Brasilagro Brazilian Agric Real Estate Co Sponsored ADR (Brazil)

Good afternoon. Welcome to the conference call of Brazil Angra for the results of Q2 2020. We will have with us Mr. André Guillaumont, CEO, and Mr. Gustavo Lopez, Administrative Office and Investor Relations Office. We inform that the presentation is recorded and all the participants will be in the listen mode only. Next. We will begin the Q&A session exclusively for investors and analysts when further instructions will be supplied. If you need any assistance during the conference, please request the help of an operator by dialing after a zero. The audio is also being presented through the Internet at our site where you will find also the slides and PowerPoint presentation. Before we continue, we'd like to clarify that any declarations made during this conference call concerning business perspectives of Brasil Agro, projections, operational goals, financial goals, are based on assumptions of the company's board, as well as information currently available. They involve risks and uncertainties and assumptions. 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 things in the future and lead to results that may differ materially from what is said here. Now, I'd like to pass the floor to Mr. André Guillemin, CEO, who will begin the presentations. Sir, you may proceed. Good afternoon. Once again, it's a great pleasure to talk to you and share our results in the quarter, our Q2 2020, with a lot of optimism, a lot of victories. We'd like to begin on page two. Show where we show our numbers, and then we will go into detail and detailed explanations of everything that happened in this quarter. One of the highlights we have for you is a revenue of $272 million, $271.9 million. Net profit, $61 million. Net profit adjusted a bit to $70.7 million. I believe we talked a lot with you about AgriFirm's acquisition, but I'd like to remind you, those who are not present or did not see the video, we will give you more explanations of the acquisition, an acquisition that we closed now. Last week, we closed the deal. We will talk about this, and then... the grain plantation. It was an adverse year in some regions, some problems in some...but now we're having a very promising year, a very...we're very optimistic about the yields this year. We're talking about 60,000 hectares of soybean we're already harvesting in some locations. with very interesting yields. We finished the production of sugarcane. We had an intense ramp up of productivity with the inclusion of the new operation, the partnership in Marignan. And we have been growing in productivity. Then we will go into more detail later on. So these are the highlights for the quarter. Let's talk a little about AgriFirma, the acquisition. So the company is very optimistic. I believe the investors are also optimistic because we paid 31.50 at net asset value. You can see here on the map on the right, page 3. So this Agrofilm is very close to properties we have. So they're very close to Chaparral, our farm. So this will enable us to have many synergies. We're working on irrigation now for this project. We always hear that Brazil had a harvest, then came the second harvest. We're having two harvests. And now we will have a third harvest. by using irrigation in some regions. So this acquisition has excellent synergies to the south. You can see on the map another one that is called Arrojadinho, which is very close to Chateau Bas Farm. We're very happy. It was a tremendous challenge. It began from scratch. Chateau Bas began with forests. We had to remove eucalyptus and pine trees. Then we stabilized the results and it began to have important results. So this includes 28.9 always 29 million hectares. We know that Bahia is a region where you have more climate risk. What we would like to say here These assets already had plantations. We're not beginning from scratch in these 28,930 hectares. 28,930 hectares. So we're beginning with assets. The majority were planted for three to eight years. So the average age is between five, six years of plantations. When you have a more mature area, you have less volatility, operational volatility. So it's a concentration that brings us many benefits, many synergies, and it's important to say that most of this acid, not all of it, but most of this acid is made up of mature areas, and we believe we will get to a stable production more quickly. So we're very happy with this. This increases our shareholder base. We brought qualified investors who came through this and thus working to really solve the last point we had to improve liquidity. We improved it a lot in the last few months, but we still need a larger shareholder base. When we look at the synergies with our areas that are close by, the exchange, buying this at NAV, increasing our base, so everything is very positive for the company, and we will work to carry out other acquisitions. Apart from this, liquidity... improved a lot. We increased the shareholder base. So we're increasing the company's floats. And there's another aspect. We had problems in liquidity in the state of Bahia. Then we sold some assets in Bahia. So we're very optimistic. We believe a lot in the potential of value generation of this acquisition. We know that it's not going to happen overnight, but There's a lot of transparency. All the company's management is engaged to stabilize this project as fast as possible. So we have always said a few years ago we talked about the acquisition of AgroServe. That was a challenge. Today we will talk about the productivity we reach. The only certainty we have is that we will reach our business stability faster than we had projected. Then Shingu, a leasing operation, where we had a great surprise in Product 50 last year. We had a challenging operation, but profitable this year. The combination of the sales strategy and productivity have brought us good results. I have no doubt that this project will be treated with the same dedication so we can extract from its the maximum potential as fast as possible. Going to the next page, it's good to see this transaction here, an explanation of the transaction, the portfolio. But here, I would like to mention a topic that came up that generated a lot of questions to our investor relations departments. the issue of the bonus subscription. So on page four we have a summary of the transaction. We are