Brasilagro Companhia Brasileira de Propriedades Agricolas

BOVESPA:AGRO3

Earnings Call Transcript 2019-Q4

[Operator]

Good afternoon and welcome to the conference call of BrasilAgro for the earnings of Q4 and full year 2019. We will have Mr. André Guillaumon, CEO; and Mr. Gustavo Lopez, Administrative Officer and Investor Relations Officer. This presentation is recorded. [Operator Instructions] The audio is being presented simultaneously on the Internet at www.brasil-agro.com, where you will find also the slide presentation.

Before proceeding, we would like to clarify that any statements made during this conference call concerning the business perspectives of BrasilAgro, projections, operational goals, financial goals are based on beliefs of the company and also on information currently available. They involve risks and uncertainties because they refer to future events and, therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operational factors may affect the future performance of BrasilAgro and lead to results that may differ materially from those expressed in such future issues.

Now we'd like to pass the floor to Mr. André Guillaumon, Chief Executive Officer, who will begin the conference. Sir, you may proceed.

[André Guillaumon, executive]

Good afternoon. Once again, it's an enormous pleasure to be with you to talk about our earnings. I believe it's a very special day because we have the results of Q4 where we closed the year of 2019, our calendar year. And so it's a great pleasure to share with you important and relevant numbers of the company. I believe I can say that we had a year with many difficulties. The company was able to position itself and also prepare itself due to uncertainties in the market. It was a very challenging year, and this motivates us because these years have been very challenging. What we brought, growing results, solid results, concrete results, enabling us and encouraging us for much more.

So first, let's go to Page 2 where we have the highlights. We had a net revenue for more than BRL 0.5 billion, BRL 590 million in revenue, net revenue. This is a record for the company, and I'm very happy to say that more and more, this is happening due to operations, real estates, our strategy -- as a result of our strategy and investment. This net revenue gave us a net profit of BRL 177.1 million, very significant profits, a robust number for our business model. This gives us an adjusted EBITDA of BRL 205 million with the possibility of giving us these robust results.

You have been following us. We had a sale of a farm at the beginning of the year in Alto Taquari, and we sold at the end another area in Jatobá Farm. So I believe this shows clearly that the challenge that we had to overcome, the liquidity problems, are over. We had much more capacity to continue delivering solid results in this region.

Well, with these results, the company's management, the administration council takes to the general assembly distribution of dividends equivalent to BRL 50 million. Once again, an important dividend, a robust dividend, a dividend that represents 5 points -- 5.5% of yield. Once again, the company delivering consistently the results. This comes due to the maturity of our portfolio.

Going on to the next page, Page 3. Here, we have the great challenge, you are following this, the price of soybean. We had many problems during the year. We tried to capture opportunities in the price of soybean. We are always looking at contribution margin. We're always making sales and also increasing costs. We had many -- we had a price -- we had a commercial war between the U.S. and China, problems in the spot market. Right after that, at the end of October, November, things became more difficult, but -- so a scenario of many problems. We had Chicago with -- at $8 a bushel, but it is -- it was a year with many problems for soybean, and the same we can say for 2019. Once again, we're working with our team to deliver results when selling our products.

Page 4, I'd like to repeat. Here, we have the map of Brazil, and you all, in the last week, sorry, the great discussion about the Amazon forest. In reality, what is happening is a wrong positioning on both sides in the news concerning the Amazon, but we can tell that all our assets there are in the savanna. We don't have any fires in our farms. We don't have any problems with fires. We have -- so this shows our responsibility, and this you know very well.

This graph shows we have been monitoring the price of land that we'd like to share. Although we had a flat price in the last 3 years, the company has been able to really appreciate the prices. There has been appreciation in the prices of our land. We are here to do -- to transform land into arable land. So we have invested in our plots of land with improvements in the soil. And later, we will see that although the price of land is flat, we have been able to capture good prices when selling land and, thus, have a robust portfolio.

Page 5. I would like to highlight the events concerning sale of property, 13,011 hectares. This is total area, not -- total area would be here, 10,800 hectares; sales, BRL 238 million with up to 22 in the Taquari unit.

So the highlights here through this slide, you can see the value generation we have in our portfolio. So we're talking about 3 sales served. All these 3 sales we're talking about BRL 142 million in accounting profit. So this shows the results we have obtained, both on good management and also depreciation of land.

