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

Good afternoon. Welcome everyone to BrasilAgro's Q2 2018 Results Conference Call. Today, we have with us Mr. André Guillaumon, CEO; and Mr. Gustavo Lopez, Administrative Officer and Investor Relations Officer. We inform that today's live webcast and presentation maybe accessed through BrazilAgro's website.

Next, we will begin the Q&A session exclusively for investors and analysts when further instructions will be supplied. [Operator Instructions] Today's live webcast and presentation maybe accessed through BrazilAgro's website at www.brazil-agro.com, where we have also the PowerPoint presentation.

Before proceeding, let me mention the forward-looking statements are based on beliefs and functions of BrazilAgro's management and on information currently available to the company. They may involve also 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 macroeconomic scenario, industry-related [ph] factors could also cause results to differ materially from those expressed in such forward-looking statements. Now, I'd like to turn the conference over to Mr. André Guillaumon, Chief Executive Officer, who will begin the conference. Mr.

André you have the floor..

Good afternoon to all. It's a great pleasure to be with you once again to tell you about our results, our earnings in Q2 '18 and also we're available to all the participants to answer questions. Once again it's a great satisfaction to be able to share with you in a transparent way the results, our business segment perspectives and also the results.

Once again thank you very much. I would like everyone to be on Page 2 where we always talk about the highlights of the quarter. And here the great highlight as we mentioned previously. The great change in terms of net revenue.

And this Q2 everything that we had planned in the past, this result in net revenue which has to do with the first six months of the year and we have a good surprise you have been following us for a long time, when seeing this you can see the results and you will see a great difference.

The company now became a company with a robust EBITDA allowing us to continue to generate value to our shareholders transforming land, with agricultural production.

This is how we managed the company, while the most important highlight is net revenue in six months R$174.6 million in net revenue this contributed, this gave us net income of R$31.6 million and as always we like to show this is the best way for everyone to understand our business in terms of assets, biological assets and other factors is the adjusted EBITDA.

So we closed the semester with R$31 million in net income and R$59.2 million adjusted EBITDA for the first semester of the year. As you know we have the calendar year and we have the sugarcane calendar.

At the end of November, beginning at December, we closed the year with supplying a little over 1.8 million tons of sugarcane in our calendar year and this contributed a lot in a positive way for this operational result of the company.

Also the conclusion of the grain harvest, we concluded the harvest in the ideal window, the window that we had to plant grains and both in Brazil and Paraguay. We concluded the planting of the 2017/2018 grain crop and the company apart from planting within the window, we did it with great quality as you will see on the next slide.

I believe that talking about numbers is easy and we have to see that we never forget the pillar that sustains all of this which is people. So we [technical difficulty] this, Great Place to Work.

This shows the work done by the company in the last few years with people management, developing leaders, developing talents and people committed to the results. So the company won the certification Great Place to Work to celebrate this semester.

This record mission Great Place to Work showed that apart from working with bearing the mind the numerical results we're also concerned with people for the sustainability of the business. And here we see the price of soybean on the next slide.

I like to stress the company monitors margin contribution margin - the results the company estimated that we have to also do a follow-up of prices. So we're following the scenario, we did not have anything out of the common as we had last time. You all follow us, you follow the commodity market. We had a draught in the US.

July 1 till July 30, the draught and the company was aggressive within our hedging policy and later on, we will see this in the results that we reach. But in general, we see the soybean market, we see Brazil maintaining within the levels of projections 114, 115 million tons.

You know this, you can understand the South American market, we see some news about reduction but not significant amounts around two, three million tons less in Argentina, but these are not affecting offer and demand.

We believe in price that is stable with small fluctuations and you're doing a follow-up [ph] we have the harvest now in the state of [indiscernible] and we have a little more rainfall which is hurting the harvest a little and soybean this could change level of prices.

We will see later on, we have almost 80% of our position sold in soybean and we will be doing a follow-up of productivity, we may have some price changes in parallel. We know that Brazilian soybean is a combination of Chicago, plus the exchange rates.

In terms of the exchange rate then we have a universe of uncertainties in the short-term, the exchange rate. So in the short-term there are some uncertainties you do this follow-up.

For example, some reforms that the government is planning like we know and the company is looking at 20% that are not sold and also the next harvest, the future price of soybean. We begin to see some opportunities to make some deals. Once again fundamentally between offer and demand, we don't see great problems, great fluctuations.

