BrasilAgro - Companhia Brasileira de Propriedades Agricolas (LND) 2012 Q3 法說會逐字稿

Good afternoon. Welcome, everyone, to BrasilAgro Third Quarter 2012 Results Conference Call. Today's live Webcast and presentation may be accessed through BrasilAgro's webcast at www.brasil-agro.com.

We would like to inform you that this event is being recorded, and all participants will be in a listen-only mode during the Company's presentation. After BrasilAgro's remarks, there will be a question-and-answer session for analysts only. At this time, further instructions will be given.

(Operator Instructions).

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of BrasilAgro's management, and on information currently available to the Company. They involved risks and uncertainties because they relate to future events, and therefore depend on circumstances that may or may not occur.

Investors should understand that conditions related to the macroeconomic scenario, industry, and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Mr. Julio Toledo Piza, Chief Executive Officer. Sir, you may begin your conference.

Thank you. Welcome, everybody, to our third quarter call. And if you could you -- can you jump to the presentation on page two, the highlights, also net revenues of BRL105 million. Remembering everyone that our fiscal year ends on June 30th, therefore is our third quarter for the year. Net income BRL12.5 million, adjusted EBITDA BRL31 million in the nine months.

Also, already planning and started acting on the next year's growth for the Company [for] already have losses and impairments to keep on growing the Company, also keeping [consolidating] on financing the Company, working with Brazil's BNDES and mortgage bank to keep on adjusting interest and finance for the Company for the coming years. Also, going to mention briefly in the end, a change in our accounting policy, should I say, going back to the way we did it before.

On page three, as we always do, quick comment on the soybeans, prices in dollars and in reais. Last month and a half, importing stock and soybean prices, which of course leads to important difference from our financial and operational results.

The hedge gets -- financial impact of the hedge, not necessarily on the operational side yet. So from the small imbalances in our income statement that will get settled after everything is sold. And there was an [important stocking] price [here] is coming back the last few days, nonetheless projecting interesting coming quarters for the Company.

On page four, farmland prices in Brazil continue to go up was essentially a fact that the income for farmers have been growing, and have been materializing so because of better prices or higher productivities, farmers are generating a higher cash flow per hectare. And this situation has persisted before moving into higher farmland prices. It's been the case in the last seven years in Brazil. And we believe, given the current scenario, will continue to do so.

Page five, operating highlights, as I said before, more than 8,000 hectares of environmental (inaudible) obtained. We have harvested over 97% of our soybeans, and 20% of our corn. Also initiated and planted already, over 1,800 hectares of second crop corn, especially in Maranhao and Piaui.

(Inaudible), there even the over 97% of the soybeans have been harvested so far. Until March 30th, a very small amount of it had been sold. And therefore, small adjusted EBITDA, just a small part of it has been contributed to our EBITDA. That is an important (inaudible).

As for the hedge on page six, for this year, everything is pretty much fixed, in terms of price, in terms of commercialization. A part of it is still open. Our market-to-mark market price is BRL45 per [bag] the farm, which is roughly say 7% to 8% below current prices. But significantly above our expectations one year ago when we started planning for this crop, for this season.

Next season's already sold, around 30% of it, both in terms of soybeans and (inaudible) hitting a BRL50 price, which is a little bit above current market. Today, projecting a very interesting margin to hectare for us.

Page eight, EBITDA adjust EBITDA. Always good to remember that EBITDA is any number straight from the financials. And we adjust in the table below for everything that is (inaudible) assets. Our rule has been the last two quarters, and since this adopted IFRS, strongly account in adjust EBITDA everything that is either harvested and sold, or harvested and put in our inventory.

Therefore, anything that is still growing, we take it out. And of course, as a result, everything that is hedged, the financial -- the hedge results, that is still referred to crops that have not been harvested or still growing, we still delivered the financial line and [never bringing it] back to operational results. So those are the main adjustments we do. And as of now, the quarter has been a very small EBITDA as expected [BRL100,000] but the nine months we already increasing BRL31 million and it was an important increase when compared to last year's.

