BrasilAgro - Companhia Brasileira de Propriedades Agricolas (LND) 2015 Q4 法說會逐字稿

Good afternoon, welcome everyone to Brasilagro's fourth quarter 2015 results conference call. Today's live webcast and presentation may be accessed through Brasilagro's website at www.brasilagro.com.

We would like to inform you that this event is recorded. (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 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, and thank you, everyone, for joining us; it's a pleasure to have you here. We are presenting our 2015 fiscal-year results. So, if we can move to page 2, the highlights.

We have the sale of the remaining part of one of our forms, Cremaq, we sold it for BRL270 million.

Also, during the year we developed another -- over a little of 9,000 hectares. Also, we got licenses -- environmental licenses for 7,000-plus in Paraguay.

We increased our sugarcane operation by almost 4,000 hectares, a little bit over 4,000 hectares, in the same regional we already produce in.

All of these lead to a net income of over BRL180 million in the year and adjusted EBITDA of close to BRL200 million.

Based on our proposal for the next Shareholders' Meeting, we're going to have roughly BRL81 million in dividends, which is equivalent on today basis of pretty much BRL1.40 per share, a yield on yesterday's price of over 13%.

Those are the highlights and we're going to go back to them later, but before jumping into them a little bit of market on page 3. This is the chart we always present, it's just the soybean evolution, both in dollars per bushel and reais per bushel.

What we've seen in the last year or so is just decoupling of those. So until a year ago roughly they were very much in line. Since the last year, soybean prices in dollars have gone down significantly, whereas in reais terms, because of the exchange rate, have actually gone up.

That's very interesting, because it generates a series of impacts in the [central] and we can go over them as we discuss results.

This is the same for when [you're defining] our next year. We have the darker line with the July 2015 contracts on Chicago and how it evolved over time; and the lighter line is the July 2016 Chicago prices for the soybeans. You can see that our -- the July price for 2016 is actually in reais, (inaudible) is actually higher than it is or it was before, which means that, costs aside, there will be an interesting price for the production.

On page 5, this is farmland prices according to FNP, the results in different regions. We can see that their growth rate has decreased, prices are continuing to move up, but at a slower rate. This chart, of course, it's a very -- [don't have] granularity, so it's large regions, we don't have the specifics of each one of them.

What we are seeing is actually lower liquidity of highly developed regions, we still have some transactions happening. Other regions, the market is not as active as it was before.

We do expect some adjustments to happen, but let's keep in mind that margins for farmers are not [bad]. Therefore, apart from financial distress and capital constraints, the fundamentals for the price of a hectare in reais, very clearly here in reais, are not that bad actually; decent.

On page 6, that's the summary of the sale [we did]; that's Cremaq. We bought the farm in 2007. We developed everything from scratch. We had pretty much nothing. We took it from zero to a fully developed farm; roads; houses; infrastructure connecting to the power grid; silo; everything.

We sold a piece of it a couple of years ago and the remaining part of the farm just a few months ago. The whole project, we invested a little over BRL7 million, both on acquisitions and on capital expenditures. We've sold the farm for BRL308 million.

The internal rate of return, all the cash that went in/all the cash that came out, is roughly 21-point-something-% a year. So we're pretty pleased with that. A phenomenal project that reinforces our ability to develop our business's strategy, which you are familiar with it right now: it's to buy, develop and sell; so we are delivering on that.

Then on page 7, it's a summary of that. You have all the farm sales we did. We put a couple of them in the beginning of the -- in the beginning of the Company; we've combined them together.

But then in the last, I would say three years, we had an important amount of sales. We're starting with Horizontina in 2012, up to now. All of them between 19% and 27% internal rate of return and we've combined them all, it's over BRL500 million in sales; so it's a significant number.

It's important to share that kind of information, because we've gotten a lot of questions throughout the years about how liquid this market is; is it possible to sell farms? So a lot of people out in the investment community, they are not that familiar with the sector, asking us about the actual feasibility of doing what we do.

So this is the proof that it's [possible] to keep on developing and sell the farms as a recurring business. So we're pretty happy with that. I think it tells a story about the Company: how much we invested; how much we generated; how many hectares we have left; and all the amazing land bank which you have to develop. So, the Company is in incredible shape to keep on doing a lot we've been doing recently.

On page 8, a snapshot of our portfolio. On the left, a breakdown of our farms between underdeveloped and then developed. Of course, the blank part is not developed that is a quite [good] investment.

