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Edited Transcript of AGRO3.SA earnings conference call or presentation 7-Nov-19 5:00pm GMT

Q1 2020 Brasilagro Companhia Brasileira de Propriedades Agricolas Earnings Call

Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Brasilagro Companhia Brasileira de Propriedades Agricolas earnings conference call or presentation Thursday, November 7, 2019 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* André Guillaumon

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers

* Gustavo Javier Lopez

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - Chief Administrative Officer, Investor Relation Officer & Member of Board of Executive Officers

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Conference Call Participants

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* Luciana de Carvalho

BB-Banco de Investimento S.A., Research Division - Senior Analyst

* Victor Saragiotto

Crédit Suisse AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon. Welcome, everyone, to BrasilAgro's First Quarter 2020 Results Conference Call.

Today, with us, we have Mr. André Guillaumon, CEO; and Mr. Gustavo Lopez, Administrative Officer, Investor Relations Officer. Today's live webcast and presentation may be accessed through BrasilAgro's website at www.brasil-agro.com.

We would like to inform you that this event is recorded. (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 macroeconomic scenario, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the floor over to Mr. André Guillaumon, Chief Executive Officer, who will make the presentation. Sir, you may begin.

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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [2]

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Good afternoon, everyone. Once again, it's a pleasure to have you all here, at this moment, to share our results of the first quarter that starts -- this year starting now. We are in a difficult time in terms of market and weather, so it's good to share our expectations with us and talk about our results in this first quarter, and we are always available to answer your questions.

So I would like to start by saying that on Page 2, we have a summary of our performance in this first quarter. It has been a robust quarter, and we'll compare it to the first quarter of last year.

Let's start by highlighting that we had a net revenue of BRL 185 million in the first quarter. And the net income of -- net income of BRL 40.6 million. The adjusted EBITDA of BRL 57.4 million. The revenue from sales of farms amounted to BRL 28.7 million. And once again, it has shown a good result at the end of the year, has had robust dividends for the market. We have approved in the company's shareholders' meeting, payment of dividends in BRL 50 million of approximately BRL 0.93 per share.

So once again, it's a quarter that we start combining operational and real estate results. We -- the sales from properties result is a more seasonal one, whereas the operational result is distributed throughout the year. And we have, as an assumption, the combined result from both. This is the strategy that we believe strengthens our business model.

Now on Page 3, I would like to explain the 2 transactions that happened in this quarter, a total sales in the quarter of 1,219 hectares of land, amounting to BRL 28.7 million.

We separated 2 operations, one with the IRR of 21.4% and the other 14.7%. Taquari Farm was bought in 2007. We made small sale, and now this is the second sale in October. It's land with a small area -- farm with a small area of land, 1,100 bags of hectare. It's a nominal sale value and the accounting gain was BRL 4.3 million and an IRR approximate of -- approximately 21.4%.

This farm had an issue to be overcome regarding registration and payments that was overcome long after we purchased the farms. So the IRR was impacted with this payment. It was a bit longer terms, whereas compared to Araucária that is in the same area. In this first sale -- that is the first sale. And the second sale was the sale that happened in September, the first one of another part of Jatobá Farm, we have constantly shown that the assets in Bahia are worth having. Bahia has good conditions, good productivity, not excellent, which brought a lot of liquidity to the area. So we managed to make another important sale in this quarter of the year on a sale of BRL 22.7 million, a total of 1,134 hectares, 893 hectares of arable land, which an accounting gain of BRL 16.6 million and an IRR of 14.7%, which was a pleasant surprise for this asset.

Now moving on to Page 4. This is important to comment on what has happened in the harvest year, 2019, 2020. Brazil had a position when compared to other years of delayed planting, more in some regions than others. In Mato Grosso, we are in advanced -- we are quite advanced when compared to the rest of the state.

