Image source: The Motley Fool.
Brasilagro Companhia Brasileira de Propriedades Agrícolas (LND -3.41%)
Q2 2020 Earnings Call
Feb 4, 2020, 12:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon. Welcome to the Conference Call of Brasilagro for the Results of Q2 2020. We will have with us Mr. Andre Guillaumon, CEO and Mr. Gustavo Lopez, Administrative Office and Investor Relations Office. We inform that the presentation is recorded and all the participants will be in the listen-mode only. Next, we will begin the Q&A session exclusively for investors and analysts when further instructions will be supplied. [Operator Instructions] The audio is also being presented through the Internet at our site where you will find also the slides and PowerPoint presentation.
Before we continue, we would 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. Andre Guillaumon, CEO, who will begin the presentation. Sir, you may proceed.
Andre Guillaumon -- Chief Executive Officer and Operations Officer
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, 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 -- BRL279.1 million, net profits -- 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 -- and we had an adverse year in some regions, some problems in some regions, but now, we're having a very promising year, a very -- we're very optimistic about the yield this year. We're talking about 60,000 hectares of soybean we're already harvesting in some locations with very interesting yields. We finished the production of sugarcane. We had an intense ramp-up of productivity with the inclusion of the new operation of the partnership in Maranhao 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, the 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 two harvests and now we will have a third harvest by using irrigation in some regions. So, this acquisition has excellent synergies. To the south, you can see on the map, another one that is called Arrojadinho, which is very close to Chaparral Farm. We're very happy with the tremendous challenge that began from scratch-Chaparral began with forests. We had to remove eucalyptus and pine trees, then we stabilized the results and it began to have important results. So, this includes 28.9 million, 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 three years to eight years. So, the average age is between five years, six years of plantations. When you have a more mature area, you have less volatility -- operational volatility. So, it's a concentration that brings us many benefits, many synergies, and it's important to say that most of this 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 thus working to really solve the last point, we had to improve liquidity. We improved that a lot in the last few months, but we still need a larger shareholder base. So, when we look at the synergies with our areas that are close by, the exchange -- buying this at NAV, increasing our base, so everything is very positive for the company, and we will work to carry out other acquisitions.
Apart from this, liquidity improved a lot. We increased the shareholder base. So, we're increasing the Company's 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 there is a lot of the 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 Agrifirma was a challenge. Today, we will talk about the productivity it would reach. The only certainty we have is that, we will reach our business stability faster than we had projected. Then Xingus, 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 from it the maximum potential as fast as possible.
Going to the next page. It's good to see this transaction here, an explanation of the transaction, the portfolio, but here, I would like to mention a topic that came up that generated a lot of the 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 lock-up. We're guaranteeing that the current investor will not be concerned with liquidity and the new shareholders have a lock-up to be respected, and we had to organize this. Apart from guaranteeing the lock-up, 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 stay -- 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 contingencies that may come up. So, the bonus here is a guarantee instrument for us. Now, the company that was sold, some shareholders decided to leave Brazil. So, there is a two-year lock-up and if there is no contingency, this bonus in the future, we will be able to issue these shares, 651,000 shares. So, this is the most important point to be explained.
On Page 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 growth in planted area, 12% growth in planted area, and I'd like to say with all this incremental 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 had problems in November planting these areas. Those that did not -- were not in the window, the adequate window, we planted corn.
Now, the second harvest. In Xingu, we had an operation that we began planting in October. So, we're being conservative. This year we had already mentioned this to you, we were going to be more aggressive in the second harvest and the harvest has begun in this region, in the beginning of January, of 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 will see pasture has maintained itself a small reduction and other cultures and leases.
