Being Odebrecht Agro means being part of a bold, challenging project. We’re already one of the best, but we’re not stopping there. Our goal is to be number one. Together, with strength, drive, planning and belief in people, we’ll get there.

Marcos Rogério de Araújo

Business
Performance

Being Odebrecht Agro means being part of a bold, challenging project. We’re already one of the best, but we’re not stopping there. Our goal is to be number one. Together, with strength, drive, planning and belief in people, we’ll get there.

Marcos Rogério de Araújo

Business Performance

Odebrecht Agroindustrial achieved a new level of production in the 2015/2016 crop year. With crushed 29.3 million tons of sugarcane at our six Production Clusters, which represents an increase of 23% from the previous crop year and surpassed by 6% our target for the period of 27.5 million tons. From April this year to March 2017, our goal is to deliver total sugarcane crushing volume of 31 million tons. 

The production of ethanol (both anhydrous and hydrous) amounted to 2 billion liters, an increase of 29% from the previous crop year. Meanwhile, VHP sugar production amounted to 455 kton, down 5% from 2014/2015. We also sold 2,100 GWh of power, which is generated from sugarcane bagasse, an increase of 39% in the same comparison. 

Crushing and CLT

Ethanol production ('000 m³)

VHP sugar production (‘000 tons)

Electricity trading (GWh)

On the agricultural front, we continued to prioritize the harvesting of sugarcane within 18 months, which ensures high yields and plantation quality and reduces the need to employ capital. The indicator Tons of Sugar per Hectare (TSH), which measures sugarcane yield and quality, registered improvement of 11.8% from the previous crop year. The planted area in the crop year was 46,000 hectares, of which 84% was represented by newly replanted fields. 

Last year we concluded the expansion project at the Eldorado Unit located in Rio Brilhante, Mato Grosso do Sul, which now has the world's largest mill and a dryer for anhydrous ethanol production. Investment in the project amounted to approximately R$300 million and resulted in a 66% expansion in crushing capacity at the Eldorado Cluster to 3.5 million tons, from 2.1 million tons in 2008.

Given our strong focus on better utilizing our resources and to respond to the economic and financial challenges of the sugar and ethanol industry, in the last crop year we decelerated our industrial operations at the Alcídia Unit in Teodoro Sampaio, São Paulo. The agricultural activities were maintained, with the sugarcane harvested transported to the Conquista do Pontal Unit in Mirante do Paranapanema, São Paulo. This protected the jobs of Team Members in the agricultural, maintenance and administrative areas and around 70% of the Team Members in the industrial area were migrated to new positions at other units of the Company.

The interaction and alignment among the supply, logistics and commercial areas are some of our key competitive advantages and help to ensure that our Clients receive integrated service with low costs and high efficiency. Our integrated management model also enabled us to optimize the contracting of products and services and to accelerate our decision-making processes to support the Company's commercial needs.

Sugarcane cultivation

Crop planting ('000 hectares)

Ratoon sugarcane tillering ('000 hectares)

TCH and TSH

Opportunities and Growth

The sugar and ethanol industry, which has been suffering a crisis in recent years due to the lack of public policies to encourage ethanol consumption in Brazil, began to show signs of a recovery in the 2015/2016 crop year, supported by factors such as a recovery in sugar prices in export markets and higher gasoline prices in the domestic market. The higher rate of PIS/Cofins taxes and the reinstatement of the CIDE tax on gasoline in 2015 enabled hydrous ethanol to regain its competitiveness for Brazilian consumers. In addition, the increase in the percentage of anhydrous ethanol in the gasoline blend, from 25% to 27%, also leveraged the industry's growth.

