André Guillaumon - CEO Gustavo Lopez - Administrative and IR Officer.

Analysts:.

Good afternoon. Welcome everyone to BrasilAgro’s Q4 2017 Results Conference Call. Today, we have with us Mr. André Guillaumon, CEO; and Mr. Gustavo Lopez, Administrative and Investor Relations Officer. 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 Instruction] The audio that is being presented also simultaneously on the Internet at the website at www.brasil-agro.com, where we also have the slides.

Before proceeding, we’d like to clarify that any declaration that may be made during this conference call concerning the business perspectives of BrasilAgro projections, goals are based on believes of the Company’s Board and also on information currently available.

They involve risks and uncertainties 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 the future performance of BrasilAgro and lead to results that may differ materially from those expressed in these considerations about the future. Now, we’d like to pass the floor to Mr.

André Guillaumon, Chief Executive Officer, who will begin the conference. Sir, you may proceed..

Good afternoon to all. Thank you very much once again for your participation. We hope to clarify the results of Q4, which is the annual closing, and we will detail some significant events. And today, we have -- we will have a longer call.

We will try this annual call to translate to all of you once again the importance of the Company’s work and also the objectives of the Board during this year and how the Company reached its objectives in a clear and concise way. Thank you very much for your presence, once again.

Let’s begin with page two where we always have the highlights of the quarter. And here, we will have the highlights of the year that just ended. We begin always talking about net revenue.

We closed the year with net revenue of R$193.5 million in fiscal year 2017, an important growth in relation to last year and this as a result of many measures, actions and also the sale of assets and also expressive operational results. Also, this helped us to have a net income of R$27.3 million in fiscal year 2017. This is not the profit we desired.

We wanted to have a higher number, but this shows that the Company in the last few years has been following recurring profits. Well, this is the net income. The best way to talk about results is through adjusted EBITDA.

In fiscal year 2017, the adjusted EBITDA, we closed the year with R$42.5 million, also an expressive increase in relation to last year, and this is due to the fact that we will pass on to you, this year the Company with its strategy continues to be a Company that does land development, and we have to talk also about purchase and sale.

Once again, we would like to share with you the objectives we had and the objectives that we reached, the goal that we reached. Fundamentally, what calls our attention, the acquisition of a new farm in the State of Maranhão, the north of the country, and this shows the Company’s strategy in a very clear way with an acquisition of an important asset.

And later on, we will give you more details about the operation, and this asset will collaborate in our --- among other assets to stabilize the operational results of the Company. We understand that our main focus is on real estate but we must generate value in the transformation, in the appraisal and thus mitigate negative operating results.

So, this unit, this farm is not only farm for transformation. We purchased at a price with a discount and we saw the potential for this asset to appraise. Well, as I said in the beginning, we are a transformation Company, we buy and sell, and during this year, the Company -- I am sorry, we had a communication problem. Okay.

As I was saying, the Company during fiscal year 2017 made two sales of an asset and a sale that celebrates the new cycle of the Company. We have an important concentration of portfolio in the state of Bahia; we made large investments in purchase and transformation.

And this year was a year that had a slight improvement in the climate in the region, and we were able to capture this improvement with the sale of parts of our area in the Jatobá farm. It brings us great satisfaction because many times we were questioned about the real market value of this farm in Bahia.

And although we are at times with stress in the last four harvests, we were able to sell at R$20,000 per hectare where we were able to harvest 300 bags of soybean per hectare. So, this shows that investments in the state of Bahia were made at the right time. We will capture a lot of appraisal.

And this reinforces that the region has an important potential. Well, buying and selling is part of our business and also transformation. So transformation is the only sector where it must happen. We will always have transformation in this Company, transformation of land, and it will be faster or less faster, depending on market condition.

So, when we have situations that will allow us to have a more balance management of the risk with the expected margin, we will be a company that will transform more. When we have lower operational margins, then the Company will reduce the speed of transformation. We’ll see the graph on the next page. We have to look at the Company during the years.

So, at times, we have more accelerated and less accelerated periods. During 2017, we transformed another 5,117 hectares, which no doubt, we will see later on in the real estate appreciation. We will see that this generated value, the transformation. We’d like to share with you also, during the end of this fiscal year an independent portfolio appraisal.

We do this every three years with Deloitte and we did this in June, we had done one three years ago, 2014. And on the other pages, we will see the appraisal of the assets. This evaluation done by consultancy company, Deloitte, really showed that our assets are worth R$1.4 billion, and this is a little higher than our internal evaluation.

