Q4 2019 Earnings Call

Toyota where the entire world is going through that time. The Corona virus is spread across the globe and we are starting to see Major Impact on businesses and financial Market as well as international trade and commerce.

Using the currency for taxes. We have been responsive to protect our people and communities and our different businesses.

We have activated internet Protocols are implemented precautionary measures to reduce the chances of being affected by the virus from an individual standpoint.

Yes, I swear our constant discipline and strategy of focussing on increasing operational efficiencies and being local office uses definitively place off and let me emphasize this once more the only way to achieve sustainable profits even took the currency custom.

For this reason, but without under estimating the challenges ahead. We feel confident that we will overcome this situation and generate good results.

I must say that it's not only at an operational level that we feel we are well-positioned.

We also have a very strong balance sheet with an average life of over six years for our debt and an almost two times liquidation dead.

This line. I'm proud to say that last December and thank you Brad Pitt of market conditions. We successfully issued a 7-year local bond in Brazil for a total of 400 million reais at the very favorable terms and conditions.

Now to the performance of the company during 2019, I would like to highlight the strong operational and financial figures that we registered with all of our business.

You know where your business we manage to increase by 6% despite adverse conditions as you may be aware of or a 19 has been a challenging year weather-wise a matter of the combination of dry weather conditions coupled with the Frosted heat pack the plantation energy July led to a 15% reduction in list.

Despite this significantly, but we might have to reuse cash cost by 4% reaching nine cents per pound.

Same time. We must see my internal production to a profit from higher prices diverting as much as 85% of total. Thursday at record fast.

Something similar occurs with the energy as we might to export more than 800,000 may have what our at an efficiency 79,000, you know what that work for sun being crushed as far as our prospects for 2020. She was ten Plantation is available in properly and all of our teams and equipment operating at full capacity.

At the same time we are prepared to fully profit from the recently enacted government program renewal. All of our meals were sixty five ranking in the top position and our cluster is already issuing the carbon credit lastly our facility to produce sugar Nissan off and within this and all dehydrated all hydrated put us in a very good position to profit from the different price scenario.

Regarding our farming businesses hire results were mainly driven by the good performance in our daily and rice businesses.

At the farm level we continue with high productivity levels, despite the larger head as an industry level in less than one year since that they cover of the plan. We were close to reaching our processing Target and are already generating positive in the case of our rights business tire size a lower cost of production and explain the higher result. The current Harvest of the summer cloth is developing in good condition and so far. We are achieving Thursday. It's also worth remembering that we have full flexibility too diverse sales to the domestic and to the export Market depending on price scenario. We have a year full of challenges ahead of us. However, as I said, we see confident that we have the right team and the

We are following the right strategy to overcome the situation and generate good returns and value for our existing shareholders

This line. I would like to remember all that as we have a participated in the past releases. Our five year plan is finally coming to an end off. Most of the committee's cafe has already been disclosed as a result. This year should be a turning point for the company as it will be the first year to break free cash flow positive since we started the investment. We are confirmed that we now have a more solid asset based to better face any potential adverse scenario going from bad weather to Falling prices.

so now I will let

Me walk you through the numbers of the worker.

Thank you Maria. Good morning. Everyone. Let's start with baseball with a brief analysis on the Range matter of the tool.

On the car racing our classroom at all during the 12-month. 2019. We are 35% below the 10-year average and also took it can be low the same period of last year. I would like to remind everyone that in addition to the dry weather in June 2019. Our cluster was hit by approved on a combination of these two effects can set up in Grove making us reassess our crashing plan going forward which leads me to slide five where I would like to discuss crushing activities throughout the year.

During 2019 a total of 10.8 million tonnes of sugar cane Warcraft 4.5% compared with 2018 as said I explained by our strategic decision to slow down the crushing space with a goal of allowing or swapping field to recover from the effect caused by the weather conditions previously discussed wage.

I was lowered cracking paid everything in the 15.3% decrease in million per day despite that 12.7% increase in the second building day month payment taken of the strategy coupled with the normalization of range of last November will allow our hours looking to continue growing at the field and reach optimal conditions to be speak in the upcoming quarter.

No to page six where I would like to walk you through our agricultural productivity.

The consequence of the driver you most of 2019 fifteen years in the fourth quarter. We are 23% lower than in the fourth quarter of 2018 with 68 tons per hectare the lack of rain in Southern flavored sugar content. In fact during the quarter, which is 145 ft of the tone 17% higher than the previous year combination of these two effects resulted in the arrest production for a hectare of 9.9 ton off 8.7% lower year-over-year.

