Q1 2018 Brasilagro Companhia Brasileira de Propriedades Agricolas Earnings Call
Nov 07, 2017 AM EST
AGRO3.SA - Brasilagro Companhia Brasileira de Propriedades Agricolas
Q1 2018 Brasilagro Companhia Brasileira de Propriedades Agricolas Earnings Call
Nov 07, 2017 / 05:00PM GMT
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Corporate Participants
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* André Guillaumon
BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers
* Gustavo Javier Lopez
BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - Chief Administrative Officer, Investor Relation Officer & Member of Board of Executive Officers
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Presentation
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Operator [1]
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Good afternoon. Welcome for the audio conference of BrasilAgro concerning the results of Q1 2018. We will have with us Mr. André Guillaumon, CEO; and Mr. Gustavo Lopez, Administrative Officer and Investor Relations Officer. We inform that this presentation is recorded. (Operator Instructions) The audio is being presented simultaneously over the Internet at www.brasil-agro.com, where you will find the slides.
Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of BrasilAgro's management 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 the macroeconomic scenario industry and other factors can affect the future results of BrasilAgro and lead to results that will differ materially from those expressed in these future considerations.
Now I'd like to pass the floor to Mr. André Guillaumon, Chief Executive Officer, who will begin the presentation. Mr. André, you may proceed.
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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [2]
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Well, good afternoon. Once again, it's a pleasure to talk to you, which is a unique moment when we can present the company's numbers to all of you. And also, we will be available for any clarifications concerning the strategy of the company processes. So for us, this interaction is very rich. Well, I would like to once again say that these are the numbers for Q1 2018, and first of all, I would like to mention some highlights that were very relevant in this quarter. The company had a net revenue of approximately BRL 98.9 million net revenue, contributing with net profit of BRL 20.1 million and adjusted EBITDA of BRL 33.7 million.
Here, some points. We have tried to deliver consistent solid operational results. Our core does not change. We will always be a company that will be linked to land assets, real estate, but we want consistency in operational results to avoid destroying value for our shareholders. So this strong, robust result in relation -- in comparison with Q1 last year, where we see the [mature] you can see that in this quarter last year, we had BRL 3 million in the same period and now BRL 20.1 million in net income in comparison with BRL 3 million. This is due to various strategies of the company to have more solid results and also the inclusion of an important asset for us. That was the farm called São José. It is generating a good cash flow for the company and an improvement of operational results.
Within this line and talking more about this, I would like to talk about the distribution of dividends. We had a distribution of approximately BRL 12.9 million or BRL 0.24 per share. And I would like to reinforce our constant search to be a company that paid dividends every single year to shareholders. We -- the operational result, together with the real estate’s result, will be very high. We will be more aggressive in paying dividends, but it's important even having results, for example, good operational results and in terms of real estate appreciation good but although less than we would like. We reinforce our position paying share -- paying dividends to the shareholders. Here, I confirm that this will be a constant search on the part of the company's management to bring results to our shareholders.
In parallel, looking on the -- to the right, I would like to talk about our estimates for transformation. This year, it is based on operations in Paraguay. In Brazil, later on, we will see the graphs. We're focusing a lot on other contracts that I will detail.
We closed the estimate for production 2017, '18 will be around 1.8 million tons of grain and sugarcane -- grains and sugarcane and other products, too. Here, an estimate of a planted area that reinforces the arrival of this important asset that was acquired, São José Farm. So in 2018, we exceeded 100,000 hectares.
As always, we have some barriers. The barrier of transformation, we overcame 100,000 2 years ago, and now we're overcoming the barrier of the 100,000 hectares. These are numbers that are showing the constant results and the robustness of our business.
Please, let's go to the next page, Page 3 where, as always, it's common for us to talk about the current situation of the main commodity. Why main commodity? It has an important weight, like we have, for example, in sugarcane. But it's a commodity that is linked to the price of land, liquidity of the assets, so it's good to explain this.
We can see on this graph that soybean has fluctuated but with constant prices. We have a small peak in July, and this peak in July is reinforced by the instability in the U.S. campaign. Soybean in the U.S. was in the middle of the harvest in July, and we have some regions with more than 30 days of drought. Then after July, the rain came back, and soybean came to the levels as it is today. Later on, we will see in detail the company once again reinforces we monitor the contribution margin and not only the price of sale. So it's a combination of cost of production and sale price that generates results. Right now we were very aggressive in already guaranteeing better average prices for the future, much better than the spot price we have today.
