2019 349,860 Pledge of finan- cing 10,514 14,071 17,661 24,424 Assets in legal proceedings 14,232 24,746 14,232 28,303 14,232 166,646 14,232 388,516 15. Intangible Software Import of new system Total Software Total Software Gross intangible cost Parent Company Balance on 12/31/2019 19,110 Additions 2,830 Write-offs (25) Reclassification Balance on 12/31/2020 21,915 12,379 18,282 30,661 31,489 21,112 (25) 52,576 Amortization Balance on 12/31/2019 Additions Write-offs Reclassification Balance on 12/31/2020 (16,198) (16,198) (1,158) (1,158) 25 25 (5 (5 (17,336) (17,336) Net residual value Balance on 31/12/2019 Balance on 31/12/2020 2,912 12,379 15,291 4,579 30,661 35,240 Import of new system Total 108#109.... Management Report 2020 Software Gross intangible cost Import of new system Total Amortization Software Total Net residual value Software Import of new system Total SLC Agrícola Consolidated Balance on 12/31/2019 Additions Write-offs on Reclassification Balance on 12/31/2020 19,537 12,379 2,830 18,282 (25) 22,342 30,661 31,916 21,112 (25) 53,003 Balance on 12/31/2019 Additions Write-offs Reclassification Balance on 12/31/2020 (16,553) (16,553) (1,163) 25 (1,163) 25 (22) (22) (17.713) (17.713) Balance on 12/31/2019 Balance on 12/31/2020 2,984 12,379 15,363 4,629 30,661 35,290 As of December 31, 2020, the balance of implementation of new systems in the amount of R$ 30,661 is mainly represented by the implementation of the SAP operating system. 16. Balances and transactions with related parties At December 31, 2020 and December 31, 2019, the Parent Company's balances and transactions with related parties are as follows: a) Related-party balances Balances receivable from related parties: Direct subsidiaries Fazenda Parnaíba Empr. Agr. Ltda Fazenda Perdizes Empr. Agr. Ltda Fazenda Pioneira Empr. Agr. S.A. Parent Company (other accounts receivable) 12/31/2020 12/31/2019 1,046 2,545 255 1,631 242 29,954 SLC Perdizes Empr. Agr. Ltda 23,028 Indirect subsidiaries SLC-MIT Empr. Agr. S.A. 455 251 Fazenda Parceiro Empr. Agr. Ltda 384 Parent company SLC Participações S.A. Consolidated (other accounts receivable) 12/31/2020 12/31/2019 3 8 8 11 11 3 Other related parties 8 9 8 27,721 32,090 8 Portion classified as current liabilities 2,475 1,040 Portion classified as non-current liabilities 25,246 31,050 1 00 00 00 . 109#110Management Report 2020 Balances payable to related parties: SLC Agrícola Other accounts payable 12/31/2020 12/31/2019 Parent Company Consolidated Leases payable 12/31/2020 12/31/2019 Other accounts payable 12/31/2020 12/31/2019 Leases payable 12/31/2020 12/31/2019 Direct subsidiaries Fazenda Parnaíba Empr. Agr. Ltda 228,545 103,020 228,545 103,020 Fazenda Planorte Empr. Agr. Ltda 338,495 137,389 338,495 137,389 Fazenda Pamplona Empr. Agr. Ltda 157,921 78,535 157,921 78,535 Fazenda Planalto Empr. Agr. Ltda 230,491 132,846 230,491 132,846 Fazenda Palmares Empr. Agr. Ltda 113,870 80,375 113,870 80,375 Fazenda Parnagua Empr. Agr. Ltda 55,406 35,244 55,406 35,244 Fazenda Parceiro Empr. Agr. Ltda 34,335 16,329 34,335 16,329 Fazenda Paiaguás Emp. Agr. Ltda. 361,399 131,278 361,399 131,278 Indirect subsidiaries Fazenda Planeste Empr. Agr. Ltda 75,891 76,181 75,891 76,181 Fazenda Panorama Empr. Agr. Ltda 53,359 52,700 53,359 52,700 Fazenda Piratini Empr. Agr. Ltda Fazenda Perdizes Empr. Agr. Ltda SLC-MIT Empr. Agr. S.A. Fazenda Palmeira Emp. Agr. Ltda. 42,547 31,076 42,547 31,076 573 968 573 968 721 63 721 63 8,319 21,590 1,716 23,116 1,710 8,319 21,590 1,716 24,826 SLC Landco Empr. Agr. S.A. Parent company SLC Participações S.A. Other related parties Portion classified as current liabilities Portion classified as non-current liabilities 16 22 16 22 16 22 102 103 1,722,168 204,525 1,517,643 899,805 104,591 795,214 1,310 1,310 2,763 2,763 1,723,478 205,835 902,568 107,354 118 125 118 125 1,517,643 795,214 SLC Participações S.A. is the final Parent Company of the Company. There are no relevant transactions with the Parent Company, except dividend payments. 110#111I Management Report 2020 b) Transactions with related parties Sales of goods/products/ SLC Agrícola property, plant and equipment Amortization of the right to use (IFRS 16) 12/31/2020 12/31/2019 12/31/2020 12/31/2019 Purchases of goods/prod- ucts/ Corporate TI 12/31/2020 12/31/2019 Financial expenses - War- ranty Fee APV-Liabilities Rental (IFRS16) 12/31/2020 12/31/2019 12/31/2020 12/31/2019 Direct subsidiaries Fazenda Parnaíba Empr. Agr. Ltda Fazenda Planorte Empr. Agr. Ltda Fazenda Pamplona Empr. Agr. Ltda Fazenda Planalto Empr. Agr. Ltda Fazenda Palmares Empr. Agr. Ltda Fazenda Parnagua Empr. Agr. Ltda Fazenda Parceiro Empr. Agr. Ltda Fazenda Paiaguás Emp. Agr. Ltda. Fazenda Pioneira Empr. Agr. Ltda Indirect subsidiaries 6,415 3,963 8,081 3,167 4,929 2,184 9,082 4,389 4,430 2,988 2,067 539 743 290 7,948 2,909 4,893 3,603 11,444 10,444 15,790 11,988 8,608 6,634 14,725 11,239 9,044 6,954 4,003 1,798 2,069 909 14,711 11,260 2,041 Fazenda Planeste Empr. Agr. Ltda 5,031 3,513 Fazenda Panorama Empr. Agr. Ltda 3,245 2,232 Fazenda Piratini Empr. Agr. Ltda 81 1,283 6,924 6,960 4,840 4,815 3,012 2,839 Fazenda Perdizes Empr. Agr.Ltda SLC MIT Empr. Agr. S.A. 4,733 6,866 6,744 4,438 566 7,903 1,691 285 Fazenda Palmeira Emp. Agr. Ltda. SLC Landco Empr. Agr. S.A. 82 2,770 162 276 159 1,291 659 Parent company SLC Participações S.A. 135 135 2,251 11 446 12 Other related parties Other companies c) Rental contracts payable 16,492 14,785 55,039 27,619 8,604 6,268 11 446 96,749 76,658 The purpose of the rural lease agreement is for the lessor to make the land, facilities and other goods available for the lessee to exploit the agricultural activity through the cultivation of cotton, soybeans, corn and other crops in return for a rental price. The Company has lease agreements with its subsidiaries for a minimum term of 20 years, with renewal depending on the will of the parties, however the lessees have preference. As of December 31, 2020, the lease liability with its subsidiaries can be demonstrated as follows: 111#112- SLC Planorte Pamplona Management Report 2020 Farm Parnaiba Location Tasso Fragoso (MA) Sapezal (MT) Cristalina (GO) Agrícola Accounting value Up to 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years 228,545 27,147 26,307 26,307 26,307 26,300 96,177 338,495 39,140 37,924 37,926 37,926 37,916 147,663 157,921 19,337 18,740 18,741 18,741 18,736 63,626 Planalto Costa Rica (MS) 230,491 28,223 27,354 27,352 27,353 27,347 92,862 Palmares Barreiras (BA) 117,907 14,422 13,967 13,967 13,967 13,963 47,621 Parnaguá Santa Filomena (PI) 55,406 3,540 4,345 4,288 5,203 6,059 31,971 Parceiro Formosa do Rio Preto (BA) 34,335 2,709 2,999 3,361 3,722 4,082 17,462 Paiaguás Diamantino (MT) 361,399 42,928 41,598 41,598 41,598 41,587 152,090 Planeste Balsas (MA) 75,891 10,003 9,475 9,475 9,475 9,472 27,991 Panorama Correntina (BA) 53,359 7,033 6,662 6,662 6,662 6,660 19,680 Piratini Jaborandi (BA) 42,547 5,608 5,312 5,312 5,312 5,310 15,693 Palmeira Alto Parnaiba (MA) 8,319 987 934 934 934 934 3,596 Matriz Porto Alegre (RS) 17,553 1,722,168 3,448 204,525 2,479 198,096 2,642 198,565 2,816 200,016 2,966 3,202 201,332 719,634 Liabilities current Liabilities non current 204,525 1,517,643 The book value represents the lease liability with future payment flows adjusted to present value, considering the nominal discount rate. The Company has opted to use the practical expedient of using the single discount rate according to the respective terms for contracts with similar characteristics. For this reason, it presents a rate rang- ing from 6.38% to 9.75%. The rural lease contract concluded for the Piratini, Planeste, Panorama and Palmeira Farms, for a minimum period of 20 years, provides for the price of the lease calculated on a rate of 3.25% of the property's valuation value. This in turn is calculated on the areas suitable for agriculture and their respective proportional legal reserve areas, in- cluding the value of their infrastructure. The appraiser with proof of excellence in the elaboration of rural property evaluations is chosen by the Board of Directors of SLC Agricola S.A. and annually the evaluation is elaborated according to the rules and guidelines issued by the Brazilian Association of Technical Standards for Rural Prop- erty Evaluation. For the other contracts, the price of the lease is paid annually in BRL, converted by the value of the over-the-counter quotation of each region's soybean bag on the day of payment, according to the contractual clause. The price of the soybean bag must be set by the lessor at least 15 days in advance, with no repricing foreseen. d) Management fees The Company considers as key management personnel the unpaid Directors, the paid Independent Directors and the Directors (Statutory). Administrators are remunerated in the form of pro-labore and salaries, paid via payroll. The total amount of directors' remuneration, including bonuses and other benefits, is shown under a specific heading in the income statement and is detailed below: Parent Company 12/31/2020 Consolidated Directors fee Bonuses Charges Stock option plan Other benefits Total (5,963) 12/31/2019 (5,210) 12/31/2020 12/31/2019 (6,391) (5,630) (2,973) (2,945) (3,083) (3,187) (2,899) (2,509) (3,038) (2,695) (1,810) (1,567) (1,810) (1,567) (395) (728) (394) (748) (14,040) (12,959) (14,716) (13,827) 112#113- SLC Agrícola Management Report 2020 The Company does not offer post-employment benefits, termination benefits or other long-term benefits to its managers. At the Annual Shareholders' Meeting, held on July 30, 2020, the global annual remuneration of the parent company's management was approved, in the amount of up to R$ 15,910, with distribution to be made by the Board of Di- rectors. It should be noted that the subsidiaries, which are public limited com- panies, also have approval of global annual amounts for their administrators independently. 17. Suppliers Suppliers Suppliers risk drawn Total 732,358 Parent Company 12/31/2020 12/31/2019 549,699 200,788 223,425 933,146 773,124 Consolidated 12/31/2020 12/31/2019 870,902 646,442 230,867 275,558 1,101,769 922,000 The balance of suppliers on December 31, 2020 is made up of R$ 933,146 in the parent company and R$ 1,101,76 in the consolidated, of which R$ 200,788 in the parent company and R$ 230,867 in the consolidated correspond to the risk operations drawn, with an average maturity 35 days and an average rate of 5.37% y.y. The due to the commercial negotiation resulting from the the need for advance payment by suppliers, noting that there were no changes in terms of payments and prices nego- tiated with suppliers as a result of this transaction. 