But small events adjustments we're always on the lookout for these. Now Page 4 as always, we look at the price of land once again. We're in this position, we're working with a robust assets, we've been through three years of economic recession the price of land is practically flat. Liquidity was affected.

The prices were not affected like we see the affects another. For example the housing market, so it's a very positive scenario, the price of land. Here we can see that this reinforces the company's role, where moving now at a time of low interest rate. Historically we know that, low interest rates really makes everyone go after real investment.

What do we see in the future? With this exchange rate and inflation under control will be interest rate around seven. So this will provoke an increase in liquidity of real assets. So this is the great message. This was expected. The company is capturing the appreciation of assets in the short to medium-term.

Going onto Page 5, historically highlight then we will see this in detail. Here the great quantum leap of the company once again. The company grew in transformation and increasing the planted area. We left from 88,000 hectares and now - so in 2017/18 was 101.475 hectares planted. The market is solid.

Well this gave us a projection around 1.8 million tons of sugarcane; 15,800 heads of cattle, we mentioned this in previous calls. The increase of the cattle-raising activities, how we see it in the company? It is a tool to generate value for transformation without generating volatility in the operational results.

We had an objective, we made a proposal and we bet on the result in today and we're very satisfied to see that the company reached this number of hectares and this number of heads of cattle.

Basically, I'd say once again focused on mitigating risk of transformation of land, so we are not a cattle-raising company, but we use cattle-raising as a tool for transformation of lands being some and thus avoiding volatility. Now we're estimating as I said, we were able to conclude the planting within the right window.

Until now rainfall is favorable. We don't have rainfall above average and we have a good distribution of rainfall and until now we had a satisfactory number and there is an important volume of rainfall to come into the next few months. And this decreases the risk.

We now have an important volume of rainfall this week and next week, part of the production are really beyond the critical period for corn and soybean. So this makes us believe that, the results can be very promising for grains. Going now to Page number 6, here we see the number themselves.

Here we have the total yet an estimated production of 101,000 tons, 2017-2018 and we have 101,000 some people are saying, but we have a good climate and we have reduction. Basically it's a strategy to mitigate, the risks, the volatility. We leased some lands in Bahia.

So when we prepared the budget, we had a goal for production and a goal for leasing lands to third parties who can become buyers and we did this last year in Jatobá. We had more, we were able to lease more than we had proposed to the administration council and this led us to reduce the planted area and also the expectation of production of grains.

That's in an important time to mitigate production risks and meet to also in line with our plans to find buyers for our land. So we were able to bring another operator and within the next few years, we should make some business deals or sell land to them. Well productivity in sugarcane we see below grains.

Here, the main number we already showed more than almost 1,860,000 tons of sugarcane and in the last few years we have been increasing numbers.

You might ask yourself, why the reduction in productivity? If we have this and now the average productivity here and here it's important to see that we included an important asset for [indiscernible] São José Farm. We added this area in Maranhão. [Indiscernible] partnership where we took over the sugarcane plantation.

The sugarcane plantation needed investment. The sugarcane plantation needed adjustment, this is what we're doing. We began this operation in February. We had time to plan 2,200 hectares of sugarcane and now we're beginning to plant another 6,700 hectares of sugarcane.

One-third of this sugarcane area will be in the same standard as the one in the Midwest. These will be harvested, so this sugarcane planted in February last year will begin production in May, June and these 3,700 hectares of new sugarcane plantations should come into production in 2018, 2019.

As I said, this is our - we have delivered consistent results doing this, this way and important results were sugarcane and this is an opportunity to show the growth of productivity and the appreciation of this asset. Well going on to Page number 7, the results of the harvest 2017, 2018. Here on cattle-raising, livestock.

We see here number of heads of cattle. We had estimated 15,799. We reached 15,740 in Q2, 2018. Here I would like to make a comment and show a little issue of the opportunity we captured. You have been following us and you follow the beef market.

We decided to invest in cattle-raising as a tool, then we had a surprise of [indiscernible] scandal and we said, we had a good opportunity to form an inventory at an interesting price to begin with. So we were very aggressive, when buying these animals and now 95% of our areas for pasture are already occupied with heads of cattle.

