BrasilAgro - Companhia Brasileira de Propriedades Agricolas (LND) 2015 Q3 法說會逐字稿

Good afternoon. Welcome everyone to Brasilagro's third quarter 2015 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.

Thank you. Thanks everyone for joining us on our third quarter conference call. We can move to page 2 of our presentation, so we can begin. Just the highlights, net revenues of over BRL113 million in the 9 months. BRL19 million of net income, over BRL8 million EBITDA.

Those are the highlights, I'm going to go over them in a second. But before, the scenario on page 3, this is soybean prices in dollars and reais, and you can start to see a decoupling the last 6 months on the price, so it's pretty interesting what's happening.

But more interesting than actually the decoupling is what we can see on page 4, and this is quite an interesting analysis. The dark line is the price of the July '15 soybean contract in reais (inaudible) CBLT price for July '15 times the forward exchange rate on the reais, and this is how this is behaving since a year ago, May '14.

So we started with a very high level, went down all the way to October, went up again, went down again, and now we are pretty much the same level we were before. So great volatility, but we were able as a Company, and this is a fact in the results, to actually capture those high points.

And it's interesting to see the kind of lighter line. It is the soybean July '16 in reais. And we started to put it in January, and you can see that right now, the expected price of soybeans in reais for July '16 is actually higher than we've had on any given moment in time for the July '16.

The summary of this is great volatility, but if you have the right capital structure, access to the right instruments, you actually have yourself at a pretty decent level as we did this year, and it is even for next year, because we have a premium for next year based on the prices right now.

So it is quite an interesting scenario where a company that is well-positioned can take advantage in this situation. So we're quite optimistic and looking into the scenario going forward.

On page 5, what's happened, the last page that we saw based on soybean prices in Brazil, land prices also reacted the same, probably growing not as fast as they were before. There might be some adjustments in some regions as we've been saying the last few months, but the market's still pretty solid, we're pretty top-down on that.

Let's look at the operating performance on page 6. This is the overall picture for the planting. As we mentioned that in September and December we were very careful in selecting the areas, because of tight margins, so this is the final [picture], it's probably 1,000 hectares more than we announced at some point, final adjustments.

We have over 80% of the soybean already harvested, and a little bit of the corn. What we can say now of course by June 30th, and when we discuss our year results, we're going to disclose the whole information. But we are seeing above expected yields on soybeans, below expected yields on corn.

But corn represents a little part of it, so it is a good, very solid operating performance, the mature areas that we have are yielding very, very well. We are having yields above 3.4, 3.5, 3.6, even above 4 times per hectare, so the mature and developed areas are doing quite well, and overall soybean is probably going to be 4% to 5% above our expected budget.

Of course Bahia hasn't performed as well, but even so, even within Bahia some of the oldest plots are performing and are holding up pretty well, but overall Piaui and Paraguay are pretty much over-performing, Bahia a little under-performing on soybeans.

Sugarcane, of course when we look into the 9 months results, we are incorporating all the sugarcane we harvested last year, but already starting to grow this year, so we started last week. The harvest for sugarcane is looking good.

We had a phenomenal year on sugarcane on 2014, and we are all pretty much excited that we're going to have a year that's going to be as good as the last one. Also we mentioned about building a silo, it's done, it's working in Bahia, it's helping to improve our operational efficiency tremendously.

And also we've pretty much done this year around 10,000 hectares of development. It's a little bit less than we did the other years, which is expected, given the situation, but we continue to do that, so it's very important that we keep on adding hectares to the [system].

On page 8, in terms of the hedge position, almost 85% of the soybean already sowed. I would call your attention to two things on this page. Number one is that we hedged our soybean price is significantly higher than current market conditions.

And the hedge on the currency is actually very close to the current conditions of say the spot price today is roughly BRL2.97, and now it's BRL2.91, so we managed to capture a very interesting combination here. So as we are our commercial side this yield paid off quite well, we reduced it, we had throughout the year no (technical difficulty)

Pardon me, this is the conference operator. It appears the speaker's location has disconnected. We'll try and get that reconnected, so please stay on the phone, and we will get the speaker location reconnected as soon as we can. Thank you.

