Brasilagro Brazilian Agric Real Estate Co Sponsored ADR (Brazil)

Good afternoon. Welcome to the conference call of Brasilagro for the earnings of Q3 2020. We have with us Mr. André Guillaumont, CEO, and Mr. Gustavo Lopez, Administrative Officer and Investor Relations Officer. We inform that the presentation is recorded and all the participants will be in the listening mode only. Next. We will begin the Q&A session exclusively for investors and analysts when further instructions will be supplied. If anyone needs any assistance during the conference, please request the help of an operator dialing asterisk zero. The audio is being presented simultaneously through our website, www.brazil.com. where you will find the slides in the PowerPoint. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Brazil Agro's management and on information currently available. Thus, they involve risks and uncertainty, so they are based on information that is currently available. As we said, they involve risks and uncertainties and depend on circumstances that may or may not occur. Investors should understand the general economic conditions, industry conditions, and other factors that affect the future of Brazil Agro, and the results may differ materially from those expressed. Now, I'd like to pass the floor to Mr. André Villamon, Chief Executive Officer who will begin the presentation. Mr. Andre, you have the floor. Hello. Good afternoon to all of you, to all those participating in the conference call. Once again, it's a pleasure to be here with you and share with you the earnings of Q3 at a time when our country and the world is in a critical and difficult situation. I believe that we from Brazil Agro and agribusiness, especially in Brazil, we are being able to give a good example of sustainability and resilience at a time of difficulty. I would like to thank you all. Let us talk about our numbers, and we are available for questions after the conference call, and we will tell you how we have reacted to the current situation. Well, on page two, our highlights, we reached a net revenue of 353 million reais, 353 million reais, with a net profit of 85.6 million reais, with an adjusted EBITDA of 78.5 million reais. Once again, this shows that agribusinesses there has a lot of resilience. We concluded the planting of the second corn crop. Later on, we will give you details about the numbers. And it's fundamental to say that since the pandemic began, we created a risk committee and we are monitoring closely the risks with two fundamental points. First, preserve life, guarantee life, of our employees and third parties and all those who work with us. Second is that once we guarantee the life and the safety of people, we also guarantee the safety of our operations. So, this has been the great objective of the company, and we will talk more about this. Page three, please. Here, talking about the pandemic. As I said, we have a prevention and risk committee, and we mapped risks that we could run. So we mapped the risks involving people, the people who had comorbidity, and we did this in January. These were, these are away working in home office, and after the decree, the state decree, We had headquarters. We also began to work in home office. So, we haven't had any problems. The team is very motivated and we have delivered satisfactory results. The fundamental point is to say that most of our units, we have a contingency plan for them to avoid people having to move around. thus avoiding circulation. Our employees are staying more time at the units, at the farms. So we have a war room operation to guarantee the safety of the operation and exposure of people to the pandemic. This has involved hard work, and agribusiness has given a good example for us to overcome this crisis. Apart from this, when the pandemic began, we had a great concern with logistics. And today, looking at the numbers, show the measures that we took at the beginning. We saw that we could have logistics problems. So we tried to foresee. We accelerated sales. We accelerated the removal of the inventories. Until now, we haven't had any great problems in terms of interruption of logistics, but the company had the third quarter, and you will see the numbers that are very different from last year as a result of the pandemic and the need to take precaution to avoid logistic collapse. So, all the risks were well planned. These points are analyzed on a daily basis, weekly basis, and we have taken action to have a smaller impact on the operations and people. Page four, it's important to highlight the company has delivered constant growth in its activities and its operations. We'd like to remind you our businesses has a different strategy. We have a combination of two vectors, operational vector and real estate vector. And this differentiates us from the marketing, gives us more stability in the results. So every year we want operational growth and also content search for real estate appraisal. Here we can show you what happened during this campaign. We ended the planting of the second corn crop. So, we have an increase in soybean from 51 to 54 million hectares. Here we have corn, the harvest. Here I'd like to tell you we had a great increase in the second corn crop year after year. We have been telling you this. When we took over operations in Shingu to have more safety in the first year of operations in Shingu, we planted We wanted to plant more. This year was a very good year for this. We were able to plant more than 80% of the planted area, part in corn, part in beans. A new culture we're introducing in the company for exports. So we have done constant work to improve the recurring delivery of results. Consequently, the real estate results sugarcane. There was a reduction