Earnings Call Transcript - LND Q4 2021

Operator, Operator

Good afternoon. We're here today to talk about our earnings for Q4 2021 and Full Year 2021, a full year with beautiful numbers that you will see. I'm here with Andre Guillaumon, our CEO, and Gustavo Lopez, CFO and Investor Relations Officer. We will have a presentation, telling you everything that happened this year, and then we will open for questions. Okay, Andre, you can begin. You have the floor.

Andre Guillaumon, CEO

Good afternoon. It's a pleasure to be with you for this call, and I have some very positive news to share. We will discuss the past year, which has been challenging for everyone. Despite the difficulties posed by the pandemic and various issues, we have much to celebrate. After facing numerous challenges, including logistics and bottlenecks, we are pleased to present excellent results. Thank you for joining us and for your continued trust in our team, which consistently works to deliver strong outcomes year after year. Now, let’s look at the highlights. I often mention that we have a new company now. Previously, our results hovered around BRL100 million, but now we have elevated that due to numerous strategic decisions, diversifying our crop portfolio and benefiting from improved agricultural prices. We closed the year with net revenue of BRL721.9 million, net profit of BRL317.6 million, and an adjusted EBITDA of BRL365.7 million. This is a remarkable year showcasing robust results for both new and long-standing shareholders. To outline our production statistics, we achieved total grain production of 282 million tons, 5,000 tons of cotton, 2.2 million tons of sugarcane, and 1,900 tons of beef. These figures highlight our resilience and the strength of our diverse operations, which encompass production and real estate, resulting in sustainable outcomes over the medium and long term. For our long-term shareholders, I’m excited to announce that we will be aggressive in our dividend payments. We proposed BRL260 million in dividends last October, representing the highest dividend payout in our company's history. In contrast, the second-highest dividend occurred when we sold Cremaq for BRL80 million. Comparing these two dividends illustrates the strength of our business model; while past dividends were based primarily on real estate sales, this one is chiefly derived from operational success. This achievement reflects our belief in combining real estate and operational results. Five years later, we’re delivering dividends from various sources—both real estate and operational endeavors. We’re extremely pleased to share this news. It was indeed an extraordinary year for the company. Furthermore, I want to summarize the complexities of the past year in four key points. In February, we raised nearly BRL500 million through a primary and secondary offering to enhance our liquidity, which had previously been a weaker area for our company. As we aimed to increase our number of shareholders, we saw our liquidity in the stock market rise from below BRL1 million daily to between BRL15 million and BRL20 million per day—a 15-fold increase. This improvement is crucial for our investors. We also made strides in international expansion without significant investment. Our message has been clear: any future international ventures will proceed through BrasilAgro. In Bolivia, we have successfully acquired three production units, and our operational team is actively involved there. After securing new capital for our acquisition, we balanced our debt strategically. While our debt was well managed, it was primarily short-term. Thus, we secured a CRA with a longer term to facilitate the transformation of our 40,000 hectares for accelerated production, particularly through irrigation projects. Although the market was challenging, we navigated it adeptly. Our significant dividends stem from an outstanding operational year paired with real estate successes, such as the sale of another part of Jatobá Farm for BRL67 million, contributing to our adjusted EBITDA of BRL365 million. We concluded the year confidently, having transformed our company into one with improved liquidity, cash flow, and a well-balanced debt ratio, along with strong operational and real estate performance. We have been selling portions of Jatobá Farm, which originally spanned 31,600 hectares. The areas we've sold were newly developed, while the more mature sections remain. Additionally, we’ve capitalized on the current favorable commodity cycle, selling land that previously fetched BRL25,000 per hectare for more than BRL40,000 now, offering a significant rate of return at 20.4%. In our acquisitions, we found land in Bolivia priced very competitively, allowing us two crops per year for a cost-effective investment. While we recognize the different risks in Bolivia, we believe the returns on investments in land there are unparalleled compared to Brazilian rates. In reviewing our portfolio and production readiness, we see how our strategic planning has positioned us favorably for future growth. The company will generate real estate profits consistently, and we remain committed to increasing our annual yield, having cultivated over 161,000 hectares, affirming our status as a large agricultural operator in Brazil. Despite last year's challenges, including drought, we managed to maintain consistent production across crops and cattle raising. I will now pass the floor to Gustavo, who will discuss our economic highlights.

