Julio Toledo Piza - CEO.

Good morning. Welcome, everyone, to BrasilAgro's Fourth Quarter 2014 Results Conference Call. Today's live webcast and presentation maybe accessed through BrasilAgro's website at www.brasil-agro.com. We would like to inform you that this event is being recorded and all participants will be in a listen-only mode during the company's presentation.

After BrasilAgro's remarks, there will be a question-and-answer session for analysts only. At that time, further instructions will be given. (Operator Instructions). Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of BrasilAgro 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 could also cause results to differ materially from those expressed in such forward-looking statements.

Now, I’ll turn the conference over to Mr. Julio Piza, Chief Executive Officer. Sir, you may begin your conference..

Thank you. Welcome everyone to our fourth quarter 2014 conference call. If you may, we can move to Page 2 with the highlights for the year. First of all, the acquisition of 141,000 hectares in Paraguay, which we are very proud of. It’s our international expansion plan going on.

Also, as we have mentioned before, the company a couple years ago entered a more stable phase in which we are selling land on a recurrent basis. So we sold our two operations; one in Paraguay, one in Brazil which was very interesting. It reinforces our investment thesis.

Of course, we would want more and positively sure more will come in the short term, but we are doing it. Also, we have accomplished or obtained another 16,000 hectares of environmental permits. We’re expecting or we’re finalizing another 13,000 hectares of developed area.

With that, we are reaching 100,000 hectares of developed land in the last six years. And also as part of our request we’ve been getting from investors, we’ve hired an independent appraisal company that did evaluate our portfolio reaching R$1.3 billion in value for our farms, and again a few more of that in more details.

From an operational perspective, it was a mixed [feeling] (ph) year. I think real estate development growth was spectacular. The sale part is good, not bad, it’s good; could be better and will be better but it’s good. From an agricultural operation, mixed feelings.

A pretty good year on [POE] (ph), a pretty good year with sugarcane; pretty good year in Paraguay; going to see the details, horrible year in Bahia and it’s part of what we do once we start developing and operating in the margins we are always more sensible to weather patterns.

So before going through the details, a little bit about overall scenario we have on Page 3. Soybean price has gone down significantly in the last few months reaching levels that we had seen in end of 2011, which of course puts tremendous pressure on margins for next year if we don’t have any change in selling prices.

If we don’t have any changes in exchange rate, margins are going to be extremely tight for next year and some regions of Brazil especially the ones that are very far away from the port will suffer and will have negative results. Of course given the fact that we have had a few years of solid margins, farmers in general are in good faith.

Therefore, they will continue to produce. But what we do know is that given current margins, there will be no expansion in an area in Brazil, a very marginal one and over time assets there might be a reduction in area if margins are not to improve. And then the question remains of the overall demand and supply in the world as adjusted or not.

But definitely it’s a year to be very, very careful. On Page 4, we haven’t seen any impacting on the prices because of that, but we do expect some adjustments especially in regions that actually appreciated the most in the last few years, suffering extremely high margins, especially for corn for instance but also grains.

And so there might be and probably there will be some adjustments. But as we said before, I think it’s never right to perpetuate short-term tendencies neither for the good or for the bad. So some regions of Brazil will suffer a lot, some of them will not suffer or suffer marginally, but to be seen.

It’s a thing that opens up interesting opportunities for a company such as ours.

On Page 5 going through what we did in this year, starting with Paraguay, which happened in December 2013, we acquired a 50% stake in a company called Cresca, which was a joint venture between Carlos Casado and Cresud and also Cresud had all the management of Cresca and also a management fee because of that.

At that point, Cresca had roughly 45,000 hectares and an option to increase that price in another 96,000 hectares reaching a total of 141. What we did back then is we bought from Cresud its stake taking over the management of Cresca and also their option to increase total area.

With that, we had a total of $18.5 million paid out to Cresud and another $17 million that probably is already paid, part of it is to be paid to Cresca in order to exercise its option and achieve the full size of it. So that is operation.