In other areas, in other regions, we're a bit delayed regarding the stabilization -- because of the stabilization of the rainfall volume. As you may know, the weather has been quite erratic in this -- the beginning of summer season, with rainfall that result after a cold front comes covering a certain region.

So that allows one farm to plant another farm not to plant, whereas part of the plant -- the farm can plant and the other cannot. So we are expecting the final rainfall reaching for the year, but it has -- so far, has been a very challenging year because we don't know exactly when the rainfall season will start.

And in Mato Grosso, we have advanced with the planting season in our Xingu operation. We have more than 19,000 hectares planted of a total of 20,000. So 1 or 2 more days of planting we'll be done with that.

Taquari, we're also advanced in the planting of soybeans. And we have started planting the Northeast region as Chaparral Farm, we have planted one surface there. We had 1 week of drought. And then this week, we had a pleasant surprise of rain coming back again. So we'll resume planting soon.

And this is a summary chart of all the planting areas. Soybean, a year-on-year growth from 51.8 to 54. Corn first crop has remained stable. Corn second crop shows an important gain, and it's worth highlighting here that, as you may recall, the planted surface for last year, we have mentioned that Xingu operation was an area that was starting its operation. And because we were cautious, we started playing soy with longer intervals, which led to a better position for second crop planting.

Today, the operation is doing fine, working well, smoothly. And we are -- we have a 100% of it in operation within schedule, which is to finish the second crop until the end of October. We have even exceeded our expectations, planted more area. So we will see an important growth in second crop corn, 11.3, and most of it comes from Xingu operation. In sugarcane, the areas have remained stable with the small changes due to the expectation in production, the idea to renew the sugarcane plantation.

This year, we had some areas that we were pleasantly surprised because the production was higher. For last year, we remain with the same figures. Except for Jatobá, we -- where we increased the crops.

In cotton, we have planted area in a farm that we believe there are important margins to capture. So year-on-year, we have a growth of 5.4%, but it's important to highlight that this 5.4% growth in planted service, we have to remove the farmed -- the farms that were sold. So we had an important growth in the company despite the massive sale that is aligned with our business strategy in terms of farm sales. So this is the capacity we have to show you that we have to combine both results.

So despite selling a lot of land that had generated good economic result, we do have potential to cost transformation and grow the planted area, even in the year of divestiture.

Now moving on to Page 15 (sic) [5]. As I have mentioned, the grains and cotton. Soybean, we had an important growth from last crop to this one due to the adjustment of packages. And this chart grows a lot based on my previous comments, for the first and second -- corn first and second crop. And then for cotton, we have an expectation of production. It's a bit better than last year. So overall, for those of you that are looking at our figures all the time, we had an increase in tons of 298,000 tons, which accounts for 28% of increase in volume, production volume when compared to last year.

Page 6 now we have an overview of our cattle raising. It's always good to remind you that cattle raising is a driver for transformation for the company. It's something we decided to do 3 years ago, and we had very pleasant surprise last year. And even more so now that the commodities market for beef has had a high increase in prices, and we'll capture that result, as we've seen in price increases in the last months.

In the initial months of this year, we still don't have a large number of heads cured because most of the heads are cured the final months of rainfall, then the prices will be different.

And this is the ADG. The pasture areas remain stable. The number of heads remained stable. Close -- there has been an increase of 800 heads, and the ADG, we have extensive cattle raising. Some units, we decided to produce more beef and less confined beef.

But it's important to highlight that 0.47, with almost 500 grams a day, is among -- it's a good production level because large cattle raises produce 500 something per month, almost 600. So for us, it's a transformation tool.

We calculate pasture area according to a planting area. So it's a temporary activity for us. But we've had excellent results, and we'll see the tails of the figures later.

On Page 7, you can see the year-on-year figures for sugarcane harvested area. Here, you will see the number that's not completely final. There is still some volume to be realized, and we'll be close to the production of last season -- last crop, but there has been an increase in productivity.