So we made a good purchase when we saw that the price was favorable. The price now is beginning to improve, you know this and the price of beef is linked to the numbers of the Brazilian economy. The Brazilian economy is improving and we believe that this [indiscernible] operation is in the past.

It creates a terrible loss to this sector and we use this opportunity to try to form inventory of those low prices for the heads of cattle. You can see we have an estimate production here 2,414,000 kilograms of beef and here at the first semester is - had a lot of draughts July, August, September, October. These are months when we had draughts.

When we had little rainfall, so then the cattle do not gain weight. They gain weight in December, January, February, March.

So we're estimated, we're very optimistic that we will get to our goal because in January already we see that we have gained above our projection apart from reaching the number of hectares also we will reach number of heads of cattle and also the ideal weight.

So these are results concerning livestock and new activity we began 18 months ago with this activity and I wanted to show you these results. Page 8 please. A little about the soybean. We already mentioned the results of soybean. Here we see the company's position.

Soybean sold, soybean unsold and below we show here the price practically almost 80% was sold at the price of Chicago $10.49 this is our average price, $10.49. And most of this transaction was done in July, August last year and we were able to capture an interesting time for the exchange rate.

This is a combination that will take us to a result that is superior to that of our budget and we are now looking at the remainder of the soybean to be sold. The spot market does not have these levels that we have here, that we times when we have increases in price, so that was the first part. Now I'd like to pass the floor to Mr.

Gustavo Lopez and he will talk about the economic reports in this semester..

Thank you. Good afternoon. Now we'd like to go onto Page number 9 and on this page we see a adjusted EBITDA. The first part, EBITDA. According to accounting months and at the bottom we have adjusted EBITDA. The company understands this is the best way to see the cash generation of the company.

So here we see the results we included adjusted depreciation and in areas of grains and sugarcane harvested and we excluded biological assets. You can see that in six months 2017 the results R$1.9 million and for the same period 2018, here we have R$59.1 million.

And this increments in the [indiscernible] we acquired São José Farm the partnership in sugarcane [technical difficulty] in the next semester we should include the EBITDA results of the grains that we're estimating and the rest of the production and livestock. On the next page, here we see the income statement. We can observe net profit, last year.

Net revenue R$1.6 million last year and now R$31.6 million and reminding you that in the first semester of the previous year we still have cash from the sale of [indiscernible] farm.

We have invested the money in the financial market and as of January 2017 we acquired a farm and we leased a part and we exchanged financial results for operational results. In the gross profit, we had R$11.4 million and now R$60.3 million.

R$11.4 million were the results that came from the Midwest in the sugarcane farms and the inclusion of 17,000 hectares of sugarcane generated this difference reaching R$60 million. And we have here apart from sugarcane and 1.4 million tons that were delivered during this period neared [ph] R$38.90 [ph] per ton or R$1,950 per hectare.

Last year we had R$12 million from sugarcane. 35,000 tons at a price per ton of R$23.18 and this difference we have a better productivity.

We have better selling conditions, contracts with leasing payment of bonus, getting to a better margin and this amount that we received have to do with the results of the other party, we were able to capture also during this harvest.

When we look at the financial results, we may observe that in the previous six months we had the number you can see here.

As I mentioned this was due to investments in the financial markets earning interest and this year, we have less cash, low cash because of the acquisition, low amount of investment and we can see that the interest rate also dropped in Brazil at this time. The result R$4 million of the six-month comes from the first semester.

We paid off a debt what we had for our EPE [ph] farm. Now on Page 11, we have the balance sheet. And what we can observe here, cash and cash equivalents circulating and non-circulating assets. We have on 230 this year. We have loans that we took out from financial institutions. And our net debt in here, can be seen net debt R$168 million.

It's important to say that these loans and financing, we see the number here. These are short-term loans. For the harvest, expenses for the harvest.

And in the next six months we will be paying them off these loans and we have an increase in accounts receivable and biological assets which are the reason why we took out these loans to increase our position in cattle-raising activities to buy fertilizer and to buy the inputs for the 2018 grain harvest.

Reminding you that our property for investment here are in the books of cost value. We have in the treasury R$25 million reserves, R$68.7 million and accumulated profit R$1.6 million. Page 12, here we updated the company's numbers, net value. Equity Brazil and Paraguay and the number of shares we have, a value here.

