Brasilagro Brazilian Agric Real Estate Co Sponsored ADR (Brazil)

Good afternoon. Welcome, everyone, to Brazil Agro's first quarter 2020 results conference call. Today with us we have Mr. André Guilmon, CEO, and Mr. Gustavo Lopes, Administrative Officer, Investor Relations Officer. Today's live webcast and presentation may be accessed through Brazil Agro's website at www.brasilagro.com. We would like to inform you that this event is recorded and all participants will be in a listen-only mode during the company's presentation. After Brazil Agro's remarks, there will be a question and answer session for analysts only. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Brazil Agromanagement 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 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 floor over to Mr. André Guillaumont, Chief Executive Officer, will make the presentation. Sir, you may begin. Good afternoon, everyone. Once again, it's a pleasure to have you all here at this moment to share our results of the first quarter that starts this year, starting now. We are in a difficult time in terms of market and weather, so it's good to share our expectations with us and talk about our results in this first quarter. And we are always available to answer your questions. So I would like to start by saying that on page two, we have a summary of our performance in this first quarter. It has been a robust quarter and we'll compare it to the first quarter of last year. Let's start by highlighting that we had a net revenue of $185 million in the first quarter and a net income of $40.6 million, the adjusted EBITDA of $57.4 million. The revenue from sales of farms amounted to $28.7 million and once again It has shown a good result at the end of the year, has had robust dividends for the market. We have approved in the company's shareholders meeting payment of dividends in 50 million reais of approximately 93 cents of real per share. So once again, it's a quarter that we start combining operational and real estate results. the sales from properties result is a more seasonal one, whereas the operational result is distributed throughout the year. And we have as an assumption, the combined result from both. This is the strategy that we believe strengthens our business model. Now on page three, I would like to explain the two transactions that happen in this quarter. A total sales in the quarter of 1,219 hectares of land amounting to 28.7 million reais. We separated two operations, one with the IIR of 21.4 and the other 14.7. Taquari Farm was bought in 2007. We made a small sale, and now this is the second sale in October. It's land with a small area, a farm with a small area of land, 1,100 bags of hectare as a nominal sale value, and the accounting gain was 4.3 million, and an IR of approximately 21.4%. This farm had an issue to be overcome regarding registration and payments that was overcome long after we purchased the farm. So the IRR was impacted with this payment that was a bit longer terms whereas compared to Araquaria that is in the same area. In this first sale That is the first sale. And the second sale was the sale that happened in September, the first one of another part of Jatoba Farm. We have constantly shown that the assets in Bahia are worth having. Bahia has good conditions, a good productivity, not excellent, which brought a lot of liquidity to the area. So we managed to make another important sale in this quarter of the year on a sale of 22.7 million reais, a total of 1,134 hectares, 893 hectares of arable land, which an accounting gain of 16.6 million and an IRR of 14.7%, which was a pleasant surprise for this asset. Now moving on to page four. This is important to comment on what has happened in the harvest year 2019-2020. Brazil had a position when compared to other years of delayed planting more in some regions than others. In Mato Grosso, we are in advance of we are quite advanced when compared to the rest of the state. In other areas, in other regions, we're a bit delayed regarding the stabilization because of the stabilization of the rainfall volume. As you may know, the weather has been quite erratic in the beginning of summer season with rainfall that... after a cold front comes covering a certain region. So that allows one farm to plant, another farm not to plant, whereas part of the farm can plant and the other cannot. So we are expecting the final rainfall regime for the year, but so far it has been a very challenging year because we don't know exactly when the rainfall season will start. And in Mato Gros, we have advanced with the planting season. In our Xingu operation, we have more than 19,000 hectares planted of a total of 20. So one or two more days of planting will be done with that. Taquari, we're also advanced in the planting of soybeans. And we have started planting the northeast region at Chapahal Farm. We have planted one surface there. We had one week of drought, and then this week we had a pleasant surprise of rain coming back again. So we'll resume planting soon. And this is a summary chart of all the planting areas. Soybean, a year-on-year growth from 51.8 to 54. Corn, first crop has remained stable. Corn, second crop shows an important gain, and it's worth highlighting. Here, as you may recall, the planted surface for last year, we have mentioned that Shingu operation was an area that was starting its operation, and because we were cautious, we started playing soy with longer intervals, which led to a better position for second crop planting. Today, the operation is doing fine, working well. smoothly, and we have 100% of it in operation within schedule, which is to finish the second crop until the end of October. We have even exceeded our expectations, planted more area. So we will see an important growth in the second crop corn, 11.3, and most of it comes from Shingu operation. In sugar cane, the areas have remained stable, with the small changes due to the expectation in production, the idea to renew the sugarcane plantation. This year we had some areas that we were pleasantly surprised because the production was higher. For pasture, we remain with the same figures, except for Jatoba. We... increase where we increase the crops and cotton we have a planted area in a farm that we believe there are important margins to capture so year