BrasilAgro - Companhia Brasileira de Propriedades Agricolas (LND) 2015 Q2 法說會逐字稿

Good morning. Welcome everyone to BrasilAgro's Second Quarter 2015 Results Conference Call. Today's live webcast and presentation maybe 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.

Thank you. Welcome everyone to our first semester conference call. We're going to be discussing the results from July 1st to December 31st, which is of course our first semester. If you can move to the presentation please on page two the highlights for the semester. We finalized a fifth year of sugarcane supply for 724,000 tons of sugarcane delivered. And then I'll go over the results, pretty good ones.

We are estimating for this year total planted area of a little over 78,000 hectares and as we had discussed in our last call, we tried (inaudible) and effectively have been very conservative in picking the areas specifically to plant in order to cope with low margins and pressure on prices. And that's the result of that. Also, we are finalizing the construction of silo, grain storage facility in Bahia.

Also we keep on getting all the environmental permits in Paraguay, which is very good news. We keep on developing it and expect Paraguay to become more and more important in our portfolio.

From a financial prospective, net revenues of over BRL72 million and adjusted EBITDA of BRL2.3 million in the semester. Those were the highlights and we will go into the details later.

On page three, a little bit of what's been happening over the sliding prices we have kind of lighter volume is price in dollars, so dollars per bushel, and we've experienced a sharp decrease in currencies seven months ago, loss, which was accompanied by -- followed by reduction in prices in Brazil as well in reais. In the last quarter of the last year, there is this kind of (inaudible) between Brazil -- the prices in Brazil and prices in the US. So because of the exchange rate, there is this gap that you're seeing here in the chart. And actually, it is quite impressive. So looking to the last seven years, we are at less prices in reais I'd say above average and in dollars below average. So this is an interesting situation.

So as a farmer, you should plan correctly in terms of hedging, in terms of their financial structure. For instance, not having dollar liabilities. You're actually not that bad. Of course perhaps that is appeared as last year, but it's still pretty different I'd say. So when I look internally, when we started planning for this campaign seven or eight months ago, we were looking into July 15 prices of roughly BRL53 to BRL54 per bag at the farm. That number went down all the way to BRL44 back in September last year, that's the forward price, right.

And now we're expecting something close to BRL51 or BRL52, so we're almost back to the expectations we had before the short decrease in prices. But that is true if you're actually careful in your financial structure and you don't have -- you are not (inaudible) in the region.

Page four, that's about farmland prices in Brazil that S&P study according to them prices continue to go up. We always like to point out there is always [upgrade] in terms of our (inaudible) commodity prices and the land prices. It takes awhile for things to get adjusted. I do believe there will be some adjustments, especially when you think about regions. So we expect that to happen. But from an overall perspective, the market is still strong in terms of prices, liquidity is lower than it was before, but there hasn't been any kind of substantial changes in price yet, but number of transactions are limited right now.

Page five, operating performance. This is brought down by farm, by crop that we are doing this year in Paraguay, not everything is planted, which is expected. We should finalize it in another week or so and this is when you plant in that specific region where we start doing it in mid-December, and you go all the way to mid-February, so its part of how you operate there, but this is the breakdown.

Soybean continues to be our most important crop from an area perspective, but from a value perspective and EBITDA contribution, sugarcane is almost as important as Soybean. And also we have cattle now, so we're starting our cattle operation in Paraguay, 2000 heads. It seems very small, but as we develop and start developing more and more hectares there, that number will increase. So all the licenses that we already got will make that number go up.

So page six, continuing under operational performance. Sugarcane in 2014 as I said before we had over 700,000 tons of sugarcane delivered. That represented over 101 tons per hectare, which is a fantastic result. It is the average time of the sugar rate of first two-and-a-half years is a pretty average. So to deliver 101, we are very, very happy and pleased with our results. (inaudible) a great message that the region that we chose to grow sugarcane is very good and very suitable for this product. You can see that we are having averages there (inaudible) fields that are significantly higher than the rest of result including Sao Paulo, which is the most advanced state for sugarcane. So it's a pretty solid performance and the sugar (inaudible) has also been very good.