We always like to reinforce that the sales made by the Company were at prior sales above those evaluated by the market. With these results that we see that we are positive, we believe we must continue working, we will try to increase the results. But, we also have to distribute dividends to those who believe in our business.

So, we generated this result, R$27.3 million. And the management of the Company apart from the mandatory distribution, 50% of the results of the period, we decided also to distribute half of the net income. And this is the way we differentiate ourselves in relation to others. We will distribute R$12.5 million in dividends or R$0.24 per share.

Here we see, I’d like to use very much this graph to show that the Company looks at the price of commodities, but what we monitor on a daily basis is margin, contribution margin. We follow Chicago’s prices and the cost of our inputs internally. So, we don’t have great surprises.

We will show later on that the Company is going in this direction fundamentally. We observe here that first, the second quarter of the year in May, June, the prices because -- prices went up due to the drought in the US.

Then, slightly went back to lower prices and today, we will have a report on the drought and it will -- we’re getting closer to the harvest and the next -- so, the next report will give us more details about the prices.

I would like to remind you that the Company’s monitoring margin, Chicago’s prices are an indicator, and we have also all the political uncertainties and uncertainties of the country and the exchange rates. So, the exchange rates will truly influence the price of the harvest.

So, we believe we are in a conservative scenario and we believe we will have a good price due to political stability. But Company is observing the situation on a daily basis, when we have opportunities that we will use them. On page four we have a report that shows how land is a robust asset.

For three years, the country has had problems in the economy but land in a general way by region maintains its value. And also, we will use this in our evaluations and revaluations of our portfolio.

Going on to page number five, as I said during the highlights, I would like to talk more about the acquisition of São José Farm and it brings -- it will bring a balance in the results. It is not a change in strategy but the sureness of being able to continue generating value with transformation, and thus, mitigating negative results.

This asset, São José Farm, we bought during the year. It had an important value and we will see later in our revenues, the impact of this acquisition. It is a very strong asset to generate business [ph] the next few years. And it’s -- and also, the Company with its cash generation can continue growing and transforming land into arable land.

This initiative has two points. At the time of acquisition, we had 10,000 arable -- 10,137 hectors of arable land and we also had the planting of sugarcane. It is win-win situation for both, for the sugar mill and for us. And this sugarcane plantation has brought good results. Now, talking about acquisition, we can also talk about sales.

So, on page six, we show to you all the sales in more detail. And so, volumes in hectares are not very large but they are important. First, the first sale of Araucária, it is very similar to what had happened with the amount with the 1,000 bags per hectare with sales, those who are with us for more time.

The acquisition value in the past was R$9,000 per hectare and now we see in the best part sale at more than R$60,000. So, this is --we have an IRR or 20.4%. Also, we have also all the sales that we have made in this region were areas that were with sugarcane and then began to plant grains.

This is a plant that was occupied with sugarcane and it continues with grain. So, this means it was a region where we have more liquidity. It was sold -- it was for grain and now we also have sugarcane due to the recovery of the sugarcane in the last harvest.

We have this sale, it is a new cycle of results for us, a new area in the Company, which is to begin to sell the assets in Bahia. As we will see in other graphs, we have projects in the state of Bahia, they are mature areas. And here we see what we can expect in the next few years.

We are going through a recovery of the market in the state of Bahia and we will have more sales than we had until today. Now going on to page seven, it’s important we are sharing with you this information. We’d like to show our projects. All these aspects that we see, everything that we said until now, cooperates to develop these four pies.

The Company made total investments in acquisitions and developments worth R$717 million.

In the beginning of the Company, there was a doubt concerning the capacity and the speed of transformation of the asset, and the Company was -- with the sales of this year and previously sales, we arrived at R$540 million in sales, the one the right, you can see, and you see the return around 17%.

Thus, we accumulated 199,000 hectares and we still have an area that can be transformed, the land bank of 45,848 hectares. Now, the next one, we can see the situation in each asset. On page eight, on the left, we see a graph. We have a phenomenon for us, we have land that is ready or could be transformed.

So, we have the area, we have here on the graph the areas that are ready. They are mature both the soil and also logistics in the region. So, this is our portfolio and the distribution. You can see clearly that in Bahia, in the state of Bahia, we have a lot of developed land, transformed land.

On the right, we like to show, here this shows our decisions and the allocation of capital, and here we have the land transformation evolution. So, during these 10 years of the Company, we transformed 121,000 hectares of land, so transforming lands [ph] into sugarcane planted area, most of the land from transforming the land into productive land.