We always talk about this in the calls that Maranhão was a challenge, but we took over the unit with 57 tons of sugarcane per hectares. And at the end, we have year-to-date 80 tons of sugarcane. So in 2.5 years, we had a unit that went from 57 tons per hectare, up to 75, 80, an important growth. And this year, we'll overcome 1,200,000 tons. And next year, even -- we'll grow even more.

And this has been a result of technologies adopted and introduced year-on-year, releasing more areas for the production of grains. So it's important to show how we can improve results with technology.

In sugar, we have had 2 main moments, and I would separate in 2 areas. In the Midwest area, we had interesting sugar ratios, 146 average APL, we closed (inaudible) as well. And now we're completing Maranhão.

Maranhão is still below. We still have time to increase the concentration of sugar there. Currently, it's at 132, 133. So this figure of 142 that we show you is the estimated figure considering the Midwest and Maranhão areas. But it's important to highlight that even when we do this, the criteria that we ask for our managers to produce, it's not tons of sugarcane per hectare. It's TTH -- it's the ton of sugar per hector, TPH. So our units in the Midwest have reached more than 14,000 kilos of TPH per hector. In Maranhão, we expect to reach that as well. And that's an important factor for us.

Now moving on to the next page. As you may know from observing the market. We've started the year with a lot of volatility in terms of price increases. The commercial war between United States and China remains the develop -- it was supposed to end or have some conclusion in the event in Chile, (inaudible), but it was postponed, and that generates a lot of uncertainty. So as I always say, we want to increase the margin of the company. So whenever there is an opportunity to sell and combine results, we make decisions.

Today, we have 44% of the next soybean crop, so that the price of 9.33, we took this position back in May when we still had soybean at 8.90. We have been taking these positions. And today, we have a mismatched rule. If we sell soybean in the future, we also close on the exchange rate and the average dollar is BRL 4.04 for this volume, and we always try to capture some mismatch and improve this. But there is some expectation of prices for this year.

And those who keep track of the soy market, the trend of Chicago is an uptrend, either because of China or because the U.S. production year-on-year has dropped from 120 million tons, approximately to 95 million tons given the delay in starting planting that they had. The planting was good, but it also changed the maturing window of soybeans in the North and Midwest of the U.S. These are important facts, the USDA official figures, 95 -- it's 90,000 tons with people who talk about 95,000 tons or 84,000 against 95,000, but there's still room for this market to grow.

In terms of our discussion about the freight table, the base has never been so misaligned. In other years, we had a projection for base the companies were able to talk about base projections for the beginning of the harvest season. But today, because of this freight table, the future basis are very low. The spot base, it's like we had last year, Chicago went down.

This year, we don't have 250 points. But the base would be around 100, 120 points, the spot base oscillates a lot. And the other one is 140 points. So this is the main driver, and we have to trade very closely to obtain significant results.

Now moving on, I think, I'll end now, and I'll pass the floor to Gustavo, and then we're available for the Q&A session. Thank you.

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Gustavo Javier Lopez, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - Chief Administrative Officer, Investor Relation Officer & Member of Board of Executive Officers [3]

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Thank you very much. Thank you, all that are attending this call. As of July this year, and here, we're going to show the financial performance. On Page 9, we have EBITDA. Then we have the net income, minus interest, taxes and depreciation. We always accompany the characteristics of our business. Because here, we exclude the assets in the first quarter of this year, we've had an adjusted EBITDA of BRL 57.9. And for this year, we had a combination of operations and real estate.

Last year, we had a significant sale of most of Jatobá, 9 large number of hectares, which amount us to have some gain in reais. This year, we -- there's 2 sales that André had mentioned at the beginning of presentations, and we have booked one of them, which is the other part of Jatobá that has arose -- has given us a gain, and the other sale that we had commented on is the one that we're going to record or book in the next quarter.