Gustavo Lopez, CFO

Thank you, Andre. Well, continuing here on Page 12, we would like to highlight things that we have been telling analysts and investors. The company is now on a new level of operational results. And this is due to the higher prices of commodities. We have 170,000 tons of soybeans, 140,000, 150,000 tons of corn, and also 2 million tons of sugarcane. And the impact of the price really has made the company to have a totally different result than we had a year ago. This we can see here IN adjusted EBITDA. For 2020, BRL177 million With BRL62 million from the sale of real estate. For 2021, we have BRL365 million, with BRL53 million from real estate. As we see the sale of real estate is – their operational results have a new impact. And here I'd like to highlight adjusted EBITDA, here we exclude the land in transformation and we include derivatives. As Andre mentioned during the presentation, we had sold soybean at BRL112 per bag. And now it's BRL140, BRL150 per bag. This is why we have a result of BRL78 million that we're excluding. Now, we will show on the next page on Page 13, the breakdown of operational activities generation of EBITDA. Here we see BRL112 million operational results, last year in the same period BRL116 million and sugarcane continues to be a strong activity for the company. Today we have an EBITDA of BRL130 million from sugarcane, BRL110 million from soybean, BRL40 million, BRL50 million from corn, and the rest in other activities that we have to diversify our risk in each region. Last year, we saw that the value of sugarcane continued to be important and the margins that we had in soybean and corn were lower than the ones we have right now. So today, sugarcane has a margin of BRL5,500 per hectare, and in soybean, BRL2,300 to BRL2,500 per hectare. Here what we're showing, we are consistently improving the company's production and stabilizing the EBITDA of the company. For next year, we as Andre said, we continue to believe we will have very good prices. There's an impact to the price of fertilizer has risen, price of seeds has risen, the cost has gone up but margins continued to be attractive. And margins continue, very similar to the ones we had in 2020, 2021. Now on Page 14, we have the results of the year, BRL317 million here 166% increase, and with a profit per share of BRL3.10 considering the number of shares that is higher than last year. During this year, we were able to do a follow on. We issued another 20 million shares and also subscription, another 20 million shares. And this raised the total number of shares to 112 million shares. Going back to the results, we see an increase in net revenue of the company of 71%. And as I mentioned total tonnage soybean, corn, sugarcane, no change. But the price went up. Almost all of them went up 70%, 80% of prices with an expressive increase in the net revenue of the company. The sale of farms, as we mentioned previously, it’s important to highlight in income tax and social contribution. We recognized deferred taxes of BRL70 million which corresponded to a tax loss in Agrifirma. This was calculated when we purchased the Agrifirma. And from as of this year with also the inclusion of the company inside Agrifirma, we were able to use this tax loss and we will be using the tax loss as a credit during the next two years. Then we see also the main lines of the year-end report. Here, I'd like to mention the cash position of the company BRL1 billion, a consequence of this follow on. And also we have here the CRA and also the sale of the inventory that we had during this year. Here we have also several credits, sale of soybean, corn and sugarcane and sale of farms, BRL530 million, of which BRL400 million correspond to a credit for the sale of farms. Property for investment BRL1 million, reminding you that the market value, as Andre mentioned, BRL3.4 billion and also the CRA, the loans and financing BRL664 million. And as we see at the bottom, increase in here we see total equity from 1.6 to 2.1. And the results, the profit and increase in capital already mentioned. On the next page, on the next slide, we see the company's debt embeddedness. We have in short-term debt BRL222 million, this is the capital we need for the company's operation long-term BRL341 million. A total debt, gross debt BRL663 million with the cash that we mentioned on the previous page. We see that net adjusted debt is here negative. Here we'd like to say, adjusted net debt negative. We mentioned that one of the objectives of the company was to lengthen the duration of our debt, the terms of our debt. And through the CRA, we were able to transfer BRL246 million four to five years later. And the average cost of the debt we had an increase this year 8.6%, reminding you that all the debts are all in Brazilian currency. Next page, we see the dividends. Here BRL260 million and Andre mentioned the company's objective was always – although, we don't have a clear policy for distribution. We always save it. We had very good operational results. And every time we have a sale of real estate, we believe that we should celebrate this together, employee, shareholders all the people who trust in the company. So we understand that we have always given a dividend yield of 5%. And last year, we said we could make acquisitions, increase the leased areas that's why we had distributed only the mandatory amount. And this year since we have very good results scheduled for next year and also real estate is at a good time for sales and we have a cash flow that is good. So we believe that it would be a good opportunity for us to pay dividends of this size. On the next slide, we saw the market value that Deloitte gave us. We always show this calculation. We have our calculation, which is a little lower than Deloitte. So here we have the net value of upside potential and here we have a BRL4.2 billion and a net asset value of BRL41.45 with the market value. Here, we see that there's an upside potential that is very good. And I believe that we always evaluate the prices and with the new international prices the value is much higher than the BRL28 per share. So we invite you to invest more in the company. We will make an effort to continue. On the next, we have here we see the evolution of the stock market and the price of the shares AGRO3. As we mentioned before, the performance is very good, but we believe there is space for more for the prices of the shares to go up. To conclude, let's talk about ESG, environment, social and governance. Here, we have some highlights of practices that the company has for years. We're working on many things, many new things in the next few months in relation to this topic. It's important to stress highlight our institute as a year old, so BrasilAgro, here this is to illustrate what we have done in terms of ESG. And if you wish more details, please look at our sustainability report on our website. There's a lot of information on the practices of the companies in relation to these topics. I'd like to thank Andre and Gustavo, for the presentation. And we would like to begin the Q&A session.