 

This scenario supported growth in our net revenue of 45% and in our EBITDA of 200% compared to the previous crop year. To take advantage of market opportunities and strengthen the Company's cash structure, we concentrated our efforts in actions to reduce costs and improve our outbound logistics to support product distribution. We also sought to anticipate the sale of products to Clients in order to maximize revenue and optimize resource allocation. Value added at Odebrecht Agroindustrial amounted to R$1.7 billion, increasing 28% from the amount in the 2014/2015 crop year, mainly due to the growth in sales revenue. G4-9Click here to learn more about this aspect in the GRI Supplement G4-EC1Click here to learn more about this aspect in the GRI Supplement

Net revenue (R$ million)

Ebitda

Operating Cash Generation (OCG) (R$ million)

For our ethanol sales, which grew approximately 29% on the prior crop year, we expanded the use of transportation modes other than road freight, such as the ethanol pipeline that already connects the Uberaba Terminal in Minas Gerais to the Paulínia Refinery in the state of São Paulo, and the cabotage system. We also entered into a commercial cooperation agreement with one of the largest groups in the U.S. petrochemical industry to import and export biofuel, for which we adopted a combined cargo model with Braskem (another company of the Odebrecht Group) that reduces our maritime freight costs by 15%.

In the energy segment, our power sales completely fulfilled the long-term contracts signed at the auctions in the regulated market, and we also sold power in the free market to take advantage of opportunities early in the crop year arising from peaks in the PLD price used as a reference for short-term power sales.

Another highlight of the year was the production, for the first time ever, of refined sugar for Biocom, an Angolan producer of sugar, ethanol and energy.

Renegotiation with creditors strengthens financial structure G4-9Click here to learn more about this aspect in the GRI Supplement

Begun in 2015, the financial restructuring and strengthening of the capital structure of Odebrecht Agroindustrial was concluded in the first half of 2016 and involved its local and foreign creditors.

The operation consisted of new investments by the Odebrecht Group in the amount of approximately R$6 billion. Of this amount, R$1.5 billion will be via a capital injection, R$2.5 billion will be injected exclusively to amortize debt and another R$2 billion will come from the transfer of the energy assets that previously had been allocated to Odebrecht Energia Renovável.

 

 

At the close of the 2015/2016 crop year, our net debt stood at R$11.5 billion, of which 64.8% matures as from 2017. The operation not only demonstrates the confidence of the Shareholders in our Business and the importance of ethanol as a renewable source for Brazil’s energy matrix, but also enabled financing terms to be adjusted to the Company's cash generation capacity to ensure that the investments in the agricultural and industrial operations were maintained.

Similar to all companies in Brazil’s sugar and ethanol industry, over the last five years we have been adversely affected by a lack of government policies and actions to improve the competitiveness of ethanol in relation to fossil fuels and to encourage the adoption of renewable energy sources. Despite this scenario, our investment in the two acquired units and in the seven greenfield units amounted to over R$10 billion.

Our Team Members

Valuing people, competitiveness and sustainability form the tripod that supports the business model of Odebrecht Agroindustrial. Under our management model, we invest in training for our Team Member, in creating opportunities for professional growth in all of our agroindustrial and administrative units and in forging relationships between Leaders and Team Members that are based on trust and partnership. Our professionals perform their day-to-day activities guided by the Odebrecht Entrepreneurial Technology (TEO), which is a set of principles, concepts and criteria that form the foundation of the corporate culture of the Odebrecht Group.

From the moment they are hired, our Team Members have access to a structured Welcome program that seeks to accelerate their integration into the Company. In addition to introducing them to our corporate history, to key operational figures and highlights and to the rights and duties of Team Members, the program also presents the internal initiatives that contribute to professional growth.

One of these is the Career Program, which provides detailed information on the skills and competencies required for their career advancement in five areas: Agricultural; Industrial; Maintenance; Health, Environment and Safety (HES); and Management. Launches (as we refer in-house to promotions to new positions) are based on the Company's needs and always prioritize Team Members who assume proactive roles in their careers and surpass targets. In the 2015/2016 crop year, 1,233 Team Members were launched into new challenges at the Company.

At the close of the crop year, in March 2016, we had 11,082 Team Members and 62 Interns, reflecting the adaptation of our workforce to the maturation of teams, which began to demonstrate greater mastery of the business and boost their productivity. Furthermore, some of our Team Members were absorbed by Agricultural Partners, since we invested in attracting new companies to the agricultural operation of sugarcane fields. Over the course of the year, we did not register any significant seasonal variation in the number of Team Members, since during the off-season our professionals are allocated to training programs and to agricultural and industrial maintenance support activities. G4-10Click here to learn more about this aspect in the GRI Supplement

Workforce by gender in 2015/2016*

*These numbers include Members, interns and partners.