Going down to the next page. I'd like to close talking about our year-end report. We continue selling property. We continue selling land. We are -- and we sold these areas. You can see here in Jatobá, we made a sale, 302 bags per hectare, BRL 23.2 million, and this also gives us an accounting gain of BRL 17.7 million. These are not reflected in the year-end report because they will be part -- they will be included in the next year beginning on July 1. So -- but this is the accounting results.

Going down to Page 7, I believe that we have the opportunity to be here. We showed you the portfolio and how mature it is, our strategy. Two numbers that I'd like to highlight.

Here, we have the value generation that we have had. We already sold 82,000 hectares of total area, BRL 862 million. This allowed us gains, profits, BRL 641 million. So we already had us results based on the initial investments, and so here, we have also receivables apart from this.

But this is important. So our strategy is very clear. Our strategy is robust. Our strategy, we are engaged. So when we look at value of the land plus profits, we'll talk about BRL 1.8 billion. We began with BRL 580 million. We already delivered results of BRL 641 million. We paid dividends, BRL 200 million in dividends. This is important to say. Shareholders always appreciate this, but in the past, we did not have mature areas. So now the company is robust, and beginning with BRL 500 million, now it is worth BRL 1.8 billion.

Now Page 8, evolution of our portfolio between 2018, '19. What we showed, this is a graph. We have to try to maintain things in a balanced way. 1/3, 1/3, 1/3 of the portfolio is in plots of land that are ready, developed. Others, ready to be sold. Another 1/3, areas in development, and here, we'd like to highlight that these are areas that are not mature. So we -- these are areas that are still -- we are improving the fertility of these lands, improving the productivity. And at the bottom, the last 1/3, areas to be transformed. So with this focus, we want to deliver consistently, we transformed all the areas, and we have a sustainable business. We can say this is very important for us.

On the graph on the right, we have -- we know that we have farms that are very mature. Others are being developed, and today, we have a company that is much more balanced, delivering consistently results.

Page 9. It's important to highlight although we made expressive sales, this shows the transformation capacity and value generation capacity of the company. So we look at the portfolio here, BRL 1.471 billion, and now we have a total of BRL 1.400 billion with the sale of farms. We continued developing, invest -- we had made massive investments in transforming the land and using irrigation systems. So we were capable in the last year to generate important value for our shareholders with plots of land that are mature. We'll continue investing. The investments were important. They overcame -- they were in excess of BRL 17 million in transformation CapEx investments, and this shows that we're on the right track. So we want to highlight the value generation capacity of the company and to know where we can capture the best opportunities.

Page 10, our highlights. This is a summary of the results in 2019, an important increase in area, in leased areas. We have an important investment in leased areas. This helps us in cash generation, 80% being planted. So also the amount of corn produced in this scenario, the investment in the Xingu was done at the right time. We have a very good scenario. The price of meat, the price of beef has gone up due to the swine flu in China. So we have high hopes for the price of beef. Now it's important to say that there was an important increase in the planted area, and this consolidates our results more than 30% increase.

We reached production of 5,000 tons of cotton, 2.2 million of sugarcane, 230,000 tons of grain, 21,000 heads of cattle. So we had good results from cattle raising. It's a tool for transformation for us where we generate value on the lands during the first few years when we acquire land.

Page 11, we can talk about productivity. We always have things to improve. We are -- we make a great effort here, but I would like to clarify the numbers so you can have a better comparison.

First line, we show the amount of soybean in 2018 and 2019. We had an important drop in 2019, and this due to some units where we have the early planting of soybean. So areas where we had sugarcane. We had -- there is the -- some of it's shorter. So in some units, we had more precocious soybean. We had an important impact from soybean and in some areas of the state of Bahia.

In the case of Paraguay, Paraguay, as always, we're very happy with Paraguay although we -- in Brazil, also the portfolio. Our portfolio is now newer. We have many new areas in operation. 11% of the areas are now the areas being planted. We added 11%. So we are working on productivity in this number. We see general numbers out of the company.

We -- well, I'd like to talk about this number here. If we could give you a breakdown, we have expressive productivity, 53 bags in the older areas, and in Paraguay, 3,730. The older areas are areas with 4 or 5 years. We're not talking about 25 years, 30 years, no. We're talking about 4 years.

So we -- so in corn, in the productivity of corn, those who know corn, we have 2 harvests. We have the summer harvest. It suffered due to the drought. We had a drought. And in Paraguay, we made an investment we have there, the mini summer, as we call it. In Paraguay, we call transformation corn. Paraguay's an operation very -- Paraguay has a lot of macro fertility.

