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Edited Transcript of BSEV3.SA earnings conference call or presentation 15-Aug-19 3:00pm GMT

Q1 2020 Biosev SA Earnings Call

SAO PAULO Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Biosev SA earnings conference call or presentation Thursday, August 15, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gustavo Lopes Theodozio

Biosev S.A. - Chief Financial & IR Officer and Member of Executive Board

* Juan José Blanchard

Biosev S.A. - CEO & Member of Executive Board

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome, everyone, to Biosev S.A.'s earnings call to discuss the results relative to the first quarter of the 2019/2020 crop year.

Here with us, we have Mr. Juan José Blanchard, CEO of the company; Mr. Gustavo Theodozio, CFO and IRO for the company. (Operator Instructions)

This conference call is being recorded and is being broadcast via internet at the company's IR website.

Before moving on, we'd like to say that forward-looking statements made during this conference call regarding the company's business perspectives, operating and financial prospects are based on beliefs and assumptions on the company's management's part and also on information currently available to the company. Forward-looking statements are no guarantee of performance as they involve risks, uncertainties and assumptions and, therefore, depend on circumstances that may or may not materialize. Investors should have in mind that these forward-looking statements are highly dependent on the performance of the industry, on market conditions, and on the overall performance of the country, and also on international markets and, therefore, are subject to change.

Now I'll pass the floor over to Mr. Blanchard, who will start the presentation. Mr. Blanchard, you may carry on.

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Juan José Blanchard, Biosev S.A. - CEO & Member of Executive Board [2]

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Thank you. Good afternoon, everyone, and welcome to our earnings call for the first quarter of the 2019/2020 crop year.

Let's all move to Slide #3, where we will start the presentation. On that slide, Slide #3, we have the main highlights of the quarter, which closed on June 30. We'll be discussing details as we move on with the presentation.

Starting on April 1, the company started adopting the IFRS 16 relative to leasing, and which defines that our contracts for agricultural partnerships which payment are recorded in, costs and expenses are now accounted for under depreciation and/or amortization and financial expenses. For a comparison basis, we'll present figures without the IFRS 16 effects. So the adjusted EBITDA ex resale, HACC, reached BRL 339.1 million, up 38.4%, and an EBITDA margin of 34.3%, which was an increase of 10.5 percentage points, and the unit EBITDA grew by 34.3%, reaching BRL 31.2 per ton.

SG&A expenses dropped by 16.5%. The ex resale COGS cash decreased by 15.1%, and unit cash COGS ex resale also decreased by 2.7% as you can see on the slide. The ethanol share went up 1.4%, reaching 66.3%, the highest ever in the period.

Sugarcane crushing reached 10.9 million tons, and the TCH increased by 3.8%, reaching 88.4 tons per hectare.

I'd like to invite you all to move on to Slide #4, where we'll see the main operating indicators, which are consolidated for the first quarter of the 2019/2020 crop year. On the left-hand side, we have the increase of TCH, which reflects the fact that you have adopted sustainable techniques to increase the quality and yield such as the maximization of using imports, using -- used by our own plants, such as vinasse, the filter tart, and most favorable weather condition for the sugarcane fields from March -- or to -- from January through March.

In next the chart, we'll show decreases in crushing. And in TRS, which reflect a reduction in the total harvested area by 9.2% and less favorable weather conditions, higher rainfall and also the concentration of sugar content in the period of harvest from April through June.

In the middle of the slide, we show a reduction in the production by Product TRS, which is a reflect of a drop in the volume of crushing. We also show the ethanol share, which reached 66.3%. As I said, the highest ever for the period. This increase was due to a higher allocation of TRS to ethanol production, given the better profitability of this product when compared to sugar. If you see, our industrial efficiency also grew when compared to the same period of last year, which shows efficiency in the conversion of sugarcane to the final products, i.e., sugar and ethanol.

I now give the floor over to Gustavo, who'll be talking about the main financial numbers for the company in the period.

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Gustavo Lopes Theodozio, Biosev S.A. - Chief Financial & IR Officer and Member of Executive Board [3]

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Thank you, Juan. Good afternoon, everyone. We're going to move on to Slide #5, where we take a look at the evolution of our net revenues by product.