Let's move happy to say seven where I would like to discuss our production mixed a few contain the top of the chart using the fourth quarter 319 and hybrids and I will definitely credit and an average price of 16.1 and 15.2 cents per pound to an equivalent 25% and 15% premium the sugar effectively.

It's gone.

Text Oliver efforts were focused on maximizing production during the fourth quarter. We reached a record high of ninety four percent of PRS production. Thursday afternoon is in part by the fact that the slower crushing face means a rational Distillery could operate without capacity constraints.

Basis 85% of the extracted short in June 2012 explaining the 12.1% increase in production year-over-year off in the bottom left chart. I would like to insist that the high degree of flexibility constitutes one of our most important competitive advantages. This is allows us to take a more efficient use of our fixed assets and sell the product with the highest marginal contributions.

I said we charge of the strategy using 2019 accounted for 78.1% of total generation in our business account page or only 8.3%

Please turn to slide a I would like to discuss and we'll save you as you can see on the top of the chart internal sales volume increase by 20.2% compared to dead. There's 12 months of 2018 at previously mentioned this response to a specific decision to maximize ethanol production to profit from higher relative prices average setting prices in the decreased by 1.2% in your daughter reaching 16 cents per pound, but still traded at a significant premium to Suge ordinal 337.1 million marking a 15.5% increase compared to the 12 months of 2018.

The case of energy setting volume nine hundred ninety four thousand megawatt hour marking a 33.5% increase explained by the large glass availability as a result of inventory from 2018.

Capital with our decision of burning wood chips from the beginning of the year

average setting prices were $54 per megawatt hour marking a 21% decrease compared to the same period of last year overall net sales increased 54% compared to the 12 months of 2018 reaching 53.6 million.

Volume during the year. We are 337000 * 25.3% lower year-over-year average selling price is $0.12 per phone Co from 5% lower compared to the twelfth month of 2018.

I'm sorry.

It's it's 97.3 million 24% lower compared to the 12 month of 2018.

Let's move to slide 9 where I would like to explain our total cost of production.

Doesn't cost of production on a cash basis how much it cost us to produce one pound of sugar and ethanol in silver equivalent contains Catholic faith in the calculation since it's director investment necessary to maintain the productivity of the sugar cane plantation as we are calculating sugar National cost energy off by product and. The ducted from total cost for the tax return or align. It includes the itms tax incentives that the state of material service will come back until 2030 to a phone in the table doesn't get caught in 2019 marked a 3.8% reduction on a per-unit basis with nine cents per pound of sugar equivalent. This decrease was explained by enhance agricultural deficiencies such as the organization of the Agricultural process and

Implementation of meiosis combined with a year-over-year depreciation of the wrestling and reality as well as greater consideration and tax recovery the 0.40 for pain reduction in total cost evidences our full commitment to being a low-cost producer.

Finally to conclude with the supervisor panel and energy business. Please turn to slide 10 where I would like to discuss financial performance.

Augusta GA for Julio 2019 total 253.1 million marking a 6.2% increase compared to 2018 the main driver for the increase were lower production costs Tire selling volume and higher results derived from the mark-to-market of our and harvested Surety partially offset by the market off of our current position.

I would not like to move on to the farming business. Please direct your attention to 12 by the end of the fourth quarter of 2019 and The Cloud of finish off Hunting activities for the 2019-20 Hertfordshire the planted 230,000 sectors 3.8% higher than the previous season. This is, we expect you to confirm Lee from a greater this area partially upset by a 4% decrease in Homeland as a result of the sale of alcohol during the first quarter of 2019.

November 2019 today Argentina's being receiving timely and favor of the range allowing for the proper development of the crop.

That smoked thirteen, why would like to walk you through the financial performance of our farming and Lance affirmation businesses?

And then was basis adjusted the beginning the Farmland preservation businesses reach 71.7 million twenty four point six million or 25.6% off year-over-year decrease in financial performance is primarily explained by the twenty six point nine million dollar results generated from Farm sales Capital lower the prices.

For the crops business we generate in an adjuster DEA of 26.8 million during the first twelve months of 2019 twenty 2.6% or 7.8 million month compared to the same period last year is decreased mainly explained by the combination of low commodity prices coupled with lower results from the micro Market of all, a position.

If we saw a square box that says by higher sales.

Okay, so the right business adjusted the immediate risk for anybody for the million during the 12-month. 8% higher year-over-year. It was mainly explained wage higher setting volume.

Regarding our Dairy business adjusted 14.9 million a hundred and 8.2% higher year-over-year higher production selling volume Capital wage how your average setting prices were responsible for the increase in financial performance?

