BrasilAgro - Companhia Brasileira de Propriedades Agricolas (LND) 2016 Q3 法說會逐字稿

Good afternoon. Welcome everyone to BrasilAgro's Third Quarter 2016 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 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 will turn the conference over to Mr. Julio Piza, Chief Executive Officer. Sir, you may begin your conference.

Thank you. Thanks everyone for joining us. Let's move to our presentation. On page 2 highlights. Net revenues on the three quarters of BRL95 million. Net income close to BRL28 million. EBITDA adjusted of a little over BRL17 million, and also an interesting (inaudible) new operating licenses in Paraguay.

Before moving to the presentation, we all would like to get this chart in the next page on page 3 which is the soybean price evolution and we have always the price in reis and the price in dollar terms. And as we started to (inaudible) between the price in reis and dollars, which continue to happen and it will have big gap between the price in dollar terms and reis terms because of the depreciation of the currency in Brazil. It has very important impact on farmers' profitability, which of course helps on the operating side of the business. It does generate some financial concerns, depending on how the financial [cuts], but overall result is positive.

On page 4, the implication of land is that looking to farmland prices over the last years, the rate of growth has decreased. It's pretty much stable. Few regions have actually decreased. But I think (inaudible) we have seen in the market now is that very few contractions of the market because of all the political implications of what's happening -- these implications of all the political scenario in Brazil and the economic downturn and all of that. The market is pretty much frozen right now (inaudible) very few transactions happening. The prices are somewhat resilient but if you need to see more liquidity to make sure we have the right price levels.

On page 5, going over our results for the year and I think we have two different situations in the Company. We can discuss Paraguay and sugarcane. So, in Brazil, we have had fantastic results on those two and then we have Bahia and Piaui. On those places, we've had several (inaudible) you can see on the chart that rainfall has been way below historical levels, especially in February and March, which are critical months for production. So, we have had really (inaudible) on these regions towards February and March. And that's what we're expecting to see a significant decrease in productivity, 40% in beans, 30% in corn and that will (inaudible) impact our results and that is already shown in the numbers.

So, as part of the logical efforts calculation, even though by March 30, almost nothing had been harvested, all this impact is already accounted for in our books. So, summary, Piaui and Bahia (inaudible) conditions. Sugarcane, as you already know, (inaudible) have just started (inaudible) and things are looking good. We have not started on March 30, but we are starting by now and it is going good. Paraguay is the greatest harvest of all times. No real issue there. I can see on page 6 that we have rainfall level a little bit over historical levels but very closer to Paraguay (inaudible) results. We are achieving in Paraguay today margins per hectare in the [size] of BRL250. So, it's pretty good results. So, Paraguay,sugarcane fantastic, soybean and corn in Bahia and Piaui were way below.

In the case of corn, we did not come back to higher prices. So from a margin perspective, corn is actually not bad, (inaudible) 30% growth. You will get your margins back up before of the higher prices but in the case of soybeans, it's really damaging for results.

On page 7, our hedge position for this campaign, pretty much everything is fixed in terms of price. By knowing what our volatility in the level, we have been very cautious in the (inaudible) negotiation. So, it should have some to grow, but it's pretty much follow our current price which in reis is very way above current market conditions, in the case of the exchange rate we had stated before. So, prices are good, above budget and we had above market but not enough to compensate the decrease in (inaudible). On page 8 is our EBITDA and adjusted EBITDA. And now I would like to remember that (inaudible) adjusted EBITDA for us it's adding back all the financial results that are related to operation activities and also all the adjustments related to biological assets. They are not part of the quarterly results. And I have a few important things to mention. First of all, in the quarter (inaudible) given all the results that we had on the year (inaudible) BRL70 million on the adjusted EBITDA. An important thing which is way above last year's which is a good thing, but part of it will be reversed in the next quarter. So, while I think it is a kind of new (inaudible), it is the way we calculate every quarter, but because we had not harvested anything, almost anything by March 30 and given that we have had a significant reduction in productivity. I expect that an important part of that will be reversed by next quarter. So, by June 30, the Company should be close to zero, a little positive, a little negative. That's our expectation (inaudible) on the EBITDA -- adjusted EBITDA, which is an okay [time] given how we manage our funds, having all these significant investments (inaudible) every year. Given the fact that we have reduced the total area [having] consideration that we showed a very large and highly profitable farming, it's not expected to have a low EBITDA but gross (inaudible) for more have not been for the (inaudible) we would have a very positive one and nevertheless given our business model and all the adjustments from last year's to this one [aiming now to be closer] to your EBITDA is not bad, is not great either, but it's definitely not bad. On page 9, our income statement and here we can see that even though we are accounting for the results on the crops already adjusted by the forward yields, here it's still on BRL42 million accumulated results for the year and which should take us to a positive result. It's going to be the fourth year of positive net income for the Company in a row, which (inaudible) important given the fact that on Brazil, we have a high farm sale Brazil yet. We haven't had -- we've had a terrible year in terms of productivity in Bahia and Piaui. So turns up with a highly positive net income. It's definitely something for us to celebrate. And of course, an important part of it is that (inaudible) our financials, which I think was extremely positive this year. So, all in all, I'd like to say, it's a very challenging quarter for us given what has happened in Bahia and Piaui in terms of weather conditions and productivity. An important part of it has been compensated by results in sugarcane and it will be compensated by results of Paraguay and an important notice here. The result in Paraguay, the positive one has not impacted our balance sheet and income statement so far. We're still using a very conservative production and so there will be some surprises [positive ones] coming from Paraguay in terms of income statement and balance sheet, but it's not there. So going back for soy. Very tough, this economy in soybean and Bahia and Piaui, partially compensated by sugarcane and Paraguay. When I have this to all of the [crude] scenario plus good financial management, we end up having a (inaudible) year especially because we haven't had any (inaudible) we expect to have some at some point, perhaps will happen before June 30, perhaps will happen a little later but want to give that the results (inaudible) to show with you guys. So we can move to Q&A. Thank you very much.

Thank you. The floor is now open for questions. (Operator Instructions) Rodrigo Mugaburu, Morgan Stanley.

Thank you. Hi, Julio. Good afternoon, question on the cattle project that we mentioned in the release, can you give some on color on your total CapEx with the results, and do you have any consolidated details for that project? Thanks.

Rodrigo, thanks for the question, but I couldn't understand the voice, if you could speak a little slower and not at a voice a little on a high note, it will be helpful. Thank you.

Sure, do you hear me better now?

Yes.

So my question was related to the cattle project that you mentioned on the press release, if you can give some color on what the level of CapEx that will be rolled in that project, how much money would you have to invest in that, and if you have any target returns for that project?

Oh, that's the cattle project. Now I understand you. We're probably in the first two months of it will be around BRL10 million that is the initial capital to be invested in the project. I don't expect it to be much higher than that in the very short-term, so it should be around BRL10 million for the next 6 months to 12 months. And most likely, part of it will be financed through long-term (inaudible), we are discussing and waiting. So our cash position should be highly impact with our cash availability. But it's roughly BRL10 million.

Thank you.

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

Thanks everyone for joining us. (inaudible) in Piaui and Bahia but by June 30, we are going to have a better understanding of all the impact of that, just why it should ahead of (inaudible) and start discussing this optimally. But by June 30, we are going to have a much clear (inaudible) on exactly the implications of all these (inaudible) and how we will position the Company for the next cycle. So, thank you very much for being with us, and see you again next quarter.

Thank you. This concludes today's BrasilAgro's third quarter 2016 results conference call. You may disconnect your lines at this time.