18. Loans and financing. Index Average annual interest rates (%) 12/31/2020 12/31/2019 Parent Company Consolidated 12/31/2020 12/31/2019 12/31/2020 12/31/2019 Aplicados no imobilizado Finame BNDES Pré e Cesta de Moedas 5.43% 5.38% 34,866 45,537 34,866 45,537 57,053 57,053 73,235 73,235 Aplicados no capital de giro Crédito rural Pré 4.30% 6.00% 3,046 87,146 12,186 108,483 CRA CDI 1.88% 4.41% 360,346 561,447 360,346 561,447 CRA IPCA + Pré 8.19% 481,270 481,270 Capital de giro CDI 3.51% 5.21% 298,384 210,488 361,959 210,488 Capital de giro Swap EUR/CDI 6.28% 6.28% 215,977 203,002 215,977 203,002 Financiamento à exportação Pré 6.50% 111,423 111,423 Financiamento à exportação Financiamento à exportação CDI 3.24% 5.16% 328,928 234,573 481,671 416,492 Swap EUR/US$/CDI 1.33% 3.03% 345,637 110,212 464,527 181,297 (-) Custos da transação - CRA 2,033,588 (17,706) 2,050,748 1,518,291 2,377,936 1,792,632 (6,101) (17,706) 1,557,727 2,417,283 Parcela classificada no passivo circulante Parcela classificada no passivo não circulante 297,692 1,753,056 623,874 933,853 377,547 2,039,736 (6,101) 1,859,766 699,515 1,160,251 113#114Finame Management Report 2020 - BNDES - Linhas de investimentos do Banco Nacional do Desenvolvi- mento (BNDES). São garantidos por alienação fiduciária ou penhor dos bens fi- nanciados e por aval da Companhia e da SLC Participações S.A. (Controladora). As amortizações são realizadas em base mensal, semestral e anual, após o perí- odo de carência, e se darão entre os períodos de 15/01/2021 a 15/05/2032. Crédito Rural - Recursos destinados ao custeio e comercialização de safra, cujas regras, finalidades e condições estão estabelecidas no Manual de Crédito Rural (MCR) elaborado pelo Banco Central do Brasil. São garantidos por aval da Com- panhia. A periodicidade das suas amortizações é anual, com vencimentos entre os períodos de 12/07/2021 e 12/08/2021. Capital de Giro - Linha com a finalidade de suprir a necessidade de caixa, com vencimento em 29/01/2021 e 30/10/2023 lastreado em estoque ou produção. Financiamento à Exportação - Financiamento das exportações com linhas de curto e longo prazo captado em reais, euro ou dólar indexado a taxa pré-fixada: CCE (Cédula de Crédito à Exportação), NCE (Nota de Crédito de Exportação) e FINEX (Financiamento à Exportação). A periodicidade das suas amortizações é anual, semestral ou conforme prazo negociado, com vencimentos entre os perío- dos de 22/03/2021 e 29/05/2023. São garantidos por aval da Companhia com hipoteca de terras ou com garantia "clean". CRA - Certificado de Recebíveis do Agronegócio - Títulos de renda fixa, emitidos pela securitizadora em nome da SLC Agrícola, lastreados em recebíveis origina- dos de negócios entre produtores rurais, ou suas cooperativas, e terceiros, abran- gendo financiamentos ou empréstimos relacionados à produção, à comercializa- ção, ao beneficiamento ou à industrialização de produtos, insumos agropecuários ou máquinas e implementos utilizados na produção agropecuária. Os custos des- sas transações, registrados na rubrica de empréstimos e financiamentos, totali- zam R$17.706 em 31 de dezembro de 2020. Abaixo segue informações das emis- sões: Issuance on June 14, 2019 - Agribusiness Receivables Certificate ("CRA") On June 14, 2019, the Company issued its CPR-Financeira (Rural financial product note), in the total amount of R $360,000 (three hundred and sixty million reais), SLC Agrícola of a single series, for public distribution with restricted efforts, of SLC Agrícola SA, entered into between the Issuer and CIBRASEC Securitizadora SA CPR-F was issued at the cost of 99% of the DI rate, with the principal maturing in two in- stallments, on June 13, 2022 and June 13, 2023 and semiannual remuneration. This issue is with a "clean" guarantee. The risk rating reports for the issue were prepared by Standard & Poor's, the initial risk rating being revised quarterly until the maturity date, the final rating of the initial transaction was "[brAA-]", and on the day February 24, 2021, the risk of the transaction was raised to "[brAA]". The CRA operations foresee the fulfillment of financial commitments (Covenants) on the base dates of each fiscal year applicable to the Company, as follows: (i) Current liquidity ratio (CA/CL): current assets divided by the consolidated current liabilities, equal to or greater than 1.1x (one comma once); (ii) Total consolidated liabilities/tangible shareholders' equity: total liabilities di- vided by shareholders' equity minus intangible assets, equal to or less than 2.0x (two times); (iii) Consolidated net leverage (total consolidated net financial debt/EBITDA): to- tal loans and financing, minus cash position, banks and "cash equivalents", minus financial investments plus or minus bound swaps, divided by operating income before financial income (expense), equity in subsidiaries, depreciation and amortization for the last 12 (twelve) months excluding the effects of bi- ological assets, equal to or less than 4.0x (four times). Issuance on December 23, 2020 - Agribusiness Receivables Certificate ("CRA") On December 23, 2020, the Company issued its CPR-Financeira (Rural financial product note) with a green seal, in the total amount of R $480,000 (four hundred and eighty million reais), of a single series, for public distribution with restricted efforts, from SLC Agrícola SA, entered into between the Issuer and ISEC Securit- izadora SA CPR-F was issued at the cost of IPCA + 3.6726% per year, with the principal maturing in two installments, on December 16 2024 and December 15, 2025 and semiannual remuneration. The issue with a "clean" guarantee with the preparation of the risk rating reports for the Issue carried out by Standard & Poor's, with the risk rating being revised quarterly until the maturity date, the 114#115Management Report 2020 final rating of the initial operation was "[brAA-] ", And on February 24, 2021, the risk of the operation was raised to" [brAA]". The CRA operations foresee the fulfillment of financial commitments (Covenants) on the base dates of each fiscal year applicable to the Company, as follows: (i) Current liquidity ratio (CA/CL): current assets divided by the consolidated current liabilities, equal to or greater than 0.9x (zero point nine time); (ii) Total consolidated liabilities/tangible shareholders' equity: total liabilities divided by shareholders' equity minus intangible assets, equal to or less than 2.5x (two comma five times); (iii) Consolidated net leverage (total consolidated net financial debt/EBITDA): total loans and financing, minus cash position, banks and "cash equivalents", minus financial investments plus or minus bound swaps, divided by operating income before financial income (expense), equity in subsidiaries, depreciation and amor- tization for the last 12 (twelve) months excluding the effects of biological assets, equal to or less than 4.0x (four times). Failure to comply with the contractual clauses of financial commitments may result in early maturity of loans and financing. As of December 31, 2020, the date of the last annual measurement, the Company was in compliance with the financial commitment clauses. The maturities of short- and long-term loans and financing are as follows: Years of maturity 2020 2021 2022 2023 2024 After 2024 SLC Agrícola 19. Provisions for tax, environmental, labor and civil risks The Company records provisions when the Management, based on the opinion of its legal advisors, understands that there are probabilities of probable losses and that they are sufficient to cover eventual losses with legal and administrative pro- ceedings that arise in the normal course of its business. The provisions are reviewed and adjusted to take into account changes in circum- stances, such as applicable statute of limitations, tax inspection findings or addi- tional exposures identified based on new matters or court decisions. a) Provisions The Company records provisions for civil, labor and environmental lawsuits classified as probable loss, which presented the following movement: Balance in 12/31/2019 Addition of provision Reverse of provision Parent Company Labor Environ- mental Tributary Civil Total 1,475 330 2,003 3,808 519 1,052 1,571 (255) Balance in 12/31/2020 1,739 330 1,052 (1,600) 403 (1,855) 3,524 Consolidated Consolidated Labor 12/31/2020 12/31/2019 12/31/2020 12/31/2019 Environ- mental Tributary Civil Total 623,874 699,515 Balance in 12/31/2019 297,692 347,516 377,547 425,294 Addition of provision 1,788 544 330 2,003 4,121 919,646 447,794 1,161,958 584,556 Reverse of provision 345,625 125,967 382,750 130,586 Balance in 12/31/2020 (349) 1,983 330 7,310 (6,187) 1,123 7,854 (10) (6,546) 1,993 5,429 238,683 4,086 242,028 7,426 249,102 8,490 253,000 2,050,748 1,557,727 2,417,283 12,389 1,859,766 b) Contingents liabilities Parent Company The Group's exposure to liquidity risk is disclosed in note 25. Based on the nature of the actions in which it is involved, and supported by the opinion of its legal advisors, the Company discloses its contingent liabilities for which it has an expectation of possible loss. For these actions, no provisions were 115#116SLC Agrícola Management Report 2020 set up for eventual losses, as established by CPC 25 of the Accounting Pronounce- ments Committee. Parent Company 12/31/2020 Consolidated Nature 12/31/2019 12/31/2020 12/31/2019 Labor (i) 546 981 546 Environmental (ii) 3,754 3,754 3,754 Tributary (iii) Civil (iv) 14,352 14,500 46,052 1,065 3,754 47,350 9,005 27,657 13,524 36,471 14,175 32,759 86,823 66,344 (i) Labor lawsuits | The labor lawsuits are related to complaints filed mainly by former employees of the Company and the Labor Ministry. (ii) Environmental actions | The environmental actions are related to infraction notices issued by IBAMA - Brazilian Institute of Environment and Renewable Natural Resources. (iii) Tax | The tax lawsuits are related to the federal and state level. (iv) Civil Civil actions relate to claims for damages from suppliers, damages caused to third parties and litigation in contractual matters. c) Contingents assets In February of this year, the Federal Supreme Court (STF) decided on the leading case (RE 759244), guaranteeing the applicability of the immunity related to social contributions on revenues resulting from exports intermediated by commercial ex- porting companies ("trading companies"), in a similar process to which the Com- pany has on the subject, which is currently awaiting the processing of the STF de- cision mentioned above. Recently, the Brazilian Federal Revenue Service suspended the collection of the contribution related to the social security contribution on indirect exports, through the reissue of IN 971/2009, which enabled the Company to stop paying the tax as from September 2020. d) Judicial deposits Based on the actions in which the Company is involved, we present below the bal- ance recorded on December 31, 2020 and 2019: Parent Company Consolidated Nature 12/31/2020 12/31/2019 12/31/2020 12/31/2019 Labor (i) Environmental (ii) Tributary (iii) 8 530 20 478 20 1,176 1,052 11,338 5,630 Civil (iv) 1,046 1,046 1,184 1,052 12,934 7,174 116#117" - .... 20. Management Report 2020 Taxes on Profit Deferred income and social contribution taxes are presented as follows: Description Assets: Temporary differences: Provision for stock losses Provision for profit-sharing Provision for tax losses Operations with derivatives Provision for Senar APV Lease liability Provision for ICMS credit losses Others Liabilities: SLC Agrícola Parent Company 12/31/2020 12/31/2019 Income tax Social contribution Total Income tax Social contribuition Total 3 1 4 10,339 169 3,722 61 14,061 6,126 2,206 8,332 64,927 23,374 230 88,301 25,560 9,201 34,761 1,286 463 1,749 1,876 675 10,784 3,882 14,666 11,051 3,978 2,551 15,029 5,950 2,142 8,092 6,222 2,240 8,462 99,677 35,884 135,561 2,467 47,083 888 16,949 3,355 64,032 Incentivized depreciation from rural activity (156,523) (56,348) (212,871) (130,526) Bargain gain on acquisition of equity interest (3,855) (1,388) (5,243) (5,647) (46,989) (2,033) (177,515) (7,680) Deemed cost from property, plant and equipment (5,051) (1,818) (6,869) (6,164) (2,219) (8,383) Fair value of biological assets (47,155) (16,976) (64,131) (42,873) (15,434) (58,307) (212,584) (76,530) (289,114) (185,210) (66,675) (251,885) Total net (112,907) (40,646) (153,553) (138,127) (49,726) (187,853) Classified in the non-current liabilities (112,907) (40,646) (153,553) (138,127) (49,726) (187,853) 117#118- .... Management Report 2020 SLC Agrícola Assets: Description Temporary differences: Provision for stock losses Provision for profit-sharing Provision for tax losses Consolidated 12/31/2020 12/31/2019 Income tax Social contribution Total Income tax Social contribuition Total 3 1 4 11,676 169 4,203 61 15,879 6,922 2,492 9,414 230 Operations with derivatives 68,492 23,878 92,370 3,885 1,398 5,283 Provision for Senar 1,384 498 1,882 2,055 740 2,795 APV Lease liability 10,458 3,765 14,223 11,077 3,987 15,064 Provision for ICMS credit losses 6,226 2,241 8,467 Others 8,941 3,218 12,159 27,627 9,666 37,293 Tax losses and negative basis 30,284 11,411 41,695 33,434 12,176 45,610 137,630 49,275 186,905 85,003 30,460 115,463 Liabilities: Incentivized depreciation from rural activity (185,782) (66,758) (252,540) (161,635) Bargain gain on acquisition of equity interest (3,747) (1,349) (5,096) (5,539) (58,065) (1,994) (219,700) (7,533) Deemed cost from property, plant and equipment (26,828) (13,558) (40,386) (27,843) (13,926) (41,769) Fair value for investment property (1,992) (1,076) (3,068) (1,844) (996) (2,840) Fair value of biological assets Others (51,967) (18,708) (70,675) (45,832) (16,499) (62,331) (18,653) (6,809) (25,462) (4,560) (1,744) (6,304) (288,969) (108,258) (397,227) (247,253) (93,224) (340,477) (151,339) Total net Classified in the non-current assets Classified in the non-current liabilities 15,059 (166,398) (58,983) 5,421 (64,404) 20,480 (230,802) (178,862) (210,322) (162,250) (62,764) (225,014) 16,612 5,905 22,517 (68,669) (247,531) 118#119- SLC Agrícola 12/31/2019 12/31/2020 Management Report 2020 The Company and its subsidiaries, based on the expectation of generating future taxable income, based on a technical study approved by management, recognized tax credits on tax losses, negative social contribution base and temporary differ- ences, which have no statute of limitations. The book value of deferred charges is reviewed annually by the Company and the resulting adjustments have not been significant in relation to management's initial forecast. The technical study con- siders the investments and incentives that farms may be entitled to. Based on this technical study to generate future taxable income, the Company estimates to recover these tax credits in the following years: Parent Company 12/31/2020 Consolidated Income before tax on profit Income and social contribution taxes at the nominal rate from 25% to 9%, respectively Adjustments for calculation of effective rate Equity income Permanent additions Interest on own capital Other Value recorded in the income Parent Company 12/31/2020 12/31/2019 (151,434) IRPJ CSLL IRPJ CSLL 605,735 605,735 386,937 386,937 (54,516) (96,734) (34,824) 44,350 15,966 43,810 15,771 (597) 138 (4,622) (1,333) 9,279 3,341 12,771 3,641 2,325 184 (85,631) (31,430) (55,221) (20,202) Total income and social contribution taxes (117,061) (75,423) 12/31/2019 Deferred taxes (37,756) (16,109) 2020 2021 110,660 52,872 9,859 63,328 Current taxes (79,305) (59,314) 140,780 18,193 Effective rate 19.33% 19.49% 2022 4,441 901 6,246 9,829 2023 3,358 400 11,358 9,110 2024 833 8,755 7,962 2025 16,269 19,766 3,690 2026 3,351 135,561 64,032 186,905 115,463 Consolidated 12/31/2020 12/31/2019 Estimates of tax credit recovery were based on projections of taxable income tak- ing into consideration various financial and business assumptions. Consequently, these estimates are subject to the uncertainties inherent in such forecasts not being realized in the future. Reconciliation of tax expense with official rates Income and social contribution taxes, calculated based on the nominal rates of these taxes, are reconciled to the amount recorded as Income and social contri- bution taxes expenses as follows: Income before tax on profit Income and social contribution taxes at the nominal rate from 25% to 9%, respectively Adjustments for calculation of effective rate Permanent addtions and exclusions Interest on own capital deemed profit system IFRS 16 effects Value recorded in the income IRPJ 689,179 (172,295) CSLL IRPJ CSLL 689,179 414,662 414,662 (62,026) (103,666) (37,320) Tax incentives of subsidiaries (7,430) 9,279 3,355 (2,313) (4,746) (1,356) 3,341 15 Income and social contribution taxes in 40,859 14,527 2,169 27,365 85 9,772 companies taxed by the 1,637 589 13,101 4,716 Elimination Unrealized profit (15,825) 9,966 (5,697) 3,787 (7,550) (2,718) 542 (15) (130,454) (47,777) (72,785) (26,836) Total income and social contribution taxes (178,231) (99,621) Deferred taxes (66,839) (8,765) Current taxes Effective rate (111,392) 25.86% (90,856) 24.02% 119#120- Management Report 2020 SLC Agrícola Income and social contribution taxes variation Income and social contribution taxes, recorded in asset and liability accounts in the parent company and in the consolidated accounts, are shown as follows: Parent Company Description Provision for inventory adjustment Provision for profit-sharing Provision to tax losses Balance on 12/31/2019 Recognized in income Recognized in comprehensive income Balance on 12/31/2020 4 8,332 (4) 5,729 230 14,061 230 Operations with derivatives Provision for Senar Others Provision for ICMS credit losses 34,761 (18,516) 72,056 88,301 2,551 (802) 1,749 3,355 5,107 8,462 8,092 8,092 Incentivized depreciation from rural activity (177,515) (35,356) (212,871) Bargain gain on acquisition of equity interest (7,680) 2,437 (5,243) Deemed cost from property, plant and equipment (8,383) 1,514 Fair value of biological assets (58,307) (5,824) (6,869) (64,131) Capitalization of interest on borrowings 15,029 (363) 14,666 Total Non-current liabilities (187,853) (37,756) 72,056 (187,853) (153,553) (153,553) Consolidated Description Balance on 12/31/2019 Recognized in income Recognized in comprehensive income Balance on 12/31/2020 Provision for inventory adjustment Provision for profit-sharing 9,414 (4) 6,465 15,879 Provision to tax losses Operations with derivatives Provision for Senar Others Tax losses and negative basis APV Lease liability 230 230 5,283 2,795 37,293 45,610 15,064 Provision for ICMS credit losses 8,467 Incentivized depreciation from rural activity (219,700) (32,840) (252,540) Bargain gain on acquisition of equity interest (7,533) 2,437 (5,096) Deemed cost from property, plant and equipment (41,769) 1,383 (40,386) Fair value for investment property (2,840) (228) (3,068) Fair value of biological assets (62,331) (8,344) (70,675) Others (6,304) (19,158) (25,462) Total (225,014) (66,839) 81,531 (210,322) 5,556 81,531 92,370 (913) 1,882 (25,134) 12,159 (3,915) 41,695 (841) 14,223 8,467 Non-current assets Non-current liabilities 22,517 (247,531) 20,480 (230,802) 120#121" - Management Report 2020 SLC Agrícola Income tax and social contribution payable The balance of income tax and social contribution on profit payable on December 31, 2020 is R$ 40,374 and R$ 47,449 for the parent company and consolidated, respectively (2019: R$ 45,107 and R$ 54,290, respectively). 21. Securities payable (Consolidated) The Company, through its subsidiaries, has contracts related to the purchase of land, for its use and exploration. The balance as of December 31, 2020 is shown as follows: Balance at December 31, 2019 Payments Balance at December 31, 2020 Current liabilities Non-current liabilities 22. Equity a) Capital stock Fixed amount payable 13,685 (706) 12,979 12,273 706 On December 31, 2020, the subscribed capital in the amount of R$ 947,522 is represented by 190,595,000 common, nominative, book-entry shares with no par value. The following is a distribution of the common shares among the shareholders: Shareholder SLC Participações S.A. Management Treasury shares Other Total shares of paid-in capital (-) Treasury shares Total shares ex-treasury Quantity of shares 12/31/2020 12/31/2019 100,977,822 100,969,142 347,967 3,010,430 242,772 3,590,152 86,258,781 85,792,934 190,595,000 190,595,000 (3,010,430) 187,584,570 (3,590,152) 187,004,848 b) Capital reserve - goodwill in the issue of shares Represented by the goodwill received on the public share offerings held in June 2007 and June 2008 and by the goodwill on treasury stock sales made in connec- tion with the stock option plans, less the costs of issuing these shares (commis- sions, fees and other expenses), net of tax effects in accordance with CPC 10 (R1) (IFRS 2). c) Treasury shares The balance of treasury shares at December 31, 2020 is R$ 52,921 and consists of 3,010,430 shares (R$ 64,321 at December 31, 2019, consisting of 3,590,152 shares). The movement in the number of treasury shares in the year was as fol- Lows: Balance at December 31, 2019 Shares exercised under the stock option plans Balance at December 31, 2020 Treasury shares In n° shares 3,590,152 (579,722) In R$ (64,321) 11,400 3,010,430 (52,921) The market value of treasury shares, calculated based on the last stock exchange quotation before the year-end date, was R$ 82,636 (R$ 27.45 per share) at De- cember 31, 2020 and R$ 89,036 (R$ 24.80 per share at December 31, 2019). 121#122- .... Management Report 2020 d) Legal reserve The legal reserve is established on the basis of 5% of the net profit for the year limited to 20% of the share capital. As provided for in the Bylaws in article 35, par- agraph a, in the fiscal year in which the balance of the legal reserve plus the amounts of the capital reserves referred to in paragraph 1 of article 182 of Law 6,404/76 exceeds thirty percent (30%) of the capital stock, it shall not be mandatory to allocate part of the net profit of the fiscal year to the legal reserve. For the year ended December 31, 2020, the Company constituted a legal reserve of R$ 24,425. e) Reserve for expansion According to the provisions of Article 194 of Law 6,404/76 and Article 35 of the Company's Bylaws, a Reserve for Expansion shall be formed based on the remain- ing profit after the legal and statutory deductions, for the purpose of investing in operating assets or capital expenditures, this reserve may not exceed the amount of capital stock. For the year ended December 31, 2020, the Company set up an expansion reserve of R$ 230,489. f) Profit retention reserve The balance at December 31, 2020 and December 31, 2019 refers to the re- maining balance of retained earnings for the year 2007, which was retained as a profit retention reserve for the realization of new investments, provided for in a capital budget approved by the Board of Directors, in accordance with article 196 of Law 6,404/76. g) Incentive investment reserve It corresponds to tax benefits granted by the states of Mato Grosso do Sul, Mato Grosso and Goiás for the reduction in the amount of ICMS to be collected from 70% to 75%, in the form of a presumed credit, for the operations of cotton, cotton seed and corn, classified as investment subsidy. For the year ended December 31, 2020, the Company set up a tax incentive reserve of R$ 171. h) Dividends According to the Bylaws, the minimum mandatory dividend is calculated on the basis of 25% of the net profit remaining for the year, after the reserves established by law have been constituted. SLC Agrícola The composition of the proposed dividend calculations and interest on equity for the year ended December 31, 2020 and dividends distributed on December 31, 2019, was as follows: Net income for the year Appropriation of investment reserve incentivized Appropriation of legal reserve Calculation base for the dividends proposed Minimum compulsory dividend-25% Additional dividend proposed-25% (a) Proposed dividends Dividend per share (excluding treasury shares) % on the basis 12/31/2020 488,674 (171) 12/31/2019 311,514 (939) (24,425) (15,575) 464,078 295,000 116,020 73,753 116,019 73,749 232,039 147,502 1.236982 0.7739 50% 50% (a). Management proposal to be resolved at the Annual Shareholders' Meeting, scheduled to take place in April 2021. The mandatory minimum dividends are made up as follows: Distribution of interest on own capital (IE) (-) IRRF on interest on own capital Dividend Total IE distributed Minimum compulsory dividends per share (ex-treasury) % on net income from dividends and interest on own capital i) Earning per share 12/31/2020 37,117 (4,770) 83,673 116,020 0.618496 50% In accordance with CPC 41 - Earnings per Share (IAS 33), the following table reconciles the net income for the period with the values used to calculate basic and diluted earnings per share. The Company has a category of dilutive potential common shares that refer to stock option plans. For these stock option plans, a calculation is made to deter- mine the number of shares that could have been acquired at fair value (deter- mined as the average annual market price of the Company's stock) based on the monetary value of the subscription rights attached to the stock option plans. 