in the planted area, as you can see, and this is the demobilization. We are leaving some areas where the real estate suffered appraisal. So, we are in a ramp-up phase in some farms, especially in San Jose and Maranon. San Jose farm. So, first 57,000, next year 65,000, this year almost 80,000 tons and surely there will be growth and we will get to the same levels as in the Midwest. Now, pasture, this is also, it's always the transition phase to mitigate risk. This also helps us. We have used this tool, cattle raising, to mitigate risk. Consequently, we also allow the soil to mature with pasture and then we can plant with more stability because of the organic material from cattle raising, physical benefit when we go from pasture to crops. Cotton, we are in the learning phase and we're looking at this when prices allow for us to make more progress. This year we increased a little. It's a challenging crop. So, you have seen what is happening with the price of oil. This has a direct correlation with synthetic fibers, and we saw the drop in oil prices. So it's a challenging culture. Others, most of these are the least areas, the third parties, the least areas. Well, this we can see year after year, growth in the productive land, a year that was difficult, And we increased by 15%. Page five, please. Here we see the increase. Soybeans, 91% of the harvest completed with the yield that is above what we expected. We had a projection. So year after year, too, we have an increment an increase in production. Now, corn and the second crop here, we see a great increase, and we already mentioned in previous calls when we begin these cultures, there is a difficulty in stabilizing the use of water. Finally, we found the best area, the best time, And we migrated to corn, increasing the second crop. So this is Mokun Shingu, where we are planting more than 80% of the area with corn, with excellent perspectives. Also, beans that we introduced, beans are an extra alternative in the second harvest. And also, we We had some areas that already had beans, and we thought we should diversify more. It's an enormous challenge. It has a lot of volatility in price beans, and we're making efforts to guarantee positive results in beans. All of this generates an increase in production year after year of 31%. Total production increase, 31%. You can see the numbers and later on we will give you the details. Well, going on to page 6, we see here this is fundamental. Cattle raising is a transition phase for us and it mitigates volatility in the first years and this is very important. Since it's a transition activity, we're not going to have the best gains because You don't design the phase for constant cattle raising. Since it's a transition phase, this gives an operational result, but reminding you, this has helped with good results. I believe that you have been following us and the markets. you see the scarcity of animal protein around the world due to coronavirus in China. So the price of meat increased a lot, went up a lot. And right now at this time of crisis, so we are really using the higher prices and we this gain is helping us. So it's fundamental to show to you we have a GMD with a small variance. We're a little lower than last year. We will believe we will improve this basically because of the beginning of rainfall. The reason is the beginning of rainfall is a little late. Rainfall is a little late in Bahia. And Paraguay, Paraguay you know well. This year Paraguay suffered a lot. The south had suffered and we had lower rainfall. So, this brings us some signs showing that it's a transitional activity. We must be prepared for this. We're also seeing more liquidity in some regions, especially Bahia, state of Bahia. They had cattle raising, and now we are transforming cattle raising into agriculture. So high prices of meat, of beef, and more liquidity in Bahia had us adopt a strategy to reduce the number of heads of cattle. You must all be alert to this point. We want to show to the market that we have the capacity, the mobility, and the agility to make the right decisions at the right time. On the next page, I would like to conclude saying, reinforcing this point, the company is still concerned in guaranteeing the sustainability sustainability of its results. We worked with hedge. This year we saw a lot of volatility. We saw the exchange rate going up a lot. Later on you will see. So we are working with hedge. We are hedging and the company is always trying to guarantee the results according to our commitment and this year is the year when small producers that don't do hedge, don't do anything, will have a competitive edge. So they are having a revenue that is higher. But on the other hand, this is positive even for us because our business, we have two areas, real estate and agriculture. So our strategy involves these two things, guaranteed growing sustainability, guaranteeing constant results during the year, and right now, guaranteeing operational results. And certainly, the market will have good surprises for us in terms of price of land, and the increase in margins. Now, I'd like to pass the floor to Gustavo, and he will give you further details. Thank you for participating, and we hope you are all in good health. Let's continue on page 8. Here we have the company Zbibta for the nine months 140 million rai and last year you can see was 185 million. To understand better, we want to adjust this EBITDA excluding effects, especially sugarcane, and we included the harvest. You see the adjusted EBITDA for these nine months, 78.4 million reais. Last year it was 71. Here we see here a variance and we must say that last year we sold farms. And this year, we have 21 million reais this quarter. And this explains the difference of 