Unidentified Analyst, Analyst

Congratulations, for the excellent management. If we have plans to increase the speed of sale of productive areas?

Andre Guillaumon, CEO

Thank you. Good question. Yes, I believe that it's important to highlight this. The importance of being an anti-cyclic when everyone wants to buy farms, we sell. And when everyone wants to sell, we buy. So this is the mechanism to generate value for the shareholders. Yes, certainly, soon, you will receive good news to capture the good moments, to capture the liquidity that producers have. Produced farmers have money, they're expanding their business, they're buying land, and we are having important gains. Well, very directly you can expect in the next few months excellent news about the sale of farms. So it's a process that takes some time, but there are many things ready. Okay, thank you for the question. And yes, we will have, I believe next year once again, I said, the operational side, very strong due to good prices, most of them guaranteed. And we expect to have a better year in real estate next year. Yes, this year we still have a little of the pandemic uncertainty. If God wills this is in the past and we have good liquidity. Thank you for the questions.

Operator, Operator

We had a technical problem, sorry. Well, after Damien's question we have a question from Bruno.

Unidentified Analyst, Analyst

Congratulations for the results. What is the company's situation in relation to the cost of inputs for next year? Will there be an effect from logistics problems and higher input prices?

Andre Guillaumon, CEO

Bruno, excellent question. I'd like to share with you, the answer is yes, higher costs. All companies are having higher costs. I would say that the higher costs when we look at sugarcane, corn, soybean, cattle raising a little less, cotton, we're talking about 40% higher prices. But I repeat, if you look at the calculation, we had an average price of soybean at BRL109. So when we look at the new prices at BRL140, BRL145 a bag of soybean even with the higher prices, we expect very positive margins for next year. This is in the case of corn, soybean, and even more in sugarcane. Sugarcane, I believe in the last months the price went up in ATR total recoverable sugar. And this will give us an important profitability. So yes, price of inputs went up. And we're always monitoring margin. I would like to say that the contribution margin crop by crop, hectare per hectare next harvest with the budget, they are better than the profits in 2020, ‘21.

Operator, Operator

Thank you, Andre. Two questions from Edward Castro.

