BrasilAgro - Companhia Brasileira de Propriedades Agricolas (LND) 2013 Q2 法說會逐字稿

Good afternoon. Welcome, everyone, to BrasilAgro's Second Quarter 2013 Results Conference Call. Today's live webcast and presentation may be accessed through BrasilAgro's website at www.brasil-agro.com. We would like to inform you that this event is 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 that 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 management and on information currently available to the Company. They involve 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. Thanks, everyone, for joining us today on our second quarter conference call.

To begin with, we can move to page two of our presentation, the highlights. Our total planted area, over 72,000 hectares, which does not include the second crop that will be planted in the next -- during this month and also sugarcane renovation and more pasture that will be planted until June 30. Also, we finalized our third year of supply -- of sugarcane supply to ETH, the total of over 837,000 tons of sugarcane delivered. So we are quite pleased both with yields and results of the sugarcane.

Also, net revenues of over BRL110 million, net profit over BRL13 million, almost BRL14 million in the six months ending December 31st. And also adjusted EBITDA of over BRL23 million. And that's a pretty important result for us.

If we are to remember, the Company was founded in '06 and started from scratch. From the first very -- the very first years of the Company it was to develop to -- almost like a preoperational condition and to start buying the farms and developing everything from scratch. Then, a couple of years ago we reached the first year of positive cash flows.

And now, the Company is already maturing, reaching second stage where -- or third stage where we're actually delivering net income and actually accumulated profits and reserves on the positive side. So I think it is a very important step for us in terms of showing the maturity of the Company and how we are growing.

Moving to page three, I will discuss a little bit about the market. And soybean prices are extremely volatile, as we have all seen, but yet even though they have come down in the last few months we are still at levels way above the last four or five years. Therefore, expected margins for farmers in Brazil are pretty good, which creates a pretty good scenario for us, both in terms of our own margins, but also the land market becomes quite hot with that kind of farmers' margins.

And if we look to page four, when we look into stock to use ratios, this has not been updated for today's [irregularly world] report, but the previous one, but it didn't change that much. But again, everyone is expecting an important crop in US, and Brazil, and Argentina. It's suffering a little bit, but it's still an important number out of Argentina, and yet stock to use ratios are estimated to continue to be at a very low level. Therefore, there is a support for prices in at least the short-term. But the whole case, I would believe, continues to be very strong, one of high demand and limited ability to build supplies.

And, moving to page five, that has an important impact in land prices in Brazil that continue to go up. This is the last report from FNP for period ending December, and land prices continued to be at a solid level in Brazil. And that's what we've been experiencing in practice, by looking -- being at the farms and talking to farmers and seeing what's happening there in the market, prices there are actually pretty good and liquid, lot of transactions happening right now.

Next, on page six, a little bit of operating performance. So, we have all the soybeans and the corn planted, the first crop developing well. The outlook is good. A little bit of drought in December, especially in Bahia in the Northeast, but nothing that would change significantly any type of yields -- our yields. So crop, as of now, looking good. We should start harvesting in a couple more weeks, remembering that the Company, we only have soybeans in the Northeast and therefore the whole planting and harvesting season is a little bit delayed in relation to Mato Grosso and the South of Brazil.

So, we should start harvesting in the next couple of weeks, followed by the second corn crop in the Northeast, which is something very important to us as well, because that region had not -- was not -- we have never -- we did a little bit last year, but it's kind of a new activity in that area to have a second crop. So it's very important for us in terms of development, adding a new layer of value to our farms.

So in a couple of more weeks we start planting our second crop, corn, in the Northeast also. We should start renovating a little bit of our sugarcane grid in [Central West], but also continue to implement pressure in the Preferencia Farm.

On page seven, a highlight of our hedging position. Roughly 68% of our soybean has been sold from a physical perspective, 32% still open, and that is using estimated budget yields that could be changed a little bit. In terms of price, both from a dollar perspective and soybean perspective, roughly 60/40, 60% fixed, 40% open.

Our average price around BRL51.42 per bag at the farm, but after all the logistics costs and basis. And that's a little bit below current levels, but since we started making those hedge positions a while ago, we're also carrying costs, specially fertilizer costs that are at a lower level than they are currently. So we are in a good position to profit and to obtain interesting margins.

On page eight, moving to EBITDA and adjusted EBITDA, always good to explain why we do that kind of adjustments. And basically, there are two things we adjust from a more strict view of our earnings before interest, tax, depreciation and amortization.

The first one is we adjust for biological assets, so we -- according to IFRS, we have to account for results of, for instance, sugarcane, that we are going to be producing in the next coming years. And in order to offer a more managerial perspective, we take that kind of results out of our EBITDA, adjusted EBITDA, showing only the sugarcane that is actually being harvested and sold. So we don't have any kind of future estimate built into our EBITDA -- adjusted EBITDA.

And also, the other thing that we adjust for is all the hedging. So all the financial results from our hedges that we have are counterpart in the operational results, we put it back into the EBITDA, either negative of positive, whatever, depending on the situation. And all the hedging that is related to products that we do not have them accounted for in our operating result, we leave it in the financial side of our income statement and to be appropriated later. So it offers a more, in our opinion, a better managerial perspective of the Company.

And about that perspective, we have very solid EBITDA -- adjusted EBITDA, BRL23 million in the first semester. And always good to remember, that only accounts for what happened in the six months. We don't have an impact from all the soybeans and corn that are already planted and will be harvested in the coming months. So all of that result will be built into that EBITDA in the next quarter -- in the last quarter. So pretty happy with the result.