Normally, in Brazil, we plant corn after the fifth year. Since in Paraguay the soil is more fertile, we can accelerate the production. So we have the transformation corn. It is low-potential corn, but it helps to improve the soil. So we add in increments in areas in Paraguay, an important increase in Paraguay, and this -- the larger area had -- we planted corn. We planted corn in these new areas.

We built -- in terms of -- in fact, we are very transparent with you. We -- and during the first years, we must plant transformation corn to help increase production. So it's an important learning curve.

In Mato Grosso in the state of Mato Grosso we have an operation, and we planted 50% in the state of Mato Grosso in Xingu. And there, the company, we had also -- we never control the number of animals. We had 650 (sic) [ 550 ] hectares affected by wild animals.

This year, we're making some improvements in the process and the control, improvements using electric wires to stop animals from coming in, electric fences. We had a problem in the productivity due to this, but now these are -- this is what I have to say, the results of cattle raising. I tell you once again, it's a transformation tool to work with cattle raising. We had a reduction in the area. Every time we can sell farms, we sell. And with agriculture, we have higher prices. So we had a decrease in cattle raising, 11.47%. This allowed us in an efficient way to obtain increasing results from cattle raising, 32% gain in weights more than last year, beef. And this is cattle raising with low investments because it's only a transition before we go to agriculture.

So this -- it doesn't give us the highest gains, but we have significant results in GNG, so 530 grams weight increase per animal. Even with drought and with rain, we had the same situation. So we see good numbers with low investments. So we were able to get 210 kilograms per hectare. This shows that although cattle raising is a tool before we plant, we are always very cautious because we don't want it to be a tool that could hurt the company. So it's a tool that allows us to have less volatility.

And going down to Page 13. Here, we'd like to highlight the level of investment the company has made in planting sugarcane. The company basically -- we concluded many new plantations in the Midwest, also in the Northeast, [ put in the sanctions ] there. 4,000 acres of sugarcane were planted there, and this helps us increasing the productivity.

So we have these areas in the Midwest. We have leased lands in the Midwest. We have robust productivity this year, especially this year due to different techniques, better processes. We have been after this especially in our São José unit. And the last point, which is very important, although we had important gains in productivity, we were able to maintain the level of sugarcane.

In the last harvest, it was -- the harvest was richer in sugar content, also sugarcane. We had a better rain last year. But in relation to this, this year, we closed 2018 with the numbers you can see. We closed 2019 with 141 kg/ton, a higher productivity. So basically, these are the numbers we got. We were -- have to -- these -- we're always trying to overcome 14,000 kilograms of sugar per hectare. So we obtained this in the mature areas. We believe we will get to these numbers in other regions, adopting new technologies, adopting irrigation systems, and we're doing this.

Well, on Page 14. Here, I would like to talk about the year, a year with a lot of problems, as you saw. In 2018, we had elections. We -- a lot of -- there was a lot of fluctuation in the exchange rate. The company positioned itself. So we began to make decisions as of May 2018 in terms of selling the soybean, and we were closed using -- we were able to obtain an exchange rate of BRL 4.03 to $1. This was very important, a good exchange rates for the sale -- at the time of the sale.

And also due to problems between the U.S. and China, in the harvest 2019/'20, we're looking at a good contribution margin. We have hedging, 40.1% (sic) [ 44.1% ], and we also made some more positions. And we believe this year, we'll have a lot of volatility, tremendous uncertainty in Brazil.

When we look at the prices, they are very different, the spot price especially. Once again, we will be alert through these changes and problems. If there is no trade agreement between China and the U.S., we should have a situation similar to last year. That's -- so there are many uncertainties. This year, freights, prices. Today, the sector as a whole cannot capture this.

Well, this is a graph where we show the sale of 2019/'20. As I said, we have here 7.8%, as you can see, also derivatives. So we're very happy delivering these consistent results.

And now I'd like to pass the floor to Gustavo Lopez to talk about the accounting results of the company. Thank you.

[Gustavo Lopez, executive]

Thank you. We would like to thank you for participating. Continuing on Page 15, we have adjusted EBITDA, as already mentioned, where we exclude this part here. Also you can see the results here for -- of the harvest, and this last year here, here we can demonstrate adjusted EBITDA, here 43%. Especially the sales, 3 -- we sold 3 plots of land, 13,000 hectares. You can see here the sales, and we have here the results, you can see.

It's important to mention the consequences of the effects that André mentioned. Some frustration in some harvests due to the crowd. Soybean, very close to previous results. We -- this year, we have 50 bags per hectare, soybean, BRL 50 million during the year. So you can see here the value, BRL 204 million this year.