The main tool for guiding the professional development of Team Members is the Action Program, which each year is negotiated between Leaders and Team Members. The Action Program sets goals and targets to be achieved over the course of the crop year. To increase Team Member engagement, strengthen our sense of belonging and foster a sense of ownership, we also have the Monthly Productivity Program, which recognizes and rewards, at the end of each month, the professionals working in agriculture areas who surpass their targets for the period. Performance follow-ups are conducted through the communication boards and channels available at all units. Leaders are also trained and encouraged to periodically communicate the progress made on their productivity program to their teams.

In addition to leveraging their productivity, the program has also been helping Team Members to adopt good professional practices that are aligned with the corporate guidelines, since unjustified absences and the application of disciplinary measures, for instance, are criteria that disqualify them from receiving bonuses in the period. With the program, we have achieved significant reductions in our employee absenteeism (read more here) and turnover rates and attained the necessary level of stability to comply with the operational objectives.

Team Member training is also one of the pillars of our activities and training programs are constantly developed to ensure they comply with legal requirements (as in the case of training on local Regulatory Standards) and meet the needs of Leaders. Courses are administered onsite by the Team Members themselves, who are trained to act as internal replicators of good practices, or by external Partners, such as the National Industrial Training Service (SENAI) and equipment Suppliers. In the 2015/2016 crop year, the average number of hours of training administered per Team Member fell 4% from the previous crop year, reflecting the maturation and stabilization of teams as well as Team Members’ greater mastery of the business, especially in the agricultural operations. On the other hand, the number of hours of training for the maintenance area reached nearly 77,000 (up 42% from 2014/2015), which is explained by the replacement of equipment at units and by the focus on improving planning for the off-season. G4-LA9Click here to learn more about this aspect in the GRI Supplement

Relationship with Partners and Suppliers

The partnerships forged by Odebrecht Agroindustrial with its Suppliers are long-term and based on ethical conduct and transparency. Over the past few years, we have enhanced our practices and mechanisms in supply chain management with a view to capturing operating efficiency gains and to imparting greater agility and security in the processes for acquiring inputs and contracting services.

One of the main advances in the 2015/2016 crop year was the implementation of a Supplier approval system that allows users to monitor these Partners' compliance with legal requirements, as well as their practices for managing and controlling socio-environmental performance through a self-evaluation questionnaire. Since the platform’s launch, all of our new Suppliers, which corresponds to 2.9% of our total base of partner companies active in the period, were registered and approved. By the end of the 2016/2017 crop year, our target is to have 100% of our Suppliers approved by the system. G4-13Click here to learn more about this aspect in the GRI Supplement G4-EN32Click here to learn more about this aspect in the GRI Supplement G4-LA14Click here to learn more about this aspect in the GRI Supplement

Also in the crop year, we launched a Supplier performance evaluation process in which the Leader responsible for the contract evaluates aspects related to practices involving HES, people management, routine management, service quality, compliance with Brazil's labor laws, among other items. At the end of the evaluation, Suppliers are scored on the Supplier Performance Index (SPI), which is adopted as a criterion to support decision-making in future contracts. If a Partner's performance is considered dissatisfactory, a plan of remedial and improvement actions is created. More than 800 evaluations had been concluded as of the publication of this Report.

The process for selecting, approving and evaluating Suppliers is conducted on the Supplier Portal, which is an online tool hosted on the Company's website where Partners submit the required documentation, participate in bid processes and monitor payments. The Portal also makes available our Code of Ethical Conduct for Suppliers, which is a document through which the contracted companies undertake to conduct themselves ethically, comply with labor and environmental laws and regulations and adopt mechanisms for managing social and environmental impacts, among other good practices.

Another target set by the Company for the coming crop year is to develop a criticality matrix for Suppliers that assesses two main aspects: influence on productivity and costs; and environmental, labor and compliance risks and impacts. Based on this mapping, specific actions are planned to improve the management of the Partners that appear in the most critical categories.

In the 2015/2016 crop year, spending on Suppliers amounted to R$2.8 billion, of which 20% was allocated to compensating Agricultural Partners, which is managed by the Agricultural Partnerships department. Approximately 42% of the amount was spent on purchases and contracts involving local Suppliers, i.e., located in the same states as the Production Clusters.