On page nine, our income statement. As I said before, a very [real] of the soybean from this harvest, from this season has been sold or had been sold by March 30th, before revenues for grain are very -- are not that substantial. And most of it is actually inventory from last year. And that is the reason why cost of goods sold is so high, because we're just selling inventory that has been priced to market prices before, therefore using [little] margins.

As a result of IFRS, there is a difference recognition of -- when you recognize actually it's revenues and when you recognize results. So since most of it is still inventory from last year, cost EBITDA is pretty high. I think that is the most important part of our income statement.

On page -- on the next page, you have the balance sheet. Also important to know this year that our farms are accounted for as properties for investment and they are all at dock, plus investments [not of] depreciation. Different from other companies, they already outputting the farms at market prices. So it's important difference in our case.

On page 11, just a small change in our accounting policy, when the Company moved from Brazilian GAAP to IFRS, the Company plus our [ordering] company decided to classify the warrants as the liability. And after studying it more and inviting [ordering company] (inaudible) to help us on that, we decide to reclassify those warrants for -- under IFRS [2] which is pretty much the same as we were doing before IFRS, and Brazilian GAAP which is to disclose the market value of the warrants as part of the notes, but not as part of our balance sheet.

So in a nutshell, that's what I have to say. So we can now please move to Q&A.

Thank you. The floor is now open for questions. (Operator Instructions). Your first question comes from the line of Pedro Herrera with HSBC.

Quick question, please. Can you give us an update on what's going on with the legislation regarding foreign ownership of land in Brazil? One and second is, what is your estimate for planting an area for fiscal 2013?

Thanks, Pedro. Just before I answer a question, just one -- as we were going through the presentation, we notice that in the English version, one of the tables is missing a column. That would be the statement of operations, income statement on page nine. It is missing the third quarter, '12. It just has the third quarter, '11.

We're going to update the presentation soon as we're done with the call. And if you want to have the full table, please, I'd like for you to refer to the Portuguese version of the presentation, well actually the column is there. The reference third quarter, '12, gross profit is BRL3.1 million. Net revenues, net revenues, BRL22.8 million, cost of goods sold, BRL19.7 million, gross profit that's BRL3.1 million, and net income, it's minus BRL4 million. Sorry for that. And the revision will be on as you are done with the call.

As for the questions on the foreign legislation is still being debated at the congress. There will be on -- the day after tomorrow, there'll be another session to discuss it. And as I told you, our expectation is to be a reservation that is very tough on other countries wanting land in Brazil. But somehow we preserve the interest of companies such as (inaudible) and others that are in this for an -- on a commercial logic and not on a state-owned logic.

So but we're still waiting on it. I wouldn't bet on any specific headlines about it. So I think right now, what is getting all the attention in the agricultural (inaudible) in Brasilia, is the [full state], and before we [got to move] with that and we got to -- done before we move to the next topic, which would be the foreign legislation area. So no news on there.

And the second one, the estimate for next year, as you know, we never give out estimates. But we always like to [wear] the Company on important numbers. So perhaps we would not see 30%, 35% growth, but close to it.

Okay. Thank you.

(Operator Instructions). Your next question comes from the line of Martin Tapia with Raymond James.

Hi. Good morning. Thanks for the call. Just wanted to check if I understood correctly from what you put in the press release. For the current 2011 and 2012 year, you planted around 66,000 hectares instead of 71,000 hectares, originally intended. Can you share with us approximately how soybean yields can compare to the 2010 and 2011 harvest please?

Sorry, Martin. I couldn't understand you. Could you please repeat your question a bit slower?

Sure. Sorry. For the current 2011 and 2012 year, you planted around 66,000 hectares instead of 71,000 hectares originally intended. Can you share with us approximately how soybean yields can compare to the 2010, 2011 harvest, please?