Moving to page nine, in our statement of operations, the important numbers here, when we compare the first six months of '13 with the first six months of 2012, is an important increase in revenues from sugarcane, but mostly tonnage yields that performed pretty well. Prices are pretty much the same from last year, but yields are pretty good. And also, we have an important gain on a farm sale. So, we sold the Horizontina Farm, and that has an important impact. And those two combined -- grains is pretty much the same as last year, but those two combined are putting a 50% more increase in our net revenues.

Also, selling expenses are much higher than last year's, and that's because of fees paid for brokers in selling the farms, around 3%. Our financial results are pretty much the same, both in terms of income and expenses, therefore yielding a net income of the year of over BRL13.7 million.

And as I said before, it's a pretty important number for us as a young company that has a pretty important CapEx program. For us to already start develop and generating positive net income, it's a tremendous step. As I said before, a couple of years ago we started to generate positive cash flow and now net income, so I think we are on a good path in terms of delivering results and value for our shareholders.

The last page, our balance sheet. I think it's always the most important thing to mention our balance sheet as our property for investments. So, at December 31st we have BRL350 million in our property for investments, and that's all the farms we have. And it's important to say that those farms are put here at cost. That's acquisition plus investments net of depreciation.

So all the value that we have created in our farms do not show in our balance sheet, they only appear when we sell a farm, as we did now, so we can see that our property for investments went down by BRL40 million, which is, of course, the sale of Horizontina Farm.

Having said that, that's the highlights we had to share with you guys. We can actually move to Q&A now. Thank you.

Thank you, sir. The floor is now open for questions. (Operator Instructions). Our first question comes from Pedro Herrera of HSBC. Please go ahead.

Hi. Congratulations on the results. A quick question. In terms of your planted area growth between now and the end of the next fiscal year, what do you expect the growth to be in terms of planted area from current planted area?

Pedro, thanks for your question. As you know, we never give -- provide guidance, but I think it's always fair to assume that another 10,000 hectares is always a good -- from anywhere between 10,000 to 12,000 hectares is always a good proxy for what we can deliver in terms of growing.

If, of course, we don't have -- we don't do any acquisitions, of course, by -- with acquisitions, that number could change significantly. But without that, just developing our own land bank, I'll say 10,000 to 12,000 hectares is always a good number to think of.

Okay. And quickly, what -- anymore plans to increase your allocation to sugarcane?

Pedro, from a portfolio perspective, I think it's -- we would love to do more sugarcane. I think it's something that we are looking to do it. But the point is our strategy, as you know, is always to develop land. And when we look into the sector right now, there are very few or -- or actually zero greenfields being built, right? We have a lot of brownfields out there, and those operations offer a limited real estate potential for us. Now there is none, but we might be looking into some potential opportunities.

But from a conceptual perspective, we like greenfields. That's where we can actually do our business model at its best. And for the sugarcane industry right now, greenfield does not seem to be the top priority, if you know what I mean.

Okay. No. Thank you very much. Understood. Thank you.

Thank you, sir. (Operator Instructions). It appears that we have a follow-up question from Pedro Herrera of HSBC. Please go ahead.

Quickly, you've mentioned that there's a lot of liquidity in the land market today in Brazil. Can you bring us up to date on the issue with the ownership restrictions?

Sure, Pedro. Yes, the market is extremely liquid, Brazilian farmers everywhere buying farms. The market is pretty hot. But on top of that, last December the Sao Paulo State Court issued an instruction to all notary officers in the state of Sao Paulo, telling them that the legal opinion from the general attorney is not constitutional and therefore they should not be -- they do not need to ask of Brazilian companies about their capital structure or where the capital comes from. They are all free to acquire farms or farm land in the state of Sao Paulo.

And this is pretty important, and it's not only because it is the state of Sao Paulo court, which is the most important one in the country, but the whole process was beautifully done and well -- very good arguments and very well constructed. So that's the first actually time in the last couple of years that actually the courts have actually put out their opinion on it. And it's extremely favorable to us. So we are quite actually optimistic about it and definitely will have a positive impact in our expansion plan in the near future.

Okay. Thank you very much.

Thank you. I'd now like to turn the call back over to Mr. Julio Toledo Piza for any final considerations. Mr. Piza, you may give your final considerations now.

Thank you. Thank you, everyone. I think it's been a terrific start for us this year. Not only have we sold a farm, which for us was a fantastic moment in terms of showing our business model, again reinforcing that we can do it and showing fantastic results that actually make it clear how [the bubble] works and how available is and how it works.

On top of that, the sugarcane has evolved and we can say that we are very confident about how to manage sugarcane on a corporate level and -- fantastic results. We're extremely pleased with that. It's been fantastic. It helped in terms of generating cash for operations and to finance our expansion into the Northeast.

And also, we ended the semester with positive news from the courts regarding foreign ownership of land, so we're looking ahead for a very good end of the year for us in joint areas. We have all of the harvest that has been looking pretty good in terms of results. And also, I guess it's getting -- it's about time for us to start expanding again. So we are quite confident and quite optimistic about the next few months.

Having said that, thank you very much for being with us and see you again in our next conference call.

Thank you. This concludes today's BrasilAgro Second Quarter 2013 Results Conference Call. You may disconnect your lines at this time.