It's not supposed to be super precise, but it shows kind of a trend of what's happening on each farm of ours, so we can have a farm that's fully developed as Taquari, which is a sugarcane farm, and one [as] Paraguay, it's just probably a quarter of the farm is under development; the rest of it is due to be developed.

Now, on the right side we have the evolution, accumulated hectares development value achieved since started the Company. It's been impressive, it's been growing at 46% a year at a compounded annual growth rate. We've accumulated over 100,000, getting close to 110,000, hectares of development. That's a pretty impressive number, we're very proud of it; it tells a story of the value being created.

On page 9, a little bit about the partnership [we did]. We leased over 4,000-plus hectares of sugarcane in the regions we are already producing. It's a region that we cracked the code on how to produce sugarcane. You're going to see the numbers: a very high yield; very important [kind of] return on the farms.

We have a fantastic team on the ground managing this region, so it made sense for us to go ahead and, actually, increase it.

It does bring a few other positive impacts for us. First of all, it is the cash. Second, it helps us deal with the volatility on the marginal regions we operate in, so it helps us decrease overall volatility of the Company.

And third, it helps us facilitate us to actually manage the real-estate portfolio of sugarcane. We have a contract for sugarcane to the mill. By adding new hectares, we have more flexibility to sell hectares there. So it's an important step for us to be there doing this.

We're pretty pleased with this. We started this year and the results so far, part of this is already on the financials, so part of these hectares were harvested before June 30. But also after that, we have July and August and results have improved there in the region and in the specific farms released, in terms of productivity, sugar content. So it's working quite well.

From our portfolio 253,000 hectares; 11,000 leased; 124,000 in Brazil, 117,000 of which, 50% is always in Paraguay.

Our appraisal of our portfolio, always conservative, that's our own estimate. We, of course, from an overall value we went down from last year, but we are, of course, taking Cremaq out of it. It's not part of the farm portfolio. It's cash in our balance sheet now, so we're happy with that.

Reais, the value, and with the corrections, some of the farms are more developed now than they were last year, some corrections in prices, went up 9% with -- I think it's important to say that every single farm sale we get in the last four years, we get it at a value above the ones we mention on the yearly appraisals that we give. So we're pretty confident on these values here.

When we bring that up, we go to page 11, which I think is a very interesting thing to look at. We have here, on June 2014 and June 2015, the book value of our Company and the net asset value. The difference being, one, we have the farms at cost; and net asset value have the farms at our own internal appraisal.

You can see that by June 2014, our book value was roughly BRL583 million and our NAV BRL1.3 billion, which is roughly BRL10 and then BRL22 per share. This year, our book value was up to pretty much BRL13 and our NAV to BRL23.6.

It tells two different -- and two stories are very important here: one, the significant increase in book value. This is, of course, by realizing the sales of the assets, selling the farms. We start, actually, accumulating book value, which is something that is phenomenal. Growing the book value of this Company by 30% on a single transaction is awesome, we are very pleased with that.

And a second element is that by doing that, what we are doing is actually reducing the discount from book value to -- or the difference between book value and net asset value. So you can see the discount last year or book value represented 44% of our NAV. Today, book value represents 64% of our NAV. So by selling the farms, we're actually closing the gap between book and actual value of the farms.

On page 12, a little bit on our operations. On the right side we have yields: soybean, corn first and corn second. We are pleased with soybean at 2.57 (sic - see slide 12, "2,557") kilograms per hectare. We have to remember that we had a very diversified portfolio throughout very different regions, very immature regions, so that's what we expect to see. And we're a little bit above our own budget.

In the case of corn, first crop, disappointed by yield, didn't perform. We are below our budget, but it happens.

On corn second crop, we're talking pretty much about Piaui, which is a new frontier for second crop and delivered 4 tons (sic - slide 12, "4,000 kilograms") of second corn crop there. It's pretty good actually, given the prices we have there, the costs to produce, it is a profitable operation. We're pleased to actually have accomplished a second crop in Piaui, which was deemed impossible a few years ago.

Then on the table below, we breakdown soybean yields by development level. This, again, is a qualitative assessment how we will see it. But we can see that, of course, the new areas have a very low yield. That's part of the development process; it's part of the investment that we do.

But only when we look at the developed areas, we have 2.87 tons (sic - slide 12, "2,875 kilograms") per hectare, which is actually pretty good. It's above Brazil's average and it's in line with the large producers with diversified portfolios out there, which tells the story that we are delivering operational results as good as any, given, of course, looking at the right factors. So we're pleased with that.

