BrasilAgro - Companhia Brasileira de Propriedades Agricolas (LND) 2014 Q2 法說會逐字稿

Good morning. Welcome, everyone, to BrasilAgro's Second Quarter 2014 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 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 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 Piza, Chief Executive Officer. Sir, you may begin your conference.

Hello, everyone. Thanks for joining us in our second quarter conference call. We can begin by (inaudible) presentation on page two, the highlights for the quarter.

The most significant one, of course, is the acquisition of our farms in Paraguay. We acquired 50% of Cresca, which owns 141,000 hectares in Paraguay. I'll be talking about that a little later. Also, we established a partnership to operate over 7,000 hectares of farmland in Piaui, which is fully developed and already planted with soybeans.

We have reached a total of over 75,000 hectares of planted area so far. We delivered over 663,000 tones of sugarcane at our fourth harvest year. Net revenues of roughly R$43 million. And also we totaled roughly 16,000 hectares of permits to keep on developing our farms in Brazil. This is a very important step for us.

So, before I move into the details of those highlights -- a little bit of scenario. Extreme volatility between soybean prices have been moving up and down. And it seems to continue to do so in the short term, given all the dry weather in Brazil and the exchange rate.

So we see incredible volatility, but yet, prices are at a level above the last few years, which should give good outcomes for farmers throughout Brazil, so we can expect farmers, in general, to be performing well in terms of profitability on a basis.

Which, of course, on page four, is keeping up overall land prices at an attractive level. They've been going up -- not as fast as they were before. But it's still at a very attractive level throughout Brazil. Then we have the regions, and each region will have a different impact. But overall, land prices in Brazil continue to be at a very attractive level.

We've been seeing deals happening. So, I think the liquidity is still there. And the market is pretty hot, actually.

So, everyone seems to be talking about the weather recently. So I put two charts in here -- two analogies. One for Bahia, one of Piaui. And there you have on the line, you have the historical average for Bahia and Piaui. And the columns are what we observed this year.

So both regions are short of rain in January. In our case, Piaui, despite having lower rainfall, yields seem to be as expected. We have no issue whatsoever. And Bahia, it's a very mixed region. There are regions in Bahia that we have tremendous productivity, other regions (inaudible) are already suffering from a dry weather. So we're going to have wait and see how Bahia is going to turn out.

As of now, Piaui looks great. But Bahia we have crops with very high yields and [plots] of farms that are already suffering sun. So we have to wait and see how this is going to play out in the next few weeks or so.

Moving to the highlights, page six. The acquisition of Paraguay. A reminder, we've been over this in our meeting last month -- or in December.

Cresca is a company established in 2008. It owns 141,000 hectares (inaudible) -- actually 40,000-plus hectares. It has an option to actually increase that to 141,000 hectares. And we bought 50% of it for $18.5 million. And if you were to compute our share of the option that has been exercised already to increase its size -- it has been exercised but not fully paid -- you're going to be talking about an investment of $35 million for, roughly, 70,000 hectares, which is half of the total.

The farms are located in the [Chaco], which is in the northwest part of Paraguay, roughly 500 kilometers from Asuncion on a paved road. It is well-located, very good logistics, access to the port in Asuncion. And most of the farm is yet to be developed. And our idea here is to mix it cattle/agricultural operation that we firmly believe that, in the long run, this farm is going to be total agriculture. It is extremely fertile soil, and we believe that it's a great prospect in terms of developing that.

It pretty much matches our Company profile in terms of how to develop and to be operating in the marginal areas.

On page seven, we have established a partnership to operate over 7,000 hectares in Piaui at a very well-developed farm, sitting on a paved road, good logistics. The operating part of the farm has been operated for a very long time already. And it was a very opportunistic approach for us, as we were able to use our operational expertise in the region. Our contractors and everything else we have in there already. So it's a very easy way for us to actually keep our organization fully operational.

In (Inaudible), we have another farm and other acquisitions. We're actually keeping those guys busy up there. It's a pretty good farm and we've planted it already

And then also we have here a table of all the farms that we have, all the crops, totaling 75,000. And these numbers are due to increase a little bit because, in Paraguay, in that specific region, the planting goes until mid-February, so we still have another 10 days or so of planting. So increasing that number will happen, especially on the corn.

The soybean there has almost everything planted. But we're going to see more corn and pasture in the next few weeks in Paraguay. So these numbers are not the final numbers for the Company yet. They will go up a little bit.

On page eight is the Portfolio Evolution of BrasilAgro. Until very recently, we had 19% of our farms already developed, 36% under development, and 45% to be developed. With the recent acquisition of Paraguay, that breakdown changes a bit, and now 12% is developed, 31% under development, and 58% to be developed. There was a massive increase in our line bank. And we're pretty happy about it. So we're taking care of the long term goals for the Company here.

So the Company is back on an interesting position, and, of course, with a much larger portfolio in general.

On page nine, our Hedge Position. We have 32% of our soybean commercialized so far, in terms of physical volumes. In terms of prices, 60% of it sold, in terms of soybean prices, and 56% (inaudible) sold at a level of roughly $12.90 per bushel at an exchange rate of 2.44, so roughly around how the market is right now.

On page 10, our EBITDA and Adjusted EBITDA. Always good to remember that the adjustment that we make relates to all the biological assets that are not (grains) in inventory. So all the sugarcane, and eventually all the planted beans that have not been harvested, we adjusted. So we move it and have a better -- we take it out so have a better understanding of the EBITDA from an operational perspective.