First, for your first question, there's still pasture to be implemented this year. So we're going to get very close to the original 71000. To look at it from our last year announcement and this year, we said 71,000, we'll be very close to it, will be a few thousand hectares missing from the first. That probably will not happen, not so yet. But we're still missing pasture that will get us very close to this amount, to the 71,000.

As for yields, I would say we have this year, we're going to go into the details of the yields in next quarter, as we always do, since most of our harvest took place after March 30th. So next quarter, we're going to have a more detailed discussion. But overall, we had different -- depending on the regions.

For instance, Maranhao and Piaui we had yields as we expected. In Bahia, corn, it was as expected. Early soybean as expected. Late soybean was below our expectations, incidentally some drops, impact there, as you probably are aware. But early corn and early soybean, we're fine in that year, so was soybean in Piaui and Maranhao. What was actually affected was late soybeans in Bahia. That simply below this year's -- this year's below last year's.

Thanks, Julio. Can you listen to me?

Hello? Can you repeat?

Sorry. I have a follow-up question regarding the land transformation business. Can you remind me please how many hectares you're going to end up transforming this fiscal year, 2012, ending in June? Will you get the 20,000 hectares originally intended? And after that, how many hectares do you have left as potentially (inaudible) and to transform?

Martin again, the connection -- your [speed] broken so it's very hard to understand you. I will try and answer your question as much as I understood it. You said if we're going to be able to transform everything that we wanted to? Going to be very close to it.

We had a 20,000 hectare, a target that we should be very close to it. Part of it was already planted this year. Part of it has been prepared as we go through the year, and will be part of our next year's season.

Every time we give out this kind of expectations on our side, part of it is already part of the season, in terms of production. Part of it will be carried for the next one, because the calendar will not allow us to -- or it would be much more to actually stop transforming. So we keep on doing it, even though we don't plant it and that in the same year, we carry it for the next one. So we should be close to the 20,000.

The other question, sorry, but I really did not understand it.

(Operator Instructions). Your next question comes from the line of Rodrigo Mugaburu with Morgan Stanley.

Hi. Thank you. Hi, Julio. Good afternoon. Question on the 12/13 plan. Given where the commodity prices are today on the relative profitability of crops, do you still plan to grow cotton or you might be thinking changing some of the area to soy or to corn? I guess the bottom line of the question is, are you thinking to reshape the plan, given the current grain prices?

Thanks. Good question. We are always fine-tuning our plan for next year. So the plan for next year is already pretty much done. But according to commercial conditions, and technical [nutrition], we're trying to adjust it for whatever is going to be the best margin, given the current prices on cost structure.

Definitely, the last three months has been more favorable for soybeans. Before, I would expect for the Company to have a higher soybean year. And then we had originally planned just because (inaudible) expected margins. And soybeans are definitely the highest margin crop as of today.

Nevertheless, the Company will have some cotton probably. We have a bit more cotton than we had this year, because it does make sense for the Company to have cotton [now] portfolio. But certainly, we had -- probably would grow more if it we were not for current prices.

So we'll keep always adjusting it. And there will be growth in cotton. But again, we would have been much more normalized. But it's important for the Company to have another [two bucks], as I like to call it.

Great. Thank you very much.

(Operator Instructions). This concludes the question-and-answer session. I'll now turn the floor over to Mr. Julio Toledo Piza for any final considerations. Please go ahead, sir.

So thank you again for joining us on our call. I think that's this quarter, some challenges (inaudible), but overall we are happy the results. And we're [getting] our a solid, financial result for the Company towards the end of this year. Going to be seeing a earnings accumulating (inaudible) also, with enough to start figuring out dividends. Not sure who's going to be doing it, but he's going to be there, so we can start having our final discussion, it's big accomplishment, a company so young.

It's already a fantastic business. So we are extremely pleased with the results so far, and looking forward to finalizing probably the best year -- it will definitely be the best year (inaudible) the Company. So thank you for (inaudible) with us, and see you next quarter.

Thank you. This concludes today's BrasilAgro Third Quarter 2012 Results Conference Call. You may now disconnect your line.