122#123- Management Report 2020 The number of shares calculated as described above is compared with the number of shares issued, assuming the exercise of the stock option plans. SLC Agrícola 12/31/2020 12/31/2019 j) Other comprehensive income Numerator Net income for the year (a) Denominator Weighted average of common shares (b) 488,674 311,514 The other comprehensive income in shareholders' equity, net of tax effects, is com- posed as follows: 187,047,062 186,716,805 12/31/2020 12/31/2019 Weighted average of common shares consider- ing dilutive effects (c) Hedge accounting (207,640) (58,064) 187,441,743 188,242,245 Basic income per common share (a/b) Diluted income per common share (a/c) 2.60966 2.59868 Cost assigned fixed asstes and fair value adjustment related to property for investments 1,151,931 1,155,152 1.66838 1.65486 Gain in the variation of interest Other comprehensive income 25,909 970,200 25,909 1,122,997 23. Finance income (loss) Parent Company Consolidated 12/31/2020 12/31/2019 12/31/2020 12/31/2019 Financial expenses: Interest paid (71,962) (95,390) (84,696) (113,048) Foreign exchange (263,779) (110,497) (328,196) (125,847) APV Liabilities Lease Losses with derivative operations (154,759) (121,740) (61,106) (47,607) (31,571) (48,611) (40,435) (55,683) Others (5,521) (4,024) (6,996) (5,524) (527,592) (380,262) Financial income: Income from interest-earning bank deposits 18,077 Foreign exchange 194,147 20,687 105,905 Gains with derivative operations 131,504 41,149 Others 1,004 3,174 Financial income (loss) 344,732 (182,860) 170,915 (209,347) (521,429) 29,909 223,539 175,017 1,213 429,678 (91,751) (347,709) 31,208 122,350 45,902 4,199 203,659 (144,050) 123#124" - .... Management Report 2020 24. Commitments 24.1. Sales contracts for future delivery The Company and its subsidiaries have sales contracts for future delivery with some customers, as shown below: SLC Agrícola Parent Company Consolidated Product 2019/2020 crop Delivery Date Quantity Agreements Unit Price Delivery Date Quantity Agreements Cotton lint Jan/21-Jul/21 44,115 34 ton US$ 1,535.01 Jan/21-Jul/21 48,480 Corn Jan/21 45,000 4 SC R$ 66.80 Jan/21 46,667 Unit Price 37 ton US$ 1,536.48 5 SC R$ 66.80 2020/2021 crop Cotton lint Aug/21-Jul/22 83,930 14 ton US$ 1,549.87 Soybean Jan/21-May/21 1,932,694 37 SC Soybean Jan/21-May/21 4,314,781 72 SC Corn Jun/21-Aug/21 6,700,000 34 SC US$ 19.71 R$ 86.47 R$ 23.80 Aug/21-Jul/22 Jan/21-May/21 Jan/21-May/21 Jun/21-Aug/21 92,350 18 ton US$ 1,552.68 2,556,214 42 SC US$ 19.44 5,184,858 80 SC R$ 86.13 8,055,000 44 SC R$ 24.43 2021/2022 crop Cotton lint Aug/22-Dec/22 55,100 10 ton US$ 1,657.86 Soybean Jan/22-Apr/22 1,650,000 15 SC Soybean Jan/22-Apr/22 6,000 1 SC Corn Jul/22-Aug/22 3,375,000 22 SC US$ 18.69 R$ 94.00 R$ 24.67 Aug/22-Dec/22 Jan/22-Apr/22 Jan/22-Apr/22 63,700 13 ton US$ 1,644.68 2,040,000 20 SC US$ 18.59 6,000 1 SC R$ 94.00 Jul/22-Aug/22 3,887,000 28 SC R$ 24.00 124#125- .... Management Report 2020 24.2. Third party lease agreements As of December 31, 2020, the Company and its subsidiaries have third-party lease agreements and building leases, thus distributed: SLC Agrícola Unit Location Currency Lease liability (CPC 06(R2)scope) (IFRS16) 12/31/2020 12/31/2019 Leases payable 12/31/2020 12/31/2019 Palmares Panorama Barreiras (BA) R$ 99,477 91,774 70 Correntina (BA) R$ 93,219 56,701 Paladino São Desidério (BA) R$ 40,005 32,062 5,283 Parceiro Formosa do Rio Preto (BA) R$ 19,031 19,965 Piratini Jaborandi (BA) R$ 155 Pantanal Pamplona Chapadão do Céu (GO) e Chapadão do Sul (MS) Cristalina (GO) R$ 329,762 227,453 R$ 15,636 17,136 Planeste Balsas (MA) R$ 101,527 54,785 Parnaiba Tasso Fragoso (MA) R$ 51,748 48,765 2 Palmeira Alto Parnaiba (MA) R$ 30,991 32,872 Paiaguás Diamantino (M)T R$ 141,115 37,669 89 Planorte Sapezal (MT) R$ 3,326 3,472 Perdizes Porto dos Gaúchos (MT) R$ 567 Pioneira Querência (MT) R$ 499 Planalto Costa Rica (MS) R$ 6,240 6,436 64 Parnaguá Santa Filomena (PI) R$ 213 Matriz Porto Alegre (RS) R$ 773 626 934,284 629,716 5,283 225 162,258 772,026 114,567 515,149 5,283 225 Liabilities current Liabilities non-current Liabilities for land and cotton leasing have a discount rate with a range of 6,48.0% to 9.45%. For other lease liabilities (machinery, buildings and vehicles), we have a discount rate ranging from 3.00% to 7.70%. In relation to third party lease agreements we also inform you that: (i) there are no contingent payment clauses; (ii) there are no renewal terms or purchase options, ex- cept for the contract of Fazenda Planalto, related to 1,603 ha, which has annual re- newal; (iii) the land lease contracts are indexed, in its majority, to the variation of the price of the soybean bag, and there are no other readjustment clauses; (iv) there are no restrictions imposed, such as those related to dividends and interest on equity, additional debt, or any other that requires additional disclosure. In addition to leasing crop land, the Company has operational leasing contracts for a cotton processing unit at Fazenda Palmares (in Barreiras-BA, for R$ 1,850 per year, until August 31, 2023), at Fazenda Paladino (in São Desidério-BA, for R$ 1,000 per year until August 31, 2026) and at Fazenda Pantanal (Chapadão do Céu - GO, for R$ 400 per year until August 31, 2030), equipment rents at Fazenda Planorte (in Sapezal- MT) and Fazenda Paiaguás (in Diamantino-MT), with decreasing values each year until April 30, 2026, and rents from its administrative headquarters in Porto Alegre-RS. The statement of the maturity flows of lease and lease liabilities payable is presented in note 25. 125#126" - .... Management Report 2020 25. Risk management and financial instruments The sales revenues of the Company and its subsidiaries are generated mainly from the commercialization of agricultural commodities such as cotton, soybeans and corn; products that are quoted in dollars on the Chicago Board of Trade - CBOT and Inter- continental Exchange Futures US - ICE international exchanges. Therefore, the vola- tility of the international price of the commodity and the exchange rate are market risks to which the Company and its subsidiaries are exposed. In addition, the Company and its subsidiaries engage in financing operations in the financial market at pre-fixed or post-fixed rates. Therefore, the Company presents a risk to the variation of interest rates in the indebtedness contracted with post-fixed interest rates. Fair values are determined based on market price quotations, where available, or, in the absence of these, on the present value of expected cash flows. The fair values of cash and cash equivalents, trade receivables, short-term debt and trade payables are equivalent to their book values. The fair values of other long-term assets and liabilities do not differ significantly from their book values. The estimated fair value of the long-term loans of the parent company and consoli- dated at December 31, 2020 was R$ 1,743,946 and R$ 2,024,347, respectively, calcu- lated at prevailing market rates, considering the nature, term and risks similar to those of the contracts recorded, and can be compared with the book value of R$ 1,753,056 and R$ 2,039,736. The hierarchy of fair values of financial assets and liabilities recorded at fair value on a recurring basis was performed using the following criteria: Level 1 - Prices quoted (unadjusted) in active markets for assets and liabilities and identical Level 2 - Inputs, except quoted prices, included in Level 1 that are observable for the asset or liability, directly (prices) or indirectly (derived from prices) Level 3 - Assumptions, for assets or liabilities, that are not based on observable market data (unobservable inputs). SLC Agrícola The table below presents the hierarchy of fair values of financial assets and liabilities recorded at fair value on a recurring basis: ASSETS Fair value through profit or loss Cash and cash equivalents Short term financial Investments Subtotal Amortized cost Trade accounts receivable Receivables from related parties Subtotal Fair value of hedge instruments Operations with Derivatives Subtotal TOTAL ASSETS LIABILITIES Loans and financing Parent Company Book value 12/31/2020 12/31/2019 Fair value Level 2 12/31/2020 Level 2 12/31/2019 1,319,290 663 1,319,953 649,548 54,302 703,850 1,319,290 663 1,319,953 649,548 54,302 703,850 178,085 27,721 205,806 137,114 32,090 169,204 178,085 27,721 205,806 137,114 32,090 169,204 207,847 207,847 1,733,606 41,467 41,467 914,521 207,847 207,847 1,733,606 41,467 41,467 914,521 Liabilities at the amortized cost 2,050,748 Suppliers Payables to related parties Liabilities lease with related par- 933,146 1,310 1,557,727 773,124 2,763 2,061,685 933,146 1,310 1,544,998 773,124 2,763 ties Third-party lease liability 1,722,168 893,214 899,805 597,651 1,722,168 893,214 899,805 597,651 Leases to pay 153,139 225 113,471 5,753,725 3,944,766 153,139 5,764,662 375,207 375,207 51,358 51,358 6,128,932 3,996,124 375,207 375,207 6,139,869 Other accounts payable Subtotal Fair value of hedge instruments Derivatives payable Subtotal Total LIABILITIES 225 113,471 3,932,037 51,358 51,358 3,983,395 126#127- Management Report 2020 ASSETS Fair value through profit or loss Cash and cash equivalents Fair value Consolidated Book value 12/31/2020 12/31/2019 Level 2 12/31/2020 1,604,053 Short term financial Investments Subtotal 663 1,604,716 829,427 55,992 885,419 1,604,053 663 1,604,716 Amortized cost Trade accounts receivable 207,283 178,405 207,283 Receivables from related parties 8 11 8 Other accounts receivable 33,907 Subtotal 241,198 76,905 255,321 33,907 241,198 Fair value of hedge instruments Operations with Derivatives 245,372 Subtotal 245,372 TOTAL ASSETS 2,091,286 45,336 45,336 1,186,076 245,372 245,372 2,091,286 LIABILITIES Liabilities at the amortized cost Level 2 12/31/2019 829,427 55,992 885,419 178,405 11 76,905 255,321 45,336 45,336 1,186,076 Loans and financing 2,417,283 1,859,766 2,422,429 Suppliers 1,101,769 Payables to related parties Other accounts payable Third-party lease liability Leases to pay Securities payable Subtotal 118 176,390 934,284 5,283 12,979 4,648,106 922,000 125 123,584 629,716 225 13,685 3,549,101 1,101,769 118 176,390 934,284 5,283 12,979 4,653,252 1,840,398 922,000 125 123,584 629,716 225 13,685 3,529,733 Fair value of hedge instruments Derivatives payable Subtotal TOTAL LIABILITIES 417,121 417,121 5,065,227 60,873 60,873 3,609,974 417,121 417,121 5,070,373 a) Policy of use, objectives and strategies 60,873 60,873 3,590,606 The objective of the use of financial derivative instruments by the Company and its subsidiaries is the protection of operating margins. The Company cre- ated an Executive Risk Management Committee in July 2008 and approved the Risk Management Policy at the meeting of the Board of Directors on October 29, 2008. The Risk Management Executive Committee is the liaison body be- tween the Board of Directors and the Company's Executive Board. Its mission SLC Agrícola involves the daily support to the decisions of the Executive Board, the moni- toring of compliance with the established risk limits and, when appropriate, the preliminary analysis and evaluation of proposals for adjustments or refor- mulation of policies or risk limits for subsequent submission to the Board of Directors for deliberation. Derivative transactions are carried out with prime financial institutions (insti- tutions in the country with "Rating" of at least "A" in at least one of the three main international rating agencies, namely: Moody's, S&P and/or Fitch), ob- serving limits and exposures to the exchange, commodities and interest risks of its counterparties on a regular basis. b) Gains (losses) from financial instruments under parent company and con- solidated shareholders' equity Forward contract (NDF) and commodity swap transactions (see note 22.h) are fixed to protect future sales exposure in dollars. In addition, debt swap oper- ations aim to protect the future exchange rate variation of dollar loans. These operations are documented for registration through the hedge accounting methodology in accordance with CPC 48 and IFRS 9. The Company records in a specific shareholders' equity account the unrealized effects of these instru- ments contracted for its own operations or those contracted on a consolidated basis to cover future sales. c) Currency risk In order to protect the sales revenues of the Company and its subsidiaries, which are subject to exchange rate volatility, financial derivative instruments are used, whose portfolio basically consists of NDF (Non-Deliverable Forward) contracts. These operations are carried out directly with financial institutions, in an over the counter environment, where there are no margin calls. The impact on the cash flow of the Company and its subsidiaries occurs only on the date of set- tlement of the contracts. However, it should be considered that the settlement of these financial transactions is associated with the receipt of sales, which are also associated with foreign exchange variation, thus offsetting any gains or losses in hedging derivative instruments due to exchange rate variations. 