So when looking to our financials, we will see that actually sugarcane has been driving fantastic positive impact for us. So, we're pretty pleased with the results we've achieved there. Also by year this year, we decided to build a silo, which we believe is essential to manage, not only the sale flow, so we can manage better logistics, get better prices. We can sell corn with a different theme, so we can reach poultry producer directly for instance, but also we greatly improved our operational efficiency in the farms in Bahia because now we can turn better and start all the harvesting processes earlier and have a more linear progress, which will greatly increase operational efficiency. All of the money that we're putting on those specific investments and finance with (inaudible) as you all know at very attractive rates, roughly 4% (inaudible) and five years more to pay. So we're pleased with that. Construction is well into its final steps right now and we expect to have the first shipment of soybeans going through it in a month or so.

On page 7, that's our hedge position, two elements find out. The pie chart on the left is physical sale, so 71% of our expected soybean output has been sold already. And by that we mean we have agreed on logistics. We have agreed on port bases premiums with trading companies and physical volume (inaudible).

On the right side, we have the price discussion on it and that we have a little bit less pretty much the same 71.1% of the volume worth prices that is in US dollars added by having OTC contract rate or future contracts (inaudible) and our average prices is $10.70, which is roughly 10% or 11% above current. And exchange rate position, we have so for 34.4% overall position in dollars at 2.71, which is below the current forward price. We will see half almost 6% over dollar position to sell and we're already doing that. So this number will grow of course (inaudible), but we are very well positioned. I will say that we are currently well above market prices.

On page eight, at the graph and adjusted EBITDA and I would like to point out that what we do here. And what we've tried to do here is actually offer the best of our operational performance. So we change and add back and sub-chart from the (inaudible) EBITDA to the adjusted EBITDA, all the elements that are non-operational. So for instance all the biological assets we removed it from the calculation, so we can have a very good understanding of what actually happened in those six months. And what we have here, we're pleased with that, we have 2.3 if we compare to last year, at minus 6.5 it's pretty good the results and I think the Company is on track to actually deliver -- and it is important to know this that we don't have any of the current soybean, corn crop impacting this number yet because that is still in place, it hasn't been accounted for.

So we are confident the Company is on a good track to actually deliver a positive EBITDA (inaudible) which is something of a goal for us, so we can have the operational results (inaudible) our portfolio of farms.

On page nine, the income statement. Also pleased, positive number (inaudible) looks pretty good. I would like to point out here, the sugarcane result which is fantastic compared to last year. The grain has also improved, but you might have inventory liquidation period impacting here. So it's not as important as the sugarcane which is actually a very good result.

Also just pointing out on other operating income, the minus BRL0.5 million to BRL0.6 million compared to positive BRL1.4 million. The vast majority of this is tax provision that we expect to actually get reversed very shortly. And also last year there was a version of a previous provision, which actually delivered a BRL1.4 million positive number, but the vast majority of this, say over 60% or 70% of these numbers actually are tax provisions.

On page 10, our balance sheet. (inaudible) like to point out first one. We keep our farms in Brazil at cost (inaudible) investment properties or property for investments, our demand assets that we have are all at cost. So we don't have any right now, any fair value. Apart from Paraguay thus we had to make an adjustment last year because of the [fail] and that impacts we can actually see over here in our other reserves. You can see that one-off from BRL8.4 million to BRL21.5 million and that is the impact of adjusting the price of Paraguay after we saw a piece of exploration.

So now, the Company actually our net [worth] went up, which is actually interesting because the Company came actually after proposing (inaudible) shareholders meeting to start using this BRL21 million out for dividends or shares buyback. So we are pleased with that and actually the fact that (inaudible) we're creating, so let's find all those two elements. All the farms in Brazil at cost for a while had no adjustment details of the farming, so this is sold and therefore that impacts all the reserves.