Pardon me, this is the conference operator. The speaker's location has reconnected. Thank you for your patience. Please go ahead, sir.

Okay, guys. Sorry, we are back. We are on page 8. I was telling you about our commercial strategy regarding soybeans and exchange rate, and it performed quite well, so we reached prices above the market levels.

And of course that is impacting our results, such as EBITDA and adjusted EBITDA on page 9. I always like to point out that what we do here is we take the EBITDA as it is on our financial statement, and we try to make it more similar to the operating performance of the Company.

So we remove all the elements of biological assets that represent the future, and not the present, and also we put back the derivatives that are related to the soybean [exan], whatever other product that is accounted for on the operational side.

So we try to actually offer you the best perspectives from a managerial perspective of how the year is coming along, and the quarter. So we had BRL6.1 million in the third quarter, adding up to BRL8.4 million for the 9 months, and bear in mind that we still have a significant portion of our soybean and corn yet to be sowed.

So it is not reflected in the adjusted EBITDA as we're seeing right now at BRL8.4 million. So the bulk of the beans, plus corn, sugarcane, that are started, are still to be accounted for in the year, so we expect this number to go up in this quarter.

But overall, we're quite pleased with the results, and the strong approach in performance, remembering that all the impact -- ah, and of course and Paraguay, the harvest in Paraguay started only the first week of April, so we have no Paraguay impact in here, but the last years.

So we're quite pleased with the results. I think it shows the Company getting stronger and stronger in the operational side. On page 10, income statement, of course it is a reflection of what we just discussed. If you look back to what happened in the last couple years, you always had derivatives and a negative position before you have a higher operational return on income statement perspective, and lower financial results.

And this year is the opposite, so we have very strong financial result. The vast majority of it is related, of course, to all the derivatives position, and also all the receivables that we have from the farms are still around, and of course as soybean prices run up are actually providing a positive result.

On page 11, that's our balance sheet, and always good to remember that we have our farms as property for investments, and all of them are counted at book value. So there's a tremendous value in here to be captured as we sell those farms. In a nutshell, that's what we have to tell you guys, so we can move to Q&A now. Thanks.

Thank you. The floor is now open for questions. (Operator instructions). The first question comes from Rodrigo Mugaburu with Morgan Stanley. Please go ahead. Rodrigo, your line is open.

Hi, Julio. Good afternoon. So I want to ask a quick question on silos. Are you planning to build another one, construct another one, and two, will you be able to provide service to third parties and monetize a little bit of that? Thanks.

Rodrigo, thanks for the question, and you were too close to the microphone. It was very hard for me to understand you. I got that you were asking about the silo, and if we are going to build another one, so if you could please repeat it.

Yes, it's that and a follow up to that question is would you be able to provide service to third parties on the silos, to receive grain from other farmers, and receive a profit from that?

Yes. I think in the very short term we shouldn't build a new one. We can add a little bit more capacity to this one than we did in Bahia. That's what we expect in the next few months. As for providing services, from a provision perspective, we built a somewhat different silo there that has a tremendous through-put.

So yes, we could provide services to third parties. We're thinking and deciding about doing that or not. We do have the possibility of doing so, and the region is very poor in terms of this kind of service, so that could be interesting. But we're still analyzing that I think because it can be interesting, but yet it adds some level of complexity and risks that we have to be very careful before deciding. But it definitely could be a possibility.

Great. Thanks, Julio.

(Operator instructions). As there are no further questions, this concludes our question and answer session. I'll turn it over to Mr. Julio Piza for final considerations. Mr. Piza, you may give your final considerations now.

Thanks everyone for joining us. I think this is a sort of intermediate result for us. I think the full picture is going to come very clear in the next quarter with the annual results. We're really looking forward to it. I think it's been a great year so far, and I do believe the next quarter is going to bring a lot of good news for the Company, adding up to a very sound performance, both on operational and on the real estate side. So we'll see you guys in another quarter. Thanks.

Thank you. This concludes today's Brasilagro third quarter 2015 results conference call. You may disconnect your lines at this time.