This shows clearly, the Company’s strategy is working to generate returns to the shareholders. Page nine, here, I’d like to give you some information on our portfolio. Here, we have ownership area plus leasing 225,832 hectares and we always work with sustainability. We’re here for the long-term. 31% of our portfolio is occupied by areas of preservation.

Very well, we have -- we take very good care of these areas; they are well managed. One thing we can notice on the pie in the middle, here, we see an expressive increase in ownership area versus leasing. So, we see an efficient allocation of capital that will give us more consistent operational results.

And this is due to acquisition and this is also due to the acquisition of São José Farm. On the right, we show here the distribution of our portfolio and also our land bank of 45,000 hectors to be transformed. We have part of this in Paraguay, which has a great potential to generate value.

Going on to page 10, this is the part that everyone would like to know. This is the independent appraisal made by consultancy company Deloitte. So, here on page 10, we see clearly the Company’s capacity to generate value to its shareholders. So, let’s take a look at the numbers.

If you look at the initial evaluation in 2014 by Deloitte, we had the Company’s assets evaluated at R$1,292 million. Here, we have some points we must clarify. An important part of this was sold, which was evaluated at R$251 million. Just to remind you, it was sold for R$270 million.

If we deduct the amount R$1,292 million, we would have a portfolio value at that time without Cremaq R$1.4 billion. Now, looking at the right, we will see the valuation of the Company’s assets made by Deloitte. We’re around [R$1.393 million]. Here let’s remove from [R$1.393 million], the revenue of R$100 million.

When you remove Cremaq, I can show that the difference is value generation -- when I remove R$100 million of São José Farm, I would get to [R$1.293 million]. So, the Company’s portfolio that can generate value was R$250 million in three years. This is the value generated by the Company, and we will see more details in the next few pages.

So, this shows the strategy, the clear strategy and the true value generation of the Company. If we make a comparison with the economy in 2014 and 2017, we had negative growth in the economy and we’re talking about the appraisal of 24.2%. So, no one -- the company went, transformed areas and generated value through transformation.

So, this is the edge that the Company has. The capacity to reinvent itself and deliver important results, important appraisal even with the economy of the country being stagnated. This shows clearly, as I said, our capacity to generate value to transform the land in our units. The transformation and it’s very clear to see the strategy of the company.

Many times the market asks us how about the level of productivity? Why doesn’t BrasilAgro has the same productivity as the other players? When we reach high productivity and we continue with these assets in our portfolio, we are destroying value for the shareholder.

So, when it appreciates, the trend is [indiscernible] and this dichotomy, we can explain, don’t expect from BrasilAgro very high productivity results. We will have high results but not from productivity because our focus is transformation of land.

When the land reaches a certain level of maturity and it will have growth in productivity, yes, but we transform this into revenue and return to our shareholders. So, on page 11, we have talked with consultants, and here it’s fundamental to show our expectations and how they are aligned with the Company’s objectives.

Here are the first, we had of productivity of 2,200 kilograms; we reached 2,700 kilograms per hectare. Corn 4,643, we reached 5,457, 17% above the estimate. The estimate is made through weighted average of the last five harvests. So, as a result of new areas that are being transformed.

Since they are new and being transformed, there is no doubt that we will have growth of productivity. So, now, below this field, we show the expected productivity. So, we expect 1,800 kilograms; in areas that we believe are older than four years that are more developed we have productivity close to the average.

But we will always try to maximize operational results until the maximum economic value. We have to maximize until the curve -- when the company captures the economic results of its project. So, here, this field, we’d like to reinforce.

And on page 11 on the right, you see an interesting surprise, the consistent work done in Paraguay where the Company reach levels of productivity that are expressive. And we have here 3,917 for soybean, very optimized by the good rainfall and it will be a business unit, where we will be able to generate lot of value for shareholders. Okay.

The next page. This is a graph comparing the Company with -- here, this is the correct way to compare. We show here what we expected and the TCH and we consider in 2015/2016, we had the farm at Taquari and we have here 92.48 averages TCH. This TCH places us among the largest players in relevance.

So, this asset in the Midwest, we always have their transformation. So, this average represents the TCH. And we believe, we like to show these areas where the Company is working where we have more interesting operational results. When we go to an area where we need a period to transform the land, we will have less expressive operational results.

So, when we show the Company’s numbers, we will see in the next two, three years a reduction in this average. Why? We’re including a lot of assets with sugarcane and that come in a degraded situation. Sugarcane plantations that were not managed in the best possible way.