On the next page, we are removing these results from real estate sales or property sales. And here, we see that we have BRL 40 million of adjusted income versus BRL 5 million compared to last year. And here, you have sugarcane with an increase as well as the price at BRL 0.09 better than last year. And we have agreements in sugarcane, we sold an inventory of soybeans and corn especially as a result of the sale of farm.

And -- so since the incorporation of new lease areas, the company had a real estate or property results that is higher than in last year. Now we have an operating result, the cash generation, an opportunity to work better with our assets.

Now on Page 11, you can see on revenues, the revenues from sales of the farm is BRL 123 million, which is a growing value. And this year, it's BRL 18.8 million, and we look at all the revenues, sugarcane has caused the main impact over revenues, given the increase in productions in this quarter. And we were able to harvest then few BRL 90 million. And in the previous year, it's BRL 760 million (sic) [BRL 76 million]. Soybeans also, in the previous year -- this year were 45,000 tons; corn, 3,800 tons; this year, 4,000 tons.

So the productivity gains, this is not due to price because in the previous year, the soybean price average BRL 71 per bag whereas this year's BRL 69 per bag. So last year, we had to pay a lot to remove the soybeans from Brazil. And this year, we achieved the best price we had budgeted for. And we are at the same level of last year.

So we have BRL 184 million of net revenue, a revenue with a gross income of BRL 61 million. Sales expenses that increase according to the volume.

And then we get to the financial results. Then we have a debt almost BRL 4 million in the quarter of financial expenses and the cost of debt. And then we have some amount that's not invested and some other effects that we must include in soybeans bag because when you do the exchange rate for soybeans that also has an effect on the results and the net income of BRL 40.5 million.

When we look at the same period for last year, EBITDA, the BRL 60 million that comes from the farm and the rest from operations. And the financial result was positive because we had many amounts to receive in terms of soybean bag. And that was a function of dollar as well as the soybean price.

The following page, we have the balance sheet on Page 12. Here, there is a new rule that is effective as of January 1, this year, that all the contracts that have an amount in prices that are fixed price must be accounted for in liabilities as well in the assets. So there are some agreements that have a period that's longer than 15 years. With a variable price, this is not booked, but there is another one with a partnership and has to do with the soybean bag that is fixed or that has a part that is fixed and a part that is variable. So the fixed part is booked.

So the sum of our leasing agreements we have accounts for BRL 79 million that is being booked. And the same amount is in the liability as a financial leasing. In addition, that are other operating agreements, and this change in the operating and financial figures are booked according to the same criteria.

Now looking at the assets on September 30, 2009, we have cash and cash equivalents, which also includes current assets and securities. For example, it's important to highlight that we have BRL 156 million in trade receivables, short term and long term, of which BRL 200 million account for the sale of the [farm]. It's also important to -- highlight that the BRL 500 million is with regard to the farm, only the product of Paraguay that we had to recognize at fair value, but this amount that was booked, the market value continues to increase.

This is the consolidated figure between Brazil and Paraguay. It's close to BRL 1,500,000. As for liabilities, BRL 98 million and suppliers that's the amount that we'll pay, loans and financing will continue.

On the next page, we'll continue to talk about that. The current and noncurrent liabilities when compared to the non -- current and noncurrent assets are very equalized. It's important to highlight that the company has treasury stock in our repurchase agreement, BRL 35 million at the purchase price of approximately BRL 11 per share. We still have a reserve of -- surplus reserve of BRL 40 million.

On Page 13, you see the debt of the company. The total debt that we have on September 30 is 57 -- or rather BRL 257 million. When we look at the cash, the net debt, BRL 128 million. And when we look on June 30, 2019, we had BRL 131 million.

So in this quarter, we -- there were payments made of debt plus interest of BRL 46 million. We also paid financing for costing expenses of sugarcane. All of the debt we have are in reais.