85 million reais. It's important to highlight, and Gray mentioned the impact in the margins, as he mentioned, We have better margins as we buy the inputs. And we began the last harvest in soybean with a price of $9 a bushel. And in the past, we had $9.60. the market, you will remember the market had lower values for the bushel. When we look at the margins in local currency, we see $46 million and we had a budget and the market, the exchange rate, dollar-real, arrived now at 5.60, 5.60 reais to a dollar. So there were gains in commodities, and also we had gains due to the devaluation of the Brazilian currency. When we look at physical sales, We follow this, the impact on cash, and we have the deliveries of the contracts. We have impact. We began to accelerate sales, as you can see. 40,000 tons because of the better exchange rate and also the risk, the logistics risk because of the coronavirus. And this had an impact of 26 million reais as we can see here. Once again, we have the expectation that as we continue to sell, we have, we will compensate this. On page 9 here, if we remove the effect of the sale of farms two years ago, we had operational EBITDA of zero due to the sale of Agro Serra Farm. And also, areas that were leased, we can have those values around 70 million Reais in cash here. we see that we have adjusted a bit to 57.755 million reais a year. We still have to harvest 50% of the soybean harvest that is yet to be done. The harvest continues. We still have to include here corn and cotton. If we consider the 14 million that we have, we believe that in the next quarter, we will have amounts that will be higher. Also, on the right, we have the breakdown sugarcane. during this year. This ends on June 31st. We had a super harvest last year, 2019, and this had an impact on our EBITDA. Now, we want to have 50% from crops. We were mentioning cattle raising has a small participation, a small share. And we are increasing the planted area. Page 10. The results, 85 million reais. Last year, 140 million reais. And we would like to highlight the gross profit of the company. Last year, 194 million reais. Apart from real estate, 89 from operations. This year, we have 158 million, 20 million from real estate, and 138 million from operations, from agriculture. So, our strength is the combination of these two results, agriculture and real estate. We have a lot of volatility and we want positive results in order to pay dividends. This is the commitment we have. Another line we can see administrative expenses here. The difference is difference between this and the previous quarter. We had an impact taxes that we had accrued, other revenues and other revenues operation expenses. These are the costs we had to include the new company. Here, financial results, 15 million riyals. This is the cost of financing the debt. This is the service of the debt for nine months, and here we see the details. We have some adjustments and also all the receivables we have, 294 million reais. Page 11. Here, it's important to stress this includes the new company, Sigma. here, 8 million rai, the new shares, and maybe in tax that we had when we included this new farm and the properties for investment. These are the costs of including the new farms. First in line were the farms that were bought. These are being incorporated at market value. Another line were loans. The company has debt in U.S. dollars. So we also have debt in local currency at much lower interest rates. And with this loan, we paid our debts in U.S. currency. Another point. accounts receivable and receivable due to the sale of farms. So, in the short term, you can see May, June, July, and August. So, here we see the net worth. went to $1,103,000,000. On page 12, we see the company's debt on March 31st, $443,000,000. We can see here Total debt. We converted the loans from U.S. dollars to Brazilian Reais. We have here cash, 89. Net debt here. We have amounts receivable due to farms that were sold. Here, the average cost of the debt, 5.9% a year, and here we have the amortization on the right. Page 13. Here we see we have a book value. of net equity, $1.1 billion. Here, number of shares, 62,104. And when we adjust to market value, the properties, as we mentioned, we have 1.3 and also 1.NAV, 1.845. Market value, 1.3 billion. And the potential for upside in the sale, 40.9%. We believe that it's an excellent investment. And also, we see also better margins until the end of the year for cattle raising. Page 14, here we have the price of the shares. And here, the important point we want to highlight, the behavior of our shares above the Bovespa index, the Brazilian stock market index in Brazil. So, our shares are trading at a higher price. the increase in liquidity that we had in the last 12 months, one million per day, and two million if you consider the nine months. I believe we see here on the graph that the share price is strong. We are carrying out many activities. We have the devaluation of the local currency, and also we see that the market continues to have volatility. We can see that we're on the right track, on the right company, on the right track. We'd like to thank you all. And now, we'd like to begin the Q&A session. Thank you. We would like to begin now the Q&A session, only for investors and analysts. If there is any question, please dial asterisk 1. If your question is answered, you may leave a few by dialing asterisk 2. Questions will be answered as we receive them. Please remove the handsets when asking the question. Thus, we will have an excellent quality of sound. Our first question is from Pedro Suarez, BTG Pactual Bank. Good afternoon, Andre, Gustavo, The first question, you talked about the strategies, contingencies, evaluating investments. Can you