At the same time higher setting volumes were driven by a 19.6% increase in our average covered as we continue populating our third free storage facility. I'm going to plan.

That would be June 2019 the company completed the sale of a regular Farm resulting in an adjuster the video of 9.4 million compared to the results generated by a state of Rio De Janeiro and during 2018 is represents a 74.1% decrease.

Let's now turn to page fifteen which shows the evolution of Consolidated operations and financial performance as shown on the top right chart on a Consolidated basis. Let's save the first 12 months of 2019 with 848 million 10.1% higher year-over-year. This has already seen off Linda explained by the higher setting volume in all our businesses and hire make selling prices partially offset by the combined effect of lower prices measuring results for Sugar Shack any device and most of our crops?

Jessica Beatty a total 305 million during 2019 3% lower compared to the same period of last year as previously explained the good result in our daily life, right and saw it happen on any of the businesses. We're fully offset by the financial performance of our crops and land reclamation businesses despite. This positive results were achieved in all public businesses.

conclude

16 to take a look at our next step position as you may see in the bottom left chart Hourglass in deafness as of December 31st of 2019 to 2968 million while net debt to that 678 million ten per-cent or seventy five million lower compared to the previous quarter. This is evidence is the beginning of a positive regard to the cycle of most of the Investments related to our five year old plan have already been deployed and we are consolidating and ramping up.

That debt ratio is 2.25 * 18% lower compared to the previous quarter. We consider our balance sheet to be in a good position considering not only the same level but also its long-term Tanner being the average maturity over six years at the same time. We expect method races in the community banking you to hire a generation at the same time liquidity ratio, which is calculated as cash and equivalents plus marketable inventories. / mom and dad two times in the fourth quarter of 2019 44% higher compared to the previous quarter any value above 1 points shown at full capacity of the company to replace certain death with cash balance and marketable inventors without racing external capital.

Lastly I would like to take a moment to explain how the recent macro-economic events impact are required fields in this line. It is worth highlighting that the incidence of international crisis in the composition of ethanol prices at the pump ranges from Thirty to forty percent at 60% to 70% balance depends on domestic factors took the streetcar taxes margin and gasoline which are denominated in Brazilian real.

No, we see our revenues being impacted by gasoline prices in addition to the depreciation of the Brazilian real which negatively impact a rational energies revenues. I would like to point out that they are Michigan the impact of these taxes indeed 52% of our newer body has been hatched at fourteen point one cents per pound and fifteen percent of our faith has already been sold at 2400 reality in terms of cost and capital expenditure as they are mostly denominating with in real life see a positive impact right from a greater devaluation in addition to a positive impact in our diesel cost of gasoline prices.

So far this effect should cause the preliminary drop of 5% to 8% in our 2028 focus and cause a neutral or slightly negative in in our faith. Thank you very much for your time. We are now open to questions.

Thank you. The floor is not open for questions. If you have a question, please press * then 1 on your touchtone phone at this or any time. If at any point, your question is answered. You may need your cell phone with you by pressing star then two questions will be taken in order that they are received. We do ask that when you post your question that you pick up your handset to provide Optimum quality. Please hold while we pull for questions.

The first question today comes from Fernanda cunha with Citibank, please go ahead.

Hi, good morning, everyone. Thank you for taking my questions and congratulations on the results my first question in regards with commodity prices and the devaluation we had recently can you comment on your views of how much what's your outlook for sugar and ethanol prices and also how you're looking at your life for this car up here and my second question is in regards to the cost. If you could give more guidance of of how you think you'll be here in the sugar and ethanol business will be affected this year. And if you could explain how much the brl devaluation should actually hit your particular production costs. Just would it be fair to say that at the DRL devaluation. We could still see cost dropping around wage.

Point five cents per pound if you could give more more guidance, and that that would be great. Thank you.

Hi Fernanda, thank you for your question. I'm going to ask Renato to to through both of the questions first on the issue an internal mix and how we are thinking there. And then on on the cost part and how the real devaluation effect. So Ronaldo my friend. Thank you for your question. It's important to to highlight as you mention that the refinery price which is set by petrobras in affected by choice or Price volatility account for only 30% of the total composition of gasoline sold at the pumps, which means that any movement in the oil you mostly affect their fires are related to the refinery. Also the president held the conversation helps to mitigate the impact of the low price lower oil shouldn't leave most Music Centers of birth.