It is important to highlight something I have mentioned, the net debt -- adjusted net debt, you can see the amount. When there's an amount there, it's the sale of the farm. And on the right chart, you can see the assets. We continue to increase the payment firms, the maturity of our debt -- financial debt, which account to costing.

It's also important to see how we can match that to the transactions in the sale of the farm. And the average cost of debt, which is at 6.2%.

Page 14. BRL 50 million in dividends that will be paid. It is our commitment to our shareholders to pay dividend constantly. We understand that BRL 50 million with a yield of 5.6% is a return rate that we would like to have. It's good to find out that it's almost BRL 2 per share and -- or $0.93 per share.

Okay. On Page 15. We aim to show that this is an excellent investment opportunity. Net asset value of the company is at a -- shares are being traded almost at their book value, and this market value of the properties, we see a potential to gain value of 90%. So we understand that that's an excellent security to purchase.

And finally, on Page 16, there is a chart or a graph showing the security -- or the share AGRO3 and LND and Ibovespa Index, showing that we've had good appreciations recently.

There is a discount of BRL 1 per share that is discounted because of the payment of dividends. So the shares has had a good view from the market, as well as the valuation of the company, helped us so that the entire industry is more closely observed. And will make everything possible to continue with this valuation process.

Thank you very much. Now let's go on to the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Luciana Carvalho from Banco do Brasil.

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Luciana de Carvalho, BB-Banco de Investimento S.A., Research Division - Senior Analyst [2]

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My question is that Bahia has improved in terms of liquidity, could you give us an overview of the main areas, the main regions where you operate? How do you see this increase in productivity and liquidity? And what do you expect for the year in terms of real estate performance?

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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [3]

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Luciana, that's an excellent question. I would like to give you our view in terms of real estate and property deals for you. Every month, we, as a company, have a very aggressive goal in terms of sales of portfolio when everybody wants to buy, we want to sell. So we have to be against the market trends, right? This is a huge challenge. We have to act in an anti-cyclical way.

But being very specific about your question in the regions where we operate, I didn't talk about Bahia because, except for last year and the second crop, but speaking since 2013 to 2017 crop, Bahia had very hard crop in terms of productivity. We know that buyers of farms in Brazil are the farmers themselves. So when they have profitability even due to a tax issue. The best way is to purchase more farm, more land. So Bahia had a very low liquidity period in 3 or 4 years of uncertainty in productivity. So the demand was suppressed. And now the demand went back to levels that we consider normal, and this demand for liquidity comes -- and in terms of a ramp-up. So it's starting to go up. If you have 2 or 3 more productive years in Brazil, the market will increase even more there in terms of demand.

So other regions such as Mato Grosso, in which we have farms. These are areas with a lot of stability in production. We have had work in sales according to what happened in the area.

Other regions, such as Maranhão and (inaudible), where we also operate, are areas that have large clients, and liquidity is where you have large properties in the frontier areas, in which foreign capital plays a heavier role, but it is to expect that the liquidity in selling farms is closely associated to the profitability of the agribusiness, when we see grains keeping a good margin, a stable margin in terms of production and sugarcane also paying well, we can expect an increase in the production of soybean. Then the contribution margin, it will be very similar to last year in terms of soybeans.

On the other hand, corn has a much better production margin. This will increase liquidity. So the overview for 2019 is with higher liquidity for farmers than 2018. The regions that had impacted productivity are improving in other areas and other drivers. So we could say that Mato Grosso has an important driver in cotton, but the planted area of cotton, although it's huge, it is a small portion of Mato Grosso. Most of it is -- most of Mato Grosso that we have soybeans and corns.

So I would say -- and why am I saying this? Because cotton is the only crop in which there has been a reduction in the contribution margin year-on-year. Some regions are highly dependent on cotton. But except for Bahia, that Bahia is also dependent on cotton, but it had a suppressed liquidity. But in the areas where we have the effect of other grains, corn and sugarcane, the liquidity will be higher in the year.