Since it was a related party transaction, we took all of the careful steps required by Brazilian legislation and the way we see that, so the whole transaction was covered by an independent appraisal and also was only presented, discussed and approved by the independent board members.

And so all the board members appointed by Cresud were not involved in the discussion and it was approved unanimously and also option performing the transaction we had in BrasilAgro Day which over 40 people attended and we’re very transparent in our discussion with all the details about the transaction. So this is the transaction.

The farms are allocated and are very interesting in region and a very new region in Paraguay called [departamento Boqueron] (ph) which is some 500 kilometers northwest of [Asuncion] (ph). It’s a region to be developed with incredibly high fertility and nothing much going on there. But it’s typically the regions we like to go.

I have a tremendous potential value to be unlocked and we’re going to see some new results. Also, on Page 6, on the real estate farm sales we had two this year, a little bit of Paraguay 24,000 hectares that we sold which was undeveloped and there are a few reasons why we sold an undeveloped farm.

First one, because we are bringing in an important producer to the region and therefore helping us to develop the whole thing. So it’s important to speed up things and definitely by having new neighbors such as this one will help us driving the whole region up. Also that generates an important cash flow in Paraguay.

We have a very ambitious development plan for Paraguay that requires a significant amount of cash and by actually generating cash flow that actually supports the plan quite nicely.

And also a third element is that by selling 24,000 hectares at the price we sold, it actually confirms that the transaction that we did back in December with Cresud was very, very accretive for BrasilAgro’s shareholders lifting any remaining doubt about it. So we’re very pleased to be able to achieve a series of important goals with this transaction.

Also, we said 1,000 plus hectares at Araucária, 900 arable, incredible price. We’re very pleased. The whole internal rate of return of the project over 19%, so extremely pleased in spite of our business model if we keep on selling pieces and parts of the farm and we can keep on going straight at very attractive prices and multiples.

On Page 7, a little bit of portfolio evolution. We have farm by farm the level of development.

While these under development what is already developed, we can see some of the farms such as the ones with sugarcane we consider one to be fully developed and the ones are on the way such as Cremaq almost there, but most of them are actually still going on, so still a lot of room for value creation or a lot of room for productivity increase.

So on an aggregated basis, we classified 22% of our hectares to be developed, 27% under development, so growing something and the rest of it which is over 50% is still untouched.

Also on evolution wise, we’ve kept on developing and increasing the amount of hectares every year and this is perhaps the most important source of value for our shareholders and we are reaching a very important mark this year and going to reach over 100,000 hectares developed in 2014, a very important mark for us.

We’re very pleased to achieve that level of hectares developed. On Page 8, the independent appraisal done by Deloitte on our farms, an important thing and they have reached R$1.3 billion in terms of farm on value. That’s just the value with the farms that we have. Important couple of disclaimers here.

When we hired them to do the job, we had sold Cresca already but before it is already – the 24,000 hectares is out of here. But from an accounting perspective, we haven’t booked that sale yet because we already handed possession of this part in July and are calling for our accounting standards.

We only account for a transaction when we have actually handed possession of it of the fund to the buyer. So for the Deloitte appraisal, Cresca or the farm in Paraguay sold. From an accounting perspective it isn’t, so that’s one.

And the second one when they finalize the job we have not sold or acquired yet, moreover made a report that we sold 1,000 plus hectares, therefore, in that number they put it here for Araucária. It does not take into consideration the sale that we did, so that’s the difference.

A small difference is that’s important for us to actually make the disclaimer. So that is independent wise. But on next page, on Page 9, we’re keeping our job of every year providing an internal assessment of our funds that we do and so this year we did it again.

And in order to make it comparable to Deloitte, we did the same basis before considering the sale of Cresca, the farm in Paraguay but not considering the sale of Araucária. And we reached a lower number than Deloitte and I guess it’s fine for different people to find different value offerings.

But that’s our internal assessment and on that we can actually compare the evolution from last year and the year before, so there’s a nice and recurrent same basis of valuation.

