2016 Annual Report. Partnerships, technology and investments to transform cattle ranching in the Amazon. Our history

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1 Partnerships, technology and investments to transform cattle ranching in the Amazon 2016 Annual Report Pecsa a Portuguese acronym for Amazon Sustainable Cattle Ranching, is a cattle ranching management and partnerships firm founded in June 2015 and located in Alta Floresta, in the Northern region of Mato Grosso state in Brazil. Our mission is to transform cattle ranching in the Amazon into a sustainable business. Pecsa brings to the field the technology available in the universities and research centers, and aggregates producers to enhance access to financial resources and markets for sustainable production. To accomplish this mission, we assume as values: Knowledge: share information, plan together, empower the workforce; Excellence in production: optimize productivity, quality and results; Environmental conservation: promote the conservation and restoration of forests, soils and water and the reduction of greenhouse gases emissions; Transparency: ensure the traceability of animals and the monitoring of results. Our history The company is the result of the experience of the five founding partners in conducting the Novo Campo program, a pilot project of sustainable intensification of livestock farming developed by the nonprofit organization ICV between 2011 and The results of this pilot aroused the interest of Althelia Climate Fund, a European impact investment fund which invests in businesses that promote sustainable land use and reduction of deforestation. Pecsa developed the first project to implement on a commercial scale the model tested in the pilot phase, and signed in September 2015 a loan agreement with the Fund amounting to EUR 11.5 million. The project, with a 7-year duration, provides for the reform of 10,000 hectares of degraded pastures, the management of 34,000 heads of cattle and the restoration of 700 hectares of riparian forests.

2 The Founders Vando Telles CEO Business Administrator, with an MBA in Agribusiness Management and a specialization in Beef cattle production. Has experience in farm, slaughterhouse and other agribusiness management. Coordinated ICV s Cattle Ranching Initiative between 2010 and Laurent Micol Director of Governance & Investments Business Administrator, with an MBA in environmental management and a MSc in geography. Has experience in business management consulting in Paris and São Paulo (at Bain & Co) and was Executive Director of ICV between 2009 and Fabiano Alvim Chief Operations Officer Veterinary doctor, with MSc in Animal nutrition and PhD in Animal Production. Has experience in livestock management, having worked in nutrition and consulting companies, as well as an independent consultant. Was a professor at the Veterinary School of Minas Gerais Federal University for six years. Filipe Lage - Projects Director Zootechnician, with MSc in Animal Nutrition. Has experience as consultant for beef cattle projects in Minas Gerais and Mato Grosso states. Vagner Telles Chief Financial Officer Business Administrator, with an MBA in Financial Management and Controlling. Has experience in systems management and administrative and financial management. Was the Controller of ICV between 2007 and A new way to do cattle ranching To transform cattle ranching in a sustainable economic activity, we rehabilitee degraded pastures and intensify production on farms in the Northern region of Mato Grosso state. Mato Gross is the leading state in Brazil for livestock production, with a herd of about 29 million heads. But the sector is facing challenges due to the degradation of pastures, low animal stocking capacity and low productivity. We believe that, with knowledge, technology and investments, it is possible to greatly increase beef production and the profitability for the rural producer, with positive social outcomes and without deforestation. In Pecsa s first project, productivity is rising from less than 75 to more than 450 Kg of carcass per hectare per year, without cutting a tree. On the contrary, the farms are recovering their riparian forests. Thus, our work causes a land sparing effect, which helps to reduce pressure of deforestation of new areas in the region. The productive transformation in these farms also generates important financial flows for the local economy, about R$ 10 for each R$ 1 of investment. And greenhouse gases (GHG) emissions fall strongly compared to the conventional model. 2

3 Pecuária Sustentável da Amazônia S.A Annual Report Business Model We offer Amazon ranchers a flexible model of rural partnership, where the partner rancher can take part to the investment according to his financial availability. The partnership begins with a diagnosis and preparation of a technical and economic project of the farm. This project determines technical parameters such as animal stocking, pasture fertilization and nutrition, and the investments to be made, such as the deployment of rotational grazing modules with water and nutritional supplements distribution networks. Based on that, Pecsa performs the investments for the sustainable intensification of the whole ranch: pasture reform, infrastructure, and forest restoration where necessary. Pecsa takes on the ranch s management for the duration of the partnership, which includes hiring the workforce and making the working capital available for production. The partner rancher can contribute part or all of the cattle, and also take part to the other investments according to his financial availability. The fruits of the partnership are shared according to each party s contribution to the investments. Our rural partnership model ensures the rights and interests of the partner producer, Pecsa and investors. Pecsa s partner rancher will have in a few years an entirely reformed, highly productive ranch, with skilled labor, generating high economic performance, and fully compliant with the environmental legislation. 3