My sugar and it should result in a reduction in it and offered direction of approximately 450 meters. What in our view is more than enough to offset in negative impact in the Man's dead preserving I fired to reach is that depends regarding the the the the costs the proportion of the capex. In fact, that using denominated is between 90 and 95% there for the devaluation of 15% in Brazil in the president. I Rise reduce our took us in carpets, you know about 13% and it's important to highlight. That's our total cost is for 2018 is already negotiated in the eyes. And for this reason I ask is no risk of the to have our supplier adjusting the price other consequence of the currency devaluation. I think our our dog

I know cost and said.

It's four balls would be close to eight point five cents per pound.

Okay, and so I can you just give any color of how much of this feedstock you have already purchased for this crap here.

Sorry again the question.

How much if you just can give like a overview of how much of your feet stock of your production costs you have already purchased for this year?

Probably topic side. We have already bought everything. So everything is already negotiated in the eyes. So no chance of the prices change in regarding the cost of a son hundred percent of our inputs is already priced. So we see very low increase in our costs money for the hours of operation.

Okay. Thanks a lot. I'll hand over.

Again, if you have a question, please press * then 1 the next question from comes from Thiago. Do you want a with btg, please? Go ahead. Hi. Hello. Good morning. Everybody. I have the three questions that the two first one is is are related to sugar and ethanol as well. If I could just go back a little bit on this discussion about the the mix between sugar and ethanol in 2020. They're not too I understand your your arguments with regards to the mitigations Thursday at you know, the market at the market price is on that panel and gasoline should have based on the Brazilian held appreciation and and so on and so forth, but just just to get a sense. I mean, your calculations on your estimates if we assume the spot price for Brant and the fact that the brass is possibly going to keep

Need to the the import parity of their gasoline price at the refinery. Would you say that your mix between sugar and ethanol in 2020 is going to be very different from 2019 or not just for us to get a sense of where you're seeing your profitability between the two products considering the market prices. That would be the first choice question. The second question is related to freshen volumes in 2020. I think it's very clear for us at this point. The reasons why crushing volumes were lower in 2019, but considering that you are expending you're planted area and considering that you took the decision to keep the cane in the farms for longer give her the impact of the frost and so once can you provide us some sort of indication of whether you could be crushed and closer to twelve million times this year already or for a dog?

Reason, you should not just for us.

To get a sense of your recovery based there and finally just considering this this ups and downs of the different currencies in Brazil and in Argentina. Can you can you clarify for us regarding the expansion topics for 2020 how many dollars you expect to be spending this year considering the varied Final Phase of The Five-Year Plan, that would be very helpful. And that's of course for Supernatural and for farming and dairy as well. Thank you.

Thanku jauga for aggression. Yeah, we got your first part of your question as a PRS producer our strategies. There's always too much in mind if it's more profitable at the moments in our high flexibility gives us the advantage to our hours every date the products as long as we consume in the off-season. It's annoying multiple Sue remain paying 14% of Parental four hydras and 20% for an address in our life. However, Parts is already. It's likely favorable to sugar for the for the the remaining part of the Season considering the democracy has a tax rebate. We we think that we are going to be maximizing external you must go to the zoo and sugar immunized arise, but of course this game,

Change and we are in in our fix a beautiful you give us opportunity to change according to the market.

And regarding dirt yards from question above the sugarcane how to do it. I think as a consequence of the normal range that we have in December, January and February. We have a better wage. I can also look forward to 2020 the use of the first half of the year will be will still be impacted by the job that you have in nineteen, but the situation improve at the beginning of the third quarter as we will be crushing sugarcane with the normal development. We had a very good planting 2019 and the sugar can you be harvest in the second game master? The sugar goes regarding our new in England right the sugarcane how to do this fantastic and we start the corrosion very early this month on March 8th this scenario you allow us to crush. I say close to eleven point five million tons of sugar can a dog

Of course this been going to do it.

It just to complement on the mix. We also have to take into account that I know of your program that also favors a little bit more on the external. So that's the important part is a flexibility but we are now adding something else on the on the calculation and the other important part of our strategy is to take into account. The amount of storage Adam is that we have that this gives us additional flexibility to maximize the price of ethanol as we've done this past year. So this past year all the investment done in storage has been paid in in the year. So we we make more money with the tradition of the job done the total cost of the context of the of the whole tanks just to clarify your to add that on to Ronaldo's answer and then on on the last day

Part of you or your last question the question regarding the Catholics.

On the fifty to sixty million dollars remaining couple to complete The Five-Year Plan that is what is still happening 20-26. Most of it has already been committed or or expense in in part and I was explaining more than 80% of that is in Sugar cakes Asian and the sugar cane plantations are mainly in reality. That's why we can expect that to be that to be reducing line towards the the number that has already explained.

That's perfect. Thank you both for for your answers.