on year we have a growth of 5.4 percent but it's important to highlight that this 5.4 percent growth in planted service we have to to remove the farms that were sold. So we had an important growth in the company despite the massive sale that is aligned with our business strategy in terms of farm sales. So this is the capacity we have to show you that we have to combine both results. So despite selling a lot of land that had generated good economic result, we do have potential to cause transformation and grow the planted area, even in the year of divestiture. Now moving on to page 15, as I have mentioned, the grains and cotton. Soybean, we had an important growth from last crop to this one due to the adjustment of packages. And this chart grows a lot based on my previous comments. for the first and second corn, first and second crop. And then for cotton, we have an expectation of production is a bit better than last year. So overall, for those of you that are looking at our figures all the time, we had an increase in tons of 298,000 tons, which accounts for 28% of increase in volume production volume when compared to last year. Page six, now we have an overview of our cattle raising. It's always good to remind you that cattle raising is a driver for transformation for the company. It's something we decided to do three years ago, and we had very pleasant surprise last year. And even more so now, that the commodities market for beef has had a high increase in prices and will capture that result as we've seen in price increases in the last months. In the initial months of this year, we still don't have a large number of heads killed because most of the heads are killed the final months of rainfall then the prices will be different and this is the adg the pasture areas remain stable the number of has remained stable close there has been an increase of 800 heads and the adg we have extensive cattle raising some units we decided to produce more beef and less confined beef but it's important to highlight that 0.47 with almost 500 grams a day is among it's a good production level because large cattle raisers produce 500 something per month, almost 600. So for us, it's a transformation tool. We calculate the pasture area according to a planting area. So it's a temporary activity for us. But we've had excellent results. And we'll see the tails of the figures later. On page 7, You can see the year-on-year figures for sugarcane harvested area. Here we see the number that's not completely final. There's still some volume to be realized and we'll be close to the production of last season, last crop. But there has been an increase in productivity. We always talk about this in the calls, that Maranhão was a challenge, but we took over the unit with 57 tons of sugarcane per hectare, and at the end, we have year-to-date 80 tons of sugarcane. So in two and a half years, we had a unit that went from 57 tons per hectare up to 75, 80, an important growth. This year will overcome 1,200,000 tons and next year even will grow even more. And this has been a result of technologies adopted and introduced year on year, releasing more areas for the production of grains. So it's important to show how we can improve results with technology in sugar. We have had two main moments, and I would separate in two areas. In the Midwest area, we had interesting sugar ratios, 146 average APL. We closed Morro Vermelho as well. And now we're completing Maranhão. Maranhão is still below. We still have time to increase the concentration of sugar there. Currently it's at 132, 133. So this figure of 142 that we show you is the estimated figure considering the Midwest and Maranhão areas. But it's important to highlight that even when we do this, the criteria that we ask for our managers to produce is not tons of sugarcane per hectare, is TTH, is the ton of sugar per hectare, TPH. So our units in the Midwest have reached more than 14,000 kilos of TPH per hectare. In Maranhão, we expect to reach that as well. And that's an important factor for us. Now moving on to the next page, as you may know from observing the market, we've started the year with a lot of volatility in terms of price increases. The commercial war between the United States and China remains. It was supposed to end or have some conclusion in the event in Chile, a COP 20, but it was postponed. And that generates a lot of uncertainty. So as I always say, we want to increase the margin of the company. So whenever there is an opportunity to sell and combine results, we make decisions. Today, we have 44% of the next soybean crop sold at that price of $9.33 million. We took this position back in May when we still had the soybean at $8.99. We have been taking these positions, and today we have a mismatch rule. If we sell soybean in the future, we also close on the exchange rate, and the average dollar is $4.04 for this volume. And we always try to capture some mismatch and improve this, There is some expectation of prices for this year. And those who keep track of the soy market, the trend of Chicago is an uptrend, either because of China or because the U.S. production year on year has dropped from 120 million tons approximately to 95 million tons, given the delay in starting planting that they had. The planting was good, but it also changed the maturing window of soybeans in the north and Midwest of the U.S. These are important facts. The USDA official figures, 95 is 90 tons, where the people talk about 95,000 tons, or 84 against 95, but there's still room for this market to grow. In terms of our discussion about the freight table, the base has never been so misaligned. In other years, we had a projection for base. The companies were able to talk about base projections for the beginning of the harvest season. But today, because of this freight table, the future bases are very low. The spot base is like we had last year. Chicago went down. This year we don't have 250 points, but the base would be around 100, 120 points. The spot base oscillates a lot, and the other one is 140 points. So this is the main driver, and we have to trade very closely to obtain significant results.

Now moving on.

I think I end now, and I'll pass the floor to Gustavo, and then I'll be available for the Q&A session. Thank you. Thank you very much. Thank you all that are attending this call.