As I said to make it comparable to Deloitte, we didn’t include the sale of Araucária and as a reference we are reporting here that Araucária on June 30 is worth in our view R$172 million.

If we were to consider the sale, that number would have dropped to 138.5 million, so that is a reference for you guys to keep on track of our own internal valuation. On Page 10, agricultural operation performance.

On the left side, we have a rainfall map or evolution for Bahia and you can see that January and February were really short of rainfall and especially February because not only is very little amount but the distribution was awful, so we went on farms of ours that had 30, 35 days without a single drop of rain and that of course affected productivity significantly and especially in our case that we have an important amount of hectares and they are very, very young and not developed to very, very sensitive to those kind of weather changes.

And that’s impacting of course productivity. What we gave as we did last year and the year before, we broke down hectares into new, just the first or second year; under development and more developed. And using that breakdown, we go from 1.1 to 2.6 tons of soybean per hectare which is in line with our development process.

So, of course, we’ve had an area that’s fully developed in POE with over 2.5 tons of soybean and also we have first year areas in Bahia that were severely affected using less than a ton of soybeans.

Also important to note here that the second crop of corn was 3.7 tons which is very good for us given the fact we’re doing most of the second crop corn in POE which actually a few years ago nobody thought was possible to produce soybean there and now we are doing not only soybean but also a second crop of corn.

And given the region, the corn price is very attractive, therefore we’re making a very interesting economic decision.

Also on Page 10, we are mentioning here Paraguay which is a 2.3 tons per hectare which is amazing actually, because if you take into consideration that the cost of producing in Paraguay is the direct cost of soybean, if that’s as much as in Brazil, the kind of margins which is in Paraguay this kind of yield are extremely high, higher than the vast majority of the soybean operations in Brazil not only ours but in Brazil overall.

So we’re extremely pleased with that. Of course, bear in mind that this year was pretty good in terms of rainfall in Paraguay and next year it might not be. But the fact that it actually can achieve those kinds of yields with the kind of direct costs is actually a pretty good way to evaluate our transactions incredibly positive for us.

On Page 11, a little bit of explanation on sugarcane. The sugarcane we have the calendar year production and the accounting year. The sugarcane harvest begins in March-April and goes all the way to November and our fiscal year ends on June 30.

So depending on how the harvest started and the speed of the harvest, different numbers of hectares are accounted for in on each year. So to give an example, we have on the table on top the calendar year, the amount of harvested tons hectares and actually yield in terms of tons per hectare. And you can see what happened in 2012, '13 and '14.

And '14 this is only to June 30, but the harvest keeps on going and it’s going to go into November. And there is a drop in productivity from 2012 and '13 and that’s basically because the sugarcane [reed] (ph) is getting older but is already been referred in 2014 as we have new hectares coming in that are being renovated.

Of course, we don’t expect our average yield to go all the way up to 107. It’s going to get closer to 90, which is a very decent one. Then we’ll go to the fiscal version of it and that depending on how the harvest behaved because there were a different number of hectares that were accounted for in each year.

So to give an example, 2012 we harvested 7,000 hectares. The 17,000 tons is a wrong number. The right number is 551,000 tons and then what happened. In 2012 – it then goes to 2013 and 2013 what happened is that we started most of the last year was then after June and July and we did a lot before June 30.

Therefore, in the fiscal year ending 2013, we harvested almost 11,000 hectares of sugarcane meaning that several hectares on those farms were harvested twice during that fiscal year. And that’s why production went up so much.

But that’s important to notice that the drop in production on a fiscal basis, the vast majority is explained actually when those factors were accounted for. Page 12 just to have a little bit of soybean left from this year 4% that is being sold as we speak.

For next year, we have 5% already sold in terms of price, not much and roughly 50% already negotiated. What’s been happening is that soybean prices go down, the premiums at the port are going up significantly. So we’re taking advantage of that situation to start locking in the premiums at the port leaving of course prices to be negotiated later.

On Page 14, EBITDA and adjusted EBITDA, important to remember always what we tried to do with adjusted EBITDA is to get a better picture on the operational results of the company before we take out of the equation all of, for instance, long-term biological assets implications moving only the short-term ones so we can have a good proxy for what went on from an operational perspective and cash perspective on the company this year.