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Operator [4]

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Next question is from [Francisco Alves], (inaudible).

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Unidentified Analyst, [5]

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I have a question about the payment of dividends on the 14th, it's based on the share positions on what day?

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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [6]

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Well, this is the question everybody is asking, right? The good news is that we're paying dividends pre -- before the holiday. Also, the holiday's on November 15, and the 14th we're paying, so you all have your pockets full of money. But since we had the shareholders' meeting on October 16, the shareholding position for each shareholder on the date of the shareholders' meeting, which is October 16, which is BRL 0.93 will be distributed or be paid to the holders of shares on the date of the shareholders' meeting, October 16.

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Operator [7]

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Okay. The next question comes from (inaudible).

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Unidentified Analyst, [8]

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I know you've talked about the sale of business. Would you give us another driver in terms of reais for this year, next year? And how will you distribute these funds that will be collected, interim dividends, repurchased shares?

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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [9]

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Okay, that's an excellent question. First, if I give you too much guidance, the people from Investor Relations will kill me later on. But every month, we, at the company, have a very aggressive goal in terms of selling farms. So if you stop and look historically, what we could have in this medium term. We can't look at real estate sales on a single year.

If you look at the horizon of 3 years in the company, we should be selling between 8% to 10% of the -- our asset value per year. So in a year, when you have a much better result, you will have a more sales deficits that are called significant in years, and that varies year-on-year.

We always say that share is a good share in terms of return. When you look at the medium-term horizon. You can't look in a single moment. The real estate driver is -- works with peaks when you look at 2 or 3 years, you can look at the sale moments and the purchase moments. If you look -- if you take a picture of a single period, that may be not representative of the average.

But this wouldn't be a guidance of reality. At the budget level, we try to get at least BRL 70 million in results from sales of farms, but BRL 70 million, how much land will it sell? Well, that depends on the prices. In our business model, in our proposal -- proposed budget for the year, we propose an income from sales of BRL 300 million. This is what we're going to work in order to achieve. BRL 70 million in results with sales, I'm sorry.

And that's the operating income we're talking about. In the first quarter, we -- in the first half of the year, we were very profitable in terms of -- due to the sugarcane price, and we're also optimistic for the year-end and next year.

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Unidentified Analyst, [10]

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How will you use those funds? Will you purchase -- repurchase shares? Will you pay special dividends, buy more farm?

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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [11]

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Okay. There is -- they're recurring dividend, that's important to generate to investors that have a certainty that dividends will pay on a recurrent basis. Payment of dividends or payment distribution of income will be lower when you -- will be higher when you have less projects to invest on. When we understand that we have good projects with a good profitability and projects we must invest in, then we'll allot a good part of our income to those projects.

When we understand that these profitability is smaller due to some reasons, then we can pay higher dividends. I would say that we'll use those dividend -- the income will be distributed in 3 pillars. One pillar is new investments, new acquisitions, we must continue to buy. Like I always say, supermarkets need to be supplied with products in our shelves, which are farms. We'll also invest in transformations. So part of our results from sales, we accelerate new operations with increasing return for our investors. And the third driver is your asking dividend so the combination of the 3 pillars or drivers.

I cannot tell exactly how much for each if we think that there is an asset with a high profitability for the coming years, we'll invest part of our income in that. If we don't think it's going to be so profitable, then we invest somewhere else.

So overall, the idea is to pay 25%. So If -- from our income, if you want to make a calculation. This is a good guidance of BRL 70 million. And then you can calculate what we have delivered so far. But our obligation is to pay 25% of our income, net income in dividends as it is mandatory.

Our obligation and willingness is to increasingly overcome the 25% level that is a requirement by law and (inaudible). But it's, like I told you, a combination of 3 pillars, dividends, profitability of new assets, pricing and transformation and opening of new areas.

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Operator [12]

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The next question from Victor Saragiotto from Crédit Suisse.