And in the Midwest, we will have also the sugarcane in Maranhão the new São José Farm that will give us better results. Thus because of this, this average should grow, which is the time that we need to improve 6% of the sugarcane plantation. And this reform will bring us results in three, four years.

Then, we will go back to the levels of productivity we have today. The last highlights that I have before going on to the next part is the operational results.

The Company, when I talked in the beginning of the presentation, we are a company that has its objectives, they were aligned with the strategy of the Company in order to allow us to continue generating value by transforming areas and through the sale of some areas that will help us to mitigate negative operational results.

So, during the year, we used this to achieve this result. First, the introduction of cattle-raising. Some of you remember, the Company talked about cattle-raising. So, the prices of commodities were attractive and cattle-raising was not that important. So, we always believed that cattle-raising land could be used for planting grains.

So, we used the tools for transformation and part of them were allocated for cattle-raising. We are not changing our strategy. Simply, we don’t want to decrease the speed of transformation and bringing volatility. So, the strategy was, let’s continue transforming the land; and to mitigate the risk, let’s use an activity that has less risk.

So, clearly, cattle-raising is very good. And in the future, all these areas that are being used for cattle-raising will be used for planting grain or will be sold. So, cattle-raising is a tool to continue generating value for the shareholders and mitigating negative operational results, so to avoid having volatility in our portfolio.

Well, with this annual call, I would like to go over quickly because my friend Gustavo is here. In a nutshell, on page 14, we have a picture of the sale of grain last year and we see the results, combination of productivity and interesting prices. We see the value that the Company was able to reach in the last harvest and almost $10 a bushel.

So, this combination of soybean, cattle will give us R$70. So, we will see this. The prices were closer to R$62, R$63. The Company made this effort. And now I would pass the floor to Gustavo and he will explain the operational results..

Here, we’d like and we would like to continue on page 15 where we will see EBITDA and adjusted EBITDA. And here we see the results due to the harvest. And we have an efficient allocation of resources and we see here activities, like cattle-raising that we saw. We have here the numbers for the fiscal year.

On the upper part of the graph, we see the EBITDA 28, gross profit of 28.925 and we believe that this is the best way of showing. We understood that we had to include all these results. Here we have the financial results. And here we have the adjusted EBITDA too. And we began, we included this part, all the numbers, they are consolidated.

So, here, as I said, we arrived at this EBITDA here, 42,538. Here the income statement of the Company, you can see here the results and you can see the income statement, gross income, gross profit of the company here.

We have here the sale of the farms and the results from soybean and corn R$14 million and soybean had a very good performance with a good combination of price and results, productivity. And the Company has an excellent cost control. We’re always committed to reach the numbers in our budget to be within these numbers.

And we also had good results from sugarcane, you can see the results here. And 33 million from agricultural activity. We have also positive impact that came from cattle-raising. As you can see here and especially when we purchased the land, market prices were very good.

Then, we have many political facts that affected the price and then, we had a loss of value as can be seen here in this activity. And also, we have the case of sugarcane. We see the numbers. The productivity is good and we -- you can see the results here, especially with the São José Farm. Thus, we have the results, 47.8 million results.

Last year, we had a much worse situation due to climate problems, weather problems in the state of Bahia. We have also recurring expenses that went up due to the higher amount of grain sold. And also administrative expenses, an increase of 6% and the main reason, we began to consolidate Paraguay, which we had not done before.

We want to continue these expenses without large increases. We have other operational revenues also, which are the impacts of these farms. Other expenses, we had a contract and we transformed the area. And so, we can see here these activities went to Palmeiras.

And we are working to develop the financial results of very similar to those of last year, lower impact because of the cash that we had. And in general terms, we had a profit before taxes, R$33 million, tax R$5.9 million, so net R$27 million. On page 17, we have the balance sheet.

We have here the total assets R$883 million and see the difference, 3.3% difference in relation to last year. And both in short and long-term we had R$138 million and today R$67 million. And the decrease, the drop in this item is due to investments and the acquisition of the São José Farm. We are reminding you that all investments are at cost value.

We have here the liabilities 29%. When we look at the loans, very similar to what we had last year. We -- due to the implementations we made and São José Farm -- this São José Farm has already a good cash flow. Now, also another point we have here -- we have 5.8% of shares in the treasury, 1,000,300 in shares and we bought shares.

To page 18, the proposal, this will be -- so, the profit R$27.3 million. We should have this calculation. We have 25% mandatory; we’re proposing an extra 25 million, so appropriation of reserve for investments and expansion, R$19 million and dividend per share will be R$0.24. We have a thermometer [ph] that we’re monitoring.