Our adjusted EBITDA for 2014 is R$4.4 million remembering that the sale of Cresca is not impacting here and the operational results of Paraguay are not impacting in this calculation as well which are positive and with the small sale we are positive.

It’s the fourth consecutive year of the company delivering a positive EBITDA which in our belief is the best metrics to evaluate us giving the important amount of depreciation that comes in our books because of all business model of developing lands. On the income statement, exactly that’s what you can see.

The net income is minus 16 which is severely impacted by the depreciation and that’s the most relevant. The most different – the largest difference between last year and this year is from sales which explain most of it. We had it more last year. Next page, balance sheet, important to notice a couple of things here.

First of all, Paraguay in Cresca, it’s part of the investment. Most of those investments have no current assets of Paraguay and also transactions to related parties also accounted for some of Paraguay.

The way we structure the transaction, part of what we paid for Paraguay is equity and part of it is debt and that’s why the transaction with the related parties. And that part also accrues interest every quarter, so it keeps going up and up.

Also on the balance sheet, we have acquisitions payable which is all the farms that we bought and haven’t fully paid yet and transactions to related parties is all the money that we have to actually put into Paraguay to Cresca to truly exercise their options or pay for the options that we exercised already.

Also just to mention all the reserves in the shareholder’s equity is the difference between what we paid in Paraguay – paid for Paraguay back in December and the fair value of it. But that goes into our other reserves. So those were the main aspects we wanted to cover in our call. So we can move to Q&A now. Thank you..

We will now begin the question-and-answer session. (Operator Instructions). The first question comes from [Paulo Varassi with Brazil Ploro] (ph). Please go ahead..

Good afternoon, everybody. I have two questions, if I may. The first one is about the company’s partnership in Bahia. I’m talking about the one that was eliminated in June of this year.

I was wondering how this decision impacts BrasilAgro’s call option to purchase the Parceria I Farm and if there is a remote possibility of re-implementing this farm into the portfolio in the future? And also if this actually changes anything regarding the Parceria II Farm. That’s the first question.

And then my second question is about CapEx for 2015 and it’s basically just if you guys have a guidance that we could work with in our estimates for the year. Those are the two questions. Thank you..

Thanks. For the first question – thanks for the question, Paulo, we cancelled the Parceria we had in Bahia. It hasn’t performed to what we expected, so we cancelled the Parceria. We cancelled the option to buy the farm. It was out of money. We didn’t have our interest in pursuing that.

It doesn’t change anything regarding the Parceria II which is the one in POE which has performed quite well according to the plan. So we’re excited with that one. We were not with the one in the south in Bahia, that’s the reason we cancelled it, but will have a great exposure to Bahia. It doesn’t make any sense to consider that operation.

That’s the reason we cancelled. As for the CapEx for the year, we don’t have any specific guidance. What we can assume that’s in general we expect to stand on a single hectare of development between R$2,000 and R$2,500 per hectare, so you can make the calculations based on that number..

All right, thank you..

This concludes the question-and-answer session. I’ll turn it over to Mr. Julio Piza for his final considerations. Mr. Piza, you may give your final considerations now..

Thank you, everyone. As I said before, I think it’s a year to celebrate a few things such as expansion, such as a high level of development with also to be happy about keep on selling farms as we did as the third consecutive year that we are doing so and in important numbers. I’m just saying that it should be more, it will be more.

From an operational perspective, we’re not pleased with Bahia. It was a tough year, but we are pleased that the portfolio is holding together and that the company even though developing a lot of land, doing all of the hard work and being very sensitive to weather issues, we continue to deliver productive EBITDA.

So we are pleased with that and looking forward to another year of lots of development and perhaps new acquisitions. With that, thank you everyone for joining. I’ll see you all in the next quarter..

Thank you. This concludes today’s BrasilAgro’s fourth quarter 2014 results conference call. You may disconnect your lines at this time..