In a nutshell that's what we had to discuss with you guys and we can actually move to Q&A right now. Thank you.

Thank you, sir. The floor is now open for questions. (Operator Instructions). Paulo Valaci, Brasil Plural.

I had two questions, the first is on CapEx, if I'm not mistaken, I think in previous releases you guys break down the maintenance CapEx and gross CapEx. I was hoping you could have some granularity on that to come around. And then the second question is, the release mentions is roughly 2,000 (inaudible) today. If you could share with us some of the economics associated with that, if we could may be calculate what that operation would generate (inaudible) terms of EBITDA on an isolated basis. Thank you.

Paulo, thanks for your questions. And so the second on the cattle, Paraguay has a very (inaudible) region and Paraguay in general offer a very interesting opportunity for cattle. That specific operation we are expecting and re-purchasing and if we are going there I'd say roughly $200 per hectare per year on cattle. If you can assume there we're roughly 1.2 heads per hectare, you can do the math yourself. You can see the effective operation down there. And actually Paraguay is different from Brazil and different from Argentina. And the price of this year of the (inaudible) cattle, it's actually cheaper than the terminated cattle, and that's pretty interesting and it is better than, Brazil is much more expensive to buy calves -- more expensive to buy calves proportion than it is in Paraguay.

So it is a pretty attractive activity, and so we are expecting and budgeting roughly $200 per hectare in it. And so it can be pretty relevant, pretty interesting. Especially when I think about Brazil that you know first year soybean areas, you can be negative. So it is in fact is an attractive alternative as you saw moving those hectares in Paraguay while have to wait to move it from cattle to soybean. So, we are pretty with that.

Going back to your first question, if you could reveal it, I got that you were discussed in CapEx and maintenance and something else and I could not understand. So could you please repeat it?

Sure, sure. The question was on what the breakdown is between maintenance and growth CapEx. We previously in other regions, you were having the CapEx that was attributed to growth in hectares. So opening new hectares, developing new hectares and what CapEx will be used for maintenance on the current operations, which I assume would be the CapEx related just to farming, so we can point where you already planned and I didn't see that in new release?

Less than 10% of the CapEx is maintenance, the rest of it is growth. And we have to think -- we have to just keep in mind that a chunk of it is actually related to silo, which is something that is does not repeat every year, but a chunk of it (inaudible) it is growth and a part of this growth is actually of what we have got there is roughly 25% is the silo -- 25% to 30% is silo, 10% is the related to maintenance or even (inaudible) and the rest of it is growth on new areas.

Actually, there was a carryover effect from last year that actual impact the result because we kind of slowed down a little, but it varies a carryover effect that's drags out or drags on to the next quarters. So that number actually will decrease next quarter most likely.

Okay, thank you.

(Operator Instruction) I am showing no additional questions at this time. We will conclude the question-and-session, I would like to turn the call back over to Mr Julio Piza for his final considerations. Mr. Piza you may give your final considerations now.

Thank you. Thank you everyone for joining us, perhaps an interesting quarter from provision perspective. If you go back to our couple of calls back when we're discussing last years, we were somewhat pleased with the real estate, not as pleased with all the operational results, specially in Bahia. And now we can say that we are very happy with operation so far. I do believe the sugarcane was a fantastic surprise. We're very happy to say that soybean is looking good up to now, never know what's going to happen in the next month or so, but it's looking good up to now. So we're confident on our positive approach and result.

On top of that, I do see an interesting year for the company. The combination of lower commodity prices and higher exchange rate can add some pressure into the system. So all the operations and result that were funded where US dollars will be in (inaudible) coming months and positively fully open up possibilities for a company in terms of growth. So I see a tough year, but with very interesting opportunities for a Company such as ours that has a very clean balance sheet and aspirations for growth. So thank you very much and see you all in three months. Thank you.

Thank you, sir. Ladies and gentlemen, this concludes today's BrasilAgro's second quarter 2015 results conference call. You may disconnect your lines at this time.