127#128- Management Report 2020 SLC Agrícola The Business Plan is constantly updated for analysis of exchange rate risk exposure, considering the following premises: (I) projection of planted area; (II) expected productivity; (III) prices of commodities, which are quoted in the dollar currency, considering the volume weighted average of sales prices and market prices of the volume to be sold; and, (IV) distribution of sales in the analyzed periods. After the definition of the Business Plan and the measurement of the previously exposed items, the total exchange rate exposure is reached. Based on the cost already formed with the purchase of the main inputs (fertilizers, defensives and seeds) and estimated fixed costs, the expected operating margin is determined. In this way, the risk management committee executes the parameters described in the risk management policy, with the objective of reducing the standard deviation of the operating margin defined as a target. The table below shows the positions, of the Company and its subsidiaries, with the nominal and fair values of each instrument contracted, namely: Description Forward contracts (NDF): Foreign currency - Short position Maturity in 2020 Maturity in 2021 Maturity in 2022 TOTAL Currency Reference value (notional) 12/31/2020 12/31/2019 Currency Fair value (MTM) 12/31/2020 12/31/2019 USD 369,332 USD 384,710 68,450 USD 47,100 USD 431,810 437,782 R$ 61174 R$ R$ R$ (80,586) 3,496 (77,090) (6,452) 7,911 1,459 The following details the maturity schedule of the derivative operations and deferred exchange variation, which are framed in the "hedge accounting" methodology: Maturity Currenfy Forward contracts (NDF) Up to 03/31/2021 Up to 06/30/2021 R$ (70,300) R$ (18,233) Up to 09/30/2021 R$ 10,756 Up to 12/31/2021 R$ Up to 03/31/2022 R$ Up to 06/30/2022 R$ Up to 09/30/2022 R$ R$ (2,809) 4,061 (1,316) 751 (77,090) 128#129" - Management Report 2020 The table below shows the opening of foreign exchange derivatives by counterparty (of the Company and its subsidiaries): Description Banco Itaú BBA S/A XP Investimentos S.A. Banco Safra S.A. Banco BNP Paribas Brasil S.A. Banco Bradesco S/A Banco Votorantim S/A Morgan Stanley S/A Banco J.P. Morgan S/A Banco Santander Brasil S/A Banco ABC Brasil S.A. Rabobank International Brasil S.A. Banco BTG Pactual S.A. TOTAL SLC Agrícola Reference value (notional) Currency 12/31/2020 12/31/2019 Currency Fair value 12/31/2020 12/31/2019 USD 63,350 98,990 R$ USD 15,470 15,000 R$ (18,953) 3,356 1,175 (979) USD 26,450 7,475 R$ (1,212) (58) USD 79,910 5,700 R$ 3,475 1,197 USD 23,050 31,795 R$ 2,140 (939) USD 20,490 70,460 R$ (7,781) (3,524) USD 24,570 72,100 R$ (14,188) 4,433 USD 58,260 14,550 R$ (26,378) 781 USD 38,530 66,962 R$ (16,864) 1,425 USD 17,730 16,760 R$ (13,169) 2,035 USD 11,000 29,990 R$ (5,191) (2,988) USD 53,000 8,000 R$ 17,675 (1,099) USD 431,810 437,782 R$ (77,090) 1,459 The following criteria were used to determine the fair value of forward contract operations (NDF): future dollar curve published by B3 (www.b3.com.br)at the end of each period. Based in this information, the adjustment projected in the maturity of each operation is discounted by the yield curve DI x Pre B3 (www.b3.com.br) of closing each period. Risks of exchange rate variation The Company projected the potential impact of foreign exchange hedging opera- tions and indebtedness in dollars in five scenarios for the years 2021 and 2022, as follows: " Probable Scenario: Based on the FOCUS report (BACEN) released on Decem- ber 28, 2020, we have defined the probable scenario with the dollar quotation of R$ 5.0000 varying to the Ptax rate of R$ 5.1967 on December 31, 2020. " Exchange rate Decrease of 25%: in this scenario the operations would be set- tled at the rate of R$ 3.7500, equivalent to 25% lower than the rate in the Probable Scenario. Decrease of 50% in the exchange rate: in this scenario the operations would be settled at the rate of R$ 2.5000, equivalent to 50% less than the rate in the Probable Scenario. Increase of 25% in the exchange rate: in this scenario the operations would be settled at the rate of R$ 6.2500, equivalent to 25% higher than the rate in the Probable Scenario. Increase of 50% in the exchange rate: in this scenario the operations would be settled at the rate of R$ 7.5000, equivalent to 50% higher than the rate in the Probable Scenario. The following is a summary of the consolidated impacts in each projected scenario: 129#130- .... Management Report 2020 Description Year 2021 Highly probable estimated revenue in USD (1) Estimated commitments in USD (2) Forward Contracts (NDF) (3) Net exposure in USD (1)-(2)-(3) Year 2022 Remote scenario Quotation R$ 2.5000 (1,113,710) 399,725 445,525 (268,460) Parent Company Possible scenario Quotation R$ 3.7500 (556,855) 199,863 222,763 (134,229) SLC Agrícola Scenario by the closing price of the fiscal year Quotation R$ 5.1967 Possible scenario Quotation R$ 6.2500 Remote scenario Quotation R$ 7.5000 87,627 556,855 1,113,710 (31,450) (199,863) (399,725) (35,054) (222,763) (445,525) 21,123 134,229 268,460 Highly probable estimated revenue in USD (1) (1,476,280) Estimated commitments in USD (2) Net exposure in USD (1)-(2)-(3) Total 100,250 (1,376,030) (1,644,490) (738,140) 50,125 116,154 738,140 1,476,280 (7,888) (50,125) (100,250) (688,015) 108,266 688,015 1,376,030 (822,244) 129,389 822,244 1,644,490 Consolidated Scenario by the closing price Description Remote scenario Quotation R$ 2.5000 Possible scenario Quotation R$ 3.7500 of the fiscal year Quotation R$ 5.1967 Possible scenario Quotation R$ 6.2500 Remote scenario Quotation R$ 7.5000 Year 2021 Highly probable estimated revenue in USD (1) Estimated commitments in USD (2) Forward Contracts (NDF) (3) Net exposure in USD (1)-(2)-(3) Year 2022 Highly probable estimated revenue in USD (1) Estimated commitments in USD (2) Net exposure in USD (1)-(2)-(3) Total The following shows the net exposure to currency risk: (1,315,625) 461,500 500,275 (353,850) (1,674,458) (657,813) 230,750 103,513 (36,311) 657,813 (230,750) 1,315,625 (461,500) 250,138 (39,362) (250,138) (500,275) (176,925) 27,840 176,925 353,850 (837,229) 131,746 837,229 1,674,458 110,750 7,000 55,375 (8,714) (55,375) (110,750) 3,500 (551) (3,500) (1,556,708) (1,910,558) (778,354) (955,279) 122,481 150,321 778,354 955,279 (7,000) 1,556,708 1,910,558 Parent Company Consolidated 12/31/2020 Amount in Trade accounts receivable (note 6) Suppliers Net exposure of the shareholders' equity Reais (R$) 166,575 (145,921) 20,654 Amount in Dólares (USD) 32,054 (28,080) Amount in Reais (R$) 125,979 (138,313) 3,974 (12,334) (34,315) (3,060) 12/31/2019 Amount in Dólares (USD) 31,255 Reais (R$) 193,413 (176,010) 17,403 Amount in 12/31/2020 Amount in Dólares (USD) 37,218 (33,869) 3,349 12/31/2019 Amount in Reais (R$) 166,942 (167,891) Amount in Dólares (USD) 41,418 (41,653) (235) (949) 130#131- ■■■ Management Report 2020 d) Price risk SLC Agrícola Most of the protection against commodity price fluctuations is carried out through sales directly with our customers with physical future delivery (forward contracts). In addition, futures contracts, negotiated in an exchange environment, and financial transactions of swap contracts, with financial institutions in the over-the-counter market are also used. These operations are traded with reference to prices of commodities quoted in the futures market. All operations are related to the net exposure of the production of the Company and its subsidiaries, so that every operation has its ballast in physical product. Transactions carried out in an exchange environment require the availability of initial margins and adjustments are made daily, according to the variation in the reference price. On the other hand, operations with financial institutions do not require initial margins, since these operations are supported by a credit limit pre-approved by financial institutions. The table below shows the derivative financial instruments contracted for protection against variation in the price of commodities, the effects of which are recorded in shareholders' equity as they are recorded in the form of hedge accounting. Description Currency Reference value (notional) 12/31/2020 12/31/2019 Currency Fair value 12/31/2020 12/31/2019 Year of Maturity at 2020 Financial operations Commodities - Cotton USD Commodities - Cotton USD Subtotal USD 135,483 R$ R$ 135,483 R$ (19,444) (19,444) Year of Maturity at 2021 Financial operations Commodities - Cotton USD 180,673 17,656 R$ (209,486) (4,245) Commodities - Corn Subtotal Year of Maturity at 2022 Financial operations USD 799 R$ 25 USD 181,472 17,656 R$ (209,461) (4,245) USD Commodities - Cotton TOTAL Commodity price risk USD USD 9,644 191,116 153,139 R$ (6,992) R$ (216,453) (23,689) The Company has projected the potential impact of changes in soybean and cotton prices in 5 scenarios for the years 2021 and 2022, as follows: Probable Scenario: Based on the closing price on 12/31/2020 of the reference future contract on the stock exchange where production is priced. " 25% drop in the price of the reference futures contract on the exchange where production is priced. " 50% drop in the price of the reference futures contract on the exchange where production is priced. 25% increase in the price of the reference future contract on the stock exchange where production is priced. 50% increase in the price of the reference future contract on the stock exchange where production is priced. 131#132- Management Report 2020 SLC Agrícola The price sensitivity assessment considers as exposure the total estimated revenue (highly probable sales revenue) and the totality of hedge instruments contracted, generally represented by future sales of agricultural products, in relation to the exposure of the same items sold (hedged highly probable sales revenue). The following is a summary of the impacts in each projected scenario converted into R$ 5.1967 by the PTAX sale at the end of December 31, 2020: Income variation highly to price scenarios Possible scenario (-25%) Probable scenario Description Cotton Year 2021 Highly probable income Highly probble income protected Net exposure Change in net exposure Remote scenario (-50%) 2,051,552 2,051,552 2,051,552 2,051,552 2,051,552 2,051,552 Possible scenario (+ 25%) Remote scenario (+50%) 2,051,552 2,051,552 2,051,552 2,051,552 Soybean - Year 2021 Highly probable income 995,033 1,140,463 1,285,893 1,431,323 1,576,753 Highly probble income protected 704,173 704,173 704,173 704,173 704,173 Net exposure 290,860 436,290 581,720 727,150 872,580 Change in net exposure (290,860) (145,430) 145,430 290,860 Cotton - Year 2022 Highly probable income 1,122,969 1,391,506 1,660,044 1,928,582 2,197,119 Highly probble income protected 585,894 Net exposure 537,075 585,894 805,612 585,894 585,894 585,894 1,074,150 1,342,688 1,611,225 Change in net exposure (537,075) (268,538) 268,538 537,075 Soybean Year 2022 Highly probable income Highly probble income protected Net exposure Change in net exposure 693,765 197,367 496,398 (496,398) 941,964 197,367 744,597 (248,199) 1,190,163 1,438,362 1,686,561 197,367 197,367 197,367 992,796 1,240,995 248,199 1,489,194 496,398 e) Interest risk A portion of the indebtedness related to the Company's export financing operations is linked to pre-fixed interest rates, which is the interest rate used in loans indexed to the US dollar or euro. In order to hedge foreign exchange variation on loans, financings and suppliers, the Company carries out hedge operations through swap instruments with first-tier financial institutions. These operations consist of an exchange of exchange rate and pre-fixed interest rates for interest rate in CDI plus Pre-fixed Rate (passive position). The value of the principal (notional) and maturity of the swap transaction is identical to the debt flow, which is the object of the hedge. This eliminates the risk of exchange rate fluctuation. 