For sugar, we saw a drop, about 25%, reaching BRL 210 million, that reflect mainly a drop of 36% in the volumes sold, partially offset by higher average prices at around 14%. The lower volume sold was driven mainly by the production mix, which was more geared towards ethanol because of the higher profitability of ethanol vis-a-vis sugar as mentioned before. As for ethanol, net revenue reached -- or increased 60% and reached 16 -- BRL 18 million, reflecting increase of 19% of average prices and the ability of the company in maximizing the production mix for ethanol as Juan just mentioned. The company reached its highest ethanol share ever.

As for cogeneration, we also had a drop of 11%, reaching BRL 16 million, due mainly to lower prices.

We now move on to Slide #6, where we see CPT cash and sales expenses and SG&A. On this slide, we can see significant drops in cost and expenses, which reflect our continued process to optimize cost and structures. Since 2018, we have been using our competitiveness program in operations which allows us to have a better management of our budget resources. We had a great progress in this last year in the product from the efficiency point of view, and we are moving ahead quite robustly, which is reflected in the results we have achieved for this quarter.

Our strategy is to gain efficiency across all work fronts, from planting to harvesting and production, where we are dedicated to assess operation in the very detail so that we can continue to reach important results.

We're now going to move on to Slide #7. We have the EBITDA and CapEx numbers. As a consequence, more improvement in SG&A, as mentioned before, we can see that irrespective of the drop in crushing and of a lower number in -- and sugar sales, we saw a positive number for EBITDA and CapEx and a growth of 42% in unit CapEx -- EBITDA. As for CapEx, the company has invested BRL 279 million in the period, an increase of 39% when compared to the previous year. Coming basically from disbursements linked to a higher -- planting a higher area of planting and the purchase of new harvesters. As I mentioned in the previous call, the company now has a strategy of replacing leased equipment by purchasing equipment, especially when we are using resources on the BM has to buy harvesters. The cost is significantly lower when we buy when compared to lease.

On Slide #8, we talk about debt. Our gross debt reached BRL 5.6 billion, coming from an impact of depreciation between the BRL and the U.S. dollar, especially on the portion of our debt which is dollar-denominated. As you know, the portion of our debt which is dollar-denominated, accounts for something like 88% of the total debt.

Our cash position and investments stayed at the BRL 498 million, reflecting mainly the reposition of the stocks in the period because this is a quarter where we start the year, and also because of an increase in CapEx, which I had just explained. As a consequence, net debt reached BRL 5.4 billion. It's important to highlight -- reinforce rather, the company's focus on financial discipline aiming at expanding the debt profile and bringing down the company's leverage.

Now I give the floor back to Juan for his final comments and final slides.

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Juan José Blanchard, Biosev S.A. - CEO & Member of Executive Board [4]

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Thank you, Gustavo. We're going to move on to Slide #9, where we have the hedges contracted for the 20 -- '19/'20 and 2021 crop. For '19/'20, we have contracted a hedge volume covering approximately 609,000 tons at the price of USD 0.1394 per pound, which represents 86.1% of its exposure, net of CONSECANA and a volume of USD 397 million at the price of BRL 4.005 per dollar. The hedged price including the polarization price now sits at BRL 58.16 per pound.

For the 2021 year, Biosev has contracted a volume of hedge covering approximately 209,000 tons of sugar at a price of $0.1383 per pound, which accounts approximately for 62.4% of its exposure, net of CONSECANA and a volume of USD 29 million at the price BRL 4.177 for the dollar. The hedged price including the polarized price now sits at BRL 60.19 per pound.

I'd like to thank you all now for your attention. And now give the floor back over to the operator so that we can start the Q&A session.

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Operator [5]

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(Operator Instructions) I'd like to turn the floor back over to Mr. Blanchard for his final remarks. Mr. Blanchard, please carry on.

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Juan José Blanchard, Biosev S.A. - CEO & Member of Executive Board [6]

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Well, I'd like to thank you all once again for participating in our earnings call, and have a nice day.

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Operator [7]

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Biosev's conference call is now over. Thank you all for participating, and have a nice day, everyone.

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