BrasilAgro – Brazilian Agricultural Real Estate Co ADR (LND) CEO André Guillaumon on Q2 2020 Results – Earnings Call Transcript

BrasilAgro – Brazilian Agricultural Real Estate Co ADR (NYSE:LND) Q2 2020 Earnings Conference Call February 4, 2020 12:00 PM ET

Company Participants

André Guillaumon – CEO & COO

Gustavo Lopez – Chief Administrative Officer & Investor Relation Officer

Conference Call Participants

Operator

Good afternoon. Welcome to the conference call of BrasilAgro for the results of Q2 2020. We will have with us, Mr. Andr Guillaumon, CEO; and Mr. Gustavo Lopez, Administrative Office and Investor Relations Office. We’re informed that the presentation is recorded. [Operator Instructions]. The audio results will be 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 BrasilAgro, 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 Guillaumon, CEO, who will begin the presentation. Sir, you may proceed.

André Guillaumon

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 2, 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 BRL272 million, BRL271.9 million. Net profit BRL61 million, net profit adjusted EBITDA BRL70.7 million. I believe we talked a lot with you about Agrifirma’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 and acquisition that we closed now. Last week, we closed the deal, we will talk about this. And then the grain plantation. It was an ad — we had an adverse year in some regions, some problems and some — but now, we’re having a very promising year at 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 have an intense ramp-up of productivity with the inclusion of the new operation, the partnership in Maranho and we have been growing in productivity, then we will go into more detail later on. So these are the highlights for the quarter.

So let’s talk a little about Agrifirma acquisition. So the company is very optimistic. I believe the investors are also optimistic because we did — we paid BRL31.50 at net asset value. You can see here on the map on the right Page 3. So this Agrifirma 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 2 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 Chaparral Farm. We’re very happy with the tremendous challenge. It began from scratch. Chaparral Farm with forest. We had to remove eucalyptus and pine trees, then we stabilize the results. And it began to have important results.

So this includes 28.9, almost 29 million hectares. We know that by year, it’s 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 3 to 8 years. So the average age is between 5, 6 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 asset, not all of it, but most of this asset 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 — through this and thus working to really — so 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. So that when we look at the synergies with our areas that are closed 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 improves a lot, we increased the shareholder base. So we’re increasing the company’s float. 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 we — 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 a Agrcolas, that was a challenge.

Today, we will talk about the productivity we’ll reach. The only certainty we have is that we will reach our business stability faster than we had projected. Then Xingu, a leasing operation where we had a great surprise in productivity. 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 for a mid the maximum potential as fast as possible.

Going to the next page. This — it’s good to say, 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 department, the issue of the bonus subscription. So on Page 4, 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 law officers. We designed a bonus for subscription for the foreign shareholders that would not say-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, and the price of the share and also contingency 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 2-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 the — on Page 5, 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 V where we included 2,800 hectares, thus — 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 at the beginning of the presentation. We have problems in November, planting these areas, those that did not — we’re 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. And the harvest has begun in this region at the beginning of January, on January 6. 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 with small reduction and other cultures and leases.

On Page 6, it’s important, sugarcane, Page 6. One of the strong holds generating good operational results. And since we included São José 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 — during 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 3 years. So I have no doubts that next year we will be very close to the numbers in our business plan for sugarcane.

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 São José 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 1 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 the sales 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 it meat was — beef was worth less, and now it’s worth more, and we’re selling. So it’s important to say that it’s a transition. Cattle raising, we have a GNG, 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 have a gain — 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 at 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 gain, GNG 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 8. I say once again and highlight, when we look at absolute numbers, where 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 dollar — the exchange rate at BRL3.8 per dollar. We sold soybean, and we guaranteed the margin. We made many operations. This is the picture we have today, we — the exchange rate is BRL4.12 to a dollar. So we have a soybean position in Chicago 9.60, very different from the current situation. And the combination of these 2 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 the second harvest. And in Mato Grosso, and we have a guaranteed price 55% at BRL26.50. And for Mato Grosso, this is a very profitable operation.

In terms of the picture, at that time, the price was BRL17 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 large numbers.

Now I pass the floor to our CFO, and he will show us our results.

Gustavo Lopez

Good afternoon. Thank you for participating. Gustavo Lopez. Let’s see what happened with the company’s EBITDA, Page 9. We have — as you know, we follow accounting norms. So we have adjusted EBITDA, and we can see here the gains in terms of sugarcane and cattle and soybean, you 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 EBITDA, we have a combination of operations. And in the first six months, we have the sale of the inventory of grains, and 80% of the sales of sugar cane and so for six months ending in December, we have adjusted EBITDA BRL70 million. And in the same period last year, it was BRL153 million. The main difference is real estate.

Last year, we had recorded a sale of the Chaparral Farm with an accounting profit. And this year, we have sales of a small part of the Chaparral Farm. And this was recorded in this period now. This gives us the results, 1.4. When we see the EBITDA of the quarter, the result’s BRL7.7 million negative. Last year, we had sales value that were record. This year, too, we have sales, the budget according to the budget, but as André mentioned, we had the results that you heard, soybean, corn. And in September 2019, we had $23 million that were open with an exchange rate of BRL3.97 to $1. And then the exchange rate went to BRL4.12 to a $1, generating these results. This has a great impact on the adjusted EBITDA.

Now Page 10. Here, what we show is adjusted EBITDA for 6 months, BRL49.9 million, almost BRL50 million. Last year, we had BRL46 million. And here, the main reason, as mentioned, we had a very good harvest in sugarcane, higher than the estimate we have made. So the possibility of reaching — we saw that sugarcane have been very good, especially in So Jos Farm and 900,000 extra tons of sugarcane. We’re closing — so we’re closing with 6% of the last year with the better results. And an important point to highlight and especially in sugarcane, when you look at the breakdown of the EBITDA and the sugarcane 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 Jatob Farm. And net revenue was very good. As you can see with the sale of soybean corn, sugarcane, 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 rate. Page 12. Here, we have the main lines. Assets, we see the growth liabilities with growth too. You can see the line for leasing, rental. And here we see cash around BRL100 million. Debt is the same, long term BRL280 million. Net cash of the company, BRL880 million. It’s important to stress, we mentioned, in the short term, we have sales that we made, and we are receiving the payment. And we understand that we can see here the leverage. The farms BRL551 million. We — here we have the numbers. We have a reserve and the results here. Here, we have — this does not include the current transaction because it happened in January 2020.

Page 13. We 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 BRL112 million, BRL113 million net debt. On the right, the average cost of the debt, 5.6%, and very good interest rates. And we have — we’re now evaluating the acquisition of farms. In the past, the interest rates were 12%, and our projects, 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 rate.

On Page 14 we have great a potential and upside. We can see here BRL19.64, that’s the price of shares yesterday. And we — our shares now are close to BRL31. So until now, we haven’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 result of the work we have done to deliver results. So we have now a great potential to. We’d like to thank you. And now we’d like to begin the Q&A session.

Question-and-Answer Session

Operator

André Guillaumon

Well, we’d like to thank you all for your attention. We are totally committed to deliver 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 coronavirus. Thus, we are — 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 — our 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 underway. We have marked to grow with 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.

Operator

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

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