132#133- Management Report 2020 The following is a breakdown of the currency and interest rate swap transaction: Hedge instrument Swap of R$ 25MM (Assets VC/ Liabilities CDI+Pré) Swap of R$ 150MM (Assets VC/ Liabilities CDI+Pré) Swap of R$ 60MM (Assets VC/ Liabilities CDI+Pré) Swap of R$ 24.5MM (Assets VC/ Liabilities CDI+Pré) Counterparty Itaú Itaú Rabobank Rabobank Rabobank Bradesco Bradesco Santander Rabobank Rabobank Rabobank Rabobank Rabobank Swap of R$ 17.5MM (Assets VC/Liabilities CDI+Pré) Swap of R$ 8MM (Assets VC/ Liabilities CDI+Pré) Swap of R$ 200MM (Assets VC/ Liabilities CDI+Pré) Swap of R$ 240MM (Assets VC/ Liabilities CDI+Pré) Swap of R$ 240MM (Assets VC/ Liabilities CDI+Pré) Swap of R$ 30MM (Assets VC/ Liabilities CDI+Pré) Swap of R$ 15MM (Assets VC/ Liabilities CDI+Pré) Swap of R$ 5MM (Assets VC/ Liabilities CDI+Pré) Swap of R$ 17.5MM (Assets VC/ Liabilities CDI+Pré) Hedged object Debit of USD 6.7MM interest of 4.37% yy Debit of EUR 31.7MM interest of 0.95% yy Debit of EUR 11MM interest of 1.25% yy Debit of EUR 4.3MM interest of 1.55% yy Debit of EUR 1,3MM interest of 2.05% yy Debit of R$ 200 MM interest of 6.28% yy Debit of R$ 240MM interest IPCA of 3.67% yy Debit of R$ 240MM interest IPCA of 3.67% yy Debit of EUR 6.9MM interest of 1.11% yy Debit of EUR 2.7MM interest of 1.45% yy Debit of EUR 1.15MM interest of 1.11% yy Debit of EUR 3.8MM interest of 0.81% yy Debit of EUR 3.8MM interest of 0.81% yy SLC Agrícola MTM Financial income Shareholder's equity 10,056 51,751 9,705 351 51,616 135 8,654 8,763 (109) 2,299 2,345 F 401 402 6,993 13,610 2,993 6,617 2,535 458 2,535 2,997 462 2,535 12,511 12,277 234 1,697 1,725 (28) 2,085 2,046 39 6,370 6,339 31 6,370 6,339 31 121,794 109,094 12,700 Risk of variations in interest rates In order to verify the sensitivity of the indexes on the Company's debt, based on the position as of December 31, 2020, 5 different scenarios were defined. Based on the FOCUS report (Bacen) of December 24, 2020 we have defined the key figures for CDI. Foreign Exchange and IPCA. Based on this information we defined the Probable Scenario for the analysis and from this we calculated the variations of 25% and 50%. For each scenario, the financial expense or gross financial revenue was considered, not considering the incidence of taxes and the flow of maturities of debts and redemptions of financial investments scheduled for 2021. The base date for the portfolio was December 31, 2020, projecting the indexers for one year and checking their sensitivity in each scenario. The following is a summary of the impacts over the next 12 months in each scenario 133#134- .... Management Report 2020 SLC Agrícola Interest rate¹ Balance on 12/31/2020 Debt in reais - prefixed rate Decrease of 50% Decrease of 25% Probable scenario Increase of 25% Increase of 50% Rural credit 4.30% 12,186 BNDES 5.44% 55,744 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Debt in reais - post-fixed rate BNDES UMBNDES 1,309 (50) (60) (69) (79) (88) Working Capital 184.80% CDI 361,959 (9,162) (10,881) (12,601) (14,320) (16,039) Export financing 170.30% CDI 481,671 (10,890) (13,178) (15,466) (17,754) (20,041) CRA 99.00% CDI 360,346 (3,356) (5,068) (6,779) (8,491) (10,203) CRA IPCA+3.67% y.y. 481,270 (7,331) (12,770) (18,208) (23,646) (29,085) Debits in dólares NCE 4.17% 34,748 N/A N/A N/A N/A N/A Debits in euro CCE 0.95% 203,643 N/A N/A N/A N/A N/A NCE 0.81% 24,588 N/A N/A N/A N/A N/A NCE 0.81% 24,588 N/A N/A N/A N/A N/A NCE 1.11% 7,493 N/A N/A N/A N/A N/A NCE 1.11% 44,959 N/A N/A N/A N/A N/A NCE 1.55% 27,730 N/A N/A N/A N/A N/A NCE 2.05% 8,646 N/A N/A N/A N/A N/A NCE 1.25% 70,871 N/A N/A N/A N/A N/A NCE 1.45% 17,261 N/A N/A N/A N/A N/A Debits in dólares CPR-F 6.28% 215,977 N/A N/A N/A N/A N/A 1. Average annual rates. 134#135" - Swap Management Report 2020 Interest rate¹ SLC Agrícola Decrease of Balance on 12/31/2020 50% Decrease of 25% Probable sce- nario Increase of 25% Increase of 50% Swap VC x CDI + PRɲ Swap VC x CDI + PRɲ Swap VC x CDI + PRɲ Assets: 0.81% a.a. Liabilities: CDI + 0.85% a.a. Assets: 0.81% a.a. Liabilities: CDI + 0.85% a.a. 6,370 (115) (145) (175) (205) (236) 6,370 (115) (145) (175) (205) (236) Swap VC x CDI + PRɲ Swap VC x CDI + PRɲ Swap VC x CDI + PRɲ Assets: 1.11% a.a. Liabilities: CDI + 0.75% a.a. Assets: 1.11% a.a. Liabilities: CDI + 0.75% a.a. Assets: 1.55% a.a. Liabilities: CDI + 2.17% a.a. Assets: 2.05% a.a. Liabilities: CDI + 1.99% a.a. 2,085 (35) (45) (55) (65) (75) 12,511 (213) (272) (332) (391) (450) 2,299 (72) (83) (94) (105) (115) 401 (12) (14) (16) (17) (19) Swap VC x CDI + PRɲ Swap VC x CDI + PRɲ Assets: 4.37 % a.a. Liabilities: CDI + 0.5% 10,056 (146) (194) (241) (289) (337) Assets: 0.95 % a.a. 51,751 (1,045) Liabilities: CDI +1.07% (1,291) (1,537) (1,783) (2,029) Assets: 6.28 % a.a. Swap VC x CDI + PRɲ 13,610 (204) Liabilities: CDI + 0.55% (269) (333) (398) (463) Assets: 1.25% a.a. Swap VC x CDI + PRɲ 8,654 (246) (288) Liabilities: CDI +1.90% a.a. (329) (370) (411) Swap VC x IPCA + PRɲ Swap of R$ 240MM (Assets Pré / Liabilities 2,993 (84) (98) (112) (126) (141) CDI+Pré) Swap VC x IPCA + PRɲ Swap of R$ 240MM (Assets Pré / Liabilities 2,997 (84) (98) (112) (127) (141) CDI+Pré) Swap PRÉ x CDI + Assets: 1.45% a.a. PRɲ 1,697 (51) Liabilities: CDI + 2.05% a.a. (59) (67) (75) (83) Interest earnings bank deposits 1. Average annual rates. CDB and Debentures 2. Amounts refer to the calculation of the adjustment of the transaction on December 31, 2020. 100.88% 1,069,003 10,243 15,364 20,486 25,607 30,729 135#136- .... Management Report 2020 SLC Agrícola f) Credit risk A substantial portion of the sales of the Company and its subsidiaries is made to select and highly qualified clients: trading companies and weaving mills among others that usually acquire large volumes to guarantee local and international trading. Credit risk is managed by specific customer acceptance rules, credit analysis and setting exposure limits per customer. Historically, the Company and its subsidiaries have not recorded significant losses on trade accounts receivable. Depending on the above, the credit risk assumed is not relevant. The Company considers the balance of accounts receivable from customers as exposed to this risk. At December 31, 2020, the balance is R$ 178,085 in the Parent Company and R$ 207,283 in the consolidated (R$ 137,114 in the Parent Company and R$ 178,405 in the consolidated at December 31, 2019). g) Liquidity risk The gross outflows, disclosed below, represent the contractual undiscounted cash flows related to derivative and non-derivative financial liabilities held for risk manage- ment purposes and that are not normally closed before the contractual maturity. The table presents net cash flows for cash derivatives settled by net exposure and gross cash outflows for derivatives that have simultaneous gross settlement. December 31, 2020 FINANCIAL LIABILITIES Non Derivatives Loans and financing Suppliers Lease liabilities Book value Parent Company Contractual cash flow Up to 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years 2,050,748 2,241,448 933,146 2,615,382 933,146 307,448 933,146 1,076,946 539,566 150,788 156,091 10,609 4,518,178 373,173 368,208 363,507 339,393 5,599,276 7,692,772 1,613,767 1,445,154 903,073 490,181 330,710 486,801 2,743,187 2,753,796 Derivatives Operations with Derivatives 167,360 (167,360) (228,521) 20,571 (3,912) 14,288 30,214 167,360 (167,360) (228,521) 20,571 5,766,636 7,525,412 1,385,246 1,465,725 (3,912) 899,161 14,288 504,469 30,214 517,015 2,753,796 Consolidated December 31, 2020 Book value Contractual cash flow Up to 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years FINANCIAL LIABILITIES Non Derivatives Loans and financing 1,326,729 Suppliers Securities payable Lease liabilities Derivatives Operations with Derivatives 4,466,315 171,749 2,417,283 2,622,249 1,101,769 1,101,769 388,630 1,101,769 12,979 934,284 12,979 1,353,255 12,273 167,950 5,090,252 1,670,622 706 161,396 1,488,831 156,185 130,314 110,445 736,391 285,410 267,885 626,965 641,113 (171,749) (260,383) 171,749 4,638,064 (171,749) 4,918,503 (260,383) 1,410,239 48,043 48,043 1,536,874 (3,912) 14,288 30,215 (3,912) 14,288 30,215 732,479 299,698 298,100 641,113 580,206 155,096 157,440 14,148 Cash flows included in the maturity analysis are not expected to occur significantly earlier or at different values. On February 23, 2021, the company S&P Global Ratings published a new corporate rating of the Company, classifying it as "[br AA]" in the national scale category (Brazil). 136#137- Management Report 2020 h) Summary of outstanding derivative transactions The following table presents the consolidated derivative instruments of the Company that are reflected under assets and liabilities: SLC Agrícola Reference (notional) Description Currency 12/31/2020 12/31/2019 Currency Fair value recorded in assets 12/31/2020 12/31/2019 Fair value recorded in liabilities 12/31/2020 12/31/2019 Hedge operations for exchange rates Non Deliverable Forwards - 25.c Subtotal USD 431,810 437,782 R$ 62,292 24,663 139,382 23,204 USD 431,810 437,782 R$ 62,292 24,663 139,382 23,204 Hedge operations for products Cotton Financial operations 25.d USD 190,317 153,139 R$ 6,977 12,721 223,455 36,410 Corn Financial operations 25.d USD 799 R$ 25 Subtotal USD 191,116 153,139 R$ 7,002 12,721 223,455 36,410 Hedge operations for inputs Swap VC+Pré x CDI+Pré USD 6,667 26,666 R$ 10,055 6,915 Subtotal USD 6,667 26,666 R$ 10,055 6,915 Hedge operations for inputs Swap VC+Pré x CDI+Pré EUR 66,782 15,671 R$ 93,391 Subtotal EUR 66,782 15,671 R$ 93,391 1,252 1,252 1,259 1,259 Interest protection operations Swap Pré x CDI+Pré BRL 200,000 200,000 R$ 13,610 1,037 Swap IPCA+Pré x CDI+Pré BRL 480,000 R$ 59,022 53,032 Subtotal BRL 680,000 200,000 R$ 72,632 1,037 53,032 Total R$ 245,372 45,336 417,121 60,873 Portion classified in current assets R$ 98,587 34,008 358,969 55,230 Portion in noncurrent liabilities R$ 146,785 11,328 58,152 5,643 137#138- Management Report 2020 SLC Agrícola Cur- Description rency come at i) Gains/losses on derivative transactions The following table presents the consolidated gains and losses on derivative transactions in the year, grouped by the main risk categories: Gains and Losses recorded in the income Allocated in the gross in- Allocated in the financial in- come at Gains and Losses recorded in shareholders' eq- uity 12/31/2020 12/31/2019 12/31/2020 12/31/2019 12/31/2020 Movement 12/31/2019 Foreign exchange hedge operations Non deliverable forwards R$ (530,881) Trade Finance Contracts R$ Sub-total R$ (530,881) (142,984) (24,050) (167,034) 8,189 (1,599) (63,030) (56,217) (6,814) 8,189 (1,599) (63,030) (56,217) (6,814) Hedge operations for commodities Agricultural commodities swap Cotton R$ Sub-total R$ (726) (726) 50,744 50,744 1 27 (221,076) 1 27 (221,076) (195,981) (195,981) (25,095) (25,095) Interest Hedge Transactions Swap VC+Pré x CDI+Pré R$ Sub-total R$ 119,268 119,268 (8,622) 637 963 (326) (8,622) 637 963 (326) Interest Hedge Transactions Swap VC+Pré x CDI+Pré R$ Swap VC+Pré x CDI+Pré R$ Sub-total R$ Total R$ (531,607) (116,290) 6,204 920 7,124 134,582 413 6,993 6,369 624 5,070 5,070 413 (9,781) 12,063 (271,406) 11,439 624 (239,796) (31,611) j) Management of capital stock The main objective of capital management is to ensure the continuity of the Com- pany's business, maintaining a low leverage policy, thus protecting its capital from government economic policy fluctuations, maximizing shareholder