Also we add back -- or put back any derivative impact that is not related to products that are already accounted for.

In that sense, our EBITDA for the six months is roughly R$6 million negative, which is pretty much in line with what we expect. It's very important to notice that we haven't taken into consideration all the results from the current crop. So all the beans and corn, and everything else that has been planted, has not been accounted for as a biological asset. The only thing that is due to be accounted for in the next quarter.

So we have absolutely no operational results past some of the sugarcane that went on in the first quarter. Other than that, there is no other operational results from the Company because most of the inventory had already been sold from last year so there's no actual new crop kicking in at this moment because pretty much all the beans and corn that we plant are in the northeast and are planted in November.

Therefore, by December 31, they are still accounted as work in progress, not as a biological asset. So it's important to remember that. And if you compare to last year, last year had sold a farm at this point. So that is the most important difference.

So I expect next quarter we're going to have the other results from the harvest kicking in, and that ought to change the picture. And it is the same for our income statement. It's pretty much -- some sugarcane results in the first quarter, plus a little inventory left, and no other operational results.

On our balance sheet on the next page, I think there's an important thing to discuss here, which is interesting in Paraguay. And it's not listed as -- it is listed here as an investment, R$42 million, which is different from our other farms, which are properties for investment.

In that case, since it's a position in the company, it's been treated as an investment. So that R$42 million is the current accounting for an investment in Paraguay.

So in a nutshell, this is what we had to tell you guys. And we can look to Q&A and go into any details you might want to know. Thanks.

Thank you. The floor is now open for questions. (Operator instructions). Our first question comes from [Robby Guillen] of HSBC. Please go ahead.

Hi. Good morning. My question was basically about the growth strategy going forward. I mean, in addition to the recent acquisition of farms in Paraguay, what are the other options that you are looking at in terms of growing your planted area? Because I think in the previous year you had a good amount of farm sales. So it would be good for us to know what options are you taking for the growth of planted area?

Thanks for the question. We just finalized a very important acquisition so the Company has been improving its bank significantly.

So our growth -- I think it comes in two flavors -- the first one is actually to develop [bank]. So all the good news that we have on the environmental licenses side on over 16,000 hectares, that is pure development. That is pure growth that will kick in next year. So we're pretty happy about all that.

And also we have over 58,000 hectares in development in Paraguay. So the organic growth is pretty important. And it's been sold already in terms of having enough land to develop.

The second flavor is something that we are always looking into in our acquisitions. A couple of deals that we are negotiating in Brazil, some of them will come through, we are quite certain. But right now, we are focused on actually taking those 16,000 hectares of licenses and turn them into productive land.

We are delivering an asset growth for the Company in terms of total land developed. But we're not forgetting about new acquisitions. We're still looking at those as well. But I'd say, primarily focused on developing would be, in the next few months, focus.

Thank you so much.

(Operator instructions). The next question comes from Rodrigo Mugaburu of Morgan Stanley. Please go ahead.

Thank you. Hi, Julio. Good afternoon. I have two questions. One on the J.B. or the partnership that you closed in Piaui. Can we expect more of this coming for this year? Or is it just a one-off because there obviously are some synergies since it is close to Cremaq farm?

And then the second question on Paraguay and how you are seeing the market down there now. Do you think it's the same chance that you can monetize some of the land there, given the very attractive price that you acquired, recently, that land down there? Thank you.

Rodrigo, I'm going to answer your first question, and then I will kindly ask you to repeat the second one which is very hard to understand.

So as for Piaui, as I told you, it was a very opportunistic thing as an incredible (inaudible). We have the whole team there, contractors, everything. So it's been much opportunistic. And I do believe at some point, we're going to find other opportunities like those. And not only find those. We're going to seed them.

But it's not going to be -- it was never the focus of the Company -- I don't believe it's going to be focus of this Company to (inaudible).

It's an incredible opportunity the property created for us, given all the situations. If we have more of those, we're going to do it. We're going to pursue them. But it's not something we will pursue as part of the main strategy of this Company. And repeat the second question now, please.

Sure. The second question was related to the land in Paraguay. Do you think that before the end of the current fiscal -- BrasilAgro's current fiscal year, there could be some opportunities to monetize some of the land that you recently acquired there?

Rodrigo, I'm telling you something -- I can give you a very general answer to that. There are opportunities to monetize land throughout our whole portfolio. This is something that we are always looking to do, always looking for opportunities to monetize it. So it might happen in Brazil. It could happen in Paraguay.

As I have mentioned, when we actually completed the acquisition, we had some discussions already going on on that. So it could happen. But, again, it could happen there as much as it could happen here. So, yes, to your question. But it could be there and it could be here.

Okay. Thank you very much, Julio.

(Operator instructions). As there are no further questions, I'll turn the conference back over to Mr. Julio Piza for final considerations. Mr. Piza, you may begin your final considerations now.

Thanks, everyone, for joining us. We are very excited about Paraguay for it being a great achievement for the Company to almost double its sizes in such a short -- in a certain accumulative (inaudible), opening up so many important avenues for growth for us. So we're quite excited with that.

And the next quarter, we're going to have more things to say about Paraguay in terms of how things are developing and the whole plan for the farm.

Of course, our next quarter we're going to already have the current crop being accounted for. So we're going to have a lot to talk about. So thanks for joining us. Until next quarter.

Thank you. This concludes today's BrasilAgro's 2Q '14 results conference call. You may disconnect your lines at this time.