talk about the results of this and concerning investments? Which investments are at risk? Well, we believe that agribusiness, certainly grains, is in a good situation, but normally we know the companies will capitalize. So, do you believe it's time to accelerate acquisitions? Do you believe it's the time to sell or to make acquisitions? Are you optimistic about more sales this year? Good question. We could spend all afternoon to answer your question. It's a pleasure to talk to you. I will try to Cover your points, and then we can talk at the end about the real estate. We saw an increase in interest rates. We took out loans that are not included in these numbers yet. We took out loans from public banks. At very competitive rates, CDI index was 2%. This was very good. Once again, at a time of crisis, we must have a lot of focus on the operations. We have to also look at cash. Cash is very important. So, the pandemic, we know when it began. We don't know when it will end. We need a good health to maintain the sustainability of the operation and also take advantage of some opportunities in the market. I would say to you, agro as a whole, farming is having a good harvest, good results. On the other hand, we have large companies, large companies that don't have the same capital structure, that don't have a secondary business, or companies that have debt in dollars. So we believe opportunities will arise. Preserving cash and the sustainability involved is guarantee the operations, and to look at market opportunity. This is fundamental. Soon, it's time to sell more. We're looking at many things in terms of acquisition in this segment that I'm saying. Not those that have very small farms, but these larger farms where the core business may not be the core business, may not be the main thing. So, we will have many opportunities in these large companies. So, first credit line, second acquisitions. Now, in terms of investments, as you mentioned, as everything, we have to be very selective and even more now. If you look at the investments, we look at this every month. all the types of investments of the company, but now we have an even more critical eye. The investments that were more advanced and these investments were continuing with the investments. The investments that we could maybe de-accelerate, investments For example, the planting of sugar cane. When the pandemic began, we understood that with the volumes, we had to deliver raw material. And we said, okay, here we are okay. So we stopped planting parts of sugar cane. Now, transformation of lands. Those that were advanced and those that will produce in the next quarter, we stopped investing because they give us results. Those who are late in planting, we're looking at the right time to invest. So these are three lines, credits, investments, and acquisition. So we're also looking at the results. We believe that 85 million is the number. We still have soybean to be harvested and also corn and cotton. So we have to analyze the impacts For next year, we see that even if the, for example, we see the prices of sugarcane have dropped because of the oil crisis, but we still have margin. Last year, too. everything that is soybean and corn. Today, we have 1,700 reais per hectare. So, these are the results in the future. We will see the price. Okay. Well explained. Thank you. The next question comes from Luciana Carvalho, Bank of Brazil. Good afternoon, Andre, Gustavo. Two questions. One is about the sale of land. that margins improved in agribusiness. We're looking at macroeconomic conditions. The U.S. environment, can this change, for example, you are making, you are having good results in agriculture, does this change your strategy to sell land? And looking at liquidity, is there any change in the dividend policy? Dividend policy? Thank you, Luciana. First, we will see the sale of land. We have been seeing, you all know, low interest rates make the real estate market grow when interest rates are low. Yes, the situation has changed. Talking about real estates, here we'd like to highlight that the margin agribusiness has been very high, as Gustavo said. We do believe we're working strongly. I hope to have good news for you soon, very soon. Sales, sale of land. I believe we will be able to sell very well. Farmers are buying land because the results are very good. And farmers, I was talking to our sales team, soybean is 102 reais a bag. So farmers are very happy with these prices and the profitability. So I trust that It will be a good year for the sale of land, and we should take advantage of this opportunity. I believe this will happen in the next few months. Why? The land market is always sold after the harvest. So the farmers, at the end of the harvest, they sell and then they buy land. In December, In January now, everyone sees that the profitability was good. Yes, I believe the land markets will be very good. And in spite of the macro points with the impact, we see the U.S. currency going up. the local currency being devaluated, but the sale is in local currency. So, not all the costs are in dollars, but the revenue is in dollars. So, this has a positive impact. So, with some exceptions like cotton, you have Also, synthetic fibers dropping in price because of the oil crisis. But we are beginning to see that in the future, margins will improve. In terms of dividends, liquidity, we will pay our dividend policy, the mandatory amount, 25% of the profits. 