The next question comes from Christian aage with Santander, please. Go ahead. Hi. Thank you a couple of questions first off the men's side given the impact the coronavirus may have and I know it's a challenging Dynamic to try to quantify the impact it could have on them. But how are you going about thinking about that? In other words the impact that you could have on the demand for your ethanol on the demand for your sugar or any other products June 2nd is going back to a little bit of discussion on price and that we were having so as oil prices come down gasoline prices in Brazil, I'm not sure even with the depreciation of the real rate which will likely pressure ethanol prices in Brazil, which could lead you to wage.

The shift some of your production to Sugar but that in turn could pressure sugar prices. So can you talk a little bit more about that at the end wage? I understood your points about mix. They do have the flexibility, which is great. But at the end, what is your outlook given this situation for sugar prices as a whole because it seems to me that as you were as you shift from ethanol to Sugar that could also put pressure on sugar prices given the increased Production Tool to put out a little bit more color there. That would be very helpful place. Thank you.

Hi Christian, thank you for your question will address and then I can complement Renato. All right. Thank you for question. As I mentioned. We have a high-visibility in our Muse to switch the progression from internal to to Sugar in in multiples as well as mentioned. We have the tax rebate and also the the the event the tanks they ability to sell the Eternal at the peak of the the price and the opposite reason so we believe at this point that we are maximizing at all in multiple Sue because of just the those two points in in in realize you had a lot of flexibility to produce sugar actually Montreal and you can produce up to 7% sugar and we think we will be producing sugar. But of course we are going to be Thursday.

change of the market to arbitrate Accord

Each of these prices in the coming months.

And and I thought just to to follow up. That's very helpful. How can obviously give him that Sugar prices already had an important correction right off that as you make that switch, which is a great flexibility that you have as you explain that would bring more sugar into the world's production, right? It's not just you but it was a whole and wouldn't that be an added pressure point for sugar prices globally to have more sugar coming in as you age from ethanol to sugar production? Yeah, but the fundamentals of sugar is very good. Uh, so that they asked the crap most over and it should be reduced by six million tons of sugar in Thailand Indian Harvest remain behind last year and sugar producing should reduce 2:27 a.m.

Yeah, tons versus $33 a year, even if higher production coming from Brazil. Most analysts are expecting a desk for different jobs between 7 to 11 million tons of sugar in the works. So I think the fundamentals of sugar is still very good once we pass this particular moment over the sugar you go back.

Okay Christian also to complement in in solving for example, the fundamentals are still there and are similar to what we saw before with crisis and yesterday yes an example China both twenty barges of solving so that's going on and the month with we seem to see they they are that's why in terms of the fundamentals of the communities that we are producing apart from sugar which we seem to see that day there

Great, and in any color on how you're going about thinking on the demand side for your products given this very fluid certent Dynamic with the Coronavirus.

I think I think it's too early to predict any impact on demands. It depends a lot on on the growth of the world and and Brazil. So we expect that we are going to be our demands is reducing a little bit but it's too early to to give you any final number to remember that we produce produce items that that people how would you be consuming for example sugar? So I think the impact should be lower than other products.

Okay. Thank you.

again, if you have a question, please press * then 1

The next question comes from Ezra Cohen with anise, please. Go ahead.

How you guys it's Edmunds? I I'm sorry. I joined a call a little delayed and I didn't catch the part in your comments where you give a little bit of guidance. Could you repeat what you said earlier? Also the quality of the call wasn't very good. So as we didn't catch it.

Saudi Hi. How are you? Can you clarify your question, please? I just suck on your on your final section of your comments. You gave a little bit of color on your profitability, but we we did we couldn't catch it very well. The line was very good wage stability going forward.

Sorry, we I think I'm I'm not getting exactly in which part but we didn't give any specifics on on the issue going forward. What we said is that we are very well prepared for challenges ahead, But maybe we can can go through they they laugh part of his presentation. It's off of those pills with a lot of volatility, but just making an exercise if we Factor the current commodity prices wage, and how does that is being upset by the benefit of having most of our cost in reality in Brazil and in business in Argentina, which is dead.

And what do you mean the the downturn of the of the commodity prices so far? We could be expecting a reduction between five to six percent on our projected abda. So that's a way of having a clue or an idea on how all these Life Changes could be affecting our immediate performance.

This concludes our question-and-answer section at this time. I would like to turn the floor back over to mr. Bush for any closing remarks.

Thank you everyone for joining the call and just to to transmit that we are very well prepared for the challenges and we will continue to be the low-cost producers of all the formalities. We are producing today. So thank you for joining.

Thank you. This concludes today's presentation. You may disconnect your line at this time and have a nice.