New homologation platform implemented in January 2016

42%
of the amount was spent on purchases and contracts involving local Suppliers

Proportion of spending on local Suppliers (%)* G4-EC9Click here to learn more about this aspect in the GRI Supplement

2015/2016 2014/2015 2013/2014
São Paulo Cluster 73.7 80.9 72.9
Eldorado Cluster 34.2 21.9 34.5
Santa Luzia Cluster 24.3 33.6 43.6
Goiás Cluster 25.3 42.2 38.4
Araguaia Cluster 42.4 41.6 50.9
Taquari Cluster 44.1 46.8 43.8
Total 41.9 45.4 49.5

*Includes Suppliers and Agricultural Partners at Clusters (except land Partners and Suppliers to the headquarters). The proportion is calculated based on total spending on local Suppliers/total spending on Suppliers.

17%
of sugarcane
processed in
the harvest
came from
Agricultural Partners

480 mil
thousand hectares
of planting in
partnership with
landowners close
to the Units

Growth in partnerships to supply sugarcane G4-12Click here to learn more about this aspect in the GRI Supplement

Under our business model, we strive to form strategic partnerships focused on supporting continuous production growth at our units. For this, a department called Agricultural Partnerships coordinates the Suppliers Program, which works to find entrepreneurs that are aligned with our values and good practices to provides services such as crop planting, tillering, cane cutting, loading and transportation, expansion of planted areas at competitive costs and operational quality.

In the 2015/2016 crop year, we worked with 31 Agricultural Partners, which accounted for aggregate sugarcane production of 4.9 million tons, or 17% of the Company's total crushing volume in the period (up from 12% in the 2014/2015 crop year). We estimate that, over the next four years, our Partners’ contribution to total crushing volume will reach 30%, which compares with our goal of 40%.

Under this operational operation, everyone involved in the value chain benefits. For the Company, it mitigates risks, reduces costs in the agricultural operation and allows investments to be concentrated in own properties. For Partners, in addition to compensation, they receive support for developing their business plans and technical support to improve crop yields and quality. And local Communities benefit from growth in job creation and the local economy due to the inflow from new investments.

For our sugarcane procurement, we work with two different profiles of Partners. One is formed by large companies that are responsible for the entire agricultural operation and have the capacity to deliver over 200,000 tons per year. Meanwhile, the second profile is formed by small producers with which we share responsibility for sugarcane production. In both cases, the contracts signed are long-term, with a horizon of at least one production cycle (seven years).

An important aspect of the sugarcane partnerships is the commitment to expanding cultivation on new areas captured by the Company, which would enable units to reach their maximum crushing capacity. In the 2015/2016 crop year, we signed new expansion agreements in addition to those already signed in the previous crop year with our Partners, representing an aggregate 27,100 hectares, or 30% above the target.

All sugarcane Partners are evaluated in a selection process that involves requests for information and periodic visits to production sites to evaluate practices involving Health, Environment and Safety (HES) and compliance with laws and regulations, which adopts the same criteria and commitments used in the management of our cane fields. G4-EN32Click here to learn more about this aspect in the GRI Supplement G4-LA14Click here to learn more about this aspect in the GRI Supplement

In addition to supplying sugarcane, we forge partnerships with land owners located near our Industrial Units, and most of the partnership agreements in our agricultural operations are of this type. In the 2015/2016 crop year, these agreements involved 480,000 hectares and over 1,300 partners. These Partners can cede their land for sugarcane cultivation or join the Real Partnership Program, in which they share responsibility for production. In the latter case, crop management is conducted by the Company and the Agricultural Partner and the results are shared with the owners in the form of compensation.

One of the Partners with which we operate is Odebrecht Terras, a company incorporated during the 2014/2015 crop year whose purpose is to ensure optimal use of the farms and greater safety in the sugarcane production process, while also managing the Legal Reserves and Permanent Preservation Areas.

Credits

Head of Sustainability | Mônica Alcântara
Head of Corporate Communication | Andressa Saurin
GRI consulting and writing | Usina82
Graphic design | Versal Editores
Web development | Agência Dinamite
Photography | Anderson Meneses, Eduardo Moody e Lourenço Furtado

We thank all Team Members of Odebrecht Agroindustrial who participated in the preparation of this publication.