Unidentified Analyst, Analyst

Concerning prices and volumes for next year 2021, 2022. And in relation to what we expect to recover from the loss of production in Paraguay? How much insurance will pay us for the loss? And the strong cash position and a healthy year-end report and healthy leverage, what are the alternatives we have for the company to grow?

Andre Guillaumon, CEO

Edgar, thank you. We could spend the whole afternoon discussing these three questions. But let me share our expectations. Looking at each sector, we are heading into a soybean harvest with a balanced market in terms of inventory and demand. Any issues that arise will have an immediate impact. This year should be a learning year for us, particularly regarding concerns in southern Brazil and Argentina. The tight relationship between inventory and demand means any problem will quickly affect prices. For corn, I believe we will only start recovering inventories in the second half of next year. In Brazil, we plan for 75% of our corn production to come from the winter crop, with the first crop accounting for 25%. We aim to expand our planted area, potentially reaching 28 to 30 million tons, with the bulk of the yield coming from the winter harvest. Additionally, there are significant changes; three years ago, China was not a corn importer; it typically imported soybeans. This signifies a major shift in China’s production model. Regarding sugarcane, given the frost in the south and decreased productivity, I believe we'll see favorable oil prices next year, supporting good ethanol prices that mix with gasoline and advantageous prices in New York. As for our company, in sugarcane we lack guaranteed prices, so we are working to mitigate risks. Last year, we were cautious, and we need to continue those efforts. If necessary, we will reduce our planted area. We have insurance in the south, but it is challenging to obtain on the border. In Paraguay, we are expecting to receive $1,640,000 in insurance revenue in the coming months, with all documentation completed. Healthy cash flow is crucial for a company like ours. We are always looking for good opportunities and face significant pressure to allocate cash responsibly, ensuring we make wise purchases. As I mentioned, you can expect land sales in the coming months, and we will also pursue some acquisitions. While acquisitions may slow compared to sales, we anticipate opportunities for both. The company will remain active in real estate and operations, maintaining a disciplined approach. We foresee another year of positive margins, which will require discipline and focus.

Operator, Operator

Well, I believe with this answer, Andre already answered Victor's question. Victor Polly, who asked about the pipeline for acquisitions and sales. So in this line Andre, people are asking in terms of diversifications whether we're looking at South America, and if we have plans to diversify geographically. This is a question from Marcello and some more people asking about expansion. Most of this was answered. So where are we looking at for expansion?

Andre Guillaumon, CEO

Okay. Marcello, I heard his name. Yes, the company is very are active in looking for opportunities. We have good data, later on we can send to you, the concentration and distribution of the investments. In the last 12-months, we mapped and analyzed 1,140 million hectares in Brazil in the last three, four years 8,350,000 hectares, so there is a robust pipeline. We're analyzing many proposals and we are focusing on regions with two crops, like north of Mato Grosso, the south of Para, Maranhão and PRV. We can also work with this and very focused on acquisitions of pasture land to be converted to arable land. The agricultural Brazil, we plant 66 million hectares in the country total. And cattle raising 190 million, of these 42 million to 50 million cattle raising land have good potential for arable land. So Brazil can double its total production. And many of you want to know about competitiveness, new funds joining, we're talking about AGRO and AGRO is the most pulverized atomized industry in the world. This is the same all over the world. So we have competitors, we have new people coming into the market, but it's very pulverized, very atomized. In other chains to grow, to expand, you have to distribute contribution margin, but not in AGRO. So yes, we're very active in acquisitions, and also in the sale of farms. Ana doesn’t like me when I give guidance. She will be kicking me under the table. But it's a year where we should be more aggressive in real estate. This next year we will have robust operations with the numbers we showed, but it's a year where we intend to be much more aggressive in real estate, purchase and sale. So you can count on us. Our team is working actively in purchases and sales. After this call, I have a meeting to talk about this with the team. So you can count on this kind of growth of the company in the next few months in line with expansion and growth.

Unidentified Analyst, Analyst

Concerning the development of the current portfolio, what are the company's plans to develop new areas in 2021, 2022? Will we focus on our own land? You talked a lot about acquisitions already.