So what can we expect from soybean? It's always a great question mark. Well, the U.S. harvest is over. They confirmed the numbers, 117 million tons, and now the lights are on South America. How will the harvest be here in South America? And what I can say in terms of information for you based on our regional vision is the following. We have Argentina, one of the large players. Argentina, Brazil (inaudible) Paraguay was much less than Argentina and Brazil.
You see in Argentina the beginning of a plantation that is a little messy. Some areas suffered with floods in Argentina during the winter recently. We talked to local producers months when historically we have 30 millimeters, 40 millimeters. We had 200 millimeters, 5x more, which made things difficult with the floods. The floods really delayed the corn harvest, and now it's been difficult to plant with the machines. They have begun in the last 3 weeks, but we had a situation that is worse than in the previous years.
Also, talking about Brazil, all of you who follow us and we follow the climate constantly, and in the last few weeks, we saw a delay in beginning to plant in Brazil. This delay in beginning to plant also happened due to lack of rain, especially in areas where soybean is concentrated, States of Mato Grosso, Goiás and also in the region Maranhão and the state of Bahia, these 2 states. This delay in the beginning of the rain really happened. And the situation today is already normal, but the plantation is a little delayed, late.
Our vision is that this should have an effect. This should have very little effect on the soybean, but it could bring a reduction or some loss in the second harvest, both corn and cotton. But I believe it's very early because, later on, we will know if winter will have more or less rain. This is the situation. The beginning of the planting was delayed. This may harm the second harvest.
Now in terms of offer for soybean, it's important to say, looking at the land, we -- there is a strong piece of news. It's the first year when China is importing 3 digits. They imported 100 million for the first time. No one believed they will reach this number, and this shows that the demand continues strong, although we have high inventories. We have very high soybean inventories in relation to previous years.
Now I'd like to pass to Page #4, where we have an explanation about the scenario of the price for our assets, the price of land in Brazil. Once again, I'd like to reinforce this asset. The land is very robust, very solid, and as we saw in times of recession, there were sectors with recession. Some were double digits negative growth, but we see that the market continued to be very strong in land. And this shows the robustness of those assets, land, soil. So we have observed also in the last few months a very active policy on the part of the government in reducing interest rates. And this makes us understand, any economist can conclude that the assets, there would be more search for land because of low interest rates. If our interest rates go down, the money will be invested in other assets. So in the next few months or during 2018, we know that there is instability -- political instability, but if the economy has a comeback, as we expect, there will be a reaction in the price of land.
Apart from this, what gives liquidity is the capacity to generate value by farmers. So apart from the economy improving, we have once again a super harvest with very good level that will bring liquidity to the market once again.
Now going on to Page #5. Here is a graph that we like to show, and this is where we have an active participation, the capacity to generate value for shareholders. We see a growth that is not that expressive, but this basically here, we do announce the capital allocation. As you know very well, the acquisition of some assets recently will demand an efficient allocation of capital initially, and we made some investment decisions that are very -- for sugarcane that are very aggressive and with focus now on cattle raising. This will request resources from the company. The company will continue to transform land into arable land. And as I said, right now we're concentrating on capital allocation.
Going on to Page #6. I would like to mention basically the increase that I mentioned in the first slide, more production. We went from a harvest of '16/'17, and now we're overcoming 100,000 hectares cultivated. And here, we show basically how this is distributed.
Here, I would like to reinforce we have an important presence in sugarcane, in soybean, in cattle raising and also, others that are very relevant. It shows the diversification of the company being in many types of commodities and thus, being less -- with less volatility. So this is the highlight of this graph, 13.5% of the cultivated area.
Now going on to Page #7. I would like to quickly mention the issue of productivity. I hope to always say that we're a transformation company, value generation by transforming land and the area, the land that is mature, the land that is ready for sale. Once again, those are reinforced. We are a company that must deliver solid results, but we will have also productivity because when the land becomes mature, when it begins to generate high production, we believe that, that is the time of maximum returns, and that is the time to sell.