On Page 6, it's important, sugarcane, Page 6. One of the strongholds generating good operational results and since we included Sao Jose farm, during that year, we had a great drop in the productivity in the Company, but to give you an idea of numbers, we included one that year. We had 57 tons, then it want to 65 tons next year, this year more than 72 tons. So, you can see the work we did during these three years. So, I have no doubt that next year we'll 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 Sao Jose farm in the Midwest and we're getting there. So, an important growth, expressive growth. So, we see from 81 tons to almost 83 tons in one year, and we have been increasing. So, a good surprise. So, it's important to say that the operation that was a question mark for some analysts, it is generating an important EBITDA in a recurring way and we trust that we will have higher numbers than we actually projected.
Page 7, cattle raising. This is a tool we use for transforming the land to avoid volatility. So, it's important that we have a transition with cattle raising. So, what we want is to have a low risk activity until we can plant these areas. There was a reduction to this, say, [Phonetic] from last year to this quarter. We're reducing -- we intend to reduce even more cattle raising and we made an acquisition of animals or 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 see that it's a transition in cattle raising. We have a ADG [Phonetic], average daily gain -- average daily gain of weight. 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 -- the gain -- weight gain for the cattle are little lower than our expectation, but the assets really appraised itself, Q2, the highest prices of beef. So you know the price of meat, it went up a lot. So, this drop that we're having a 15% in productivity is also compensated very well by the increase in prices.
In the next few prices -- the next few months, we should have better gain, ADG or better gains in weights, 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, we are after margin per hectare, so you all know our schedule. Our budget was approved in April and we have 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 $1. We sold soybean and we guarantee the margin, we made many operations. This is the picture we have today. The exchange rate is BRL4.12 realize to a $1. So, we have a soybean position in Chicago, $9.60 [Phonetic], very different from the current situation and the combination of these two factors will bring an important commercial gain for the company and you will see 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 $26.50. 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'll pass the floor to our CFO, and he will show us our results.
Gustavo Javier Lopez -- Chief Administrative Officer and Investor Relations Officer
Good afternoon. Good afternoon, and 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 you can see here the gains. In terms of sugarcane and cattle and soybean, here we have the results available. This, we see here the numbers, as we sell corn of the previous harvest. Here it's important to mention, we have here six months. Here in this EBITDA we have combination of operations. And in the first six months, we have the sale of the inventory of grain and 80% of the sales of sugarcane. And so for six months ending in December, we have adjusted EBITDA of BRL70,000. At -- in the same period last year, it was BRL153,000. The main difference is real estate. We had -- 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, BRL1.4 million [Phonetic]. When we see the EBITDA of the quarter, the results BRL7.7 million negative. Last year, we had sale value that were record. This year, too, we have sales budget, according to the budget, but as Andre mentioned, we had the results that you heard, soybean, corn, 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 six 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 estimates we had 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% above last year with a better results. And an important point to highlight. And especially in sugarcane, when we look at the breakdown of 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 Chaparral 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 we -- here we see cash around BRL100 million. Debt is the same, long-term BRL280 million. Net cash of the Company BRL880 million. It is 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 net debt. On the right, the average cost of the debt 5.6%. And a very good interest rate. And we have -- we're now evaluating the acquisition of farms. In the past, the interest rates were 12% and our projects, 7%, 8%. 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 potential, an 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. We'll be acceptance of our shares. And this is based -- this is the result of the work we have done to deliver results. We have now a great potential, too. We'd like to thank you.
And now, we'd like to begin the Q&A session.
Questions and Answers:
Operator
Thank you. We would like to begin the Q&A session only for investors and analysts. [Operator Instructions]
Now, we'd like to pass the floor to Mr. Andre Guillaumon for his final comment.
Andre Guillaumon -- Chief Executive Officer and Operations Officer
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 we -- now we have Coronavirus. But, 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'll have a good combination of results. So this year, we -- last year, real estate was higher, a lot 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 under way. We have Mato Grosso with the 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
[Operator Closing Remarks]
Duration: 38 minutes
Call participants:
Andre Guillaumon -- Chief Executive Officer and Operations Officer
Gustavo Javier Lopez -- Chief Administrative Officer and Investor Relations Officer