issuing 5.8 million shares. These shares, part of them will stay in the lockup. We're guaranteeing that the current investor will not be concerned with liquidity and The new shareholders have a lockup to be respected, and we had to organize this. Apart from guaranteeing the lockup, we also had to guarantee liabilities. This company had a different shareholder base. Our lawyers helped by very good losses. We designed a bonus for subscriptions. the foreign shareholders that would not stay in Brazil. So I say once again, I always highlight this. The bonus of this transaction is not a premium. It's a guarantee instrument to preserve the company's shareholders in terms of liquidity in the price of the share and also contingencies that may come up. So The bonus here is a guarantee instrument for us. Now, the company that was sold, some shareholders decided to leave Brazil, so there's a two-year lockup, and if there is no contingency, this bonus, in the future, we will be able to issue these shares, 651,000 shares. So this is the most important point to be explained. On page five, we have a picture of what we have said here, how we have generated results for investors. So here we see year after year a growth in planted area, 12% growth in planted area. And I'd like to say with all this increment, this growth, we haven't included the new areas from the company that was acquired, with the exception that we called a Partnership 5, where we included 2,800 hectares. So this growth in planted area in the next few years will be greater with new areas of this acquisition. Here we can see soybean, 54,000. Corn, 7,400. A great difference in relation to the previous harvest. New operations and also due to the difficulty to plant that I mentioned in the beginning of the presentation. We have problems in November planting these areas. Those that did not were not in the window, the adequate window, we planted corn. Now, the second harvest in Xingu, we had an operation that we began planting in October, so we're being conservative. This year, we had already mentioned this to you, we were going to be more aggressive in the second harvest. Their harvest has begun in this region in the beginning of January. On January 6th, we have a great area to be planted. So we have high expectations for the corn harvest. Sugarcane, we have been working to increase productivity. You'll see pasture has maintained itself, a small reduction, and other cultures and leases. On page 6, It's important, sugar cane, page six, one of the strongholds generating good operational results. And since we included San Jose Farm during that year, we had a great drop in the productivity in the company. But to give you an idea of numbers, we included won that year. We had 57. Then it went to 65 next year. This year, more than 72 tons. So you can see the work we did during these three years. So I have no doubt that next year, we will be very close to the numbers in our business plan for sugar cane. So here, it's important to mention what we have done in the Midwest. Sugarcane is producing well, as you can see. And the challenge was San Jose farm in the Midwest. And we're getting there. So an important growth, expressive growth. So we see from 81 tons to almost 83 tons in one year. And we have been increasing So a good surprise. So it's important to say that the operation that was a question mark for some analysts, it is generating an important EBITDA in a recurring way, and we trust that we will have higher numbers than we actually projected. Page 7, cattle raising. This is a tool we use for transforming the land to avoid volatility. So it's important that we have a transition with cattle raising. So what we want is to have a low risk activity until we can plant these areas. There was a reduction to this from last year to this quarter. We're reducing. We intend to reduce even more cattle raising. And we made an acquisition of animals, of cattle, when prices were lower. So we are transforming this into gains. So we bought this cattle when beef was worth less, and now it's worth more, and we're selling it. So it's important to say that it's a transition cattle raising. We have a GMG, average daily gain, average daily gain of weights. We had projected 97. At the beginning of the rainy season, things were volatile. And then that's when you begin to use the pasture. So we had a weight gain for the cattle a little lower than our expectations, but the asset really appraised itself due to the higher prices of beef. So you know the price of meat, it went up a lot. So this drop that we're having of 15% in productivity is also compensated very well by the increase in prices. In the next few prices, in the next few months, we should have better gains, GMG or better gains in weight. But it is still lower than our expectations, but more than compensated by the price of beef. So it's important for everyone to know this. On page eight, I say once again and highlight, when we look at absolute numbers, we are after margin per hectare. So you all know our schedule. Our budget was approved in April, and we had to project our best vision of the harvest year, including exchange rates and price of commodities. And all the reports indicated the exchange rate at 3.8 per dollar. We sold soybean, and we guaranteed the margin. We made many operations. This is the picture we have today. The exchange rate is 4.12 reais to a dollar. So we have a soybean position, Chicago 960, very different from the current situation. And the combination of these two factors will bring an important commercial gain for the company, and you will be seeing this in the next few years. On the lower... At the bottom we see corn. This is a second harvest and in Mato Grosso. And we have a guaranteed price, 55% at $26.50. And for Mato Grosso, this is a very profitable operation. In terms of the picture, At that time, the price was $17 when we prepared the budget. So we were aggressive to try to improve and guarantee profitability, and thus the second harvest will leverage results this year. These are the launch numbers. Now I've passed the floor to our CFO, and he will show us our results. Good afternoon. Good afternoon. Thank you for participating. Gustavo Lopez. Let's see what happened with the companies addicted, page 9. We have, as you know, we follow accounting norms. So, we have adjusted And you can see here the gains in terms of