So this is to reinforce the issue of soybean. And on the graph below, we can see the amount of sugarcane. As I said in the previous call, we have sugarcane in premium areas, premium soil, and I want -- we want really to have good results from productivity.
Between 2016, '17, we included this important asset, the São José Farm. Now we're ending the harvest, and you see here the productivity. And this sugarcane plantation had bad maintenance. It'll take us 2, 3 years to bring up the productivity as we have in the Midwest. We're beginning to see, in the first plantation, the company already planted 2,200 hectares of sugarcane in this new unit, and we will have good productivity. We are reforming the land over there. We're improving the soil.
Now going on to the slide on Page 8. This is a view of cattle raising, and I reinforce once again and I repeat, we have cattle raising as an activity that mitigates risk. It is an activity that can make us continue generating value for our shareholders in transformation and thus, decreasing volatility. So soybean that is cultivated after this pasture has a greater guarantee of good production. It's important to say we're giving you a vision. We're taking this, although it's a tool to mitigate volatility. It's a tool where we have an important investment, and we must have a good follow-up and good technicians for cattle raising.
So this is the first view. We're reaching here in Q1 more than 11,200 heads of cattle. We should end with approximately 16,000 heads of cattle. And I believe the company, apart from using this activity, should mitigate risk. We believe that this has been an advantage we observe, and you know better than I, this we have observed that the price of Brazilian meat is low when we compare our operation in Paraguay. Today, we have a difference between Brazilian and Paraguay meat 20% to 25%. So now if we look at the price of Argentina, an important difference. So Brazil fits as an important player with more than 210 million of heads of cattle. We have an important potential to generate value in the future with these animals.
Well, I'd like to pass on to Page #9, where we have the company strategy as I mentioned. We're here, once again, not only monitoring the price of soybean but also contribution margin of soybean, cost and sale price, too. So it's important to mention we have -- today, we made progress in the sale of soybean due to some peaks that happened during the peak in July as we said. We sold parts of the production, and we have, today, 70% with price fixed already for the future. This would correspond to $10.51, a price well over the market price. Here, the company strategy to monitor the market and we have already sold 70%. We have the price fixed for 70%. The price of Brazilian soybean, our margin is based on Chicago and the U.S. currency, and we have the value of the U.S. dollar is BRL 3.38.
Here, there is a point of attention. Since we have elections in 2018, we're monitoring closely. We may have some changes in the next few months when the political scenario becomes more clear. We're following this closely to continue with the sale with the future value of the U.S. currency.
Well, this is the general view. And now I'd like to pass the floor to Mr. Gustavo Lopez, and he will talk to you about the results, the EBITDA on the next slide. Thank you.
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Gustavo Javier Lopez, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - Chief Administrative Officer, Investor Relation Officer & Member of Board of Executive Officers [3]
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Thank you, André. Thank you to all for being with us here during this first conference call. On Page 10, we can observe the results of the EBITDA. It is -- we had a challenge in the beginning for cash generation to try to have a better allocation of capital and the growth of the inventory.
On the upper part here, we have EBITDA. We follow international rules. Here, we can see the numbers for Q1 in comparison with the previous year. Here, we have the graph on the lower part, which is the best way to see EBITDA. We have here, for example, the results from sugarcane. We excluded those that are not debt, those that are not net and also, those into the products that we have in our inventory.
Here are the results: BRL 33 million; in the previous year, BRL 1.5 million negative. So as we mentioned, we acquired the São José Farm, and it'll -- it is helping us very much in the results. And we have a lease contract for sugarcane and which gave us a gain of BRL 1,400 per hectare. And the prices for sugarcane are linked to the prices in São Paulo and Novo Mercado.
On Page 12 -- Page 11, we have the results. Last year, we had BRL 3 million and BRL 20 million for the same period this year. Last year, we had BRL 290 million in cash, and we were looking for opportunities to invest. And the results of BRL 3 million is now -- we are working with sugarcane in the Midwest. We continue to suffer some impact from the drought. The result -- the financial result, BRL 13 million, and we invested this cash in different securities. This year, BRL 20 million and the profits, this has already an impact coming from São José Farm with the sugarcane that was produced, the BRL 1.8 million of tons, as already mentioned, grains and sugarcane.