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Victor Saragiotto, Crédit Suisse AG, Research Division - Research Analyst [13]

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I have 3 questions. First one is about the soybean productivity. The productivity isn't dropping a bit from 50 to 49 bags per hectare. On the other hand, you had an effect of sale of land, maybe the new leased lands that are coming and the mature lands that were sold maybe had an impact on productivity. If you could give us some guidance about mature land, that would be helpful.

Also, in general, you had a cost increase of 6% to 7% in the second crop, what was the driver of this cost increase? Was that an exchange rate, maybe did you see prices increasing in dollars?

And the last question is about the acquisition of AGRO5. We took a look at their website, their focus seems to be on the sale of machines and tools. What was the rationale behind this acquisition? Do you have a plan of entering the marketplace of selling agricultural product? What are the next steps and the rationale behind that sale?

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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [14]

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Victor, as usual, you have such -- tons of information coming from you. Great. Well, the good news is that we're just finished the planting, and you're invited to come visit us.

Well, first question about productivity. It's important to highlight that there has been a reduction from a 50 to 49, and that's an important driver. This is the average productivity of the company. We have first year, second year and third year areas. And year-on-year, there is a divestment in some areas. So from these 14,000 hectares that were sold and less production had the highest productivity those are the areas that were mature, and we are divesting.

But I would tell you that the mature areas have a productivity between 57 and 60 bags, some areas, even higher than that. But overall, when I say mature, it's a 5-year areas, not 35 to 40 years. It's an area that's about 5 years.

When we break down this figure, there are several parts of that land that produced over 60. I came from Paraguay yesterday, we had a meeting with the team from Paraguay, there were areas there that had a productivity of 78 bags per hectares. So it's a combination, the 50 is a combination. In mature areas, the productivity is higher. And among those 50, we had first year areas in Bahia that due to some stress in January, these areas produced much less 28 to 30 bags per hectare. So it's a combination of several areas.

The second question is important cost. Especially in corn, you saw that. So there are 2 main reasons for that. One was the exchange rate, which had a strong impact. So year-on-year, fertilizers had a -- an increased cost. Another cost of corn was impacted, especially in the second crop. When we started last year with Xingu operation, we did a technical planting that was very defensive. It was our first year, and the budget productivity was very conservative in terms of bags per hectare.

And now this year, we increased productivity of the second crop highly. So we doubled the fertilizers because we increased the package of nitrogen content fertilizers for those areas in Xingu. So the value per ton was higher due to the exchange rate, the dollar and also an increase in the productivity in the second crop corn. And that will be seen this year because we improved the technological pack and more than 50% of the second crop area has been planted in this window of October.

So these are the 2 main explanations that explain the cost increase of the technology package with higher content of fertilizers and also the exchange rate impacting the price of fertilizers.

AGRO5. We believe that AGRO5 will -- there will be a consolidation of operations. This is a company that has grown a lot. In -- it is -- we already own a share in it, and we saw a lot of synergy in terms of benchmarking. So AGRO5 platform is based on the selling of -- sale of machines, but we understand that the platform can sell several other things. And the idea of this investment, it was a small a investment, but that it will allow us, as a shareholder and always having this interest in the company, to have access of a series of market information in terms of commodities in input prices, fertilizers, whatever. So we understand that an investment in AGRO5 brings to us innovation because (inaudible) that works with start-up as much faster thinking than the agronomists, such as the farmers, people who studied agronomy, like myself, for example. So we will learn a lot from their digital platforms.

So we're doing a lot of things in the digital area, but we want to enter the marketplace place and be in the vanguard of things, to try to understand how the new technologies work for our business.

So overall, this is the idea. This is a company we believe in. We are certain that it will be an Amazon in the agribusiness, and we want to be part of that business, much more to have benchmarks strength and to work in the digital agriculture.