sugarcane and cattle and soybeans. Here we have the results available. This, we see here the numbers as we sell corn of the previous harvest. Here it's important to mention we have here six months. Here in this we have a combination of operations. And in the first six months, we have the sale of the inventory of grain. And 80 percent of the sales of sugarcane. And so for six months ending in December, we have projected a bit of 70. And in the same period last year, it was 153. The main difference is real estate. We had last year we had recorded the sale of the Chapobat farm with an accounting profit and this year we have sales of a small part of THE CHATEAU BAR FARM. AND THIS WAS RECORDED IN THIS PERIOD NOW. THIS GIVES US THE RESULTS, 1.4. WHEN WE SEE THE BIT OF THE QUARTER, THE RESULTS, 7.7 MILLION NEGATIVE. LAST YEAR, LAST YEAR, WE HAD SALE VALUES THAT WERE RECORD THIS YEAR, TOO. WE HAVE SAILED THE BUDGET ACCORDING TO THE BUDGET. BUT AS ANDREA MENTIONED, WE HAD THE RESULTS THAT YOU HEARD, SOYBEAN, CORN, AND IN SEPTEMBER 2019, WE HAD $23 MILLION THAT WERE OPENED WITH AN EXCHANGE RATE OF 3.97 RAYAS TO A DOLLAR, AND THEN Then the exchange rate went to 4.12 reais to a dollar, generating these results. This has a great impact on the adjusted EBITDA. Now, page 10. Here, what we show is adjusted EBITDA for six months, 49.9 million, almost 50 million reais. Last year, We had 46 million Reais. And here, the main reason, as mentioned, we had a very good harvest in sugar cane, higher than the estimate we had made. So, the possibility of reaching We saw that sugarcane had been very good, especially in San Jose Farm. And 900,000 extra tons of sugarcane were closing. So we're closing with 6% above last year with a better result. And an important point. highlights and especially in sugar cane when we look at the breakdown of Ibiza and the sugar cane situation we in the second semester after January to June we have the harvest and beginning to sell soybean corn. And with this, we will have a 50-50 situation and the high productivity. Well, page 11, here we see a demonstration of the results. Here we see the profits. The difference with last year you can see here. We talked about the sale of Jatoba Farm. And net revenue was very good. As you can see with the sale of soybean, corn, sugar cane. More production. And we see that Administrative expenses went up 11%. Admin expenses went up 11%. And these, we had tax payments. Now, concerning the results, here we mentioned The impact of the exchange rates. Page 12. Here we have the main lines. Assets. We see the growth. Liabilities with growth. You can see the line for leasing, rental, and here we see cash, around 100 million rents. Debt is the same. Long-term. $280 million. Net cash of the company, $880 million. It's important to stress we mentioned in the short term we have sales. that we made, and we are receiving the payments. And we understand that we can see here the leverage. The farms, 551 million Reais. We Here we have the numbers. We have your reserve and the results here. Here we have This does not include the current transaction because it happened in January 2020. Page 13, you see the debt of the company's debt situation, long-term, and the increase in the short-term. We have payments that will become mature in July 2020. This is being considered as short-term. And we have in cash 112, 130 million net debts. On the right, the average cost of the debt, 5.6 percent, and a very good interest rate. And we have We're now evaluating the acquisition of farms. In the past, the interest rates were 12 percent, and our project, 7-8. So we could not make acquisitions with these high interest rates. Now we can. So we have new possibilities to leverage the company because of the lower interest rates. On page 14, we have a great potential, an upside. We can see here. That's the price of shares yesterday. And we, our shares now are close to 31 reais. So until now, we hadn't considered some values, net taxes. And here we have this information. Also reminding you that here we don't have the new acquisition included because the deal was closed now in January. Finally, on page 14, here we see the behavior of our shares. So we're very happy with the acceptance of our shares. And this is based... This is the results of the work we have done to deliver results. So we have... We have... Now, a great potential too. We'd like to thank you, and now we'd like to begin the Q&A session. Thank you. We would like to begin the Q&A session, only for investors and analysts. If there is any question, please dial asterisk one. If your question was answered, you may leave the queue dialing asterisk two. Questions? will be answered as we receive them. Please remove the handset when asking the question. This will help us have a good quality of sound. Please wait while we pull the question. Reminding you to ask questions, please dial asterisk 1. reminding you to ask questions, please dial asterisk 1. Now we'd like to pass the floor to Mr. Andre Guillaume for his final comments. Well, we'd like to thank you all for your attention. We are totally committed delivered consistent results. More and more, we're doing this in the company, delivering recurring results. We had a challenging year with many factors, external factors. So now we have the coronavirus, but we always protected the company, avoiding fluctuations. in the market, especially last month. So we trust that we will deliver consistent results. We believe that operational results will be very robust this year, as shown here in real estate. Brazil will have a super harvest, and producers are capitalized. Liquidity is good in the market, and we're working on transaction sales. And we believe a lot that this year we will have a good combination of results. So this year, we, last year, real estate was higher, and we believe this year we should have the two things, operations and real estate value. So we're very optimistic. The harvest is is underway. We have Mato Grosso with an excellent harvest, excellent productivity in the northeast. After the beginning of the harvest with some problems, we have a consistent delivery now with interesting volumes. So we're very optimistic. Thank you very much for the trust, and you can count on us to deliver results. Thank you. The conference call of Brasilagro is concluded. Thank you for participating. We wish you a good afternoon.