And additionally, we have another relevant fact, financial revenue because with discounts that we obtained for a farm. This farm was acquired in 2009, and we had paid parts of the value, and we had a liability, which had monetary correction. And we decided to finalize. And we came to an agreement with the owners to pay the debt, and they gave us a discount of BRL 10 million. So the good operational performance due to the results that come from the São José Farm, so this helped us with the BRL 20 million in results.
Here, we can see the balance sheet. We see a decrease in cash. As we mentioned last year, we have BRL 290 million. Today, we have BRL 48 million in cash, BRL 30 million available, and the rest was given as guarantees collateral for loans. And we are working to make it available to the company.
And as always, we like to remember, BRL 395 million in investments, which include property and others, also improvements made in the land. And the -- everything is at cost value. And here, we see the number for asset. We have liabilities around BRL 200 million in debt; financing, loans from banks, BRL 11 million.
Here, we have a calculation for EBITDA. On the left, we have the amount, and we see what's the value that is being sold. We can see here a little above this amount. When we look at market value of the properties, the land in Brazil and Paraguay, we have here also the value per share. This is -- we have had excellent opportunities for investments. We believe that the market value of these properties. We have a history of sale with prices in excess of what we have estimated, so we understand this. And additionally, we continue working to improve operational results of the company. Always, we want investors to believe, as we believe, that this is an excellent opportunity.
On Page 14, in October, we had shareholders' meeting and elected the administration council and the tax council, too. So 44% of the members are independent in the Board of Directors, and we have also a specialist in finance in the Board of Directors, specialist in Sarbanes-Oxley and SEC.
Finally, Page 15, here, we have the price of the shares. You can see here in São Paulo and in the U.S. the price of the shares here, BRL 12.66 and USD 3.94.
Now I would like to begin the Q&A session.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Our first question comes from [Rafael Sony], Bradesco Bank.
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Unidentified Analyst, [2]
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The -- I'd like to know about the area that is planted with sugarcane, if you have the ideal number or if you intend to maintain the 33,000 hectares. Also, what have you seen in terms of ownership by foreigners, ownership of land by foreigners, the law?
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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [3]
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Well, I believe that I will answer to you the 2 questions. For the first, I would say, yes, there is a level that is ideal for planting sugarcane and other crops. If you ask me if we are well positioned in sugarcane, if you ask me this -- so we want to include more grains in our portfolio from now on. I'd like to stress, we have projects with sugarcane most of the time, commercial agreements. Our new project in the state of Maranhão due to logistics issues, tax, we were also able to reap the benefits, apart from being in a state, which logistically the production of ethanol is important, which has an overprice. So being frank to you, I believe the levels that we reached for sugarcane allows us to have a robust cash and to give a lot of attention to transformation projects in the next 3 years. We shouldn't have much more expansion in sugarcane, maybe some cases, but we won't have a great expansion in the land with sugarcane. And we -- this may include leasing, if the margins are good. This is our vision about sugarcane. It's important to balance the company's revenue. The second question is one that I have heard many times, one of those factors we work on actively. We do a follow-up of the law governing the ownership of land by foreigners. We have done -- we have been monitoring this through associations. We have done a follow-up. The associations have talked actively with political agents about this topic, and the concern that the government had until now was some reforms. So the government left this project on hold until things become more clear. So it's on hold, this law. Now we have the labor reform. There's a discussion now on retirement reform. So we have many other topics, and the others also include the ownership of land by farmers. We were very optimistic in the past. The agenda continues to be optimistic, proactive, but the government has an enormous concern to approve more important reforms and then revisit this issue.
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Operator [4]
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(Operator Instructions) Since there are no more questions, we'd like to pass the floor to Mr. André Guillaumon for his final comments.
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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [5]
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Well, once again, thank you very much for being with us. I believe our message is that we will continue working hard to deliver consistent results, results coming from land assets and also from the operations of the company. Once again, thank you for your participation. And we have been working, certainly, in search of these results with a team that is well prepared as we have in the company. We're very happy to deliver these results during the year and in the quarter, and this is not the effort of 1 or 2 people. It's the whole team, and we believe that, today, we have a business platform and a team that can generate much more value for our shareholders. Thank you.
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Operator [6]
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So thank you. This concludes today's conference call. So please disconnect the lines, and we wish you a good day.
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