Page 16, please. This was a request from analysts and investors to separate the results concerning the sale of land. So here, BRL 56 million with sugarcane, soybean, mix, and the previous year, BRL 101 million.

On the right, we can see here our results, soybean, as mentioned, in the previous harvest, number of bags, and this year, 50 bags of soybean per hectare. We can also see their costs, higher costs because of the exchange rates and an increase of 14%.

Corn, including Xingu farm, we had a productivity. We see here, this was -- we were not there at the right time to plant soybean. We have the small harvest, the second harvest. So we had some problems, and this generated these results. So -- although we have a higher number of tons, sugarcane, after the inclusion of São José Farm, this gave us -- we had -- you can see here the administrative expenses. And now we have a cash generation of BRL 68 million, and we had this cash generation. We diversified products. These here are the results until June 31 (sic) [ June 30 ]. We think we have leased land to third parties. This helps us to decrease risk, and cattle raising also it is an activity that helps us avoid volatility with consistent results.

Concluding, here, we can see BRL 56 million. This result is due to better productivity in soybean in spite of the problems. And we see here, we had the numbers. This year, we had good operational numbers.

Next page. Here, we see the profit in this semester, BRL 177 million, and we already mentioned we have 52% more than last year in this number. Administration expenses went up. Management expenses went up 11%. And we paid, we are now paying the social security charges, as you can see here, in this new format. And this was the company's strategy because of the volatility, giving us a positive result of BRL 20 million and also cost of capital.

Here, 18. So we believe it's a very good result, and we are always after better results. It's always a challenge for us, and we're very motivated.

Page 18. Here, it's good to see the variation, Page 18, in the assets, 14%, 15% in relation to the previous year. So here, we have everything at cost value. Here, our receivables, accounts receivable. Here, short term, long term. Here, this is for the sale of sugarcane and grains, also liabilities, the debts. We had loans. We will see that in the next pages.

We have -- we don't have much leverage for the size of the company. We can see the market value here. Leverage is very low. One important point when we look at the results here. We have here the loans we've seen here. So for us, we have the debts with banks on one line. We have São José, that is a farm that we lease. We'd like to mention we have here another line, BRL 35 million, and the results for the company with a net worth here, solid numbers for the size of the company.

On the next page, Page 19, company's debts. In the short term, we have BRL 66 million (sic) [ BRL 76 million ]; long term, BRL 209 million; total debt, BRL 285 million. And -- so this here, we included 23,000 acres of leased land. Here, we see the amount spent to plant soybean. We took out loans for these things.

We are making strong investments in sugarcane. We believe we can improve the yield and the cash generation. We -- our debt is longer term than it was. We were able to lengthen some of the loans. So we believe that we can sell more land and, thus, decrease our debt.

So the debts are shown here. We have derivatives here, here in equivalent cash, short and long term. BRL 161 million here. That's as mentioned. When we look at accounts receivable, BRL 222 million in accounts receivable, and so we have very little leverage. An important point for the company, the adjusted net debt 30% here.

Page 20, results. Destination, BRL 177 million net. We have a 5% reserve mandatory. So every time we talk to analysts and investors, we say that we want to distribute dividends as we do here.

Page 21, net value of the assets. I'd like to highlight what we said before here. Net equity here. Here, we have -- we'll continue to work for the market to recognize these values, and we invite all investors there -- to see here.

Page 22, the last page, capital markets. Here, we show the trend for our shares, AGRO3, in the last few years. We have important increases, always improving things. So the next year may give us better and better results.

Thank you. Thank you for participating, and now we'd like to begin the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from [ Mrs. Katherine ] from Bank of Brazil.

[Unknown Analyst]

André, Gustavo, congratulations for the results. I'd like you to talk about sugarcane and cotton. What is the investment to be made from now on, investments? And what are the perspectives for cotton? Is it important to divest, to sell?

[Unknown Executive]

[ Katherine ], 2 excellent questions. Well, first, the question on investments. Well, here, we have important sugar plantations. We have results that is higher than the average especially with the new São José Farm in the Northeast. We really have to invest a lot in sugarcane. Last year, we improved 2,000 hectares; this year, 4,000 hectares. We are renewing the plantations, and this is -- now we have here investments similar to the investments in the Midwest.