Then on the left side, we have a little bit of Bahia. This is -- the line is the historical average and the bars -- the columns, sorry, are what happened this year. We can see that we've had a below average November; below average December; an extremely dry January.

That is what hit corn so strongly. That is the [corn -- innovation] of the corn happened in January, extremely dry, no water, high temperatures and, of course, that affected the corn adversely. The beet as well, but the corn is really, really impacted.

On page 13, sugarcane, we have always two ways to look at it. We have the fiscal year and the campaign year. Looking on the campaign year, we are estimating 2015 to be close to 90 tons per hectare, with a sugar content -- Bahia with a sugar count that is going to be close to 138 kilos per ton of sugar.

So it's pretty good; way above Brazil's average; way above Sao Paulo's average. So as I said before, this is the region that we mastered on how to produce sugarcane. So costs per country to harvest and transport and maintenance costs, all of that, it's been really, really good results. That is the reason and that is why the confidence to go out there and actually increase the area.

So last year 101 tons per hectare; this year 90 tons per hectare. Of course, here we are decreasing -- or increasing the maturity of the portfolio of sugarcane. That is the reason why average yields are going down, because you have all the areas as we put them on lease. The one we lease have the sugarcane already planted and increase the average age of the sugar [rate]. But we're pretty pleased with the results

On page 14, a little bit of Paraguay, and this is the first time we're releasing the specific yields for Paraguay. So on soybeans, we were expecting 1.6 tons (sic - "kilograms"), ended up with 1.9; corn, 3.3, ended up with 3.6.

This is actually pretty good for Paraguay. You have to remember that the costs to produce in this region on the case of soybeans is, I would say, 40% below Brazil; in the case of corn, half -- 50% lower than Brazil. So by having these types of yields on this region actually generate interesting and attractive margins.

We have the history, a track record, of the farm and it's getting better every year. So we're confident about Paraguay and the prospect of developing there, this region.

But also, of course, we cannot be that aggressive, so we do have cattle, which is the primary activity in the region. And it's getting -- actually, 1,500 head of cattle, but it's getting bigger. As you are developing the farm, have new [pressure] being implemented, new facilities and this stock of live cattle should go up this year. But the results so far have been very promising.

On page 15, a little bit about next year's harvest. Soybean; on the soybean price we have 16% of our estimated volume with prices already fixed, using Chicago contracts at $9.8, which is significantly higher than current. We have 30% of the exchange rate already sold at BRL3.85

So we are keeping this -- very close tabs on the commercial side of it, trying to take advantage of good soybean prices in reais and good margins.

On page 16, our EBITDA and adjusted EBITDA; just a reminder, EBITDA is out -- the equity from the financials and adjusted, we remove all the biological asset gains or losses, everything that is not related to the current year operation. We, of course, add back all the financial results that are related to the operations.

So we end up this year with close to BRL200 million in adjusted EBITDA; a phenomenal results. We are very pleased with it. There's actually not much to add here, just it's a phenomena, and it even compares what happened last year.

If you go over the numbers in there, it's not simple to do it, because it has carry-over effects, price effects on [interior]. But perhaps we can do a -- by December this year can look back and actually show you guys that excluding farm sales, we have a very decent EBITDA from operating the farms.

That EBITDA outside, apart from actually selling farms, is actually above our maintenance-backed CapEx, which shows the Company generating a positive cash flow, even without selling farms, which is very important to us.

On page 17, income statement; again, phenomenal result, BRL180 million of net income is just everything that we expected the Company to achieve this year.

On the balance sheet, I call attention for what happened to our total equity: went up significantly. Of course, here you already have an important part of the dividends payable, so it reduced total equity already. But the growth in equity is just amazing.

On page 19, our proposal for the dividend. Dividends close to BRL81 million, 50%, which we believe is a good balance between paying out our shareholders for believing in the Company, a good balance between that and actually financing growth of this Company; and, of course, as we announced already, buying back the shares, as we believe they are at a very attractive valuation.

So that's it. In short, that's what we had for today. We can move to the Q&A now, and thanks again for being with us.

(Operator Instructions).

I'll turn over to Mr. Julio Piza for final considerations; Mr. Piza, you may give your final considerations now.

Thanks, everyone, for listening to us. We're very proud of the results. I think it's a fantastic year for the Company. This is actually getting where we thought this Company would be right now.

So as I said, a phenomenal year, very happy about it. Let's keep the momentum and continue to build the Company in delivering these amazing results in the coming years.

So see you again next quarter and thanks for joining.

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