We make this calculation every year. And we use the audited balance sheet. This was done by an independent company. And we have therefore a value per share 20% and this has to do with shares that were canceled and the value last year, you can see here.

This gives us a growth of 10%, if we consider 7.5%, and this challenges us to continue working because this is the way to generate value for the shareholders. On page 20, we have a graph with the appraisal of the shares. And we’re now available for the Q&A session. Thank you..

Thank you. We’d like to begin now the Q&A session for investors and analysts. [Operator Instructions] Our first question comes from [indiscernible] from Bradesco Bank..

Good afternoon, Gustavo, André. I’d like to know more an update about Brazil’s policy to allow foreigners to buy land. As you said, the market in the state of Bahia was -- became with more liquidity.

What caused this? And what is your perspective for the second half of the year?.

Thank you for the question -- for the two questions. The first question involves politics. We have done a follow-up of this. I can try to tell you how things were and how they are today. In terms of the ownership of land by foreigners, this evolved a lot in the first semester.

We had a better situation, the market, not only the land market but the financial market as a whole. We made progress in many areas in the country. For example, in the case of airlines, land, and also the ownership of land by foreigners.

In the month of April when we had many political facts, Congress became more proactive in the reforms the country is going through. And this issue of ownership of land by foreigners was left in second place because now they are dealing with the political facts and the anticorruption efforts.

The government is looking for mechanism to reform, to approve some reforms, we have the labor reform and also the retirement reform. After these, we believe these other issues like ownership of land by foreign investors should come back to be voted.

So, on the part of the executives of the government, they are willing -- in the government, in the ministries, they are willing to solve these issues, but they have now political and financial reforms to do before going on take it. We believe that this will happen in the second semester or maybe first semester of 2018. So, we have done a follow-up.

We’re constantly seeing that the work being done in this area. I believe the law -- we are sure that it’s the time for Brazil to really allow more ownership of land on the part of foreigners. This will help the country with capital. We are in a recession for three years and this should help the country to attract capital.

So, we can’t tell you that this will happen in the next 30, 60 days. But we see clearly that this is in the government’s agenda and the government is working in a very a active way in this direction to approve this law. Your second question, the liquidity of assets in the state of Bahia.

When I see that Bahia in the last four years, we had reductions in productivity in the state of Bahia due to climate seasonality. In the last year, there was a good coincidence. We had the rainfall below the average, but much better than in the other years.

If we look at total rainfall during summer in this harvest at the end of May, the total volume of rainfall is lower than in 2015-2014. But we have an improvement in the distribution of rainfall. So, although the volume was lower, we had a better distribution of rainfall; thus, with less heat during the harvest.

So, we can expect you’re doing -- you’re looking at meteorology, we’re seeing La Niña becoming stronger and La Niña brings benefits to some regions and hurts other regions. But in a certain way, we can expect the way this phenomenon is behaving, we -- this will continue for two, three years.

And according to weather specialists, this will bring us either above average rainfall or average rainfall. So, the increase of the liquidity we believe will come when you have producers that are capitalized. And what capitalizes a farmer is productivity, good productivity.

So, the farmers, when they have capital, they buy land, they buy inputs and this appraises the land. So, the expectations are that Bahia will have better prices due to the good climate it will have in the next two, three years..

[Operator Instructions] As there are no more questions, I would like to pass the floor to our CEO for his final comments..

Well, thank you very much for participating. We would like to apologize for the long explanation. This is due to satisfaction for reaching the series of objectives we had and we are very happy with these objectives and this motivates us to always raise the bar. The Company is better prepared.

And I always say, we never stop looking at the three pillars, structure; process; and people. And I feel that the Company is engaged in order to deliver operational results that are consistent. So, the results in real estate will come, we are also based on operational results, both results, operational results and real estate results.

The strategy of the company is clear, robust and I hope I transferred to you a clear vision of our management and how we will continue working in the next few years. Once again, we are available for any clarification that may be necessary to help you understand in a better way our Company.

We are very satisfied to bring to you these results that are better than we had in the past. So, this shows consistency. And we want operational results in a recurring way. This is what the investors and shareholders and people want from this Company.

So, I can tell you that the strategy is clear and we will work in the next year with focus on results, trying to balance these three pillars, purchase, sale and transformation of lands, and with this, the generation of our consistent operational results. Thank you. And I thank you once again for your participation..

BrasilAgro’s conference call is ended. We thank you for your participation. Please disconnect the lines..