We may reduce now in the next few years investments in sugarcane. Why? Midwest has many investments -- received many investments. In the Northeast, in the São José operation, we're seeing more stability in the production. So we have a contract for a ton of sugarcane, and we continue trusting the investment in sugarcane will drop next year. Our investments will be -- there will be 20%, 30% reduction in investments next year. We should reduce the investments because of the massive investments in the past. We invested in irrigation projects, so an important reduction.

Your second question, cotton. We understand that cattle raising is a transformation tool for us. Cotton in the company, we don't have much cotton in our own areas because the -- these are investments we make here and there. They are not very expressive, with the exception of Bahia where we use cotton to increase the value of the land. Here, what we have with cotton is very similar to their previous year.

So cotton is a tool. It helps us stabilize things. It helps improve the soil. We believe a lot that in Chaparral Farm, we will -- we have 27,000 hectares there. So the investments in sugarcane will, therefore, drop and investments in cotton only in certain conditions. But we are following this. The price of cotton is low. Everyone knows that production is around 65. So we continue believing. We are planting cotton in Chaparral. We understand that it helps make the soil more fertile. It also helps appraise the value of the land.

[Operator]

Our next question comes from Mr. Victor, Crédit Suisse.

[Victor Saragiotto, analyst]

André, let me go back to cotton. We -- there are incentives especially in the state of Mato Grosso. The next harvest, many people are beginning to plant cotton, and some farmers are complaining already about the costs. How do you see the costs for planting cotton?

[Unknown Executive]

Well, Victor, excellent questions. I have to -- I forgot to answer to [ Katerina ]. We are -- [ Katerina ], here we have the margin we expect for sugarcane. Now these questions. The way we see it, we're a company. We have planted cotton in small areas. We have small plots of land with cotton. We were -- even with the small area, we were invited to participate in the roundtables in the Ministry of Agriculture. I believe that 60 pounds, around 60 pounds with Sectorial Chamber. In the last meetings we had, we didn't have this scenario 60 per pound. And also everyone said that cotton would not -- we would not -- no one would increase the planting of cotton.

Now last week, we went to a seminar, and the sector has changed a lot. From the last meeting to this one, price has changed and in some regions of Mato Grosso where you have corn. So the second harvest of cotton will be substituted for corn. So we will plant corn instead of cotton. So I believe we will have the same production. 2.8 million tons. But I believe that if cotton continues to be attractive, there will be more corn.

And now costs. Here, 2 points I'd like to stress, 2 points. Cotton is a long-term crop. We -- 6 months ago, when we were making the decisions on soybean, we evaluated cotton. I would say that we have 50% already sold with different prices. Prices have changed. We have numbers around 73 for the next harvest because when we made decisions in the past, we looked at costs. So this was mentioned a lot last week in the cotton seminar, especially the rising costs. If you look at year after year, 8 -- prices have gone up 8%. Prices have gone up 8%. That is why some people are willing to plant corn.

So the 2 questions. The first, I see some migration going to corn in Mato Grosso but I must say, cotton planters, cotton producers have very great investments for cotton. And there will always be a minimum value, but I don't see the possibility of increasing. Now it's in cotton. It's different from soybean. So we have sanitary control. Companies that haven't made their decisions, we've seen that things have changed in the last few months.

So in terms of margin, we hope -- we believe there will be something less. We have -- our results are better. We, as a sector, the sector will suffer a lot this year. The large players have begun to see that they will maintain the areas planted with cotton or a small reduction. We have -- so we may have a recession in the U.S. This would generate a reduction in consumption, and because -- so we are alert to this. We have already guaranteed in U.S. currency of 3.8, some things that we buy. We would like to highlight cotton for us, adds value. So we're always looking at it.

[Operator]

[Operator Instructions] Since there are no more questions, I'd like to pass the floor to Mr. André for his final comments.

[André Guillaumon, executive]

Well, I'd like to thank you all for participating once again. It is with great satisfaction that we report excellent results. We believe in the company's strategy. The strategy is well designed. In all the levels of management, the company believes these are a robust results, and we have a good combination, the result coming from the value of the land and also the harvest. This is our strategy. So we'd like to thank the team that did a brilliant work during the year. Although we have many problems, but we have been able to deliver good results in difficult times, imagine in good times. So thank you for believing in the company's work. We'd like to thank the investors who are following our results, and as Gustavo mentioned, this really raises the bar, and you can be sure that we are working to deliver robust results. And this is challenging. This is what motivates us, and we want to deliver better and better results. Thank you.

[Operator]

The conference call of BrasilAgro has concluded. Thank you for participating. We wish you good afternoon.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]