value. The Company manages the capital structure and adjusts it considering the chang- ing economic conditions in the country. To maintain or adjust the capital structure, the Company may adjust the dividend payment policy to the shareholders. There was no change in the dividend policy in the Company's capital management objectives, policies or processes in the period ended December 31, 2020. Short and long-term loans and financing (-) Cash and cash equivalents and short-term interest earn- ings bank deposits (1,319,953) (703,850) (1,604,716) (885,419) Gains and losses on derivatives linked to investments and debt Net debt (92,761) Shareholders' equity Financial leverage index 638,034 2,940,379 21.70% (7,951) (121,794) 845,926 2,784,677 30.38% (6,693) 690,773 3,151,058 21.92% 967,654 2,984,421 32.42% Parent Company Consolidated 12/31/2020 12/31/2019 12/31/2020 12/31/2019 2,050,748 1,557,727 2,417,283 1,859,766 138#139- .... SLC Agrícola Management Report 2020 26. Subvenções governamentais The Governments of the States of Mato Grosso do Sul, through Decree No. 9716/99, of Mato Grosso, through Law 6883/97 and of Goiás, through State Law No. 13.506/99, granted incentives for presumed ICMS credits in operations with Cotton lint, with a reduction in the value of ICMS to be collected from 70% to 75% through the adhesion of Fazenda Planalto to the PDAGRO program (Mato Grosso do Sul), of Paiaguás and Fazenda Planorte to PROALMAT (Mato Grosso) and of Fazenda Pamplona to the PROALGO program (Goiás). The State of Mato Grosso granted a presumed 75% ICMS credit on sales of cotton lint, cotton seed and fibrilla. By opting for these programs, the company is prevented from appropriat- ing credits for the acquisition of raw materials, inputs and fixed assets. The pre- sumed credits are recorded in the statement of income under the item sales taxes against the item recoverable taxes. As requirements for participation in these incentive programs, the Company must make the option with the State Secretariats, waive the ICMS credits to which it would be entitled for the acquisition of inputs, raw materials and fixed assets, provide ancillary information regarding this tax waiver and collect PDAgro to the State of Mato Grosso do Sul The presumed credits are recorded in the income statement under the item sales taxes, against the item taxes payable. In 2020, R$ 171 of presumed ICMS credit was recognized in the parent company and in the consolidated. This amount was recognized in a tax incentive reserve in shareholders' equity. 27. Profit Share Program In conformity with Collective Work Agreements entered into with employee's cate- gories, the Company and its subsidiaries have a profit-sharing plan for all its em- ployees. The amount to be distributed as profit sharing is calculated based on the Company's consolidated net income; part of the amount is freely distributed to beneficiaries, and the other part is linked to goals established for each production unit. Interest is calculated by applying 9% to parent company net income. Of this amount, 60% will be distributed to beneficiaries and 40% will depend on compliance with goals established for each production unit. Goal value is limited to 2 nominal sala- ries for each employee that is beneficiary of the plan. The value provision in the income for the year in the administrative expenses' group is as follows: Profit sharing Parent Company 12/31/2020 Consolidated 12/31/2019 12/31/2020 12/31/2019 41,354 24,503 46,701 27,684 28. Share-based payments a) Stock option plan In the Extraordinary Shareholders' Meeting held on May 23, 2007, the Company's shareholders approved a stock option plan to take effect on June 15, 2007, for the Company's officers and managers. The plan is managed by the Management Com- mittee, which was created by the Board of Directors on May 23, 2007. The stock option plan is limited to a maximum number of options that results in the dilution of 3.75% of the Company's capital stock on the creation date of each Annual Program. Dilution corresponds to the percentage represented by the number of shares underlying the options divided by the total number of shares issued by the Company. The beneficiaries of the Stock Option Plan may exercise their options within 5 years as from the respective grant date. The vesting period is up to three years, with 30% vested as from the first anniversary, 60% as from second anniversary and 100% as from the third anniversary. The Company has 30 days to issue the shares as from the delivery date of the Declaration of Exercise of the Stock Option Plan. In meetings of the Board of Directors the following grants were approved: Grant date Number of shares granted 11/11/2015 11/08/2016 11/08/2017 11/13/2018 11/13/2019 11/06/2020 Plan¹ 2015 2016 2017 2018 2019 2020 1. The 2015 to 2018 plans have their number of shares granted before the capital split. 393,000 363,500 373,000 195,893 613,750 637,450 139#140- Management Report 2020 The movements of the shares granted in the 2015, 2016, 2017, 2018, 2019 and 2020 Annual Program and the respective Strike prices, in BRL, are presented as follows: Grace periods beginning as of grant date As from 11/08/2018 As from- 11/08/2019 Grant year Strike price (R$)1 Balance in 12/31/2019 Granted Canceled Exercised Balance in 12/31/2020 2015 R$ 13.79 14,800 2016 R$ 11.64 139,100 2017 R$ 18.02 580,600 2018 R$ 46.25 388,936 2019 R$ 14.23 613,750 (14,800) (32,200) (92,300) (82,400) (277,800) (35,930) (57,100) (59,700) (22,525) 14,600 2020 R$ 20.03 637,450 1,737,186 637,450 (225,030) (449,725) 220,400 295,906 531,525 637,450 1,699,881 As from- 11/13/2019 As from- 11/08/2020 As from- 11/12/2020 As from- 11/06/2021 As from- 11/12/2021 As from- 11/06/2022 As from- 11/12/2022 As from- 11/06/2023 SLC Agrícola % of options released to be exercised Maximum quantity of shares 1% 16,500 3% 53,100 8% 131,356 18% 298,656 32% 535,962 43% 727,197 61% 1,032,046 72% 1,223,281 85% 1,444,901 100% 1,699,881 1. The 2015 to 2018 plans have the value of their shares before the capital split. The Strike price of the 2015, 2016, 2017, 2018, 2019 and 2020 annual programs were set based on the average of the 90 closing prices of the Company's shares at Bovespa, prior to the approval of the plan, with a 20% discount. The grace periods from the date of granting are as follows: The Company recognizes the cost of the option plan based on the fair value of the options granted, considering the fair value of the options at the date of grant. The model used for pricing the fair value of options is Black-Scholes for the 2015, 2017, 2018, 2019 and 2020 plans. The 2016 plan was priced using the Binomial model. In determining the fair value of the options plans, the Company adopts the "Level 3" valuation technique. The weighted average fair value, the premiums considered, and the economic as- sumptions used for the calculation in the model are presented below: Weighted average fair value Awards Dividends Volatility of share price Risk-free rate of return 1st maturity 2015 R$ 21.36 R$ 7.57 1.00% 2016 R$ 17.20 R$ 5.56 33.44% 1.00% 32.39% 2017 R$ 18.02 R$ 6.93 2018 R$ 46.25 R$ 18.16 2019 2020 R$ 14.23 1.00% 1.00% 32.39% 36.80% R$ 6.05 3.50% 41.45% R$ 20.03 R$ 8.31 5.80% 41.03% 15.41% 12.27% 7.12% 6.95% 4.57% 3.11% 15.72% 11.49% 8.30% 8.01% 5.14% 4.72% 15.78% 11.27% 9.18% 8.86% 5.68% 5.81% 2nd maturity 3rd maturity Period expected up to the maturity 1st maturity 366 366 365 365 365 365 2nd maturity 731 731 730 730 730 730 3rd maturity 1,096 1,096 1,095 1,095 1,095 1,095 1. Fair value calculed based on the share price on the grant date of each plan. 140#141" - Management Report 2020 The number and weighted average share option prices under the share option program are as follows: Number of options 12/31/2019 Weighted av- erage of the exercise 12/31/2020 Number of options Weighted average of the exercise 12/31/2020 12/31/2019 Outstanding at January 1 Granted during the period R$30.73 1,737,186 R$39.51 R$20.03 637,450 R$14.23 Exercised during the period R$20.11 (449,725) R$13.87 Canceled during the period Capital stock split Outstanding R$20.33 (225,030) R$20.10 R$30.91 R$25.11 1,699,881 535.962 R$30.73 R$22,45 909,893 1,737,186 550,786 Exercisable 912,673 613,750 (699,130) Options outstanding as of December 31, 2020 have a Strike price in the range of R$ 20.11 to R$ 30.91 (R$ 13.68 to R$ 39.51 as of December 31, 2019). The weighted average stock price on the exercise date for stock options exer- cised in the period ended December 31, 2020 was R$ 25.11 (R$ 22.45 at De- cember 31, 2019). b) Restricted Share Plan In an Extraordinary General Meeting held on April 29, 2015, the Company's shareholders approved a restricted share plan, to be effective as of November 11, 2015, for the Company's officers and managers. The plan is managed by the Management Committee, created by the Board of Directors on May 23, 2007. The total number of Restricted Shares that may be granted annually under the Plan, in the sum of all active Programs, shall not exceed 1% (one percent) of the shares representing the total capital stock of the Company. The beneficiaries of the Restricted Shares Plan shall acquire the rights to the Restricted Shares to the extent that they remain continuously bound as ad- ministrator or employee of the Company or other company under its control, for the period between the Granting Date and the specified dates. The vesting SLC Agrícola period is up to 3 years, with releases of 30% from the first anniversary, 60% from the second anniversary and 100% from the third anniversary. Until the rights to the Restricted Shares are fully vested, according to the con- ditions set forth above, the beneficiary may not pledge, sell, assign, dispose or transfer, directly or indirectly, the Restricted Shares. Once the conditions es- tablished are met and provided that the applicable legal and regulatory re- quirements are complied with, including but not limited to obtaining authori- zation from the Brazilian Securities and Exchange Commission for private transfer of shares, the Company will transfer the respective Restricted Shares to the name of the beneficiary, by means of a term of transfer of the Company's registered shares in the system of the agent responsible for the bookkeeping of the shares issued by the Company, at no cost to the beneficiary. At meetings of the Board of Directors held on November 08, 2017, November 13, 2018, November 13, 2019 and November 06,2020, the Restricted Shares Award Programs for 2017, 2018, 2019 and 2020 were approved, with the granting of 93,375 (before the capital split), 48,973 (before the capital split), 153,438 and 159,363 shares, respectively. Quantity of sharess Balance on 12/31/2020 Grant year Fair value at grant (R$)¹ Balance on 12/31/2019 2017 R$ 18.02 2018 R$ 54.60 69,100 67,564 Granted Canceled (7,000) (6,925) Exercised (62,100) (25,976) 34,663 2019 2020 R$ 18.46 R$ 27.20 153,438 (14,925) (41,541) 96,972 159,363 159,363 159,363 (28,850) (129,617) 290,102 290,998 1. The 2017 and 2018 plans have the value of their shares before the capital split. In compliance with CPC 10 (R1), based on the grace periods presented, the amounts with restricted share plans were recognized in the statement of in- come according to the length of the vesting period, with a corresponding entry in shareholders' equity in a specific capital reserve account. In current liabili- ties, in a specific account for labor obligations, the amounts of INSS and FGTS (expenses), as presented below: 141#142- .... Expense Management Report 2020 INSS Expense FGTS Expense Plan of restricted shares 12/31/2020 R$2,808 R$395 R$358 12/31/2019 R$2,285 R$302 R$255 In compliance with CPC 10 (R1), based on the grace periods presented, the amounts with stock options plan and restricted stock plan were recognized in the statement of income, due to the expiration of the vesting period, with a corresponding entry in shareholders' equity in a specific capital reserve ac- count, the amount of R$ 6,463 (expense) at December 31, 2020 (R$ 5,386 at December 31, 2019). 