Andre Guillaumon, CEO

Thank you, Enrique. Thank you, Bruno. Let me go back. When we talked about the CRA, this was done with this objective. We understand we have a good cycle of prices. Prices are still very good. So, yes, we will accelerate transformation. The BRL240 million we obtained in this CRE we want to use to transform the land bank 40,000 hectares. We have accelerated this. We accelerated a lot in the state of PRV in the state of Bahia we will continue accelerating the land transformation in Bahia and Paraguay. So in terms of expansion, we as a team and the company would like to finalize the transformation of the land bank in the next three, four years, with these areas going into production. We're working for this where our budget has this aim to accelerate the transformation of land in the next three, four years. To do it well, you need to have a certain number of hectares per operation. You need to respect some characteristics. But the message is yes, we're working hard. Yes, we're accelerating the transformation of land into arable land. So we have a good breakeven, even with low productivity in the first year, so it's worthwhile transforming the land. Thank you, Bruno. Thank you, Enrique.

Unidentified Analyst, Analyst

Two more questions from Enrique. The costs with the current increases in the price of inputs, what do you expect in terms of pressure from costs in the next harvest? Have you anticipated purchases of inputs and inventory? I believe that you still have soybean in inventory. Can we expect to sell this in the next year that began on July 1?

Andre Guillaumon, CEO

Thank you, Enrique. Okay. I will ask. Yes, we have inventory. Gustavo will talk about the inventory. In terms of cost, 2021 2022, we have an increase in the price of inputs of 40%. Why 40? Answering your second question, these costs we have already bought all the fertilizer for the next harvest. So phosphate, potassium, we have already bought the seeds we need in the market. For corn, for soybean, we already bought most of the inputs, agro chemicals. So I would tell you that when we have an increase in price of 40%, this is what we will have at the end of the year. We shouldn't have surprises. Since then prices have gone up even more. We bought potassium, we bought chloride in November last year with interesting prices. We have to buy just a little more of the price of last year versus this year almost 70% higher in terms of chloride. And you've seen the restrictions in international trade, summarizing 40% higher prices. The next harvest has the cost of production I wouldn't say 100% but more than 90% of the cost has already been bought. Gustavo, talk about the inventory we have in soybean.

Gustavo Lopez, CFO

Yes, we still have 70,000 tons of soybean that will be sold in the second semester or first semester of the next year. We will have 70,000, 80,000 tons of corn to sell. The winter corn hasn't been recorded. And we have sugarcane and a relevant impact in the next two quarters due to the price we're estimating. Giving you numbers, the impact that Andre mentioned last year, we have a direct cost in soybean and corn around BRL2,600 per hectare. And now we're talking about BRL3,400 per hectare in terms of cost per hectare. First, fertilizer went up. The greatest impact came from fertilizer, but the margins will be very similar to this year's margins. Last year, we had sold soybean with close to BRL90, BRL100 and now we're working for next year with prices at BRL140, BRL150 per bag.

Unidentified Analyst, Analyst

Well, one more question for Gustavo, from Eduardo. Bonus, subscription is there a balance? Will this cause dilution current investors? What is the amount and the percentage of dilution if these options are accepted?

Gustavo Lopez, CFO

Enrique, the company doesn't have the bonus for a subscription. What we have is 600,000 shares 625,000 shares that we left as a guarantee for the transaction of Agrifirma. And one day we will issue these shares. Now bonus to dilute the shareholders we don't have.

Operator, Operator

Next question from Flavio.

Unidentified Analyst, Analyst

He wants us to talk about the cost of capital per year. The interest rates he believes that this is very high in relation to the SELIC interest rates. Can you talk about the composition of the interest rates cost of capital?