4 Achievements and results in 2016 In 2016, we managed 5 farms in the municipalities of Alta Floresta, Carlinda, Nova Canaã and Paranaíta, with a total of 8,693 hectares of pastures. More than half of these pastures (5,000 ha) were already reformed by the end of the year, with their intensification modules deployed. The herd reached 11,875 heads of cattle, being composed mainly of heifers of the Nellore and Nellore with Angus breeds. The information on operational performance is not available for 2015, since the operations were still being set up. Productivity and quality Average animal stocking rate on Pecsa s partner ranches attained 2.5 animals per hectare of effective pasture by the end of 2016, reaching 3.6 animals per hectare in the ranches with their productive system completely deployed. In those ranches, productivity reached approximately 450 Kg of carcass per hectare per year. For comparison, the average animal stocking rate in Mato Grosso state is little more than 1 animal per hectare, and the average productivity is below 45 Kg of carcass per hectare per year. Heifers were sold with an average carcass weight of 204 Kg. The vast majority of these animals were classified as young (up to two teeth) and with excellent fat finishing (3 mm). Combining these three criteria, we achieved in our first year of operations 71% of animals slaughtered with high quality standard ( green light ). These animals have received price premiums for quality, benefiting partner producers with above-market prices. Investment and local benefits We apply a total average investment of R$ 3,500 per hectare on Pecsa s partner ranches, including the full reform of the pastures and the deployment of the infrastructure of fences, feed troughs, water and others. By December 2016, we had implemented 63 intensification modules with a total of 4,000 meters of troughs for feeding. For the troughs, we reuse rubber straps, which would otherwise be disposed of a technology that has been copied in many other ranches locally. We had also installed 227 kilometers of fences and built 6 reservoirs and 64 kilometers of water distribution networks. In addition, we had adapted the ranches access roads, corrals, warehouses and employee facilities. Training the ranches staff is essential to achieve the level of efficiency that we seek. We train all employees, using the knowledge available in centers of excellence such as Embrapa (Brazil s Agriculture Research agency) and the Minas Gerais Federal University. With this, Pecsa was responsible for the generation of 120 jobs in 2016, being 69 permanent and 51 temporary. Even in a predominantly masculine sector, a responsible company cannot lose sight of the gender balance: 24% of permanent jobs generated at Pecsa are held by women. We give preference to local suppliers, in order to strengthen the region's economy. In 2016, Pecsa expended R$ 36 million in northern Mato Grosso, in services, purchases of materials and supplies and acquisition of cattle. 4

5 Pecuária Sustentável da Amazônia S.A Annual Report Conservation and restoration In Pecsa s partner farms, we guarantee the full compliance with Brazil s Forest Code. Currently, we are responsible for the management of 15,000 hectares of legal reserves and 355 hectares of areas permanent preservation (water sources and river banks). The riparian areas are totally isolated, eliminating the animals access. By the end of 2016 we had 60 hectares of riparian forests in restoration or regeneration process. In addition, we adopted a strict zero deforestation policy, which applies to all partner and supplier farms, considering the cut-off date of July Pecsa was a pioneer in deploying control of our suppliers of cattle and corn, that are mapped and checked before any purchase. There are currently over 25,000 hectares of conserved forests in our suppliers farms. All livestock transactions are registered on an information platform and intertwined with the animals individual identification. Thus, we offer our customers a guarantee of supply of deforestation-free beef from the origin. Climate stewardship Besides producing more and better, we are contributing to mitigating global climate change. Greenhouse gases emissions are strongly reduced in the production system implemented by Pecsa. While soils with degraded pastures lose microorganisms and emit carbon dioxide to the atmosphere, soils with reformed pastures sequester carbon. In addition, thanks to the increased nutritional efficiency and reduced slaughter age (by 1 year), methane emissions of livestock are also reduced. Despite animal stocking doubles, emissions fall from 4.8 to 3.0 tons of CO 2-equivalent per hectare per year, a 40% reduction. As for the emissions intensity, it reduces by more than 90%, from 77 to less than 7 Kg of CO 2e per Kg of carcass produced. These values were estimated based on GHG Protocol tool. Beef supply chain sustainability Pecsa's work is helping to transform the beef supply chain in the Amazon. Retail and food service companies that have committed to purchase beef from verified sustainable sources can now rely on a supplier partner in this region. The first to step in was McDonald's, who started to buy beef from Pecsa partner ranches, through the meatpacker JBS, for their Sustainable Hamburger program launched in August The company had banned sourcing beef from Amazon two decades ago, due to the risk of association with deforestation. We consider this move an important milestone for the livestock sector in Brazil and are happy to be the first supplier to this program. 5