29. Insurance coverage The details of the insurance contracted, and the coverages are shown as follows: Nature Grain and Cotton inventories Machinery and Equipment Civil liability of administrators Buildings and improvements Warranty insurance Aircraft Helmet¹ Aircraft Straight General liabilities Business Drones Seed Insurance Vehicles Coverage R$105,000 R$715,031 R$60,000 R$105,000 R$22,373 R$13,624 R$1,028 R$5,000 R$3,377 R$10,320 R$62,529 Against third parties 1. Coverage amount of USD 3,380 converted by the ptax sale on the last day of the month. Ptax R$ 5.1967. Insurance of grain and cotton stock-Coverage of harvest, processing and stock of soybeans, corn, cotton. Being of own production or that of third parties under own responsibility. Policy due on 0627/2021 SLC Agrícola Insurance of Machinery and Equipment - Coverage to damages caused to the fleet of machinery and agricultural equipment, generated by fire, lightning strike, explosion of any nature and implosion. Each machine and equipment has its maximum limit of indemnity corresponds to its insured value. Policy due on 1009/2021. Directors and officers liability insurance - Coverage for involuntary damages caused to third parties by civil liability of executives (directors and officers), with management power in the subsidiary and Parent Company. Policies due on 01/11/2022. Insurance of Buildings and improvements - Coverage of material damages, caused to the buildings and improvements of the farms, caused by fire, explo- sion, gale and smoke. Policy due on 01/11/2022. Guarantee Insurance - Protection coverage for the possible risks generated to the company's assets, due to the faithful fulfillment of the obligations caused by labor lawsuits of the Panorama and Piratini Farms. Policies due on September 19, 2021 and July 31, 2023, respectively. Aircraft Insurance - Straight - Coverage for personal and/or property damage caused to passengers and crew by the Company aircraft, including damage to baggage. Policy due on 01/17/2021. Aircraft Insurance - Hull - Warranty coverage against property damage to the hull of SLC Agrícola aircraft, including civil liability for damage caused to third parties. Policy due on 01/17/2021. General civil liability insurance - Coverage of a guarantee for the payment of indemnities, by way of reimbursement, for damages that the Company may be civilly liable in a final court decision. Policy due on 01/11/2022. Business Insurance - Business Property Coverage for material damages in the physical structure of the building and furniture of the head office of the Com- pany, caused by fire, explosion and smoke. Policy due on 01/12/2021. 142#143- Management Report 2020 SLC Agrícola Drone Insurance - Straight Coverage of civil liability of the operator or air carrier for personal and material damage caused to third parties, by remotely piloted aircraft, used for business purposes. Policies due on 12/12/2021. Seed Insurance - Beneficiation coverage and grain deposit for seeds located on the Pamplona and Fazenda Panorama farms. Policy maturing on 6/27/2021. Vehicle Insurance - Coverage of the vehicle fleet of the subsidiary and parent company for damages caused to third parties. Policies maturing on 10/9/2021. 31. Nature of expenses The Company's income statements are presented by function. The following sets forth the breakdown of expenses by nature: Consolidated 12/31/2019 12/31/2020 12/31/2019 Parent Company 12/31/2020 Expenses according to the role Cost of goods sold (2,408,692) (1,985,922) (2,802,782) (2,257,472) Sales expenses -149,471 -134,043 -173,964 -152,972 General and administrative expenses Other operating expenses -103,811 -7,566 (2,669,540) -80,864 -7,702 (2,208,531) -115,452 -10,132 (3,102,330) -89,324 -45,74 (2,545,508) 30. Net sales revenue We present below the gross operating revenue: Parent Company Consolidated 12/31/2020 12/31/2019 12/31/2020 12/31/2019 Expenses per type Depreciation and amortization Personnel expenses Raw material and material Rents and leases -83,781 -266,013 (1,455,134) -21,409 Gross operating income 2,711,983 2,227,723 Sale of goods 3,161,943 2,343,738 3,200,054 3,731,661 2,614,708 Amortization of right of use -119,58 -76,595 -264,179 (1,174,134) -97,218 -65,787 -119,686 -105,81 -319,572 -308,783 (1,736,678) (1,399,363) -21,823 -55,747 -73,663 -43,336 2,730,998 Income (loss) from hedge operations (449,960) Deductions, taxes and contributions (78,699) Net operating income 2,633,284 (116,015) (63,733) (102,507) 2,163,990 3,097,547 (531,607) (116,290) COGS biological asset variation Freight -659,349 -56,708 -471,174 -51,744 -750,996 -524,266 -63,602 -58,191 (78,803) 2,535,905 Cost sale Paiaguás Farm and Parceiro Farm Other expenses -36,029 -7,566 -7,7 (2,669,540) -16,31 (2,208,531) (3,102,330) -13,983 (2,545,508) 32. Reporting by segment The Group has two reportable segments, as described below, which are the strategic business units of the Group. The strategic business units offer different products and services, for each of the strategic business units, Management reviews internal reporting at least once a quarter. The following summary describes the operations in each of the Group's reportable segments: Agricultural production segment: growing mainly cotton, soybean and corn crops. Land portfolio segment: acquisition and development of land for agriculture. Information regarding the results of each reportable segment is included below. Performance is evaluated based on the segment's profit before income tax and social contribution, as included in the internal reports that are analyzed by the Group's Management. Segment profit is used to evaluate performance, as management believes that such information is more relevant in assessing segment results. 143#144- Management Report 2020 Information on reportable segments SLC Agrícola Agricultural Production 12/31/2020 12/31/2019 Land 12/31/2020 12/31/2019 Eliminations 12/31/2020 12/31/2019 Net revenue Biologic assets Products Costs Gross income Operating expenses/ income Sales expenses General and administrative expenses Management compensation 3,110,558 775,534 2,534,600 504,751 225,144 213,847 (238,155) (212,542) Consolidated 12/31/2020 12/31/2019 3,097,547 2,535,905 775,534 504,751 (2,862,619) (2,332,753) (9,983) 1,023,473 706,598 215,161 (154,485) (84,673) 34,604 (45,621) 168,226 2,838 69,820 (168,335) (169,488) 120,902 (91,640) (142,637) (2,802,782) (2,257,472) 1,070,299 783,184 (289,369) (224,472) (173,964) (152,972) (173,964) (152,972) (120,157) (95,155) (3,887) (2,457) 8,592 8,288 (115,452) (89,324) (14,100) (13,056) (616) Other operating income (expenses) 153,736 176,510 39,107 Income before financial income and taxes 868,988 621,925 249,765 Net financial income (204,823) (232,763) Income before income tax 664,165 389,162 9,401 259,166 Income and social contribution taxes (136,836) (76,205) (40,682) Consolidated Income for the period 527,329 312,957 218,484 (771) 6,066 171,064 7,469 178,533 (17,727) 160,806 (14,716) (13,827) (178,080) (337,823) 103,671 (234,152) (713) (234,865) (150,925) (234,277) 81,244 14,763 31,651 780,930 558,712 (91,751) (144,050) (153,033) (5,689) (158,722) 689,179 414,662 (178,231) (99,621) 510,948 315,041 Agricultural Production Land Eliminations Consolidated 12/31/2020 12/31/2019 12/31/2020 12/31/2019 12/31/2020 12/31/2019 12/31/2020 12/31/2019 Current assets Non-current assets Total assets 4,093,468 2,933,700 6,242,100 4,933,271 10,335,568 7,866,971 166,105 2,255,731 2,421,836 193,964 2,151,136 2,345,100 (58,193) (36,854) (4,109,520) (3,217,088) (4,167,713) (3,253,942) 4,201,380 3,090,810 4,388,311 3,867,319 8,589,691 6,958,129 Current liabilities 2,547,435 2,141,231 Non-currente liabilities 4,635,116 2,743,240 46,707 70,779 Shareholders' equity 3,153,017 2,982,500 Total liabilities and shareholders' equity 10,335,568 7,866,971 2,304,350 2,421,836 53,909 (257,045) 52,680 (1,604,359) 2,238,512 (2,306,309) 2,345,101 (4,167,713) (151,579) 2,337,097 2,043,561 (865,773) 3,101,536 1,930,147 (2,236,591) (3,253,943) 8,589,691 3,151,058 2,984,421 6,958,129 144#145- Management Report 2020 The Group sells its products to the domestic and foreign markets. In sales to the external market are considered the sales made directly, with the Group as opera- tor, and indirectly, with sales to commercial exporters based in Brazil.. Consolidated domestic and foreign sales are thus represented: SLC Agrícola Gross product sales information, by geographic segment, has been prepared from the country of origin of the revenue and can thus be presented: 12/31/2020 12/31/2019 Country 12/31/2020 12/31/2019 Value % Participation Domestic market Sale of goods Foreign market 868,314 868,314 515,121 515,121 China Indonésia 477,330 28.13 Value 286,392 % Participation 23.91 416,600 24.55 346,486 28.93 2,331,740 2,099,587 Vietnã 231,467 13.64 102,836 8.59 Sale of goods - indirect export 1,166,459 1,018,335 Paquistão 158,442 9.34 142,127 11.87 Income from hedge operations indirect (133,233) (61,699) Bangladesh 149,068 8.78 97,851 8.17 Sale of goods direct export 1,696,888 1,197,542 Malásia 114,331 6.74 88,412 7.38 Income from hedge operations direct (398,374) (54,591) Turquia 103,258 6.09 81,883 6.84 Gross operating income 3,200,054 2,614,708 Coréia 23,697 1.40 14,984 1.25 Deductions, taxes and contributions (102,507) Net operating income 3,097,547 (78,803) 2,535,905 Outros 22,695 1.33 36,571 3.06 1,696,888 100.00 1,197,542 100.00 The amount of revenue from major customers is thus represented: Clients Fheatered cotton Cottonseed Cargill Agrícola S.A. Bunge Alimentos S.A. 43,839 130 469 Agricultural Product Bulk corn 159,480 43,350 % on product sales Bulk soybeans Other cultures 501,659 390,080 2,563 5 Total 707,671 433,904 (without effect of hedge operations) 18.96% 11.63% Omnicotton, INC. 400,487 400,487 10.73% 444,326 600 202,830 891,739 2,568 1,542,062 41.32% 145#146" - .... Management Report 2020 33. Subsequent event Judicial process that became final in a subsidiary On 01/08/2021, the process that recognized the right, the controlled company SLC MIT Empreendimentos Agrícolas S/A, to exclude revenues from indirect ex- ports from the calculation basis of the social security contribution referred to in art. 25 of Law No. 8,870 / 94. The subsidiary SLC MIT Empreendimentos Agrícolas S/A is surveying the value of the credit to be recovered, for later qualification at the Federal Revenue Service. Potential Business Combination with Terra Santa Agro S.A. - Approved by CADE As mentioned in the Material Fact published on November 26, 2020, the Company signed a non-binding Memorandum of Understanding with Terra Santa Agro SA ("Terra Santa") that establishes indicative assumptions, terms and conditions for a transaction through which the Company would take over the agricultural oper- ations of Terra Santa through the incorporation of Terra Santa shares by SLC Agrícola, in accordance with articles 252, 224 and 225 of Law No. 6,404/76. As part of the conditions for carrying out the potential business combination with Terra Santa, the transaction was submitted for approval by the Administrative Council for Economic Defense - CADE, having been approved on January 7, 2021, without restrictions. If there is a sequence in the negotiation, the Company will disclose the transaction in accordance with the requirements of the corporate law and CVM regulations. SLC Agrícola 146#147Corporate information SLC Agrícola S.A. Rua Bernardo Pires, 128, 3º andar Bairro Santana - Porto Alegre/RS CEP 90620-010 www.slcagricola.com.br ri.slcagricola.com.br E-mail: [email protected] The Investor Relations team is available from 8 a.m. to 6 p.m. Outside of these hours, requests should be sent via email to [email protected].. We strive to respond to requests within 24 hours. Ivo Marcon Brum Chief Financial & Investor Relations Officer Frederico Logemann Investor Relations & Strategic Planning Manager (55) 51 3230 7864 Alisandra Reis Investor Relations Specialist (55) 51 3230 7797 Stéfano Bing Investor Relations Analyst (55) 51 3230 7797 Ricardo Bockmann Investor Relations Assistant (55) 51 3230 7737