Gustavo Lopez, CFO

Well, Flavio's question. Flavio, here it's worthwhile clarifying the methodology. What do we have here when we do this and with total transparency, we look at this curve of cost? We look at our debt, we see the duration of each debt, the duration, the maturity, and we have a curve. The great impact is that we issued a CRA, and most of the company’s debt comes from the CRA. And when we look at the whole amount, we have a projection for the future. So if you look at this, today, we're talking about CDI that can get to seven at the end of year. But since we have long-term debts, we're looking at the curve of the CDI in the future. So in the future, it should be 10. So this makes this cost come to eight. So this is due to the duration. It's not the cost of debt today. But it takes into consideration the duration of the debt. To supplement, we have approximately a third of this debt with prefixed rates of 6%. These are the ones we have with long-term development of areas. There's another part BRL240 million that Andre mentioned, that cost us inflation plus 5.35%. And the other part, part in CRA, CDI plus 106% and 110%. So in reality, as Andre mentioned, there's a methodology and these are debts that we can do swaps, and the second fortress both in Brazil and Paraguay. Bolivia not yet. We don't have financing. They are all in local currency. So through commodities, we have these amounts financed in local currencies. As we mentioned in the presentation, we have BRL400 million which are not included here that we will receive for the sale of farms. So we understand that in terms of debt we’re very well equalized. We can even increase this leverage to increase the operations of the company. Thank you.

Operator, Operator

Here Helmut

Unidentified Analyst, Analyst

Why don't you buy back shares instead of paying dividends? Concerning the drought, what are your expectations in terms of the impact of the climate on the next harvest? Question from Gustavo and Edward wants to know what can we expect in terms of developed lands, non-developed land during the next year, especially considering the challenges of learning the next harvest?

Andre Guillaumon, CEO

This call is very interesting, with many intelligent questions, which I appreciate. Regarding Gustavo's inquiry about buying back shares, we discussed this during our decision-making process for dividends. I think one of the key factors impacting share prices is the need for better liquidity. We recently executed a follow-on offering, and although some critics questioned the amount of capital increase, it has indeed helped improve liquidity. Currently, we have 3% of the company's shares in the Treasury, and we could buy back an additional 3%, but not more than that. At this moment, I believe it's premature to discuss this further as we need to solidify our liquidity. Today, I noted we had nearly BRL50 million in liquidity, indicating that the company is starting to better understand our operations. Addressing the drought, we engage with various climate consultants across our units and have access to historical data and both long-term and short-term climate forecasts. Essentially, this year poses challenges, particularly in Maranhão and the southern regions of Brazil, although we expect rainfall in the Midwest and Northeast areas where our agricultural production typically falls within historical averages. We anticipate that rain might arrive earlier this year. Last year, we faced widespread issues with lack of rainfall across all regions, forcing some farmers to replant multiple times. This year should be more stable, even affecting winter crops. We are cautious with our planting policy, which caps our plantings outside the designated window at 5,000 hectares, although many farmers exceeded this limit during high price years. We learned valuable lessons about adhering to our policies during tough times. While the corn numbers are evident, profitability per hectare looks promising this year due to favorable pricing. Consequently, we have high expectations for the Midwest and Northeast regarding favorable climate conditions.

Unidentified Analyst, Analyst

A very good year in terms of climate. Thank you.

Operator, Operator

Well, we'd like to close our conference call. We're very happy with the results that we’ve reached. I'd like to thank Andre and Gustavo for the call. We had excellent questions. And now I will pass the floor to Andre for his final comments.

Andre Guillaumon, CEO

Thank you, Ana. Thank you, Gustavo. I also want to thank all the participants who joined us during this hour. Once again, I want to emphasize our commitment. The team's dedication to growth is essential for the sustainability of the business. You can rely on our commitment. In the coming year, as I mentioned in the council meeting, we are continuously setting higher standards. Given our results, we understand the responsibility we face next year across all business units, managers, and leaders. I am confident that our training efforts will yield sustainable outcomes. So, you can count on us. In the next few quarters, we anticipate sharing more positive updates. We expect a successful year in terms of climate, leading to strong results in the last quarter of next year. Thank you for your attention. Many have congratulated us on the dividends and results, and I want to stress that this success is due to the hard work of our entire team, who are dedicated around the clock to delivering results and fulfilling your expectations as analysts and investors. Thank you very much.