When you are part of a platform with a lot of young people participating and a lot of things going on, that's a big push to digitizing the company. You're bringing the company to the digital era. So BRL 4 million is a small amount of money for us. We're not expecting any appreciation of AGRO5 share that will happen in the future. But we want to be closer to technology and have faster benchmark and have access to high-end technology.

We're also in this internal process. In terms of technology, increasing the use of technology. But we are treating this as a consolidation for operations.

In AGRO5, they have 20 years of experience. They're not starting in this business now. They are extremely knowledgeable. And that, for us, gives us a huge possibility of learning in the area of new business, for example, they have a company that has 20 years in brokerage in Argentina and a company [in Rosario]. And we see potential to establish some synergies, and we also take this opportunity to be more efficient. This is something we've been working on for a while now.

Next quarter, when we have all the details and 100% of our interest will be included in the -- all the papers signed and everything, then we'll have more information to give you.

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Victor Saragiotto, Crédit Suisse AG, Research Division - Research Analyst [15]

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Okay. One more question. We saw all this development of the cotton area, that the guidance is that you will pay more than -- slightly over 2,000 hectares. Maybe the drop in cotton prices has reduced the contribution margin and maybe change their plans, but the price of cotton, as it is now, should we see the company growing 500 hectares per year? Or do you plan on growing more in cotton specifically?

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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [16]

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Excellent question. Let me give you some view on the market, what we see in the cotton prices is a reflex of increasing production. The war of prices in China are cotton imported more than 420 tons of cotton. So you know a lot about the cotton plant growers in Mato Grosso. 2,300,000, and now we are closing 2,830,000 tons of cotton in this crop. So it's a very significant growth in the last 2 years.

There was an increase in the production of 40% to 50% in 2 years. And the domestic market, which is -- a domestic market, we continue strong -- we continue flat. It's been the same amount for 5 years of these 2.8 million, 70,000 (sic) [700,000] stays here and 2.1 million goes to the international market.

Last year from 2.3 million, only 1.6 million went in international markets.

So the amount that stays domestically is the same. So we see important reductions in the margin. It's important to say that we're not a large cotton player, but we see a lot of value in the other things that are generated. In addition to being a profitable crop, it is -- it brings stability.

It is to be expected to -- it is to expect that we make more investments in cotton looking at the indirect. It provides important liquidity for assets. It's good for soybean. Part of soybean has a lower production costs that will be planted in the cotton area. So yes, you should expect us to grow the cotton crop. We understand that a mature land to produce cotton is a land that has already experienced that ramp-up curve, then we should sell it.

So why did we plant in cotton because as I mentioned to Luciana, we had a suppressed liquidity in Bahia, our land became mature, and we're trying to bring liquidity and margin, but it is also to be expected that when we start growing some products, we must understand the product better and then grow in leased areas. We have leased areas in which we could plant cotton and increase the growing capital -- I'm sorry, paying more -- planting more cotton.

We should be very transparent with you that part of the land that we are transforming. We don't have to wait 8 to 10 years to plant cotton. We want to sell them before that. But when you have a suppressed demand for liquidity, such as in Bahia or a larger portfolio of leased areas, then cotton is good for profitable performance in such assets.

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Operator [17]

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(Operator Instructions) Since there are no further questions, I turn the floor over to Mr. André Guillaumon for his final remarks.

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André Guillaumon, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas - CEO, COO & Member of Board of Executive Officers [18]

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Thank you all very much. It was great to have you. I'm very happy when you have a call with so many questions and participation. I -- all of the managers and officers of the company are highly committed to this higher purpose, which is to produce food with responsibility. We've been working on that. We're active with that purpose, the purpose of responsibility, which means taking care of food with responsibility and also acting responsibly. It is to expect that the company will continue to grow, consolidating its results and acting strongly on our purpose to produce food in a sustainable way in coming years.

Thank you all very much, and have a good day.

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Operator [19]

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The conference call of BrasilAgro has now ended. We thank you all for attending and have a good afternoon.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]