We updated this to the current value of the farms and we see here R$25.63 amount per share as André mentioned concerning interest rates that are low, so it's an excellent opportunity now to have this value. On Page 13, here we see our commitment with people management and now we won this certification.

We continue to work hard to have a competitive team and to continue focusing on the results. On Page 14, we have here capital markets we see here AGRO3 and LND. We understand here. The prices are pretty stable and so an excellent opportunity to acquire shares. Now we'd like to begin the Q&A session. Thank you..

[Operator Instructions] our question comes from [indiscernible] from Bradesco Bank..

My question has to do with the sugarcane operation. Gustavo said that there was a drop in the margin? Will the next harvest 2018-2019 will those margin improve for sugarcane? And also working capital, you expect an improvement in this line. What happened during the quarter? Thank you..

Thank you for the question. Concerning sugarcane, in this semester this harvest. We had the following; half of the contract in the Midwest a little over half, we had linked this to sugarcane the other 4,000 hectares and with the price above the market.

When we leased part of the land, we made a contract similar to the one we had in the Midwest and using as parameter as the sugarcane in São Paulo. And this gave us a billing following the standards. Additionally, we defined the 15,000 hectares. They had an investment by the other party.

The party to whom we leased and this will present the price that we mentioned per hectare and leveraged the margin of the result. What we're expecting for next year? We're expecting a little higher prices, a little higher than what we were able to get this year. The first six months of harvest, between March and September.

We had prices that were lower than in the last two years. We had this year. We had a difference that we were not able to capture and we believe that next year we will have higher prices. The margin we're estimating 5% above the current price, but it will depend on the tonnage that we can harvest and our estimated productivity.

It's still a little early to see this. We have rainfall. We're trying to understand still the growth of the sugarcane plantation. Additionally Rafal [ph] I'd like to supplement. Gustavo explained very well the issue of margin, what happened in our results and I believe you would like to note what we expect. You're probably looking at many sugarcane.

Now the scenario is different because Petrobras's price policy has changed when buying ethanol and this is giving us more transparency, more security. We have more foreseeability [ph] with the new pricing plan of the state oil company Petrobras.

So they made adjustments improving this is a factor that contributes for us to have more security in the next few years. I would like to add a point that will help us - bringing us an increase. There is a program to guarantee and equalize some problems we have in this sector. So we believe that in the medium and long-term.

It is a very sustainable activity and we'll be more transparent with new pricing policy of Petrobras. Concerning the question that you asked.

When we analyze, if we analyze only the cash flow with six months of activity on December 31, we have a problem because we have all the investments made in grains, fertilizer and we haven't received the revenue from this. This will happen in May, June, July.

The revenue so if we look at the liabilities in the first semester you will see that we didn't have an increase this year in liabilities because we had - we paid off some loans, we have an increase in receivables because the contracts. There is part that you receive every month and then a payment also at the end.

January, February, March so we have R$40 million, R$50 million that we should receive between January, February, March and with this we can pay all the debts we have. So I would like to save it. We would like to have a longer duration because there are many debts that are in the short-term and we will work on this in the next few months..

Very clear. Thank you..

[Operator Instructions] since there are no more questions, we'd like to pass the floor to Mr. André Guillaumon for his final comments..

Well, thank you very much for being with us and once again, we shared with you the partial results and we'd like to reinforce our message. We will continue working with our hard work to deliver more and more solid results.

Here we make a comment, that company has a positive EBITDA and we know you all know that a great strength are the results from real estate. So we're on the new level. A company that delivers operational results independent of the sale of land and this was a great concern that some investors had.

It is a period when we are beginning to sell assets in a more intense way, by our clients, our real [ph] producers those who produce soybean and grain and these farmers see they have to know that there will be a good harvest.

So we should expect that the company in the next few months should announce real estate transactions that will add to this operational results that we show you. Once again thank you very much and we're available for any clarifications through our investors relation manager and [indiscernible] and Gustavo.

If you have questions please get in touch with us and we are very interested for you to understand our business model. It's an innovative model and you will understand our functions and value generation. Once again thank you very much for participating in this call.

We are available and we will continue with hard work in the next six months to deliver important results. Thank you..

Thank you. The conference call is now concluded. We thank you all for your participation. Wish you good afternoon..