25% of the profits will be paid as dividends by law, but if we have new sales, yes, we will try to pay these as dividends. It's difficult to tell you where in the next conference call we will be able to tell you how aggressive we will be in paying dividends. We'd like to remind you, I always tell our shareholders, our objective is to deliver profitability and sustainability and also look at opportunities. So, we have interesting opportunities. So, it's like a scale. We always want to really think of our investors, and also to keep our company in the long term. Thank you. Our next question comes from . I'm Greg Gustavo. Quick question. I went to . We heard that the company called Attibus is having problems. Talk about your relationship with sugar and ethanol plants who are having problems. Well, you chose the right place. to hide from the virus in the state of Mato Grosso. We are in a very good location. So, we have been planning. The council and the risk committee are also alert to this. We have receivables now from April. Most of the receivables were paid in April. Part of the payments were delayed to the beginning of May. We're talking about 7 million riyals, 8 million riyals, sorry. Four were paid and four were delayed for the month of May. We had no problems with the sugar mills. This company always considers us as a priority supplier. We had no impact during the harvest. We received all the payments on a punctual basis. Only $4 million are to be paid in May and you heard about a fund that acquired the control of this company. I talked to the board of directors. we are talking to the holding company. I believe that either way, it will be positive for suppliers. Whoever takes control of the company, they, and I can tell you, most of our sugar cane is in the best sugar mill, the one that you mentioned, Takwadi. So, It's a very productive area. The sugar mill is working at almost 100% capacity. We believe that they are doing well. We have followed this closely and it's fundamental. You have sugar and ethanol. If they... We know that their EBITDA is positive. What used to hurt their business was the capital structure. They had a debt that was very difficult to pay. So the company had a positive EBITDA, more than $1 billion. And if you removed the interest they paid, the service of the debt, They could recover depending on the creditors. The information we have is that everything is going well, the negotiations, until the day before yesterday. But the information we had recently is that the creditor meeting to happen this week will We're looking at this, we're following, but in terms of financial impact, it's almost zero. The 95 million tons that we developed, we were paid with the exception of these 4 million that were delayed for one week. So, we're very optimistic. They continue working. The sugar mill continues. They are generating flow. So, I'm very optimistic. I believe there will be a good, because I believe in that mill. It's the best sugar mill they have and I believe things will continue well there. Let me ask you another question. If we imagine that they continue having problems, Would it make sense to exchange sugarcane to soybean in that region or... Excellent question. We have been doing that. We're doing that. As of two years, we stopped investing in sugarcane. You can see that we have... soybean and corn. So these are areas that were converted to soybean and corn. So with two crops, you will have a better return than sugarcane. So in Takwadi, we have 3,600 hectares. We bought another 1,000. And we're planting soybean and corn. We're doing that because our objective, we have volume. Since we had excellent gains in productivity and sugar cane, we could afford to plant different crops in some areas. So we have done what you said, and we have migrated. from sugarcane to soybean. Also, this region, we know that there's always a tradeoff. So, we would like to, if necessary, we can migrate more land and also we can sell the land over there because the prices are very high there. Land prices are high. So we have the option also to sell the land. So we have a privileged position in terms of this. Thank you. Since there are no more questions, I would like to pass the floor to Mr. Andre Guillemot for his final comments. Well, I'd like to thank all the participants during this hour. We have a commitment. We will continue focused on delivering results. I believe, not only I, but this Indian agribusiness is now stronger after this pandemic. The world is looking for places where they can source safe food, and Brazil has a unique position. So, we are cautious. We're working hard with the ministry. They have done a brilliant work. We believe a lot in agribusiness. And so agribusiness in Brazil will have a unique opportunity to supply food to the world. And this will happen more and more. We will be suppliers of protein. And this helps cereals, helps exports. We're very optimistic with Brazilian agribusiness in the long term. So we depend on diplomacy. And we don't want anyone talking in a negative way about China. This hurts us. We want to preserve the relationship with China. Agribusiness in Brazil has this productivity because of Asia-China, so we don't want anything negative in relation to the diplomacy and our relations with China. We have a lot to learn and agribusiness will come out of this stronger and stronger due to the points we mentioned and the image of Brazil. Agribusiness at this time of crisis, not only in Brazil, is giving an example of the importance of everyone having food to stay at home in quarantine. the vision of people about agribusiness. Agribusiness is no longer the villain, but it is the hero and we are involved in this production chain and we are working. Thank you very much and count on our hard work, our support and our investor relations department. If you need any clarification, call us and once again, counts on Brazilian agribusiness. Thank you. Thank you. The conference call of Brazil Agro is concluded. We thank you all for participating and we wish you a good afternoon.