6 Our corporate culture Pecsa was established with the purpose of promoting livestock production sustainability in the Amazon. Thus, besides the economic dimension, our social and environmental commitments are core to our business and we constantly seek to apply the best practices in corporate governance, encompassing our partners and suppliers. Sustainable practices We apply in Pecsa s partner ranches the Good Agricultural Practices (GAP) for beef cattle ranching developed by Embrapa, which cover all the technical aspects of the activity. We also take part to the Brazilian Roundtable for Sustainable Livestock (GTPS). In 2016, we applied in four ranches the GTPS Sustainable Ranching Indicators. This reflects our commitment to continuous improvement in all operational aspects, including issues such as workers' health and safety and environmental management, among many others. B-Corp certification Seeking to formalize the commitments already implemented in practice, Pecsa joined the B-Corp community. B corporations are companies that seek to be better for the world, through generating social and environmental benefits from their work, employing best management practices and seeking quality relationships with their stakeholders. At the end of 2015, Pecsa obtained the qualification as "B-Corp pending", a temporary category available for companies with less than a year of operation. We expect the full certification in Code of conduct and business ethics We apply a code of conduct and business ethics, which establishes guidelines for attitude and business practices for the company and people who work with us. This document serves as a reference for relations with employees, customers and partners, suppliers and investors, as well as with the environment and society in general. It establishes, for example, rules of behavior to prevent risks of implication in corruption situations, principles guiding the partnership relations with ranchers, and principles to ensure that the company has no involvement with deforestation. 6

7 Financial Information Pecsa s 2016 financial statements were audited by BDO RCS Auditores Independentes S.S., CRC number MS-2-F , and their report was dated 9 March Balance Sheet As of 31 December 2016 and 2015, in Brazilian Reais Assets Current Cash and cash equivalents 2,120,573 7,645,903 Accounts receivable 1,090,865 - Inventories 1,752,919 - Biological assets 17,324,956 - Other receivables 1,050,330 1,562,987 23,339,643 9,208,890 Noncurrent Deferred taxes 7,040, ,103 Investments 18,111 1,025 Intangible assets 21,132 22,549 Fixed assets 14,918,043 1,143,108 21,997,481 1,627,785 Total assets 45,337,124 10,836,675 Liabilities and equity Current Trade accounts payable 498,144 71,090 Labor and tax liabilities 254,801 64,491 Consorcio payable 579,057 - Other accounts payable 66, ,398, ,267 Noncurrent Loans 33,825,944 10,679,452 Consorcio payable 1,149,937 - Other accounts payable 3,988,980-38,964,861 10,679,452 Equity Capital stock 100,000 25,000 Accumulated losses - (4,044) Income reserves 4,873,899-4,973,899 20,956 Total liabilities and equity 45,337,124 10,836,675 7

8 Income Statement In 2016 and 2015, in Brazilian Reais Net sales 9,872,424 51,864 Costs (10,839,619) (94,510) Gross profit (967,195) (42,646) Operating expenses Administrative (3,616,813) (449,314) Tax (63,597) (21,673) Other revenues and expenses, net (3,286) 157,486 (3,683,696) (313,501) Net financial income (loss) 2,949,742 (109,000) Income (loss) before Income and Social Contribution Taxes (1,701,149) (465,147) Deferred taxes 6,579, ,103 Net income/ (loss) for the year 4,877,943 (4,044) Other information and details, including the independent auditors report, are included in the full financial statements. Pecuária Sustentável da Amazônia S.A. Avenida Ludovico da Riva Neto, 1366 Quadra 09 Alta Floresta, MT Zip Code: Phone: +55 (66)